<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 2000.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
CALDERA SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 87-0617393
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
-------------------------
240 WEST CENTER STREET
OREM, UT 84057
TELEPHONE: (801) 765 4999
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------
RANSOM H. LOVE
CHIEF EXECUTIVE OFFICER
CALDERA SYSTEMS, INC.
240 WEST CENTER STREET
OREM, UT 84057
TELEPHONE: (801) 765-4999
FACSIMILE: (801) 765-1313
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
AGENT FOR SERVICE)
-------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD R. PLUMRIDGE, ESQ. KENNETH L. GUERNSEY, ESQ.
JOHN E. HAYES III, ESQ. JAMIE E. CHUNG, ESQ.
BRUCE E. CUNNINGHAM, ESQ. STEVE R. DAETZ, ESQ.
TROY M. KELLER, ESQ. ERIN A. SAWYER, ESQ.
BROBECK, PHLEGER & HARRISON LLP COOLEY GODWARD LLP
370 INTERLOCKEN BOULEVARD, SUITE 500 ONE MARITIME PLAZA, 20TH FLOOR
BROOMFIELD, CO 80021 SAN FRANCISCO, CA 94111-3580
(303) 410-2000 (415) 693-2000
</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
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<S> <C> <C>
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- ----------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
Common stock, par value $0.001 per share.................... $57,500,000 $15,180
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).
-------------------------
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
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 SECURITIES, AND WE ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
SUBJECT TO COMPLETION, JANUARY 10, 2000
[LOGO]
SHARES
COMMON STOCK
Caldera Systems, Inc. is offering shares of its common stock.
This is our initial public offering and no public market currently exists for
our shares. We have applied for quotation of our common stock on the Nasdaq
National Market under the symbol "CALD." We anticipate that the initial public
offering price will be between $ and $ per share.
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
-------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Caldera Systems, Inc............................ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Caldera Systems, Inc. has granted the underwriters a 30-day option to
purchase up to an additional shares of common stock to cover
over-allotments.
-------------------------
ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
WIT CAPITAL CORPORATION
FIRST SECURITY VAN KASPER
The date of this prospectus is , 2000.
<PAGE> 3
[Art to be depicted on the inside front cover shows a man holding the Caldera
logo as business people move around him. Text on the page reads "Linux for
eBusiness Solutions -- Caldera."]
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, "CALDERA
SYSTEMS," "WE," "US" AND "OUR" REFER TO CALDERA SYSTEMS, INC., A DELAWARE
CORPORATION.
UNTIL , ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Special Note Regarding Forward-Looking Statements........... 20
Use of Proceeds............................................. 20
Dividend Policy............................................. 20
Capitalization.............................................. 21
Dilution.................................................... 23
Selected Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 34
Management.................................................. 48
Certain Transactions........................................ 54
Principal Stockholders...................................... 57
Description of Capital Stock................................ 58
Shares Eligible for Future Sale............................. 61
Underwriting................................................ 63
Legal Matters............................................... 65
Experts..................................................... 65
Where You Can Find Additional Information................... 66
Index to Financial Statements............................... F-1
</TABLE>
-------------------------
We have license rights to "CALDERA(R)" and "CALDERA SYSTEMS(TM)", a pending
trademark application. This prospectus also contains trademarks and trade names
of other companies.
i
<PAGE> 5
PROSPECTUS SUMMARY
You should read this summary together with the entire prospectus, including
the more detailed information in this prospectus, including risk factors,
regarding our company and the common stock being sold in this offering.
OUR BUSINESS
Caldera Systems, Inc. enables the development, deployment and management of
Linux specialized servers and Internet access devices that simplify computing.
Our Linux software products and service offerings are specifically designed to
meet the complex needs of eBusiness, or business over the Internet. We employ
commercial software development practices in producing our Linux products by
assembling open source code so that it is logically arranged and then rigorously
testing for quality and performance. Our use of this process, known as
self-hosting, is unique in the Linux community and gives our products a high
level of stability and reliability. During 1999 our OpenLinux technology
received many awards and recognitions including Internetweek's "Best of the
Best," The Linux Show's "Best Distribution of Millennium," Linux Journal's
Product of the Year award at Comdex and Network Computing's Well-Connected Award
for Best Network Operating System.
We complement our product offerings with value-added services. We offer a
comprehensive, distribution-neutral education and training for Linux. A student
who has successfully completed our courses will be proficient with the leading
distributions, or versions, of Linux. Other services that we offer include
technical support to assist end users during installation and operation of our
products, consulting and custom development, optimization and certification for
specific hardware platforms and documentation on Linux usage.
We have an effective distribution channel through electronic solution
providers, which enables us to easily reach business users. We define electronic
solution providers to include distributors, value-added resellers, or VARs,
original equipment manufacturers, or OEMs, Internet service providers, or ISPs,
and any partner that offers value-added solutions for eBusiness. We provide
electronic solution providers with the products, third-party applications,
education, training and tools to effectively facilitate or offer a Linux
solution for eBusiness. We primarily distribute our products and services
through this indirect distribution channel model. Our customers include AST
Computers, Cendant, First International Computers, Frank Kasper & Associates,
Gates/Arrow, IBM, Ingram Micro, MediaGold, MTI Technology Corporation, Navarre
Corporation, Support Net and Tech Data.
MARKET OPPORTUNITY
The Internet has accelerated the introduction of processes for managing
information, providing services and solutions and handling customers and has
changed the way software applications are developed and deployed. The Internet
has also enabled and accelerated a trend towards distributed software
applications. This has led to a rise of thin appliance servers, or specialized
servers. Dataquest projects that the worldwide market for thin appliance servers
will grow from approximately $2.2 billion in 1999 to approximately $16.0 billion
by 2003. In addition, low cost Internet access devices, such as personal digital
assistants and television set-top boxes, are emerging to allow more users the
ability to participate in eBusiness.
This new eBusiness computing environment requires an operating system that
can accommodate its accelerated evolution. Linux, with its comprehensive
Internet functionality, flexibility and customizability, high scalability,
stability, interoperability with multiple systems and networks and
multi-appliance capability is an optimal operating system for eBusiness.
International Data Corporation projects the total market for Linux shipments
will increase at a compound annual growth rate of 25% from 1999 to 2003. Also,
Dataquest has predicted that Linux thin servers will account for approximately
$3.8 billion in server appliance revenues by 2003. However, historically,
business users have lacked a Linux solution that is specifically tailored for
eBusiness. We seek to fulfill this need with our solution for eBusiness.
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<PAGE> 6
OUR STRATEGY
Our goal is to become the leading provider of Linux for eBusiness. Key
elements of our strategy to achieve this goal include:
- providing Linux software for specialized servers and Internet access
devices, which are becoming key components in the new eBusiness
environment;
- remaining committed to our research and development effort and staying
abreast of the fast changing eBusiness environment;
- increasing our channel presence in Linux, which has given us a head
start in accessing the business community with our Linux products;
- leveraging our technology, marketing and distribution partners to
facilitate faster growth;
- facilitating the adoption of Linux for eBusiness through education and
training;
- establishing our Web site as the one-stop center for eBusiness; and
- expanding our international presence to take advantage of growing market
opportunities.
CORPORATE INFORMATION
We began operations in 1994 as Caldera, Inc. In July 1996, Caldera, Inc.
acquired an additional business line which was not engaged in developing and
marketing Linux software. Caldera, Inc. subsequently made the strategic
determination to separate its two business lines into separate entities and,
effective September 1, 1998, sold the assets relating to its business of
developing and marketing Linux software to Caldera Systems, Inc., a newly-formed
corporation. Caldera Systems, Inc. has operated as a separate legal entity
engaged in developing and marketing Linux software since September 1, 1998.
Caldera Systems, Inc. was incorporated in Utah in August 1998. We intend to
reincorporate in Delaware prior to the closing of this offering. Our principal
offices are located at 240 West Center Street, Orem, Utah 84057. Our telephone
number at this location is (801) 765-4999. Our Web site address is
www.calderasystems.com. The information on our Web site does not constitute part
of this prospectus.
2
<PAGE> 7
THE OFFERING
Common stock offered by Caldera Systems......... shares
Common stock to be outstanding after this
offering........................................ shares
Use of proceeds................................. To provide for general
corporate purposes, including
sales and marketing
activities, product
development and support, and
hiring of additional
personnel and potentially for
acquisitions or investments.
See "Use of Proceeds."
Nasdaq National Market symbol................... CALD
The outstanding share information is based on our shares outstanding as of
January , 2000. This information excludes shares of common stock
issuable upon the exercise of stock options outstanding as of January , 2000,
with a weighted average exercise price of $ per share.
Unless otherwise indicated, all information contained in this prospectus:
- gives effect to the conversion of all outstanding convertible preferred
stock into common stock upon the closing of this offering;
- assumes our reincorporation in Delaware prior to the closing of this
offering; and
- assumes the underwriters' over-allotment option is not exercised.
3
<PAGE> 8
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables summarize the financial data for our business. The
summary financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and related notes included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................................ $ -- $ 1,108 $ 1,117 $ 1,057 $ 3,050
Cost of revenue................................ -- 880 1,142 2,398 2,926
Gross margin (deficit)......................... -- 228 (25) (1,341) 124
Loss from operations........................... (1,359) (2,649) (7,578) (6,853) (9,103)
Net loss....................................... (1,350) (2,757) (8,148) (7,963) (9,367)
Basic and diluted net loss per common share.... $ (0.11) $ (0.23) $ (0.68) $ (0.66) $ (0.67)
Basic and diluted weighted average common
shares outstanding........................... 12,033 12,033 12,033 12,033 13,882
Basic and diluted pro forma net loss per common
share (unaudited)............................ $ (0.51)
Basic and diluted pro forma weighted average
common shares outstanding (unaudited)........ 18,458
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................................ $ 122 $27,622 $
Working capital............................................. 678 28,178
Total assets................................................ 3,714 45,665
Long-term liabilities....................................... 6 6
Total stockholders' equity.................................. 1,516 43,467
</TABLE>
- -------------------------
The pro forma amounts reflect:
- our issuance in December 1999 of 106,356 shares of our common stock in
exchange for 159 shares or approximately 2 percent of the outstanding
common stock of Troll Tech AS, a strategic technology partner of ours;
- our sale in December 1999 and January 2000 of 5,000,000 shares of Series
B convertible preferred stock for net proceeds of approximately $29.5
million and our recording of a beneficial conversion feature valued at
$10.0 million based on the difference between the conversion price and
the estimated fair market value of our common stock at the time of the
sale;
- our purchase in January 2000 of 592,592 shares of common stock or
approximately 4 percent of the outstanding common and preferred stock of
Evergreen Internet, Inc., a strategic technology partner of ours, for
$2.0 million and our issuance to Evergreen Internet, Inc. of 200,000
shares of our common stock;
- our issuance in January 2000 of 1,250,000 shares of our common stock in
exchange for 3,238,437 shares or approximately 17 percent of the
outstanding common stock of Lineo, Inc., a strategic technology partner
of ours; and
- the conversion of our Series A convertible preferred stock and Series B
convertible preferred stock into our common stock upon the closing of
this offering.
Pro forma as adjusted amounts reflect the pro forma adjustments as well as
the sale of shares of common stock in this offering at an assumed initial public
offering price of $ per share, after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us.
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<PAGE> 9
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with our financial statements and related notes and the other information
contained in this prospectus, before you decide to buy our common stock. If any
of the following risks actually occur, our business, financial condition or
results of operations would likely suffer. In this case, the market price of our
common stock could decline, and you may lose all or part of the money you paid
to buy our common stock.
RISKS RELATED TO OUR OPERATIONS
WE HAVE A LIMITED OPERATING HISTORY SO IT WILL BE DIFFICULT FOR YOU TO EVALUATE
AN INVESTMENT IN OUR COMPANY.
Although we began operations in 1994, during the past 12 months we have
substantially revised our business plan to focus on Linux for eBusiness, made
additions to our product line and hired a significant number of new employees,
including key members of our management team. Consequently we have only a
limited relevant operating history for you to evaluate an investment in our
company. As a company in a new and rapidly evolving industry, we face risks and
uncertainties relating to our ability to successfully implement our strategy.
You must consider the risks, expenses and uncertainties that a company like
ours, operating with an unproven business model, faces in a new and rapidly
evolving market such as the market for Linux software. These risks include our
ability to:
- spur demand for Linux in the business community;
- broaden awareness of the Caldera Systems brand;
- maintain our current, and develop new, strategic relationships with
technology partners and solution providers;
- attract, integrate and retain qualified management personnel;
- attract, integrate and retain qualified personnel for the expansion of
our sales, professional services, engineering, marketing and customer
support organizations;
- continue to develop and upgrade product offerings tailored for business;
- respond effectively to competitive pressures; and
- generate revenues from the sale of our software products, services,
education programs and training.
If we cannot address these risks and uncertainties or are unable to execute
our strategy, we may not be successful, which would significantly reduce the
value of your investment.
WE HAVE NOT BEEN PROFITABLE AND WE EXPECT OUR LOSSES TO CONTINUE.
We have never been profitable. If our revenues decline or grow at a slower
rate than we anticipate, or if our spending levels exceed our expectations or
cannot be adjusted to reflect slower revenue growth, we may not generate
sufficient revenues to achieve or sustain profitability or generate positive
cash flow. In this case, the value of your investment could be reduced. For the
fiscal year ended October 31, 1999, we incurred a net loss of approximately $9.4
million. As of October 31, 1999, we incurred total net losses of approximately
$29.6 million since inception of our business in 1994. We expect to continue to
incur losses because we anticipate incurring significant expenses in connection
with developing our products, hiring and training employees, expanding our
market reach and building awareness of our brand. We forecast our future expense
levels based on our operating plans and our estimates of future revenues. We may
find it necessary to accelerate expenditures relating to product development and
support and our sales and marketing efforts beyond our current expectations or
otherwise increase our financial commitment to creating and maintaining brand
awareness among potential customers.
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<PAGE> 10
YOU SHOULD NOT RELY ON OUR QUARTERLY OPERATING RESULTS AS AN INDICATION OF OUR
FUTURE RESULTS BECAUSE THEY ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
FLUCTUATIONS IN OUR OPERATING RESULTS OR THE FAILURE OF OUR OPERATING RESULTS TO
MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS MAY NEGATIVELY
IMPACT OUR STOCK PRICE.
Our quarterly operating results have varied in the past and we expect them
to fluctuate significantly in the future due to a variety of factors that could
affect our revenues or our expenses in any particular quarter. For example,
historically, we have experienced substantial fluctuations in our revenues from
period to period relating to the introduction of new products and new versions
of our existing products. Upon our announcement of an expected release date for
a new product or upgrade, we often experience a significant decrease in sales of
our existing products. Additionally, we often experience the strongest sales for
a new product during the first 30 days after its introduction as we fill advance
orders from our distribution channel. Fluctuations in our quarterly operating
results could cause our stock price to decline. You should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
future performance. Factors that may affect our quarterly results include:
- the interest level of electronic solution providers in recommending our
Linux business solutions to end users;
- the introduction, development, timing, competitive pricing and market
acceptance of our products and services and those of our competitors;
- changes in general economic conditions, such as recessions, that could
affect capital expenditures and recruiting efforts in the software
industry in general and in the Linux environment in particular;
- the magnitude and timing of marketing initiatives;
- changing business attitudes toward Linux as a viable operating system
alternative to other competing systems;
- the maintenance and development of our strategic relationships with
technology partners and solution providers;
- the attraction, retention and training of key personnel; and
- our ability to manage our anticipated growth and expansion.
As a result of the factors listed above and elsewhere in this "Risk
Factors" section of the prospectus, it is possible that in some future periods
our results of operations may be below the expectations of public market
analysts and investors. This could cause our stock price to decline. In
addition, we plan to significantly increase our operating expenses to expand our
sales and marketing, administration, consulting and training, maintenance and
technical support and research and development groups. If revenues fall below
our expectations in any quarter and we are unable to quickly reduce our spending
in response, our operating results would be lower than expected and our stock
price may fall.
WE RELY ON OUR INDIRECT SALES CHANNEL FOR DISTRIBUTION OF OUR PRODUCTS, AND ANY
DISRUPTION OF OUR CHANNEL AT ANY LEVEL COULD ADVERSELY AFFECT THE SALES OF OUR
PRODUCTS.
We have a two-tiered distribution channel through which the majority of our
sales occur. As of November 1, 1999, we had approximately 35 distributors
worldwide who purchased directly from us. These distributors in turn sell to
approximately 4,000 retail outlets in the United States and approximately 900
equivalent sites internationally. These relationships allow us to offer our
products and services to a much larger customer base than we would otherwise be
able through our direct sales and marketing efforts. Some electronic solution
providers also purchase eBusiness solutions through our distributors, and we
anticipate they will continue to do so as we expand our product offerings for
eBusiness. Because we usually do not sell directly to electronic solution
providers, we cannot control the relationships through which they purchase our
products. In turn we do not control the presentation of our products by
electronic solution providers to end users. Therefore, our distribution channel
could be affected by disruptions in the
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relationships between our distributors and electronic solution providers or
between electronic solution providers and end users. Also, distributors and
electronic solution providers may choose not to emphasize use of our products to
their customers. Any of these occurrences could diminish the effectiveness of
our distribution channel and lead to decreased sales.
In particular, we are highly dependent on our relationships with our
distribution partners, such as Frank Kasper & Associates, Ingram Micro, Navarre
Corporation and Tech Data, domestically, and MediaGold in Europe, for the
distribution of our products. Sales through distributors together accounted for
approximately 73% of our total revenue for the fiscal year ended October 31,
1999. We plan to continue to develop relationships with new distributors to
introduce product and service offerings into new markets, including into foreign
countries. If any of these distribution partners do not provide opportunities
for growth or become closed to us, or if we are unable to create new
distribution channels for new markets, we will be required to seek alternative
channels of distribution for our products and services. We may be unable to do
so, in which case our business would suffer.
WE ARE HIGHLY DEPENDENT UPON OUR STRATEGIC RELATIONSHIPS WITH OUR TECHNOLOGY
PARTNERS AND THE LOSS OF ANY OF THESE RELATIONSHIPS COULD ADVERSELY AFFECT OUR
BUSINESS PROSPECTS.
We depend on our alliances with our technology partners such as Citrix
Systems, Evergreen Internet, Novell and Sun Microsystems. These relationships
encompass product integration, two-way technology transfers, channel
partnerships and revenue-generating initiatives in areas such as product
bundles, training and education and third level technical support for our
partners. We expect that these relationships will create opportunities for our
products and services in business markets in which we otherwise might not have
access. If we are unable to maintain these relationships, we will not be able to
develop and deploy our products in certain segments of the business community
and our product development and sales will not grow.
In addition, our existing strategic relationships with technology partners
do not, and any future strategic relationships may not, afford us any exclusive
marketing development or distribution rights. As a result, the companies with
which we have strategic alliances are free to pursue alternative technologies
and to develop alternative products and services in addition to or in lieu of
our products and services, either on their own or in collaboration with others,
including our competitors. Moreover, we cannot guarantee that the companies with
which we have strategic relationships will market our products effectively or
continue to devote the resources necessary to provide us with effective sales,
marketing and technical support, or that our partners will not choose to open
source products into which we have invested significant time and resources,
thereby reducing the value of our rights in these products.
In particular we rely on our relationship with Evergreen Internet from whom
we license the rights to significant components of our eBuilder product.
Evergreen Internet has the right to terminate our license if eBuilder has not
been made available for shipping by June 30, 2000, and may also terminate our
license at any time after January 1, 2003. If Evergreen Internet terminates our
license or fails to provide necessary support for our development and marketing
efforts, including providing necessary upgrades to eBuilder, we may be unable to
provide products integral to our eBusiness solutions.
RISKS RELATING TO LINUX AND OUR OPEN SOURCE SOFTWARE
WE RELY ON INDEPENDENT DEVELOPERS IN THE OPEN SOURCE COMMUNITY, SUCH AS LINUS
TORVALDS, IN ORDER TO RELEASE UPGRADES OF OUR LINUX-BASED PRODUCTS.
Many of the components of our software products, including the Linux
kernel, the core of the Linux operating system, are developed by independent
developers in the open source community and are available for inclusion in our
products without cost. Linus Torvalds, the original developer of the Linux
kernel, and a small group of independent engineers are primarily responsible for
the development and evolution of the Linux kernel. Neither Mr. Torvalds nor any
significant contributor to the Linux kernel is
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<PAGE> 12
an employee of ours. If these independent developers and others in the open
source community do not further develop the Linux kernel and other open source
software included in our products on a timely basis, or at all, our ability to
enhance our product offerings will suffer. As a consequence, we will be forced
to rely to a greater extent on our own development efforts or license commercial
software products as replacements, which would increase our expenses and delay
enhancements to our products. For example, in the past we have sometimes been
unable to upgrade all open source components of a product in connection with a
proposed release because enhancements had not yet been made by these independent
developers. Any failure on the part of the kernel developers to further develop
and enhance the kernel could also stifle the development of additional Linux
applications.
OUR BUSINESS MODEL, WHICH RELIES ON A COMBINATION OF OPEN SOURCE SOFTWARE AND
PROPRIETARY TECHNOLOGY IS UNPROVEN.
Our business model incorporates as integral elements of our product
offerings both commercial products and open source software. We know of no
company that has built a profitable business based in whole or in part on open
source software. By incorporating open source components in our product
offerings, we face many of the same risks that other open source companies
experience, including the inability to offer warranties and indemnities on
products and services. In addition, by developing products based on proprietary
technology that is not freely downloadable we may run counter to the perception
of Linux as an open source model and alienate the Linux community. For example,
our business model has been criticized by some members of the open source
software community on various Web-based forums, including online articles,
electronic bulletin boards and online chat rooms. Others have asserted that we
are trying to dominate the market for Linux operating systems much like other
companies have been able to dominate traditional software markets. Our critics
argue that our business model, if successful, would fragment the Linux
community, resulting in a less cohesive and cooperative development process.
Negative reaction such as this, if widely shared by our customers, developers or
the open source community, could harm our reputation, diminish our brand and
decrease our revenue. Our business will fail if we are unable to successfully
implement our business model.
Our business model also depends upon incorporating contributions from the
open source community into products that we open source. The viability of our
product offerings depends in large measure upon the efforts of the open source
community in enhancing products and making them compatible for use across
multiple software and hardware platforms. There are no guarantees that these
products will be embraced by the open source community such that programmers
will contribute sufficient resources for their development. If the open source
community does not embrace products that we view as integral to providing
eBusiness solutions, we will be required to devote significant resources to
develop these products on our own.
OUR RELIANCE ON INDEPENDENT THIRD PARTIES WHO DEVELOP MOST OF THE SOFTWARE
INCLUDED IN OUR PRODUCTS COULD RESULT IN DELAYS OR UNRELIABLE PRODUCTS AND
DAMAGE TO OUR REPUTATION.
Our products consist of many different software components and
applications, most of which are developed by independent third parties over whom
we have limited or no control. While we use rigid engineering standards in
testing the products or applications that we integrate in our products, we
cannot guarantee that we have selected or will select in the future the most
reliable components available in the market or that we will successfully
integrate the many components of our products. In addition, if any of these
third-party products are not reliable or available, we may have to develop them
ourselves, which would significantly increase our development expenses and delay
our time to market. Our customers could be dissatisfied if any of these products
fail to work as designed or if adequate support is not provided, which could
damage our reputation and lead to potential litigation.
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BUSINESSES MAY NOT ADOPT OUR LINUX PRODUCTS DUE TO THE SCARCITY OF SOFTWARE
APPLICATIONS FOR LINUX OPERATING SYSTEMS AND THE LACK OF LINUX STANDARDS FOR
THESE APPLICATIONS.
Businesses will not adopt our Linux products if sufficient Linux
applications are not available to meet their needs. For example, widely-used
software products such as Microsoft Office, Intuit Quicken, Adobe and others
have not been developed for use with Linux operating systems, such as OpenLinux.
In addition, no standards for compatibility among the several versions of Linux
currently in the market have been widely adopted. Many software developers will
be unlikely to develop products for Linux if they will not be compatible with
the majority of Linux versions. If these developers decide not to develop
applications that meet the needs of eBusiness, demand for our products and
services may decline or fail to grow.
THE MARKET FOR LINUX BUSINESS SOLUTIONS MAY NOT GROW AS WE ANTICIPATE.
Our strategy for marketing Linux solutions to businesses depends in part
upon our belief that many businesses will follow a trend away from the use of
networked computers linked by centralized servers and move toward the use of
distributed applications through thin appliance servers, or specialized servers,
Internet access devices and application service providers. We also are relying
on electronic solution providers making these technologies available on Linux
and on Linux then becoming a desirable operating system under these
circumstances. We also plan to market our Linux products for use on these
specialized servers and Internet access devices, which we believe will become
widely used for eBusiness. However, if businesses do not adopt these trends in
the near future, or if Linux is not viewed as a desirable operating system in
connection with these trends, a significant market for our products may not
develop. Factors that may keep businesses from adopting these trends include:
- costs of installing and implementing new hardware devices;
- costs of porting legacy systems into new platforms;
- security concerns regarding manipulation of data through application
service providers;
- limited adoption of Linux among businesses generally;
- previous significant investments in competing systems;
- lack of adequate Linux-trained professionals and support services;
- lack of standards among Linux products and applications; and
- lack of acceptance of the Internet as a medium for distributing business
applications.
Even if these trends toward distributed applications are adopted, if the
development of Linux products and Linux applications is not sufficient to meet
the needs of eBusiness, a significant market for Linux business solutions such
as ours may not materialize.
RISKS RELATED TO LEGAL UNCERTAINTY
WE COULD BE PREVENTED FROM SELLING OR DEVELOPING OUR PRODUCTS IF THE GNU GENERAL
PUBLIC LICENSE AND SIMILAR LICENSES UNDER WHICH OUR PRODUCTS ARE DEVELOPED AND
LICENSED ARE NOT ENFORCEABLE.
The Linux kernel and certain other components of our products have been
developed and licensed under the GNU General Public License and similar
licenses. These licenses state that any program licensed under them may be
liberally copied, used, 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. To date, all compliance with these licenses has been voluntary. It
is possible that a court would hold one or more of 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
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them. Any ruling by a court that these licenses are not enforceable, or that
Linux operating systems, or significant portions of them, may not be liberally
copied, modified or distributed freely, would have the effect of preventing us
from selling or developing our products, unless we are able to negotiate a
license to use the software or replace the affected portions. These licenses
could be expensive, which could impair our ability to competitively price our
products.
WE ARE VULNERABLE TO CLAIMS THAT OUR PRODUCTS INFRINGE THIRD-PARTY INTELLECTUAL
PROPERTY RIGHTS, PARTICULARLY BECAUSE OUR PRODUCTS ARE COMPRISED OF MANY
DISTINCT SOFTWARE COMPONENTS DEVELOPED BY THOUSANDS OF INDEPENDENT PARTIES.
We may be exposed to future litigation based on claims that our products
infringe the intellectual property rights of others. This risk is exacerbated by
the fact that most of the code in our products is developed by independent
parties over whom we exercise no supervision or control and who, themselves,
might not have the same financial resources as us to pay damages to a successful
litigant. Claims of infringement could require us to re-engineer our products or
seek to obtain licenses from third parties in order to continue offering our
products. In addition, an adverse legal decision affecting our intellectual
property, or the use of significant resources to defend against this type of
claim, could place a significant strain on our financial resources and harm our
reputation.
FAILURE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS WOULD RESULT IN
SIGNIFICANT HARM TO OUR BUSINESS.
While much of the code for our products is open source, our success depends
significantly on our ability to protect our trademarks, trade secrets and
certain proprietary technology contained in our products. We rely on a
combination of copyright and trademark laws, and on trade secrets and
confidentiality provisions and other contractual provisions to protect our
proprietary rights. These measures afford only limited protection. Some
trademarks that have been registered in the United States have been licensed to
us, and we have other trademark applications pending in the United States.
Effective trademark protection may not be available in every country in which we
intend to offer our products and services. Our means of protecting our
proprietary rights in the United States or abroad may not be adequate and
competitors may independently develop similar technologies. Our future success
will depend in part on our ability to protect our proprietary rights. Despite
our efforts to protect our proprietary rights and technologies unauthorized
parties may attempt to copy aspects of our products or to obtain and use trade
secrets or other information that we regard as proprietary. Legal proceedings to
enforce our intellectual property rights could be burdensome and expensive and
could involve a high degree of uncertainty. These legal proceedings may also
divert management's attention from growing our business. In addition, the laws
of some foreign countries do not protect our proprietary rights as fully as do
the laws of the United States. If we do not enforce and protect our intellectual
property, our business may suffer substantial harm.
BECAUSE WE DO NOT OWN THE LINUX TRADEMARK, WE MAY BE PROHIBITED FROM USING IT IN
CONNECTION WITH OUR PRODUCTS, WHICH COULD DAMAGE OUR BRAND AWARENESS.
We use the term, Linux, as part of the name of several of our products,
including OpenLinux. We also use Linux in our advertising and marketing
materials and in our product documentation and for other commercial uses.
However, we have no ownership of or contractual right to use the Linux
trademark. In September 1999, our trademark applications in the United States
for "OpenLinux(TM)" and "Linux for Business(TM)" were rejected. If the "Linux"
trademark is invalidated through a legal action, or if we are prohibited from
using it, our reputation and brand awareness could suffer. Also, because we do
not control the use of this trademark, use by others could lead to confusion
about the source, quality, reputation and dependability of Linux in general,
which could negatively affect the market for Linux products.
WE MAY BE LIABLE AS A RESULT OF INFORMATION RETRIEVED FROM OR TRANSMITTED OVER
THE INTERNET.
We may be sued for defamation, civil rights infringement, negligence,
copyright or trademark infringement, personal injury, product liability or other
legal claims relating to information that is
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published or made available on our Web site and the other sites linked to it.
These types of claims have been brought, sometimes successfully, against
providers of online services in the past. We could also be sued for the content
that is accessible from our Web site and through links to other Internet sites
or through content and materials that may be posted by members in chat rooms or
on bulletin boards. Our insurance does not specifically provide for coverage of
these types of claims and therefore may not adequately protect us against these
types of claims. In addition, we could incur significant costs in investigating
and defending such claims, even if we ultimately are not liable. If any of these
events occur, our revenues and the value of your investment could be materially
adversely affected.
OTHER RISKS RELATING TO OUR BUSINESS
WE MUST ACHIEVE RAPID MARKET PENETRATION OF OUR PRODUCTS IN ORDER TO COMPETE
SUCCESSFULLY.
Because the Linux and eBusiness markets are new and emerging, companies
that are early in providing products and solutions for these markets will have
an advantage in building awareness and consumer loyalty. Therefore, in order for
us to successfully market our products on a wide-scale basis, we must rapidly
achieve market penetration. For example, if we are unable to demonstrate the
viability of our products through rapid growth:
- software developers will be less likely to develop applications for our
products;
- we will be unable to achieve economies of scale;
- we will be less able to negotiate favorable terms with distributors and
other partners; and
- customers will be less likely to devote resources to purchasing and
implementing our products if they are not seen as an industry standard.
We may lack the economic and managerial resources necessary to promote this
growth. Also, the fact that we rely almost entirely on the success of a few
principal products affects our ability to penetrate diversified markets. In
addition, while we believe our process of self-hosting results in superior
products, it requires time and resources that may delay new product releases and
upgrades. These delays could affect our ability to take advantage of market
opportunities on a timely basis.
OUR BRAND MAY NOT ACHIEVE THE BROAD RECOGNITION NECESSARY TO SUCCEED.
We believe that broad recognition and a favorable audience perception of
the Caldera Systems brand will be essential to our success. If our brand does
not achieve broad recognition as the leading provider of Linux solutions for
eBusiness, our success will be limited. We intend to build brand recognition
through advertising our products and services and by marketing
www.calderasystems.com as a premier online resource for eBusiness solutions.
During the fiscal year ended October 31, 1999, we spent approximately $1.2
million for advertising. We expect to significantly increase our advertising
expenses in future periods as we build the Caldera Systems brand and awareness
of our products and services. We may lack the resources necessary to accomplish
these initiatives. Even if the resources are available, we cannot be certain
that our brand enhancement strategy will deliver the brand recognition and
favorable audience perception that we seek. If our strategy is unsuccessful,
these expenses may never be recovered and we may be unable to increase future
revenues. Even if we achieve greater recognition of our brand, competitors with
greater resources or a more recognizable brand could reduce our market share of
the emerging Linux market, as well as the broader market for the provision of
eBusiness solutions.
OUR STRATEGY TO PROVIDE SOLUTIONS FOR EBUSINESS DEPENDS UPON OUR ABILITY TO
SUCCESSFULLY INTRODUCE PRODUCTS TAILORED FOR EBUSINESS.
To date practically all of our sales revenue has come from retail sales of
OpenLinux, which is designed to assist the first-time Linux user who may be
familiar with a Windows, desktop environment. However, our business model is
targeted toward using Linux solutions to facilitate eBusiness. In order for
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our strategy of providing Linux solutions for eBusiness to be successful, we
must provide products that meet the needs of solution providers and their
eBusiness customers. We recently developed our server product, OpenLinux
eServer, and plan to release our eBusiness framework product, eBuilder, in the
first half of 2000. These new products, which are our primary eBusiness
products, may not be adopted by solution providers and their customers for any
number of reasons, including lack of customer awareness of our company and our
products, malfunction of the products and failure to meet needs of eBusiness. If
our eBusiness products are not successful, we will fail to execute our strategy
and our sales may not grow.
WE MAY NOT BE SUCCESSFUL IN DEVELOPING AND MARKETING OUR EDUCATION AND TRAINING
SERVICES, IN WHICH CASE OUR REVENUE AND BRAND AWARENESS COULD SUFFER.
We depend upon our education and training services as a source of revenue
and to broaden awareness of Linux and our products. Our ability to successfully
develop and market our Linux courses could be adversely affected if we do not:
- develop and maintain relationships with our Authorized Linux Education
Centers;
- develop a sufficient variety of course selections;
- adequately update the content of our courses;
- competitively price our course offerings; and
- translate and localize our courses for use internationally.
In order to accomplish these objectives, we plan to significantly increase
investment of resources for the expansion of our education and training
services. If we are unsuccessful in developing and marketing our Linux courses,
we may be unable to recoup our investments in these services.
THE NETWORK SOLUTIONS AND OPERATING SYSTEMS INDUSTRIES ARE INTENSELY COMPETITIVE
AND WE MAY BE UNABLE TO COMPETE EFFECTIVELY WITH PROVIDERS OF SOLUTIONS FOR
MODULAR COMPUTING, PROVIDERS OF LINUX OPERATING SYSTEMS AND OTHER MORE
ESTABLISHED OPERATING SYSTEMS.
We face direct competition in the area of software for specialized servers
or Internet access devices from Berkeley Software Design, Inc., Microsoft and a
joint venture involving Compaq and The Santa Cruz Operation. Cygnus Solutions,
VA Linux and Wind River provide similar solutions embedded into their hardware
offerings. Many of these competitors are large, well-established companies with
significantly greater financial resources, more extensive marketing and
distribution capabilities, larger development staffs and more widely recognized
brands and products.
We also compete with other providers of Linux operating systems,
particularly, Corel, MacMillan, Red Hat, SuSE and TurboLinux. Many of these
competitors, such as Red Hat, have more established customer bases and stronger
brand names than we do. Also, due to the open source nature of Linux, anyone can
freely download Linux and many Linux applications and modify and re-distribute
them with few restrictions. For example, solution providers upon whom we depend
for the distribution of our eBusiness products could instead create their own
Linux solutions to provide to their customers. Also, established companies and
other institutions could easily produce competing versions of Linux. In
particular, distributors of UNIX operating systems could leverage their existing
service organizations, due to the fact that Linux and UNIX operating systems
share many common features. Also, Cygnus Solutions and Sun Microsystems have
indicated an interest in creating Linux operating systems and related products.
These companies have more significant resources, stronger brand awareness and
larger customer bases than we do and could quickly achieve significant market
share.
We compete with providers of other, more established operating systems.
AT&T, Compaq, Hewlett-Packard, IBM, Microsoft, Novell, Olivetti, Sun
Microsystems, The Santa Cruz Operation and Unisys are each providers of
competing operating systems, which, in most cases, are more established among
business users. We also compete for service revenue with a number of companies
that provide technical support and other professional services to users of Linux
operating systems, including some original equipment
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manufacturers with which we have agreements. Many of these companies have larger
and more experienced service organizations than we do.
OUR COMPETITIVE POSITION COULD DECLINE IF WE ARE UNABLE TO ACQUIRE BUSINESSES OR
TECHNOLOGIES THAT ARE STRATEGIC FOR OUR SUCCESS OR IF WE FAIL TO SUCCESSFULLY
INTEGRATE ANY ACQUISITIONS WITH OUR CURRENT BUSINESS.
If appropriate opportunities arise, we intend to acquire businesses,
technologies, services or products that we believe are strategic for our
success. The market for eBusiness solutions such as Linux products is new and is
rapidly evolving and our competitive position could decline if we are unable to
identify and acquire businesses or technologies that are strategic for our
success in this market. We do not have any present agreement or understanding
relating to any material acquisition or investment.
We have not made a significant acquisition or investment to date. If we
acquire businesses, products, services or technologies, we could have difficulty
in assimilating them into our operations. These difficulties could disrupt our
ongoing business, distract our management and employees and increase our
expenses. In addition, effecting acquisitions could require us to use a
significant amount of cash. Furthermore, we may have to issue equity or
equity-linked securities to pay for future acquisitions, and any of these
issuances could be dilutive to existing and future stockholders. In addition,
acquisitions and investments may have negative effects on our reported results
of operations due to acquisition-related charges and amortization of acquired
technology and other intangibles. Any of these acquisition-related risks or
costs could harm our business, financial condition and operating results.
OUR SUCCESS DEPENDS ON OUR ABILITY TO SUCCESSFULLY MANAGE GROWTH.
We have recently experienced a period of rapid growth. In order to execute
our business plan, we must continue to grow significantly. We had 28 employees
when we began operations as a separate legal entity in September 1998. As of
December 31, 1999, the number had increased to 108. We expect that the number of
our employees will continue to increase for the foreseeable future.
Our planned growth entails risk. If we do not expand our operations in an
efficient manner, our expenses could grow disproportionately to revenues or our
revenues could decline or grow more slowly than expected, either of which could
negatively affect the value of your investment. Our current and anticipated
future growth, combined with the requirements we will face as a public company,
will place a significant strain on our management, systems and resources. Our
key personnel have limited experience managing this type of growth. We also need
to improve our financial and managerial controls and reporting systems and
procedures and to continue to expand and maintain close coordination among our
technical, accounting, finance and sales and marketing organizations. If we do
not succeed in these efforts, it could reduce our revenues and the value of your
investment.
IF WE DO NOT SUCCESSFULLY IMPLEMENT OUR INTERNATIONAL EXPANSION, OUR BUSINESS
MAY NOT GROW AS ANTICIPATED AND SUBSTANTIAL RESOURCES MAY BE DRAINED.
A key component of our growth strategy is to expand our presence in foreign
markets. It will be costly to establish international facilities and operations,
promote our brand internationally, and develop localized products and support.
Revenue from international activities may not offset the expense of establishing
and maintaining these foreign operations. In addition, we may not be successful
in marketing and distributing our products because we have little experience in
these markets.
Some of the factors that may impact our ability to initiate and maintain
successful operations in foreign markets include:
- hiring and successful supervision of employees in foreign jurisdictions;
- language and cultural differences;
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- the inability to find necessary partners for the successful distribution
of our products in foreign jurisdictions;
- varying technology standards and capabilities;
- compliance with foreign laws with which we are not familiar;
- issues relating to uncertainties of laws and enforcement relating to the
protection of intellectual property;
- differences in reliability of telecommunications infrastructure and
Internet access;
- export controls that may prevent us from shipping our products into and
from some markets;
- potentially adverse tax consequences;
- restrictions against repatriation of earnings from our foreign
operations;
- unexpected changes in trading policies, regulatory requirements and
exchange rates; and
- general political and economic trends.
If we are unable to profitably operate in foreign markets, our business may
not grow as anticipated, substantial resources could be drained and our stock
price could suffer.
WE COULD LOSE REVENUES AS A RESULT OF SOFTWARE ERRORS OR DEFECTS.
Software programs frequently contain errors or defects, especially when
first introduced or when new versions are released. We could, in the future,
lose revenue as a result of errors or defects in our software products. We
cannot assure you that errors will not be found in new products or releases.
While we test our products prior to release, the fact that most of the
components of our software offerings are developed by independent parties over
whom we exercise no supervision or control makes it particularly difficult to
identify and remedy any errors or defects that could exist. Any errors could
result in loss of revenue, or delay in market introduction or acceptance,
diversion of development resources, damage to our reputation or increased
service costs.
OUR CURRENT AND POTENTIAL CUSTOMERS MAY FIND IT DIFFICULT TO HIRE AND TRAIN
QUALIFIED EMPLOYEES TO HANDLE INSTALLATION AND IMPLEMENTATION OF OUR PRODUCTS,
WHICH COULD NEGATIVELY AFFECT SALES OF OUR PRODUCTS TO NEW CUSTOMERS AND LEAD TO
DISSATISFACTION AMONG CURRENT CUSTOMERS.
There are limited numbers of individuals that are trained and qualified to
manage Linux systems, including OpenLinux and our other products. End users and
our distribution partners may lack the resources to hire or train such qualified
personnel to install and implement our products, which could lead to
dissatisfaction with our product among end users and deter potential end users
from purchasing our product.
DUE TO THE COMPETITIVE LABOR MARKETS, WE MAY NOT BE ABLE TO RECRUIT AND RETAIN
SUFFICIENT QUALIFIED PROFESSIONALS NECESSARY FOR OUR GROWTH.
In order to grow as we anticipate, we need to hire significant numbers of
professionals to develop and market our products and provide technical support,
education and training and other services to our customers. Competition for
qualified professionals in the software industry is intense, and we may be
unable to recruit and retain sufficient professionals to grow as we anticipate.
In addition, because we are not located in a major metropolitan area, many
potential candidates may be unwilling to relocate to our headquarters in Orem,
Utah.
OUR MANAGEMENT TEAM IS NOT COMPLETE AND HAS ONLY RECENTLY BEGUN WORKING
TOGETHER.
Our business is highly dependent on our ability to acquire necessary
members of our management team and on our management team's ability to work
together effectively. Several members of our
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management, including our Chief Financial Officer and our Vice President of
Sales, have been employed by us for a relatively short period of time. These
individuals have not previously worked together as a management team and have
had only limited experience managing a rapidly growing company on either a
public or private basis. We are also searching for a Chief Technical Officer and
a Chief Operating Officer. Our failure to find qualified individuals to fill
these positions and the failure of our management team to work together
effectively could negatively offset efficient decision-making, product
development, sales and marketing efforts and the management of our financial and
other resources, which would negatively impact our operating results.
LOSS OF ANY OF OUR KEY MANAGEMENT PERSONNEL COULD NEGATIVELY IMPACT OUR
BUSINESS.
The loss or departure of any of our officers or key employees could harm
our ability to implement our business plan and could lower our revenues. Our
future success depends to a significant extent on the continued service and
coordination of our management team, particularly Ransom H. Love, our President
and Chief Executive Officer. We do not maintain key person insurance for any
member of our management team.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FINANCING NECESSARY TO EXECUTE OUR
BUSINESS STRATEGY.
We currently believe that the net proceeds from this offering, together
with our current cash and cash equivalents, will be sufficient to fund our
working capital and capital expenditure requirements for at least the next 12
months. However, we may need to raise additional funds to support more rapid
expansion, respond to competitive pressures, acquire complementary businesses or
technologies or respond to unanticipated requirements. We cannot assure you that
additional funding will be available to us in amounts or on terms acceptable to
us. If sufficient funds are not available or are not available on acceptable
terms, our ability to fund our expansion, take advantage of acquisition
opportunities, develop or enhance our services or products, or otherwise respond
to competitive pressures would be significantly limited.
IF WE FAIL TO MANAGE TECHNOLOGICAL CHANGE EFFECTIVELY, DEMAND FOR OUR PRODUCTS
AND SERVICES WILL SUFFER.
The market for eBusiness solutions is in an early stage of development and
is characterized by rapidly changing technology, evolving industry standards,
frequent new service and product introductions and changes in customer demands.
Our future success will depend to a substantial degree on our ability to offer
products and services that incorporate leading technology and respond to
technological advances and emerging industry standards and practices on a timely
and cost-effective basis. You should be aware that:
- our technology or systems may become obsolete upon the introduction of
alternative technologies;
- the technological life cycles of our products have been historically
short and are difficult to accurately estimate;
- we may not have sufficient resources to develop or acquire new
technologies or to introduce new services capable of competing with
future technologies or service offerings; and
- the price of the products and services we provide may decline as rapidly
as, or more rapidly than, the cost of any competitive alternatives.
We may not be able to effectively respond to the technological requirements
of the changing market for eBusiness solutions. To the extent we determine that
new technologies and equipment are required to remain competitive, the
development, acquisition and implementation of those technologies and equipment
are likely to continue to require significant capital investment by us. We may
not have sufficient capital for this purpose in the future, and even if it is
available, investments in new technologies may not result in commercially viable
technological processes and there may not be commercial applications for those
technologies. If we do not develop and introduce new products and services and
achieve market acceptance in a timely manner, demand for our products and
services will drop and our business will suffer.
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YEAR 2000 COMPLIANCE ISSUES PRESENT TECHNOLOGICAL RISKS, COULD CAUSE DISRUPTION
TO OUR BUSINESS AND COULD HARM SALES OF OUR PRODUCTS.
Concern over, and problems associated with, the impact of the occurrence of
the Year 2000 on our software products, internal systems, customers, suppliers
and the overall software industry could affect our future operating results in
several ways. Errors or defects that affect the operation of our software could
result in:
- delay or loss of revenue;
- cancellation of customer contracts;
- diversion of development resources;
- damage to our reputation;
- increased service and warranty costs; and
- litigation costs.
We engaged an affiliated third party to test our OpenLinux 2.2/2.3 product.
This testing was completed in the third quarter of 1999 and did not result in
any findings of Year 2000 problems that were not remedied or documented. We are
continuing to evaluate the Year 2000 compliance of our products currently under
development. Some of our customers are still using older discontinued products
of ours which have not been tested for Y2K readiness. We may be required to
support and correct any failed systems as a result of any problems that may
arise in connection with these older products. Also, we bundle third-party
applications and software components with our products. It is possible that some
of our customers may experience difficulties related to third-party software
which may affect the performance of our products and may lead to adverse results
such as additional support calls or return of products thus diverting resources
from pursuing our business strategy which could materially adversely affect our
business. In addition, we rely on third parties such as suppliers of energy and
other utilities, financial institutions, transportation providers,
communications vendors, including value added network vendors and other
significant vendors. We have received Year 2000 readiness statements from some
but not all of these third-party suppliers. The failure of any of these third
parties to achieve Year 2000 compliance could have a material impact on our
business, operating results and financial condition.
To date, Year 2000 problems have had a minimal effect on our business.
However, we may not have identified and remediated all significant Year 2000
problems. Further remediation efforts may involve significant time and expense,
and unremediated problems may have a material adverse effect on our business.
Also, we sell our products to companies in a variety of industries, each of
which is experiencing different Year 2000 issues. Customer difficulties with
Year 2000 issues might require us to devote additional resources to resolve
underlying problems. Finally, although we have not been made a party to any
litigation or arbitration proceeding to date involving our products or services
and related to Year 2000 compliance issues, we may in the future be required to
defend our products or services in such proceedings, or to negotiate resolutions
of claims based on Year 2000 issues. The costs of defending and resolving Year
2000-related disputes, regardless of the merits of such disputes, and any
liability for Year 2000-related damages, including consequential damages, would
negatively affect our business, results of operations, financial condition and
liquidity, perhaps materially.
RISKS RELATED TO OUR INTERNET STRATEGY
IF WE FAIL TO PROMOTE AND ENHANCE OUR WEB SITE EFFECTIVELY, BROAD MARKET
ACCEPTANCE OF OUR PRODUCTS AND SERVICES COULD BE IMPAIRED.
Our strategy for promoting and enhancing the www.calderasystems.com Web
site is critical to the development of a Linux community of education, support
and software applications providers. This community is in turn critical for
broad market acceptance of our products and services. Our success in
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promoting and enhancing our Web site will depend on our ability to provide high
quality content, features and functionality. If we fail to promote our Web site
successfully or if visitors to our Web site do not perceive our services to be
useful, current or of high quality, market acceptance of our products and
services could be significantly impaired.
THE GROWTH OF OUR BUSINESS WILL BE DIMINISHED IF THE INTERNET IS NOT ACCEPTED AS
A MEDIUM FOR COMMERCE AND BUSINESS NETWORKING APPLICATIONS.
An important part of our business strategy is to develop and market our
products for the support of secure business networks hosted on the Internet. In
addition, we plan to sell our products and provide a significant amount of
technical support and education via our Web site. If the Internet is not
accepted as a medium for commerce and business networking applications, demand
for our products and services will be diminished. A number of factors may
inhibit Internet usage, including:
- inadequate network infrastructure;
- lack of knowledge and training on Internet use and benefits;
- consumer concerns for Internet privacy and security;
- lack of availability of cost-effective, high-speed service;
- changes in government regulation relating to the Internet; and
- Internet taxation.
If Internet usage grows, the infrastructure may not be able to support the
demands placed on it by that growth and its performance and reliability may
decline. Web sites have experienced interruptions as a result of delays or
outages throughout the Internet infrastructure. If these interruptions continue,
Internet usage may decline.
A DISASTER OR MALFUNCTION THAT DISABLES OUR COMPUTER SYSTEMS COULD HARM OUR WEB
SITE AND NEGATIVELY AFFECT OUR BRAND.
The continuing and uninterrupted performance of our computer systems is
critical to our success. Our customers and other members of the eBusiness
community who access our Web site for technical support, news, educational
resources and business solutions, may become dissatisfied by any systems
disruption or failure that interrupts our ability to provide our services and
content to them. Substantial or repeated system disruptions or failures would
reduce our ability to provide adequate customer service and undermine our
reputation in the eBusiness community. Substantially all of our communications
hardware and computer hardware operations are located in our facilities in Orem,
Utah. Our Web site is hosted in Salt Lake City, Utah. Fire, earthquakes, power
loss, telecommunications failures, break-ins and similar events could negatively
affect the operation of our Web site. Computer viruses, electronic break-ins or
other similar disruptive problems could also harm our Web site. Our Web site in
the past has experienced, and could experience in the future, slower response
times or other problems for a variety of reasons, including delays or
malfunctions as a result of third-party distributors on which we rely. Any of
these occurrences and any resulting dissatisfaction among our customers and
members of the eBusiness community could negatively affect the Caldera Systems
brand image. Our insurance policies may not adequately compensate us for any
losses that may occur due to any failures or interruptions in our systems. We do
not presently have a formal disaster recovery plan.
RISKS RELATED TO THIS OFFERING
A SINGLE STOCKHOLDER WILL BE ABLE TO EXERT SIGNIFICANT CONTROL ON CALDERA
SYSTEMS, INC.
After this offering, Raymond J. Noorda will have indirect ownership of
approximately % of our outstanding common stock. As a result, Mr. Noorda
will be able to determine the outcome of actions that
17
<PAGE> 22
require stockholder approval. For example, Mr. Noorda could elect all of our
directors, delay or prevent a transaction in which stockholders might receive a
premium over the prevailing market price for their shares and control changes in
management.
FUTURE SALES OF OUR COMMON STOCK AFTER THIS OFFERING MAY NEGATIVELY AFFECT OUR
STOCK PRICE.
The market price of our common stock could decline as a result of sales of
a large number of shares of our common stock in the market following the
offering, or the perception that such sales could occur. Following this
offering, we will have a large number of shares of common stock outstanding and
available for resale beginning at various points in time in the future. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate. The shares of our
common stock currently outstanding will become eligible for sale without
registration pursuant to Rule 144 under the Securities Act, subject to certain
conditions of Rule 144. Certain holders of our common stock also have certain
demand and piggyback registration rights enabling them to register their shares
under the Securities Act for sale. In connection with this offering, our senior
officers and directors and certain of our common and preferred stockholders and
option holders, who hold or will hold a total of shares of common stock
after the offering, have agreed, subject to certain exceptions, not to sell
their shares for 180 days after the date of this prospectus without the consent
of the underwriters.
CERTAIN PROVISIONS OF OUR CHARTER AND OF DELAWARE LAW MAKE A TAKEOVER OF CALDERA
SYSTEMS, INC. MORE DIFFICULT, WHICH COULD LOWER THE MARKET PRICE OF THE COMMON
STOCK.
Our corporate documents and Section 203 of the Delaware General Corporation
Law could discourage, delay or prevent a third party or a significant
stockholder from acquiring control of Caldera Systems, Inc. In addition,
provisions of our certificate of incorporation may have the effect of
discouraging, delaying or preventing a merger, tender offer or proxy contest
involving Caldera Systems, Inc. Any of these anti-takeover provisions could
lower the market price of the common stock and could deprive our stockholders of
the opportunity to receive a premium for their common stock that they might
otherwise receive from the sale of Caldera Systems, Inc.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, OUR STOCK PRICE MAY
EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS AND ANY VOLATILITY IN OUR STOCK
PRICE COULD RESULT IN CLAIMS AGAINST US.
Prior to this offering, investors could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after the offering. The initial public offering price will be
determined by negotiations between us and the representatives of the
underwriters. The market price of our common stock may decline below the initial
public offering price after this offering.
Fluctuations in market price and volume are particularly common among
securities of Internet-related and other technology companies. The market price
of our common stock may fluctuate significantly in response to the following
factors, some of which are beyond our control:
- variations in quarterly operating results;
- changes in market valuations of Internet-related and other technology
companies;
- our or our competitors' announcements of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- failure to complete significant advertising and merchandise sales;
- additions or departures of key personnel;
- active "day" trading in our stock;
- future sales of common stock; and
- changes in financial estimates by securities analysts.
18
<PAGE> 23
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
common stock. In the future, we may be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources.
WE MAY SPEND THE NET PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU MAY NOT
AGREE.
The net proceeds of this offering are not allocated for specific uses. Our
management will have broad discretion to spend the net proceeds of this offering
in ways with which investors may not agree. The failure of our management to
apply these funds effectively could result in unfavorable returns, which could
cause the price of our common stock to decline.
YOU WILL INCUR SUBSTANTIAL AND IMMEDIATE DILUTION.
You will incur substantial and immediate dilution in the net tangible book
value of $ per share, assuming an initial public offering price of $ per
share. Net tangible book value per share represents the amount of total tangible
assets less total liabilities, divided by the number of shares of common stock
then outstanding. To the extent that currently outstanding options are exercised
or converted, there will be further dilution in your shares. See "Dilution."
19
<PAGE> 24
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. In some cases, you can identify forward-looking
statements by terms such as "may," "might," "could," "will," "should," "expect,"
"plan," "intend," "forecast," "anticipate," "believe," "estimate," "predict,"
"foreseeable," "potential," "continue" or the negative of these terms or other
comparable terminology. The forward-looking statements contained in this
prospectus involve known and unknown risks, uncertainties, and other factors
that may cause our or our industry's actual results, level of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these
statements. These factors include, among others, those listed under "Risk
Factors" and elsewhere in this prospectus.
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. You should not place undue reliance on
these forward-looking statements.
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of the shares
of common stock in this offering of $ million, assuming an initial
public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses. If the
underwriters exercise their over-allotment option in full, we estimate that our
net proceeds will be $ million.
We intend to use the net proceeds of this offering for general corporate
purposes, including sales and marketing activities, product development and
support, and hiring of additional personnel. We may also use a portion of net
proceeds to acquire or invest in complementary businesses, technologies,
services or products, although we have no present agreement or understanding
with respect to any material acquisition or investment. We have not determined
the amount of net proceeds to be used specifically for each of the foregoing
purposes. Accordingly, our management will have broad discretion to spend
flexibly in applying the net proceeds of this offering. Pending their use, we
intend to invest the net proceeds of this offering in interest-bearing
securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends in the foreseeable future. We
currently intend to retain any future earnings for the expansion and operation
of our business.
20
<PAGE> 25
CAPITALIZATION
The following table sets forth our capitalization as of October 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect:
- our issuance in December 1999 of 106,356 shares of our common stock in
exchange for 159 shares or approximately 2 percent of the outstanding
common stock of Troll Tech AS, a strategic technology partner of ours;
- our sale in December 1999 and January 2000 of 5,000,000 shares of
Series B convertible preferred stock for net proceeds of approximately
$29.5 million and our recording of a beneficial conversion feature
valued at $10.0 million based on the difference between the conversion
price and the estimated fair market value of our common stock at the
time of the sale;
- our purchase in January 2000 of 592,592 shares of common stock or
approximately 4 percent of the outstanding common and preferred stock
of Evergreen Internet, Inc., a strategic technology partner of ours,
for $2.0 million and our issuance to Evergreen Internet, Inc. of
200,000 shares of our common stock;
- our issuance in January 2000 of 1,250,000 shares of our common stock
in exchange for 3,238,437 shares or approximately 17 percent of the
outstanding common stock of Lineo, Inc., a strategic technology
partner of ours; and
- the conversion of our Series A convertible preferred stock and Series
B convertible preferred stock into our common stock upon closing of
this offering.
- on a pro forma as adjusted basis to reflect the pro forma adjustments, as
well as the sale of shares of common stock by us in this offering at an
assumed initial public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and offering expenses
payable by us.
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1999
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current portion of long-term debt.................... $ 3,698 $ 3,698 $ 3,698
============ ============ ============
Long-term lease obligations, less current portion.... $ 5,762 $ 5,762 $ 5,762
------------ ------------ ------------
Shareholders' Equity:
Preferred stock, $0.001 par value; 25,000,000
shares authorized (actual, pro forma and pro
forma as adjusted) --
Series A convertible preferred stock, 6,596,146
shares designated, 6,596,146 shares
outstanding (actual), no shares outstanding
(pro forma and pro forma as adjusted)......... 6,596 -- --
Series B convertible preferred stock, 5,000,000
shares designated, no shares outstanding
(actual, pro forma and pro forma as
adjusted)..................................... -- -- --
Common stock, $0.001 par value; 75,000,000 shares
authorized, 20,011,183 shares outstanding
(actual), 33,163,685 shares outstanding (pro
forma), and shares outstanding (pro
forma as adjusted).............................. 20,011 33,163
</TABLE>
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<PAGE> 26
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1999
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Additional paid-in capital........................... 16,160,312 68,104,604
Stock subscription receivable...................... (1,500,000) (1,500,000) (1,500,000)
Deferred compensation.............................. (2,734,934) (2,734,934) (2,734,934)
Accumulated comprehensive loss..................... (4,365) (4,365) (4,365)
Accumulated deficit................................ (10,431,590) (20,431,590) (20,431,590)
------------ ------------ ------------
Total Stockholders' equity.................... 1,516,030 43,466,878
------------ ------------ ------------
TOTAL CAPITALIZATION.......................... $ 1,521,792 $ 43,472,640
============ ============ ============
</TABLE>
- -------------------------
Note:
The information in this table does not include the following:
- 2,964,240 shares of common stock issuable upon exercise of outstanding
options as of October 31, 1999 with a weighted average price of $1.04 per
share, of which options to purchase 752,206 were exercisable at that
date; and
- 2,035,738 shares of common stock reserved for issuance under our 1998
Stock Option Plan as of October 31, 1999. On December 1, 1999, the
Company adopted the 1999 Omnibus Stock Incentive Plan as a successor
equity incentive program to the 1998 plan. The 1999 plan provided for an
additional 1,700,000 shares of common stock to be reserved for issuance.
Subsequent to October 31, 1999, the Company has granted 2,369,388
additional options to purchase shares of common stock with a weighted
average price of $5.66 per share.
You should read this table together with our financial statements and the
related notes, "Selected Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Management -- Director
Compensation," "Management -- Employee Benefit Plans" and "Description of
Capital Stock" included elsewhere in this prospectus.
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<PAGE> 27
DILUTION
Our pro forma net tangible book value as of October 31, 1999 was
approximately $43.4 million, or $1.31 per share of common stock. Pro forma net
tangible book value per share is determined by dividing the amount of our pro
forma tangible assets less total liabilities by the pro forma number of shares
of common stock outstanding at that date. 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 pro forma as
adjusted net tangible book value per share of common stock immediately after the
completion of this offering.
After giving effect to the issuance and sale of the shares of common stock
offered by us at an assumed initial public offering price of $ per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us, and the application of the estimated net
proceeds from this offering, our pro forma as adjusted net tangible book value
as of October 31, 1999 would have been $ million or $ per share.
This represents an immediate increase in pro forma net tangible book value to
our existing stockholders of $ per share and an immediate dilution to
purchasers in this offering of $ per share. If the initial public offering
price is higher or lower, the dilution to purchasers in this offering will be
greater or less, respectively.
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 October 31,
1999................................................... $1.31
Increase in pro forma net tangible book value 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>
Assuming the exercise in full of the underwriters' over-allotment option,
our pro forma as adjusted net tangible book value at October 31, 1999 would have
been approximately $ per share, representing an immediate increase in pro
forma net tangible book value of $ per share to our existing stockholders
and an immediate dilution in pro forma net tangible book value of $ per
share to purchasers in this offering.
The following table summarizes, on a pro forma basis as of October 31,
1999, the differences between the number of shares of common stock purchased
from us, the aggregate cash consideration paid to us and the average price per
share paid by existing stockholders and new investors purchasing shares of
common stock in this offering. The calculation below is based on an assumed
initial public offering price of $ per share, before deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 33,163,685 % $68,137,767 % $2.05
New investors..........................
---------- ----- ----------- ------
Total........................ 100.0% $100.0%
========== ===== =========== ======
</TABLE>
This discussion and table assumes no exercise of any stock options
outstanding as of October 31, 1999. As of October 31, 1999, there were options
outstanding to purchase a total of 2,964,240 shares of common stock with a
weighted average exercise price of $1.04 per share. Subsequent to October 31,
1999 the Company granted 2,369,388 additional options to purchase shares of
common stock with a weighted average price of $5.66 per share. To the extent
that any of these options are exercised, there will be further dilution to new
investors. Please see "Capitalization."
23
<PAGE> 28
SELECTED FINANCIAL DATA
The tables that follow present portions of our financial statements and are
not complete. You should read the selected financial data set forth below in
conjunction with our financial statements and the related notes included
elsewhere in this prospectus and in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this prospectus. The selected statement of operations data for the
years ended October 31, 1997, 1998 and 1999 and the selected balance sheet data
as of October 31, 1998 and 1999 are derived from, and are qualified by reference
to, the audited financial statements and related notes appearing elsewhere in
this prospectus. The selected statement of operations data for the years ended
October 31, 1995 and 1996 and the selected balance sheet data as of October 31,
1995, 1996 and 1997 are derived from unaudited financial statements not
appearing in this prospectus.
We began operations in 1994 as Caldera, Inc. In July 1996, Caldera, Inc.
acquired an additional business line which was not engaged in developing and
marketing Linux software. Caldera, Inc. subsequently made the strategic
determination to separate its two business lines into separate entities and,
effective September 1, 1998, sold the assets relating to its business of
developing and marketing Linux software to Caldera Systems, Inc., a newly-formed
corporation. Caldera Systems, Inc. has operated as a separate legal entity
engaged in developing and marketing Linux software since September 1, 1998. For
purposes of presenting our financial statements we have segregated or
"carved-out" the operations related to the Linux business from the historical
financial statements of Caldera, Inc. Accordingly, our consolidated financial
statements in this prospectus and the selected financial data present our
financial condition and results of operations as if Caldera Systems, Inc. had
existed as a separate legal entity for all periods presented. The carved-out
historical results presented are not necessarily indicative of what would have
actually occurred had Caldera Systems, Inc. existed as a separate legal entity
and any historical results are not necessarily indicative of results that may be
expected for any future period.
24
<PAGE> 29
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Software and related products.................. $ -- $ 1,108 $ 1,117 $ 1,057 $ 2,773
Services....................................... -- -- -- -- 277
------- ------- ------- ------- -------
Total revenue............................... -- 1,108 1,117 1,057 3,050
------- ------- ------- ------- -------
Cost of revenue:
Software and related products.................. -- 880 1,142 1,017 2,388
Services....................................... -- -- -- -- 538
Write-off of prepaid royalties................. -- -- -- 1,381 --
------- ------- ------- ------- -------
Total cost of revenue....................... -- 880 1,142 2,398 2,926
------- ------- ------- ------- -------
Gross margin (deficit)........................... -- 228 (25) (1,341) 124
------- ------- ------- ------- -------
Operating expenses:
Sales and marketing............................ 179 1,339 4,620 2,224 4,768
Research and development....................... 507 826 2,136 1,489 2,302
General and administrative..................... 673 712 797 1,799 1,748
Amortization of deferred compensation.......... -- -- -- -- 409
------- ------- ------- ------- -------
Total operating expenses.................... 1,359 2,877 7,553 5,512 9,227
------- ------- ------- ------- -------
Loss from operations............................. (1,359) (2,649) (7,578) (6,853) (9,103)
------- ------- ------- ------- -------
Other income (expense):
Interest expense............................... (1) (133) (593) (1,081) (226)
Other income (expense)......................... 10 25 23 5 (3)
------- ------- ------- ------- -------
Other income (expense), net................. 9 (108) (570) (1,076) (229)
------- ------- ------- ------- -------
Loss before income taxes......................... (1,350) (2,757) (8,148) (7,929) (9,332)
Provision for income taxes....................... -- -- -- (34) (35)
------- ------- ------- ------- -------
Net loss......................................... $(1,350) $(2,757) $(8,148) $(7,963) $(9,367)
======= ======= ======= ======= =======
Basic and diluted net loss per common share...... $ (0.11) $ (0.23) $ (0.68) $ (0.66) $ (0.67)
======= ======= ======= ======= =======
Basic and diluted weighted average common shares
outstanding.................................... 12,033 12,033 12,033 12,033 13,882
======= ======= ======= ======= =======
Basic and diluted pro forma net loss per common
share (unaudited).............................. $ (0.51)
=======
Basic and diluted pro forma weighted average
common shares outstanding (unaudited).......... 18,458
=======
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 31,
-------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ---- ------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................... $ 33 $ 207 $ 398 $ 76 $ 122
Working capital (deficit)...................... (32) (122) 1,157 (28) 678
Total assets................................... 407 1,639 3,915 872 3,714
Long-term liabilities.......................... -- -- -- -- 6
Caldera, Inc.'s equity in carved-out
operations................................... 104 576 2,163 -- --
Total stockholders' equity..................... -- -- -- 391 1,516
</TABLE>
25
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
Consolidated Financial Statements and Notes thereto, 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 these forward-looking statements as a result of various factors,
including those set forth under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
Caldera Systems, Inc. enables the development, deployment and management of
Linux specialized servers and Internet access devices that simplify computing.
Our Linux software products and service offerings are specifically designed to
meet the complex needs of eBusiness, or business over the Internet. During 1999
our OpenLinux technology received many awards and recognitions, including
Internetweek's "Best of the Best," The Linux Show's "Best Distribution of
Millennium," Linux Journal's Product of the Year award at Comdex and Network
Computer's Well-Connected Award for Best Network Operating System. We facilitate
the adoption of Linux by providing educational programs designed to help our
customers to develop, deploy and administer Linux systems. We embrace the open
source model and participate as a key member of many open source, industry
standards and partner initiatives, including Linux Professional Institute, Linux
Standards Base, and Linux International Group. We primarily distribute our
products and services through our indirect distribution channel model. Our
customers include AST Computers, Cendant, First International Computers, Frank
Kasper & Associates, Gates/Arrow, IBM, Ingram Micro, MediaGold, MTI Technology
Corporation, Navarre Corporation, Support Net and Tech Data.
We began operations in 1994 as Caldera, Inc. In July 1996, through an asset
purchase, Caldera, Inc. acquired an additional business unit which was not
engaged in developing and marketing Linux software. Caldera, Inc. subsequently
made the strategic determination to separate its two business lines into
separate entities and, effective September 1, 1998, sold the assets relating to
its business of developing and marketing Linux software to Caldera Systems,
Inc., a newly-formed corporation. Caldera Systems, Inc. has operated as a
separate legal entity engaged in developing and marketing Linux software since
September 1, 1998. For purposes of presenting our financial statements we have
segregated or carved-out the operations related to the Linux business from the
historical financial statements of Caldera, Inc. Accordingly, our consolidated
financial statements in this prospectus and the following discussion present our
financial condition and results of operations as if Caldera Systems, Inc. had
existed as a separate legal entity for all periods presented.
Substantially all of our revenues since fiscal 1996 have been derived from
sales of Linux products and related services. We expect that for the foreseeable
future the majority of our revenues will continue to be derived from our
OpenLinux product line, while revenues from our service offerings including
training, customer support, and consulting will increase as a percentage of
revenue. Historically, we have experienced substantial fluctuations in our
revenues from period to period relating to the introduction of new products and
new versions of our existing products. Upon our announcement of an expected
release date for new products or upgrades we often experience a significant
decrease in sales of our existing products. Additionally, we often experience
the strongest sales for a new product during the first 30 days after its
introduction as we fill advance orders from our distribution channels.
We began shipping our product in fiscal 1996 through indirect distribution
channels such as distributors, value added resellers, original equipment
manufacturers and system integrators, as well as directly to the end user using
our internal sales and marketing force. Over time, our business model has
evolved such that we now sell primarily through our two-tier distribution
channels. We began offering Linux training during fiscal 1999.
26
<PAGE> 31
We market our software and related products primarily in North America,
Europe, Asia and Australia. Revenues from customers outside the United States
were $0 in fiscal 1997, $56,000 in fiscal 1998 and $203,000 in fiscal 1999.
We recognize revenues in accordance with the American Institute of
Certified Public Accountants, or AICPA, Statement of Position 97-2. Software and
related product revenue is recognized upon delivery of the product if collection
is probable. We provide certain telephone and e-mail technical support services
at no additional charge. The cost of providing the post-contract support
services are not significant; accordingly, we accrue the estimated costs of
providing the services at the time of revenue recognition. If other significant
post-delivery vendor obligations exist or if a product is subject to customer
acceptance, revenues are deferred until no significant obligations remain or
acceptance has occurred. Further implementation guidelines relating to SOP 97-2
and related modifications may result in unanticipated changes in our revenue
recognition practices and such changes could affect our future revenues and
earnings. Maintenance revenues are recognized ratably over the contract term,
typically one year. Revenues from training and consulting services are
recognized as such services are performed.
Since inception, we have incurred substantial research and development
costs and have invested heavily in the expansion of our sales, marketing and
professional services organizations to support our long-term growth strategy. As
a result of these investments, we have incurred net losses in each fiscal year
since inception and, as of October 31, 1999, had incurred total net losses of
approximately $29.6 million since inception. We anticipate that our operating
expenses will increase substantially for the foreseeable future as we increase
the number of people and programs in sales and marketing, product development
and professional services. Accordingly, we expect to incur net losses for the
foreseeable future.
In connection with the grant of stock options to employees during fiscal
1999, we recorded deferred compensation of $3.1 million representing the
difference between the deemed fair market value of the common stock for
accounting purposes and the exercise price of these options as of the date of
grant. Deferred compensation is presented as a reduction of shareholders' equity
and is amortized over the vesting period of the applicable options. We expensed
$409,000 of deferred compensation during fiscal 1999. Based on the option grant
activity through October 31, 1999, we expect to amortize deferred compensation
of $1.4 million in fiscal 2000, $743,000 in fiscal 2001, $396,000 in fiscal 2002
and $162,000 in fiscal 2003.
In December 1999 and January 2000, we sold 5.0 million shares of Series B
convertible preferred stock at $6.00 per share, resulting in net proceeds of
approximately $29.5 million. Each share of Series B convertible preferred stock
is immediately convertible into one share of common stock. Due to the beneficial
conversion feature associated with the Series B convertible preferred stock,
during the first quarter of fiscal 2000, we will record a preferred stock
dividend in the amount of $10.0 million thereby increasing the net loss
applicable to common stockholders. Additionally, in December 1999 and January
2000 we acquired an equity investment in Lineo, Inc. in exchange for 1,250,000
shares of common stock, acquired an equity investment in Evergreen Internet,
Inc. in exchange for $2.0 million in cash and 200,000 shares of common stock and
acquired an equity investment in Troll Tech AS in exchange for 106,356 shares of
common stock. These investments will be accounted for under the cost method of
accounting.
Software and related products revenue is comprised of revenue from the sale
of software and other products such as manuals. Services revenue is comprised of
training royalties and tuition fees, consulting fees and customer support fees.
Cost of software and related products revenue primarily consists of our
costs for production, packaging, fulfillment and shipment of our product
offerings. Additionally, royalties paid to third-parties for inclusion of their
software products in our product offering are included in these costs.
Cost of services revenue represents the employee and related infrastructure
costs necessary to provide training, consulting and customer support.
27
<PAGE> 32
Included in sales and marketing expenses are the following: advertising,
channel promotions, marketing development funds, promotional activities, public
relations, trade show and personnel-related expenses such as salaries, benefits,
commissions, recruiting fees, travel and entertainment expenses.
Research and development expenses consist of payroll and related costs for
software engineers, technical writers, quality assurance and research and
development management personnel and the costs of materials used by these
employees in the development of new or enhanced product offerings. Also included
are the costs associated with outside contractors.
General and administrative expenses are composed of professional fees,
salaries and related costs for accounting, administrative, finance, human
resources, information systems and legal personnel as well as costs associated
with implementing and expanding our internal information and management
reporting systems.
We plan to significantly increase our expenditures for sales and marketing,
research and development and general and administrative expenses in fiscal 2000.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the years indicated:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
--------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Revenue:
Software and related products............................. 100.0% 100.0% 90.9%
Services.................................................. -- -- 9.1
------ ------ ------
Total revenue..................................... 100.0 100.0 100.0
------ ------ ------
Cost of Revenue:
Software and related products.......................... 102.3 96.2 78.3
Services............................................... -- -- 17.6
Other.................................................. -- 130.7 --
------ ------ ------
Total cost of revenue............................. 102.3 226.9 95.9
------ ------ ------
Gross margin (deficit)...................................... (2.3) (126.9) 4.1
------ ------ ------
Operating Expenses:
Sales and marketing....................................... 413.6 210.4 156.3
Research and development.................................. 191.3 140.8 75.5
General and administrative................................ 71.3 170.2 57.3
Other..................................................... -- -- 13.4
------ ------ ------
Total operating expenses............................... 676.2 521.4 302.5
------ ------ ------
Loss from operations........................................ (678.5) (648.3) (298.4)
Other expense, net.......................................... (51.1) (101.8) (7.5)
------ ------ ------
Loss before income taxes.................................... (729.6) (750.1) (305.9)
Provision for income taxes.................................. -- (3.2) (1.1)
------ ------ ------
Net loss.................................................... (729.6)% (753.3)% (307.0)%
====== ====== ======
</TABLE>
FISCAL YEARS ENDED OCTOBER 31, 1997, 1998 AND 1999
Revenue
Our revenue was $1.1 million for fiscal 1997, $1.1 million for fiscal 1998
and $3.1 million for fiscal 1999. During fiscal 1997 and fiscal 1998, all of our
revenue was derived from our software and related products offerings.
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Software and Related Products. Our software and related products revenue
was $1.1 million in fiscal 1997, $1.1 million in fiscal 1998, and $2.8 million
in fiscal 1999, representing a decrease of $60,000, or 5%, from fiscal 1997 to
fiscal 1998 and a $1.7 million, or 162%, increase from fiscal 1998 to fiscal
1999. The slight decrease in our software and related products revenue from
fiscal 1997 to fiscal 1998 was due to a reduction of capital for sales and
marketing activities and a diversion of limited resources allocated to our
business because of growth of non-related product lines associated with Caldera,
Inc. The increase in software and related product revenue from fiscal 1998 to
fiscal 1999 was a result of management's expansion of our marketing efforts, as
well as the increased market awareness of the Linux operating system.
Services. We began to realize service revenue in fiscal 1999. This revenue
was $277,000 or 9% of our total revenue in fiscal 1999. Service revenue was
mostly derived from sales of training-related offerings and tuition fees.
Cost of Revenue
Cost of Software and Related Products Revenue. Our cost of software and
related products revenue was $1.1 million in fiscal 1997, $1.0 million in fiscal
1998 and $2.4 million in fiscal 1999, representing a $125,000, or 11%, decrease
from fiscal 1997 to fiscal 1998 and a $1.4 million, or 135%, increase from
fiscal 1998 to fiscal 1999. On a percentage basis of related revenue, cost of
software and related products revenue was 102% in fiscal 1997, 96% in fiscal
1998 and 86% of fiscal 1999. The decrease in the cost of revenues percentage
from fiscal 1997 to fiscal 1998 and from fiscal 1998 to fiscal 1999 primarily
resulted from reduced royalty expenses as a component of product costs as
certain third-party software packages were open-sourced and the elimination of
certain other royalty-bearing components. In addition, the decrease from fiscal
1998 to fiscal 1999 resulted from improved margins on increased volumes. These
improvements in fiscal 1999 were partially offset by an increase in inventory
obsolescence. The negative gross margin incurred in fiscal 1997 was due to the
payment of significant royalties. During fiscal 1997, our product incorporated
substantial amounts of proprietary software which has since been eliminated or
open sourced.
Cost of Services Revenue. We began to realize services revenue in fiscal
1999. Cost of services revenue was $538,000, or 194%, of related revenue during
fiscal 1999. The negative margin incurred during fiscal 1999 is due to our
hiring of employees and building additional infrastructure in anticipation of
future training and support revenues.
Write-off of Prepaid Royalties. During fiscal 1996 and 1997, we entered
into royalty agreements with a supplier pursuant to which we prepaid royalties
of approximately $2.1 million. During fiscal 1998, we asserted that the supplier
breached the terms of the royalty agreements and we determined that the
remaining prepaid royalties, in the amount of $1.4 million, were impaired and
accordingly we wrote off the remaining balance.
Operating Expenses
Sales and Marketing. Sales and marketing expenses were $4.6 million in
fiscal 1997, $2.2 million in fiscal 1998 and $4.8 million in fiscal 1999,
representing a decrease of $2.4 million, or 52%, from fiscal 1997 to fiscal 1998
and an increase of $2.5 million, or 114%, from fiscal 1998 to fiscal 1999. Sales
and marketing expenses represented 414% of our total revenues in fiscal 1997,
210% of our total revenues in fiscal 1998 and 156% of our total revenues in
fiscal 1999. The decrease in amounts expended from fiscal 1997 to fiscal 1998
was due to the reduction in the resources devoted to the Linux business, prior
to our reorganization. During fiscal 1999, we expanded our sales and marketing
efforts.
Research and Development. Research and development expenses were $2.1
million in fiscal 1997, $1.5 million in fiscal 1998 and $2.3 million in fiscal
1999, representing a decrease of $647,000, or 30%, from fiscal 1997 to fiscal
1998 and an increase of $813,000, or 55%, from fiscal 1998 to fiscal 1999.
Research and development costs represented 191% of our total revenue in fiscal
1997, 141% of our total
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revenue in fiscal 1998 and 76% of our total revenue in fiscal 1999. The decrease
from fiscal 1997 to fiscal 1998 was primarily related to a reduction of capital
for research and development activities and a diversion of limited resources
allocated to our business because of growth of non-related product lines
associated with Caldera, Inc. The increase in research and development expenses
from fiscal 1998 to fiscal 1999 was due to an increased investment in the number
of software developers, quality assurance personnel and outside contractors to
support our product development and testing activities including the development
of training courses and technical support offerings.
General and Administrative. General and administrative expenses were
$797,000 in fiscal 1997, $1.8 million in fiscal 1998, and $1.7 million in fiscal
1999, representing an increase of $1.0 million, or 126%, from fiscal 1997 to
fiscal 1998 and a decrease of $51,000, or 3%, from fiscal 1998 to fiscal 1999.
General and administrative costs represented 71% of our total revenue in fiscal
1997, 170% of our total revenue in fiscal 1998 and 57% of our total revenue in
fiscal 1999. The increase from fiscal 1997 to fiscal 1998 was primarily the
result of the significant fees associated with our reorganization in 1998. The
increase also reflects the employment of additional administrative, executive,
and finance personnel during most of fiscal 1998. General and administrative
expenses remained fairly constant from fiscal 1998 to fiscal 1999 as the
nonrecurrence of the costs of reorganization was more than offset by the
increase in personnel in 1999.
Amortization of Deferred Compensation. In connection with the granting of
stock options to employees during fiscal 1999, we recorded deferred compensation
of $3.1 million. During fiscal 1999, we amortized $409,000 of deferred
compensation. We did not record any deferred compensation or amortization during
fiscal 1997 and 1998 as no stock options were granted in those years.
Other Income (Expense), net
Other income (expense), net, which consists principally of interest
expense, was $570,000 in fiscal 1997, $1.1 million in fiscal 1998, and $228,000
in fiscal 1999, representing an increase of $506,000, or 89%, from fiscal 1997
to fiscal 1998 and a decrease of $847,000, or 79%, from fiscal 1998 to fiscal
1999. The increase between fiscal 1997 and fiscal 1998 resulted from additional
borrowings to fund operating losses. During fiscal 1999, these borrowings were
effectively converted to common stock in connection with our incorporation.
After our incorporation in fiscal 1998, we entered into a secured convertible
promissory note arrangement with our major stockholder. We borrowed amounts
during the last portion of fiscal 1998 and during fiscal 1999 under this
agreement. These borrowings were converted into common stock through the
exercise of the conversion feature in August 1999.
Income Taxes
For fiscal years 1998 and 1999 our German subsidiary, Caldera Deutschland
GmbH, incurred income tax expense of $34,000 and $35,000, respectively. As of
October 31, 1999, we had net operating loss carryforwards for federal and state
income tax reporting purposes of approximately $10.6 million that expire at
various dates from 2018 to 2019. The Internal Revenue Code contains provisions
that likely could reduce or limit the availability and utilization of our net
operating loss carryforwards. For example, limitations are imposed on the
utilization of net operating loss carryforwards if certain ownership changes
have taken place or will take place.
We had deferred tax assets, including our net operating loss carryforwards
and other temporary differences between book and tax deductions, totaling
approximately $11.1 million as of October 31, 1999. A valuation allowance in the
amount of $11.1 million has been recorded as of October 31, 1999 as a result of
uncertainties regarding the realizability of the deferred tax asset balance.
LIQUIDITY AND CAPITAL RESOURCES
Since our establishment as a separate legal entity in August 1998, we have
funded our operations primarily through loans from our major stockholder and
through sales of our common and preferred stock.
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As of October 31, 1999, we had cash of $122,000 and working capital of
$678,000.
Net cash used in operating activities was $8.8 million in fiscal 1997, $5.1
million in fiscal 1998 and $7.6 million in fiscal 1999. Cash used in operating
activities was primarily attributed to the net loss of $8.1 million in fiscal
1997, net loss of $8.0 million in fiscal 1998 and net loss of $9.4 million in
fiscal 1999 offset by non-cash expenses and changes in working capital.
Our investing activities have consisted of purchases of property and
equipment and certain intangible assets. Capital expenditures totaled $306,000
in fiscal 1997, $170,000 in fiscal 1997, and $587,000 in fiscal 1999.
Additionally, we invested $80,000 in certain intangible technology during fiscal
1999. Historically, the acquisition of property and equipment has been primarily
through cash purchases. In the future, we anticipate that we will finance such
acquisitions through capital lease arrangements. We anticipate that we will
experience an increase in our capital expenditures and lease commitments
consistent with our anticipated growth in operations, infrastructure and
personnel.
Our financing activities provided $9.3 million in fiscal 1997, $4.9 million
in fiscal 1998 and $8.3 million in fiscal 1999. In fiscal 1997, cash provided by
financing activities consisted of $9.3 million received in borrowings from The
Canopy Group, Inc. In fiscal 1998, cash provided by financing activities
consisted primarily of $4.4 million additional borrowings from The Canopy Group,
Inc. and $519,000 in equity funding received from The Canopy Group, Inc. upon
our incorporation. During fiscal 1999, cash provided by financing activities
consisted primarily of $15.5 million of equity funding received from The Canopy
Group, Inc. and $3.0 million of equity funding from MTI Technology Corporation.
Additionally, we received $4.8 million from The Canopy Group, Inc. under a
secured convertible promissory note agreement. These proceeds plus accrued
interest were converted to equity during fiscal 1999. Approximately $15.0
million was paid to our predecessor during fiscal 1999 in connection with the
reorganization of our predecessor and our own incorporation.
As of October 31, 1999, we had only one debt arrangement for approximately
$9,500. As of that date, we had no other bank or other borrowing arrangements in
place.
We believe that our current cash on hand, after receiving approximately
$29.5 million of net proceeds from the sale of preferred stock in December 1999
and January 2000, together with the proceeds from this offering will be
sufficient to meet our capital expenditures and working capital requirements for
at least the next twelve months. However, we may need to raise additional funds
to support more rapid expansion, respond to competitive pressures, acquire
complimentary businesses or technologies or respond to unanticipated
requirements. We cannot assure you that additional funding will be available to
us in amounts or on terms acceptable to us. If sufficient funds are not
available or are not available on acceptable terms, our ability to fund our
expansion, take advantage of acquisition opportunities, develop or enhance our
services or products, or otherwise respond to competitive pressures would be
significantly limited.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", or SOP 98-1. SOP 98-1
requires entities to capitalize certain costs related to internal-use software
once certain criteria have been met. We adopted SOP 98-1 in fiscal 1999. The
adoption of SOP 98-1 did not have a material impact on our results of
operations, financial position or liquidity.
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", or SFAS 133. SFAS 133 establishes new
accounting and reporting standards for companies to report information about
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. This statement is effective for financial statements issued for all
fiscal quarters of fiscal years beginning after June 15, 1999. In June 1999,
FASB delayed the effective date of SFAS 133 for one year, to apply to fiscal
quarters of all years
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beginning after June 15, 2000. We do not expect this statement to have a
material impact on our results of operations, financial position or liquidity.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Our products and services are primarily developed in the United States and
marketed in North America, and to a lesser extent in Europe and Asia/Pacific
regions. As a result, our financial results could be affected by changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
Because all of our revenues are currently denominated in U.S. dollars, a
strengthening of the dollar could make our Linux products less competitive in
foreign markets.
YEAR 2000 COMPLIANCE
Background.
Many currently installed computer systems and software and devices with
embedded technology are coded to two digits for time sensitive dating purposes.
Beginning with the year 2000, these date code fields will need to be coded to
four digits in order to distinguish between twentieth century and twenty-first
century dates. For example, computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
error could result in system failures or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities. As
a result, many companies' software and computer systems may need to be upgraded
or replaced to comply with such "Year 2000" requirements.
Our business is dependent on the operation of numerous systems that could
potentially be affected by Year 2000-related problems. Those systems include,
among others:
- software products sold to customers;
- hardware and software systems used by us to deliver products and services
to customers, including our proprietary software systems as well as
software supplied by third parties;
- hardware and software systems used internally by us in the management of
our business;
- communications networks such as the Internet and private intranets;
- internal systems of our customers and suppliers; and
- non-information technology systems and services, such as energy and
utility suppliers, telephone systems and building systems, and financial
institutions and transportation providers.
State of Readiness.
In October 1998, we created a team to oversee the audit and resolution of
potential Year 2000 problems. Since that time, we have evaluated the readiness
of our systems and products for Year 2000 compliance.
Products. We engaged an affiliated third party to test our OpenLinux
2.2/2.3 product. This testing was completed in the third quarter of 1999 and did
not result in any findings of Year 2000 problems that were not remedied or
documented. We are continuing to evaluate the Year 2000 compliance of our
products currently under development. Some of our customers are still using
older discontinued products of ours which have not been tested for Year 2000
readiness. While we have not been informed of any problems or failures relating
to these products, if problems arise concerning these systems, we will recommend
that these customers upgrade to a more recent and supported version. We may be
required to support and correct any failed systems as a result of any problems
that may arise in connection with these older products.
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We bundle third-party applications and software components with our
products. We have tested some of these products and have researched the
suppliers. To date, we know of no problems with these products nor have we had
to correct any deficiencies. Most of these products are open source and
therefore if unforeseen problems do arise, we have the ability to rapidly
provide corrections and support to customers. We do not intend to expend
resources to seek out and correct additional problems before they arise.
Accordingly, it is possible that some of our customers may experience
difficulties related to third-party software which may affect the performance of
our products and may lead to adverse results such as additional support calls or
return of products. This could divert resources from the pursuit of our business
strategy which could materially adversely affect our business.
Internal Systems. We replaced the hardware servicing our internal office
network systems in the third quarter of 1999. These hardware systems have their
respective companies' statements of compliance, and we have independently tested
these systems for Year 2000 readiness. We have also substantially completed
inventorying, assessing and testing our major non-IT systems, and have
implemented any remedial actions to the extent deemed appropriate. No problems
in these systems have surfaced to date, and we do not expect any to occur. We
have also tested and verified compliance on our external servers which host our
Web site and other Internet services.
Material Third-Party Relationships. We rely on third parties such as
suppliers of energy and other utilities, financial institutions, transportation
providers, communications vendors, including value added network vendors and
other significant customers. We have received Year 2000 readiness statements
from some but not all of these third-party suppliers. The failure of any of
these third parties to achieve Year 2000 compliance could have a material impact
on our business, operating results and financial condition.
Costs.
To date, we have incurred approximately $600,000 in costs to improve our IT
systems, certify products, and prepare for Year 2000 readiness efforts. We are
not tracking internal costs such as payroll costs for our information systems
group for our Year 2000 review activities. We expect that any additional costs
for Year 2000 compliance of internal systems to be minimal. We have not
estimated costs to support customers in post-Year 2000 efforts.
Contingency Plans.
All of our critical systems are powered through compliant uninterruptible
power supply systems and/or backup generators in the event of Year 2000 or other
power related outages. We have not otherwise developed contingency plans with
respect to our products or internal systems. To date, Year 2000 problems have
had a minimal effect on our business. However, we may not have identified and
remediated all significant Year 2000 problems. Further remediation efforts may
involve significant time and expense, and unremediated problems may have a
material adverse effect on our business. Also, we sell our products to companies
in a variety of industries, each of which is experiencing different Year 2000
issues. Customer difficulties with Year 2000 issues might require us to devote
additional resources to resolve underlying problems. Finally, although we have
not been made a party to any litigation or arbitration proceeding to date
involving our products or services and related to Year 2000 compliance issues,
we may in the future be required to defend our products or services in such
proceedings, or to negotiate resolutions of claims based on Year 2000 issues.
The costs of defending and resolving Year 2000-related disputes, regardless of
the merits of such disputes, and any liability for Year 2000-related damages,
including consequential damages, would negatively affect our business, results
of operations, financial condition and liquidity, perhaps materially.
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BUSINESS
OVERVIEW
Caldera Systems, Inc. enables the development, deployment and management of
Linux specialized servers and Internet access devices that simplify computing.
Our Linux software products and service offerings are specifically designed to
meet the complex needs of eBusiness, or business over the Internet. During 1999
our OpenLinux technology received many awards and recognitions, including
Internetweek's "Best of the Best," The Linux Show's "Best Distribution of
Millennium," Linux Journal's Product of the Year award at Comdex and Network
Computing's Well-Connected Award for Best Network Operating System. We
facilitate the adoption of Linux by providing educational programs designed to
help our customers to develop, deploy and administer Linux systems. We embrace
the open source model and participate as a key member of many open source,
industry standards and partner initiatives, including Linux Professional
Institute, Linux Standards Base and Linux International Group. We primarily
distribute our products and services through our indirect distribution channel
model. Our customers include AST Computers, Cendant, First International
Computers, Frank Kasper & Associates, Gates/Arrow, IBM, Ingram Micro, MediaGold,
MTI Technology Corporation, Navarre Corporation, Support Net and Tech Data.
INDUSTRY BACKGROUND
The Internet has emerged as the fastest growing global communications
medium, enabling millions to connect to a world wide network to conduct business
and share information electronically. According to International Data
Corporation, or IDC, the overall number of Internet users will grow from
approximately 159 million in 1998 to approximately 510 million by 2003. As
Internet usage becomes more pervasive, many companies worldwide are devising new
ways to leverage this network to conduct business over the Internet, or
eBusiness. eBusiness is more than just the purchasing transaction associated
with buying an item on the Internet. It involves all the necessary
communications and transactions between suppliers, partners and customers to
conduct business. IDC projects that commerce conducted over the Internet will
grow from approximately $50 billion in 1998 to approximately $1.3 trillion by
2003.
The Internet has accelerated the introduction of processes for managing
information, providing services and solutions and handling customers and has
changed the way software applications are developed and deployed. These
processes enable companies to utilize the Internet to extend their businesses
closer to their customers, partners and suppliers and to communicate more
effectively with employees. The Internet has also enabled and accelerated a
trend towards distributed software applications. With a distributed application,
instead of installing and running software on an individual desktop, end users
can access the application from remote locations using the Internet. The
Internet makes the physical location of a software application or service
irrelevant to the end user. Rather than individually installing programs on a
number of PCs, businesses can use the Internet to allow end users to access a
single server maintaining the software. As a result of this trend, application
service providers, or ASPs, have emerged. An ASP is a service provider that
centrally hosts services and software applications and leases them to companies.
These companies can access these applications for a fee through the Internet,
rather than buying and installing the programs. Nonetheless, operating under
previous computing models, many companies have already invested tremendous
amounts of capital in their existing legacy computer systems and applications.
Therefore, new software applications must be developed to allow seamless
integration between existing legacy systems and applications being offered by
ASPs over the Internet.
Another trend in distributed applications is the advent of thin appliance
servers, or specialized servers. These specialized servers perform specific
applications, such as file and print sharing, secure Internet services, backup
services and electronic mail services. Dataquest projects that the worldwide
market for thin appliance servers will grow from approximately $2.2 billion in
1999 to approximately $16 billion by 2003. Companies are realizing that they can
deploy efficient, discrete applications on specialized servers and do not need
to install massive, costly, multi-functional systems merely to install a new
application or add a particular function. Companies have started using
specialized servers to administer the new
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eBusiness software applications that are emerging. Having separate servers for
each application improves performance and increases stability, while decreasing
overall operating and maintenance costs.
In addition, the proliferation of information on the Internet has driven
the need to customize information for individual use. As a result, manufacturers
have developed ways to separate the visual elements of a standard PC program
from its computing functions, allowing most of the computing function to be
performed remotely. This has facilitated the creation of alternative Internet
access devices for individuals, such as personal digital assistants,
Internet-capable cellular telephones and television set-top boxes. These
Internet access devices are far less costly than personal computers and allow
more users access to the Internet and the ability to participate in eBusiness.
Internet devices are becoming popular worldwide as a way of getting businesses
and consumers connected to the new eBusiness economy.
The trend towards distributed software applications and specialized servers
and the proliferation of Internet access devices have increased companies'
ability to conduct eBusiness and consumers' access to eBusiness. The dynamic and
fast changing nature of eBusiness requires an operating system, the software
that enables a computer and its various components to interact, that can change
with the accelerated evolution of eBusiness. The ideal operating system must
enable companies to connect specialized servers and Internet access devices to
the Internet network to conduct eBusiness. It must be customizable to adapt to
the changing software applications environment, shifting hardware
infrastructures and emergence of new Internet access devices. It must be
scalable to accommodate the growing number of users and the ways that they
access the Internet. The ideal operating system must be highly stable and easy
to maintain to minimize overall operating and maintenance costs. It must allow
for rapid deployment and development and be easily upgradeable to keep pace with
the changing needs of eBusiness. Finally, this operating system must interface
with existing systems and embrace open technical and communications standards
like Java and extensible mark-up language, or XML, to take full advantage of the
Internet.
Linux is an optimal operating system for eBusiness. The term open source
applies to software that has its internal source code open to the public for
viewing, copying, examining and modification. As a result, the Linux source code
is available for download over the Internet. Open source code allows thousands
of developers around the world to continually collaborate to improve and enhance
the software. The Internet has facilitated and greatly enhanced this
collaborative environment. In fact, IDC has projected that the total market for
Linux shipments will increase at a compound annual growth rate of 25% from 1999
through 2003. Also, Dataquest has predicted that Linux thin appliance servers
will account for approximately $3.8 billion in server appliance revenues by
2003. Benefits of Linux include:
- comprehensive Internet functionality;
- flexibility and customizability;
- high scalability;
- stability;
- interoperability with multiple systems and networks;
- multi-appliance capability, including Internet access devices;
- low acquisition and maintenance costs; and
- compliance with technical and communications standards.
Despite these benefits, Linux as an open source system is not without
drawbacks. Linux has not yet been widely adopted by business due to:
- the absence of Linux products tailored for business;
- the fragmentation of Linux offerings;
- inadequate education and training;
- the lack of proper distribution channels for Linux solutions;
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- the lack of technical knowledge and support;
- difficulty in management and deployment; and
- the limited number of applications available for use on Linux.
Historically, business users have lacked a Linux solution that suits their
needs. For Linux to fully support eBusiness, a solution must consist not only of
advanced technology but also should be enhanced and tailored for business. This
solution must promote the benefits of Linux for eBusiness and provide the proper
education and training to facilitate adoption. Proper distribution channels are
required to facilitate access to the business user. The Linux for eBusiness
solution must be able to accommodate business applications and be able to
interoperate properly with the diverse environment of internal corporate
information systems and the Internet. It must have the flexibility to be
maintained centrally or managed remotely. Finally, a solution must adhere and
conform to commercial standards to incorporate the latest technological
advancement and ensure wide acceptance.
CALDERA SYSTEMS SOLUTION
We enable the development, deployment and management of Linux specialized
servers and Internet access devices that simplify computing. We believe that our
Linux solution is a comprehensive solution for eBusiness. Key benefits of our
solution include:
Focused business framework. We were the first to tailor Linux open source
code from various sources into sound discrete products that are usable,
deployable and manageable for eBusiness. Our development team consists of
experienced Linux engineers and business professionals. We develop our products
by first carefully choosing the Linux features that are the most relevant and
useful for eBusiness. Then we assemble the code so that it is logically arranged
and works together as seamless applications in which source and binary code
match for logic and order. Our products are then tested for quality and
performance. This enhances reliability and reduces the need for technical
support when used under strenuous business conditions. This process, known as
self-hosting, is unique in the Linux community and accounts for the high levels
of stability and performance of our products. Our products are also designed to
be interoperable with multiple platforms to enable businesses to make efficient
use of existing information technology investments.
Effective distribution channel. We provide products and services to the
people who serve the business community. Most of our products that are purchased
by corporate information systems departments are sold through our distribution
channel to electronic solution providers. We define electronic solution
providers to include value added resellers, or VARs, original equipment
manufacturers, or OEMs, Internet service providers, or ISPs, corporate
information technology managers and any partner, ranging from independent local
technical specialists to large system integrator organizations, that offers
value-added solutions for eBusiness. Business customers often rely on solution
providers to recommend which technology to purchase. We provide solution
providers with products, third-party applications, education, training and tools
to effectively facilitate or offer a Linux solution for eBusiness. Solution
providers benefit from the lower maintenance and support costs necessary to
maintain our Linux solution. We offer our services to solution providers on a
worldwide basis.
Comprehensive product offerings. We believe that our OpenLinux technology
is the most advanced for eBusiness. OpenLinux is the technology foundation on
which we are able to build multiple products that perform different tasks. Each
product has specific components that can be modified. For example, our desktop
product can be modified to perform client specific functions such as running
business automation applications or accessing the Internet as an email client on
hand-held appliances. Our server product contains modular components that can be
configured to run specialized servers such as an email server or a Web site
server. We continually enhance the OpenLinux technology through our development
centers in Germany and the United States. As a result, we are able to
incorporate the latest Linux enhancements or modifications into our products.
Our business experience enables us to build relevant business enhancements to
Linux through add-on segments of code that connect to the core source code.
These
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enhancements include Web administration applications, the Caldera Systems open
administration system, and an easy-to-use Linux installation wizard. We also
offer our products in multiple language versions.
Complementary value-added services. In order for businesses to implement
our product offerings, we provide a wide range of valuable services. We believe
that our service offerings provide significant benefits for eBusiness. These
service offerings include:
- Technical Support -- Our technical support provides assistance during
installation and operation of OpenLinux;
- Consulting and Custom Development -- Our consultants have extensive
technological and business knowledge, which allows us to assist our
partners in implementing Linux solutions;
- Hardware Optimization and Certification -- Our consultants can optimize
OpenLinux for a specific hardware platform and provide a rigorous testing
and certification process; and
- Documentation -- We provide consistent and up-to-date documentation on
Linux that is not readily available in the open source development
community.
Comprehensive, distribution-neutral education and training. Many companies
are delivering different versions of Linux called distributions. We provide a
comprehensive distribution-neutral training program for Linux. Our courses focus
on educating and training the business community on Linux's benefits for
business use. We offer a comprehensive set of courses designed to prepare
students to develop, deploy and manage Linux in a business environment,
including system, network and Internet administration and programming. A student
who has successfully completed our courses will be proficient with the leading
distributions of Linux. We offer high-quality instructor-led training through
our own training center at our headquarters and also offer our educational
programs indirectly through our Authorized Linux Education Centers, or ALECs,
around the world.
Business community catalyst and open source advocate. We were the first
Linux provider to introduce an open source operating system designed for the
business environment. By demonstrating to key information technology companies
such as Corel and Netscape that open source systems can work well with
proprietary systems, we believe that we have sparked the interest of more
conservative technology adopters and accelerated acceptance of Linux for
business use. We help port, or convert, business applications to the Linux
platform and offer ways to incorporate those products into existing systems. We
are a major driver of Linux standards based initiatives such as Linux
Professional Institute, or LPI, an independent organization dedicated to the
establishment of professional certification standards for Linux professionals,
and Linux Standards Base, or LSB, an initiative that is designed to standardize
application development for the Linux platform. An application that meets all
the criteria for LSB should work on all compliant distributions of Linux. If LSB
is widely adopted, we believe it will significantly reduce the fragmentation of
Linux.
We fully embrace the open source model and continuously contribute tools
and technology to the open source community. We give away CD ROMs containing our
Linux operating system at trade shows and allow it to be freely downloaded from
the Internet to encourage interest. We foster multiple development projects over
the Internet and help each project progress smoothly.
CALDERA SYSTEMS STRATEGY
Our goal is to become the leading provider of Linux solutions for
eBusiness. Key elements of our strategy to achieve our goal include:
Providing Linux software for specialized servers and Internet access
devices. By providing focused Linux business solutions that simplify systems
management, increasing interoperability and improving ease of use, we have the
goal of becoming the number one provider of Linux eBusiness products. We are a
leader in applying commercial development practices to Linux, resulting in Linux
products that can be more easily deployed and managed. We intend to facilitate
the proliferation of highly customized,
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integrated Linux business solutions by offering both a Linux client and server
product and further optimization and certification services to solution
providers and end users. In addition, during the first half of 2000 we plan to
release eBuilder, an open standards, component-based eBusiness framework,
written in Java for the Linux environment. eBuilder is designed to provide
businesses with the ability to incorporate existing software applications, file
directories and databases into workable eBusiness solutions, such as Web
storefronts.
Remaining committed to research and development. We are committed to
continuing our research and development efforts to enhance our products to be
efficient and effective platforms for delivering eBusiness solutions. Our
primary focus will be to design and implement the software that will allow
organizations to install and manage these Linux systems in a flexible and cost
effective manner. We will contribute time and technology to various industry
initiatives to expand the range of computing hardware on which our products can
be offered. Additionally, we will support and seek to influence technology
standards that will expand the scope in which our products can be sold and
deployed. We are committed to the open source model for software development and
will work to contribute much of our efforts to the open source development
community. We will continually seek out new innovative solutions to address the
needs of our customers and the evolution of the marketplace.
Increasing our channel presence in Linux. We believe that the best way to
reach the business user is through solution providers. Solution providers will
be invaluable in providing turnkey solutions and local support for specialized
servers. We plan to enhance our product and service offerings to solution
providers by introducing new products for eBusiness, increasing the reach of our
education and training services and expanding resources for solution providers
on our Web site.
Leveraging partners for growth. We believe that in order for us to
accelerate our growth, we must enlist the help of partners to promote our brand,
proliferate our products and provide us with valuable feedback. Through our
partner programs, we plan to provide our partners with appropriate knowledge,
tools and certifications to effectively implement our solutions for eBusiness.
This will increase awareness of Caldera Systems and our extended network of
partners, thus increasing the end user's confidence in us and Linux as a viable
business platform. We intend to expand our partner programs for:
- developers;
- independent software vendors, or ISVs;
- original equipment manufacturers;
- hardware vendors;
- system integrators;
- value-added resellers;
- distributors;
- retailers;
- education providers (ALECs); and
- Web partners.
Facilitating the adoption of Linux for eBusiness through education and
training. In addition to simply selling educational products, our strategy is to
educate our partners on how to deploy, manage and administer Linux solutions. As
these partners train other users, we expect increased sales referrals. We plan
to expand our ALEC channel through industry partnerships to help establish
market share. In addition, we plan to expand our educational offerings through
Web-based classroom training, academic textbooks and training materials, and to
develop additional courses to maintain our leadership in Linux educational
products. Finally, we plan to expand our partnerships to include universities,
course developers, communities and other institutions who may offer
opportunities to increase exposure of Linux.
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Establishing our Web site as the one-stop center for eBusiness. We intend
to continue to enhance our Web site to provide a one-stop center for eBusiness.
We expect that this will attract Linux business users, particularly those from
small to medium businesses, as well as the business users who contemplate using
Linux but lack the confidence that there will be sufficient education, products
and support. We plan to expand our Web site as an electronic channel for our
solution providers by providing information, sales and service leads.
Expanding our international presence. We currently have distribution
channel representation in 47 countries to take advantage of what we believe will
be high international demand for Linux business solutions. We plan to continue
to penetrate the international market by recruiting local distributors and
solution providers in each region, leveraging their access to the surrounding
community, and by reaching partners to proliferate our brand and products. These
partners will begin to generate momentum for our products and services as the
international markets become educated about our solutions. Local partners will
also be able to add value and customize our products and Web site to meet local
language and regulatory requirements. As our international penetration
continues, we plan to expand our support resources to overcome time zone and
language barriers as we are now doing in Germany and Japan.
PRODUCTS
We develop, market and support Linux products and solutions specifically
designed to meet the complex needs of eBusiness. According to PC Data, during
the period from January 1, 1999 through October 31, 1999, Caldera Systems was
third in sales of Linux operating systems in the United States, both in terms of
units sold and aggregate dollar amount. Our products and solutions integrate
both commercial and open source software products developed by us and third
parties. For example, we have included applications that we have open sourced,
such as LInux wiZARD (LIZARD), our award-winning graphical Linux step-by-step
installation tool. We apply development and testing procedures to the open
source code included in our products similar to those procedures applied to
commercial products. This process known as self-hosting is unique in the Linux
community and accounts for the high levels of stability and performance of our
products. Our rigorous development procedures result in a highly consistent
product that enables easier and more rapid customization, integration and
support of our solutions. Our products are designed to work both individually
and together to provide a rapidly expandable platform as enterprises extend
their eBusiness infrastructure.
OpenLinux 2.3
We first released our principal product, OpenLinux, a Linux operating
system, in 1995. We began shipping the latest release, OpenLinux 2.3, in
September 1999. OpenLinux 2.3 is an integrated and pre-tested collection of
approximately 300 business-relevant third-party software components, which
provide for a variety of functions that can be utilized either on a single
desktop computer or in a networked environment. We have historically developed
OpenLinux for the first time Linux user, which predominantly has come from a
Windows, desktop environment. OpenLinux 2.3 is currently available for the Intel
and Sun SPARC platforms. According to Ziff-Davis, in laboratory tests, OpenLinux
was 50% faster than any other Linux product in Web server performance and 200%
faster than Windows NT at file and print services. We believe that these
performance results are largely due to our self-hosting approach.
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The suggested retail price for packaged OpenLinux 2.3 is $49.95. Examples of
some of the key components of OpenLinux 2.3 and the functions they perform
include:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
OPEN SOURCE COMPONENTS FUNCTION
- ---------------------------------------------------------------------------------------------
<S> <C>
KDE Graphical Desktop
- ---------------------------------------------------------------------------------------------
Linux Kernel (Version 2.2.10) Operating system core
- ---------------------------------------------------------------------------------------------
Lizard Installation software
- ---------------------------------------------------------------------------------------------
Netscape Communicator 4.61 Web browser
- ---------------------------------------------------------------------------------------------
Apache Web server
- ---------------------------------------------------------------------------------------------
Sendmail E-mail routing software
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
COMMERCIAL COMPONENTS FUNCTION
- ---------------------------------------------------------------------------------------------
<S> <C>
StarOffice 5.1 (personal edition) Suite of office applications
- ---------------------------------------------------------------------------------------------
Corel WordPerfect 8.0 (personal edition) Word processor
- ---------------------------------------------------------------------------------------------
BRU-PE Backup and Restore Utility
- ---------------------------------------------------------------------------------------------
PartitionMagic Hard-drive partitioning
- ---------------------------------------------------------------------------------------------
BootMagic Boot-up manager
- ---------------------------------------------------------------------------------------------
Applixware 4.4.2 office suite (trial Suite of office applications
version)
- ---------------------------------------------------------------------------------------------
</TABLE>
OpenLinux 2.3, in the next release, will be renamed OpenLinux Desktop to
reflect its emphasis for desktop.
OpenLinux eServer 2.3
OpenLinux eServer 2.3 is targeted at solution providers, system integrators
and resellers who provide specialized, thin and high-end servers to their
customers. eServer supports server-oriented hardware. It is a component-based
server operating system designed for OEMs, solution providers, system
integrators and resellers and makes Linux server solutions easy to install,
configure and operate. It is readily customizable and, in particular, has been
developed for use by AST Computers, Fujitsu and Motorola. OpenLinux eServer 2.3
has been shipped to strategic partners such as Fujitsu, IBM and Motorola and
will be generally available in the first quarter of 2000.
eBuilder
We plan to release our eBusiness framework, eBuilder, in the first half of
2000. eBuilder is one of the first fully open standards, component-based
eBusiness frameworks written in Java for the Linux environment. eBuilder can be
used to develop ecommerce components, packages and processes. These packages and
processes can be re-used in multiple client environments. eBuilder utilizes Java
to introduce plug-and-play capability into an environment for a business'
existing software applications, file directories and databases. eBuilder is Java
and CORBA compliant, utilizes XML for data encapsulation and is Enterprise Java
Bean compliant. The eBuilder framework, coupled with eServer, will provide
solution providers the ability to transform traditional products and services
into integral components of a comprehensive eBusiness solution, allowing them to
provide new eBusiness services to their existing customers without requiring
them to totally replace their existing business solutions.
SERVICES
Linux Education and Training Services
Our educational programs and products are designed to help our customers
learn to develop, deploy and administer Linux systems. Our courses provide
preparation for Linux certification tests being provided
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by the Linux Professional Institute, an independent organization. We provide the
most comprehensive distribution-neutral training program for Linux.
We provide Linux training through our training center in Orem, Utah and
through 24 ALECs located in the United States and abroad. ALECs are independent
centers that we have authorized to provide courses that we have developed.
Currently, we offer eight separate courses relating to Linux training and
network administration, which are categorized by their educational objective.
The three categories of courses we provide allow multiple educational tracks,
including:
- Linux certification;
- system administration; and
- Linux developer training.
The suggested retail price for our non-developer courses is $1,995.
Developer courses have a suggested retail price of $2,250.
eBusiness Consulting, Custom Development and Optimization Services
Our eBusiness consulting services stem from our experience testing and
integrating software products to work in a Linux environment. We assist ISVs and
solution providers by helping them in creating customized Internet solutions
which they can then pass along as products and solutions for their customers.
Examples of the eBusiness consulting services we provide include:
- Customization and optimization of our products to support a client's
proprietary system or configuration. Fees for this service start at
$10,000.
- Assessment services relating to the proposed migration of a client's
software for use with Linux. Fees for this service start at $3,000.
- Porting services for customers migrating their software to Linux. Fees
are billed on a daily, weekly or monthly basis.
Technical Support
Customers who purchase OpenLinux products through our distribution channels
are entitled to 90 days or five incidents of email or Internet technical support
at no additional charge. We support solution providers with second tier support.
Customers seeking additional technical support directly from us may enter
into service agreements that best suit their needs. Examples of our service
plans include:
- yearly unlimited telephone support agreements for $950 per system;
- yearly unlimited email support agreements for $495 per system;
- pay-as-you-go support agreements starting at $150 per incident;
- telephone support for up to 5, 10 or 20 calls ranging in price from $625
to $1,500 per call pack; and
- 7 day, 24 hour telephone support available at a 50% premium to the base
rates.
AWARDS AND RECOGNITIONS
Caldera Systems and its products have received several recognitions and
awards, including:
- Internetweek's "Best of the Best" award for best software for 1999
(December 1999);
- The Linux Show's "Best Distribution of Millennium" (December 1999);
- Linux Journal's Product of the Year award at Comdex (November 1999);
- listing in PC Magazine's Top 100 Technology Companies That Are Changing
the World (October 1999);
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- Linuxworld Editor's Choice Award: Best Client and Distribution (August
1999); and
- Network Computing's Well-Connected Award for Best Networked Operating
System (May 1999).
CUSTOMERS
We sell our products primarily through indirect channels. Our customers
include:
<TABLE>
<S> <C>
AST Computers MediaGold
Cendant MTI Technology Corporation
First International Computers Navarre Corporation
Frank Kasper & Associates Support Net
Gates/Arrow Tech Data
IBM
Ingram Micro
</TABLE>
Navarre Corporation and Frank Kasper & Associates each accounted for more
than 10% of our revenue in fiscal 1999. Substantially all of the revenue we have
received from these two parties reflects revenue from sales of our Linux
products.
STRATEGIC TECHNOLOGY ALLIANCES
We have business alliances with key global industry partners, including
Citrix Systems, Evergreen Internet, Corel, IBM, Novell, Oracle and Sun
Microsystems. These relationships encompass product integration, two-way
technology transfers, channel partnerships and revenue generating initiatives in
areas of product bundles, training and education, consulting and third-level
technical support for our partners. The objectives of these partnerships
include:
- providing complete hardware and software Linux solutions;
- licensing our education materials to be used in our partners' training
centers;
- supporting our partners' Linux engineering efforts as well as their
end-user customers; and
- mutually developing our sales and distribution channel by coordinating
marketing initiatives in creating demand for our products.
These relationships are non-exclusive, leaving us opportunities to explore
other strategic partnerships on a global level. In particular, in January 2000,
we entered into license agreements with Sun Microsystems which allow us to
create and commercially distribute applications developed utilizing Java2
Standard Edition for Linux, Java HotSpot Performance engine, EmbeddedJava and
PersonalJava for use on the Itanium (Merced), PowerPC, Sun x86, and UltraSPARC
processors. These licenses are non-exclusive. In connection with the licenses
relating to the Java2 Standard Edition and the Java HotSpot Performance Engine,
we agreed to pay Sun Microsystems $1.3 million in the first quarter of 2000 for
a license term of 18 months. This term may be extended for up to an additional
two years, either through a lump sum payment of an additional $2.3 million prior
to March 24, 2000, or through yearly payments of $1.5 million by June 2001 and
$1.8 million by June 2002. The licenses for EmbeddedJava and PersonalJava have
initial terms of three years, which may be renewed yearly thereafter, and for
which we have agreed to pay royalties for sales of products based on these
technologies.
Also, in January 2000, we entered into license agreements with Evergreen
Internet, Inc., pursuant to which we licensed rights to bundle their ECential
software products with components of OpenLinux to create eBuilder. These
ECential products comprise significant components of eBuilder. Under the
agreement, both we and Evergreen Internet may market and distribute eBuilder.
This license is exclusive with respect to use on the Linux platform for a
one-year period beginning on the date eBuilder is first distributed, and is
terminable by either party after January 6, 2003. However, if eBuilder is not
available for commercial distribution by June 30, 2000, either party may
terminate the license agreement.
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INDUSTRY PARTICIPATION
We participate as a key member of many industry standard, partner and open
source initiatives, including the following:
- Linux Professional Institute, an independent organization dedicated to
the establishment of professional certification standards for Linux
professionals;
- Linux Standards Base, a Linux community initiative dedicated to
addressing problems and defining standards associated with the many
versions of Linux distributions currently in the marketplace;
- Linux Internationalization Group, a voluntary Linux community working
group, of which we are one of the founding members, dedicated to
addressing interoperability, internationalization and localization of
Linux applications in the international context;
- The Trillian Project, an Intel-sponsored initiative to port the Linux
kernel to the Intel Itanium processor;
- Distributed Management Task Force, an independent organization including
most of the largest software and systems vendors in the world, dedicated
to creating new standards for computer systems management. We are working
with this task force to incorporate into our OpenLinux products
commonality standards already in place among enterprise-level businesses;
and
- Java, Sun Microsystem's proprietary software programming language. We
plan to incorporate standards that will allow the majority of current
Java applications to run on Linux and to provide for developers to create
new applications in Java for use on Linux.
SALES, MARKETING AND DISTRIBUTION
Our focus on Linux for eBusiness enables us to promote the development,
deployment, and management of Linux appliances and devices that facilitate the
eBusiness infrastructure. Our primary strategy is to distribute our products and
services through our indirect distribution channel model.
The majority of our revenue comes from distributors. As of November 1,
1999, we had approximately 35 distributors worldwide who purchase directly from
us. These distributors in turn sell to approximately 4,000 retail outlets in the
United States and approximately 900 equivalent sites internationally. On a
worldwide level, we utilize over 700 VARs to promote technology and service
integration of our products and solutions to their end-user business customers.
For the fiscal year ended October 31, 1999, our distributor channel
represented 73% of the current business and includes distributors such as Frank
Kasper & Associates, Ingram Micro, Navarre Corporation and Tech Data,
domestically, and MediaGold in Europe. We plan to continue to recruit new
distributors to introduce OpenLinux technology into new markets, including into
foreign countries with language specific products.
We sell directly to OEM partners, including AST Computers in the United
States and First International Computers in Taiwan. These arrangements are
typically royalty-based and our revenues are determined by volume of OpenLinux
products shipped on our partners' hardware or bundled together in distribution.
Our marketing efforts support our sales and distribution efforts,
promotions and product introductions and include marketing development funds to
push OpenLinux products. Pull marketing, apart from delivering quality products
and services needed in the marketplace, is focused on branding, solutions,
advertising, tradeshows, press releases, white papers and marketing literature.
We focus our marketing on
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public relations and press relations extensively to communicate the progress we
are making in the business arena. In particular, our marketing strategy consists
of:
- branding "Linux for eBusiness" through public relations announcements and
advertising;
- announcing technology and solution awards;
- creating an effective Partner program to generate brand awareness and
promote our products; and
- increasing public awareness through speaking engagements at strategic
tradeshows and conferences worldwide and participating in technology
forums.
Our Web site, www.calderasystems.com, is focused on strengthening our Linux
for eBusiness strategy. In addition to allowing visitors to download free
software, our Web team is expanding our current Web strategy of branding, direct
sales through our online store and linking customers to channel partners.
Through our Web site, we plan to join together ISVs, hardware partners,
customers, channel players, developers, ISPs and other Linux players who want to
connect for business reasons and to generate royalties based on introductions,
advertising and transactions.
COMPETITION
The market for eBusiness solutions is emerging rapidly and is therefore
intensely competitive, characterized by rapidly changing technology and evolving
standards. We expect competition to increase both from existing competitors and
new market entrants. We face direct competition in the area of specialized
servers and Internet devices from other providers of solutions for specialized
servers. We also face competition from traditional, non-Linux operating systems,
other Linux operating systems, technical support providers and professional
services organizations.
Companies currently offering software solutions for specialized servers or
Internet access devices include Berkeley Software Design, Microsoft and a joint
venture involving The Santa Cruz Operation and Compaq. Cygnus Solutions, VA
Linux and Wind River provide similar solutions embedded into their hardware
offerings. Many of these competitors are large, well-established companies with
significantly greater financial resources, more extensive marketing and
distribution capabilities, larger development staffs and more widely recognized
brands and products.
Companies currently offering competitive non-Linux operating systems
include providers of hardware-independent multi-user operating systems for Intel
platforms, such as Microsoft, IBM and Novell. They also include providers of
proprietary versions of the UNIX operating system, such as AT&T, Compaq,
Hewlett-Packard, IBM, Olivetti, Sun Microsystems and Unisys. These competitors
often bundle their operating systems with their hardware products, creating an
additional barrier for us to overcome in penetrating their customer bases. There
are also significantly more user applications available for competing operating
systems, such as Windows NT and UNIX, than there are for Linux operating
systems.
In the Linux operating system market, our competitors include Corel,
MacMillan, Red Hat, SuSE and TurboLinux. Several of these competitors have
established customer bases, strong brand names and continue to attract new
customers. Red Hat, in particular, has had more visibility and a stronger brand.
In addition, this market is not characterized by the traditional barriers to
entry that are found in most other markets, due to the open source nature of our
products. For example, anyone can readily download the Linux kernel and packages
from the Internet, optimize and add value to it, and thereafter market their own
version of the Linux operating system. Similarly, anyone can copy, modify and
freely redistribute the open source components of OpenLinux. Accordingly, new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Our product, however, is specifically suited for and
targeted toward the requirements of business. In addition, our education and
training program is more pervasive and our distribution channel is more
developed and mature. We believe that these three key advantages give us a
competitive advantage in the Linux operating system market.
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We also compete for service revenue with a number of companies that provide
technical support and other professional services to users of Linux operating
systems, including some original equipment manufacturers with which we have
agreements. Many of these companies have larger and more experienced service
organizations than we do. We also may face competition on this front from
companies with larger customer bases and greater financial resources and name
recognition, such as Corel, Cygnus Solutions and Sun Microsystems, which have
indicated interest in the Linux operating systems market.
Based upon these market factors, we believe that the most significant
criteria affecting the competitive landscape for our products include:
- networking capability;
- distribution strength;
- market perception of vendor;
- education and training;
- ease of customization;
- commercial development process;
- product performance, functionality and price;
- education and training;
- ease of use;
- breadth of hardware compatibility;
- quality of support and customer services;
- strength of relationships in the open source community; and
- availability of user applications.
We believe that we compete favorably with many of our competitors in a
number of respects, including product performance, functionality and price,
networking capability and breadth of hardware compatibility. To solidify and
improve our competitive ability, our near term strategy is to strengthen our
existing strategic relationships and enter into new ones in an effort to enhance
our name recognition, expand our distribution capabilities and attract more
attention to the open source movement, which in turn should create additional
incentives for software developers to write more applications for OpenLinux.
SOFTWARE ENGINEERING AND DEVELOPMENT
We have invested and will continue to invest in the development of
innovative new product features and technologies in response to the evolving
market for Linux solutions and input from key customers. We seek to deliver
consistently strong Linux products targeted at specific usage as opposed to the
more traditional one-size-fits-all Linux distribution in which the customer may
be required to re-build the kernel to attain the proper configuration. This
product segmentation of eServer and eDesktop allows us to tailor the delivery of
the product to work optimally as installed off the CD, yet continue to provide
customization, one of the essential values of Linux.
One of our key strategies has been to focus on identifying and removing the
traditional barriers for mass deployment of UNIX-style operating systems (e.g.,
installation, system configuration and management). The delivery of the
award-winning LIZARD installation system, initially shipped in OpenLinux 2.2 in
April 1998, successfully paved the way for a much broader base of users to
experience Linux with a much lower learning curve. Going forward, we intend to
continue to apply this philosophy as we work toward addressing the broader
issues of system configuration management and administration, specifically as it
pertains to the deployment of eServer-based information appliances and eDesktop
platforms. Our latest component of this architecture, the LUI (Linux Unattended
Install) was developed
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in cooperation with a large European University to allow many systems (eServer
or eDesktop) to be installed and upgraded without requiring direct user
interaction. We intend to introduce new components with each subsequent product.
Our major commitment in the area of research is how to extract the
management aspects of individual systems, new and legacy applications to enable
the deployment, management and administration of platforms and applications to
be handled from anywhere on the network. Leveraging Linux, open source and open
standard technologies is a way of providing necessary infrastructure components.
We believe that contributing back to Linux much of our research will facilitate
more of an industry standard as well as industry cooperation.
Our product development process is modeled to standard, commercial software
engineering practices. We apply these practices to both documentation and
procedures to ensure consistent product quality. As a result, we are able to
offer our platform products to OEM customers in several configurations without
significant effort. We are also able to move our platform products efficiently
to new processor platforms as new business opportunities arise.
As of December 31, 1999, we employed an in-house engineering staff of 31 in
addition to maintaining a contract consulting arrangement with a Japanese firm
for product development needs specific to the Japanese market. The engineering
staff consists of two primary teams, the U.S. Engineering group located near
corporate headquarters in Utah and the European group located in Erlangen,
Germany. Our staff members possess a broad range of both Linux and other
industry experience.
INTELLECTUAL PROPERTY
Our success depends significantly on our ability to protect our trademarks,
trade secrets, and certain proprietary technology. To accomplish this, we rely
primarily on a combination of trademark and copyright laws and trade secrets. We
also require that our employees and consultants sign confidentiality and
nondisclosure agreements. We generally regulate access to and distribution of
our documentation and other proprietary information.
Certain components of OpenLinux have been developed and made available for
licensing under the GNU General Public License and similar licenses, which
generally allow any person or organization to copy, modify and distribute the
software. The only restriction is that any resulting or derivative work must be
made available to the public under the same terms. Therefore, although we retain
the copyrights to the code that we develop ourselves, due to the open source
nature of our software products and the licenses under which we develop and
distribute them, our collection of trademarks constitutes our most important
intellectual property.
We have licensed the registered trademark "CALDERA(R)" and also have
license rights relating to "CALDERA SYSTEMS(TM)", a pending trademark
application. We plan to respond to the rejection in September 1999 of our
trademark applications in the United States for "OpenLinux(TM)" and "Linux for
Business(TM)".
Despite our efforts to protect our trademark rights, unauthorized third
parties have in the past attempted and in the future may attempt to
misappropriate our trademark rights. We cannot be certain that we will succeed
in preventing the continued misappropriation of our tradename and trademarks in
these circumstances or that we will be able to prevent this type of unauthorized
use in the future. The laws of some foreign countries do not protect our
trademark rights to the same extent as do the laws of the United States. In
addition, policing unauthorized use of our trademark rights is difficult,
expensive and time consuming. The loss of any material trademark or trade name
could have a significant negative effect on our business, operating results and
financial condition.
We do not believe that our products infringe the rights of third parties.
However, our products are comprised of many distinct software components,
developed by many independent parties, and therefore third parties have in the
past asserted, and may in the future assert infringement claims against us which
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may result in costly litigation or require us to obtain a license to third-party
intellectual rights. There can be no assurance that such licenses will be
available on reasonable terms or at all, which could have a negative effect on
our business, operating results and financial condition.
EMPLOYEES
As of December 31, 1999, we had a total of 108 employees. Of the total
employees, 31 were in software engineering, 30 in sales and marketing, 20 in
customer service and technical support, 7 in operations, 11 in finance and
administration and 9 assigned to development of our electronic channel. From
time to time we also employ independent contractors to support our professional
services, product development, sales, marketing and business development
organizations. Our employees are not represented by any labor union and are not
subject to a collective bargaining agreement, and we have never experienced a
work stoppage. We believe our relations with our employees are good.
FACILITIES
Our principal executive office is currently located in Orem, Utah where we
sublease approximately 10,600 square feet under a lease that will expire in
August 2000. Our annual rental expense under the lease is approximately
$145,000. We also occupy 8,300 square feet of additional office space in Orem,
Utah, under a lease that costs $10,000 per month, and 5,544 square feet of
warehouse space in Orem, Utah, under an 18 month lease that costs approximately
$32,000 per year. In May 2000, we plan to consolidate our two Orem office
facilities into one in a new building in Orem, Utah, which is currently under
construction. We expect that our lease terms in that facility will be comparable
to those which we have currently. Our German subsidiary occupies 3,375 square
feet in Erlangen, Germany under a five-year renewable lease for approximately
$4,880 per month. This lease expires September 1, 2004, and additional space is
available under similar terms. We believe that our existing facilities are
adequate for our current requirements and that additional space can be obtained
on commercially reasonable terms to meet our future requirements.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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<PAGE> 52
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table presents information regarding our executive officers,
directors and key employees as of December 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ransom H. Love............................. 40 Chief Executive Officer, President and
Director
Alan J. Hansen............................. 36 Chief Financial Officer and Secretary
Drew A. Spencer............................ 38 Vice President, Development
Royce D. Bybee............................. 43 Vice President, Sales
Benoy Tamang............................... 35 Vice President, Marketing
R. Dean Taylor............................. 37 Vice President, Electronics Channel
John Thomas................................ 38 Vice President, Support Services
Walter D. Hammond.......................... 37 Vice President, Operations and Information
Systems
Ralph J. Yarro III......................... 35 Chairman of the Board of Directors
Raymond J. Noorda.......................... 75 Director
Thomas P. Raimondi, Jr..................... 42 Director
</TABLE>
Ransom H. Love has served as our President, Chief Executive Officer, and
member of our board of directors since August 1998. Prior to that date, Mr. Love
was a founder and served as Vice President of Marketing and Sales, Vice
President of Business Development and General Manager of the OpenLinux division
for Caldera, Inc., from January 1995 to September 1998. Prior to Caldera, Inc.,
Mr. Love held senior marketing positions at Novell and Sanyo Icon. Mr. Love has
been in various management positions in sales, marketing, support, testing and
education in the computer industry since 1982. He holds a BA in international
relations and an MBA from Brigham Young University.
Alan J. Hansen has served as our Chief Financial Officer since November
1999. From March 1996 through September 1997, he was Controller for PowerQuest
Corporation, and from September 1997 through November 1999, he was Vice
President of Finance for PowerQuest. From December 1994 through March 1996, Mr.
Hansen was self-employed as a public accountant. Mr. Hansen also spent more than
eight years working in the finance and securities industries, including more
than four years as controller with an investment management firm in the San
Francisco Bay area. Mr. Hansen holds a BS in accounting and an MBA from
California State University at Hayward.
Drew A. Spencer has served as our Vice President of Development since
December 1998. Prior to joining Caldera, Mr. Spencer spent ten years with
Novell, Inc. in a variety of senior technical and management positions,
including engineering consultant and was a member of the Corporate Architecture
Team. He has a BS degree in computer science from Westminster College.
Royce D. Bybee has served as our Vice President of Sales since August 1999.
From November 1998 to August 1999 he served as Vice President of Sales and
Marketing at Word Place, Inc. From December 1995 to June 1998, he was Senior
Vice President of Sales and Marketing, Vice President of Marketing and Director
of Channel Retail Sales for PowerQuest Corporation. From December 1994 to
December 1995 he was a sales agent for Osmond Real Estate. From February 1989 to
March 1994 he served as Regional Manager and Product Marketing Director at
WordPerfect Corporation. Mr. Bybee holds a BS in finance from Brigham Young
University.
Benoy Tamang has served as our Vice President of Marketing since December
1998. From January 1996 through August 1998, Mr. Tamang was General Manager of
Viewpoint Datalabs, where he coordinated domestic and international sales.
Previously, he served as Sales Director and Program Manager at Novell, Inc. from
March 1993 through August 1996. Mr. Tamang holds a BS in computer
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<PAGE> 53
information systems from Brigham Young University -- Hawaii and an MBA from the
Marriott School of Management at Brigham Young University.
R. Dean Taylor has served as our Vice President, Electronic Channel since
November 1999. He was employed in the channel sales department of Caldera, Inc.
from June 1995 through November 1999. From May 1995 through November 1995, he
also worked in channel marketing for The Canopy Group, Inc., and from November
1994 through May 1995, he worked in channel marketing for Novell, Inc. Mr.
Taylor is the co-author of the book Teach Yourself StarOffice for Linux in 24
Hours. He holds a BS degree from Brigham Young University.
John Thomas has served as our Vice President of Support Services since
November 1999. From April 1999 to November 1999, he was our Director of Customer
Support. From July 1994 until April 1999, Mr. Thomas served as Vice President of
Operations for Viewpoint DataLabs.
Walter D. Hammond has served as our Vice President of Operations and
Information Systems since May 1999. From December 1996 to April 1999, Mr.
Hammond was Director of Operations at Caldera, Inc. and then Caldera Systems,
Inc. Prior to joining Caldera, Inc. Mr. Hammond served as Senior Account Manager
of Banta Global Services from February 1994 to December 1996. Mr. Hammond holds
a BA in communications from Brigham Young University and an MBA from Utah State
University.
Ralph J. Yarro III has served as a member of our board of directors since
August 1998. Mr. Yarro has served as the President and Chief Executive Officer
of the Canopy Group, Inc. since April 1995. Prior to joining The Canopy Group,
Inc., he served as a graphic artist for the Noorda Family Trust. Mr. Yarro holds
a BA from Brigham Young University.
Raymond J. Noorda has served as a member of our board of directors since
August 1998. Mr. Noorda currently serves as chairman of the board of directors
of MTI Technology Corporation and The Canopy Group, Inc. Mr. Noorda previously
served as President, Chief Executive Officer and Chairman of Novell, Inc. from
1983 to 1994 and has served as a trustee of the Noorda Family Trust since 1994.
Prior to joining Novell, Inc. Mr. Noorda served as Chief Executive Officer of
Boschert, Inc. and System Industries, Inc. He holds a BS in electrical
engineering from the University of Utah.
Thomas P. Raimondi, Jr. has served as a member of our board of directors
since September 1999. He has been with MTI Technology Corporation since 1987,
serving as President and Chief Executive Officer since December 1999, as Chief
Operating Officer from July 1998 to December 1999, as Senior Vice President and
General Manager from January 1996 to July 1998 and as Vice President of
Marketing from 1987 to December 1995. Mr. Raimondi holds a BS in communications
from the University of Maryland.
COMPOSITION OF THE BOARD
We currently have four directors. Directors are elected by stockholders at
each annual meeting of shareholders to serve until the next annual meeting of
stockholders or until their successors are duly elected and qualified. There are
no family relationships among any of our directors, officers or key employees.
Under a voting agreement, entered into in December 1999, certain of our
stockholders agreed to increase the board to nine directors, and for the board
members to be designated pursuant to the terms of that agreement. These rights
to designate members under the voting agreement terminate upon the closing of
this offering. See "Certain Transactions -- Preferred Stock Transactions."
BOARD COMMITTEES
The compensation committee of the board of directors recommends, reviews
and oversees the salaries, benefits and stock option plans for our employees,
consultants, directors and other individuals compensated by us. The compensation
committee also administers our compensation plans.
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<PAGE> 54
The audit committee of the board of directors reviews, acts on and reports
to the board of directors with respect to various auditing and accounting
matters, including the recommendation of our auditors, the scope of the annual
audits, fees to be paid to the auditors, the performance of our independent
auditors and our accounting practices.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee has at any time been one
of our officers or employees. None of our executive officers currently serves or
in the past year has served as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving on our board or compensation committee. Prior to the creation of our
compensation committee, all compensation decisions were made by our full board.
Mr. Love did not participate in discussions by our board with respect to his
compensation.
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their services as
directors, although members are reimbursed for expenses in connection with
attendance at board and compensation meetings.
In December 1999, the board granted an option to Thomas P. Raimondi, Jr.,
to purchase 100,000 shares of our common stock at an exercise price $6.00 per
share. In August 1999, the board granted options to Ralph J. Yarro III to
purchase 100,000 shares of our common stock, and in December 1999, the board
granted Mr. Yarro options to purchase 50,000 shares of our common stock, at a
combined average exercise price of $2.67 per share. These options vest monthly
over a two-year period. We may grant our non-employee directors additional
options in the future.
EMPLOYMENT AGREEMENTS
We have not entered into employment agreements with any of our executive
officers.
EXECUTIVE COMPENSATION
The following table presents compensation information for our most recent
fiscal year, ended October 31, 1999, paid or accrued by our Chief Executive
Officer and each of our other executive officers whose salary and bonus for
fiscal 1999 was more than $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION(1) ---------------------
----------------- SECURITIES UNDERLYING
NAME SALARY BONUS OPTIONS
---- -------- ----- ---------------------
<S> <C> <C> <C>
Ransom H. Love......................................... $106,077 -- 560,000
Drew A. Spencer........................................ $105,333 -- 100,000
</TABLE>
- -------------------------
(1) The column for "Other Annual Compensation" has been omitted because there is
no compensation required to be reported in that column. The aggregate amount
of perquisites and other personal benefits provided to each executive
officer listed above is less than the lesser of $50,000 and 10% of his total
annual salary and bonus.
OPTION GRANTS IN LAST FISCAL YEAR
The following table presents the grants of stock options under our 1998
Stock Option Plan during fiscal 1999, ended October 31, 1999, to each of our
executive officers named in the Summary Compensation Table.
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<PAGE> 55
All option grants under the 1998 Stock Option Plan are nonqualified stock
options. Options expire ten years from the date of grant.
The exercise price of each option granted is equal to the fair market value
of our common stock, as determined by our board on the date of grant. In fiscal
1999, we granted to our employees options to purchase a total of 3,106,566
shares of our common stock.
Potential realizable values are computed by
- Multiplying the number of shares of common stock subject to a given
option by the exercise price per share,
- Assuming that the aggregate option exercise price derived from that
calculation compounds at the annual 5% or 10% rates shown in the table
for the entire 10 year term of the option, and
- Subtracting from that result the aggregate option exercise price.
The 5% and 10% assumed annual rates of stock price appreciation are
required by the rules of the Securities and Exchange Commission and do not
represent our estimate or projection of future common stock prices.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO PRICE PER TERM
OPTIONS EMPLOYEES IN SHARE EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 0% 5% 10%
---- ---------- ------------ --------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ransom H. Love............. 68,000 18.03% $1.00 12/28/2008 -- $ 42,765 $108,374
492,000 $1.00 6/3/2009 $61,500 $409,593 $943,636
Drew A. Spencer............ 45,000 3.22% $1.00 12/28/2008 -- $ 28,300 $ 71,718
55,000 $1.00 6/3/2009 $ 6,875 $ 45,788 $105,488
</TABLE>
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED OCTOBER 31, 1999 AND YEAR-END
OPTION VALUES
None of our executive officers exercised options during the year ended
October 31, 1999. The following table presents the number of shares of common
stock subject to vested and unvested stock options held as of October 31, 1999
by each of our executive officers named in the Summary Compensation Table. Also
presented are values of "in-the-money" options, which represent the positive
difference between the exercise price of each outstanding stock option and the
assumed initial public offering price of $ per share.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
OCTOBER 31, 1999 AT OCTOBER 31, 1999
----------------------- --------------------
NAME VESTED UNVESTED VESTED UNVESTED
---- --------- ---------- -------- --------
<S> <C> <C> <C> <C>
Ransom H. Love.................................... 377,233 182,767
Drew A. Spencer................................... 27,083 72,917
</TABLE>
1998 STOCK OPTION PLAN
The 1998 Stock Option Plan was adopted by the board of directors on
December 29, 1998 and subsequently approved by the stockholders. The plan became
effective upon its adoption by the board.
5,000,000 shares of common stock were authorized for issuance under the
1998 Stock Option Plan.
Under the 1998 Stock Option Plan eligible individuals in our employ or
service (including officers, non-employee board members and consultants) could
be granted options to purchase shares of our common stock. The 1998 Stock Option
Plan is administered by our compensation committee.
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<PAGE> 56
The exercise price for the options may be paid in cash or in shares of our
common stock valued at fair market value on the exercise date. The option may
also be exercised through a same-day sale program without any cash outlay by the
optionee.
In the event that we are acquired, whether by merger or asset sale, each
outstanding option not assumed by the successor corporation, and all outstanding
repurchase rights not assigned to the successor corporation, will automatically
terminate. Each option assumed by the successor corporation will be adjusted to
apply to the number and class of securities which would have been issuable to
the option holder had the option been exercised immediately prior to the merger
or asset sale. Following such merger or asset sale, appropriate adjustments will
also be made to the number and class of securities available for issuance under
the 1998 Stock Option Plan and the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
The compensation committee has the authority, with the consent of the
affected option holders, to cancel outstanding options in return for the grant
of new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of the common stock on
the new grant date.
The board may amend or modify the 1998 Stock Option Plan at any time,
subject to any required stockholder approval. The 1998 Stock Option Plan will
terminate no later than December 29, 2008.
1999 OMNIBUS STOCK INCENTIVE PLAN
The 1999 Omnibus Stock Incentive Plan is intended to serve as the successor
equity incentive program to our 1998 Stock Option Plan. The 1999 plan became
effective upon its adoption by the board of directors on December 1, 1999; it
was approved by the stockholders by unanimous written consent on December 1,
1999.
3,605,238 shares of common stock have been authorized for issuance under
the 1999 plan. This share reserve includes 1,905,238 shares available for
issuance under the 1998 Stock Option Plan on the effective date of approval of
the 1999 plan by the stockholders. No one participant in the 1999 plan may
receive option grants or any other awards for more than 200,000 shares in the
aggregate in any tax year of Caldera Systems except for grants of options for a
total of 379,752 shares to Mr. Love authorized by our board of directors in
December 1999 and January 2000. The 1999 plan allows for the grant of awards in
the form of incentive and non-qualified stock options, stock appreciation
rights, restricted shares, phantom stock and stock bonuses. Awards may be
granted to individuals in Caldera System's employ or service.
The 1999 plan will be administered by our compensation committee. This
committee will determine which eligible individuals are to receive awards under
the 1999 plan, the type of award to be made, the time or times when such awards
are to be made, the number of shares subject to each such award, and the vesting
schedule and the other terms to be in effect for the award.
The exercise price for the options may be paid in cash, in shares of our
common stock valued at fair market value on the exercise date or by having us
retain sufficient shares of our common stock from shares which would be issuable
upon the exercise of the option. The option may also be exercised through a
same-day sale program without any cash outlay by the optionee.
Tandem stock appreciation rights may be issued under the 1999 plan which
will provide the holders with the election to surrender their outstanding
options for a cash appreciation distribution from Caldera Systems equal to the
fair market value of the vested shares subject to the surrendered option less
the aggregate exercise price payable for such shares. In addition, we may issue
stand-alone stock appreciation rights which will entitle the holder to receive a
cash payment from Caldera Systems equal to the fair market value of the vested
shares subject to the right less the base price for such right.
Phantom stock awards will entitle the holder to receive in cash the fair
market value of our common stock on the vesting date.
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<PAGE> 57
In the event that we are acquired (whether by merger or asset sale) or
there is a change in who controls us (effected through an acquisition of 50% or
more of our voting stock or by proxy contest for the election of board members),
options and stand-alone stock appreciation rights exercisable at that time will
remain exercisable until their expiration, and options and stand-alone stock
appreciation rights not exercisable at that time will expire. Also, if we are
acquired or experience a change in control, all restrictions on outstanding
vested shares of restricted stock granted under Section 10 of our 1999 Omnibus
Stock Incentive Plan will lapse, and all outstanding, unvested shares of such
restricted stock will expire and be cancelled. Similarly, all outstanding,
unvested shares of phantom stock will expire and be cancelled if we are acquired
or experience a change in control.
The board may amend or modify the 1999 plan at any time, subject to any
required stockholder approval. The 1999 plan will terminate no later than
December 1, 2009.
2000 EMPLOYEE STOCK PURCHASE PLAN
We plan to adopt an Employee Stock Purchase Plan prior to the date of this
offering. The plan will become effective immediately upon the execution of the
underwriting agreement for this offering. The plan is designed to allow eligible
employees of Caldera Systems, Inc. and its participating subsidiaries to
purchase shares of our common stock, at semi-annual intervals, through their
periodic payroll deductions. A total of 500,000 shares of our common stock will
initially be reserved for issuance under the plan. The share reserve will
increase on the first trading day of each calendar year beginning with the 2001
calendar year by 1% of the total number of shares of common stock outstanding on
the last day of the immediately preceding year but no such annual increase will
exceed 750,000 shares. In no event, however, may any participant purchase more
than 1,000 shares, nor may all participants in the aggregate purchase more than
125,000 shares on any one semi-annual purchase date.
The plan will have a series of successive offering periods, each with a
maximum duration of 24 months. However, the initial offering period will begin
on the day the underwriting agreement is executed in connection with this
offering and will end on the last business day in April 2002. The next offering
period will begin on the first business day in May 1, 2002, and subsequent
offering periods will be set by our compensation committee. Shares will be
purchased on semi-annual purchase dates (the last business day of April and
October each year) during the offering period. The first purchase date will be
October 31, 2000. Should the fair market value of our common stock on any
semi-annual purchase date be less than the fair market value on the first day of
the offering period, then the current offering period will automatically end and
a new offering period will begin, based on the lower fair market value.
Individuals who are eligible employees on the start date of any offering
period may enter the Plan on that start date or on any subsequent semi-annual
entry date (generally May 1 or November 1 each year). Individuals who become
eligible employees after the start date of the offering period may join the plan
on any subsequent semi-annual entry date within that period.
A participant may contribute up to 15% of his or her cash earnings through
payroll deductions and the accumulated payroll deductions will be applied to the
purchase of shares on the participant's behalf on each semi-annual purchase date
(the last business day in April and October each year). The purchase price per
share will be 85% of the lower of the fair market value of our common stock on
the participant's entry date into the offering period or the fair market value
on the semi-annual purchase date.
The board may at any time amend or modify the plan. The plan will terminate
no later than the last business day in April 2010.
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CERTAIN TRANSACTIONS
Other than the transactions described below, since October 31, 1997 there
has not been, nor is there currently proposed, any transaction or series of
similar transactions to which we were or will be a party:
- in which the amount exceeds $60,000; and
- in which any director, executive officer, holder of more than 5% of our
common stock or any member of their immediate family had or will have a
direct or indirect material interest.
RELATIONSHIP WITH CALDERA, INC.
We began operations in 1994 as a business unit comprising substantially all
of the operations of Caldera, Inc. In July 1996, through an asset purchase,
Caldera, Inc. acquired an additional business unit which was not engaged in
developing and marketing Linux software. Caldera, Inc. subsequently made the
strategic determination to separate its two business lines into separate
entities. Therefore, pursuant to an Asset Purchase and Sale Agreement dated as
of September 1, 1998, as amended, by and between Caldera, Inc. and Caldera
Systems, Inc., Caldera, Inc. sold to Caldera Systems certain assets of its Linux
software business unit for $19.9 million, $15.0 million of which was paid in the
form of a cash payment in fiscal year 1999, $36,174 of which was in the form of
assumption of liabilities and $4.9 million of which was in the form of
forgiveness of a note receivable from Caldera, Inc.
On September 1, 1998, we entered into a sublease with Caldera, Inc. for
office space in Orem, Utah. The sublease provides for annual rent of
approximately $150,000 and terminates August 31, 2000.
Ralph J. Yarro III, chairman of our board of directors, and Raymond J.
Noorda, one of our directors, are directors of Caldera, Inc. Caldera, Inc. is
majority-owned by The Canopy Group, Inc. which holds more than 5% of our common
stock. The Noorda Family Trust, of which Mr. Noorda and his spouse are
co-trustees, is the controlling stockholder of The Canopy Group, Inc.
RELATIONSHIP WITH THE CANOPY GROUP, INC.
Effective August 31, 1998, we sold 16,000,000 shares of our common stock to
The Canopy Group, Inc. for an aggregate purchase price of $21.0 million. Of this
amount, $16.0 million was paid in cash ($519,000 in fiscal year 1998 and $15.5
million in fiscal year 1999), and $4.9 million was in the form of a note
receivable from Caldera, Inc., which The Canopy Group transferred to us.
Effective September 1, 1998, we entered into a convertible promissory note
with The Canopy Group. The note, which was secured by all of our assets, was due
on December 31, 1999. The note bore interest at the prime rate, less 1/2%
(currently 7.5%), and was convertible into our common stock at $1.00 per share.
A total of $4.8 million was advanced under the note. The principal balance,
along with $455,000 of accrued interest was converted into 5,273,974 shares of
our common stock on August 19, 1999.
In May 2000, we anticipate moving into new office space, under a lease to
be entered into with The Canopy Group on market terms.
The Canopy Group holds more than 5% of our common stock. Mr. Noorda, one of
our directors, and his spouse are co-trustees of the Noorda Family Trust, which
is the controlling stockholder of The Canopy Group.
We have adopted a 401(k) plan sponsored by The Canopy Group for our
employees, under which we began making matching contributions beginning January
1, 2000.
RELATIONSHIP WITH MTI TECHNOLOGY CORPORATION
Effective July 27, 1999, we sold 5,333,333 shares of our common stock to
MTI Technology Corporation for an aggregate purchase price of $6.0 million. Of
this amount, $3.0 million was paid at closing, $1.5 million was to be due at
January 1, 2000, and $1.5 million is due at July 1, 2000. The first
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$1.5 million was paid early on November 15, 1999 in return for a waiver by us of
accrued and future interest on the unpaid portions of the purchase price.
On August 12, 1999, we entered into a Distribution and License Agreement
with MTI Technology Corporation. Under this agreement, MTI Technology
Corporation includes as available for sale in its price book all of our
products, technology or services that are commercially available for sale, and
we sell or license, as applicable, to MTI Technology Corporation, and allow MTI
Technology Corporation to sell, re-sell, license, reproduce, use, distribute,
sublicense, have made and prepare derivative works of all of our products,
technology, or services that are commercially available. This agreement is
terminable by either party on 90 days prior written notice.
We use a computer system provided by MTI Technology Corporation without
charge. The computer system is valued at $105,000.
MTI Technology Corporation owns more than 5% of our common stock. The
Canopy Group, Inc. holds more than 45% of the outstanding common stock of MTI
Technology Corporation. The Noorda Family Trust, of which Mr. Noorda and his
spouse are co-trustees, is the controlling stockholder of The Canopy Group. Mr.
Noorda is one of our directors and is chairman of the board of directors of MTI
Technology Corporation. Thomas P. Raimondi, Jr., one of our directors, is
president and chief executive officer of MTI Technology Corporation.
RELATIONSHIP WITH LINEO, INC.
We have begun to provide OpenLinux to Lineo, Inc. for inclusion in their
embedded Linux products, although we have not reached an agreement with respect
to the economics of this arrangement. We expect to enter into agreement with
Lineo on market terms. In January, 2000 we sold 1,250,000 shares of our common
stock to Lineo in return for 3,238,437 shares of common stock of Lineo.
Lineo is majority-owned by Caldera, Inc., which is majority owned by The
Canopy Group, Inc. The Noorda Family Trust, of which Mr. Noorda and his spouse
are co-trustees, is the controlling stockholder of The Canopy Group, Inc.
PREFERRED STOCK TRANSACTIONS
Effective December 30, 1999, we entered into a conversion agreement with
The Canopy Group and MTI Technology Corporation. Under the conversion agreement,
we issued and exchanged 5,273,974 shares of our Series A convertible preferred
stock for 5,273,974 shares of our common stock held by The Canopy Group. We also
issued and exchanged 1,322,172 shares of our Series A convertible preferred
stock for 1,322,172 shares of our common stock held by MTI Technology
Corporation.
In December 1999 and January 2000, we issued 5,000,000 shares of our Series
B convertible preferred stock at a purchase price of $6.00 per share to various
investors including Chicago Venture Partners, Citrix Systems, Inc., Egan
Managed-Capital, Novell, Inc., Sun Microsystems and The Santa Cruz Operation,
Inc. Under a voting agreement entered into in connection with the Series B
financing, the holders of the Series A convertible preferred stock and the
holders of the Series B convertible preferred stock agreed to a board of nine
directors, of which two would be designated by the holders of a majority of the
outstanding shares of Series A convertible preferred stock, one would be
designated by Citrix Systems Inc., one would be designated by Egan
Managed-Capital, one would be designated by Novell Inc., one would be designated
by Sun Microsystems, one would be designated by MTI Technology Corporation, one
would be our chief executive officer and one would be designated by the holders
of a majority of the capital stock subject to the voting agreement. The parties
also agreed that if this offering does not close by June 30, 2000, the board
will be increased to eleven directors, with the two additional directors to be
designated by a majority of the outstanding shares of Series A convertible
preferred stock. The rights to designate members of the board under the voting
agreement terminate upon the closing of this offering. We have not yet increased
our board size, and the parties have not designated directors pursuant to the
terms of this agreement.
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In connection with the Series B financing, the holders of the Series A
convertible preferred stock and the holders of the Series B convertible
preferred stock also entered into a second amended and restated investors rights
agreement with us, under which:
- We are obligated to provide certain registration rights with respect to
shares of our capital stock held by the other parties to this agreement.
See, "Description of Capital Stock -- Registration Rights."
- We granted the other parties a right of first offer with respect to any
future issuance and sale of shares of our capital stock other than shares
of our common stock to be issued publicly. This right will terminate upon
the closing of this offering.
INDEMNIFICATION AGREEMENTS
Prior to the close of this offering, we will enter into indemnification
agreements with our non-employee directors.
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PRINCIPAL STOCKHOLDERS
The following table presents information as to the beneficial ownership of
our common stock as of January 10, 2000 by:
- Each shareholder known by us to be the beneficial owner of more than 5%
of our common stock;
- Each of our directors;
- Each executive officer listed in our summary compensation table; and
- All directors and executive officers as a group.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless indicated below, to our knowledge, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Shares of common stock subject to options that are currently
exercisable or exercisable within 60 days of January 10, 2000 are deemed to be
outstanding and to be beneficially owned by the person holding the options for
the purpose of computing the percentage ownership of that person but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED
-----------------------
NUMBER OF SHARES BEFORE THE AFTER THE
NAME AND ADDRESS BENEFICIALLY OWNED OFFERING OFFERING
---------------- ------------------ ---------- ---------
<S> <C> <C> <C>
The Canopy Group, Inc.......................... 21,273,974(1) 64.0%
MTI Technology Corporation..................... 5,333,333(2) 16.1
Ransom H. Love................................. 532,616(3) 1.6
Drew A. Spencer................................ 59,434(4) *
Ralph J. Yarro, III............................ 60,417(5) *
Raymond J. Noorda.............................. 27,857,307(6) 83.8
Thomas P. Raimondi, Jr......................... --(7) *
All 11 directors and executive officers as a
group........................................ 28,710,194(8) 84.2
</TABLE>
- -------------------------
* Less than 1%
(1) The address for The Canopy Group, Inc. is 240 West Center Street, Orem, Utah
84057.
(2) The address for MTI Technology Corp. is 4905 East La Palma Avenue, Anaheim,
California 92807.
(3) Consists of options to purchase 532,616 shares of common stock.
(4) Consists of options to purchase 59,434 shares of common stock.
(5) Consists of options to purchase 60,417 shares of common stock. Mr. Yarro is
President and Chief Executive Officer of The Canopy Group, Inc. Mr. Yarro
disclaims beneficial ownership of the shares held by The Canopy Group, Inc.
(6) Includes 21,273,974 shares of common stock held by The Canopy Group, Inc.,
5,333,333 shares of common stock held by MTI Technology Corporation and
1,250,000 shares held by Lineo, Inc. Mr. Noorda is chairman of the boards of
directors of The Canopy Group, Inc. and MTI Technology Corporation, and is a
director of Lineo, Inc. Additionally, the Noorda Family Trust, of which Mr.
Noorda and his spouse serve as co-trustees is the controlling stockholder of
The Canopy Group, Inc. The Canopy Group, Inc. holds more than 45% of the
outstanding common stock of MTI Technology Corporation. Lineo, Inc. is
majority-owned by Caldera, Inc., which is majority-owned by The Canopy
Group. By virtue of his holding corporate offices, his stock ownership and
his service as co-trustee, all as described above, Mr. Noorda may be deemed
to control The Canopy Group, Inc., MTI Technology Corporation and Lineo,
Inc., and Mr. Noorda may be deemed to possess indirect beneficial ownership
of the common stock held by The Canopy Group, Inc., MTI Technology
Corporation and Lineo, Inc. Mr. Noorda disclaims beneficial ownership of
such shares. The address for Mr. Noorda is c/o MTI Technology Corporation,
4905 East La Palma Avenue, Anaheim, California 92807.
(7) Mr. Raimondi is President and Chief Executive Officer of MTI Technology
Corporation. Mr. Raimondi disclaims beneficial ownership of the shares held
by MTI Technology Corporation.
(8) See notes 3 through 7. Includes an additional 200,420 shares issuable upon
the exercise of options.
57
<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon completion of this offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, par value $0.001 per share. As of January
10, 2000, assuming conversion of our Series A and Series B convertible preferred
stock into common stock, there were outstanding 33,163,685 shares of common
stock held of record by approximately twenty stockholders and options to
purchase 5,288,896 shares of common stock.
Prior to the closing of this offering, we will reincorporate in Delaware
and amend and restate our certificate of incorporation. The following summary of
certain provisions of the common stock and preferred stock does not purport to
be complete and is subject to, and qualified in its entirety by, the provisions
of the forms of amended and restated certificate of incorporation and amended
and restated bylaws to be effective upon the closing of this offering.
COMMON STOCK
Dividend Rights. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive dividends out of assets legally available
at the times and in the amounts as our board may from time to time determine.
Voting Rights. Each common stockholder is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in our
articles of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election.
No Preemptive or Similar Rights. Our common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
Right to Receive Liquidation Distributions. Upon our liquidation,
dissolution, or winding up, the assets legally available for distribution to our
stockholders are distributable ratably among the holders of our common stock and
any participating preferred stock outstanding at that time after payment of
liquidation preferences, if any, on any outstanding preferred stock and payment
of other claims of creditors. Each outstanding share of common stock is, and all
shares of common stock to be outstanding upon completion of this offering will
be, fully paid and non-assessable.
PREFERRED STOCK
Upon the closing of this offering, there will be no shares of preferred
stock outstanding. Upon the closing of this offering, the board of directors
will be authorized, without further stockholder approval, to issue from time to
time up to an aggregate of 25,000,000 shares of preferred stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, including sinking fund provisions,
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designation of series. We have no present plans to
issue any shares of preferred stock. See "-- Anti-Takeover Effects of Various
Provisions of Delaware Law and Caldera Systems's Certificate of Incorporation
and Bylaws."
REGISTRATION RIGHTS
Pursuant to a Second Amended and Restated Investors Rights Agreement, dated
January 7, 2000, we entered into with holders of 11,596,146 shares of our common
stock (assuming conversion of all outstanding shares of preferred stock), the
holders of these shares are entitled to 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
58
<PAGE> 63
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. Beginning six months after our initial public offering, the
holders of at least 22 percent 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 use our best efforts to
effect these registrations, 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 three years after the effective date of this
offering, or when 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 CHARTER PROVISIONS
The provisions of the Delaware General Corporation Law, our certificate of
incorporation and our bylaws described below may have the effect of delaying,
deferring, or discouraging another person from acquiring control of us.
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents Delaware
corporations from engaging, under limited circumstances, in a business
combination, which includes a merger or sale of more than 10% of the
corporation's assets, with any interested stockholder, which is a stockholder
who owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of stockholders, for three years following the date
that the stockholder became an interested stockholder unless:
- the transaction is approved by the board of directors before the date the
interested stockholder attained that status;
- upon the closing of the transaction that resulted in the stockholder
becoming an interested stockholder, the stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the
transaction commenced; or
- on or after the date the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders
by at least two-thirds of the outstanding voting stock that is not owned
by the interested stockholder.
A Delaware corporation may opt out of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not opted out of this provision. This provision of the Delaware
General Corporation Law could prohibit or delay mergers or other takeover or
change-in-control attempts and may discourage attempts to acquire us.
CHARTER AND BYLAWS
Charter
Upon the closing of this offering, our certificate of incorporation will
provide that all stockholder actions must be effected at a duly-called annual or
special meeting and not by a consent in writing. Our certificate of
incorporation will also require the approval of our board of directors to adopt,
amend or repeal our bylaws. In addition, our certificate of incorporation will
permit the stockholders to adopt, amend or repeal our bylaws only upon the
affirmative vote of the holders of at least two-thirds of the voting power of
all then outstanding shares of stock entitled to vote.
Directors will be removable for cause only by stockholders holding a
majority of the then outstanding shares of stock entitled to vote. Vacancies on
the board of directors resulting from death, resignation, removal or other
reason may be filled by a majority of the directors then in office, even if less
than a quorum. Vacancies from newly created directorships must be filled by a
majority of the directors then in
59
<PAGE> 64
office. Lastly, the provisions in the certificate of incorporation described
above and other provisions pertaining to the limitation of liability and
indemnification of directors will be able to be amended or repealed only with
the affirmative vote of the holders of at least two-thirds of the voting power
of all then outstanding shares of stock entitled to vote.
These provisions may have the effect of deterring hostile takeovers or
delaying changes in the control or management of Caldera Systems, which could
have an adverse effect on the market price of our common stock.
Bylaws
Upon the closing of this offering, our bylaws will also contain many of the
provisions in our certificate of incorporation described above. Our bylaws will
not permit stockholders to call a special meeting. In addition, our bylaws will
establish an advance notice procedure for matters to be brought before an annual
or special meeting of our stockholders, including the election of directors.
Business permitted to be conducted at any annual meeting or special meeting of
stockholders will be limited to business properly brought before the meeting.
Our bylaws will also provide that we will indemnify officers and directors
against losses that they may incur in investigations and legal proceedings
resulting from their services to us, which may include services in connection
with takeover defense measures. These provisions may have the effect of
preventing changes in our management.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation limits the liability of directors to the
fullest extent permitted by the Delaware General Corporation Law. In addition,
our certificate of incorporation and bylaws provide that we will indemnify our
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law. We intend to enter into separate indemnification agreements
with our directors and executive officers that provide them indemnification
protection if our certificate of incorporation is subsequently amended.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American
Securities Transfer and Trust, Inc.
60
<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
Future sales of substantial amounts of our common stock, including shares issued
upon exercise of outstanding options, in the public market after this offering
could adversely affect market prices prevailing from time to time. Furthermore,
as described below, no shares currently outstanding will be available for sale
immediately after this offering due to contractual and legal restrictions on
resale. Nevertheless, sales of substantial amounts of our common stock in the
public market after the restrictions lapse could adversely affect the prevailing
market price and our ability to raise equity capital in the future.
- Upon the closing of this offering, we will have outstanding an aggregate
of approximately shares of common stock.
- Of these shares, the shares of common stock to be sold in this offering
will be freely tradable without restriction or further registration under
the Securities Act, unless the shares are held by affiliates of Caldera
Systems, Inc., defined as persons who directly or indirectly control or
are controlled by or are under common control with Caldera Systems, Inc.
All remaining shares held by our existing stockholders were issued and sold
by Caldera Systems, Inc. in private transactions and are eligible for public
sale as follows:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER
OF SHARES THAT
DATE MAY BE SOLD COMMENT
---- --------------------- -------
<S> <C> <C>
Date of this prospectus 0 Freely tradable shares
181 days after the date of this prospectus 16,000,022 Restricted securities held for at
least one year may be sold under
Rule 144, in some cases subject to
the volume of other restrictions
described below.
</TABLE>
LOCK-UP AGREEMENTS
All of our officers and directors and substantially all of our security
holders have signed lock-up agreements under which they agreed not to sell,
dispose of, loan, pledge or grant any rights to any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock without the prior written consent of FleetBoston Robertson Stephens
for a period of 180 days after the date of this prospectus.
FleetBoston Robertson Stephens may choose to release some of these shares
from these restrictions before the expiration of this 180-day period, although
it has no current intention to do so.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the shares of common stock then outstanding, which will equal
approximately shares immediately after this offering; or
- The average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 for the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
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<PAGE> 66
RULE 144(K)
Under Rule 144(k), a person who has not been one of our affiliates 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, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, shares that have been held by a non-affiliate for at least two years
may be sold in the open market immediately after the lock-up agreements expire.
RULE 701
Any employee, officer or director of, or consultant to, us who purchases
his shares under a written compensatory plan or contract may be entitled to sell
his shares in reliance on Rule 701. Rule 701 permits affiliates to sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
these shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
All holders of Rule 701 shares are required to wait until 90 days after the date
of this prospectus before selling those shares. However, all shares issued under
Rule 701 are subject to lock-up agreements and will only become eligible for
sale when the 180-day lock-up agreements expire.
REGISTRATION RIGHTS
Following this offering, in some circumstances and subject to conditions,
holders of 11,596,146 shares of our outstanding common stock will have demand
registration rights to require us to register their shares of common stock under
the Securities Act, and they will have rights to participate in any future
registration of securities by us. These holders are subject to lock-up periods
of not more than 180 days following the date of this prospectus and of not more
than 90 days after any subsequent prospectus. See "Description of Capital
Stock -- Registration Rights."
STOCK OPTIONS
We intend to file a Form S-8 registration statement under the Securities
Act on or immediately after the date of this prospectus to register all shares
of common stock covered by outstanding options or reserved for future issuance
under our 1998 Stock Option Plan, our 1999 Omnibus Stock Incentive Plan and our
2000 Employee Stock Purchase Plan. Such registration statement will
automatically become effective upon filing. Accordingly, shares covered by that
registration statement will thereupon be eligible for sale in the public
markets, unless such options are subject to vesting restrictions or the
contractual restrictions described above.
62
<PAGE> 67
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc., Wit Capital
Corporation and First Security Van Kasper, have severally agreed with us,
subject to the terms and conditions of the underwriting agreement, to purchase
from us the number of shares of common stock set forth opposite their respective
names below. The underwriters are committed to purchase and pay for all shares
if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc. ........................
Bear, Stearns & Co. Inc. ...................................
Wit Capital Corporation.....................................
First Security Van Kasper...................................
--------
Total.............................................
========
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the initial public offering price
set forth on the cover page of this prospectus and to certain dealers at that
price less a concession of not more than $ per share, of which
$ may be reallowed to other dealers. After this offering, the public
offering price, concession and reallowance to dealers may be reduced by the
representatives. No such reduction shall change the amount of proceeds to be
received by us as set forth on the cover page of this prospectus. The common
stock is offered by the underwriters as stated herein, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or in
part.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed ten percent of the total number of shares
offered.
Over-allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock, at the initial
public offering price per share as we will receive for the shares that
the underwriters have agreed to purchase. To the extent that the underwriters
exercise this option, each of the underwriters will have a firm commitment,
subject to conditions, to purchase approximately the same percentage of the
additional shares that the number of shares of common stock to be purchased by
it shown in the above table represents as a percentage of the shares offered
hereby. If purchased, these additional shares will be sold by the underwriters
on the same terms as those on which the shares are being sold. We will
be obligated, pursuant to the option, to sell shares to the extent the option is
exercised. The underwriters may exercise this option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered in this offering. If this option is exercised in full, the total public
offering price, underwriting discounts and commissions and proceeds to us will
be $ , $ and $ , respectively.
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
TOTAL
----------------------------------
WITHOUT WITH
PER OVER- OVER-
SHARE ALLOTMENT ALLOTMENT
------ ----------- -----------
<S> <C> <C> <C>
Underwriting discounts and commissions payable by us........ $ $ $
</TABLE>
We estimate that expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will be
approximately $ .
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
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<PAGE> 68
Lock-Up Agreements. Each of our officers and directors and stockholders has
agreed, for a period of 180 days after the date of this prospectus, that,
subject to exceptions, they will not offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to any
shares of common stock, any options or warrants to purchase any shares of common
stock, or any securities convertible into or exchangeable for shares of common
stock owned as of the date of this prospectus or, with certain exceptions,
thereafter acquired directly by those holders or with respect to which they have
or hereafter acquire the power of disposition, without the prior written consent
of FleetBoston Robertson Stephens Inc. However, FleetBoston Robertson Stephens
Inc. may, in its sole discretion and at any time, without notice, release all or
any portion of the securities subject to the lock-up agreements. There are no
agreements between the representatives and any of our stockholders providing
consent to the sale of shares prior to the expiration of the lock-up period.
Future Sales. In addition, we have agreed that until 180 days after the
date of this prospectus, we will not, subject to certain exceptions, without the
prior written consent of FleetBoston Robertson Stephens Inc.:
- Consent to the disposition of any shares held by stockholders prior to
the expiration of the lock-up period; or
- Issue, sell, contract to sell, or otherwise dispose of, any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable
for shares of common stock other than
1) the sale of shares in this offering;
2) the issuance of common stock upon the exercise of outstanding options
or warrants; and
3) the issuance of options under existing stock option and incentive
plans.
See "Shares Eligible for Future Sales."
Listing. We have applied for quotation on the Nasdaq National Market under
the symbol CALD.
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock offered hereby will be determined through negotiations between
us and the representatives. Among the factors to be considered in such
negotiations are prevailing market conditions, certain of our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, our present state of development and other factors deemed relevant.
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the shares of the
common stock at a level above that which might otherwise prevail in the open
market. A "stabilizing bid" is a bid for or the purchase of shares of common
stock on behalf of the underwriters for the purpose of fixing or maintaining the
price of the common stock. A "syndicate covering transaction" is the bid for or
the purchase of the common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such underwriter or syndicate member. The representatives have advised us that
such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
64
<PAGE> 69
NASD Compliance. Entities affiliated with FleetBoston Robertson Stephens
Inc. and Wit Capital each acquired 66,666 shares of our Series B convertible
preferred stock in our December 1999 private placement at a price of $6.00 per
share.
Directed Share Program. At our request, the underwriters have reserved for
sale, at the initial public offering price, up to ten percent of the shares of
common stock offered in this offering under a directed share program. We
currently expect that approximately half of these shares will be offered to
directors, officers, employees, business associates, and related persons of
Caldera Systems pursuant to a directed share program being administered by
FleetBoston Robertson Stephens Inc., and that approximately half of these
shares, pursuant to a directed share program being administered by Wit Capital
Corporation, will be offered to open source software developers and other
persons that we believe have contributed to the success of the open source
software community and to the growth of Caldera Systems. We cannot assure you
that any of the reserved shares will be so purchased. The number of shares of
common stock available for sale to the general public in this offering will be
reduced by the number of reserved shares sold. Any reserved shares not purchased
will be offered to the general public on the same basis as the other shares
offered in this offering.
Purchases of the reserved shares pursuant to the directed share program
administered by Wit Capital are to be made through an account at Wit Capital in
accordance with Wit Capital's procedures for opening an account and transacting
in securities. In addition, Wit Capital is an underwriter of additional shares
in the offering. A prospectus in electronic format is being made available on an
Internet web site maintained by Wit Capital. In addition, all dealers purchasing
common shares from Wit Capital in this offering have agreed to make a prospectus
in electronic format available on a web site maintained by each of them. Other
than the prospectus in electronic format, the information on the web site and
any information contained on any other web site maintained by Wit Capital or any
dealer purchasing common shares from it is not part of this prospectus or the
registration statement of which this prospectus forms a part, has not been
approved or endorsed by us or any underwriter in its capacity as underwriter and
should not be relied on by prospective investors. The National Association of
Securities Dealers, Inc. approved the membership of Wit Capital on September 4,
1997. Since that time, Wit Capital has acted as a co-lead managing underwriter
on one offering, a co-managing underwriter on 61 offerings and a dealer on 107
offerings.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Brobeck, Phleger & Harrison LLP, Broomfield, Colorado. Certain legal matters
in connection with the offering will be passed upon for the underwriters by
Cooley Godward LLP, San Francisco, California.
EXPERTS
The audited financial statements and schedule included in this prospectus
and elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
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<PAGE> 70
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Caldera Systems, Inc. has filed with the Securities and Exchange Commission
a registration statement on Form S-1, including exhibits, schedules and
amendments filed with the registration statement, under the Securities Act with
respect to the common stock to be sold in this offering. This prospectus does
not contain all of the information set forth in this registration statement. For
further information about Caldera Systems, Inc. and the shares of common stock
to be sold in the offering, please refer to this registration statement. For
additional information, please refer to the exhibits that have been filed with
our registration statement on Form S-1.
You may read and copy all or any portion of the registration statement or
any other information Caldera Systems files at the Securities and Exchange
Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.,
20549. You can request copies of these documents upon payment of a duplicating
fee, by writing to the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information
about the public reference rooms. Caldera Systems, Inc.'s Securities and
Exchange Commission filings, including the registration statement, will also be
available to you on the Securities and Exchange Commission's Web site
(http://www.sec.gov).
We intend to furnish our stockholders with annual reports containing
audited financial statements by an independent public accounting firms and
quarterly reports containing unaudited financial information for the first three
quarters of each year.
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<PAGE> 71
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations and Comprehensive
Loss...................................................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 72
After the reincorporation discussed in Note 12 to the consolidated
financial statements of Caldera Systems, Inc., the carved-out portion of
Caldera, Inc. and their subsidiary, we expect to be in a position to render the
following audit report.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 10, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Caldera Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Caldera
Systems, Inc. (a Delaware corporation), the carved-out portion of Caldera, Inc.
(a Utah corporation) and their subsidiary as of October 31, 1998 and 1999, and
the related consolidated statements of operations and comprehensive loss,
stockholders' equity and cash flows for each of the three years in the period
ended October 31, 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. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Caldera
Systems, Inc., the carved-out portion of Caldera, Inc. and their subsidiary as
of October 31, 1998 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended October 31, 1999 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 10, 2000
(except with respect to the reincorporation discussed in
the first paragraph of Note 12, as to which the date is , 2000)
F-2
<PAGE> 73
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 31, 1998 AND 1999
ASSETS
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash........................................................ $ 75,586 $ 121,989
Accounts receivable, net of allowance for doubtful
accounts of $15,000 and $90,000, respectively.......... 151,546 670,043
Stock subscription receivable............................. -- 1,500,000
Other receivables......................................... -- 375,000
Inventories............................................... 49,746 169,409
Other current assets...................................... 176,605 33,524
----------- ------------
Total current assets................................... 453,483 2,869,965
----------- ------------
PROPERTY AND EQUIPMENT:
Computer equipment........................................ 401,015 609,665
Furniture and fixtures.................................... 332,915 675,181
Leasehold improvements.................................... 50,514 86,973
----------- ------------
784,444 1,371,819
Less accumulated depreciation and amortization............ (366,269) (652,399)
----------- ------------
Net property and equipment............................. 418,175 719,420
----------- ------------
OTHER ASSETS, net........................................... -- 124,430
----------- ------------
Total assets........................................... $ 871,658 $ 3,713,815
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 314,138 $ 1,309,255
Accrued liabilities....................................... 112,948 450,157
Accrued marketing development............................. -- 172,900
Accrued sales returns and other allowances................ 54,000 169,000
Deferred revenue.......................................... -- 38,080
Current portion of long-term debt......................... -- 3,698
Related party payables.................................... -- 48,933
----------- ------------
Total current liabilities.............................. 481,086 2,192,023
----------- ------------
LONG-TERM DEBT, net of current portion...................... -- 5,762
----------- ------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 7, and 12)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value; 25,000,000 shares
authorized --
Series A convertible preferred stock, 6,596,146 shares
designated, 3,966,517 and 6,596,146 shares
outstanding, respectively............................ 3,967 6,596
Series B convertible preferred stock, 5,000,000 shares
designated, no shares outstanding.................... -- --
Common stock, $0.001 par value; 75,000,000 shares
authorized, 12,033,483 and 20,011,183 shares
outstanding, respectively.............................. 12,033 20,011
Additional paid-in capital................................ 1,752,693 16,160,312
Stock subscriptions receivable............................ (317,110) (1,500,000)
Deferred compensation..................................... -- (2,734,934)
Accumulated comprehensive income (loss)................... 3,991 (4,365)
Accumulated deficit....................................... (1,065,002) (10,431,590)
----------- ------------
Total stockholders' equity............................. 390,572 1,516,030
----------- ------------
Total liabilities and stockholders' equity............. $ 871,658 $ 3,713,815
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 74
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
Software and related products..................... $ 1,116,794 $ 1,057,088 $ 2,772,878
Services.......................................... -- -- 277,429
----------- ----------- -----------
Total revenue.................................. 1,116,794 1,057,088 3,050,307
----------- ----------- -----------
COST OF REVENUE:
Software and related products..................... 1,142,187 1,016,682 2,388,601
Services.......................................... -- -- 537,877
Write-off of prepaid royalties.................... -- 1,381,695 --
----------- ----------- -----------
Total cost of revenue.......................... 1,142,187 2,398,377 2,926,478
----------- ----------- -----------
GROSS MARGIN (DEFICIT).............................. (25,393) (1,341,289) 123,829
----------- ----------- -----------
OPERATING EXPENSES:
Sales and marketing............................... 4,619,341 2,223,814 4,767,508
Research and development.......................... 2,136,118 1,489,041 2,302,302
General and administrative........................ 796,806 1,798,872 1,748,087
Amortization of deferred compensation............. -- -- 409,296
----------- ----------- -----------
Total operating expenses....................... 7,552,265 5,511,727 9,227,193
----------- ----------- -----------
LOSS FROM OPERATIONS................................ (7,577,658) (6,853,016) (9,103,364)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense.................................. (593,182) (1,081,179) (225,657)
Other income (expense)............................ 22,923 4,838 (2,792)
----------- ----------- -----------
Other expense, net............................. (570,259) (1,076,341) (228,449)
----------- ----------- -----------
LOSS BEFORE INCOME TAXES............................ (8,147,917) (7,929,357) (9,331,813)
PROVISION FOR INCOME TAXES.......................... -- (33,780) (34,775)
----------- ----------- -----------
NET LOSS............................................ $(8,147,917) $(7,963,137) $(9,366,588)
=========== =========== ===========
BASIC AND DILUTED NET LOSS PER COMMON SHARE......... $ (0.68) $ (0.66) $ (0.67)
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.......... 12,033,483 12,033,483 13,881,785
=========== =========== ===========
OTHER COMPREHENSIVE LOSS:
Net loss.......................................... $(8,147,917) $(7,963,137) $(9,366,588)
Foreign currency translation adjustments.......... -- 3,991 (8,356)
----------- ----------- -----------
COMPREHENSIVE LOSS.................................. $(8,147,917) $(7,959,146) $(9,374,944)
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 75
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK
------------------ -------------------- PAID-IN SUBSCRIPTIONS DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION
--------- ------ ---------- ------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1996......... -- $ -- -- $ -- $ -- $ -- $ --
Debt funding and related accrued
interest applicable to carved-out
operations of Caldera, Inc. ..... -- -- -- -- -- -- --
Net loss applicable to carved-out
operations of Caldera, Inc. ..... -- -- -- -- -- -- --
--------- ------ ---------- ------- ----------- ----------- -----------
Balance, October 31, 1997......... -- -- -- -- -- -- --
Debt funding and related accrued
interest applicable to carved-out
operations of Caldera, Inc. ..... -- -- -- -- -- -- --
Net loss applicable to carved-out
operations of Caldera, Inc.
through August 31, 1998.......... -- -- -- -- -- -- --
Incorporation of Caldera Systems,
Inc. and reorganization of
Caldera, Inc. ................... 3,966,517 3,967 12,033,483 12,033 1,752,693 (317,110) --
Cumulative translation
adjustment....................... -- -- -- -- -- -- --
Net loss for the period subsequent
to incorporation................. -- -- -- -- -- -- --
--------- ------ ---------- ------- ----------- ----------- -----------
Balance, October 31, 1998......... 3,966,517 3,967 12,033,483 12,033 1,752,693 (317,110) --
Receipt of stock subscription
receivable....................... -- -- -- -- -- 317,110 --
Conversion of promissory note and
accrued interest to common and
Series A convertible preferred
shares at $1.00 per share........ 1,307,457 1,307 3,966,517 3,967 5,268,700 -- --
Issuance of common and Series A
convertible preferred shares for
cash and stock subscription
receivable at $1.13 per share.... 1,322,172 1,322 4,011,161 4,011 5,994,667 (1,500,000) --
Issuance of common shares upon
exercise of stock options at
$1.00 per share.................. -- -- 22 -- 22 -- --
Cumulative translation
adjustment....................... -- -- -- -- -- -- --
Deferred compensation related to
stock option grants.............. -- -- -- -- 3,144,230 -- (3,144,230)
Amortization of deferred
compensation..................... -- -- -- -- -- -- 409,296
Net loss.......................... -- -- -- -- -- -- --
--------- ------ ---------- ------- ----------- ----------- -----------
Balance, October 31, 1999......... 6,596,146 $6,596 20,011,183 $20,011 $16,160,312 $(1,500,000) $(2,734,934)
========= ====== ========== ======= =========== =========== ===========
<CAPTION>
CALDERA, INC.'S
ACCUMULATED EQUITY IN
COMPREHENSIVE ACCUMULATED CARVED-OUT
INCOME (LOSS) DEFICIT OPERATIONS
------------- ------------ ---------------
<S> <C> <C> <C>
Balance, October 31, 1996......... $ -- $ -- $ 575,567
Debt funding and related accrued
interest applicable to carved-out
operations of Caldera, Inc........ -- -- 9,891,743
Net loss applicable to carved-out
operations of Caldera, Inc. ..... -- -- (8,147,917)
------- ------------ -----------
Balance, October 31, 1997......... -- -- 2,319,393
Debt funding and related accrued
interest applicable to carved-out
operations of Caldera, Inc. ..... -- -- 5,511,325
Net loss applicable to carved-out
operations of Caldera, Inc.
through August 31, 1998.......... -- -- (6,898,135)
Incorporation of Caldera Systems,
Inc. and reorganization of
Caldera, Inc. ................... -- -- (932,583)
Cumulative translation
adjustment....................... 3,991 -- --
Net loss for the period subsequent
to incorporation................. -- (1,065,002) --
------- ------------ -----------
Balance, October 31, 1998......... 3,991 (1,065,002) --
Receipt of stock subscription
receivable....................... -- -- --
Conversion of promissory note and
accrued interest to common and
Series A convertible preferred
shares at $1.00 per share........ -- -- --
Issuance of common and Series A
convertible preferred shares for
cash and stock subscription
receivable at $1.13 per share.... -- -- --
Issuance of common shares upon
exercise of stock options at
$1.00 per share.................. -- -- --
Cumulative translation
adjustment....................... (8,356) -- --
Deferred compensation related to
stock option grants.............. -- -- --
Amortization of deferred
compensation..................... -- -- --
Net loss.......................... -- (9,366,588) --
------- ------------ -----------
Balance, October 31, 1999......... $(4,365) $(10,431,590) $ --
======= ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 76
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1998 AND 1999
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $(8,147,917) $(7,963,137) $(9,366,588)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization...................... 120,551 132,221 288,797
Amortization of deferred compensation.............. -- -- 409,296
Accrued interest converted to equity............... 608,623 1,082,260 254,910
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable,
net........................................... (283,961) 142,075 (518,497)
Increase in other receivables.................... -- -- (375,000)
(Increase) decrease in inventories............... (279,717) 281,936 (119,663)
(Increase) decrease in other current assets...... (1,212,248) 1,617,138 143,081
(Increase) decrease in other assets.............. (123,432) 625,712 (10,097)
Increase (decrease) in accounts payable.......... 395,832 (908,994) 1,044,050
Increase (decrease) in accrued liabilities....... 52,849 (159,496) 337,209
Increase in accrued marketing development........ -- -- 172,900
Increase (decrease) in accrued sales returns and
allowances.................................... 83,300 (46,000) 115,000
Increase in deferred revenue..................... -- -- 38,080
----------- ----------- -----------
Net cash used in operating activities......... (8,786,120) (5,104,285) (7,586,522)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................... (306,339) (169,764) (587,375)
Purchase of other long-lived assets................... -- -- (80,000)
----------- ----------- -----------
Net cash used in investing activities......... (306,339) (169,764) (667,375)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from majority stockholder under convertible
promissory note.................................... -- -- 4,819,000
Proceeds from long-term debt.......................... -- -- 11,486
Repayments of long-term debt.......................... -- -- (2,026)
Borrowings from majority stockholder prior to
reorganization..................................... 9,283,120 4,429,065 --
Proceeds from common and Series A convertible
preferred shares upon incorporation................ -- 519,000 15,481,000
Cash payment to Caldera, Inc. in asset acquisition.... -- -- (14,963,826)
Capitalized offering costs............................ -- -- (37,000)
Proceeds from common and Series A convertible
preferred stock.................................... -- -- 3,000,000
Proceeds from exercise of common stock option......... -- -- 22
----------- ----------- -----------
Net cash provided by financing activities..... 9,283,120 4,948,065 8,308,656
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH......................... 190,661 (325,984) 54,759
CUMULATIVE TRANSLATION ADJUSTMENT....................... -- 3,991 (8,356)
CASH, beginning of year................................. 206,918 397,579 75,586
----------- ----------- -----------
CASH, end of year....................................... $ 397,579 $ 75,586 $ 121,989
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 77
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
---------- ----------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ -- $ -- $ 424
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of common and Series A convertible preferred
shares upon incorporation for -
Subscription receivable................................. -- 15,481,000 --
Note receivable from Caldera, Inc....................... -- 4,928,848 --
Liabilities assumed in acquisition of assets from Caldera,
Inc. ................................................... -- (36,174) --
Issuance of common and Series A convertible preferred
shares for a note receivable............................ -- -- 3,000,000
Issuance of common and Series A convertible preferred
shares upon conversion of secured convertible promissory
note payable and related accrued interest............... -- -- 5,273,974
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 78
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Caldera Systems, Inc. ("Caldera"), originally incorporated as a Utah
corporation on August 21, 1998, (see Note 12 for description of reincorporation
as a Delaware corporation) began operations in 1994 as Caldera, Inc. (the
"Predecessor"). The Predecessor developed and marketed Linux operating system
software and related products.
In July 1996, through an asset purchase, the Predecessor acquired an
additional business line which was not engaged in developing and marketing Linux
software and related products. The Predecessor subsequently made the strategic
determination to separate its two business lines into separate entities and,
effective September 1, 1998, sold the assets relating to its business of
developing and marketing Linux software and related products to Caldera for
$19,928,848. This amount was based upon the amount of funding that had been
received by the Predecessor related to the Linux software business. The purchase
price was paid as follows: a cash payment of $14,963,826 in fiscal year 1999,
the assumption of $36,174 of liabilities, and the transfer of a note receivable
due from the Predecessor in the amount of $4,928,848 (see below).
Effective upon incorporation, Caldera agreed to issue 16,000,000 shares of
common stock (converted to 12,033,483 shares of common stock and 3,966,517
shares of Series A convertible preferred stock in connection with the December
1999 recapitalization, see Note 5) to The Canopy Group ("Canopy"), the majority
stockholder of the Predecessor, in exchange for $20,928,848. Of this amount,
$16,000,000 was paid in cash ($519,000 in fiscal year 1998 and $15,481,000 in
fiscal year 1999) and Canopy transferred to Caldera a note receivable from the
Predecessor of $4,928,848.
Since Canopy was the majority stockholder of the Predecessor and the sole
stockholder of Caldera, this transaction has been treated as a reorganization of
entities under common control. Accordingly, the accompanying consolidated
financial statements include the carved-out operations of the Predecessor
related to the Linux business through September 1, 1998, the effective date of
the reorganization. The acquired assets and liabilities are reflected at
carry-over basis.
Prior to the reorganization, the net losses of the Predecessor were funded
through loans and equity contributions from Canopy. The funding applicable to
the carved-out operations has been reflected as a component of Caldera, Inc.'s
Equity in Carved-out Operations included in the accompanying consolidated
statements of stockholders' equity. This funding has been offset by the
accumulated losses applicable to the carved-out operations. The resulting net
balance as of the date of reorganization, September 1, 1998, of $932,583 was
transferred to equity of Caldera.
In connection with the reorganization, Caldera acquired a wholly-owned
subsidiary in Germany, Caldera Deutschland, GmbH ("Caldera GmbH"), that performs
research and development activities. Collectively, Caldera, the carved-out
operations of the Predecessor and Caldera GmbH are referred to as the "Company."
The Company develops, markets and supports Linux operating system software
products and related services. The Company's strategy is to provide commercial
products and services to create Linux business solutions. The Company sells and
distributes its software and related products indirectly through distributors,
value added resellers, original equipment manufactures, and system integrators
and directly to end-user customers. These sales occur throughout the United
States and in certain international locations.
The Company is subject to certain risks including the uncertainty of market
acceptance and demand for Linux related products and services, competition from
larger, more established companies, short product life cycles, the Company's
ability to develop and bring to market new products on a timely basis,
F-8
<PAGE> 79
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
dependence on key employees, the ability to attract and retain additional
qualified personnel and the ability to obtain adequate financing to support
growth.
(2) SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the accompanying consolidated financial
statements for cash, accounts receivable, other receivables and accounts payable
approximate fair values because of the immediate or short-term maturities of
these financial instruments. The carrying amounts of the Company's debt
obligations approximate fair value based on current interest rates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
carved-out operations of the Predecessor prior to Caldera's incorporation,
Caldera, and their wholly-owned subsidiary after elimination of intercompany
accounts and transactions.
FOREIGN CURRENCY TRANSLATION
For purposes of consolidating the Caldera GmbH operations, the Company has
determined the functional currency for the Caldera GmbH operations to be the
German Mark. Accordingly, translation gains and losses are included as a
component of comprehensive loss.
INVENTORIES
Inventories consist primarily of completed products and raw materials.
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market value. As of October 31, 1998 and 1999, inventories consisted
of raw materials of approximately $40,400 and $79,400, respectively, and
finished goods of approximately $9,300 and $90,000, respectively.
Provisions, when required, are made to reduce excess and obsolete
inventories to their estimated net realizable values. Due to competitive
pressures and technological innovation, it is possible that estimates of the net
realizable value could change in the near term.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Computer equipment and furniture and fixtures are depreciated
using the straight-line method over the estimated useful life of the asset,
typically three to five years. Leasehold improvements are amortized using the
straight-line method over the shorter of the estimated useful life of the
improvement or the remaining term of the applicable lease.
F-9
<PAGE> 80
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the useful
lives of existing equipment are capitalized and depreciated. On retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statement of operations.
CAPITALIZED SOFTWARE COSTS
In accordance with Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"), development
costs incurred in the research and development of new software products to be
sold, leased or otherwise marketed are expensed as incurred until technological
feasibility in the form of a working model has been established. Internally
generated capitalizable software development costs have not been material for
the years ended October 31, 1997, 1998 and 1999. The Company has charged its
software development costs to research and development expense in the
accompanying consolidated statements of operations.
OTHER ASSETS
Other assets consist of purchased technology and capitalized offering
costs. The purchased technology is to be used in the development of the
Company's web-based products and is being amortized using the straight-line
method over a period of two years. Capitalized offering costs include legal and
accounting fees in connection with the Company's anticipated equity offerings.
These costs will be netted against the actual offering proceeds.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets, including intangibles, for
impairment when events or changes in circumstances indicate that the book value
of an asset may not be recoverable. The Company evaluates, at each balance sheet
date, whether events and circumstances have occurred which indicate possible
impairment. The Company uses an estimate of future undiscounted net cash flows
of the related asset or group of assets over the remaining life in measuring
whether the assets are recoverable. As of October 31, 1999, the Company does not
consider any of its long-lived assets to be impaired.
REVENUE RECOGNITION
The Company generates revenues from software and related products sold
indirectly through distributors and business solution providers and directly to
end-users. The Company also generates revenues from training royalties and
tuition fees, consulting fees, and customer support fees. During fiscal 1997 and
fiscal 1998, all of the Company's revenues were derived from software and
related products offerings.
Revenue from the sale of software and related products is recognized upon
delivery of the product if collection is probable. The Company provides certain
telephone and e-mail technical support services at no additional charge. The
cost of providing the post-contract support services are not significant;
accordingly, the Company accrues the estimated costs of providing the services
at the time of revenue recognition. If other significant post-delivery vendor
obligations exist or if a product is subject to customer acceptance, revenues
are deferred until no significant obligations remain or acceptance has occurred.
To date, the Company has not shipped any software and related products subject
to acceptance terms or subject to other post-delivery vendor obligations.
F-10
<PAGE> 81
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. 97-2, "Software Revenue Recognition"
("SOP 97-2"), which the Company has adopted for transactions entered into for
the years ended October 31, 1998 and 1999. The adoption of SOP 97-2 did not have
a significant impact on the Company's revenue recognition practices, or its
results of operations, financial position or liquidity.
In December 1998, the AICPA issued Statement of Position No. 98-9,
"Modification of SOP No. 97-2, Software Revenue Recognition, With Respect to
Certain Transactions" ("SOP 98-9"). SOP 98-9 amends SOP 97-2 to require
recognition of revenue using a "residual method" in certain circumstances. We
adopted SOP 98-9 for transactions entered into for the years ended October 31,
1998 and 1999. The adoption of this statement did not have a significant effect
on the Company's revenue recognition practices or its results of operations,
financial position or liquidity.
Sales to certain distributors are subject to agreements allowing for rights
of return and price protection. Allowances for estimated future returns, price
protection, stock rotations, as well as anticipated end-user customer rebates
and other customer incentives, are provided at the time of sale based on the
Company's policies and historical experience. At October 31, 1998 and 1999,
allowances for returns, price protection and stock rotations totaled
approximately $54,000 and $169,000, respectively, and are reflected as a current
liability in the accompanying consolidated balance sheets.
Service revenue from training royalties and tuition fees and consulting
fees are recognized as the services are performed. Revenues from customer
support fees is recognized ratably over the period of the contract, typically
one year. Deferred revenue primarily relates to customer support fees, which
have been paid by customers in advance of the services being performed.
ROYALTY COSTS
Royalties paid by the Company on applications licensed from third parties
that are incorporated into the software products sold by the Company are
expensed as cost of revenue on a per unit basis as software products are sold.
Royalties paid in advance of product sales are included in prepaid expenses and
recorded as cost of revenue when the related products are sold.
During the years ended October 31, 1996 and 1997, the Company entered into
royalty agreements with a supplier pursuant to which the Company prepaid
royalties of approximately $2,055,000. During fiscal year 1998, the Company
asserted that the supplier breached the terms of the royalty agreements and the
Company determined that the remaining balance of prepaid royalties was impaired
and accordingly was written-off. This write-off amounted to approximately
$1,381,700 and has been classified as part of cost of revenue in the
accompanying consolidated statement of operations for the year ended October 31,
1998.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist of the following: advertising, channel
promotions, marketing development funds, promotional activities, public
relations, trade shows and the salaries, commissions and related expenses of all
personnel involved in the sales process. The Company expenses the cost of
advertising the first time the advertising takes place. Advertising expenses
totaled approximately $2,515,800, $967,700 and $1,228,600 for the years ended
October 31, 1997, 1998 and 1999, respectively.
The Company has agreements with certain retailers whereby the Company
issues a credit for certain marketing development activities initiated by the
retailer that directly relate to the promotion of the
F-11
<PAGE> 82
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company's products. As of October 31, 1998 and 1999, the Company recorded an
accrual of $0 and $172,900, respectively, for these costs.
INCOME TAXES
The Company recognizes a liability or asset for the deferred tax
consequences of all temporary differences between the tax bases of assets and
liabilities and their reported amounts in the consolidated financial statements
that will result in taxable or deductible amounts in future years when the
reported amounts of the assets and liabilities are recovered or settled. These
deferred tax assets or liabilities are measured using the enacted tax rates that
will be in effect when the differences are expected to reverse. Deferred tax
assets are reviewed periodically for recoverability and valuation allowances are
provided, as necessary.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company offers credit terms on the sale of its software products to
certain customers. The Company performs ongoing credit evaluations of its
customers' financial condition and requires no collateral from its customers.
The Company maintains an allowance for uncollectable accounts receivable based
upon the expected collectibility of all accounts receivable. As of October 31,
1998, three distributors accounted for approximately 67 percent of the gross
accounts receivable balance. As of October 31, 1999, three distributors
accounted for approximately 71 percent of the gross accounts receivable balance.
As of October 31, 1998 and 1999, the allowance for bad debts was $15,000 and
$90,000, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"). SOP 98-1 requires entities to capitalize certain costs related to
internal-use software once certain criteria have been met. SOP 98-1 was adopted
by the Company in fiscal 1999. The adoption of SOP 98-1 did not have a material
impact on the Company's results of operations, financial position or liquidity.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes new accounting and reporting standards for companies
to report information about derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. This statement is effective for
financial statements issued for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company does not expect this statement to have a
material impact on the Company's results of operations, financial position or
liquidity.
COMPREHENSIVE INCOME (LOSS)
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes standards for reporting comprehensive income (loss) and its
components in financial statements. Comprehensive income (loss) consists of net
loss and foreign currency translation adjustments and is presented in the
accompanying consolidated statements of operations and comprehensive loss. The
adoption of SFAS 130 had no impact on total stockholders' equity.
F-12
<PAGE> 83
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NET LOSS PER COMMON SHARE
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), and
SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS
128 and SAB 98, basic net loss per common share ("Basic EPS") is computed by
dividing net loss available to common stockholders by the weighted average
number of common shares outstanding. Diluted net loss per common share ("Diluted
EPS") is computed by dividing net loss by the sum of the weighted average number
of common shares and the dilutive potential common share equivalents then
outstanding. Potential common share equivalents consist of shares issuable upon
the exercise of stock options and shares issuable upon the conversion of Series
A convertible preferred stock. As of October 31, 1997, 1998 and 1999, there were
3,966,517, 3,966,517 and 6,596,146 shares of Series A convertible preferred
stock outstanding, respectively, and there were 2,964,240 outstanding options to
purchase common shares as of October 31, 1999 that were not included in the
computation of diluted net loss per common share as their effect would have been
anti-dilutive, thereby decreasing the net loss per common share. For the years
ended October 31, 1997 and 1998, the 12,033,483 shares (post Series A
convertible preferred stock conversion, see Note 5) issued in the initial
capitalization of Caldera were treated as outstanding for the entire fiscal
year.
(3) OTHER RECEIVABLES
Other receivables consist of amounts due from two strategic partners that
participated in a marketing program with the Company. The amounts received by
the Company from the strategic partners have been applied against actual
expenses incurred and have reduced the related sales and marketing expense of
the Company.
(4) SECURED CONVERTIBLE PROMISSORY NOTE PAYABLE TO CANOPY
In connection with the incorporation of Caldera, Caldera and Canopy entered
into a Secured Convertible Promissory Note Agreement (the "Note Agreement")
pursuant to which the Company could borrow up to $2,000,000, or such other
greater amount as determined necessary, to fund ongoing operations. Interest
accrued on borrowings under the Note Agreement at the prime rate, less one-half
percent compounded annually. Borrowings under the Note Agreement were
convertible to shares of Caldera's common stock at $1.00 per share, which was
deemed to be the estimated fair market value of Caldera's common stock on
September 1, 1998. Under the Note Agreement, the Company borrowed $4,819,000
during the year ended October 31, 1999. Additionally, accrued interest of
$454,974 was incurred by the Company related to borrowings under the Note
Agreement and the amount payable to the Predecessor for the assets acquired in
the reorganization (see Note 1). On August 19, 1999, the principal borrowings
and accrued interest were converted into 5,273,974 shares of common stock
(converted to 3,966,517 shares of common stock and 1,307,457 shares of Series A
convertible preferred shares in connection with the December 1999
recapitalization, see Note 5) and the Note Agreement was cancelled.
(5) STOCKHOLDERS' EQUITY
REINCORPORATION AS A DELAWARE CORPORATION
As discussed in Note 12, all share and per share amounts in the
accompanying consolidated financial statements have been adjusted to give effect
to the reincorporation.
F-13
<PAGE> 84
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK SPLIT
On December 29, 1998, Caldera's board of directors approved a two-for-one
stock split for holders of common stock. This stock split has been retroactively
reflected in the accompanying consolidated financial statements for all periods
presented.
PREFERRED STOCK
On December 30, 1999, the stockholders approved articles of amendment to
the Company's articles of incorporation. The amended articles of incorporation
authorized the Company to issue 25,000,000 shares of no par value preferred
stock and 75,000,000 shares of no par value common stock. The Company's board of
directors is authorized, without stockholder approval, to designate and
determine the preferences, limitations and relative rights granted to or imposed
upon each share of preferred stock which are not fixed by the amended articles
of incorporation. The amended articles of incorporation have designated
6,596,146 shares as Series A Convertible Preferred Stock ("Series A") and
5,000,000 shares as Series B Convertible Preferred Stock ("Series B").
The Series A and B shares have initial stated values per share of $4.03 and
$6.00, respectively, and rank on parity with each other and prior to any other
class or series of capital stock of the Company with respect to dividend rights,
rights upon liquidation, winding up or dissolution, and redemption rights. The
Series A and B shares are entitled to receive, when, as and if declared by the
board of directors, cumulative and accruing preferential dividends at eight
percent per annum, compounded annually, based on the stated value per share;
provided, however, solely for dividend purposes the Series A stated value per
share is deemed to be $6.00. Any holder of Series A or B shares may convert all
or any shares of Series A or B into common shares and each share of Series A or
B automatically converts into common shares immediately prior to the closing of
a firm commitment underwritten public offering of at least $25,000,000, as
defined. Each Series A and B share initially converts into one share of common
stock. The conversion ratio is adjusted for stock splits and like events. The
holders of Series A and B shares are entitled to vote on all matters submitted
to the stockholders of the Company, including the election of directors,
together with the holders of common stock voting together as a single class.
Each share of Series A and B is entitled to one vote for each share of common
stock that would be issuable upon conversion of such share.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, each holder of Series A and B then outstanding shall
be entitled to receive, on a pari passu basis, out of the assets available for
distribution to stockholders an amount equal to the greater of (i) the sum of
(1) the respective stated value per share plus (2) an amount equal to all unpaid
accruing dividends (whether or not declared) plus (3) any other dividends
declared but unpaid, and (ii) the amount that such holder of Series A or B
shares would hold had all shares of Series A and B been converted to common
immediately prior to the liquidation, dissolution, or winding up.
CONVERSION OF COMMON SHARES INTO SERIES A SHARES
Prior to the offering of Series B shares discussed in Note 12, effective
December 30, 1999 the Company entered into a Conversion Agreement with its two
major stockholders, Canopy and MTI Technology Corporation ("MTI"). These
stockholders held 99 percent of the outstanding shares of the Company's common
stock at December 30, 1999. Pursuant to the Conversion Agreement, the Company
converted 6,596,146 shares of outstanding common stock held by Canopy and MTI
into 6,596,146 shares of Series A. This transaction has been accounted for as a
recapitalization and has been retroactively reflected in the accompanying
consolidated financial statements for all periods presented.
F-14
<PAGE> 85
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMMON STOCK TRANSACTIONS
On September 1, 1998, in connection with the initial capitalization of
Caldera, Canopy purchased 16,000,000 shares of Caldera's common stock (converted
to 12,033,483 shares of common stock and 3,966,517 shares of Series A in
connection with the recapitalization discussed above) for $20,928,848. Of this
amount, $16,000,000 was paid in cash ($519,000 in fiscal year 1998 and
$15,481,000 in fiscal year 1999) and Canopy transferred to Caldera a note
receivable from the Predecessor of $4,928,848. As of October 31, 1998, the stock
subscription receivable of $317,110 included in the accompanying consolidated
financial statements represented the difference between the $15,481,000 to be
received from Canopy, less borrowings and accrued interest of $15,163,890
payable to the Predecessor.
At the time of incorporation, Canopy agreed to continue to fund the
operations of the Company through a secured convertible promissory note (see
Note 4). The conversion terms of the secured promissory note allowed Canopy to
convert the borrowings and accrued interest into common stock at a price of
$1.00 per share, which was determined by the Company's board of directors to be
the estimated fair market value of the Company's common stock on September 1,
1998, the date of the convertible promissory note agreement. In August 1999,
Canopy elected to convert the outstanding principal borrowings and accrued
interest into 5,273,974 shares of the Company's common stock (converted to
3,966,517 shares of common stock and 1,307,457 shares of Series A in connection
with the recapitalization discussed above).
In July 1999, the Company negotiated with MTI, a publicly traded company
which at the time was 50 percent owned by Canopy, to sell 5,333,333 common
shares (converted to 4,011,161 shares of common stock and 1,322,172 shares of
Series A in connection with the recapitalization discussed above) for
$6,000,000, or $1.13 per share. The Company received $3,000,000 in cash at the
time of closing and issued a note receivable for $3,000,000 that bears interest
at the prime rate plus one percent (9 1/4 percent as of October 31, 1999). This
note receivable was to be received in two installments of $1,500,000 due in
January 2000 and July 2000. The Company negotiated to receive the initial
installment of $1,500,000 in November 1999 in exchange for the Company agreeing
to forego the interest component attached to the note receivable. As a result of
this modification, the Company did not record any accrued interest in the
consolidated balance sheet as of October 31, 1999. The $1,500,000 received in
November 1999 has been reflected as a current asset in the accompanying
consolidated balance sheet as of October 31, 1999 and the remaining $1,500,000
has been reflected as a component of stockholders' equity as of October 31,
1999. In connection with MTI's investment, the Company entered into an
Investors' Rights Agreement with MTI and Canopy pursuant to which MTI received
registration rights applicable to the stock acquired. This Investors' Rights
Agreement was amended and superceded in connection with the Conversion Agreement
discussed above and the subsequent offering of Series B preferred shares
discussed in Note 12.
STOCK OPTION PLANS
During fiscal year 1998, the Company adopted the 1998 Stock Option Plan
(the "1998 Plan") that provided for the granting of nonqualified stock options
to purchase shares of common stock. Under the 1998 Plan, the Company could grant
up to 5,000,000 options to employees, non-employee members of the board of
directors or consultants who provide services to the Company. Options granted
under the 1998 Plan are subject to expiration and vesting terms as determined by
a committee of the Company's board of directors. No options can expire more than
ten years from the date of grant. The exercise price for the options may be paid
in cash or in shares of the Company's common stock valued at fair market value
on the exercise date. The options may also be exercised through a same-day sale
program without any cash outlay by the optionee. At October 31, 1999, options to
purchase 2,035,738 shares of common stock were available for future grants under
the 1998 Plan.
F-15
<PAGE> 86
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On December 1, 1999, the Company's board of directors approved the 1999
Omnibus Stock Incentive Plan (the "1999 Plan"), which is intended to serve as
the successor equity incentive program to the 1998 Plan. The 1999 Plan increased
the aggregate number of shares available for issuance under both plans to
6,700,000 and designated that 700,000 shares be used as director incentives. The
1999 plan allows for the grant of awards in the form of incentive and
non-qualified stock options, stock appreciation rights, restricted shares,
phantom stock and stock bonuses. Awards may be granted to individuals in the
Company's employ or service.
The 1999 plan will be administered by the compensation committee of the
board of directors. This committee will determine which eligible individuals are
to receive awards under the 1999 plan, the type of award to be made, the time or
times when such awards are to be made, the number of shares subject to each such
award, and the vesting schedule and the other terms to be in effect for the
award.
The exercise price for the options may be paid in cash, in shares of the
Company's common stock valued at fair market value on the exercise date or by
having the Company retain sufficient shares of common stock from shares which
would be issuable upon the exercise of the option. The option may also be
exercised through a same-day sale program without any cash outlay by the
optionee.
Tandem stock appreciation rights may be issued under the 1999 plan which
will provide the holders with the election to surrender their outstanding
options for a cash appreciation distribution from the Company equal to the fair
market value of the vested shares subject to the surrendered option less the
aggregate exercise price payable for such shares. In addition, the Company may
issue stand-alone stock appreciation rights which will entitle the holder to
receive a cash payment from the Company equal to the fair market value of the
vested shares subject to the right less the base price for such right.
Phantom stock awards will entitle the holder to receive in cash the fair
market value of common stock on the vesting date.
In the event that the Company is acquired (whether by merger or asset sale)
or there is a change in control (effected through an acquisition of 50% or more
of our voting stock or by proxy contest for the election of board members),
options and stand-alone stock appreciation rights exercisable at that time will
remain exercisable until their expiration, and options and stand-alone stock
appreciation rights not exercisable at that time will expire. Also, if the
Company is acquired or experiences a change in control, all restrictions on
outstanding vested shares of restricted stock granted under the 1999 Plan will
lapse, and all outstanding, unvested shares of such restricted stock will expire
and be cancelled. Similarly, all outstanding, unvested shares of phantom stock
will expire and be cancelled.
A summary of stock option activity under the stock option plans for the
year ended October 31, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS PRICE RANGE EXERCISE PRICE
--------- ------------- ------------------
<S> <C> <C> <C>
Granted........................................... 3,106,566 $1.00 - 1.13 $1.04
Exercised......................................... (22) 1.00 1.00
Forfeited......................................... (142,304) 1.00 1.00
---------
Balance, October 31, 1999......................... 2,964,240 1.00 - 1.13 1.04
=========
</TABLE>
F-16
<PAGE> 87
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of stock option grants with exercise prices equal to or less than
the estimated fair market value on the date of grant during the year ended
October 31, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
WEIGHTED AVERAGE FAIR VALUE OF
OPTIONS GRANTED EXERCISE PRICE OPTIONS
--------------- ---------------- ----------------
<S> <C> <C> <C>
Grants with exercise price equal to estimated
fair market value........................... 645,728 $1.00 $0.20
Grants with exercise price less than estimated
fair market value............................. 2,460,838 1.04 1.54
----------
3,106,566 1.04 1.26
==========
</TABLE>
A summary of the options outstanding and options exercisable under the
Company's stock option plans at October 31, 1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- -------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
OPTIONS CONTRACTUAL AVERAGE OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00.................... 2,116,740 9.5 $1.00 736,092 $1.00
1.13.................... 847,500 9.9 1.13 16,114 1.13
--------- -------
2,964,240 9.6 1.04 752,206 1.00
========= =======
</TABLE>
STOCK-BASED COMPENSATION
The Company accounts for its stock options issued to directors, officers
and employees under Accounting Principles Board Opinion No. 25 and related
interpretations ("APB 25"). Under APB 25, compensation expense is recognized if
an option's exercise price on the measurement date is below the intrinsic fair
value of the Company's common stock. During the year ended October 31, 1999, the
Company granted 2,460,838 stock options with exercise prices that were below the
estimated fair market value on the measurement date resulting in $3,144,230 in
deferred compensation. This deferred compensation has been recorded as a
component of stockholders' equity and will be expensed consistent with the
vesting of the underlying stock options. Amortization of deferred compensation
amounted to $409,296 for the year ended October 31, 1999. Subsequent to
year-end, the Company has granted 2,369,388 additional stock options with
exercise prices ranging from $1.13 to $6.00. The granting of these options will
result in approximately $5,280,000 of additional deferred compensation to be
recognized as expense over the vesting period of the options.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") requires pro forma information regarding
net loss as if the Company had accounted for its stock options granted under the
fair value method. The fair market value of the stock options is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions for grants during the year ended October 31, 1999:
risk-free interest rate of 5.5 percent; expected dividend yield of 0 percent;
volatility of 0 percent, and expected exercise lives of five years. For purposes
of the pro forma disclosure, the estimated fair market value of the stock
options is amortized over the vesting periods
F-17
<PAGE> 88
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of the respective stock options. The following is the pro forma disclosure and
the related impact on net loss for the year ended October 31, 1999:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Net loss as reported........................................ $(9,366,588)
Pro forma net loss.......................................... (9,773,906)
</TABLE>
(6) INCOME TAXES
As described in Note l, Caldera became a separate legal entity effective
September 1, 1998. The income tax attributes associated with the carved-out
portion of Caldera, Inc. prior to September 1, 1998 remained with the
Predecessor. The net loss before income taxes consisted of the following
components for the period from the reorganization (September 1, 1998) through
October 31, 1998 and for the year ended October 31, 1999:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Domestic U.S. operations.................................. $(1,070,632) $(9,401,363)
Operations of foreign subsidiary, Caldera GmbH............ 11,260 69,550
----------- -----------
Total................................................... $(1,059,372) $(9,331,813)
=========== ===========
</TABLE>
The components of the provision for income taxes for the period from the
reorganization (September 1, 1998) through October 31, 1998 and for the year
ended October 31, 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Current:
U.S. Federal............................................... $ -- $ --
U.S. State............................................... -- --
Non-U.S. ................................................ 33,780 34,775
--------- -----------
33,780 34,775
--------- -----------
Deferred:
U.S. Federal ............................................ (368,163) (3,050,789)
U.S. State .............................................. (53,436) (468,597)
Change in valuation allowance............................ 421,599 3,519,386
--------- -----------
-- --
--------- -----------
Total provision for income taxes...................... $ 33,780 $ 34,775
========= ===========
</TABLE>
Deferred tax assets and liabilities are determined based on the differences
between the financial reporting and tax bases of assets and liabilities. They
are measured by applying the enacted tax rates and laws in effect for the years
in which such differences are expected to reverse. The significant components of
the Company's deferred income tax assets and liabilities at October 31, 1998 and
1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards..................... $ 442,760 $ 3,967,242
Tax basis in excess of book basis related to assets
acquired by Caldera from Predecessor.............. 7,077,046 6,599,942
Reserves and accrued expenses........................ 35,931 268,510
Stock-based compensation............................. -- 152,667
Book depreciation in excess of tax................... -- 62,570
Foreign tax credit................................... 22,970 46,617
----------- ------------
Total deferred income tax assets.................. 7,578,707 11,097,548
Valuation allowance.................................. (7,578,162) (11,097,548)
----------- ------------
Net deferred income tax assets.................... 545 --
----------- ------------
</TABLE>
F-18
<PAGE> 89
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Deferred income tax liabilities:
Tax depreciation in excess of book................... (545) --
----------- ------------
Total deferred income tax liabilities............. (545) --
----------- ------------
Net deferred income taxes......................... $ -- $ --
=========== ============
</TABLE>
The amount of and ultimate realization of the deferred income tax assets is
dependant, in part, upon the tax laws in effect, Caldera's future earnings, and
other future events, the effects of which cannot be determined. The Company has
established a valuation allowance against its deferred income tax assets.
Management believes that, based on a number of factors, the available objective
evidence creates sufficient uncertainty regarding the realizability of these
deferred income tax assets.
As of October 31, 1999, the Company had net operating loss carryforwards
for federal income tax reporting purposes totaling approximately $10,636,000.
The net operating loss carryforwards expire as follows:
<TABLE>
<CAPTION>
YEAR OF EXPIRATION AMOUNT
------------------ -----------
<S> <C>
2018........................................................ $ 1,187,000
2019........................................................ 9,449,000
-----------
$10,636,000
===========
</TABLE>
The Internal Revenue Code contains provisions that likely could reduce or
limit the availability and utilization of net operating loss carryforwards if
certain changes in ownership have taken place or will take place. The Company
has not performed an analysis to determine whether any such limitations have
occurred.
The differences between the provision (benefit) for income taxes at the
U.S. statutory rate and the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
1998 1999
----- -----
<S> <C> <C>
Benefit at statutory rate................................... (34.0%) (34.0%)
Non-deductible items........................................ 0.1% 0.1%
State income taxes, net of federal effect................... (3.3%) (3.3%)
Foreign income taxes........................................ 0.6% (0.1%)
Increase in valuation allowance............................. 39.8% 37.7%
----- -----
Total provision for income taxes.......................... 3.2% 0.4%
===== =====
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is a party to certain legal proceedings arising in the ordinary
course of business. Management believes, after consultation with legal counsel,
that the ultimate outcome of such legal proceedings will not have a material
adverse effect on the Company's financial position, liquidity or results of
operations.
OPERATING LEASE AGREEMENTS
The Company leases its corporate office facilities from the Predecessor.
The lease commenced on September 1, 1998 and expires on August 31, 2000. The
rent payment under this lease is approximately
F-19
<PAGE> 90
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$12,100 per month and is based on the portion of total square footage used by
the Company. Rent expense under this arrangement totaled approximately $0,
$19,200 and $144,700 for the years ended October 31, 1997, 1998 and 1999,
respectively. This lease requires the Company to pay taxes, maintenance,
insurance and certain other operating costs of the leased property.
In October 1999, the Company entered into an assignment and extension of an
existing operating lease with an unrelated lessor for research and development
space. Monthly lease payments under this arrangement are $10,000 and require the
Company to pay certain operating expenses such as maintenance, insurance and
other operating costs. The Company does not anticipate renewing the lease when
it expires in July 2000.
On September 1, 1999, the Company entered into an operating lease
arrangement for its Caldera GmbH facility. The lease requires monthly minimum
payments of 8,750 DM (approximately $4,880 U.S. dollars based on the exchange
rate as of October 31, 1999) and expires five years from the date of
commencement. Caldera GmbH also has the option of extending the agreement for
two consecutive five-year terms. This lease requires the Company to pay taxes,
maintenance, insurance and certain other operating costs of the property.
The Company leases warehouse space from an unrelated lessor under an
eighteen-month lease which expires in November 2000. Rent expense under the
lease is approximately $32,000 per year.
SOFTWARE LOCALIZATION AGREEMENT
On October 1, 1999, the Company entered into an agreement with United
Systems Engineers, Inc. ("USE") to localize certain of the Company's software
products for the Japanese market. As consideration, the Company agreed to pay
$250,000 in cash or issue to the engineering firm shares of the Company's common
stock with a market value of $202,000, based on the initial public offering
price per share. On January 4, 2000, the Company and USE amended the agreement
pursuant to which the Company agreed to issue 33,667 shares of common stock to
USE for the services, of which 16,833 are to be issued immediately for services
rendered and the remaining 16,834 are to be issued upon completion of the
services. Should USE not perform under the agreement, USE has committed to make
certain payments to the Company. Based on the performance commitment, the date
of the amended contract has been determined to be the measurement date and the
estimated fair value of the Company's common stock on that date of $269,336, or
$8 per share, will be expensed as the services are rendered.
CONTINGENT CASH AWARDS
In August 1999, the Company granted 24 individuals the right to receive the
cash value of 25 shares of common stock if the Company completes an initial
public offering, such value to be determined by the market price per share of
the Company's common stock as reported on the Nasdaq National Market on the
thirtieth day following the first day the Company's common stock is publicly
traded.
(8) RELATED PARTY TRANSACTIONS
CANOPY
As discussed in Note 1, Canopy was the sole stockholder of Caldera upon
incorporation and was the majority stockholder of the Predecessor. Canopy
invested $20,928,848 in Caldera in exchange for 16,000,000 shares of common
stock. In addition to the initial equity investment, Canopy advanced $4,819,000
under a secured convertible promissory note agreement (see Note 4). In August
1999, the principal borrowings and accrued interest of $454,974 were converted
into 5,273,974 shares of common stock. The chairman of the Company's board of
directors is the president and chief executive officer and a
F-20
<PAGE> 91
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
director of Canopy. Additionally, another director of the Company is the
chairman of Canopy's board of directors.
The Company has entered into certain transactions with Canopy and other
entities that are majority-owned by Canopy. These transactions consist mainly of
participating in joint insurance coverage, training and testing services, and
rent. The Company believes that the terms of these related party transactions
are at least as favorable as the terms that could have been obtained from an
unaffiliated third party in similar transactions. During the years ended October
31, 1997, 1998 and 1999, transactions with these related parties were as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------- --------
<S> <C> <C> <C>
Rent (see Note 7)..................................... $ -- $19,200 $144,700
Training and testing.................................. -- -- 48,200
Insurance............................................. 4,600 13,200 13,800
------ ------- --------
Total expenses...................................... $4,600 $32,400 $206,700
====== ======= ========
</TABLE>
As discussed in Note 9, the Company participates in a 401(k) plan sponsored
by Canopy. As of October 31, 1999, the Company had related party payables of
$48,933.
LINEO, INC.
As discussed in Note 12, in January 2000, the Company acquired an ownership
interest in Lineo, Inc. ("Lineo"), the successor entity to the operations of the
Predecessor which were not acquired by Caldera in the reorganization discussed
in Note 1. The chairman of the Company's board of directors and another director
are also directors of Lineo. Sales to Lineo amounted to $1,700 during the year
ended October 31, 1999.
MTI
In July 1999, MTI, a company which at the time was 50 percent owned by
Canopy, agreed to purchase 5,333,333 shares of common stock for $6,000,000 of
which $3,000,000 was paid at closing and $3,000,000 was payable through an
interest bearing note receivable. Subsequent to October 31, 1999, the Company
agreed to forego the interest component of the note receivable in exchange for
an acceleration of the payment terms (see Note 5). A director of the Company is
the chairman of the board of MTI. Additionally, another Company director is the
current president and chief executive officer of MTI.
The Company is using certain computer equipment provided by MTI without
charge. The equipment is valued at approximately $105,000. Sales to MTI amounted
to $2,985 during the year ended October 31, 1999.
(9) EMPLOYEE BENEFIT PLAN
The Company has adopted a prototype 401(k) plan (the "Benefit Plan")
sponsored by Canopy in which all eligible employees are entitled to make pre-tax
contributions. All full-time employees become eligible for participation in the
Benefit Plan once they have reached the age of 21. Eligible participants can
elect to make contributions to the Benefit Plan and such contribution amounts
are subject to certain limitations under the Internal Revenue Code. As of
October 31, 1999, the Company has not made any contributions to the Benefit
Plan; however, the Board of Directors of Canopy has approved a discretionary
matching program allowing the Company to match up to 50 percent of each dollar
contributed by
F-21
<PAGE> 92
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
employees at a maximum of six percent of the employee's salary. This matching
program will be in effect beginning January 1, 2000.
(10) SIGNIFICANT CUSTOMERS
During the year ended October 31, 1997, the Company did not have sales to
any one customer that accounted for more than ten percent of total net revenues.
During the year ended October 31, 1998, the Company had sales to one customer
that accounted for approximately 11 percent of total net revenues. During the
year ended October 31, 1999, the Company had sales to two customers that
accounted for approximately 33 percent and 20 percent of total net revenues,
respectively. No other customer accounted for more than ten percent of net
revenues during the years ended October 31, 1998 and 1999.
(11) SEGMENT INFORMATION
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes disclosures related to components of a
company for which separate financial information is available and evaluated
regularly by a company's chief operating decision makers in deciding how to
allocate resources and in assessing performance. It also requires segment
disclosures about products and services as well as geographic areas. The Company
has determined that it did not have any separately reportable operating segments
as of October 31, 1997, 1998 and 1999. However, the Company does sell software
and related products in geographic locations outside of the United States.
Revenues attributed to individual countries based on the location of sales to
unaffiliated customers for the years ended October 31, 1997, 1998 and 1999 is as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
United States.................................. $1,116,794 $1,000,943 $2,847,789
Other countries................................ -- 56,145 202,518
---------- ---------- ----------
Total revenue................................ $1,116,794 $1,057,088 $3,050,307
========== ========== ==========
</TABLE>
(12) SUBSEQUENT EVENTS
REINCORPORATION AS A DELAWARE CORPORATION
Prior to completion of the Company's initial public offering, Caldera will
reincorporate in Delaware and amend and restate its certificate of
incorporation. The reincorporation into Delaware will be effected by way of a
merger with a newly-formed Delaware subsidiary, and the associated issuance of
one share of common stock of the subsidiary for each share of common stock of
the Company held by the stockholders of record. Additionally, stockholders of
record of Series A and Series B of the Company will be entitled to receive
shares of Series A and Series B preferred stock of the subsidiary. All share and
per share amounts in the accompanying consolidated financial statements have
been adjusted to give effect to the reincorporation.
ISSUANCE OF SERIES B CONVERTIBLE PREFERRED STOCK AND RELATED AGREEMENTS
On December 30, 1999, the Company's board of directors authorized the issuance
of 5,000,000 shares of Series B preferred stock at $6 per share with the rights,
preferences, privileges and restrictions as described in Note 5. As of January
10, 2000, the 5,000,000 shares had been sold for net proceeds of approximately
$29,500,000. The Company anticipates using the proceeds from the sale of Series
B preferred stock to
F-22
<PAGE> 93
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
fund ongoing research and development efforts, sales and marketing activities,
and other working capital requirements.
In connection with the preferred stock purchase agreement, the Company and the
investors entered into an amended and restated investor rights agreement (the
"Rights Agreement") and a voting agreement. Pursuant to the voting agreement,
the Company and the preferred stockholders established the composition of the
Company's board of directors.
Pursuant to the Rights Agreement, Canopy and MTI, the Series A preferred
stockholders (see Note 5), and the investors in the Series B preferred stock
(collectively the "Preferred Stockholders") have certain rights beginning six
months following the closing of a qualified public offering with respect to
registration of the common shares issued or issuable upon conversion of the
Series A and Series B preferred shares in compliance with the Securities
Exchange Act of 1934. The Preferred Stockholders have certain demand and piggy
back rights that require the Company to use its best efforts to register the
requested shares and/or permit the Preferred Stockholders to include shares in
certain secondary offerings of the Company's common stock. The Company has
agreed to bear all expenses in connection with any registration, other than
underwriting discounts and commissions.
SOFTWARE LICENSE AGREEMENTS WITH SUN MICROSYSTEMS, INC.
In January 2000, the Company and Sun Microsystems, Inc. ("Sun"), an investor in
the Company's Series B preferred stock, entered into certain software license
agreements. Pursuant to one of the software license agreements, the Company
agreed to pay Sun a nonrefundable payment in the amount of $1,250,000 as
follows: $400,000 within 30 days from execution of the agreement and $850,000 by
March 24, 2000 for the rights to the software for an initial term of 18 months.
The agreement also contains a renewal option for an additional nonrefundable
payment at the end of the initial term. The other software license agreements
provide for future royalty payments based on units sold.
BUSINESS ALLIANCE WITH EVERGREEN INTERNET, INC.
In January 2000, the Company and Evergreen Internet, Inc. ("Evergreen") entered
into a master agreement which sets forth the terms and conditions of a business
alliance. Evergreen and the Company agreed as follows: (i) Evergreen granted to
the Company an original equipment manufacturer license permitting the bundling
of certain of Evergreen's software products with the Company's software
products; (ii) the Company and Evergreen will engage in joint development and
integration of their respective software products; (iii) the Company and
Evergreen will cooperate to create educational training courses for the combined
products; (iv) the Company agreed to acquire 370,370 shares of common stock of
Evergreen for $2,000,000 and Evergreen agreed to transfer an additional 222,222
shares of its common stock to the Company in exchange for 200,000 shares of the
Company's common stock (the 592,592 shares of Evergreen's common stock acquired
by the Company is approximately 4 percent of Evergreen's common and preferred
stock); and (v) the parties agreed to work together to identify new business
solution opportunities for their joint products.
STOCK EXCHANGE AGREEMENT WITH LINEO, INC.
In January 2000, the Company and Lineo entered into a stock purchase and sale
agreement. Lineo is the successor entity to the operations of the Predecessor
which were not acquired by Caldera in the reorganization discussed in Note 1 and
is majority owned by Canopy. Pursuant to the stock purchase agreement, the
Company agreed to purchase 3,238,437 shares of common stock of Lineo
(approximately 17 percent of Lineo's outstanding common stock) in exchange for
1,250,000 shares of the Company's
F-23
<PAGE> 94
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
common stock. The Company and Lineo have also agreed in principle to provide
each other with certain marketing and other services pursuant to a strategic
alliance agreement to be completed.
STOCK EXCHANGE AGREEMENT WITH TROLL TECH AS
In December 1999, the Company and Canopy entered into an agreement with Troll
Tech AS and its stockholders. Pursuant to the agreement, the Company agreed to
acquire 159 shares of common stock of Troll Tech (approximately 2 percent of
Troll Tech's outstanding common stock) in exchange for 106,356 shares of the
Company's common stock and Canopy agreed to acquire 398 shares of common stock
of Troll Tech in exchange for $1,000,000, payable in monthly installments of
$100,000. The agreement also grants to Canopy and its affiliates certain license
rights with respect to Troll Tech's software.
F-24
<PAGE> 95
[Art to be on back cover shows the Caldera logo, with text in various formats
reading "eBusiness," "Success", "Solutions," "Integration," "Linux Revolution,"
"Support," "Award-Winning" and "Linux for eBusiness."]
<PAGE> 96
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate of the costs and expenses, other
than the underwriting discounts and commissions, payable by the Registrant in
connection with the issuance and distribution of the common stock being
registered.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 15,180
NASD fee.................................................... 6,250
NASDAQ listing fee.......................................... 5,000
Legal fees and expenses.....................................
Accounting fees and expenses................................
Printing expenses...........................................
Blue sky fees and expenses..................................
Transfer Agent and Registrar fees and expenses..............
Miscellaneous...............................................
--------
Total..................................................... $
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's certificate of incorporation in effect as of the date
hereof, and the registrant's amended and restated certificate of incorporation
to be in effect upon the closing of this offering (collectively, the
"Certificate") provides that, except to the extent prohibited by the Delaware
General Corporation Law, as amended (the "DGCL"), the registrant's directors
shall not be personally liable to the registrant or its stockholders for
monetary damages for any breach of fiduciary duty as directors of the
registrant. Under the DGCL, the directors have a fiduciary duty to the
registrant which is not eliminated by this provision of the Certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the registrant, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the Federal securities laws or state or Federal environmental laws. The
registrant intends to obtain liability insurance for its officers and directors
prior to the closing of this offering.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the registrant shall fully indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a director or
officer of the registrant, or is or was serving at the request of the registrant
as a director or officer of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines
II-1
<PAGE> 97
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three fiscal years preceding the filing of this registration
statement, the Registrant has issued the following securities that were not
registered under the Securities Act:
(i) On August 31, 1998, the Registrant issued to The Canopy Group,
Inc. 16,000,000 shares of common stock in exchange for $20,892,674.
(ii) From December 1998 through December 1999, the Registrant granted
options to purchase an aggregate of 5,475,954 shares of common stock under
its 1998 Stock Option Plan and 1999 Omnibus Stock Incentive Plan with a
weighted average exercise price of $3.04
(iii) On July 27, 1999, the Registrant issued and sold 5,333,333
shares of common stock to MTI Technology Corporation at a purchase price of
$1.13 per share.
(iv) On August 19, 1999, under the terms of Secured Convertible
Promissory Note dated September 1, 1998, $5,273,974 owed to The Canopy
Group was converted into 5,273,974 shares of the Registrant's common stock.
(v) On January 4, 2000, the Registrant issued 16,834 shares of common
stock to United Systems Engineers in exchange for services rendered and
agreed to issue an additional 16,833 shares of common stock to United
Service Engineers upon the completion of services to be rendered, pursuant
to Regulation S under the Securities Act of 1933, as amended.
(vi) On December 30, 1999, the Registrant issued and exchanged
5,273,974 shares of Series A convertible preferred stock for the same
number of shares of common stock held by The Canopy Group, Inc. The
Registrant also issued and exchanged 1,322,172 shares of Series A
convertible preferred stock for the same number of shares of common stock
held by MTI Technology Corporation.
(vii) In December 1999 and January 2000, the Registrant sold a total
of 5,000,000 shares of Series B convertible preferred stock at a purchase
price of $6.00 per share to ten accredited investors.
(viii) In December 1999, the Registrant issued and sold 106,356 shares
of common stock to Troll Tech AS in exchange for 159 shares of common stock
of Troll Tech AS.
(ix) In January 2000, the Registrant issued and sold 200,000 shares of
common stock to Evergreen Internet, Inc. in exchange for 592,592 shares of
common stock of Evergreen Internet, Inc..
No underwriters were involved in the foregoing sales of securities. Except
as noted such sales were deemed to be exempt under the Securities Act in
reliance upon Section 4(2) thereof relative to sales by an issuer not involving
any public offering, or, in the case of options to purchase common stock, Rule
701 under the Securities Act. All of the foregoing securities are deemed
restricted securities for purposes of the Securities Act.
II-2
<PAGE> 98
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Articles of Incorporation, as amended.
3.2* Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of the offering.
3.3* Bylaws.
3.4* Form of Amended and Restated Bylaws to be in effect upon the
closing of this offering.
4.1* Specimen Common Stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Conversion Agreement dated December 30, 1999, between the
Registrant, The Canopy Group, Inc. and MTI Technology
Corporation.
10.2 Form of Series B Preferred Stock Purchase Agreement between
the Registrant and the Series B investors.
10.3 1998 Stock Option Plan.
10.4 1999 Omnibus Stock Incentive Plan.
10.5* 2000 Employee Stock Purchase Plan.
10.6 Secured Convertible Promissory Note dated September 1, 1998
by the Registrant in favor of The Canopy Group, Inc.
10.7 Security Agreement dated September 1, 1998 between the
Registrant and The Canopy Group, Inc.
10.8 Asset Purchase and Sale Agreement dated September 1, 1998
between Caldera, Inc. and the Registrant.
10.9 Amended and Restated Asset Purchase Agreement dated as of
September 1, 1998 between Caldera, Inc. and the Registrant.
10.10 Stock Purchase Agreement dated July 27, 1999 by and among
the Registrant, The Canopy Group, Inc. and MTI Technology
Corporation.
10.11 Stock Purchase Agreement dated January 6 , 2000 between the
Registrant and Lineo, Inc.
10.12 Form of Second Amended and Restated Investors Rights
Agreement by and among the Registrant and the holders of the
Series A and Series B convertible preferred stock.
10.13 Form of Indemnification Agreement by and between the
Registrant and its outside directors.
10.14 GNU General Public License.
10.15+ Computer Software Distribution Agreement dated December 14,
1998 between the Registrant and Navarre Corporation.
10.16+ OEM Reciprocal License Agreement dated January 6, 2000
between the Registrant and Evergreen Internet, Inc.
10.17+ Sun Community Source License version 2.3 dated January 7,
2000 between the Registrant and Sun Microsystems, Inc.
10.18+ Sun Community Source License version 2.7 dated January 7,
2000 between the Registrant and Sun Microsystems, Inc.
10.19 Lease Agreement dated September 1, 1998 between the
Registrant and Caldera, Inc.
10.20 Assignment and Extension of Lease dated October 6, 1999
between the Registrant and Voxel, Inc.
10.21 Form of Voting Agreement between the Registrant and the
holders of the Series A and Series B convertible preferred
stock.
23.1* Consent of Brobeck Phleger & Harrison LLP (included in
Exhibit 5.1).
</TABLE>
II-3
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney (see Signature Page on Page II-5).
27 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Application has been made to the Commission to seek confidential treatment of
certain provisions. Omitted material for which confidential treatment has been
requested has been filed separately with the Commission.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts
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 the notes thereto.
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 foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of 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 of 1933 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> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Orem, State of Utah, on
this 10th day of January, 2000.
CALDERA SYSTEMS, INC.
By: /s/ RANSOM H. LOVE
------------------------------------
Name: Ransom H. Love
Title: President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned directors and/or officers of Caldera Systems, Inc. (the
"Company"), hereby severally constitute and appoint Ransom H. Love, Chief
Executive Officer, and Alan Hansen, Chief Financial Officer, and each of them
individually, with full powers of substitution and resubstitution, our true and
lawful attorneys, with full powers to them and each of them to sign for us, in
our names and in the capacities indicated below, the registration statement on
Form S-1 filed with the Securities and Exchange Commission, and any and all
amendments to said registration statement (including post-effective amendments),
and any registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, in connection with the registration under
the Securities Act of 1933, as amended, of equity securities of the Company, and
to file or cause to be filed the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys, 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
connection therewith, as fully to all intents and purposes as each of them might
or could do in person, and hereby ratifying and confirming all that said
attorneys, and each of them, or their substitute or substitutes, shall do or
cause to be done by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated below:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
/s/ RANSOM H. LOVE President, Chief Executive January 10, 2000
- --------------------------------------------------- Officer and Director
Ransom H. Love (Principal Executive Officer)
/s/ ALAN HANSEN Chief Financial Officer January 10, 2000
- --------------------------------------------------- (Principal Financial and
Alan Hansen Accounting Officer)
/s/ RALPH J. YARRO III Chairman of the Board of January 10, 2000
- --------------------------------------------------- Directors
Ralph J. Yarro III
/s/ RAYMOND J. NOORDA Director January 10, 2000
- ---------------------------------------------------
Raymond J. Noorda
/s/ THOMAS P. RAIMONDI, JR. Director January 10, 2000
- ---------------------------------------------------
Thomas P. Raimondi, Jr.
</TABLE>
II-5
<PAGE> 101
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To Caldera Systems, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Caldera Systems, Inc, the carved-out
portion of Caldera, Inc. and their subsidiary included in this registration
statement and have issued our report thereon dated January 10, 2000. Our audit
was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. Schedule II -- Valuation and Qualifying Accounts is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 10, 1999
S-1
<PAGE> 102
CALDERA SYSTEMS, INC., THE CARVED-OUT
PORTION OF CALDERA, INC. AND THEIR SUBSIDIARY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended October 31, 1997................... $ 22,000 $ 91,000 $ (1,000)* $112,000
Year ended October 31, 1998................... 112,000 265,000 (362,000)* 15,000
Year ended October 31, 1999................... 15,000 222,000 (147,000)* 90,000
</TABLE>
- -------------------------
* Represents write-offs of uncollectable accounts receivable
S-2
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------- DESCRIPTION
<S> <C>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Articles of Incorporation, as amended.
3.2* Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of the offering.
3.3* Bylaws.
3.4* Form of Amended and Restated Bylaws to be in effect upon the
closing of this offering.
4.1* Specimen Common Stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Conversion Agreement dated December 30, 1999, between the
Registrant, The Canopy Group, Inc. and MTI Technology
Corporation.
10.2 Form of Series B Preferred Stock Purchase Agreement, between
the Registrant and the Series B investors.
10.3 1998 Stock Option Plan.
10.4 1999 Omnibus Stock Incentive Plan.
10.5* 2000 Employee Stock Purchase Plan.
10.6 Secured Convertible Promissory Note dated September 1, 1998
by the Registrant in favor of The Canopy Group, Inc.
10.7 Security Agreement dated September 1, 1998 between the
Registrant and The Canopy Group, Inc.
10.8 Asset Purchase and Sale Agreement dated September 1, 1998
between Caldera, Inc. and the Registrant.
10.9 Amendment to Asset Purchase Agreement dated as of September
1, 1998 between Caldera, Inc. and the Registrant.
10.10 Stock Purchase Agreement dated July 27, 1999 by and among
the Registrant, The Canopy Group, Inc. and MTI Technology
Corporation.
10.11 Stock Purchase Agreement dated January 6, 2000 between the
Registrant and Lineo Inc.
10.12 Form of Second Amended and Restated Investors Rights
Agreement by and among the Registrant and the holders of the
Series A and Series B convertible preferred stock.
10.13 Form of Indemnification Agreement by and between the
Registrant and its outside directors.
10.14 GNU General Public License.
10.15+ Computer Software Distribution Agreement dated December 14,
1998 between the Registrant and Navarre Corporation.
10.16+ OEM Reciprocal License Agreement dated January 6, 2000
between the Registrant and Evergreen Internet, Inc.
10.17+ Sun Community Source License version 2.3 dated January 7,
2000 between the Registrant and Sun Microsystems, Inc.
10.18+ Sun Community Source License version 2.7 dated January 7,
2000 between the Registrant and Sun Microsystems, Inc.
10.19 Lease Agreement dated September 1, 1998 between the
Registrant and Caldera, Inc.
10.20 Assignment and Extension of Lease dated October 6, 1999
between the Registrant and Voxel, Inc.
10.21 Form of Voting Agreement between the Registrant and the
holders of the Series A and Series B convertible preferred
stock.
23.1* Consent of Brobeck Phleger & Harrison LLP (included in
Exhibit 5.1).
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------- DESCRIPTION
<S> <C>
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney (see Signature Page on Page II-5).
27 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Application has been made to the Commission to seek confidential treatment of
certain provisions. Omitted material for which confidential treatment has been
requested has been filed separately with the Commission.
<PAGE> 1
Exhibit 10.1
CONVERSION AGREEMENT
THIS CONVERSION AGREEMENT (this "Agreement") is executed as of December
30, 1999 (the "Effective Date") by and among MTI TECHNOLOGY CORPORATION, a
Delaware corporation ("MTI"), THE CANOPY GROUP, INC., a Utah corporation ("CGI")
and CALDERA SYSTEMS, INC., a Utah corporation (the "Company"). Each of the
capitalized terms used but not otherwise defined herein shall have the meaning
assigned to such term under the Agreement (as defined below).
WHEREAS, the Company has authorized 6,596,146 shares of Series A
Preferred Stock (the "Series A Preferred") for issuance;
WHEREAS, MTI and CGI desire to convert the MTI Shares (as defined
below) and the CGI Shares (as defined below), respectively, into an equal number
of shares of the Series A Preferred all as set forth below; and
WHEREAS, in consideration for the Company granting to MTI and CGI the
right to convert the MTI Shares and CGI Shares into shares of the Series A
Preferred, MTI and CGI have agreed to enter into the Waiver of Investor Rights
agreement, the Voting Agreement and the Amended and Restated Investor Rights
Agreement, all dated as of the date hereof; and
WHEREAS, MTI, CGI and the Company desire to enter into this Agreement to
provide the terms and conditions upon which the MTI Shares and the CGI Shares
will be converted to shares of the Series A Preferred;
NOW THEREFORE, in exchange for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, MTI, CGI and the
Company agree as follows:
1. Conversion. As of the Effective Date, CGI hereby elects to convert
5,273,974 shares of the common stock of the Company (the "Common Stock") held by
CGI (the "CGI Shares") into a number of shares of the Series A Preferred equal
to the number of the CGI Shares and MTI hereby elects to convert 1,322,172
shares of the Common Stock held by MTI (the "MTI Shares") into the number of
shares of the Series A Preferred equal to the number of the MTI Shares.
2. Representations, Warranties and Covenants
(a) Of the Company. The Company hereby makes the following
representations, warranties and covenants in favor of each of MTI and
CGI:
(i) Authorized Shares. The shares of the Series A
Preferred identified in Section 1 of this Agreement constitute
duly authorized shares of the capital stock of the Company the
issuance of which to MTI and CGI has been duly authorized by the
board of directors of the Company.
(ii) Validly Issued. Upon issuance of the shares of the
Series A Preferred identified in Section 1 of this Agreement and
receipt by the Company of the certificates representing the MTI
Shares and the CGI Shares properly endorsed and accompanied by
all instruments necessary to effect the transfer of such shares
of the Common Stock to the Company (collectively, the
"Certificates"), such shares of the Series A Preferred shall be
validly issued and
<PAGE> 2
outstanding, fully paid, nonassessable and free and clear of all liens and
encumbrances arising through the actions of the Company or its directors,
officers, employees or agents.
(iii) ISSUANCE OF SERIES A PREFERRED. Upon the Company's receipt of
the Certificates and the duly executed counterparts of this Agreement from
each of CGI and MTI, the Company shall issue the shares of the Series A
Preferred specified in Section 1 of this Agreement to the party identified
in Section 1 of this Agreement as electing to receive such shares.
(b) Of MTI and CGI. Each of MTI and CGI (each being, individually, a
"Shareholder") hereby make the following representations, warranties and
covenants with respect to such Shareholder in favor of the Company.
(i) TITLE TO SHARES. Such Shareholder is the owner of record of the
MTI Shares, in the case of MTI, or the CGI Shares, in the case of CGI, and owns
such shares of the Common Stock free and clear of all liens, claims and
encumbrances.
(ii) AUTHORIZATION. Such Shareholder has full power and authority to
enter into this Agreement, and this Agreement, when executed and delivered, will
constitute a valid and legally binding obligation of such Shareholder. The
individual signing this Agreement on behalf of such Shareholder is duly
authorized to execute this Agreement for and on behalf of such Shareholder. All
organizational action required to be taken to authorize (i) the execution and
delivery of this Agreement by the undersigned individual for and on behalf of
such Shareholder and (ii) the performance by such Shareholder of such
Shareholder's obligations hereunder has been taken.
(iii) PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
such Shareholder in reliance upon such Shareholder's representation to the
Company, which, by such Shareholder's execution of this Agreement, such
Shareholder hereby confirms, that the shares of Series A Preferred to be
purchased by such Shareholder and any securities issuable upon conversion
thereof (such shares of the Series A Preferred and securities issuable upon
conversion thereof being, collectively, the "Securities") are being and will be
acquired for investment for such Shareholder's own account, not as nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that neither such Shareholder nor any of its officers, members, managers or
representatives with the authority, responsibility or power to make a decision
with regard to the purchase or sale of the Securities or any portion thereof
(collectively, such "Shareholder's Representatives") has any present intention
of selling, granting any participation in or otherwise distributing the same.
Such Shareholder and such Shareholder's Representatives are familiar with the
phrase "acquired for investment and not with a view to distribution" as it
relates to the Securities Act of 1933, as amended (the "Securities Act") and
state securities laws and the special meaning given to such term by the
Securities and Exchange Commission (the "SEC"). By executing this Agreement,
such Shareholder further represents that such Shareholder does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities.
2
<PAGE> 3
(iv) Reliance Upon Shareholder's Representations and
Warranties. Such Shareholder and such Shareholder's Representatives
understand that the Securities are not, and upon issuance of any of the
Securities on conversion of shares of the Series A Preferred, at the
time of issuance may not be, registered under the Securities Act on the
ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration under the Securities
Act, and that the Company's reliance on such exemption is predicated on
such Shareholder's representations and warranties set forth herein. Such
Shareholder and such Shareholder's Representatives realize that the
basis for the exemption may not be present if, notwithstanding such
representations and warranties, such Shareholder or any of such
Shareholder's Representatives has in mind merely acquiring the
Securities or any portion thereof for a fixed or determinable period in
the future, or for a market rise, or for sale if the market does not
rise. Neither such Shareholder nor any of such Shareholder's
Representatives has any such intention. Furthermore, such Shareholder
hereby covenants to indemnify the Company for and hold the Company
harmless from all losses, costs, damages, liabilities and expenses
arising out of or in connection with any breach or inaccuracy of any
representation, warranty or covenant made by such Shareholder in this
Letter.
(v) Receipt of Information. Such Shareholder and such
Shareholder's Representatives have received all the information they
consider necessary or appropriate for deciding whether to purchase the
Securities and each portion thereof. Such Shareholder further
represents that such Shareholder and such Shareholder's Representatives
have had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the
Securities and each portion thereof and the business, properties,
prospects and financial condition of the Company and to obtain
additional information necessary to verify the accuracy of any
information furnished to such Shareholder or such Shareholder's
Representatives or to which such Shareholder or such Shareholder's
Representatives had access. Neither such Shareholder nor any of such
Shareholder's Representatives has received, or is relying upon, any
representations, written or oral, from the Company, or its officers,
directors, employees, attorneys or agents. In making the decision to
purchase the Securities and each portion thereof, such Shareholder and
such Shareholder's Representatives have relied solely upon their review
of this Agreement, the Articles of Amendment to the Company's Articles
of Incorporation designating the terms and conditions of the Series A
Preferred, and independent investigations made by such Shareholder or
such Shareholder's Representatives without assistance of the Company or
its officers, directors, employees, attorneys or agents. Such
Shareholder further represents and affirms that none of the following
information has ever been represented, guaranteed or warranted to such
Shareholder or any of its officers, members, managers or
representatives, expressly or by implication, by any person:
(1) The approximate or exact length of time that
such Shareholder will be required to remain a shareholder of the
Company,
3
<PAGE> 4
(2) The percentage of profit and/or amount of or type of
consideration, profit or loss to be realized, if any, as a result of an
investment in the Company; or
(3) The possibility that the past performance or experience
on the part of the Company or any affiliate, officer, director, employee
or agent of the Company, might in any way indicate or predict the
results of ownership of the Securities or the potential success of the
Company's operations.
(vi) Investment Experience. Such Shareholder represents that it and
such Shareholder's Representatives are experienced in evaluating and investment
in private placement transactions of securities of companies in a similar stage
of development as the Company and acknowledges that such Shareholder can bear
the economic risk of such Shareholder's investment and that such Shareholder's
Representatives have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the
investment in the Securities.
(vii) Accredited Investor. Such Shareholder is an Accredited
Investor, as such term is defined in Regulation D promulgated under the
Securities Act.
(viii) Restricted Securities. Such Shareholder and each of such
Shareholder's Representatives understands that neither the Securities nor any
portion thereof may be sold, transferred or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in
the absence of an effective registration statement covering the Securities (or
such portion thereof) or an available exemption from registration under the
Securities Act, the Securities and each portion thereof must be held
indefinitely. Such Shareholder and each of such Shareholder's Representatives
realizes that the Securities and each portion thereof are unlikely to qualify
for sale or other disposition under Rule 144 issued by the SEC. Furthermore,
such Shareholder and each of such Shareholder's Representatives is aware that
neither the Securities nor any portion thereof may be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that Rule
are met. Among the conditions for use of Rule 144 may be the availability of
current information to the public about the Company. Such information is not
now available and the Company has no present plans to make such information
available. Such Shareholder further acknowledges that the Company is under no
obligation to register the Securities or any portion thereof under the
Securities Act or under any state securities laws or to assist in complying
with any exemption from such registration if such Shareholder should at a later
date wish to dispose of the Securities or such portion.
(ix) Legends. To the extent applicable, each certificate or other
document evidencing any of the Securities shall be endorsed with the legends
substantially in the form set forth below:
The following legend under the Securities Act:
4
<PAGE> 5
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER SUCH ACT, OR UNLESS CALDERA SYSTEMS, INC. (THE
"COMPANY") HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED.
Also the Company shall endorse such certificates with each legend
imposed or required by the Company's Articles of Incorporation , the
Company's Bylaws or applicable state securities laws.
(x) Public Sale. Such Shareholder agrees not to make,
without the prior written consent of the Company, any public
offering or sale of any of the Securities, although permitted to do
so pursuant to Rule 144(k) promulgated under the Securities Act,
until the earlier of (i) the date on which the Company effects its
initial registered public offering pursuant to the Securities Act or
(ii) the date on which it becomes a registered company pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended, or
(iii) five years after the Effective Date.
3. Governing Law. This Agreement shall be governed by the laws of the
State of Utah, without reference to the choice of laws rules of such state.
4. Attorneys' Fees. In the event any party hereto fails to perform any
of its obligations under this Agreement or the transactions contemplated hereby
or in the event a dispute arises concerning the meaning or interpretation of any
provision of this Agreement, the defaulting party or the party not prevailing in
such dispute, as the case may be, shall pay any and all reasonable costs and
expenses incurred by the other party in enforcing or establishing its rights
hereunder, including court costs and reasonable attorneys' fees.
5. Successors and Assigns. This Agreement shall be binding upon each
party hereto and its respective successors and assigns.
6. Severability. If any term of provision of this Agreement or any
application thereof shall be held invalid or unenforceable, the remainder of
this Agreement and any other application of such term or provision shall not be
affected thereby.
7. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof, and may not be changed or
modified except by an agreement in writing signed by the parties hereto. The
Company, MTI and CGI hereby agree that all prior or contemporaneous oral
understandings, agreements or negotiations relative to the subject matter hereof
are merged into and revoked by this Agreement.
8. Interpretation. All provisions of this Agreement shall be
interpreted according to their fair meaning and shall not be strictly construed
against any party.
9. Counterparts; Facsimile Signature. This Agreement may be executed in
one or more counterparts, each of which shall be an original, but all of which,
taken together, shall
5
<PAGE> 6
constitute one agreement. An original signature or copy thereof transmitted by
facsimile shall constitute an original signature for purposes of this Agreement.
[Signatures are set forth on the following page.]
6
<PAGE> 7
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
Effective Date.
COMPANY
CALDERA SYSTEMS, INC., a Utah
corporation
By: /s/ RANSOM H. LOVE
--------------------------
Name: Ransom H. Love
------------------------
Title: President & CEO
-----------------------
CGI
THE CANOPY GROUP, INC., a Utah
corporation
By: /s/ RAYMOND J. NOORDA
--------------------------
Name:
------------------------
Title:
-----------------------
MTI
MTI TECHNOLOGY CORPORATION, a
Delaware corporation
By: /s/ DALE R. BOND
--------------------------
Name: Dale R. Bond
------------------------
Title: Sr. Vice President &
Chief Financial Officer
-----------------------
<PAGE> 1
Exhibit 10.2
PREFERRED STOCK PURCHASE AGREEMENT
CALDERA SYSTEMS, INC.
SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement') is
made as of the 30TH day of December, 1999, by and between Caldera Systems, Inc.,
a Utah corporation (the "Company"), and each of the persons listed on Schedule A
hereto, each of which is herein referred to as an "Investor".
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES B PREFERRED STOCK.
(a) The Company has adopted and filed with the Department of Commerce,
Division of Corporations of the State of Utah Amended Articles of
Incorporation in the form attached hereto as Exhibit A (the "Amended
Articles").
(b) Subject to the terms and conditions of this Agreement, each Investor
agrees, severally and not jointly, to purchase at the Closing and the
Company agrees to sell and issue to each Investor, severally and not
jointly, at the Closing that number of shares of the Company's Series B
Preferred Stock set forth opposite each Investor's name on Schedule A
hereto at a purchase price of $6.00 per share. The Series B Preferred
Stock will have the rights, preferences, privileges and restrictions set
forth in the Amended Articles. The sale of the Series B Preferred Stock
to each Investor shall constitute a separate sale hereunder.
1.2 CLOSING.
(a) The purchase and sale of the Series B Preferred Stock shall take
place at the offices of Parr Waddoups Brown Gee & Loveless, at 10:00
a.m. on December 30, 1999, or at such other time and place as the
Company and Investors shall mutually agree, either orally or in writing
(which time and place are designated as the "Closing").
(b) At the Closing, the Company shall deliver to each Investor a
certificate representing the shares of Series B Preferred Stock that
such Investor is purchasing against payment of the purchase price
therefor by check, wire transfer or such other form of payment as shall
be mutually agreed upon by such Investor and the Company.
1.3 SUBSEQUENT SALE OF SERIES B PREFERRED STOCK.
1
<PAGE> 2
If less than all of the authorized number of shares of Series B
Preferred Stock are sold at the Closing, then, subject to the terms and
conditions of this Agreement, the Company may sell, on or before January
10, 2000, up to the balance of the authorized but unissued Series B
Preferred Stock to such persons as the Board of Directors of the Company
may determine at the same price per share as the Series B Preferred
Stock purchased and sold at the Closing. Any such sale shall be made
upon the same terms and conditions as those contained herein, and such
persons or entities shall become parties to this Agreement and all
Ancillary Agreements, and shall have the rights and obligations of an
Investor hereunder and thereunder.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND ITS SUBSIDIARIES.
Each of the Company and its Subsidiaries hereby represents and warrants
to each Investor that as of the date of this Agreement, except as set forth on a
Schedule of Exceptions attached hereto, specifically identifying the relevant
subparagraph(s) hereof, which exceptions shall be deemed to be representations
and warranties as if made hereunder:
2.1 ORGANIZATION; GOOD STANDING; QUALIFICATION.
The Company is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Utah, has all
requisite corporate power and authority to own and operate its
properties and assets and to carry on its business as now conducted and
as presently proposed to be conducted, to execute and deliver this
Agreement, and any other agreement to which the Company is a party, the
execution and delivery of which is contemplated hereby (the "Ancillary
Agreements"), to issue and sell the Series B Preferred Stock and the
Common Stock issuable upon conversion thereof, and to carry out the
provisions of this Agreement, the Amended Articles and any Ancillary
Agreement. The Company is duly qualified and is authorized to transact
business and is in good standing as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a material
adverse effect on its business, properties, prospects or financial
condition.
2.2 AUTHORIZATION.
All corporate action on the part of the Company, its officers,
directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, and any Ancillary Agreement, the
performance of all obligations of the Company hereunder and thereunder
at the Closing and the authorization, issuance (or reservation for
issuance), sale and delivery of the Series B Preferred Stock being sold
hereunder and the Common Stock issuable upon conversion thereof has been
taken or will be taken prior to the Closing, and this Agreement, and any
Ancillary Agreement, when executed and delivered, will constitute valid
and legally binding obligations of the Company, enforceable in
accordance with their respective terms except (i) (as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally, and (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies. The
sale of the Series B Preferred Stock is not and the subsequent
conversion of the Series B Preferred Stock into Common Stock will not be
subject to any preemptive rights or rights of first refusal that have
not been properly waived or complied with.
2.3 VALID ISSUANCE OF PREFERRED AND COMMON STOCK.
2
<PAGE> 3
The Series B Preferred Stock that is being purchased by the
Investors hereunder, when issued, sold and delivered in accordance with
the terms of this Agreement for the consideration expressed herein, will
be duly and validly issued, fully paid and non-assessable, and will be
free of restrictions on transfer other than restrictions on transfer
under this Agreement and under applicable state and federal securities
laws. The Common Stock issuable upon conversion of the Series B
Preferred Stock being purchased under this Agreement has been duly and
validly reserved for issuance and, upon issuance in accordance with the
terms of the Amended Articles, will be duly and validly issued, fully
paid and non-assessable, and will be free of restrictions on transfer
other than restrictions on transfer under this Agreement and under
applicable state and federal securities laws.
2.4 GOVERNMENTAL CONSENTS
No consent, approval, qualification, order or authorization of,
or filing with, any local, state or federal governmental authority is
required on the part of the Company or any of its Subsidiaries in
connection with the Company's valid execution, delivery or performance
of this Agreement, the offer, sale or issuance of the Series B Preferred
Stock by the Company or the issuance of Common Stock upon conversion of
the Series B Preferred Stock, except (i) the filing of the Amended
Articles with the Department of Commerce, Division of Corporations,
State of Utah, and (ii) such filings as have been made prior to the
Closing, except any notices of sale required to be filed with the
Securities and Exchange Commission under Regulation D of the Securities
Act of 1933, as amended (the "Securities Act"), or such post-closing
filings as may be required under applicable state securities laws, which
will be timely filed within the applicable periods therefor.
2.5 CAPITALIZATION AND VOTING RIGHTS.
The authorized capital of the Company consists, or will consist
immediately prior to the Closing, of:
(a) Preferred Stock. 25,000,000 shares of Preferred Stock, no par value,
of which 6,596,146 shares have been designated Series A Preferred Stock,
all of which are issued and outstanding, and 5,000,000 shares have been
designated Series B Preferred Stock, up to all of which may be sold
pursuant to this Agreement. The rights, privileges and preferences of
the Series A and Series B Preferred Stock are as stated in the Amended
Articles.
(b) Common Stock. 75,000,000 shares of common stock, no par value
("Common Stock"), of which 26,744,050 shares are issued and outstanding.
(c) The outstanding shares of Series A Preferred Stock and Common Stock
are owned by the stockholders and in the numbers specified in Exhibit B
hereto.
(d) The outstanding shares of Series A Preferred Stock and Common Stock
have been duly authorized and validly issued, are fully paid and
non-assessable, and were issued in accordance with the registration or
qualification provisions of the Securities Act and any relevant state
securities laws or pursuant to valid exemptions therefrom. The shares of
Series B Preferred Stock issuable pursuant to this Agreement have been
duly authorized and, upon issuance in compliance with the terms of this
Agreement following receipt of the consideration required hereby, will
be validly issued and is fully paid and non-assessable. The Common Stock
issuable upon the conversion of the Series B Preferred Stock purchased
under this Agreement has been duly and
3
<PAGE> 4
validly reserved for issuance and, when issued in accordance with the
Amended Articles, will be validly issued, fully paid and non-assessable.
(e) Except for (i) the Series A Preferred Stock and Series B Preferred
Stock and the rights of the holders thereof, (ii) the rights of the
Investors and other parties pursuant to this Agreement and the Ancillary
Agreements, (iii) currently outstanding and non-expired options to
purchase 5,288,882 shares of Common Stock granted to present or former
employees and directors of the Company pursuant to the Company's 1998
Stock Option Plan and 1999 Omnibus Stock Incentive Plan (collectively,
the "Option Plans"), and (iv) rights that have been duly waived with
respect to the transactions contemplated by the Agreements, (A) there
are no subscriptions, preemptive rights, options, convertible
securities, warrants, conversion privileges or other rights (or
agreements for any such rights, contingent or otherwise) outstanding to
purchase or otherwise obtain any of the Company's capital stock, (B) the
Company has no obligation (contingent or otherwise) to issue
subscriptions, preemptive rights, options, convertible securities,
warrants, conversion privileges or other rights or to issue or
distribute to holders of any shares of its capital stock any evidences
of indebtedness or assets of the Company, and (C) the Company has no
obligation (contingent or otherwise) to purchase, redeem, or otherwise
acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any distribution in respect thereof. In
addition to the aforementioned options, the Company has reserved an
additional 1,380,731 shares of its Common Stock for purchase upon
exercise of options to be granted in the future under the Option Plans.
No stock plan, stock purchase, stock option or other agreement or
understanding between the Company and any holder of any equity
securities of the Company or rights to purchase equity securities of the
Company provides for acceleration or other changes in the vesting
provisions or other terms of such securities, as the result of any
merger, sale of stock or assets, change in control or other similar
transaction by the Company except at the discretion of the Board of
Directors. The Company is not a party or subject to any agreement or
understanding, and, to the best of the Company's knowledge after due
inquiry, there is no agreement or understanding between any persons that
affects or relates to the voting or giving of written consents with
respect to any security or the voting by a director of the Company. For
purposes of this Agreement, "due inquiry" shall mean inquiry of the
officers and directors of the Company and those management-level
employees of the Company who have responsibility for the area of
inquiry.
2.6 SUBSIDIARIES.
The Company does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability
company, association or other business entity. The Company is not a
participant in any joint venture, partnership or similar arrangement.
2.7 CONTRACTS AND OTHER COMMITMENTS.
Neither the Company nor any of its Subsidiaries has and or is bound by
any contract, agreement, lease, commitment, or proposed transaction,
judgment, order, writ or decree, written or oral, absolute or
contingent, other than (i) contracts for the purchase of supplies and
services that were entered into in the ordinary course of business and
that do not involve more than $50,000 in the aggregate from any
individual vendor or supplier, and do not extend for more than one (1)
year beyond the date hereof, (ii) sales contracts entered into in the
ordinary course of business, and (iii) contracts terminable at will by
the Company on no more than thirty (30) days' notice without cost or
liability to the Company or such Subsidiary and that do not involve any
employment or consulting arrangement and are not material to the conduct
of the Company's or such
4
<PAGE> 5
Subsidiary's business. For the purpose of this paragraph, employment and
consulting contracts and license agreements and any other agreements
relating to the Company's or any Subsidiary's acquisition or disposition
of Intellectual Property (other than standard end-user license
agreements) shall not be considered to be contracts entered into in the
ordinary course of business.
2.8 RELATED-PARTY TRANSACTIONS.
No employee, officer, stockholder or director of the Company or
any of its Subsidiaries or member of his or her immediate family is
indebted to the Company, nor is the Company or any Subsidiary indebted
(or committed to make loans or extend or guarantee credit) to any of
them, other than (i) for payment of salary for services rendered, (ii)
reimbursement for reasonable expenses incurred on behalf of the Company
or such Subsidiary, and (iii) for other standard employee benefits made
generally available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board of
Directors of the Company or such Subsidiary). To the best of the
Company's or such Subsidiary's knowledge after due inquiry, none of such
persons has any direct or indirect ownership interest in any firm or
corporation with which the Company or such Subsidiary is affiliated or
with which the Company or such Subsidiary has a business relationship,
or any firm or corporation that competes with the Company or such
Subsidiary, except that employees, stockholders, officers or directors
of the Company or such Subsidiary and members of their immediate
families may own stock in publicly-traded companies that may compete
with the Company or such Subsidiary. To the best of the Company's or
such Subsidiary's knowledge after due inquiry, no officer, director or
stockholder or any member of their immediate families is, directly or
indirectly, interested in any material contract with the Company or such
Subsidiary (other than such contracts as relate to any such person's
ownership of capital stock or other securities of the Company or such
Subsidiary).
2.9 REGISTRATION RIGHTS.
Except as set forth in the Investor Rights Agreement (as defined
below), the Company is presently not under any obligation and has not
granted any rights to register under the Securities Act any of its
presently outstanding securities or any of its securities that may
subsequently be issued.
2.10 PERMITS.
Each of the Company and its Subsidiaries has all franchises,
permits, licenses, and any similar authority necessary for the conduct
of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects or
financial condition of the Company or any such Subsidiary, and believes
it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as presently planned to be conducted.
Neither the Company nor any Subsidiary is in default in any material
respect under any of such franchises, permits, licenses or other similar
authority.
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2.11 COMPLIANCE WITH OTHER INSTRUMENTS.
Neither the Company nor any Subsidiary is in violation or
default in any material respect of any provision of its Amended Articles
or Bylaws or organization documents or in any material respect of any
provision of any mortgage, indenture, agreement, instrument or contract
to which it is a party or by which it is bound or, to the best of its
knowledge after due inquiry, of any federal or state judgment, order,
writ, decree, statute, rule, regulation or restriction applicable to the
Company or such Subsidiary. The execution, delivery and performance by
the Company of this Agreement and any Ancillary Agreement, and the
consummation of the transactions contemplated hereby and thereby, will
not result in any such violation or be in material conflict with or
constitute, with or without the passage of time or giving of notice,
either a material default under any such provision or any event that
results in the creation of any material lien, charge or encumbrance upon
any assets of the Company or any of its Subsidiaries or the suspension,
revocation, impairment, forfeiture, or non-renewal of any material
permit, license, authorization, or approval applicable to the Company or
any of its Subsidiaries, their respective business or operations, or any
of their respective assets or properties.
2.12 LITIGATION.
There is no action, suit, proceeding or investigation pending
or, to the best of the Company's or any of its Subsidiary's knowledge
after due inquiry, currently threatened against the Company or any of
its Subsidiary's that questions the validity of this Agreement, any
Ancillary Agreement or the right of the Company to enter into such
agreements, or to consummate the transactions contemplated hereby or
thereby, or that might result, either individually or in the aggregate,
in any material adverse change in the assets, business, properties,
prospects, or financial condition of the Company or any of its
Subsidiaries, or in any material change in the current equity ownership
of the Company or any of its Subsidiaries. The foregoing includes,
without limitation, any action, suit, proceeding, or investigation
pending or currently threatened involving the prior employment of any of
the Company's or any of its Subsidiaries' employees, their use in
connection with the Company's or such Subsidiary's business of any
information or techniques allegedly proprietary to any of their former
employers, their obligations under any agreements with prior employers,
or negotiations by the Company or such Subsidiary with potential backers
of, or investors in, the Company such Subsidiary or its proposed
business. Neither the Company nor any of its Subsidiaries is a party to
or, to the best of its knowledge after due inquiry, named in or subject
to any order, writ, injunction, judgment or decree of any court,
government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its Subsidiaries
currently pending or that the Company or any of its Subsidiaries
currently intends to initiate.
2.13 RETURNS AND COMPLAINTS.
Neither the Company nor any of its Subsidiaries has received any
customer complaints concerning alleged defects in its products (or the
design thereof) that, if true, would materially adversely affect the
operations or financial condition of the Company or any of its
Subsidiaries.
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2.14 DISCLOSURE.
The Company has provided each Investor with all the information
reasonably available to it without undue expense that such Investor has
requested for deciding whether to purchase the Series B Preferred Stock
and all information that the Company believes is reasonably necessary to
enable such Investor to make such decision. To the best of the Company's
and each of its Subsidiaries' knowledge after due inquiry, neither this
Agreement nor any other agreements, written statements or certificates
made or delivered in connection herewith contains any untrue statement
of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading.
2.15 CONFIDENTIAL OFFERING MEMORANDUM.
The Confidential Offering Memorandum issued on November 12, 1999
previously delivered to each Investor (the "Memorandum") was prepared in
good faith by the Company and does not, to the best of the Company's and
each of its Subsidiaries' knowledge after due inquiry, contain any
untrue statement of a material fact nor does it omit to state a material
fact necessary to make the statements therein not misleading, except
that with respect to assumptions, projections and expressions of opinion
or predictions contained in the Memorandum, the Company represents only
that such assumptions, projections, expressions of opinion and
predictions were made in good faith and that the Company believes there
is a reasonable basis therefor.
2.16 OFFERING.
Subject, in part, to the truth and accuracy of each Investor's
representations set forth in this Agreement, the offer, sale and
issuance of the Series B Preferred Stock as contemplated by this
Agreement are exempt from the registration requirements of the
Securities Act, and neither the Company, any of its Subsidiaries, nor
any authorized agent acting on its behalf will take any action hereafter
that would cause the loss of such exemption.
2.17 TITLE TO PROPERTY AND ASSETS; LEASES.
Except (i) as reflected in the Financial Statements (defined in
paragraph 2.18), (ii) for liens for current taxes not yet delinquent,
(iii) for liens imposed by law and incurred in the ordinary course of
business for obligations not past due to carriers, warehousemen,
laborers, materialmen and the like, (iv) for liens in respect of pledges
or deposits under workers' compensation laws or similar legislation or
(v) for minor defects in title, none of which, individually or in the
aggregate, materially interferes with the use of such property, each of
the Company and its Subsidiaries has good and marketable title to its
property and assets free and clear of all mortgages, liens, claims and
encumbrances. With respect to the property and assets it leases, each of
the Company and its Subsidiaries is in compliance with such leases and,
to the best of its knowledge after due inquiry, holds a valid leasehold
interest free of any liens, claims or encumbrances, subject to clauses
(i)-(v) above.
2.18 FINANCIAL STATEMENTS.
The Company has delivered to each Investor its audited financial
statements (balance sheet and profit and loss statement, statement of
stockholders' equity and statement of cash flows,
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including notes thereto) at October 31, 1999 and for the fiscal year
then ended (the "Financial Statements"). Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated. The
Financial Statements fairly present the financial condition and
operating results of the Company as of the dates, and for the periods,
indicated therein. Except as set forth in the Financial Statements,
neither the Company nor any of its Subsidiaries has any material
liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to October 31,
1999 and (ii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under generally
accepted accounting principles to be reflected in the Financial
Statements, which in both cases, individually or in the aggregate, are
not material to the financial condition or operating results of the
Company or any of its Subsidiaries. Except as disclosed in the Financial
Statements, neither the Company nor any of its Subsidiaries is a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation. The Company and each of its Subsidiaries maintains and will
continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting
principles.
2.19 CHANGES.
Since October 31, 1999, there has not been any event or condition of any
type that has materially and adversely affected the business, properties
or financial condition of the Company or any of its Subsidiaries.
2.20 INTELLECTUAL PROPERTY. To the best of the Company's and its
Subsidiaries' knowledge after due inquiry, the Company, its Subsidiaries and
their products have not infringed and do not infringe the copyrights of any
third party. To the best of the Company's and its Subsidiaries' knowledge after
due inquiry, neither the Company nor its Subsidiaries has misappropriated or is
misappropriating any trade secrets or proprietary confidential information of
any third party, and the products of the Company and its Subsidiaries do not
include or embody any trade secret or proprietary confidential information
misappropriated by the Company or its Subsidiaries from any third party. To the
best of the Company's and its Subsidiaries' knowledge after due inquiry, each of
the Company and its Subsidiaries and their respective products have not
infringed and do not infringe any patents, trademarks, service marks, or trade
names of any third party. Each item of Intellectual Property owned by or
licensed to the Company and its Subsidiaries immediately prior to the Closing
hereunder will be owned by or licensed to the Company and the Subsidiary on
identical terms and conditions immediately subsequent to the Closing hereunder
(i.e., identical to any applicable terms and conditions immediately prior to the
Closing).
(i) To the best of the Company's and its Subsidiaries' knowledge
after due inquiry, none of the Company or its Subsidiaries or their
directors and officers (and employees with responsibility for
Intellectual Property matters) has ever received any charge, complaint,
claim, demand, or notice alleging any such infringement,
misappropriation, or violation by the Company or its Subsidiaries of
Intellectual Property (including any claim that the Company and its
Subsidiaries must license or refrain from using any Intellectual
Property rights of any third party). To the best of the Company's and
its Subsidiaries' knowledge after due inquiry and the directors and
officers (and employees with responsibility for Intellectual Property
matters) of the Company and its Subsidiaries, no third party has
infringed, misappropriated, or otherwise violated any Intellectual
Property rights of the Company and its Subsidiaries.
(ii) The Schedule of Exceptions identifies (a) each patent which
has been issued or assigned to the Company or any of its Subsidiaries,
(b) each pending patent application which has
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been filed by or for the Company or any of its Subsidiaries, (c) each
trademark or service mark registration issued or assigned to the Company
or any of its Subsidiaries, (d) each pending trademark or service mark
application which has been filed by or for the Company or any its
Subsidiaries, (e) each copyright registration issued or assigned to the
Company or any of its Subsidiaries, (f) each pending copyright
application which has been filed by or for the Company or any of its
Subsidiaries, and (g) each license which the Company and its
Subsidiaries has granted to any third party with respect to any of the
Company's Intellectual Property excluding licenses to end users of
Company products granted in the ordinary course of business. The Company
has delivered to the Investors correct and complete copies of all such
patents, registrations, applications, and licenses (as amended to date).
The Schedule of Exceptions also identifies each trade name and each
unregistered trademark or service mark owned or claimed by any of the
Company and its Subsidiaries in connection with any of their businesses.
With respect to each patent, application, and registration (each an
"item") identified in the Schedule of Exceptions:
(B) the Company and its Subsidiaries possess all right,
title, and interest in and to the item, free and clear of any
Security Interest, license, lien or other encumbrance;
(C) to the best of the Company's and its Subsidiaries'
knowledge after due inquiry, the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge;
(D) to the best of the Company's or its Subsidiaries'
knowledge after due inquiry, no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand is
pending or, to the best of the Company's or its Subsidiaries'
knowledge after due inquiry, the directors and officers (and
employees with responsibility for Intellectual Property matters)
of the Company and its Subsidiaries, is threatened which
challenges the legality, validity, enforceability, use, or
ownership of the item; and
(E) none of the Company and its Subsidiaries has ever
agreed to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect
to the item.
(ii.) The Schedule of Exceptions identifies each item of
Intellectual Property that any third party owns and licenses to any of
the Company and its Subsidiaries, excluding licenses to commercially
available software products (e.g., Windows, Microsoft Office, etc.) used
by any of the Company and its Subsidiaries as an end user. The Company
has delivered to the Investors correct and complete copies of all
agreements applicable to such licenses (as amended to date). The term
"license" is intended to include "sublicense." With respect to each such
license and agreement required to be identified in the Schedule of
Exceptions, to the best of the Company's or its Subsidiaries' knowledge
after due inquiry;
(A) The license and agreement are legal, valid, binding,
enforceable, and in full force and effect;
(B) The license and agreement will continue to be legal,
valid, binding, enforceable, and in full force and effect on
identical terms on the day immediately following the Closing;
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(C) no party to the agreement is in breach or default,
and no event has occurred which with notice or lapse of time
would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the agreement has repudiated any
provision thereof;
(E) the license is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge; and
(F) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, or enforceability of
the license or agreement.
(iii.) To the best of the Company's and its Subsidiaries'
knowledge after due inquiry and to the knowledge after due inquiry of
the directors and officers (and employees with responsibility for
Intellectual Property matters) of the Company and its Subsidiaries,
neither the Company nor any of its Subsidiaries will infringe,
misappropriate, or otherwise violate any Intellectual Property rights of
third parties as a result of the continued operation of its businesses
as presently conducted and as presently proposed to be conducted.
Notwithstanding anything herein to the contrary, to the extent any
representation or warranty, in whole or in part, contained in this Agreement may
be deemed to be breached because of infringement of any Intellectual Property,
such representation or warranty shall be read as if it contained the following
qualification: "To the best of the Company's and its Subsidiaries' knowledge
after due inquiry". For purposes of this paragraph, the term "infringement" is
intended to include the infringement, misappropriation and/or violation of
Intellectual Property.
2.21 YEAR 2000 PROBLEM. To the best of the Company's and its
Subsidiaries' knowledge after due inquiry, the Year 2000 Readiness Disclosure as
currently published by the Company on its web site is accurate. A copy of this
Year 2000 Readiness Disclosure is included the Schedule of Exceptions.
2.22 MANUFACTURING AND MARKETING RIGHTS.
Except as set forth on the Schedule of Exceptions, neither the
Company nor any of its Subsidiaries has granted rights to manufacture,
produce, assemble, license, market or sell its products to any other
person and is not bound by any agreement that affects the Company's or
such Subsidiary's exclusive right to develop, manufacture, assemble,
distribute, market or sell its products.
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2.23 EMPLOYEES; EMPLOYEE COMPENSATION.
To the best of the Company's and its Subsidiary's knowledge
after due inquiry, the relationships between the Company and its
Subsidiaries and their respective employees are good and no labor
dispute or claims are pending or threatened. None of the Company's or
any of its Subsidiary's employees belongs to any union or collective
bargaining unit. To the best of the Company's and its Subsidiaries'
knowledge after due inquiry, the Company and each of its Subsidiaries
has complied in all material respects with all applicable state and
federal laws related to employment. To the best of the Company's and it
Subsidiary's knowledge after due inquiry, no employee of the Company or
any such Subsidiary is or will be in violation of any judgment, decree
or order, or any term of any employment contract, patent disclosure
agreement, or other contract or agreement relating to the relationship
of any such employee with the Company, any of its Subsidiaries, or any
other party because of the nature of the business conducted or presently
proposed to be conducted by the Company or any of its Subsidiaries or to
the use by the employee of his or her best efforts with respect to such
business. Except for agreements entered into pursuant to the Option
Plans and the Company's 401k plan, the Company is not a party to or
bound by any currently effective employment contract, deferred
compensation agreement, incentive plan, profit sharing plan, retirement
agreement or other employee compensation agreement. Neither the Company
nor any of its Subsidiaries is aware that any officer or key employee,
or that any group of key employees, intends to terminate their
employment with the Company or any of its Subsidiaries, nor does the
Company or any of its Subsidiaries have a present intention to terminate
the employment of any of the foregoing. Subject to general principles
related to wrongful termination of employees, the employment of each
officer and employee of the Company and each of its Subsidiaries is
terminable at the will of the Company or such Subsidiary, as applicable.
2.24 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS.
Except as set forth on the Schedule of Exceptions, all of the
current employees and all of the officers of the Company and each of its
Subsidiaries has executed an Employee Inventions and Confidentiality
Agreement in the forms attached hereto on Exhibit C. No current or
former employee or officer has excluded works or inventions made prior
to his or her employment with the Company or any of its Subsidiaries
from his or her assignment of inventions pursuant to such employee's
Employee Inventions and Confidentiality Agreement. Copies of all
contracts with independent contractors engaged to develop or create
computer programs, works of authorship or intellectual property for the
Company or its Subsidiaries are identified on the Schedule of
Exceptions.
2.25 TAX RETURNS, PAYMENTS, AND ELECTIONS.
The Company and each of its Subsidiaries has timely filed all
tax returns and reports (federal, state and local) as required by law.
These returns and reports are true and correct in all material respects.
The Company and each of its Subsidiaries has paid all taxes and other
assessments due, except those contested by it in good faith. Neither the
Company nor any of its Subsidiaries has elected pursuant to the Internal
Revenue Code of 1986, as amended ("Code"), to be treated as an S
corporation or a collapsible corporation pursuant to Section 1362(a) or
Section 341(f) of the Code, nor has it made any other elections pursuant
to the Code (other than elections that relate solely to methods of
accounting, depreciation or amortization) that would have a material
effect on the business, properties, prospects or financial condition of
the Company or any
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of its Subsidiaries. Neither the Company nor any of its Subsidiaries has
ever had any tax deficiency proposed or assessed against it and has not
executed any waiver of any statute of limitations on the assessment or
collection of any tax or governmental charge. None of the Company's or
any Subsidiary's income tax returns (federal or otherwise) and none of
its state income or franchise tax or sales or use tax returns has ever
been audited by governmental authorities. The Company and each of its
Subsidiaries has made adequate provisions on its books of account for
all taxes, assessments and governmental charges with respect to its
business, properties and operations for such period. The Company and
each of its Subsidiaries has withheld or collected from each payment
made to each of its employees, the amount of all taxes, including, but
not limited to, federal income taxes, Federal Insurance Contribution Act
taxes and Federal Unemployment Tax Act taxes required to be withheld or
collected therefrom, and has paid the same to the proper tax receiving
officers or authorized depositaries.
2.26 INSURANCE.
The Schedule of Exceptions contains a description of each
insurance policy maintained by the Company and its Subsidiaries with
respect to its properties, assets and businesses, and each such policy
is in full force and effect as of the Closing. Neither the Company nor
any Subsidiary is in default with respect to its obligations under any
insurance policy maintained by it, and neither the Company nor any
Subsidiary has been denied insurance coverage. Except as set forth on
the Schedule of Exceptions, the Company and its Subsidiaries do not have
any self-insurance or co-insurance programs, and the reserves set forth
on the Latest Balance Sheet are adequate to cover all anticipated
liabilities with respect to any such self-insurance or co-insurance
programs.
2.27 ENVIRONMENTAL AND SAFETY LAWS.
Neither the Company nor any of its Subsidiaries is in violation
of any applicable statute, law or regulation relating to the environment
or occupational health and safety, and no material expenditures are or
will be required in order to comply with any such existing statute, law
or regulation.
2.28 MINUTE BOOKS.
A true, correct and complete copy of the minute book of the
Company and each of its Subsidiaries have been delivered to the
Investors. Such copy contains minutes of all meetings of directors and
stockholders and all actions by written consent without a meeting by the
directors and stockholders since the date of incorporation or
organization and accurately reflects all actions by the directors (and
any committee of directors) and stockholders with respect to all
transactions referred to in such minutes in all material respects.
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2.29 SMALL BUSINESS MATTERS.
The Company, together with its "affiliates" (as that term is
defined in Title 13, Code of Federal Regulations, Section 121.103), is a
"small business concern" within the meaning of the Small Business
Investment Act of 1958 and the regulations thereunder, including Title
13, Code of Federal Regulations, Section 121.103. The information
regarding the Company and its affiliates set forth in the Small Business
Administration ("SBA") Form 480, Form 652 and Part A of Form 1031
delivered at the Closing is accurate and complete. Copies of such forms
shall have been completed and executed by the Company and delivered at
the Closing, together with a written statement of the Company regarding
its planned use of the proceeds from the sale of the Series B Preferred
Stock. The Company does not presently engage in, and it shall not
hereafter engage in, any activities, nor shall the Company use directly
or indirectly the proceeds from the sale of the Series B Preferred Stock
hereunder for any purpose, for which a Small Business Investment Company
is prohibited from providing funds by the Small Business Investment Act
of 1958 and the regulations thereunder (including Title 13, Code of
Federal Regulations, Section 107.720).
2.30 QUALIFIED SMALL BUSINESS.
The Company represents and warrants to the Purchasers that, the
Company should qualify as a "qualified small business" within the
meaning of Section 1202(d) of the Code as of the date hereof, and the
Series B Preferred Stock sold hereunder is being acquired at its
original issue in exchange for cash. The Company further represents and
warrants that, as of the date hereof, it meets the "active business
requirement" of Section 1202(e) of the Code, and it has made no
"significant redemptions" within the meaning of Section 1202(c)(3)(B) of
the Code.
3. REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR.
Each Investor, severally, and not jointly, hereby represents and
warrants to the Company that:
3.1 AUTHORIZATION.
Such Investor has full power and authority to enter into this
Agreement, and that this Agreement, when executed and delivered, will
constitute a valid and legally binding obligation of such Investor,
enforceable in accordance with their respective terms except (i) (as
limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of
creditors' rights generally, and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other
equitable remedies.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT.
This Agreement is made with each Investor in reliance upon such
Investor's representation to the Company, which by such Investor's
execution of this Agreement such Investor hereby confirms, that the
Series B Preferred Stock to be purchased by such Investor and the Common
Stock issuable upon conversion thereof (collectively, "Securities") will
be acquired for investment for such Investor's own account, not as
nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that such Investor has no present intention of
selling, granting any participation in or otherwise distributing the
same. By executing this Agreement, each Investor further represents that
such Investor does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to
such person or to any third person, with respect to any of the
Securities.
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3.3 RELIANCE UPON INVESTORS' REPRESENTATIONS.
Each Investor understands that the Series B Preferred Stock is
not, and any Common Stock acquired on conversion thereof at the time of
issuance may not be, registered under the Securities Act on the ground
that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration under the Securities
Act pursuant to Section 4(2) thereof, and that the Company's reliance on
such exemption is predicated on the Investors' representations set forth
herein. Each Investor realizes that the basis for the exemption may not
be present if, notwithstanding such representations, the Investor has in
mind merely acquiring shares of the Series B Preferred Stock for a fixed
or determinable period in the future, or for a market rise, or for sale
if the market does not rise. No Investor has any such intention.
3.4 RECEIPT OF INFORMATION.
Each Investor believes such Investor has received all the
information such Investor considers necessary or appropriate for
deciding whether to purchase the Series B Preferred Stock. Each Investor
further represents that such Investor has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of the Series B Preferred Stock and the
business, properties, prospects and financial condition of the Company
and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy of any information
furnished to such Investor or to which such Investor had access. The
foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement or the right of
the Investors to rely thereon.
3.5 INVESTMENT EXPERIENCE.
Each Investor represents that such Investor is experienced in
evaluating and investing in private placement transactions of securities
of companies in a similar stage of development and acknowledges that
such Investor is able to fend for himself, herself or itself, can bear
the economic risk of such Investor's investment, and has such knowledge
and experience in financial and business matters that such Investor is
capable of evaluating the merits and risks of the investment in the
Series B Preferred Stock. If other than an individual, Investor also
represents such Investor either (a) has not been organized for the
purpose of acquiring the Series B Preferred Stock or (b) has equity
owners that are all Accredited Investors. The foregoing, however, does
not limit or modify the representations and warranties of the Company in
Section 2 of this Agreement or the right of the Investors to rely
thereon.
3.6 ACCREDITED INVESTOR.
(a) The term "Accredited Investor" as used herein refers to:
(i) A person or entity who is a director or executive
officer of the Company;
(ii) Any bank as defined in Section 3(a)(2) of the
Securities Act, or any savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities
Act whether acting in its individual or fiduciary capacity; any
broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934; any insurance company as defined
in Section 2(13) of the Securities Act; any investment company
registered under
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the Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of that Act; any Small
Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; any plan established and maintained by a
state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess
of $5,000,000; any employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974,
if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total
assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited
investors;
(iii) Any private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
(iv) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar
business trust or partnership, not formed for the specific
purpose of acquiring the securities offered, with total assets in
excess of $5,000,000;
(v) Any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of the purchase
exceeds $1,000,000;
(vi) Any natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint
income with that person's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching the same
income level in the current year;
(vii) Any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a person who has such
knowledge and experience in financial and business matters that
he or she is capable of evaluating the merits and risks of the
prospective investment; or
(viii) Any entity in which all of the equity owners are
accredited investors.
As used in this Paragraph 3.6(a), the term "net worth" means the
excess of total assets over total liabilities. For the purpose of
determining a person's net worth, the principal residence owned by an
individual should be valued at fair market value, including the cost of
improvements, net of current encumbrances. As used in this Paragraph
3.6(a), "income" means actual economic income, which may differ from
adjusted gross income for income tax purposes. Accordingly, each
Investor should consider whether such Investor should add any or all of
the following items to such Investor's adjusted gross income for income
tax purposes in order to reflect more accurately such Investor's actual
economic income: any amounts attributable to tax-exempt income received,
losses claimed as a limited partner in any limited partnership,
deductions claimed for depletion, contributions to an IRA or Keogh
retirement plan and alimony payments.
<PAGE> 16
(a) Each Investor as to such Investor, severally and not
jointly, further represents to the Company that except as
otherwise disclosed to the Company, in writing, prior to
such Investor's execution hereof, such Investor is either:
(i) an Accredited Investor; or
(ii) not an Accredited Investor and neither such Investor
nor any beneficiary of any trust or any investment client for
whose account such Investor is purchasing is a citizen or
resident of the United States or any state, territory or
possession thereof, including, but not limited to, any estate of
any such person, or any corporation, partnership, trust or other
entity created or existing under the laws thereof, or any entity
controlled or owned by any of the foregoing (a "U.S. Person").
3.7 RESTRICTED SECURITIES.
Each Investor understands that the Series B Preferred Stock (and
any Common Stock issued on conversion thereof) may not be sold,
transferred or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Securities (or the Common
Stock issued on conversion thereof) or an available exemption from
registration under the Securities Act, the Series B Preferred Stock (and
any Common Stock issued on conversion thereof) must be held
indefinitely. In particular, each Investor is aware that the Series B
Preferred Stock (and any Common Stock issued on conversion thereof) may
not be sold pursuant to Rule 144 promulgated under the Securities Act
unless all of the conditions of that Rule are met. Among the conditions
for use of Rule 144 may be the availability of current information to
the public about the Company. Such information is not now available and
the Company has no present plans to make such information available.
3.8 LEGENDS.
To the extent applicable, each certificate or other document
evidencing any of the Series B Preferred Stock or any Common Stock
issued upon conversion thereof shall be endorsed with the legends
substantially in the form set forth below:
(a) The following legend under the Securities Act:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER
SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR
OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) Any legend imposed or required by the Company's Bylaws
or applicable state securities laws.
4. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING.
16
<PAGE> 17
4.1 The obligations of each Investor under subparagraph 1.1(b) of this
Agreement are subject to the fulfillment on or before the Closing of each of the
following conditions, the waiver of which shall not be effective against any
Investor who does not consent in writing thereto:
4.2 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company and its
Subsidiaries contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
4.3 PERFORMANCE.
The Company and its Subsidiaries shall have performed and
complied with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it
on or before the Closing.
4.4 COMPLIANCE CERTIFICATE.
The President of the Company shall deliver to each Investor at
the Closing a certificate certifying that the conditions specified in
paragraphs 4.1 through 4.6, inclusive, have been fulfilled.
4.5 QUALIFICATIONS.
All authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale
of the Series B Preferred Stock pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
4.6 PROCEEDINGS AND DOCUMENTS; CERTIFICATE OF DESIGNATIONS.
All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to the
Investors' special counsel, which shall have received all such
counterpart original and certified or other copies of such documents as
it may reasonably request. The Company shall have delivered to the
Investors evidence of filing of the Amended Articles with the Department
of Commerce, Division of Corporations of the State of Utah.
4.7 OPINION OF COMPANY COUNSEL.
Each Investor shall have received from Parr Waddoups Brown Gee &
Loveless, counsel for the Company, an opinion, dated the date of the
Closing, in form and substance satisfactory to special counsel to the
Investors, as to the matters set forth in Exhibit D hereto.
4.8 INVESTOR RIGHTS AGREEMENT.
The Company and the Investors and the other parties thereto
shall have entered into an amended and restated investor rights
agreement in form and substance as set forth in Exhibit E
<PAGE> 18
hereto (the "Investor Rights Agreement"), and the Investor Rights
Agreement shall be in full force and effect as of the Closing.
4.9 VOTING AGREEMENT.
The Company and the Investors and the other parties thereto
shall have entered into a voting agreement in form and substance as set
forth in Exhibit F hereto (the "Voting Agreement"), and the Voting
Agreement shall be in full force and effect as of the Closing.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the Company to each Investor under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions by that Investor:
5.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each Investor contained in
Section 3 shall be true on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of
the date of the Closing.
5.2 QUALIFICATIONS.
All authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale
of the Stock pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
6. POST-CLOSING COVENANTS OF THE COMPANY.
6.1 SMALL BUSINESS CONCERN DOCUMENTS.
The Company shall execute and deliver to each Investor who
requests them the following documents:
(a) Within 75 days after the Closing and at the end of each month
thereafter until all of the proceeds from the financing hereunder have
been used by the Company, the Company shall deliver to Investor which is
an SBIC ("SBIC Holder") a written statement certified by the Company's
president or chief financial officer describing in reasonable detail the
use of the proceeds of the financing hereunder by the Company. In
addition to any other rights granted hereunder, the Company shall grant
the SBIC Holder and the SBA access to the Company's records for the
purpose of verifying the use of such proceeds.
(b) Promptly after the end of each fiscal year (but in any event
prior to February 28 of each year), the Company shall deliver to the
SBIC Holder a written assessment of the economic impact of the SBIC
Holder's investment in the Company, specifying the full-time equivalent
jobs created or retained in connection with the investment, the impact
of the investment on the businesses of the Company in terms of expanded
revenue and taxes and other economic benefits resulting from
<PAGE> 19
the investment (including, but not limited to, technology development or
commercialization, minority business development, urban or rural
business development and expansion of exports).
6.2 REGULATORY COMPLIANCE COOPERATION.
(a) In the event that the SBIC Holder determines that it has a
Regulatory Problem (as defined below), the Company shall take all such
actions as are reasonably requested by the SBIC Holder in order to (a)
effectuate and facilitate any transfer by the SBIC Holder of any
securities of the Company then held by the SBIC Holder, (b) permit the
SBIC Holder (or any Affiliate of the SBIC Holder) to exchange all or any
portion of the Series B Preferred Stock then held by the SBIC Holder on
a share-for-share basis for shares of a class of non-voting common stock
of the Company, which non-voting common stock shall be identical in all
respects to such Series B Preferred Stock, except that such common stock
shall be non-voting and shall be convertible into Common Stock on such
terms as are requested by the SBIC Holder in light of regulatory
considerations then prevailing, (c) continue and preserve the respective
allocation of the voting interests with respect to the Company provided
for in the Amended Articles with respect to the SBIC Holder's ownership
of the Company's Series B Preferred Stock and underlying Common Stock,
and (d) amend this Agreement, the Amended Articles and other related
agreements to effectuate and reflect the foregoing. Such actions may
include, but shall not necessarily be limited to:
(i) entering into such additional agreements as are
requested by the SBIC Holder to permit any person(s) and/or
entities designated by the SBIC Holder to exercise any voting
power which is relinquished by the SBIC Holder upon any exchange
of Common Stock for non-voting stock of the Company; and
(ii) entering into such additional agreements, adopting such
amendments to the Amended Articles and Bylaws of the Company and
taking such additional actions as are reasonably requested by
the SBIC Holder in order to effectuate the intent of the
foregoing.
(a) For purposes of this Agreement, a "Regulatory Problem" means any
set of facts or circumstances wherein it has been asserted by any
governmental regulatory agency (or the SBIC Holder believes that there
is a substantial risk of such assertion) that the SBIC Holder and its
Affiliates are not entitled to hold, or exercise any significant right
with respect to, the Series B Preferred Stock or the Common Stock.
6.3 FINANCIAL STATEMENTS AND OTHER INFORMATION.
The Company shall deliver to Investor:
(a) as soon as available, but in any event within 45 days after the
end of each quarterly accounting period in each fiscal year, unaudited
statements of income and cash flows of the Company for such quarterly
period and for the period from the beginning of the fiscal year to the
end of such quarter, and unaudited balance sheets of the Company as of
the end of such quarterly period, setting forth in each case comparisons
to the Company's annual budget and to the corresponding period in the
preceding fiscal year, and all such statements shall be prepared in
accordance with generally accepted accounting principles, consistently
applied, subject to the absence of footnote disclosures and to normal
year-end adjustments for recurring accruals, and shall be certified by
the Company's chief financial officer;
<PAGE> 20
(b) within 90 days after the end of each fiscal year, audited
statements of income and cash flows of the Company for such fiscal year,
and audited balance sheets of the Company as of the end of such fiscal
year, setting forth in each case comparisons to the Company's annual
budget and to the preceding fiscal year, all prepared in accordance with
generally accepted accounting principles, consistently applied, and
accompanied by, with respect to the consolidated portions of such
statements, an opinion containing no exceptions or qualifications
(except for qualifications regarding specified contingent liabilities)
of an independent accounting firm of recognized national standing;
(c) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations or financial affairs given to the
Company by its independent accountants (and not otherwise contained in
other materials provided hereunder);
(d) at least 5 days but not more than 90 days prior to the beginning
of each fiscal year, an annual business plan prepared on a monthly basis
for the Company for such fiscal year (displaying anticipated statements
of income and cash flows and balance sheets), and promptly upon
preparation thereof any other significant business plans prepared by the
Company and any revisions of such annual or other business plans;
(e) prompt notification of any matter or matters which would
reasonably be expected to, individually or in the aggregate, have a
material adverse effect on the financial condition, operating results,
business, assets, operations, employee relations or customer or supplier
relations of the Company (a "Material Adverse Effect");
(f) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the company sends to its shareholders and
copies of all registration statements and all regular, special or
periodic reports which it files, or any of its officers or directors
file with respect to the Company, with the SEC or with any securities
exchange on which any of its securities are then listed, and copies of
all press releases and other statements made available generally by the
Company to the public concerning material developments in the Company's
business; and
(g) with reasonable promptness, such other information and financial
data concerning the Company as any person entitled to receive
information under this Section 6.8 may reasonably request.
Each of the financial statements referred to in subparagraphs
(a) and (b) shall be true and correct in all material respects as of the
dates and for the periods stated therein, subject in the case of the
unaudited financial statements to changes resulting from normal year-end
adjustments for recurring accruals (none of which would, alone or in the
aggregate, be materially adverse to the financial condition, operating
results, business, assets, operations, business prospects, employee
relations or customer or supplier relations of the Company).
6.4 INSPECTION OF PROPERTY.
The Company shall permit each Investor, upon reasonable notice
and during normal business hours and at such other times as any such holder may
reasonably request, to (i) visit and inspect any of the properties of the
Company, (ii) examine the corporate and financial records of the Company
<PAGE> 21
and make copies thereof or extracts therefrom, and (iii) discuss the affairs,
finances and accounts of any such corporations with the directors, officers and
key employees of the Company. Notwithstanding anything to the contrary contained
herein, the terms and provisions of this paragraph Section 6.5 shall terminate
automatically and be of no further force and effect upon the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement filed under the Securities Act covering the offer and sale of Common
Stock for the account of the Company at a price per share equal to or greater
than $8.00 and in which the aggregate public offering price (before deduction of
underwriters' discounts and qualifications) equals or exceeds $25,000,000 (a
"Qualified Public Offering").
6.5 ATTENDANCE AT BOARD MEETINGS.
The Company shall deliver to each Investor which, together with
its affiliates and or permitted transferees, holds at least 500,000 shares of
the Series B Preferred Stock (a "Representative Holder") written notice of each
meeting of its board of directors and each committee thereof at least three
business days prior to the date of each such meeting, and the Company shall
permit a representative of each such Representative Holder to attend as an
observer all meetings of its board of directors and all committees thereof;
provided that in the case of telephonic meetings conducted in accordance with
the bylaws and the Company and applicable law, each such Representative Holder
need receive only actual notice thereof at least 48 hours prior to any such
meeting, and each such Representative Holder's representative shall be given the
opportunity to listen to such telephonic meetings. Each representative shall be
entitled to receive all written materials and other information (including,
without limitation, copies of meeting minutes) given to directors in connection
with such meetings substantially at the same time such materials and information
are given to the directors; provided, however, that the Company reserves the
right to exclude such representative from access to any material or portion
thereof if the Company believes upon advice of counsel that such exclusion is
reasonably necessary to preserve the Company's attorney-client privilege. If the
Company proposes to take any action by written consent in lieu of a meeting of
its board of directors or of any committee thereof, the Company shall give
written notice thereof to each such Representative Holder promptly after the
effective date of such consent describing in reasonable detail the nature and
substance of such action. The Company shall pay the reasonable out-of-pocket
expenses of each representative incurred in connection with attending any such
board and committee meetings which are held outside of the State of Utah.
Notwithstanding anything to the contrary contained herein, the terms and
provisions of this paragraph Section 6.5 shall terminate automatically and be of
no further force and effect upon the consummation of a Qualified Public
Offering.
6.6 CURRENT PUBLIC INFORMATION.
At all times after the Company has filed a registration statement
with the Securities and Exchange Commission pursuant to the requirements of
either the Securities Act or the Securities Exchange Act, the Company shall file
all reports required to be filed by it under the Securities Act and the
Securities Exchange Act and the rules and regulations adopted by the Securities
and Exchange Commission thereunder and shall take such further action with
respect to the provision of information as any holder or holders of Securities
may reasonably request, all to the extent required to enable such holders to
sell Securities pursuant to (i) Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter adopted by the Securities and
Exchange Commission, or (ii) a registration statement on Form S-2 or S-3 or any
similar registration form hereafter adopted by the Securities and Exchange
Commission. Upon request, the Company shall deliver to any holder of Securities
a written statement as to whether it has complied with such requirements.
<PAGE> 22
6.7 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS.
The Company and each of its Subsidiaries shall their use their
collective best efforts to cause all of the current employees and all of
the officers of the Company and each of its Subsidiaries to execute an
Employee Inventions and Confidentiality Agreement in the forms attached
hereto on Exhibit C within thirty (30) days after the Closing.
7 MISCELLANEOUS.
7.1 ENTIRE AGREEMENT.
This Agreement and the documents referred to herein constitute
the entire agreement among the parties 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.
7.2 SURVIVAL OF WARRANTIES.
The warranties, representations and covenants of the Company and
the Investors contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing.
7.3 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 assigns of the parties (including permitted
transferees of any shares of Series B Preferred Stock sold hereunder or
any Common Stock issued upon conversion thereof). 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.
7.4 GOVERNING LAW.
This Agreement shall be governed by and construed under the laws
of the State of Utah as applied to agreements among Utah residents
entered into and to be performed entirely within Utah.
7.5 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.
7.6 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.
<PAGE> 23
7.7 NOTICES.
Unless otherwise provided, all notices and other communications
required or permitted under this Agreement shall be in writing and shall
be mailed by United States first-class mail, postage prepaid, sent by
facsimile or delivered personally by hand or by a nationally recognized
courier addressed to the party to be notified at the address or
facsimile number indicated for such person on Schedule A hereto, or at
such other address or facsimile number as such party may designate by
ten (10) days' advance written notice to the other parties hereto. All
such notices and other written communications shall be effective on the
date of mailing, confirmed facsimile transfer or delivery.
7.8 FINDER'S FEES.
Each party represents that it neither is nor will be obligated
for any finder's fee or commission in connection with this transaction.
Each Investor, severally and not jointly, agrees to indemnify
and to hold harmless the Company from any liability for any commission
or compensation in the nature of a finder's fee (and the cost and
expenses of defending against such liability or asserted liability) for
which such Investor or any of its officers, partners, employees or
representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
7.9 EXPENSES.
(a) At the Closing, the Company shall reimburse the Investors for their
reasonable out-of-pocket fees and expenses incurred in connection with the
investigation, negotiation and documentation of the transactions contemplated
hereby (including, without limitation, attorneys' and accountants' fees) not to
exceed in the aggregate $150,000.00.
(b) The Company shall pay its own out-of-pocket expenses and all stamp
and other taxes which may be payable in respect of the execution and delivery of
this Agreement, the Ancillary Agreements, or the issuance, delivery or
acquisition of the Series B Preferred Stock.
(c) The Company further agrees to reimburse the Investors on demand for
the Investors' reasonable out-of-pocket fees and expenses incurred in connection
with any amendment to or waiver of any provision of this Agreement necessitated
by the breach of any provision of this Agreement by the Company or enforcement
of this Agreement by the Investors (subject to the terms and provisions of
Section 7.10 below).
7.10 ATTORNEYS' FEES.
If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, any Ancillary Agreement or the
Amended Articles, the prevailing party shall be entitled to be
reimbursed by the non-prevailing party for reasonable attorneys' fees,
costs and disbursements, in addition to any other relief to which such
party may be entitled.
<PAGE> 24
7.11 AMENDMENTS AND WAIVERS.
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 more than 50%
of the Common Stock not previously sold to the public that is issued or
issuable upon conversion of the Series B Preferred Stock. Any amendment
or waiver effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this Agreement at the
time outstanding (including securities into which such securities have
been converted), each future holder of all such securities, and the
Company.
7.12 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.
* * * * *
<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this Series B Preferred Stock
Purchase Agreement as of the date first above written.
CALDERA SYSTEMS, INC., A UTAH CORPORATION
By: /s/ RANSOM H. LOVE
-------------------------------------
Name: Ransom H. Love
Title: President
CHICAGO VENTURE PARTNERS, L.P.
By: Chicago Venture Management, L.L.C.
Its: General Partner
By: CVM, Inc.
Its: Manager
By:
-------------------------------------
Name: John Fife
Title: President
CHICAGO VENTURE PARTNERS B, L.L.C.
By: Burlington Investments, Inc.
Its: Manager
By:
-------------------------------------
Name: John Fife
Title: President
EGAN MANAGED-CAPITAL, L.P.
By: EMC Partners, L.P.
Its: General Partner
By:
-------------------------------------
Name: Michael H. Shanahan
Title: General Partner
<PAGE> 26
ENSIGN PEAK ADVISORS, INC.
By:
-------------------------------
Name: F. James Cowan
Title: Senior Vice President
THE SANTA CRUZ OPERATION, INC.
By:
-------------------------------
Name: Jenny Twaddle
Title: Acting CFO and
Corporate Controller
SUN MICROSYSTEMS, INC.
By:
-------------------------------
Name:
Title:
NOVELL, INC.
By:
-------------------------------
Name:
Title:
CITRIX SYSTEMS, INC.
By:
-------------------------------
Name:
Title:
<PAGE> 27
ARISTA CAPITAL PARTNERS, L.P.
By: Arista Capital Management, L.L.C.
Its: General Partner
By:
-------------------------------------
Name:
Title:
BAYVIEW
By:
-------------------------------------
Name:
Title:
FIC
By:
-------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.3
CALDERA SYSTEMS, INC.
1998 STOCK OPTION PLAN
ARTICLE I
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1998 Stock Option Plan is intended to promote the interests of
CALDERA SYSTEMS, INC., a Utah corporation, by providing eligible persons with
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
Capitalized terms herein shall have the meanings assigned to such terms in
the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or
all administrative functions otherwise exercisable by the Board may be delegated
to the Committee. Members of the Committee shall serve for such period of time
as the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator shall be final and binding on all parties who have an
interest in the Plan or any option thereunder.
III. ELIGIBILITY
A. The persons eligible to participate in the Plan are as
follows:
(i) Employees,
(ii) non-employee members of the Board or the non-employee
members of the board of directors of any Parent or Subsidiary, and
(iii) consultants who provide services to the Corporation (or
any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine
which eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant the exercise price of option, the time or times at which each option is to
become exercisable, the vesting schedule applicable to the option shares and the
maximum term for which the option is to remain.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or re-acquired Common Stock. The maximum number of
shares of Common Stock which may be issued over the term of the Plan shall not
exceed 1,000,000 shares.
B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the
<PAGE> 2
options are canceled in accordance with the cancellation-regrant provisions of
Article 2. All shares issued under the Plan, whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan.
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive.
ARTICLE 2
OPTION GRANTS
I. OPTION TERMS
Each option shall be a Non-Statutory Option and shall be evidenced
by one or more documents in the form approved by the Plan Administrator;
provided, however, that each such document shall comply with the terms specified
below
A. Exercise Price.
(i) The exercise price per share shall be fixed by the Plan
Administrator which may be less than the Fair Market Value per share of
Common Stock on the option grant date.
(ii) The exercise price shall become immediately due upon
exercise of the option and shall, subject to the documents evidencing the
option, be payable in cash or check made payable to the Corporation.
B. Exercise and Term of Options. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
C. Effect of Termination of Service. The following provisions
shall govern the exercise of any options held by the Optionee at the time of
cessation of Service or death:
(i) Should the Optionee cease to remain in Service for any
reason other than Cause, Disability or death, then the Optionee shall have
a period of three (3) months following the later of (i) the date of such
cessation of Service, or (ii) the date the Options first become
exercisable, during which to exercise each outstanding option held by such
Optionee.
(ii) Should the Optionee cease to remain in Service for
Cause, then all outstanding Options shall terminate on the date of such
cessation of Service.
(iii) Should such Service terminate by reason of Disability,
then the Optionee shall have a period of twelve (12) months following the
later of (i) the date of such cessation of Service, or (ii) the date the
Options first become exercisable, during which to exercise each
outstanding option held by such Optionee.
(iv) Should the Optionee die while holding one or more
outstanding options, then the personal representative of the Optionee's
estate or the person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of descent and
distribution shall have a period of twelve (12) months following the later
of (i) date of the Optionee's death, or (ii) the date the Options first
become exercisable, during which to exercise each outstanding option held
by such Optionee.
2
<PAGE> 3
(v) Under no circumstances, however, shall any such option
be exercisable after the specified expiration of the option term or
earlier termination of the option.
(vi) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable an the date of the
Optionee's cessation of Service. The option shall terminate and cease to
be outstanding for any vested shares for which the option has not been
exercised upon the earlier of the following: (i) expiration of the
applicable post-Service exercise period, (ii) upon the termination of the
option as a result of a Corporate Transaction, or (iii) upon the
expiration of the option term. The option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding to
the extent the option has not vested on the date of such cessation of
Service.
D. Shareholder Rights. The holder of an option shall have no
shareholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Unvested Shares. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, all or (at the discretion of the Corporation and with the consent of the
Optionee) any of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right. The Plan Administrator may impose a vesting schedule upon any
option grant or any shares of Common Stock subject to the option.
F. First Refusal Rights. Until such time as the Common Stock is
FIRST registered under Section 12(g) of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.
G. Limited Transferability of Option. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will, by the laws of descent and
distribution following the Optionee's death, or be assigned in accordance with
the terms of a Qualified Domestic Relations Order. The assigned option may only
be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to such Qualified Domestic Relations Order. The terms applicable
to the assigned option (or portion thereof) shall be the same as those in effect
for the option immediately prior to such assignment and shall be set forth in
such documents issued to the assignee as the Plan Administrator may deem
appropriate.
II. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each outstanding
option shall terminate and cease to be outstanding, except to the extent such
option is assumed by the successor corporation (or parent thereof) in connection
with such Corporate Transaction. In addition, all outstanding repurchase rights
shall terminate automatically in the event of any Corporate Transaction, except
to the extent the repurchase rights are assigned to the successor corporation
(or parent thereof) in connection with such Corporate Transaction.
B. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in the consummation of such Corporate Transaction,
had the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
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C. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
III. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
IV. ADDITIONAL AUTHORITY
The Plan Administrator shall have the discretion, exercisable either at
the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service or death
from the limited period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term;
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at the
time of the Optionee's cessation of Service or death but also with respect
to one or more additional installments in which the Optionee would have
vested under the option had the Optionee continued in Service; and/or
(iii) accelerate or waive the Vesting Schedule and/or the date
the option first becomes exercisable.
ARTICLE 3
MISCELLANEOUS
I. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective when adopted by the Board. The
Plan Administrator may grant options and issue shares under the Plan at any time
after the effective date of the Plan and before the date fixed herein for
termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the
expiration of the ten (10)-year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for issuance
under the Plan shall have been issued pursuant to the exercise of options or the
issuance of shares (whether vested or unvested) under the Plan or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all options and unvested stock
issuances outstanding under the Plan shall continue to have full force and
effect in accordance with the provisions of the documents evidencing such
options or issuances.
II. AMENDMENT OF THE PLAN
The Board shall have complete and exclusive power and authority to amend
or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
options or unvested stock issuances at the time outstanding under the Plan,
unless the Optionee consents to such amendment or modification.
III. USE OF PROCEEDS
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Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.
IV. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon the
exercise of any options or upon the issuance or vesting of any shares issued
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
V. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under the Plan
and the issuance of any shares of Common Stock upon the exercise of any option
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it and the shares of Common Stock issued pursuant to it.
VI. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to continue
in Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining such person) or of the Optionee, which rights are hereby
expressly reserved by each, to terminate such person's Service at any time for
any reason, with or without cause.
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APPENDIX
The following definitions shall be in effect under the Plan
A. Board shall mean the Corporation's Board of Directors.
B. Cause shall mean any of the following: (i) Optionee's material
breach of any employee, confidentiality, or other employment related agreement
with the Corporation, (ii) Optionee's violation of the Corporation's policies or
procedures set forth in the Corporation's Policies and Procedure Manual, as
amended from time to time, or (iii) Optionee's conviction of or entrance of a
plea of nolo contenders to a felony or to any other crime punishable by
incarceration.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
D. Committee shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
E. Common Stock shall mean the Corporation's common stock.
F. Corporate Transaction shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or the complete liquidation
or dissolution of the Corporation.
G. Corporation shall mean Caldera Systems, Inc., a Utah corporation.
H. Disability shall mean the inability of the Optionee to engage in the
performance of his duties as an Employee for a period exceeding three (3) months
by reason of any medically determinable physical or mental impairment and shall
be determined by the Plan Administrator on the basis of such medical evidence as
the Plan Administrator deems warranted under the circumstances.
I. Domestic Relations Order shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
J. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. Exercise Date shall mean the date on which the Corporation shall
have received written notice of the Date option exercise.
L. Fair Market Value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
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(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) If the Common Stock is at the time neither listed on any Stock
Exchange nor traded on the Nasdaq National Market, then the Fair Market
Value shall be conclusively determined by the Plan Administrator after
taking into account such factors as the Plan Administrator shall deem
appropriate.
M. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
N. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.
O. Optionee shall mean any person to whom an option is granted under
the Plan.
P. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
Q. Plan shall mean the Corporation's 1998 Stock Option Plan, as set
forth in this document.
R. Plan Administrator shall mean either the Board or the Committee, to
the extent the Committee is at the time responsible for the administration of
the Plan.
S. Qualified Domestic Relations Order shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
T. Service shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant except to the
extent otherwise specifically provided in the documents evidencing the option or
stock issuance.
U. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
V. Subsidiary shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
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EXHIBIT 10.4
CALDERA SYSTEMS, INC
1999 OMNIBUS STOCK INCENTIVE PLAN
1. Establishment and Purpose.
There is hereby adopted the Caldera Systems, Inc. 1999 Omnibus Stock
Incentive Plan (the "Plan"). The Plan shall be the successor to the Caldera
Systems, Inc. 1998 Stock Option Plan (the "Predecessor Plan"). Upon adoption of
the Plan by the Board of Directors and approval of the Plan by the stockholders
of Caldera Systems, Inc. (the "Company"), no further awards shall be made under
the Predecessor Plan. If the Plan is not approved by the stockholders of the
Company, the Predecessor Plan shall remain in full force and effect. The Plan is
intended to promote the interests of the Company and the stockholders of the
Company by providing officers, other employees of the Company, directors who are
not employees of the Company, and other persons who are expected to make a
long-term contribution to the success of the Company with appropriate incentives
and rewards to encourage them to enter into and continue in the employ of the
Company and/or to acquire a proprietary interest in the long-term success of the
Company, thereby aligning their interest more closely to the interest of
stockholders.
2. Definitions.
As used in the Plan, the following definitions apply to the terms
indicated below:
(a) "Award Agreement" shall mean the written agreement between the
Company and a Participant evidencing an Incentive Award.
(b) "Board of Directors" shall mean the Board of Directors of the
Company.
(c) "Cause," when used in connection with the termination of a
Participant's employment by the Company, shall mean (i) the
willful and continued failure by the Participant substantially to
perform his duties and obligations to the Company (other than any
such failure resulting from his incapacity due to physical or
mental illness) or (ii) the willful engaging by the Participant
in misconduct which is materially injurious to the Company. For
purposes of this Section 2(c), no act, or failure to act, on a
Participant's part shall be considered "willful" unless done, or
omitted to be done, by the Participant in bad faith and without
reasonable belief that his action or omission was in the best
interest of the Company. The Committee shall determine whether a
termination of employment is for Cause.
(d) "Change in Control" shall mean any of the following occurrences:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the
Company's then outstanding securities;
(ii) during any period of not more than two consecutive years
(not including any period prior to the adoption of the Plan),
individuals who at the beginning of such
<PAGE> 2
period constitute the Board of Directors and any new director (other
than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in
clause (i), (iii) or (iv) of this Section) whose election by the
Board of Directors or nomination for election was approved by a vote
of at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
(A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than
50% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction)
in which no "person" (as herein above defined) acquires more than
50% of the combined voting power of the Company's then outstanding
securities; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(f) "Committee" shall mean the Compensation Committee of the Board of
Directors. The Committee shall consist of two or more persons
each of whom is an "outside director" within the meaning of
Section 162(m) of the Code and a "Non-Employee Director" within
the meaning of Rule 16b-3 under the Exchange Act (or who
satisfies any other criteria for administering employee benefit
plans as may be specified by the Securities and Exchange
Commission in order for transactions under such plan to be exempt
from the provisions of Section 16(b) of the Exchange Act).
(g) "Company" shall mean, Caldera Systems, Inc., a Utah corporation.
(h) "Common Stock" shall mean the common stock of the Company, no par
value per share.
(i) "Disability" shall mean: (1) any physical or mental condition that
would qualify a Participant for a disability benefit under the
long-term disability plan maintained by the Company or a Subsidiary
of the Company and applicable to such Participant; or (2) when used
in connection with the exercise of an Incentive Stock Option
following termination of employment, disability within the meaning
of Section 22(e)(3) of the Code.
(j) "Effective Date" shall mean the date upon which this Plan is adopted
by the Board of Directors.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
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(l) "Executive Officer" shall have the meaning set forth in Rule 3b-7
promulgated under the Exchange Act.
(m) "Exercise Date" shall mean the date on which a Participant may
exercise an Incentive Award.
(n) "Fair Market Value" of a share of Common Stock, as of a date of
determination, shall mean (i) the closing sales price per share
of Common Stock on the national securities exchange on which such
stock is principally traded for the last preceding date on which
there was a sale of such stock on such exchange, or (ii) if the
shares of Common Stock are not listed or admitted to trading on
any such exchange, the closing price as reported by the Nasdaq
Stock Market for the last preceding date on which there was a
sale of such stock on such exchange, or (iii) if the shares of
Common Stock are not then listed on the Nasdaq Stock Market, the
average of the highest reported bid and lowest reported asked
prices for the shares of Common Stock as reported by the National
Association of Securities Dealers, Inc. Automated Quotations
System for the last preceding date on which there was a sale of
such stock in such market, or (iv) if the shares of Common Stock
are not then listed on a national securities exchange or traded
in an over-the-counter market, such value as determined by the
Committee in good faith.
(o) "Incentive Award" shall mean an Option, Tandem SAR, Stand-Alone SAR,
Restricted Stock grant, Phantom Stock grant or Stock Bonus granted
pursuant to the terms of the Plan.
(p) "Incentive Stock Option" shall mean an Option that is an "incentive
stock option" within the meaning of Section 422 of the Code.
(q) "Issue Date" shall mean the date established by the Company on which
certificates representing shares of Restricted Stock shall be issued
by the Company pursuant to the terms of Section 10(e)of the Plan.
(r) "Non-Qualified Stock Option" shall mean an Option that is not an
Incentive Stock Option.
(s) "Option" shall mean an option to purchase shares of Common Stock
granted pursuant to Section 7 of the Plan.
(t) "Participant" shall mean an employee of the Company or a subsidiary
of the Company to whom an Incentive Award is granted pursuant to the
Plan, and, upon his death, his successors, heirs, executors and
administrators, as the case may be.
(u) "Phantom Stock" shall mean the right, granted pursuant to Section 11
of the Plan, to receive in cash the Fair Market Value of a share of
Common Stock.
(v) "Plan" shall mean this 1999 Omnibus Stock Incentive Plan, as amended
from time to time.
(w) "Reference Value" shall mean, with respect to Stand-Alone SARs, the
greater of the Fair Market Value or the value given by the
Compensation Committee.
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(x) "Restricted Stock" shall mean a share of Common Stock which is
granted pursuant to the terms of Section 10 hereof and which is
subject to the restrictions set forth in Section 10 of the Plan.
(y) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
Act.
(z) "Section 162(m)" shall mean Section 162(m) of the Code and the
regulations promulgated thereunder.
(aa) "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
(ab) "Stand-Alone SAR" shall mean a stock appreciation right granted
pursuant to Section 9 of the Plan which is not related to any
Option.
(ac) "Stock Bonus" shall mean a bonus payable in shares of Common Stock
granted pursuant to Section 12 of the Plan.
(ad) "Subsidiary" shall mean a "subsidiary corporation" within the
meaning of Section 424(f) of the Code.
(ae) "Tandem SAR" shall mean a stock appreciation right granted pursuant
to Section 8 of the Plan which is related to an Option.
(af) "Vesting Date" shall mean the date established by the Committee on
which a share of Restricted Stock or Phantom Stock may vest.
3. Stock Subject to the Plan.
(a) Shares Available for Awards.
The maximum number of shares of Common Stock reserved for issuance
under the Plan shall be 3,705,238 shares (subject to adjustment as
provided herein), which shall include 2,705,238 shares authorized
but unissued under the Predecessor Plan. The total number of shares
reserved for issuance hereunder may be authorized but unissued
Common Stock or authorized and issued Common Stock held in the
Company's treasury or acquired by the Company for the purposes of
the Plan. The Committee may direct that any stock certificate
evidencing shares issued pursuant to the Plan shall bear a legend
setting forth such restrictions on transferability as may apply to
such shares pursuant to the Plan. The grant of a Tandem SAR shall
not reduce the number of shares of Common Stock with respect to
which Incentive Awards may be granted pursuant to the Plan. Upon the
exercise of any Tandem SAR, the related Option shall be canceled to
the extent of the number of shares of Common Stock as to which the
Tandem SAR is exercised and, notwithstanding the foregoing, such
number of shares shall no longer be available for Incentive Awards
under the Plan.
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<PAGE> 5
(b) Individual Limitation.
The total number of shares of Common Stock subject to Incentive
Awards (including Incentive Awards payable in cash but denominated
as shares of Common Stock, i.e., Stand-Alone SARs and Phantom
Stock), awarded to any employee during any tax year of the Company,
shall not exceed 200,000 shares. Determinations under the preceding
sentence shall be made in a manner that is consistent with Section
162(m) of the Code.
(c) Adjustment for Change in Capitalization.
In the event that the Committee shall determine that any dividend or
other distribution (whether in the form of cash, Common Stock, or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, spin-off, combination,
repurchase, or share exchange, or other similar corporate
transaction or event, affects the Common Stock such that an
adjustment is appropriate in order to prevent dilution or
enlargement of the rights of Participants under the Plan, then the
Committee shall make such equitable changes or adjustments as it
deems necessary or appropriate to any or all of (i) the number and
kind of shares of stock which may thereafter be issued in connection
with Incentive Awards, (ii) the number and kind of shares of stock
issued or issuable in respect of outstanding Incentive Awards, and
(iii) the exercise price, grant price, or purchase price relating to
any Incentive Award; provided that, with respect to Incentive Stock
Options, such adjustment shall be made in accordance with Section
424 of the Code.
(d) Re-Use of Shares.
The following shares of Common Stock shall again become available
for Incentive Awards: any shares subject to an Incentive Award that
remain unissued upon the cancellation, surrender, exchange or
termination of such award for any reason whatsoever; any shares of
Restricted Stock forfeited; and any shares in respect of which a
stock appreciation right is settled for cash.
4. Administration of the Plan.
The Plan shall be administered by the Committee. The Committee shall have
the authority in its sole discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Incentive Awards; to determine the persons to
whom and the time or times at which Incentive Awards shall be granted; to
determine the type and number of Incentive Awards to be granted, the number of
shares of Stock to which an Award may relate and the terms, conditions,
restrictions and performance criteria relating to any Incentive Award; to
determine whether, to what extent, and under what circumstances an Incentive
Award may be settled, canceled, forfeited, exchanged, or surrendered; to subject
shares of Stock to which an Award may relate to rights of repurchase or rights
of refusal in favor of the Company under the circumstances and upon the terms
set forth in an Award Agreement; to make adjustments in the performance goals in
recognition of unusual or non-recurring events affecting the Company or the
financial statements of the Company (to the extent in accordance with Section
162(m)of the Code, if applicable), or in response to changes in applicable laws,
regulations, or accounting
5
<PAGE> 6
principles; to construe and interpret the Plan and any Incentive Award; to
prescribe, amend and rescind rules and regulations relating to the Plan; to
determine the terms and provisions of Award Agreements; and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The Committee may, in its absolute discretion, without amendment to the
Plan, (i) accelerate the date on which any Tandem SAR or Stand-Alone SAR or
Incentive Award relating to Phantom Stock granted under the Plan becomes
exercisable, waive or amend the operation of Plan provisions respecting exercise
after termination of employment or otherwise adjust any of the terms of such
Option or Stand-Alone SAR, and (ii) accelerate the Exercise Date or Issue Date,
or waive any condition imposed hereunder, with respect to any share of
Restricted Stock or Phantom Stock or otherwise adjust any of the terms
applicable to such share.
No member of the Committee shall be liable for any action, omission or
determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Committee) arising out of any action, omission or
determination relating to the Plan, if, in either case, such action, omission or
determination was taken or made by such member, director or employee in good
faith and in a manner such member, director or employee reasonably believed to
be in or not opposed to the best interests of the Company.
5. Eligibility.
The persons who shall be eligible to receive Incentive Awards pursuant to
the Plan shall be such employees of the Company or its Subsidiaries (including
officers of the Company or its Subsidiaries, whether or not they are directors
of the Company or its Subsidiaries) as the Committee shall select from time to
time. Directors and others who are not employees or officers of the Company,
including persons who may be expected to make a contribution to the Company's
future success, shall also be eligible to receive Incentive Awards under the
Plan.
6. Awards Under the Plan; Award Agreement.
The Committee may grant Options, Tandem SARs, Stand-Alone SARs, shares of
Restricted Stock, shares of Phantom Stock and Stock Bonuses, in such amounts and
with such terms and conditions as the Committee shall determine, subject to the
provisions of the Plan.
Each Incentive Award granted under the Plan (except an unconditional Stock
Bonus) shall be evidenced by an Award Agreement which shall contain such
provisions as the Committee may in its sole discretion deem necessary or
desirable. By accepting an Incentive Award, a Participant thereby agrees that
the award shall be subject to all of the terms and provisions of the Plan and
the applicable Award Agreement.
7. Options.
(a) Identification of Options.
Each Option shall be clearly identified in the applicable Award
Agreement as either an Incentive Stock Option or a Non-Qualified
Stock Option.
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(b) Exercise Price.
Each Award Agreement with respect to an Option shall set forth the
amount (the "option exercise price") payable by the grantee to the
Company upon exercise of the Option. The option exercise price per
share shall be determined by the Committee but shall in no event be
less than the Fair Market Value of a share of Common Stock on the
date the Option is granted.
(c) Term and Exercise of Options.
(1) Unless the applicable Award Agreement provides otherwise,
an Option shall become cumulatively exercisable as to 25 percent of
the shares covered thereby on each of the first, second, third and
fourth anniversaries of the date of grant. The Committee shall
determine the expiration date of each Option; provided, however,
that no Incentive Stock Option shall be exercisable more than 10
years after the date of grant. Unless the applicable Award Agreement
provides otherwise, no Option shall be exercisable prior to the
first anniversary of the date of grant.
(2) An Option may be exercised for all or any portion of the
shares as to which it is exercisable, provided, that no partial
exercise of an Option shall be for an aggregate exercise price of
less than $1,000. The partial exercise of an Option shall not cause
the expiration, termination or cancellation of the remaining portion
thereof.
(3) An Option shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no
less than one business day in advance of the effective date of the
proposed exercise. Such notice shall specify the number of shares of
Common Stock with respect to which the Option is being exercised and
the effective date of the proposed exercise and shall be signed by
the Participant or other person then having the right to exercise
the Option. Such notice may be withdrawn at any time prior to the
close of business on the business day immediately preceding the
effective date of the proposed exercise. Payment for shares of
Common Stock purchased upon the exercise of an Option shall be made
on the effective date of such exercise by one or a combination of
the following means: (i) in cash, by certified check, bank cashier's
check or wire transfer; (ii) by delivering a properly executed
exercise notice to the Company together with a copy of irrevocable
instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds to pay the full amount of the
Purchase Price, (iii) by delivering shares of Common Stock owned by
the Participant with appropriate stock powers, (iv) by electing to
have the Company retain shares of Common Stock which would otherwise
be issued on the exercise of the Option, or (v) any combination of
the foregoing forms. In determining the number of shares of Common
Stock necessary to be delivered to or retained by the Company, such
shares shall be valued at their Fair Market Value as of the exercise
date.
(4) Certificates for shares of Common Stock purchased upon the
exercise of an Option shall be issued in the name of the Participant
or other person entitled to receive such shares, and delivered to
the Participant or such other person as soon as practicable
following the effective date on which the Option is exercised.
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(d) Limitations on Incentive Stock Options.
(1) To the extent that the aggregate Fair Market Value of
shares of Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by a Participant during any
calendar year under the Plan and any other stock option plan of the
Company (or any Subsidiary of the Company) shall exceed $100,000, or
such higher value as may be permitted under Section 422 of the Code,
such Options shall be treated as Non-Qualified Stock Options. Such
Fair Market Value shall be determined as of the date on which each
such Incentive Stock Option is granted.
(2) No Incentive Stock Option may be granted to an individual
if, at the time of the grant, such individual owns stock possessing
more than ten percent of the total combined voting power of all
classes of stock of the Company unless (i) the exercise price per
share of such Incentive Stock Option is at least 110 percent of the
Fair Market Value of a share of Common Stock at the time such
Incentive Stock Option is granted and (ii) such Incentive Stock
Option is not exercisable after the expiration of five years from
the date such Incentive Stock Option is granted.
(e) Effect of Termination of Employment.
(1) Unless the applicable Award Agreement provides otherwise,
in the event that the employment of a Participant with the Company
or a Subsidiary of the Company shall terminate for any reason other
than death, Disability or Cause, (i) Options granted to such
Participant, to the extent that they are exercisable at the time of
such termination, shall remain exercisable until the date that is
ninety (90) days after such termination, on which date they shall
expire, and (ii) Options granted to such Participant, to the extent
that they were not exercisable at the time of such termination,
shall expire at the close of business on the date of such
termination. Notwithstanding the foregoing, no Option shall be
exercisable after the expiration of its term.
(2) Unless the applicable Award Agreement provides otherwise,
in the event that the employment of a Participant with the Company
or a Subsidiary of the Company shall terminate on account of the
Disability or death of the Participant (i) Options granted to such
Participant, to the extent that they were exercisable at the time of
such termination, shall remain exercisable until the first
anniversary of such termination, on which date they shall expire,
and (ii) Options granted to such Participant, to the extent that
they were not exercisable at the time of such termination, shall
expire at the close of business on the date of such termination.
Notwithstanding the foregoing, no Option shall be exercisable after
the expiration of its term.
(3) If a Participant's employment with the Company or a
Subsidiary of the Company is terminated for Cause, all outstanding
options granted to such Participant shall expire at the commencement
of business on the date of such termination.
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(f) Effect of Change in Control.
Upon the occurrence of a Change in Control, (i) Options granted to a
Participant, to the extent that they were exercisable at the time of
a Change in Control, shall remain exercisable until their expiration
notwithstanding the provisions of Section 7(e)(1) and (2) of the
Plan, and (ii) Options granted to such Participant, to the extent
they were not exercisable at the time of a Change in Control, shall
expire at the close of business on the date of such Change in
Control. Notwithstanding the foregoing, no Option shall be
exercisable after the expiration of its term.
8. Tandem SARs.
The Committee may grant in connection with any Option granted hereunder
one or more Tandem SARs relating to a number of shares of Common Stock less than
or equal to the number of shares of Common Stock subject to the related Option.
A Tandem SAR may be granted at the same time as, or, in the case of a
Non-Qualified Stock Option, subsequent to the time that, its related Option is
granted.
(a) Benefit Upon Exercise.
The exercise of a Tandem SAR with respect to any number of shares of
Common Stock shall entitle the Participant to a cash payment, for
each such share, equal to the excess of (i) the Fair Market Value of
a share of Common Stock on the exercise date over (ii) the option
exercise price per share of the related Option. Such payment shall
be made as soon as practicable after the effective date of such
exercise.
(b) Term and Exercise of Tandem SAR.
(1) A Tandem SAR shall be exercisable only if and to the
extent that its related Option is exercisable.
(2) The exercise of a Tandem SAR with respect to a number of
shares of Common Stock shall cause the immediate and automatic
cancellation of its related Option with respect to an equal number
of shares. The exercise of an Option, or the cancellation,
termination or expiration of an Option (other than pursuant to this
Section 8(b)(2)), with respect to a number of shares of Common Stock
shall cause the automatic and immediate cancellation of any related
Tandem SARs to the extent that the number of shares of Common Stock
remaining subject to such Option is less than the number of shares
then subject to such Tandem SAR.
Such Tandem SARs shall be canceled in the order in which they become
exercisable.
(3) A Tandem SAR may be exercised for all or any portion of
the shares as to which the related Option is exercisable; provided,
that no partial exercise of a Tandem SAR shall be for less than a
number of shares having an aggregate option exercise price of less
than $1,000. The partial exercise of a Tandem SAR shall not cause
the expiration, termination or cancellation of the remaining portion
thereof.
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<PAGE> 10
(4) No Tandem SAR shall be assignable or transferable
otherwise than together with its related Option, and any such
transfer or assignment will be subject to the provisions of Section
20 of the Plan.
(5) A Tandem SAR shall be exercisable by delivering notice to
the Company's principal office, to the attention of its Secretary,
no less than one business day in advance of the effective date of
the proposed exercise. Such notice shall specify the number of
shares of Common Stock with respect to which the Tandem SAR is being
exercised and the effective date of the proposed exercise and shall
be signed by the Participant or other person then having the right
to exercise the Option to which the Tandem SAR is related. Such
notice may be withdrawn at any time prior to the close of business
on the business day immediately preceding the effective date of the
proposed exercise.
9. Stand-Alone SARs.
(a) Benefit Upon Exercise.
The exercise of a Stand-Alone SAR with respect to any number of
shares of Common Stock shall entitle the Participant to a cash
payment, for each such share, equal to the excess of (i) the Fair
Market Value of a share of Common Stock on the exercise date over
(ii) the Reference Value of the Stand-Alone SAR. Such payments shall
be made as soon as practicable after the effective date of such
exercise.
(b) Term and Exercise of Stand-Alone SARs.
(1) Unless the applicable Award Agreement provides otherwise,
a Stand-Alone SAR shall become cumulatively exercisable as to 25
percent of the shares covered thereby on each of the first, second,
third and fourth anniversaries of the date of grant. The Committee
shall determine the expiration date of each Stand-Alone SAR. Unless
the applicable Award Agreement provides otherwise, no Stand-Alone
SAR shall be exercisable prior to the first anniversary of the date
of grant.
(2) A Stand-Alone SAR may be exercised for all or any portion
of the shares as to which it is exercisable; provided, that no
partial exercise of a Stand-Alone SAR shall be for an aggregate
Reference Value of less than $1,000. The partial exercise of a
Stand-Alone SAR shall not cause the expiration, termination or
cancellation of the remaining portion thereof.
(3) A Stand-Alone SAR shall be exercised by delivering notice
to the Company's principal office, to the attention of its
Secretary, no less than one business day in advance of the effective
date of the proposed exercise. Such notice shall specify the number
of shares of Common Stock with respect to which the Stand-Alone SAR
is being exercised, and the effective date of the proposed exercise,
and shall be signed by the Participant. The Participant may withdraw
such notice at any time prior to the close of business on the
business day immediately preceding the effective date of the
proposed exercise.
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(c) Effect of Termination of Employment.
The provisions set forth in Section 7(e) with respect to the
exercise of Options following termination of employment shall apply
as well to the exercise of Stand-Alone SARs.
(d) Effect of Change in Control.
Upon the occurrence of a Change in Control, (i) Stand-Alone SARs
granted under the Plan, to the extent exercisable at the time of a
Change of Control, shall remain exercisable until their expiration
notwithstanding the provisions of Section 7(e) of the Plan which are
incorporated into this Section 9, and (ii) Stand-Alone SARs not
exercisable at the time of a Change in Control shall expire at the
close of business on the date of such Change in Control.
10. Restricted Stock.
(a) Issue Date and Vesting Date.
At the time of the grant of shares of Restricted Stock, the
Committee shall establish an Issue Date or Issue Dates and a Vesting
Date or Vesting Dates with respect to such shares. The Committee may
divide such shares into classes and assign a different Issue Date
and/or Vesting Date for each class. If the grantee is employed by
the Company or a Subsidiary of the Company on an Issue Date (which
may be the date of grant), the specified number of shares of
Restricted Stock shall be issued in accordance with the provisions
of Section 10(e) of the Plan. Provided that all conditions to the
vesting of a share of Restricted Stock imposed pursuant to Section
10(b) of the plan are satisfied, and except as provided in Section
10(g) of the Plan, upon the occurrence of the Vesting Date with
respect to a share of Restricted Stock, such share shall vest and
the restrictions of Section 10(c) of the Plan shall lapse.
(b) Conditions to Vesting.
At the time of the grant of shares of Restricted Stock, the
Committee may impose such restrictions or conditions to the vesting
of such shares as it, in its absolute discretion, deems appropriate.
(c) Restrictions on Transfer Prior to Vesting.
Prior to the vesting of a share of Restricted Stock, no transfer of
a Participant's rights with respect to such share, whether voluntary
or involuntary, by operation of law or otherwise, shall be
permitted. Immediately upon any attempt to transfer such rights,
such share, and all of the rights related thereto, shall be
forfeited by the Participant.
(d) Dividends on Restricted Stock.
The Committee in its discretion may require that any dividends paid
on shares of Restricted Stock shall be held in escrow until all
restrictions on such shares have lapsed.
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(e) Issuance of Certificates.
(1) Reasonably promptly after the Issue Date with respect to
shares of Restricted Stock, the Company shall cause to be issued a
stock certificate, registered in the name of the Participant to whom
such shares were granted, evidencing such shares; provided, that the
Company shall not cause such a stock certificate to be issued unless
it has received a stock power duly endorsed in blank with respect to
such shares. Each such stock certificate shall bear the following
legend: The transferability of this certificate and the shares of
stock represented hereby are subject to the restrictions, terms and
conditions (including forfeiture provisions and restrictions against
transfer) contained in the 1999 Omnibus Stock Incentive Plan of
Caldera Systems, Inc. and an Award Agreement entered into between
the registered owner of such shares and Caldera Systems, Inc. A copy
of such Plan and Award Agreement is on file in the office of the
Secretary of Caldera Systems, Inc., 240 West Center Street, Orem,
Utah 84057. Such legend shall not be removed until such shares vest
pursuant to the terms of the applicable Award Agreement.
(2) Each certificate issued pursuant to this Section 10(e),
together with the stock powers relating to the shares of Restricted
Stock evidenced by such certificate, shall be held by the Company
unless the Committee determines otherwise.
(f) Consequences of Vesting.
Upon the vesting of a share of Restricted Stock pursuant to the
terms of the applicable Award Agreement, the restrictions of Section
10(c) of the Plan shall lapse, except as otherwise provided in the
Award Agreement. Reasonably promptly after a share of Restricted
Stock vests, the Company shall cause to be delivered to the
Participant to whom such shares were granted, a certificate
evidencing such share, free of the legend set forth in Section 10(e)
of the Plan.
(g) Effect of Termination of Employment.
(1) Subject to such other provision as the Committee may set
forth in the applicable Award Agreement, and to the Committee's
amendment authority pursuant to Section 4 of the Plan, upon the
termination of a Participant's employment by the Company or any
Subsidiary of the Company for any reason other than Cause, any and
all shares to which restrictions on transferability apply shall be
immediately forfeited by the Participant and transferred to the
Company, provided that if the Committee, in its sole discretion and
within thirty (30) days after such termination of employment
notifies the Participant in writing of its decision not to terminate
the Participant's rights in such shares, then the Participant shall
continue to be the owner of such shares subject to such continuing
restrictions as the Committee may prescribe in such notice. If
shares of Restricted Stock are forfeited in accordance with the
provision of this Section 10, the Company shall also have the right
to require the return of all dividends paid on such shares, whether
by termination of any escrow arrangement under which such dividends
are held or otherwise.
(2) In the event of the termination of a Participant's
employment for Cause, all shares of Restricted Stock granted to such
Participant which have not vested as of the
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<PAGE> 13
date of such termination shall immediately be returned to the
Company, together with any dividends paid on such shares.
(h) Effect of Change in Control.
Upon the occurrence of a Change in Control, all restrictions on
outstanding vested shares shall immediately lapse and all
outstanding shares of Restricted Stock which have not theretofore
vested shall immediately expire and be cancelled.
(i) Special Provisions Regarding Restricted Stock Awards.
Notwithstanding anything to the contrary contained herein,
Restricted Stock granted pursuant to this Section 10 shall be based
on the attainment by the Company (or a Subsidiary or division of the
Company if applicable) of performance goals pre-established by the
Committee, based on one or more of the following criteria: (i) the
attainment of a specified percentage return on total stockholder
equity of the Company; (ii) the attainment of a specified percentage
increase in earnings per share of Common Stock; (iii) the attainment
of a specified percentage increase in net income of the Company; and
(iv) the attainment of a specified percentage increase in profit
before taxation of the Company (or a Subsidiary or division of the
Company if applicable). Attainment of any such performance criteria
shall be determined in accordance with generally accepted accounting
principles as in effect from time to time. Such shares of Restricted
Stock shall be released from restrictions only after the attainment
of such performance measures have been certified by the Committee.
11. Phantom Stock.
(a) Vesting Date.
At the time of the grant of shares of Phantom Stock, the Committee
shall establish a Vesting Date or Vesting Dates with respect to such
shares. The Committee may divide such shares into classes and assign
a different Vesting Date for each class. Provided that all
conditions to the vesting of a share of Phantom Stock imposed
pursuant to Section 11(c) of the Plan are satisfied, and except as
provided in Section 11(d) of the Plan, upon the occurrence of the
Vesting Date with respect to a share of Phantom Stock, such share
shall vest.
(b) Benefit Upon Vesting.
Upon the vesting of a share of Phantom Stock, the Participant shall
be entitled to receive in cash, within 30 days of the date on which
such share vests, an amount equal to the sum of (i) the Fair Market
Value of a share of Common Stock on the date on which such share of
Phantom Stock vests and (ii) the aggregate amount of cash dividends
paid with respect to a share of Common Stock during the period
commencing on the date on which the share of Phantom Stock was
granted and terminating on the date on which such share vests.
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(c) Conditions to Vesting.
At the time of the grant of shares of Phantom Stock, the Committee
may impose such restrictions or conditions to the vesting of such
shares as it, in its absolute discretion, deems appropriate.
(d) Effect of Termination of Employment.
(1) Subject to such other provisions as the Committee may set
forth in the applicable Award Agreement, and to the Committee's
amendment authority pursuant to Section 4 of the Plan, shares of
Phantom Stock that have not vested, together with any dividends
credited on such shares, shall be forfeited upon the Participant's
termination of employment for any reason other than Cause.
(2) In the event of the termination of a Participant's
employment for Cause, all shares of Phantom Stock granted to such
Participant which have not vested as of the date of such termination
shall immediately be forfeited, together with any dividends credited
on such shares.
(e) Effect of Change in Control.
Upon the occurrence of a Change in Control, all outstanding shares
of Phantom Stock which have not theretofore vested shall immediately
expire and be cancelled.
(f) Special Provisions Regarding Phantom Stock Awards.
Notwithstanding anything to the contrary contained herein, Phantom
Stock granted pursuant to this Section 11 to Executive Officers
shall be based on the attainment by the Company (or a Subsidiary or
division of the Company if applicable) of performance goals
pre-established by the Committee, based on one or more of the
following criteria: (i) the attainment of a specified percentage
return on total stockholder equity of the Company; (ii) the
attainment of a specified percentage increase in earnings per share
of Common Stock from continuing operations; (iii) the attainment of
a specified percentage increase in net income of the Company; and
(iv) the attainment of a specified percentage increase in profit
before taxation of the Company (or a Subsidiary or division of the
Company if applicable). Attainment of any such performance criteria
shall be determined in accordance with generally accepted accounting
principles as in effect from time to time. No cash payment in
respect of any Phantom Stock award will be paid to an Executive
Officer until the attainment of the respective performance measures
have been certified by the Committee.
12. Stock Bonuses.
In the event that the Committee grants a Stock Bonus, a certificate for
the shares of Common Stock comprising such Stock Bonus shall be issued in the
name of the Participant to whom such grant was made and delivered to such
Participant as soon as practicable after the date on which such Stock Bonus is
payable.
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13. Rights as a Stockholder.
No person shall have any rights as a stockholder with respect to any
shares of Common Stock covered by or relating to any Incentive Award until the
date of issuance of a stock certificate with respect to such shares. Except as
otherwise expressly provided in Section 3(c) of the Plan, no adjustment to any
Incentive Award shall be made for dividends or other rights for which the record
date occurs prior to the date such stock certificate is issued.
14. No Special Employment Rights; No Right to Incentive Award.
Nothing contained in the Plan or any Award Agreement shall confer upon any
Participant any right with respect to the continuation of employment by the
Company or any Subsidiary of the Company or interfere in any way with the right
of the Company or any Subsidiary of the Company, subject to the terms of any
separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the Participant. No
person shall have any claim or right to receive an Incentive Award hereunder.
The Committee's granting of an Incentive Award to a Participant at any time
shall neither require the Committee to grant any other Incentive Award to such
Participant or other person at any time or preclude the Committee from making
subsequent grants to such Participant or any other person.
15. Securities Matters.
(a) The Company shall be under no obligation to effect the
registration pursuant to the Securities Act of any interests in
the Plan or any shares of Common Stock to be issued hereunder or
to effect similar compliance under any state laws.
Notwithstanding anything herein to the contrary, the Company
shall not be obligated to cause to be issued or delivered any
certificates evidencing shares of Common Stock pursuant to the
Plan unless and until the Company is advised by its counsel that
the issuance and delivery of such certificates is in compliance
with all applicable laws, regulations of governmental authority
and the requirements of any securities exchange on which shares
of Common Stock are traded. The Committee may require, as a
condition of the issuance and delivery of certificates evidencing
shares of Common Stock pursuant to the terms hereof and of the
applicable Award Agreement, that the recipient of such shares
make such covenants, agreements and representations, and that
such certificates bear such legends, as the Committee, in its
sole discretion, deems necessary or desirable.
(b) The transfer of any shares of Common Stock hereunder shall be
effective only at such time as counsel to the Company shall have
determined that the issuance and delivery of such shares is in
compliance with all applicable laws, regulations of governmental
authority and the requirements of any securities exchange on
which shares of Common Stock are traded. The Committee may, in
its sole discretion, defer the effectiveness of any transfer of
shares of Common Stock hereunder in order to allow the issuance
of such shares to be made pursuant to registration or an
exemption from registration or other methods for compliance
available under federal or state securities laws. The Committee
shall inform the Participant in writing of its decision to defer
the effectiveness of a transfer. During the period of such
deferral in connection with the exercise of an Option, the
Participant may, by written notice, withdraw such exercise and
obtain the refund of any amount paid with respect thereto.
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16. Withholding Taxes.
Whenever cash is to be paid pursuant to an Incentive Award, the Company
shall have the right to deduct therefrom an amount sufficient to satisfy any
federal, state and local withholding tax requirements related thereto. Whenever
shares of Common Stock are to be delivered pursuant to an Incentive Award, the
Company shall have the right to require the Participant to remit to the Company
in cash an amount sufficient to satisfy any federal, state and local withholding
tax requirements related thereto. With the approval of the Committee, a
Participant may satisfy the foregoing requirement by electing to have the
Company withhold from delivery shares of Common Stock having a fair market value
equal to the amount of tax to be withheld. Such shares shall be valued at their
Fair Market Value on the date on which the amount of tax to be withheld is
determined (the "Tax Date"). Fractional share amounts shall be settled in cash.
Such a withholding election may be made with respect to all or any portion of
the shares to be delivered pursuant to an Incentive Award.
17. Notification of Election Under Section 83(b) of the Code.
If any Participant shall, in connection with the acquisition of shares of
Common Stock under the Plan, make the election permitted under Section 83(b) of
the Code (i.e., an election to include in gross income in the year of transfer
the amounts specified in Section 83(b)), such Participant shall notify the
Company of such election within 10 days of filing notice of the election with
the Internal Revenue Service, in addition to any filing and a notification
required pursuant to regulation issued under the authority of Code Section
83(b).
18. Notification Upon Disqualifying Disposition Under Section 421(b) of the
Code.
Each Award Agreement with respect to an Incentive Stock Option shall
require the Participant to notify the Company of any disposition of shares of
Common Stock issued pursuant to the exercise of such Option under the
circumstances described in Section 421(b) of the Code (relating to certain
disqualifying dispositions), within 10 days of such disposition.
19. Amendment or Termination of the Plan.
The Board of Directors may, at any time, suspend or terminate the Plan or
revise or amend it in any respect whatsoever; provided, however, that
stockholder approval shall be required if and to the extent the Board of
Directors determines that such approval is appropriate for purposes of
satisfying Section 162(m) or 422 of the Code or to the extent such approval is
required by the rules of any stock exchange on which the Common Stock is listed.
Nothing herein shall restrict the Committee's ability to exercise its
discretionary authority pursuant to Section 4 of the Plan, which discretion may
be exercised without amendment to the Plan. No action hereunder may, without the
consent of a Participant, reduce the Participant's rights under any outstanding
Incentive Award.
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20. Transfers Upon Death; Non-Assignability.
Upon the death of a Participant, outstanding Incentive Awards granted to
such Participant may be exercised only by the executor or administrator of the
Participant's estate or by a person who shall have acquired the right to such
exercise by will or by the laws of descent and distribution. No transfer of an
Incentive Award by will or the laws of descent and distribution shall be
effective to bind the Company unless the Committee shall have been furnished
with (a) written notice thereof and with a copy of the will and/or such evidence
as the Committee may deem necessary to establish the validity of the transfer
and (b) an agreement by the transferee to comply with all the terms and
conditions of the Incentive Award that are or would have been applicable to the
Participant and to be bound by the acknowledgments made by the Participant in
connection with the grant of the Incentive Award.
During a Participant's lifetime, the Committee may permit the transfer,
assignment or other encumbrance of an outstanding Option or outstanding shares
of Restricted Stock unless such Option is an Incentive Stock Option and the
Committee and the Participant intend that it shall retain such status.
Notwithstanding the foregoing, subject to any conditions as the Committee may
prescribe, a Participant may, upon providing written notice to the Secretary of
the Company, elect to transfer any or all Options granted to such Participant
pursuant to the Plan to members of his or her immediate family, including, but
not limited to, children, grandchildren and spouse or to trusts for the benefit
of such immediate family members or to partnerships in which such family members
are the only partners; provided, however, that no such transfer by any
Participant may be made in exchange for consideration.
21. Expenses and Receipts.
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Incentive Award will be used for
general corporate purposes.
22. Failure to Comply.
In addition to the remedies of the Company elsewhere provided for herein,
failure by a Participant (or beneficiary or transferee) to comply with any of
the terms and conditions of the Plan or the applicable Award Agreement, unless
such failure is remedied by such Participant (or beneficiary or transferee)
within ten days after notice of such failure by the Committee, shall be grounds
for the cancellation and forfeiture of such Incentive Award, in whole or in
part, as the Committee, in its absolute discretion, may determine.
23. Effective Date and Term of Plan.
The Plan became effective on the Effective Date, but the Plan (and any
grants of Incentive Awards made prior to stockholder approval of the Plan) shall
be subject to the requisite approval of the stockholders of the Company. In the
absence of such approval, such Incentive Awards shall be null and void. Unless
earlier terminated by the Board of Directors, the right to grant Incentive
Awards under the Plan will terminate on the tenth anniversary of the Effective
Date. Incentive Awards outstanding at Plan termination will remain in effect
according to their terms and the provisions of the Plan.
24. Applicable Law.
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Except to the extent preempted by any applicable federal law, the Plan
will be construed and administered in accordance with the laws of the State of
Utah, without reference to the principles of conflicts of law.
25. Participant Rights.
No Participant shall have any claim to be granted any Incentive Award
under the Plan, and there is no obligation for uniformity of treatment for
Participants. Except as provided specifically herein, a Participant or a
transferee of an Incentive Award shall have no rights as a stockholder with
respect to any shares covered by any award until the date of the issuance of a
Common Stock certificate to him for such shares.
26. Unfunded Status of Awards.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant pursuant to an Incentive Award, nothing contained in the Plan or any
Award Agreement shall give any such Participant any rights that are greater than
those of a general creditor of the Company.
27. No Fractional Shares.
No fractional shares of Common Stock shall be issued or delivered pursuant
to the Plan. The Committee shall determine whether cash, other Incentive Awards,
or other property shall be issued or paid in lieu of such fractional shares or
whether such fractional shares or any rights thereto shall be forfeited or
otherwise eliminated.
28. Beneficiary.
A Participant may file with the Committee a written designation of a
beneficiary on such form as may be prescribed by the Committee and may, from
time to time, amend or revoke such designation. If no designated beneficiary
survives the Participant, the executor or administrator of the Participant's
estate shall be deemed to be the Participant's beneficiary.
29. Interpretation.
The Plan is designed and intended to comply with Rule 16b-3 promulgated
under the Exchange Act and, with Section 162(m) of the Code, and all provisions
hereof shall be construed in a manner to so comply.
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EXHIBIT 10.6
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THESE SECURITIES UNDER THE ACT
OR APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
SECURED CONVERTIBLE PROMISSORY NOTE
OF
CALDERA SYSTEMS, INC.
$2,000,000 September 1, 1998
Caldera Systems, Inc., a Utah corporation (the "COMPANY"), for value
received, hereby promises to pay to The Canopy Group, Inc., a Utah corporation
(the "NOTEHOLDER"), at 240 West Center Street, Orem, Utah 84057, or its assigns,
the sum of Two Million Dollars ($2,000,000), or such other or greater amount as
may be outstanding, plus interest accrued on unpaid principal, compounded
annually, at a rate per annum, calculated initially on the date of this secured
convertible promissory note (this "NOTE") and recalculated on the date of each
annual anniversary convertible of this Note (each such date, a "CALCULATION
DATE"), equal to the prime rate (as determined by the Federal Reserve on such
Calculation Date) less one-half percent (1/2%), from the date of this Note
until the principal amount hereof and all interest accrued thereon is paid (or
converted, as provided in Section 2 hereof). The initial interest rate of
provided this Note shall be 7.25%. The principal amount of this Note, and the
interest accrued thereon, shall be payable at the principal offices of the
Noteholder or by mail to the registered address of the holder of this Note on
the earliest to occur of (i) thirty (30) days after demand, (ii) a default under
this Note in accordance with Paragraph 8 below, (iii) a default as that term
defined in the Security Agreement executed herewith, and (iv) the date thirty
(30) days after the date of any breach by the Company of any agreement with the
Noteholder and/or any affiliate of the Noteholder, unless this Note shall have
been previously converted pursuant to Section 2 hereof or as provided otherwise
in this Note.
The following is a statement of the rights of the holder of this Note and
the conditions to which this Note is subject, and to which the holder hereof, by
the acceptance of this Note, agrees:
1. DEFINITIONS. The following definitions shall apply for all purposes of
this Note:
<PAGE> 2
1.1 "COMPANY" shall mean the Company as defined above and includes
any corporation which shall succeed to or assume the obligations of the Company
under this Note.
1.2 "CHANGE OF CONTROL TRANSACTION" shall mean a merger,
acquisition, or other business combination in which fifty percent (50%) or more
of the Company's outstanding voting stock is transferred to different holders in
a single transaction or a series of related transactions; provided, however,
that an acquisition by the Noteholder (including its affiliates) of all or
substantially all of the voting securities of the Company shall not constitute a
Change of Control Transaction for the purposes hereunder.
1.3 "CONVERSION DATE" shall mean the date on which, pursuant to
Sections 2 and 3 hereof, the Noteholder exercises its right to convert this Note
into the Conversion Stock at the Note Conversion Price.
1.4 "CONVERSION STOCK" shall mean the shares of common stock, no par
value, of the Company. The number and character of shares of Conversion Stock
are subject to adjustment as provided herein and the term "Conversion Stock"
shall include shares and other securities and property at any time receivable or
issuable upon conversion of this Note in accordance with its terms.
1.5 "NOTE CONVERSION PRICE" shall be $1.00 per share (after giving
effect to the 2-1 forward stock split effected by the Articles of Restatement of
the Company dated November 19, 1998).
1.6 "NOTEHOLDER," "HOLDER," or similar terms, when the context
refers to a holder of this Note, shall mean any person who shall at the time be
the registered holder of this Note.
2. CONVERSION.
2.1 (a) Conversion of Note. At any time, the Noteholder shall have
the right, at the holder's option, to convert the principal and accrued interest
on this Note, in whole or in part, into Conversion Stock at the Note Conversion
Price. Conversion under this Section 2 shall occur only upon surrender of this
Note for conversion at the principal offices of the Company, accompanied by
written notice of election to convert.
(b) Conversion in the Event of Prepayment or Payment of Note.
The Company shall have the right to prepay the entire principal balance, plus
accrued interest, due under the Note at any time prior to the maturity date if
the Note. The Noteholder shall have no obligation to accept any payment less
than the entire principal balance, plus accrued interest. At such time that the
Company has funds immediately available and elects to pay the entire principal
balance and accrued interest (whether as a prepayment or payment at or after
maturity of this Note), the Noteholder shall have fifteen (15) days from the
receipt of notice of the Company's election to pay off the Note to convert the
Note into Conversion Stock at the Note Conversion Price.
2.2 Certain Transactions. The Company shall give written notice to
the
2
<PAGE> 3
Noteholder of any Change of Control Transaction at least twenty (20) business
days prior to the date on which such Change of Control Transaction shall take
place. Prior to the closing of such Change of Control Transaction, the Company
shall, at Noteholder's election, either (i) repay all unpaid principal and
interest under this Note or (ii) convert this Note into Conversion Stock at the
Note Conversion Price.
3. ISSUANCE OF CONVERSION STOCK. As soon as practicable after conversion
of this Note, the Company, at its expense, will cause to be issued in the name
of and delivered to the holder of this Note, a certificate or certificates for
the number of shares of Conversion Stock to which the holder shall be entitled
upon such conversion (bearing such legends as may be required by applicable
state and federal securities laws in the opinion of legal counsel of the
Company), together with any other securities and property to which the holder is
entitled upon such conversion under the terms of this Note. Such conversion
shall be deemed to have been made (i) under Section 2 above and (ii) immediately
prior to the close of business on the date that the Note shall have been
surrendered for conversion, accompanied by written notice of election to
convert. No fractional shares will be issued upon conversion of this Note. If
upon any conversion of this Note a fraction of a share would otherwise result,
then, in lieu of such fractional share, the Company will pay the cash value of
that fractional share, calculated on the basis of the applicable Note Conversion
Price.
4. ADJUSTMENT OF NUMBER OF SHARES. The number and character of shares of
Conversion Stock issuable upon conversion of this Note (or any shares of stock
or other securities or property at the time receivable or issuable upon
conversion of this Note) are subject to adjustment upon the occurrence of any of
the following events:
4.1 Adjustment for Stock Splits, Stock Dividends, Recapitalizations,
etc. In the event that the Company shall fix a record date for the determination
of holders of securities affected by any stock split, stock dividend,
reclassification, recapitalization or other similar event that will, in the
future, affect the number of outstanding shares of the Company's capital stock,
then, and in each such case, the Noteholder, upon conversion of this Note at any
time after the Company shall fix the record date for such event, shall receive,
in addition to the shares of Conversion Stock issuable upon conversion on the
Conversion Date, the right to receive the securities of the Company to which
such holder would have been entitled if such holder had converted this Note
immediately prior to such record date (all subject to further adjustment as
provided in this Note).
4.2 Adjustment for Dividends and Distributions. In the event that
the Company shall make or issue, or shall fix a record date for the
determination of eligible holders of securities entitled to receive, a dividend
or other distribution payable with respect to the Conversion Stock (or any
shares of stock or other securities at the time issuable upon conversion of this
Note) that is payable in (a) securities of the Company other than capital stock
or (b) any other assets, then, and in each such case, the Noteholder, upon
conversion of this Note at any time after the consummation, effective date or
record date of such event, shall receive, in addition to the shares of
Conversion Stock (or such other stock or securities) issuable upon such
conversion prior to such date, the securities or such other assets of the
Company to which such holder would have been entitled upon such date if such
holder had converted this Note immediately prior thereto (all subject to further
adjustment as provided in this Note).
3
<PAGE> 4
4.3 Adjustment for Reorganization, Consolidation, Merger. In the
event of any reorganization not considered a Change of Control Transaction of
the Company (or any other corporation the stock or other securities of which are
at the time receivable upon the conversion of this Note) after the date of this
Note, or in the event, after such date, the Company (or any such corporation)
shall consolidate with or merge into another corporation or convey all or
substantially all of its assets to another corporation where such transaction is
not considered a Change of Control Transaction, then, and in each such case, the
Noteholder, upon the conversion of this Note (as provided in Section 2) at any
time after the consummation of such reorganization, consolidation, merger or
conveyance, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the conversion of this Note prior to
such consummation, the stock or other securities or property to which such
Noteholder would have been entitled upon the consummation of such
reorganization, consolidation, merger or if such holder had converted this Note
immediately prior thereto, all subject to further adjustment as provided in this
Section 4, and the successor or purchasing corporation in such reorganization,
consolidation, merger or conveyance (if other than the Company) shall duly
execute and deliver to the Noteholder a supplement hereto acknowledging such
corporation's obligations under this Note. In each such case, the terms of the
Note shall be applicable to the shares of stock or other securities or property
receivable upon the conversion of this Note after the consummation of such
reorganization, consolidation, merger or conveyance.
4.4 Conversion of Stock. In the event that all of the authorized
Conversion Stock of the Company is converted, pursuant to the Company's Articles
of Incorporation, into other capital stock or securities or property, or the
Conversion Stock otherwise ceases to exist, then the Noteholder, upon conversion
of this Note at any time after the date on which the Conversion Stock is so
converted or ceases to exist (the "TERMINATION DATE"), shall receive, in lieu of
the number of shares of Conversion Stock that would have been issuable upon such
conversion immediately prior to the Termination Date (the "FORMER NUMBER OF
SHARES OF CONVERSION STOCK"), the stock and other securities and property to
which such Noteholder would have been entitled to receive upon the Termination
Date if such holder had converted this Note with respect to the Former Number of
Shares of Conversion Stock immediately prior to the Termination Date (all
subject to further adjustment as provided in this Note).
4.5 Notice of Adjustments. The Company shall promptly give written
notice of each adjustment or readjustment of the number of shares of Conversion
Stock or other securities issuable upon conversion of this Note, by first class
mail, postage prepaid, to the registered holder of this Note at the holder's
address as shown on the Company's books. The notice shall describe the
adjustment or readjustment and show in reasonable detail the facts on which the
adjustment or readjustment is based.
4.6 No Change Necessary. The form of this Note need not be changed
because of any adjustment in the number of shares of Conversion) Stock issuable
upon its conversion.
4.7 Reservation of Stock. The Company has taken all necessary
corporate action and obtained all necessary Government consents and approvals to
authorize the issuance of this Note and, prior to the conversion hereof, the
shares of Conversion Stock issuable upon
4
<PAGE> 5
conversion of this Note. If at any time the number of authorized but unissued
Common Shares or other securities shall not be sufficient to effect the
conversion of this Note, then the Company will take such corporate action as
may, in the opinion of its legal counsel, be necessary to increase its
authorized but unissued Common Shares or other securities to such number of
shares of Common Shares or other securities as shall be sufficient for such
purpose.
5. FULLY PAID SHARES. All shares of Conversion Stock issued upon the
conversions this Note shall be validly issued, fully paid and non-assessable.
6. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. This Note does not by itself
entitle the Noteholder to any voting rights or other rights as a shareholder of
the Company. In the absence of conversion of this Note, no provisions of this
Note, and no enumeration herein of the rights or privileges of the holder, shall
cause such holder to be a shareholder of the Company for any purpose.
7. CORPORATE ACTION; NO IMPAIRMENT. The Company will not, by amendment of
its Articles of Incorporation or bylaws, or through reorganization,
consolidation, merger, dissolution, issue or sale of securities, repurchase of
securities, sale of assets or any other action, avoid or seek to avoid the
observance or performance of any of the terms of this Note, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Noteholder under this Note against wrongful Impairment. The
Company shall not amend its Articles of Incorporation or issue any capital stock
or options to purchase any capital stock of the Company without the prior
written consent of the Noteholder.
8. DEFAULT. The Company will be in default if the Company fails to make
any payment when due hereunder. The Company will also be in default if any of
the following occurs and such default is not cured within a ten (10) day period
after the Noteholder has given the Company written notice of such default:
(a) The Company breaches any material obligation to the Noteholder
hereunder.
(b) A receiver is appointed for any part of the Company's property,
the Company makes an assignment for the benefit of creditors, or any proceeding
is commenced either by the Company or against the Company under any bankruptcy
or insolvency laws.
(c) The Company materially defaults under the Security Agreement
referred to in Section 9 below.
(d) The Company suspends its normal business operations or otherwise
fails to continue to operate its business in the ordinary course.
In the event of a default under this Section 8, Noteholder shall, in addition to
any other remedies allowed by law, be entitled to accelerate all unpaid
principal and interest under this Note.
9. SECURITY AGREEMENT. This Note is secured by a security interest in
certain
5
<PAGE> 6
collateral, which security interest was granted by the Company to the original
holder of the Note pursuant to the terms of a certain security agreement (the
"SECURITY AGREEMENT"), dated on or about the date of this Note, are among the
original holder of the Note and the Company, and are incorporated herein by this
reference.
10. REVOLVING LINE OF CREDIT. This Note evidences a revolving line of
credit. Advances under this Note may be requested orally by any Company officer
or other authorized person. The Noteholder may, but need not, require that all
oral requests be confirmed in writing. The Company agrees to be liable for all
sums advanced in accordance with the instructions of its officers or authorized
persons. The unpaid principal balance owing on this Note at any time may be
evidenced by endorsements on this Note, by a Schedule attached to this Note, or
by The Noteholder's internal records, including computer printouts. The
Noteholder will have no obligation to advance funds under this Note and may
decline to make future advances for any reason or no reason.
11. WAIVER AND AMENDMENT. ANY PROVISION OF THIS NOTE MAY BE AMENDED,
WAIVED, MODIFIED, DISCHARGED OR TERMINATED SOLELY UPON THE WRITTEN CONSENT OF
BOTH THE COMPANY AND THE NOTEHOLDER.
12. ASSIGNMENT; BINDING, UPON SUCCESSORS AND ASSIGNS. The Company may not
assign any of its obligations hereunder without the prior written consent of
Noteholder. The terms and conditions of this Note shall inure to the benefit of
and be binding upon the successors and permitted assigns of the parties.
13. WAIVER OF NOTICE; ATTORNEYS' FEES. The Company and all endorsers of
this Note hereby waive notice, demand, notice of nonpayment, presentment,
protest and notice of dishonor. If any action at law or in equity is necessary
to enforce this Note or to collect payment under this Note, the Noteholder shall
be entitled to recover, as an element of the costs of suit and not as damages,
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which it may be entitled. Noteholder will be entitled to recover
its costs of suit, regardless of whether such suit proceeds to final judgment.
14. CONSTRUCTION OF NOTE. The terms of this Note have been negotiated by
the Company, the original holder of this Note and their respective attorneys and
the language hereof will not be construed for or against either Company or
Noteholder. Unless otherwise explicitly set forth, a reference to a Section will
mean a Section in this Note. The titles and headings herein are for reference
purposes only and will not in any manner limit the construction of this Note
which will be considered as a whole.
15. NOTICES. Any notice or other communication required or permitted to be
given under this Note shall be in writing, shall be delivered by hand or
overnight courier service, by certified mail, postage prepaid, or by facsimile,
and will be deemed given upon delivery, delivered personally, one business day
after deposit with a national courier service for overnight delivery, or one
business day after transmission by facsimile with confirmation of receipt, and
three days after deposit in the mails, if mailed, to the following addresses:
(i) If to the Noteholder:
6
<PAGE> 7
The Canopy Group
240 West Center Street
Orem, Utah 84057
(ii) If to Company:
Systems, Inc.
240 West Center Street
Orem, Utah 84057
or to such other address as may have been furnished to the other party in
Section 15, except that notices of change of address shall only be effective
upon receipt.
16. GOVERNING LAW. This Note shall be governed by and construed under the
internal laws of the United States and the State of Utah as applied to
agreements among Utah residents entered into and to be performed entirely within
Utah, without reference to principles of conflict of laws or choice of laws.
7
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
name as of the date first above written.
CALDERA SYSTEMS, INC.
By: /s/ RANSOM H. LOVE
--------------------------------
Name: Ransom H. Love
------------------------------
Title: President & CEO
-----------------------------
8
<PAGE> 1
EXHIBIT 10.7
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Security Agreement") is entered into
as of September 1, 1998, by and between CALDERA SYSTEMS, INC., a Utah
corporation (the "Company"), and THE CANOPY GROUP, INC., a Utah corporation
("Secured Party").
RECITALS
A. Company has borrowed funds and may borrow through subsequent advances
additional funds, from Secured Party pursuant to a $2,000,000 Secured
Convertible Promissory Note of even date herewith (the "Note").
B. As security for its repayment obligations under the Note, Company has
agreed to grant Secured Party a security interest in all of its assets on the
terms set forth in this Security Agreement.
NOW, THEREFORE, to that end and in consideration of the premises,
covenants and agreements set forth below, and the mutual benefits to be derived
from this Security Agreement, and other good and valuable consideration, the
parties hereto agree as follows:
1. SECURITY INTEREST. To secure the "Obligation" (as defined below),
Company hereby transfers, conveys, assigns, and grants to Secured Party a
security interest in all of Company's assets, which may include one or more of
the following items (hereinafter, collectively, the "Collateral"):
(a) GENERAL INTANGIBLES. All of Company's General Intangibles,
now existing or hereafter arising or acquired, together with the proceeds
therefrom. As used herein, the term "General Intangibles" means all personal
property (including things in action) other than goods, accounts, chattel paper,
documents, instruments, and money, and includes, but is not limited to, business
records, deposit accounts, inventions, intellectual property, designs, patents,
patent applications, trademarks, trademark applications, trademark
registrations, service marks, service mark applications, service mark
registrations, trade names, goodwill, technology, knowhow, confidential
information, trade secrets, customer lists, supplier lists, copyrights,
copyright applications, copyright registrations, licenses, permits, franchises,
tax refund claims, and any letters of credit, guarantee claims, security
interests, or other security held by the Company to secure any "Accounts" (as
hereinafter defined).
(b) ACCOUNTS (INCLUDING ACCOUNTS RECEIVABLE). All of Company's
Accounts, whether now existing or hereafter arising or acquired, together with
the proceeds therefrom. As used herein, the term "Accounts" means any right of
Company to receive payment from another person or entity, including payment for
goods sold or leased, or for services rendered, no matter how evidenced or
arising, and regardless of whether yet earned by performance. It includes, but
is not limited to, accounts, accounts receivable, contract rights,
<PAGE> 2
contracts receivable, purchase orders, notes, drafts, acceptances, all rights to
payment earned or unearned under a charter or other contract involving the use
or hire of a vessel and all rights incident to the charter or contract, and
other forms of obligations and receivables.
(c) INVENTORY. All of Company's Inventory, whether now owned
or hereafter acquired, together with the products and proceeds therefrom and all
packaging, manuals, and instructions related thereto. As used herein, the term
"Inventory" means all goods, merchandise, and personal property held for sale or
leased or furnished or to be furnished under contracts of service, and all raw
materials, work in process, or materials used or consumed in Company's business,
wherever located and whether in the possession of Company, a warehouseman, a
bailee, or any other person.
(d) EQUIPMENT. All of Company's Equipment, now owned or
hereafter acquired, together with the products and proceeds therefrom, and all
substitutes and replacements therefor. As used herein, the term "Equipment"
includes all equipment, machinery, tools, office equipment, supplies,
furnishings, furniture, or other items used or useful, directly or indirectly,
in Company's business, all accessions, attachments, and other additions thereto,
all parts used in connection therewith, all packaging, manuals, and instructions
related thereto, and all leasehold or equitable interests therein.
(e) FIXTURES. All of Company's interest in and to all fixtures
and furnishings, now owned or hereafter acquired, together with the products and
proceeds therefrom, all substitutes and replacements therefor, all accessories,
attachments, and other additions thereto, all tools, parts, and supplies used in
connection therewith, and all packaging, manuals, and instructions related
thereto, located on or attached to Company's business premises located at 240
West Center, Orem, Utah 84058.
(f) CHATTEL PAPER, DOCUMENTS AND INSTRUMENTS. All of Company's
right, title, and interest in any chattel paper, documents, or instruments, now
owned or hereafter acquired or arising, or now or hereafter coming into the
possession, control, or custody of either Company or Secured Party, together
with all proceeds therefrom. The terms "chattel paper," "documents," and
"instruments" shall have those meanings ascribed to them in the Utah Uniform
Commercial Code.
2. OBLIGATION. This security interest is given as security for all
indebtedness and obligations owed by Company to Secured Party, whether now
existing or hereafter incurred, under this Security Agreement or the Note,
together with all extensions, modifications, or renewals thereof (hereinafter
referred to, collectively, as the "Obligation").
3. PROCEEDS. As used in this Security Agreement, the term "proceeds"
means all products of the Collateral and all additions and accessions to,
replacements of, insurance or condemnation proceeds of, and documents covering
any of the Collateral, all property received wholly or partly in trade or
exchange for any of the Collateral, all leases of any of the Collateral, and all
rents, revenues, issues, profits, and proceeds arising from the sale, lease,
license, encumbrance, collection, or any other temporary or permanent
disposition, of any of the Collateral or any interest therein.
2
<PAGE> 3
4. TITLE; FILING. Company warrants that, except as previously
disclosed in writing to Secured Party, it is the owner of the Collateral free
and clear of all liens, claims, and encumbrances of whatever kind or nature.
Company covenants that so long as any portion of the Obligation remains unpaid,
Company will not execute or file a financing statement or security agreement
covering the Collateral to anyone other than Secured Party, except in the
ordinary course of business or as otherwise allowed. Company agrees to sign and
deliver one or more financing statements or supplements thereto or other
instruments as Secured Party may from time to time require to comply with the
Uniform Commercial Code or other applicable law to preserve, protect and enforce
the security interest of Secured Party and to pay all costs of filing such
statements or instruments. In addition, Company shall promptly file a financing
statement to perfect Secured Party's interest in the Collateral.
5. CARE OF COLLATERAL. Company will keep in effect all licenses,
permits and franchises required by law or contract relating to Company's
business (if applicable), property, or the Collateral; maintain insurance on the
Collateral; keep the Collateral in good repair and be responsible for any loss
or damage to it; at all times warrant and defend Company's ownership and
possession of the Collateral keep the Collateral free from all liens, claims,
encumbrances and security interests; pay when due all taxes, license fees, and
other charges upon the Collateral or upon Company's business, property or the
income therefrom; and not misuse, conceal or in any way use or dispose of the
Collateral unlawfully or contrary to the provisions of this Security Agreement
or of any insurance coverage. Loss of, damage to, or uncollectability of the
Collateral or any part thereof will not release Company from any of its
obligations hereunder.
6. DEFAULT. A default hereunder will occur if any of the following
events occur: (1) Company fails to pay any portion of the Obligation when due;
(2) Company fails to perform any undertaking or materially breaches any warranty
or covenant in this Security Agreement or the Note; (3) any statement,
representation or warranty of Company under this Security Agreement or the Note
is untrue in any material respect when made; (4) Company becomes insolvent or
unable to pay debts as they mature or makes an assignment for the benefit of
creditors or any proceeding is instituted by or against it alleging that it is
insolvent or unable to pay its debts as they mature; (5) dissolution of Company;
(6) an attachment, garnishment, execution or other process is issued or a lien
filed against any property of Company, which is not removed within a reasonable
period of time; and (7) Company transfers an interest in any of the Collateral
contrary to the provisions of this Security Agreement without the prior written
consent of Secured Party other than in the ordinary course of business. Waiver
of any default will not constitute a waiver of any other or subsequent default.
7. REMEDIES. Upon the occurrence of any default hereunder at any
time thereafter, all of the Obligation will, at the election of Secured Party
and without notice of such election, or demand for payment, become immediately
due and payable and Secured Party will have the remedies of a secured party
under the Utah Uniform Commercial Code or other applicable law.
8. GENERAL. The wavier by Secured Party of any breach of any
provision of this Security Agreement or warranty or representation herein set
forth will not be construed as a
3
<PAGE> 4
waiver of any subsequent breach. The failure to exercise any right hereunder by
Secured Party will not operate as a waiver of such night. All rights and
remedies herein provided are cumulative. Company may not assign its nights or
delegate its duties hereunder without Secured Party's written consent. This
Security Agreement may not be altered or amended except by a writing signed by
all the parties hereto. This Security Agreement will be governed by and
construed and interpreted in accordance with the laws of the State of Utah. Any
provision hereof found to be invalid will not invalidate the remainder. All
words used herein will be construed to be of such gender and number as the
circumstances require. This Security Agreement binds Company, its successors and
assigns, and inures to the benefit of Secured Party, its successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Security
Agreement as of the date first written above.
COMPANY: CALDERA SYSTEMS, INC.,
a Utah corporation
By: /s/ RANSOM LOVE
--------------------------------
Ransom Love
Its: President
SECURED PARTY: THE CANOPY GROUP, INC.,
a Utah corporation
By: /s/ RALPH YARRO
--------------------------------
Ralph Yarro
Its: President
4
<PAGE> 5
This FINANCING STATEMENT is presented to a filing officer for filing pursuant to
the Uniform Commercial Code.
For Filing Officer (Date, Time, Number, and Filing Office)
1. Debtor(s) (Last Name First) and address(es)
CALDERA SYSTEMS, INC.
240 WEST CENTER
OREM, UT 84057
Social Security or
------------------
Emp. Fed. I.D. No. 87-0617393
------------------
2. Secured Party(ies) and address(es)
THE CANOPY GROUP
240 WEST CENTER STREET
OREM, UTAH 84057
3. Maturity date (if any):
Approved by Division of Corporations and Commercial Code, Department of
Business Regulations
4. This Financing Statement covers the following types (or items) of property:
All items listed on the attached Attachment 1 including, but not limited to
general intangibles, accounts (including accounts receivable), inventory,
equipment, fixtures, and chattel paper, documents and instruments now owned
or hereafter acquired.
The Secured party is [ ] is not [x] a seller or Purchase money lender of the
collateral.
5. Assignee(s) of Secured Party and Address(es)
6. Gross sales price of collateral
$
---------------------------------
$ Sales
---------------------------------
or use tax paid to State of
This statement is filed without the debtor's signature to perfect a security
interest in collateral (Check x if so)
[ ] already subject to a security interest in another jurisdiction when it
was brought into this state.
[ ] which is proceeds or the original collateral described above in which a
security interest was perfected.
Microfilm No.
Check [X] if covered: [X] Proceeds of Collateral are also covered. [X] Products
of Collateral are also covered. No. of additional Sheets presented: 1
- --------------------------------------------------------------------------------
Caldera Systems, Inc. The Canopy Group
- -------------------------------------- --------------------------------------
By: /s/ RANSOM H. LOVE By: /s/ RALPH YARRO
----------------------------------- -----------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
STANDARD FORM UCC-1
<PAGE> 6
ATTACHMENT 1
TO FINANCING STATEMENT BETWEEN
CALDERA SYSTEMS, INC, AS DEBTOR, AND
THE CANOPY GROUP, AS SECURED PARTY
The security interest covered by this Financing Statement
includes the following property:
(a) GENERAL INTANGIBLES. All of Debtor's General
Intangibles, now existing or hereafter arising or acquired, together with the
proceeds therefrom. As used herein, the term "General Intangibles" means all
personal property (including things in action) other than goods, accounts,
chattel paper, documents, instruments, and money, and includes, but is not
limited to, business records, deposit accounts, inventions, intellectual
property, designs, patents, patent applications, trademarks, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, permits, franchises, tax
refund claims, and any letters of credit, guarantee claims, security interests,
or other security held by Debtor to secure any "Accounts" (as hereinafter
defined).
(b) ACCOUNTS (INCLUDING ACCOUNTS RECEIVABLE). All of
Debtor's Accounts, whether now existing or hereafter arising or acquired,
together with the proceeds therefrom. As used herein, the term "Accounts" means
any right of Debtor to receive payment from another person or entity, including
payment for goods sold or leased, or for services rendered, no matter how
evidenced or arising, and regardless of whether yet earned by performance. It
includes, but is not limited to, accounts, accounts receivable, contract rights,
contracts receivable, purchase orders, notes, drafts, acceptances, all rights to
payment earned or unearned under a charter or other contract involving the use
or hire of a vessel and all rights incident to the charter or contract, and
other forms of obligations and receivables.
(c) INVENTORY. All of Debtor's Inventory, whether now
owned or hereafter acquired, together with the products and proceeds therefrom
and all packaging, manuals, and instructions related thereto. As used herein,
the term "Inventory" means all goods, merchandise, and personal property held
for sale or leased or furnished or to be furnished under contracts of service,
and all raw materials, work in process, or materials used or consumed in
Debtor's business, wherever located and whether in the possession of Debtor, a
warehouseman, a bailee, or any other person.
(d) EQUIPMENT. All of Debtor's Equipment, now owned or
hereafter acquired, together with the products and proceeds therefrom, and all
substitutes and replacements therefor. As used herein, the term "Equipment"
includes all equipment, machinery, tools, office equipment, supplies,
furnishings, furniture, or other items used or useful, directly or indirectly,
in Company's business, all accessions, attachments, and other additions thereto,
all parts used in connection therewith, all packaging, manuals, and instructions
related thereto, and all leasehold or equitable interests therein.
(e) FIXTURES. All of Debtor's interest in and to all
fixtures and furnishings, now owned or hereafter acquired, together with the
products and proceeds therefrom, all substitutes and replacements therefor, all
accessories, attachments, and other additions thereto, all tools, parts, and
supplies used in connection therewith, and all packaging, manuals, and
instructions related thereto, located on or attached to Debtor's business
premises located at 240 West Center, Orem, Utah 84057.
(f) CHATTEL PAPER, DOCUMENTS AND INSTRUMENTS. All of
Debtor's right, title, and interest in any chattel paper, documents, or
instruments, now owned or hereafter acquired or arising, or now or hereafter
coming into the possession, control, or custody of either Debtor or Secured
Party, together with all proceeds therefrom. The terms "chattel paper,"
"documents," and "instruments" shall have those meanings ascribed to them in the
Utah Uniform Commercial Code.
<PAGE> 1
EXHIBIT 10.8
ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT (this "Agreement") is made and
entered into this 1st day of September 1998, by and between CALDERA SYSTEMS,
INC., a Utah corporation ("Purchaser") and CALDERA, INC., a Utah corporation
("Seller").
RECITALS
A. Seller is in the business of developing, marketing, licensing, selling
and distributing Linux computer software and other software, products and
services relating to Linux (the "Business"). Seller desires to sell to Purchaser
all of Seller's assets used in or relating to the Business.
B. All of the assets Seller uses in or which relate to the Business
consist of the following, which shall hereinafter collectively be designated the
"Assets":
(i) Accounts Receivable. all accounts receivable of Seller as of
September 1, 1998, identified in and that will be the subject of the Bill
of Sale set forth in Exhibit "A" attached hereto,
(ii) Inventory. the items of inventory identified in and that will be
the subject of the Bill of Sale set forth in Exhibit "A" attached hereto,
(iii) Tangible Personal Property. the items of tangible personal
property in and that will be the subject of the Bill of Sale set forth in
Exhibit "A" attached hereto,
(iv) Customer Lists, Etc. all of Seller's customer lists and
addresses of Seller's past, present and potential customers which will be
the subject of the Bill of Sale set forth in Exhibit "A" attached hereto,
(v) Contracts. certain rights, services and contractual obligations
under the contracts which were used by the Business and which Seller has
entered into identified in and that will be the subject of the Contracts
Assignment and Assumption Agreement set forth in Exhibit "B" attached
hereto.
(vi) Trademarks. all right, title and interest of Seller in and to
the trademarks, service marks, trade names, logos, and product names and
the
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goodwill of the business associated therewith (the "Trademarks") as
identified in and that will be subject of the Trademarks Assignment
Agreement set forth in Exhibit "C" attached hereto,
(vii) Copyrights. all right, title and interest of Seller in and
to the copyrights, copyright applications, and copyright registrations (the
"Copyrights") identified in and what will be subject of the Copyright
Assignment Agreement set forth in exhibit "D" attached hereto,
(viii) Patents. all right, title and interest of Seller in and to
the patents and patent applications (the "Patents") identified in and that
will be subject of the Patent Assignment Agreement set forth in Exhibit "E"
attached hereto,
(ix) Intellectual Property. any other intellectual property used
in or relating to the Business (other than the Trademarks, Copyrights and
Patents) of Seller including, without limitation, all trade secrets,
proprietary technology, and confidential information, (the "Intellectual
Property") identified in and that will be subject of the Intellectual
Property Assignment Agreement set forth in Exhibit "F" attached hereto, and
(x) Numbers, Permits and Licenses. Seller's telephone and fax
numbers, permits and business licenses as identified in Exhibit "G"
attached hereto.
C. Purchaser desires to purchase the Assets from Seller and Seller
desires to sell the Assets to Purchaser, all as provided in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
SECTION 1 -- TERMS OF PURCHASE
1.1 Purchase of Assets. In reliance on the representations and warranties
contained herein and in consideration of the purchase price as set forth in
section 1.3 hereof and subject to all other terms and conditions hereof, at the
Closing (as defined in section 2.1), and effective as of the Effective Date (as
defined in Section 2.1), Purchaser shall purchase and accept, and Seller shall
sell, assign, transfer, convey and deliver to Purchaser, all of Seller's rights,
titles
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and interests in and to all the Assets (defined in Recital Paragraph B, above).
1.2 No Assumption of Obligations, Liabilities and Indebtedness.
(a) Except for those obligations assumed pursuant to the Contracts
Assignment and Assumption Agreement (see Exhibit "B" attached hereto),
Purchaser shall not assume or in any way become liable for any obligations or
liabilities of or relating to the Assets or Seller.
(b) Except as expressly set forth in Section 1.2(a) hereof,
Purchaser does not by this Agreement, or otherwise, assume, become liable for
or agree to pay any obligation, liability or indebtedness of Seller which may
now exist or which may arise in the future, whether associated with the Assets,
the Business, Seller or otherwise.
(c) Any obligations, liabilities or indebtedness of Seller including,
but not limited to, contingent liabilities, such as, but not limited to,
liabilities relating to patent, trademark, copyright or other business
infringement, environmental or hazardous waste liability, tort liability,
employment discrimination, errors and omissions liability, employee payroll and
employee benefits liability, liability under employment agreements or pertaining
to covenants not to compete, obligations arising out of or relating to pension
plans and other retirement plans, and federal, state or local taxes, shall
remain the sole and separate responsibility of Seller, and Seller hereby agrees
to indemnify, defend and hold Purchaser harmless from and against any and all
such obligations, liabilities or indebtedness.
(d) Seller shall not assume or in any way become liable for any
obligations or liabilities of Purchaser relating to the Assets, the Business or
Purchaser that arise from the business and operations of Purchaser and that
occur in whole from and after the Closing.
1.3 Purchase Price and Allocation of Purchase Price. Subject to upward
adjustment as provided in this Section 1.3, the purchase price for the Assets
(the "Purchase Price") shall be Fifteen Million and no/100 Dollars
($15,000,000.00) and the Purchase Price shall be allocated to the Assets as set
forth on Exhibit "H" attached hereto. It is anticipated that the Purchaser will
obtain an appraisal or valuation of the Assets, as of the date hereof, for tax,
accounting or other purposes. In the event such an appraisal or valuation is
obtained and the fair market value of the Assets, as of the date hereof, is
greater than the Purchase Price, then the Purchase Price shall be increased to
the fair market value of the Assets; provided, however, any such appraisal or
valuation must be obtained before December 31, 1998, and any increase in the
Purchase Price shall not be due and payable until the later of (i) December 31,
1998
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or (ii) sixty days after the receipt by Purchaser of said appraisal or
valuation.
1.4 Payment of Purchase Price. The Purchase Price shall be paid by
Purchaser by:
(a) delivering to the Seller a promissory note substantially in
the form of Exhibit "I" attached hereto, made by the Purchaser to the order of
the Seller in the original principal amount of $14,963,826 ($15,000,000 less
$36,174 of liabilities assumed as set forth in Section 1.4(b)) (the "Promissory
Note"), together with a Security Agreement substantially in the form of Exhibit
"J" attached hereto; and
(b) assuming liabilities in the amount of $36,174 as identified
in the Contracts Assignment and Assumption Agreement attached hereto as Exhibit
"B".
1.5 Taxes. The Purchase Price shall be exclusive of any sales or
similar taxes that may be imposed. Seller shall be solely responsible for any
sales or similar taxes that may be imposed on the purchase and sale of the
Assets contemplated by this Agreement.
1.6 Documentation of Sale of Accounts Receivable, Inventory and
Tangible Personal Property. At the Closing Seller shall execute and deliver to
Purchaser the Bill of Sale attached hereto as Exhibit "A" (the "Bill of Sale")
to evidence and effect the transfer of the accounts receivable, inventory and
other tangible personal property identified in Exhibit "A".
1.7 Documentation of Assignment and Assumption of Contracts. At the
Closing Seller and Purchaser shall execute and deliver to the other the
Contracts Assignment and Assumption Agreement attached hereto as Exhibit "B" to
evidence and effect the assignment and assumption of said contracts.
1.8 Documentation of Assignment of Trademarks. At the Closing Seller
and Purchaser shall execute and deliver to the other the Trademarks Assignment
Agreement attached hereto as Exhibit "C" to evidence and effect the assignment
of the Trademarks.
1.9 Documentation of Assignment of Copyrights. At the Closing Seller
and Purchaser shall execute and deliver to the other the Copyright Assignment
Agreement attached hereto as Exhibit "D" to evidence and effect the assignment
of the Copyrights.
1.10 Documentation of Assignment of Patents. At the Closing Seller
and Purchaser shall execute and deliver to the other the Patent Assignment
Agreement attached hereto as Exhibit "E" to evidence and effect the assignment
of the Patents.
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1.11 Documentation of Assignment of Intellectual Property. At the
Closing Seller and Purchaser shall execute and deliver to the other the
Intellectual Property Assignment Agreement attached hereto as Exhibit "F" to
evidence and effect the assignment of the Intellectual Property. Seller agrees
to execute any and all such further or other documents that Purchaser prepares
which are reasonably necessary to further evidence or effect the purpose and
intention of this Agreement.
1.12 Documentation of Assignment of Numbers, Permits and Licenses.
At the Closing Seller shall assign and transfer to Purchaser the telephone and
fax numbers, permits and business licenses as identified in Exhibit "G"
attached hereto.
1.13 Bulk Transfer Compliance. Purchaser hereby waives compliance by
Seller with the provisions of the Utah or other applicable "bulk transfer"
statutes. Seller hereby indemnifies and agrees to defend and hold Purchaser
harmless from and against any liability or obligation to creditors of Seller or
to others that may result from failure to comply with the Utah or other
applicable "bulk transfer" laws in connection with the purchase and sale of the
Assets.
SECTION 2 - THE CLOSING
2.1 Closing. The closing of the transaction contemplated by this
Agreement (the "Closing") shall be held at the office of Seller in Orem, Utah,
at 11:00 a.m. local time, on September 1, 1998, or at such other time or place
as the parties may hereafter agree in writing. That date, or if the Closing is
advanced or postponed under this Section 2.1, then notwithstanding the date to
which it is advanced or postponed, the effective date of the Closing shall be
12:01 a.m. on September 1, 1998, and is in this Agreement designated the
"Effective Date."
2.2 Events at the Closing. The following events shall occur at the
Closing, each of which shall be a condition precedent to each of the others and
all of which shall be deemed to have occurred concurrently:
Seller's Deliverables
(a) Seller shall deliver possession of its business premises to
purchaser and in connection therewith, shall provide Purchaser with keys to the
Leasehold Premises, all as shall be allowed and agreed by Seller's Landlord;
(b) Seller shall execute and deliver to Purchaser the Bill of
Sale (see Exhibit "A" attached hereto);
(c) Seller shall execute and deliver to Purchaser the Contracts
Assignment and Assumption Agreement (see Exhibit "B" attached hereto);
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(d) Seller shall execute and deliver to Purchaser the
Trademarks Assignment Agreement (see Exhibit "C" attached hereto);
(e) Seller shall execute and deliver to Purchaser the
Copyrights Assignment Agreement (see Exhibit "D" attached hereto);
(f) Seller shall execute and deliver to Purchaser the
Patent Assignment Agreement (see Exhibit "E" attached hereto);
(g) Seller shall execute and deliver to Purchaser the
Intellectual Property Assignment Agreement (see Exhibit "F" attached hereto);
(h) Seller shall execute and deliver to Purchaser an assignment
and transfer of the telephone and fax numbers, permits and business licenses as
identified in Exhibit "G" attached hereto;
(i) Seller shall execute and deliver to Purchaser such other
documents as may be reasonably required by Purchaser to evidence Seller's
compliance with any covenant and condition herein set forth or to complete the
transactions herein contemplated;
PURCHASER'S DELIVERABLES
(j) Purchaser shall execute and deliver to Seller the
Promissory Note (see Exhibit "I" attached hereto);
(k) Purchaser shall execute and deliver to Seller the
Security Agreement (see Exhibit "J" attached hereto);
(l) Purchaser shall execute and deliver to Seller a copy of the
Contracts Assignment and Assumption Agreement (see Exhibit "B" attached hereto);
(m) Purchaser shall execute and deliver to Seller a copy of the
Trademarks Assignment Agreement (see Exhibit "C" attached hereto);
(n) Purchaser shall execute and deliver to Seller a copy of the
Copyrights Assignment Agreement (see Exhibit "D" attached hereto);
(o) Purchaser shall execute and deliver to Seller the Patent
Assignment Agreement (see Exhibit "E" attached hereto);
(p) Purchaser shall execute and deliver to Seller the
Intellectual Property Assignment Agreement (see Exhibit "F"
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attached hereto);
(q) Purchaser shall execute and deliver to Seller an acceptance of
the assignment and transfer of the telephone and fax numbers, permits and
business licenses as identified in Exhibit "G" attached hereto;
(r) Purchaser shall execute and deliver to Seller such other
documents as may be reasonably required by Seller to evidence Purchaser's
compliance with any covenant and condition herein set forth or to complete the
transactions herein contemplated.
SECTION 3 - REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Seller. Except as set forth in the
Schedule of Seller's Exceptions in Exhibit "K" attached hereto, Seller
represents and warrants to Purchaser as follows:
(a) Sale of All Assets. By this Agreement and the instruments
contemplated hereby, Seller is transferring to Purchaser all of the assets of
Seller that are used in the Business.
(b) Title to Assets; Liens. Seller has good and marketable title to
the Assets and none of the Assets are subject to any mortgage, pledge, lien,
security interest, lease, charge, claim or encumbrance. Neither the Seller nor
any of Seller's affiliates use any asset, other than the Assets, in the
Business.
(c) Litigation. There is no material suit, action, litigation
or other proceeding or governmental or administrative investigation or inquiry
pending or threatened against Seller, the Business, and/or the Assets, which, if
decided adversely to the interests of Seller, would prevent or prohibit Seller
from transferring the Assets, free and clear from any security interests,
liens, charges, claims or other encumbrances of any nature whatsoever or from
otherwise complying in full with the provisions of this Agreement.
(d) Authorization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Utah. Seller has
all the requisite corporate and legal power and authority to own, lease and
operate the Assets as currently owned, leased and operated. Seller is duly
licensed, authorized and qualified to transact business and is in good standing
in Utah.
(e) Execution and Enforceability. This Agreement, the Bill of Sale,
the Contracts Assignment and Assumption Agreement, Trademarks Assignment
Agreement, Copyrights Assignment Agreement, Patent Assignment Agreement, the
Intellectual Property Assignment Agreement (see Exhibits "A"
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through "F", respectively) and any other document required to be executed by
Seller at the Closing, will, when duly executed and delivered by Seller,
constitute valid and binding obligations of Seller, enforceable against Seller
in accordance with their respective terms.
(f) Seller's Records. In contemplation of this Agreement, Purchaser
has had access to Seller's files, documents and business records. Seller agrees
to keep and make available to Seller and its representatives during business
hours with reasonable notice, all of its files, documents and business records
relating to any of its present customers and past customers within the last
three (3) years (the "Records"). Seller may examine and make copies of the
Records, provided Seller agrees to and Seller hereby does agree to keep
confidential all confidential and proprietary information and trade secrets, if
any, in the Records. Nothing in this Section 3.1(f) shall require Seller to
retain any of the Records beyond the period for which they must be maintained
pursuant to applicable tax laws and regulations.
3.2 Representations and Warranties of Purchaser. Except as set forth in
the Schedule of Purchaser's Exceptions in Exhibit "L" attached hereto, Purchaser
represents and warrants to Seller as follows:
(a) Authorization. Purchaser is a corporation, duly organized,
validly existing and in good standing under the laws of the State of Utah and
has all necessary corporate power and corporate authority to consummate the
transactions contemplated herein. This Agreement, and the transactions
contemplated herein, have been duly authorized by all necessary corporate action
on the part of Purchaser.
(b) Execution and Enforceability. This Agreement and any other
documents required to be executed by Purchaser at the Closing will, when duly
executed and delivered by Purchaser constitute valid and binding obligations of
Purchaser, enforceable against Purchaser in accordance with their respective
terms.
(c) Compliance with Other Instruments; Consents. Purchase is not in
material violation of any material agreement, instrument, judgment, decree or
order applicable to Purchaser, and to Purchaser's best knowledge and belief, of
any material statute, rule or governmental regulation applicable to Purchaser.
The execution, delivery and performance of this Agreement by Purchaser and the
transactions contemplated hereby will not result in any material violation of,
be in conflict with or constitute a material default under any such material
agreement, instrument, judgment, decree or order or, to the best knowledge and
belief of Purchaser, of any such material statute, rule or governmental
regulation. No consent of any vendor, lessor, lender or creditor of Purchaser,
or any other person, is
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necessary in order for Purchaser to consummate this Agreement or the
transactions contemplated hereby in accordance with all of the provisions herein
contained.
SECTION 4 -- COVENANTS OF SELLER AND PURCHASER
4.1 Covenants of Seller. Seller hereby covenants to and agrees with
Purchaser that:
(a) Maintenance of Assets. Prior to the Closing, Seller shall
maintain the Assets in customary repair, order and condition, and will maintain
insurance thereon in such amounts and of such kinds as is and currently in
effect.
(b) Maintenance of Free and Clear Title. Prior to the Closing,
Seller shall not mortgage, pledge or subject to any lien, charge, claim or
encumbrance any of the Assets or transfer, convey or lease any of the Assets or
any of Seller's rights, titles or interests therein, outside of the ordinary
course of business.
(c) Conduct of the Business. Prior to the Closing, Seller shall
conduct the activities of the Business in the ordinary, normal and customary
course and manner, keep proper business and accounting records, and, both before
and at all times after the Closing, use Seller's best efforts to preserve the
Business and its material customers intact and preserve for and make available
to Purchaser all of Seller's customers and the goodwill of the Business and the
goodwill of the Clients, customers, distributors and others having business
material relationships with the Business.
(d) Representations and Warranties True at Closing. If any
representation or warranty of Seller set forth in this Agreement becomes
inaccurate in any material respect at or before the Closing, Seller shall
immediately inform Purchaser in writing of the particulars in which any such
warranty or representation is no longer accurate. Despite such disclosure by
Seller, any such material inaccuracy shall constitute a failure of the
conditions precedent to the obligations of Purchaser as set forth in Section 6.1
hereof, and Purchaser shall have the right and option either to waive such
condition or to terminate this Agreement.
4.2 Covenants of Purchaser. Purchaser hereby covenants to and agrees with
Seller that if any representation or warranty of Purchaser set forth in this
Agreement becomes inaccurate in any material respect at or before the Closing,
Purchaser shall immediately inform Seller in writing of the particulars in which
any such warranty or representation is no longer accurate. Despite such
disclosure by Purchaser, any such material inaccuracy shall constitute a failure
of the conditions precedent to the obligations of Seller as set forth in Section
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6.2 hereof, and Seller shall have the right and option either to waive such
condition or to terminate this Agreement.
SECTION 5 - SPECIAL PROVISIONS
5.1 Seller's Employees. All employees of Seller shall be terminated, as of
or before the Effective Date. Purchaser shall not be responsible for, and Seller
agrees to indemnify, defend and hold harmless Purchaser from and against any and
all claims, losses, damages, fees, costs or liabilities that arise or accrue as
a direct or indirect result of or in connection with Seller's prior employment
of or Seller's termination of the employment of Seller's Employees, including,
but not limited to, any claims or wrongful or unlawful termination or discharge
that are threatened or brought by Seller's Employees. Nothing contained herein
shall be construed as an agreement by Purchaser to provide employment for any of
Seller's Employees or, should Purchaser determine to employ any of Seller's
Employees after the Effective Date, to continue the employment of any Seller's
Employees to the extent Purchaser determines, for any reason, that such employee
does not meet Purchaser's standards of performance or productivity or that such
employee is no longer needed or desired as an employee of Purchaser.
SECTION 6 - CONDITIONS PRECEDENT TO CLOSING
6.1 Conditions Precedent to the Obligations of Purchaser. The obligation
of Purchaser to purchase the Assets and to consummate the transactions
contemplated hereby is subject to fulfillment by Seller prior to or at the
Closing of all of the conditions set forth in this Section 6.1. Purchaser may
waive any or all of said conditions in whole or in part without prior notice;
provided, however, that no such waiver of a condition shall constitute a waiver
by Purchaser of any other condition or of its other rights or remedies, at law
or in equity.
(a) Seller's Representations and Warranties True at Closing. All
representations and warranties of Seller contained in this Agreement, the
Contracts Assignment and Assumption Agreement, Trademarks Assignment Agreement,
Copyrights Assignment Agreement, Patent Assignment Agreement, the Intellectual
Property Assignment Agreement (see Exhibits "A" through "F", respectively) and
any other written document, agreement or statement to be delivered to Purchaser
by Seller at or before Closing pursuant to this Agreement, shall be accurate in
all material respects on and as of the Effective Date as though such
representations and warranties were made at and as of the Closing Date.
(b) Authorization. All material proceedings required to be taken and
all consents required to be obtained in connection with the transactions
contemplated by this Agreement, shall have been taken, completed or obtained, as
the case may be, and all documents incident thereto shall be reasonably
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satisfactory in form and substance to Purchaser, who shall have received
originals or certified or other copies of all of such documents as Seller may
reasonably request.
(c) No Insolvency Action. No petition in bankruptcy, insolvency
proceeding or a petition for reorganization or for the appointment of a
receiver or trustee shall have been filed by or against Seller.
6.2 Conditions Precedent to the Obligations of Seller. All
obligations of Seller under this Agreement are subject to fulfillment by
Purchaser prior to or at the Closing of all of the conditions set forth in this
Section 6.2. Seller may waive any or all of said conditions in whole or in part
without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by Seller of any other condition or of Seller's other
rights or remedies, at law or in equity.
(a) Purchaser's Representations and Warranties True at Closing.
All representations and warranties of Purchaser contained in this Agreement or
in any written statement delivered to Seller by Purchaser pursuant to this
Agreement shall be true and correct in all material respects on and as of the
Effective Date as though such representation and warranties were made at and as
of the Effective Date.
(b) Performance Agreements. Purchaser shall have performed all
obligations and agreements and complied with all covenants and conditions
contained in this Agreement to be performed and complied with by Purchaser on
or prior to the Effective Date.
(c) Authorization. All corporate and other proceedings required
to be taken by Purchaser and all consents required to be obtained in connection
with the transactions contemplated by this Agreement, shall have been taken,
completed or obtained, as the case may be, and all documents incident thereto
shall be reasonably satisfactory in form and substance to Seller, who shall
have received originals or certified or other copies of all of such documents
as Seller may reasonably request.
(d) No Litigation. No action or proceeding shall be pending or
threatened to restrain or prevent the carrying out of the transactions
contemplated hereby.
SECTION 7 - TERMINATION
7.1 Right to Terminate Agreement. This Agreement may be terminated
upon the occurrence of any of the following events:
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(a) by Purchaser, by written notice from Purchaser to Seller,
if any of the conditions set forth in Section 6.1 hereof have not been
fulfilled by the Closing;
(b) by Seller, by written notice from Seller to Purchaser, if
any of the conditions set forth in Section 6.2 hereof have not been fulfilled
by the Closing;
(c) by Seller or Purchaser, by written notice to the other, if
the Closing shall not have been held prior to September 30, 1998, or such later
date as the parties shall mutually agree in writing; or
(d) the parties shall mutually agree in writing to terminate
this Agreement.
7.2 Effect of Termination. Upon termination of this Agreement
pursuant to Section 7.1 hereof, all obligations of the Parties pursuant to this
Agreement shall terminate and shall be of no further force and effect such that
Purchaser shall have no further obligations to Seller and Seller shall have no
further obligations to Purchaser, except that Purchaser shall not use and shall
keep confidential any and all information, customer lists, customer addresses,
supplier addresses, price lists, agreements, trade secrets and/or business
plans of Seller relating to the Business.
SECTION 8 - GENERAL
-------------------
8.1 Costs. The parties shall each pay their own costs and expenses
(including attorneys' fees and accountants' fees) incurred or to be incurred by
them in negotiating and preparing this Agreement and in closing and carrying
out the transactions contemplated hereby.
8.2 Headings. The section and other headings of this Agreement are
included for purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
8.3 Entire Agreement; Modification. This Agreement (including the
recitals A through C hereof and Exhibits "A" through "L" attached hereto and
the representations and warranties set forth herein), constitute the entire
agreement between the parties pertaining to the subject matter of the
transactions contemplated by this Agreement. This Agreement supersedes all
written or oral, prior and contemporaneous agreements, representations,
warranties and understandings of the parties with respect thereto. No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by the parties.
8.4 Parties in Interest. Nothing in this Agreement, whether express
or implied, is intended to confer any rights or
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remedies under or by reason of this Agreement on any persons other than the
parties to this Agreement and their respective successors and permitted assigns,
nor is anything in this Agreement intended to relieve or discharge the
obligation or liability of any third persons to any party to this Agreement, nor
shall any provision hereof give any third party any right of subrogation or
action over or against any party to this Agreement.
8.5 Binding Effect; No Assignment. This Agreement shall be binding on
and shall inure to the benefit of the parties and their respective legal
representatives, successors and assigns. None of the rights or obligations under
this Agreement of any party to this Agreement may be conveyed, transferred,
assigned or delegated expressly, by operation of law or otherwise, without the
prior written consent of the other party to this Agreement.
8.6 Survival of Representations and Warranties. All representations,
warranties, covenants and agreements of the parties contained in this Agreement
or in any instrument or other writing provided for in this Agreement shall
survive the Closing and the term of this Agreement and shall not be deemed
merged into any documents delivered at the Closing.
8.7 Additional Documents After the Closing. Purchaser shall after the
Closing execute and deliver to Seller such other documents as may be reasonably
required by Seller to evidence Purchaser's compliance with any covenant and
condition herein set forth or to complete the transactions herein contemplated.
Without limiting the generality of the foregoing, Purchaser shall comply with
all reasonable requests of Seller in connection with the recordation of any
assignments or transfers under this Agreement.
8.8 Arbitration. Any controversy or dispute arising out of or relating
to this Agreement or its subject matter which the parties are unable to resolve
within ten (10) days after written notice by one party to the other party of the
existence of such controversy or dispute, may be submitted to binding
arbitration by either party. If so submitted to arbitration, the matter shall be
finally settled by binding arbitration conducted in accordance with the current
rules and procedures of the American Arbitration Association. Such arbitration
shall take place in Orem, Utah. The decision by the arbitrator on any matter
submitted to arbitration shall be binding and conclusive upon the parties, their
heirs, successors and assigns, as the case may be and they shall comply with
such decision in good faith. Each party hereby submits itself to the
jurisdiction of the state and federal courts within the State of Utah for the
entry of judgment with respect to the decision of the arbitrator hereunder.
Judgment upon the award may be entered in any state or federal court within the
State of Utah and/or any other court having jurisdiction. At the unilateral
option of either party,
13
<PAGE> 14
this Section 8.8 shall not apply to any claim or cause of action arising from
any breach of Section 7.2 hereof regarding confidentiality or from any
infringement of intellectual property.
8.9 Notices. All notices, requests, demands and other communications made
under, pursuant to or in accordance with this Agreement, except for normal
day-to-day business communications which may be made orally or in a writing sent
by fax, regular mail or hand delivered without need for a receipt, shall be in
writing and shall either be delivered personally or deposited in the United
States mails and sent by first-class mail, certified, return receipt requested,
postage prepaid and properly addressed as follows:
If to Purchaser, to:
Caldera Systems, Inc.
240 West Center Street
Orem, Utah 84057
Attention: Chief Executive Officer
If to Seller, to:
Caldera, Inc.
240 West Center Street
Orem, Utah 84057
Attention: Chief Executive Officer
or to such other address or addresses as a party thereto may indicate to the
other party in the manner provided for by this Section 8.9. Notices given by
mail shall be deemed effective and complete forty-eight (48) hours following
the time of posting and mailing thereof in accordance herewith, and notices
delivered personally shall be deemed effective and complete at the time of the
delivery thereof and the obtaining of a signed receipt therefor.
8.10 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement,
where the context requires, the singular shall include the plural and the
plural shall include the singular, and any gender or the neuter gender shall
include both other genders as the case may require.
8.1 Waiver. No waiver of any provision of this Agreement shall be
deemed or shall constitute a waiver of any
14
<PAGE> 15
other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party hereto making such waiver.
8.12 Governing Law. This Agreement shall be governed in all respects by the
laws of the State of Utah applied to contracts made and to be fully performed
entirely within such State between residents of such State. All disputes arising
out of this Agreement shall be subject to the exclusive jurisdiction and venue
of the Utah state courts of Utah County, Utah (or, if there is exclusive federal
jurisdiction, the United States District Court of Utah), and the parties consent
to the personal and exclusive jurisdiction and venue of these courts.
8.13 Time is of the Essence. Time is of the essence in this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the parties as of
the day and year first above written.
Purchaser: Caldera Systems, Inc.
By: /s/ RANSOM H. LOVE
------------------
Ransom H. Love
------------------
Seller: Caldera, Inc.
By: /s/ BRYAN SPARKS
------------------
Bryan Sparks
------------------
15
<PAGE> 1
EXHIBIT 10.9
AMENDMENT
TO
ASSET PURCHASE AGREEMENT
OF
CALDERA, SYSTEMS, INC. AND CALDERA, INC.
This Amendment to that certain Asset Purchase Agreement dated as of
September 1, 1998 (the "Agreement") by and between Caldera Systems, Inc., a Utah
corporation ("Purchaser") and Caldera, Inc., a Utah corporation ("Seller") is
dated and effective as of September 1, 1998.
1. The Agreement is hereby amended by striking and deleting the first
sentence of Section 1.3 as it presently exists and substituting for and in lieu
thereof the following:
1.1 Purchase Price and Allocation of Purchase Price. Subject to upward
adjustment as provided in this Section 1.3, the purchase price for the
Asset (the "Purchase Price") shall be Nineteen Million Nine Hundred Twenty
Eight Thousand Eight Hundred Forty Eight and no/100 Dollars $19,928,848.00
and the Purchase Price shall be allocated to the Assets as set forth on
Exhibit "H" attached hereto.
2. The Agreement is hereby amended by adding a new subsection (c) in
Section 1.4 as follows:
and (c) by canceling $4,928,848.00 of indebtedness owed by seller to the
Canopy Group, Inc. and which indebtedness has then been assigned by the
Canopy Group, Inc. to the purchaser.
3. The Agreement is hereby amended by striking and deleting the Section
1.6 as it presently exists and substituting for and in lieu thereof the
following:
1.6 Documentation of Sale of Inventory and Tangible Personal Property. At
the Closing Seller shall execute and deliver to Purchaser the Bill of Sale
attached hereto as Exhibit "A" (the "Bill of Sale") to evidence and effect
the transfer of the inventory and other tangible personal property
identified in Exhibit "A".
4. The Agreement is hereby amended by striking and deleting subsection
(i) entitled "Accounts Receivable" under Section B, of the Recitals.
5. Except as herein amended, the Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment to the Asset
Purchase Agreement as of the day above first written.
CALDERA SYSTEMS, INC.
By: /s/ RANSOM H. LOVE
----------------------------
Title: President/CEO
-------------------------
CALDERA, INC.
By: /s/ Bryan Sparks
----------------------------
Title: CEO
-------------------------
<PAGE> 1
EXHIBIT 10.10
STOCK PURCHASE AGREEMENT
AMONG
MTI TECHNOLOGY CORPORATION,
a Delaware corporation
CALDERA SYSTEMS, INC.,
a Utah corporation
AND
THE CANOPY GROUP, INC.,
a Utah corporation
Dated as of July 27, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS ....................................................... 1
2. PURCHASE AND SALE OF COMPANY SHARES AND SHAREHOLDER SHARES ........ 4
2.1 Basic Transaction.......................................... 4
2.2 Purchase Price............................................. 4
2.3 The Closing................................................ 5
2.4 Deliveries at the Closing.................................. 5
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION ......... 5
3.1 Representations and Warranties of the Company.............. 5
3.2 Representations and Warranties of the Shareholder.......... 16
3.3 Representations and Warranties of the Buyer................ 17
4. PRE-CLOSING COVENANTS ............................................. 18
4.1 General ................................................... 18
4.2 Notices and Consents....................................... 18
4.3 Operation of Business...................................... 18
4.4 Preservation of Business................................... 18
4.5 Full Access................................................ 19
4.6 Notice of Developments..................................... 19
4.7 Exclusivity ............................................... 19
5. POST-CLOSING COVENANTS ............................................ 19
5.1 General ................................................... 19
5.2 Consultation............................................... 19
5.3 Records.................................................... 20
5.4 Observer Rights............................................ 20
5.5 Legends.................................................... 20
5.6 Distribution and License Agreement......................... 21
6. CONDITIONS TO OBLIGATION TO CLOSE.................................. 21
6.1 Conditions to Obligation of the Buyer...................... 21
6.2 Conditions to Obligation of the Company and Shareholder.... 22
7. REMEDIES FOR BREACHES OF THIS AGREEMENT............................ 23
7.1 Survival of Representations and Warranties................. 23
7.2 Indemnification Provisions for Benefit of the Buyer........ 23
7.3 Indemnification Provisions for Benefit of the Company and
Shareholder................................................ 24
7.4 Matters Involving Third Parties............................ 24
7.5 Determination of Adverse Consequences...................... 25
7.6 Recoupment Against Purchase Price.......................... 26
7.7 Other Indemnification Provisions........................... 26
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
8. TAX MATTERS........................................................ 27
8.1 Certain Taxes.............................................. 27
9. TERMINATION........................................................ 27
9.1 Termination of Agreement................................... 27
9.2 Effect of Termination...................................... 27
10. MISCELLANEOUS ..................................................... 28
10.1 Press Releases and Public Announcements.................... 28
10.2 No Third-Party Beneficiaries............................... 28
10.3 Entire Agreement........................................... 28
10.4 Succession and Assignment.................................. 28
10.5 Counterparts............................................... 28
10.6 Headings................................................... 28
10.7 Notices.................................................... 28
10.8 Governing Law.............................................. 29
10.9 Amendments and Waivers..................................... 29
10.10 Severability............................................... 30
10.11 Expenses................................................... 30
10.12 Construction............................................... 30
10.13 Incorporation of Exhibits, Annexes, and Schedules.......... 30
10.14 Specific Performance....................................... 30
10.15 Submission to Jurisdiction................................. 30
10.16 Confidentiality............................................ 31
10.17 California Corporate State Securities Law.................. 31
</TABLE>
ii
<PAGE> 4
Exhibit "A" -- Historical Financial Statements
Exhibit "B" -- Form of Opinion of Counsel to the Company
Exhibit "C" -- Form of Investors Rights Agreement
Exhibit "D" -- Distribution and License Agreement
Annex I -- Disclosure Schedule of Exceptions to the Company and its Subsidiaries
Representations and Warranties Concerning the Transaction
Annex II -- Exceptions to the Shareholder's Representations and Warranties
Concerning the Transaction
Annex III -- Exceptions to the Buyer's Representations and Warranties Concerning
the Transaction
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
Agreement entered into as of July 27, 1999, by and among MTI Technology
Corporation, a Delaware corporation (the "Buyer"), Caldera Systems, Inc., a Utah
corporation (the "Company"), and The Canopy Group, Inc., a Utah corporation (the
"Shareholder"). The Buyer, the Company and the Shareholder are referred to
collectively herein as the "Parties."
A. The Company has 50,000,000 shares of authorized common stock,
16,000,000 of which are issued and outstanding.
B. The Shareholder owns sixteen million (16,000,000) shares of the
outstanding capital stock of the Company.
C. Buyer desires to acquire an aggregate of 25% of the issued and
outstanding capital stock of the Company, calculated immediately following the
closing of the transactions contemplated hereunder.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1 . Definitions.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504(a) or any similar group defined under a similar provision of
state, local or foreign law.
"Applicable Rate" means the prime rate of interest publicly
announced from time to time by The Wall Street Journal plus 1% per annum.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Buyer" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in Section 2.3 below.
"Closing Date" has the meaning set forth in Section 2.3 below.
1
<PAGE> 6
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Share" means any of the 5,333,333 shares of Common Stock,
no par value, of the Company that the Buyer is purchasing from the Company as
contemplated in this Agreement.
"Confidential Information" has the meaning set forth in Section
10.16 below.
"Deductible" has the meaning set forth in Section 7.2 below.
"Deferred Intercompany Transaction" has the meaning set forth in
Reg. Section 1.1502-13.
"Disclosure Schedule" has the meaning set forth in Section 3.1
below.
"Distribution and License Agreement" shall mean the reciprocal
Distribution and License Agreement identified in Sections 5.6 and 6.1(k) below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(l).
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as
now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Excess Loss Account" has the meaning set forth in Reg. Section
1.1502-19.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statement" has the meaning set forth in Section 3.1(h)
below.
"Final Distribution" has the meaning set forth in Section 2.2 below.
2
<PAGE> 7
"GAAP" means United States generally accepted accounting principles
as in effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Indemnified Party" has the meaning set forth in Section 7.4 below.
"Indemnifying Party" has the meaning set forth in Section 7.4 below.
"Informed Party" has the meaning set forth in Section 10.16 below.
"Informing Party" has the meaning set forth in Section 10.16
below.
"Initial Distribution" has the meaning set forth in Section 2.2
below.
"Intellectual Property" means (a) patent rights, patent
applications, and patents, and reissuances, continuations,
continuations-in-part, divisions, extensions, and reexaminations thereof, (b)
trademarks, service marks, and trade names, and applications to register
trademarks or service marks, and registrations of trademarks and service marks,
(c) copyrights, and all applications to register copyrights, and all
registrations of copyrights, and renewals thereof, (d) trade secrets and other
proprietary rights, and (e) any other intellectual property.
"Investors Rights Agreement" means an Investors Rights Agreement
between the Company, the Shareholder and Buyer substantially in the form of
Exhibit "C."
"Knowledge" means actual knowledge after reasonable investigation;
provided, however, that there is no obligation to conduct intellectual property
searches or other intellectual property investigations outside the Company and
its subsidiaries.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Millennial Dates" has the meaning set forth in Section 3.1(m)(vi)
below.
"Most Recent Balance Sheet" means the balance sheet at June 23,
1999.
"Multiemployer Plan" has the meaning set forth in ERISA Section
3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past or current custom and practice.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Products" has the meaning set forth in Section 3.1(m)(vi) below.
"Purchase Price" has the meaning set forth in Section 2.2 below.
"Reduction Notice" has the meaning set forth in Section 7.6(a)
below.
3
<PAGE> 8
"Reduction Disputing Notice" has the meaning set forth in Section
7.6(b) below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Subsidiary" means any corporation or other entity with respect to
which a specified Person (or a Subsidiary thereof) owns a majority of the common
stock or has the power to vote or direct the voting of sufficient securities to
elect a majority of the directors or similar governing body (e.g. managers).
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 7.4 below.
"Transactional Agreements" means this Agreement and the Investors
Rights Agreement.
"Year 2000 Compliant" has the meaning set forth in Section
3.1(m)(vi) below.
2. Purchase and Sale of Company Shares and Shareholder Shares.
2.1 Basic Transaction.
On and subject to the terms and conditions of this Agreement, the
Buyer agrees to purchase from the Company, and the Company agrees to sell to the
Buyer, an aggregate of 5,333,333 Company Shares for the consideration specified
below in this Section 2.
2.2 Purchase Price.
The Buyer agrees to pay to the Company an aggregate of Six Million
Dollars ($6,000,000) in consideration for the Company Shares (the "Purchase
Price"). The Purchase Price shall be delivered by the Buyer to the Company in
three distributions. The Buyer shall deliver
4
<PAGE> 9
Three Million Dollars ($3,000,000) to the Company at the Closing (hereinafter
the "Initial Distribution"). On the later of (a) the resolution of any pending
recoupment pursuant to Section 7.6 or (b) six (6) months after the Closing, the
Buyer shall deliver to the Company One Million Five Hundred Thousand Dollars
($1,500,000), plus interest accrued thereon at the Applicable Rate, and less any
amounts due Buyer under Section 7 (hereinafter the "Second Distribution"). On
the later of (y) the resolution of any pending recoupment pursuant to Section
7.6 or (z) twelve (12) months after the Closing, the Buyer shall deliver to the
Company One Million Five Hundred Thousand Dollars ($1,500,000), plus interest
accrued thereon at the Applicable Rate, and less any amounts due Buyer under
Section 7, to the Company (hereinafter the "Final Distribution").
2.3 The Closing.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Morrison & Foerster LLP at 19900
MacArthur Boulevard, Irvine, California, commencing at 9:00 a.m. local time on
the later of August 6, 1999 or the second business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing itself) or
such other date as the Buyer and the Company may mutually determine (the
"Closing Date").
2.4 Deliveries at the Closing.
At the Closing, (i) the Company will deliver to the Buyer the
various certificates, instruments, and documents referred to in Section 6.1
below, (ii) the Buyer will deliver to the Company the various certificates,
instruments, and documents referred to in Section 6.2 below, (iii) the Company
will deliver to the Buyer stock certificates representing all of the Company
Shares, and (iv) the Buyer will deliver to the Company the consideration
specified in Section 2.2 above.
3. Representations and Warranties Concerning the Transaction.
3.1 Representations and Warranties of the Company and its
Subsidiaries.
The Company represents and warrants to the Buyer that the statements
contained in this Section 3 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3), except as set forth in the disclosure
schedule delivered by the Company to the Buyer on the date hereof and initialed
by the Parties (the "Disclosure Schedule"), attached hereto as Annex I. Nothing
in the Disclosure Schedule shall be deemed adequate to disclose an exception to
a representation or warranty made herein, however, unless the Disclosure
Schedule identifies the exception and the relevant facts with reasonable detail.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
3.
(a) Organization, Qualification and Corporate Power. Each of
the Company and its Subsidiaries is a corporation duly organized, validly
existing, and in good
5
<PAGE> 10
standing under the laws of the jurisdiction of its incorporation. Each of the
Company and its Subsidiaries is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such qualification is
required (except for any such jurisdiction in which the failure to be so
qualified, individually or in the aggregate, would not have a material adverse
effect on the Company or any of its Subsidiaries). Each of the Company and its
Subsidiaries has full corporate power and authority and all licenses, permits,
and authorizations necessary to carry on the businesses in which it is engaged
and in which it presently proposes to engage and to own and use the properties
owned and used by it, except for any such licenses, permits and authorizations,
the failure of which to obtain, individually or in the aggregate, would not have
a material adverse effect on the Company or any of its Subsidiaries. The Company
has delivered to the Buyer correct and complete copies of the charter and bylaws
of each of the Company and its Subsidiaries (as amended to date). The minute
books (containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock certificate
books, and the stock record books of each of the Company and its Subsidiaries
are correct and complete. None of the Company or any of its Subsidiaries is in
default under or in violation of any provision of its charter or bylaws.
(b) Authorization of Transaction. The Company has full
corporate power and authority to execute and deliver this Agreement, the
Investors Rights Agreement and the Distribution and License Agreement and to
perform its obligations hereunder and thereunder. Each of the Transactional
Agreements constitutes the valid and legally binding obligation of the Company,
enforceable in accordance with their respective terms and conditions. Except for
filings that may be required by applicable state securities laws, the Company
need not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by the Transactional Agreements.
(c) Noncontravention. Neither the execution and the delivery
of the Transactional Agreements, nor the consummation of the transactions
contemplated hereby and thereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which any of the
Company and its Subsidiaries is subject or any provision of the charter or
bylaws of any of the Company and its Subsidiaries, or (ii) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which any of the Company or any of its Subsidiaries is a
party or by which it is bound or to which any of their respective assets are
subject (or result in the imposition of any Security Interest upon any of their
respective assets).
(d) Brokers' Fees. The Company has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
(e) Company Shares. The Company Shares have been duly and
validly authorized and at the Closing will be duly and validly issued,
nonassessable and fully paid, free and clear of any restrictions on transfer
(other than any restrictions under the Securities Act and state securities
laws), Taxes, Security Interests, options, warrants, purchase rights,
contracts,
6
<PAGE> 11
commitments, equities, claims, and demands, except as provided in the Investors
Rights Agreement.
(f) Title to Assets. The Company and its Subsidiaries have
good and marketable title to, or a valid leasehold or license interest in, or
other right to use, the properties and assets used by them, located on their
premises, or shown on the Most Recent Balance Sheet or acquired after the date
thereof, free and clear of all Security Interests, except for properties and
assets disposed of in the Ordinary Course of Business since the date of the Most
Recent Balance Sheet. This subsection (f) shall not apply to Intellectual
Property or any infringement, misappropriation or violation of Intellectual
Property. Any warranty of the Company concerning Intellectual Property is
limited to subsections (m) and (p) below.
(g) Subsidiaries. Section 3.1(g) of the Disclosure Schedule
sets forth for each Subsidiary of the Company (i) its name and jurisdiction of
incorporation or organization, (ii) the number of shares of authorized capital
stock of each class of its capital stock, (iii) the number of issued and
outstanding shares of each class of its capital stock, the names of the holders
thereof, and the number of shares held by each such holder, and (iv) the number
of shares of its capital stock held in treasury. All of the issued and
outstanding shares of capital stock of each Subsidiary of the Company have been
duly authorized and are validly issued, fully paid, and nonassessable. The
Company or its Subsidiary holds of record and owns beneficially the number of
shares of each Subsidiary of the Company as set forth in Section 3.1(g) of the
Disclosure Schedule, free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments
equities, claims, and demands. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require any of the Company
and its Subsidiaries to sell, transfer, or otherwise dispose of any capital
stock of any of its Subsidiaries or that could require any Subsidiary of the
Company to issue, sell, or otherwise cause to become outstanding any of its own
capital stock. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of any capital stock of any Subsidiary
of the Company. None of the Company and its Subsidiaries controls directly or
indirectly or has any direct or indirect equity participation in any
corporation, partnership, trust, or other business association which is not a
Subsidiary of the Company.
(h) Financial Statements. Attached hereto as Exhibit "A" are
the following financial statements (collectively the "Financial Statements"):
(i) unaudited consolidated monthly income statement for November 1998 through
April 1999, and the individual monthly statements for such quarter, for the
Company and its Subsidiaries; (ii) unaudited balance sheets as of June 23, 1999
for the Company and its Subsidiaries; and (iii) the Company's Business Plan
covering operations from November 1, 1999 through October 31, 2001. The
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, and except as to the projection and Business Plan, present
fairly the financial condition of the Company and its Subsidiaries as of such
dates and the results of operations of the Company and its Subsidiaries for such
periods, are correct and complete, and are consistent with the books and records
of the Company and its Subsidiaries (which books and records are correct and
complete), subject to normal year-end adjustments (which
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<PAGE> 12
will not be material individually or in the aggregate) and lack footnotes and
other presentation items.
(i) Events Subsequent to Most Recent Balance Sheet. Since the
date of the Most Recent Balance Sheet, there has not been any adverse change in
the business, financial condition, operations, results of operations, or future
prospects of any of the Company and its Subsidiaries. Without limiting the
generality of the foregoing, since that date:
(i) none of the Company or its Subsidiaries has sold,
leased, transferred, or assigned any of its assets, tangible or
intangible, other than in the Ordinary Course of Business and in the
reasonable business judgment of the Company for a fair consideration;
(ii) none of the Company or its Subsidiaries has entered
into any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) either involving more than
$100,000 or outside the Ordinary Course of Business;
(iii) no party (including any of the Company and its
Subsidiaries) has accelerated, terminated, modified, or cancelled any
agreement, contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) involving more than $100,000 to which any
of the Company and its Subsidiaries is a party or by which any of them is
bound;
(iv) none of the Company or its Subsidiaries has imposed
any Security Interest upon any of its assets, tangible or intangible;
(v) none of the Company or its Subsidiaries has made any
capital expenditure (or series of related capital expenditures) either
involving more than $100,000 or outside the Ordinary Course of Business;
(vi) none of the Company or its Subsidiaries has made
any capital investment in, any loan to, or any acquisition of the
securities or assets of, any other Person (or series of related capital
investments, loans, and acquisitions) either involving more than $100,000
or outside the Ordinary Course of Business;
(vii) none of the Company or its Subsidiaries has issued
any note, bond, or other debt security or created, incurred, assumed, or
guaranteed any indebtedness for borrowed money or capitalized lease
obligation either involving more than $250,000 singly or $1,000,000 in the
aggregate;
(viii) none of the Company or its Subsidiaries has
delayed or postponed the payment of accounts payable and other Liabilities
outside the Ordinary Course of Business;
(ix) none of the Company or its Subsidiaries has
cancelled, compromised, waived, or released any right or claim (or series
of related rights and claims) either involving more than $100,000 or
outside the Ordinary Course of Business;
(x) except as set forth in Section 3.1(i)(x) of the
Disclosure Schedule, none of the Company or its Subsidiaries has granted
any license or sublicense of any rights under or with respect to any
Intellectual Property;
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<PAGE> 13
(xi) there has been no change made or authorized in the
charter or bylaws of any of the Company and its Subsidiaries;
(xii) none of the Company or its Subsidiaries has
experienced any material damage, destruction, or loss (whether or not
covered by insurance) to its property;
(xiii) none of the Company or its Subsidiaries has made
any loan to, or entered into any other transaction with, any of its
directors, officers, and employees outside the Ordinary Course of
Business;
(xiv) except as set forth on Section 3.1(i)(xiv) of the
Disclosure Schedule, none of the Company or its Subsidiaries has entered
into any employment contract or collective bargaining agreement, written
or oral, or modified the terms of any existing such contract or agreement;
(xv) none of the Company or its Subsidiaries has granted
any increase in the base compensation of any of its directors, officers,
and employees outside the Ordinary Course of Business;
(xvi) none of the Company or its Subsidiaries has
adopted, amended, modified, or terminated any bonus, profit-sharing,
incentive, severance, or other plan, contract, or commitment for the
benefit of any of its directors, officers, and employees (or taken any
such action with respect to any other Employee Benefit Plan);
(xvii) none of the Company or its Subsidiaries has made
any other change in employment terms for any of its directors, officers,
and employees outside the Ordinary Course of Business;
(xviii) none of the Company or its Subsidiaries has made
or pledged to make any charitable or other capital contribution outside
the Ordinary Course of Business;
(xix) there has not been any other occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving any of the Company and its Subsidiaries; and
(xx) none of the Company or its Subsidiaries has
committed to any of the foregoing.
(j) Undisclosed Liabilities. None of the Company or its
Subsidiaries has any Liability (and there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any Liability), except for (i)
Liabilities set forth on the face of the Most Recent Balance Sheet (rather than
in any notes thereto) and (ii) Liabilities which have arisen after the date of
the Most Recent Balance Sheet in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law).
(k) Legal Compliance. Each of the Company, its Subsidiaries,
and their respective predecessors and Affiliates, has complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder)
9
<PAGE> 14
of federal, state, local, and foreign governments (and all agencies thereof),
and no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against any of them
alleging any failure so to comply.
(1) Tax Matters. The Company and its Subsidiaries have filed
all Tax Returns that each was required to file. All such Tax Returns were
correct and complete in all respects. All Taxes owed by the Company and any of
its Subsidiaries (whether or not shown on any Tax Return) have been paid.
Neither of the Company nor any of its Subsidiaries currently is the beneficiary
of any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where the Company or any of its
Subsidiaries does not file Tax Returns that the Company or such Subsidiary is or
may be subject to taxation by that jurisdiction. There are no Security Interests
on any of the assets of the Company or any of its Subsidiaries imposed by any
tax authority.
(i) Each of the Company and its Subsidiaries has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
(ii) Neither the Company nor any director or officer (or
employee responsible for Tax matters) of any of the Company and its
Subsidiaries expects any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no dispute or claim
concerning any Tax Liability of any of the Company and its Subsidiaries
either (A) claimed or raised by any authority in writing or (B) as to
which any of the Shareholder, the Company and the directors and officers
(and employees responsible for Tax matters) of the Company and its
Subsidiaries has Knowledge based upon personal contact with any agent of
such authority.
(iii) The Company has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(iv) Neither of the Company nor any of its Subsidiaries
has filed a consent under Code Section 341(f) concerning collapsible
corporations. Neither of the Company nor any of its Subsidiaries has made
any payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code Sections 162(m) or 280G.
Neither of the Company nor any of its Subsidiaries has been a United
States real property holding corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii). The Company and each of its Subsidiaries has disclosed
on its federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income Tax within the
meaning of Code Section 6662. Neither of the Company nor any of its
Subsidiaries is a party to any Tax allocation or sharing agreement.
Neither of the Company nor any of its Subsidiaries (A) has been a member
of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was the Shareholder) and
(B) does not have any Liability for the Taxes of any Person (other than
the Company or any of its Subsidiaries) under Reg. Section 1.1502-6 (or
any similar provision of state, local, or
10
<PAGE> 15
foreign law), as a transferee or successor, by contract, or otherwise. The
Company and each of its Subsidiaries is in compliance with the terms and
conditions of any applicable Tax exemptions, agreements or orders of any
government to which it may be subject or which it may have claimed, and
the transaction contemplated by this Agreement will not have any adverse
effect on such compliance.
(v) The unpaid Taxes of the Company and its Subsidiaries
(A) did not, as of the date of the Most Recent Balance Sheet, exceed the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set
forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto) and (B) do not exceed that reserve as adjusted for the
passage of time through the Closing Date in accordance with the past
custom and practice of the Company and its Subsidiaries in filing their
Tax Returns.
(m) Intellectual Property. The Company, its Subsidiaries and
their products have not infringed and do not infringe the copyrights of any
third party. Neither the Company nor its Subsidiaries has misappropriated or is
misappropriating any trade secrets or proprietary confidential information of
any third party, and the products of the Company and its Subsidiaries do not
include or embody any trade secret or proprietary confidential information
misappropriated by the Company or its Subsidiaries from any Third Party. To the
Knowledge of the Company, each of the Company and its Subsidiaries and their
respective products have not infringed and do not infringe any patents,
trademarks, service marks, or trade names of any third party. Each item of
Intellectual Property owned by or licensed to the Company and its Subsidiaries
immediately prior to the Closing hereunder will be owned by or licensed to the
Company and the Subsidiary on identical terms and conditions immediately
subsequent to the Closing hereunder (i.e., identical to any applicable terms and
conditions immediately prior to the Closing).
(i) None of the Company or its Subsidiaries or their
directors and officers (and employees with responsibility for Intellectual
Property matters) has ever received any charge, complaint, claim, demand,
or notice alleging any such infringement, misappropriation, or violation
of Intellectual Property (including any claim that the Company and its
Subsidiaries must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of the Company and its
Subsidiaries and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company and its
Subsidiaries, no third party has infringed, misappropriated, or otherwise
violated any Intellectual Property rights of the Company and its
Subsidiaries.
(ii) Section 3.1(m) of the Disclosure Schedule
identifies (a) each patent which has been issued or assigned to the
Company and its Subsidiaries, (b) each pending patent application which
has been filed by or for the Company and its Subsidiaries, (c) each
trademark or service mark registration issued or assigned to the Company
and its Subsidiaries, (d) each pending trademark or service mark
application which has been filed by or for the Company and its
Subsidiaries, (e) each copyright registration issued or assigned to the
Company and its Subsidiaries, (f) each pending copyright application which
has been filed by or for the Company and its Subsidiaries, and (g) each
license which the Company and its Subsidiaries has granted to any third
party with respect to any of the Company's Intellectual Property excluding
licenses to end users of Company products
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<PAGE> 16
granted in the Ordinary Course of Business. The Company has delivered to
the Buyer correct and complete copies of all such patents, registrations,
applications, and licenses (as amended to date). Section 3.1(m) of the
Disclosure Schedule also identifies each trade name and each unregistered
trademark or service mark used by any of the Company and its Subsidiaries
in connection with any of their businesses. With respect to each patent,
application, and registration (each an "item") identified in Section
3.1(m) of the Disclosure Schedule:
(A) the Company and its Subsidiaries possess all
right, title, and interest in and to the item, free and clear of any
Security Interest, license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to
the Knowledge of any of the Company, the directors and officers (and
employees with responsibility for Intellectual Property matters) of
the Company and its Subsidiaries, is threatened which challenges the
legality, validity, enforceability, use, or ownership of the item;
and
(D) none of the Company and its Subsidiaries has
ever agreed to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect to
the item.
(iii) Section 3.1(m) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party owns
and licenses to any of the Company and its Subsidiaries, excluding
licenses to commercially available software products (e.g., Windows,
Microsoft Office, etc.) used by any of the Company and its Subsidiaries as
an end user. The Company has delivered to the Buyer correct and complete
copies of all agreements applicable to such licenses (as amended to date).
The term "license" is intended to include "sublicense." With respect to
each such license and agreement required to be identified in Section
3.1(m) of the Disclosure Schedule, to the Knowledge of the Company:
(A) the license and agreement are legal, valid,
binding, enforceable, and in full force and effect;
(B) the license and agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on
identical terms on the day immediately following the Closing;
(C) no party to the agreement is in breach or
default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the agreement has repudiated any
provision thereof;
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<PAGE> 17
(F) the license is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge; and
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is
threatened which challenges the legality, validity, or
enforceability of the license or agreement.
(iv) To the Knowledge of any of the Company and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Company and its Subsidiaries, neither the Company
nor any of its Subsidiaries will infringe, misappropriate, or otherwise
violate any Intellectual Property rights of third parties as a result of
the continued operation of its businesses as presently conducted and as
presently proposed to be conducted.
(v) To the Knowledge of the Company, the Year 2000
Readiness Disclosure as currently published by the Company on its web site
is accurate. A copy of this Year 2000 Readiness Disclosure is included in
Section 3.1(m) of the Disclosure Schedule. The Company makes no other
representation or warranty concerning any Year 2000 issue.
(vi) Notwithstanding anything in this Agreement to the
contrary, this subsection (m) and subsection (p) below are the sole,
exclusive and entire representation and warranty of the Company concerning
Intellectual Property or any infringement, misappropriation or violation
of Intellectual Property. No other representation or warranty in this
Agreement shall be construed as applying to Intellectual Property or any
infringement, misappropriation or violation of Intellectual Property.
(n) Tangible Assets. The Company and its Subsidiaries own or
lease all buildings, machinery, equipment, and other tangible assets necessary
for the conduct of their business as presently conducted and as presently
proposed to be conducted.
(o) Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of any of the Company and its Subsidiaries outside
the Ordinary Course of Business.
(p) Litigation. Section 3.1(p) of the Disclosure Schedule sets
forth each instance in which any of the Company and its Subsidiaries (i) is
subject to any outstanding injunction, judgment, order, decree, ruling, or
charge or (ii) is a party or, to the Knowledge of any of the Company, the
directors and officers (and employees with responsibility for litigation
matters) of the Company and its Subsidiaries, is threatened to be made a party
to any action, suit, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator. None of the actions, suits,
proceedings, hearings, and investigations set forth in Section 3.1(p) of the
Disclosure Schedule alone or in the aggregate could result in any adverse change
in the business, financial condition, operations, results of operations, or
future prospects of any of the Company and its Subsidiaries. None of the Company
the directors and officers (and employees with responsibility for litigation
matters) of the Company and its Subsidiaries has any reason to believe that any
such action, suit, proceeding, hearing, or investigation may be brought or
threatened against any of the Company and its Subsidiaries.
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<PAGE> 18
(q) Employees. To the Knowledge of the Company, the directors
and officers (and employees with responsibility for employment matters) of the
Company and its Subsidiaries, no executive, key employee, or group of employees
has any plans to terminate employment with any of the Company and its
Subsidiaries. None of the Company and its Subsidiaries is a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. None of the Company and its Subsidiaries has committed any
unfair labor practice. None of the directors and officers (and employees with
responsibility for employment matters) of the Company and its Subsidiaries has
any Knowledge of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of any of the Company
and its Subsidiaries.
(r) Guaranties. None of the Company or its Subsidiaries is a
guarantor or otherwise is liable for any Liability or obligation (including
indebtedness) of any other Person.
(s) Certain Business Relationships with the Company and Its
Subsidiaries. None of the Company's Affiliates has been involved in any business
arrangement or relationship with any of the Company or its Subsidiaries within
the past twelve (12) months, and none of the Company's Affiliates owns any
asset, tangible or intangible, which is used in the business of any of the
Company or its Subsidiaries.
(t) Capitalization, Etc.
(i) The authorized capital stock of the Company consists
of 50,000,000 shares of common stock, no par value, 16,000,000 shares of
which have been issued and are outstanding, 4,000,000 shares of which have
been reserved for issuance pursuant to the Company's employee stock option
plan and 1,000,000 additional shares of which are contemplated to be
reserved for issuance pursuant to the Company's employee stock option
plan.
(ii) All of the Company's outstanding shares of Common
Stock (i) have been duly authorized and validly issued, (ii) are fully
paid and nonassessable, and (iii) have been issued in compliance with all
applicable securities laws and other applicable legal requirements.
(iii) Except as set forth in Section 3.1(t) of the
Disclosure Schedule, there are no:
(A) outstanding derivative securities;
(B) contracts, agreements or other arrangements
under which the Company is or may become obligated to sell or
otherwise issue any shares of its capital stock or any derivative
securities; or
(C) conditions or circumstances that would
directly or indirectly give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such Person is
entitled to acquire or receive any shares of capital stock or other
securities of the Company.
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<PAGE> 19
(iv) The Company has never repurchased, redeemed or
otherwise reacquired (and has not agreed, committed or offered (in writing
or otherwise) to reacquire) any shares of its capital stock or any
derivative securities.
(u) Real Property; Leases. The Company does not own any real
property or any interest in real property, except for the leaseholds created
under the real property leases identified in Section 3.1(u) of the Disclosure
Schedule. Section 3.1(u) of the Disclosure Schedule accurately and completely
describes the premises covered by said leases and the facilities located on such
premises. The Company enjoys peaceful and undisturbed possession of such
premises. All leases to which the Company is a party are valid, binding and
enforceable in accordance with their respective terms and are in full force and
effect; there are no material existing defaults by the Company or the other
party thereunder, and no event of default has occurred which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a material default thereunder.
(v) Environmental Matters. The Company is in compliance with
all applicable Environmental Health and Safety Requirements. The Company has not
received any notice or other communication (in writing or otherwise) that
alleges that the Company is not in compliance with any Environmental Health and
Safety Requirements and to the Company's Knowledge there are no circumstances
that are reasonably likely to prevent or interfere with the Company's compliance
with any Environmental Health and Safety Requirements in the future.
(w) Sale of Products; Performance of Services. To the
Knowledge of the Company, no distributor, customer, end-user, consumer or other
Person has ever asserted or threatened to assert any material claim against the
Company (i) under or based upon any warranty provided by or on behalf of the
Company, or (ii) relating to any product sold by the Company or any services
performed by the Company. No event has occurred, and no condition or
circumstance exists, that could (with or without notice or lapse of time)
directly or indirectly give rise to or serve as a basis for the assertion of any
such claim.
(x) Full Disclosure.
(i) None of the representations and warranties of the
Company in this Agreement (including the Disclosure Schedule) contains or
will contain as of the Closing Date any untrue statement of material fact
or omits or will omit as of the Closing Date to state any fact necessary
to make any of the representations, warranties or statements contained
therein not misleading. To the extent such representations permit omission
of items otherwise required to be discussed because they are not material
or do not or would not have Adverse Consequences, such omissions in the
aggregate will not as of the Closing Date and do not have Adverse
Consequences.
(ii) As of the date of this Agreement, the Company has
provided the Buyer with full and complete access to all of the Company's
records and other documents and data requested by it.
(iii) There is no fact within the Knowledge of the
Company or its directors, officers or employees (other than publicly known
facts or facts within the Knowledge of Buyer) that have Adverse
Consequences.
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<PAGE> 20
(iv) All of the written information set forth in the
Disclosure Schedule, and all other information regarding the Company and
its business, condition, assets, liabilities, operation, financial
performance, net income and prospects that has been furnished to Buyer or
any of its representatives by or on behalf of Company or any of the
Company's representatives, is accurate and complete in all material
respects. The Company acknowledges and agrees that although Buyer may
tender certain assistance to Company in the preparation of the Disclosure
Schedule, the provision of such assistance shall not be deemed to
constitute an admission by Buyer of the accuracy of the same or any basis
for any modification of any covenant, representation or warranty of
Company and Buyer contained in this Agreement.
(y) Customers and Suppliers. As of the date hereof, no
customer that individually accounted for more than five percent (5%) of the
Company's gross revenues during the 12-month period preceding the date hereof
has notified the Company that it will stop, or decrease the rate of, buying
services or products of the Company, or has at any time on or after December 31,
1998 decreased materially its purchase of the products of the Company. As of the
date hereof, no supplier of the Company has notified the Company that it will
stop, or decrease the rate of, supplying materials, products or services to the
Company. The Company has not knowingly breached any contract with, or engaged in
any fraudulent conduct with respect to, any customer or supplier of the Company.
(z) Inventories. The inventories of the Company that are
reflected in the Financial Statements consist of items that are usable or
salable in the Ordinary Course of Business and do not include below-standard
quality, damaged, defective or obsolete items the value of which has not been
fully written down or with respect to which adequate reserves have not been
provided, adjusted for operations and transactions through the Closing in
accordance with the past custom and practice of the Company.
(aa) Financial Projections. The Company's business plan as
heretofore provided to Buyer has been prepared by the Company based on the
Company's good faith estimates (based on reasonable investigation) of the
projected financial performance of the Company following the Closing and certain
assumptions set forth therein, which assumptions the Company believes are
reasonable. The Company has concluded after reasonable investigation that the
assumptions and conclusions of the Company's business plan constitute reasonable
estimates of the Company's actual performance. However, such estimates and
projections are not guaranteed or warranted.
3.2 Representations and Warranties of the Shareholder.
The Shareholder represents and warrants to the Buyer that the
statements contained in this Section 3.2 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section 3.2) with respect to itself, except as
set forth in Annex II attached hereto.
(a) Authorization of Transaction. The Shareholder has full
power and authority to execute and deliver this Agreement and the Investors
Rights Agreement, and to perform its obligations hereunder and thereunder. Each
of the Transactional Agreements
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<PAGE> 21
constitutes the valid and legally binding obligation of the Shareholder,
enforceable in accordance with their respective terms and conditions. The
Shareholder need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by the Transactional
Agreements.
(b) Noncontravention. Neither the execution and the delivery
of the Transactional Agreements, nor the consummation of the transactions
contemplated hereby and thereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which the
Shareholder is subject or (ii) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Shareholder is a party or by which it is bound or to which any of its assets
is subject.
(c) Company Representations. To Shareholder's Knowledge and
subject to the matters described in the Disclosure Schedule, the representations
and warranties of the Company in Section 3.1 are true and correct in all
material respects.
3.3 Representations and Warranties of the Buyer.
The Buyer represents and warrants to the Company and the Shareholder
that the statements contained in this Section 3.3 are correct and complete as of
the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Section 3.3), except as set forth in
Annex III attached hereto.
(a) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) Authorization of Transaction. The Buyer has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and the Investors Rights Agreement and to perform its obligations
hereunder and thereunder. This Agreement and the Investors Rights Agreement
constitute the valid and legally binding obligation of the Buyer, enforceable in
accordance with their respective terms and conditions. The Buyer need not give
any notice to, make any filing with, or obtain any authorization, consent or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement or the Investors Rights Agreement.
(c) Noncontravention. Neither the execution and the delivery
of this Agreement or the Investors Rights Agreement, nor the consummation of the
transactions contemplated hereby and thereby, will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
the Buyer is subject or any provision of its charter or bylaws or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer is a party or by which it is
bound or to which any of its assets is subject.
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(d) Brokers' Fees. The Buyer has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Company could become
liable or obligated.
(e) Investment. The Buyer (i) understands that the Company
Shares have not been, and will not be, registered under the Securities Act, or
under any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public offering,
(ii) is a sophisticated investor with knowledge and experience in business and
financial matters, (iii) has received certain information concerning the Company
and has had the opportunity to obtain additional information as desired in order
to evaluate the merits and the risks inherent in holding the Company Shares,
(iv) is able to bear the economic risk and lack of liquidity inherent in holding
the Company Shares, and (v) is an Accredited Investor who is acquiring the
Company Shares for investment purposes, for its own account, not as a nominee or
agent and not with a view to the resale or distribution of any part thereof, and
it has no present intention of selling, granting any participation in, or
otherwise distributing the same.
4. Pre-Closing Covenants.
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing.
4.1 General.
Each of the Parties will use its best efforts to take all action and
to do all things necessary, proper, or advisable in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Section 6
below).
4.2 Notices and Consents.
The Company and its Subsidiaries will give any notices to third
parties and use its best efforts to obtain any third party consents, that the
Buyer may reasonably request in connection with the matters referred to in
Section 3.1 above. Each of the Parties will give any notices to, make any
filings with, and use its best efforts to obtain any authorizations, consents,
and approvals of governments and governmental agencies in connection with the
matters referred to in Section 3.1(b), Section 3.2(a) and Section 3.3(b) above.
4.3 Operation of Business.
The Company and its Subsidiaries will not engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, the Company will not
(a) declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase, or otherwise acquire any of
its capital stock, or (b) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in Section 3.1(i) above.
4.4 Preservation of Business.
The Company and its Subsidiaries will keep their business and
properties substantially intact, including its present operations, physical
facilities, working conditions, and relationships with lessors, licensors,
suppliers, customers, and employees.
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4.5 Full Access.
The Company and its Subsidiaries will permit representatives of the
Buyer to have fall access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Company and its
Subsidiaries, to all premises, properties, personnel, books, records (including
Tax records), contracts, and documents of or pertaining to each of the Company
and its Subsidiaries. Information disclosed by the Company and its Subsidiaries
to the Buyer or learned by the Buyer or its representatives from the access
provided under this Section 4.5 shall be subject to Section 10.16.
4.6 Notice of Developments.
The Company and Shareholder will give prompt written notice to the
Buyer of any material adverse development causing a breach of any of the
representations and warranties in Section 3.1 and Section 3.2 above. Each Party
will give prompt written notice to the others of any material adverse
development causing a breach of any of his or its own representations and
warranties in Section 3 above. No disclosure by any Party pursuant to this
Section 4.6, however, shall be deemed to amend or supplement Annex I, Annex II,
or Annex III or to prevent or cure any misrepresentation, breach of warranty, or
breach of covenant.
4.7 Exclusivity.
None of the Company or Shareholder will (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of control of a majority of any capital stock or other voting
securities, or any substantial portion of the assets, of the Company and its
Subsidiaries (including any acquisition structured as a merger, consolidation,
or share exchange) or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. Shareholder will not vote the Shareholder Shares in favor
of any such acquisition structured as a merger, consolidation, or share
exchange. The Company and Shareholder will notify the Buyer immediately if any
Person makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing. This Section 4.7 shall terminate 60 days from the date of this
Agreement.
5. Post-Closing Covenants.
5.1 General.
In case at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other Party may reasonably request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Section 7 below).
5.2 Consultation.
Buyer shall be entitled to reasonably consult with and advise
management of the Company on significant business issues, including management's
proposed annual operating plans, and management will meet with Buyer from time
to time at the Company's facilities at Buyer's expense at mutually agreeable
times for such consultation and advice and to review
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progress in achieving said plans. The Company has no obligation to comply with
any advice or directions from Buyer. Information disclosed to Buyer pursuant to
this Section 5.2 will be subject to Section 10.16. The rights set forth in
this Section 5.2 shall terminate upon the earlier of the following: (i) if at
any time the Buyer ceases to own and control at least ten percent (10%) of the
issued and outstanding capital stock of the Company; (ii) the closing of any
initial public offering of the capital stock of the Company pursuant to an
effective registration statement under the Securities Act; or (iii) the date the
Company becomes subject to the reporting requirements of the Securities Exchange
Act.
5.3 Records.
Buyer may examine the books and records of the Company and inspect
its facilities and may request information at reasonable times and intervals
concerning the general status of the Company's financial condition and
operations, provided that access to confidential or proprietary information and
facilities need not be provided. Information disclosed to or learned by the
Buyer pursuant to this Section 5.3 is subject to Section 10.16. The rights set
forth in this Section 5.3 shall terminate upon the earlier of the following: (i)
if at any time the Buyer ceases to own and control at least ten percent (10%)
of the issued and outstanding capital stock of the Company; (ii) the closing of
an initial public offering of the capital stock of the Company pursuant to an
effective registration statement under the Securities Act; or (iii) the date the
Company becomes subject to the reporting requirements of the Securities Exchange
Act.
5.4 Observer Rights
If Buyer is not represented on the Company's Board of Directors by
an affiliate of Buyer, the Company shall give a representative of Buyer copies
of all notices, minutes, consents and other material that the Company provides
to its directors and the Company shall invite a representative of Buyer to
attend all meetings of the Board of Directors in a non-voting observer capacity,
except that Buyer may be excluded from access to any material or meeting or
portion thereof if the Company believes, in good faith, that such exclusion is
reasonably necessary to preserve the attorney-client privilege, to protect
highly confidential or proprietary information, to protect the interests of the
Company or for other similar reasons. Upon reasonable notice and at a scheduled
meeting of the Board of Directors or such other time, if any, as the Board of
Directors may determine in its sole discretion, such representative may address,
subject to reasonable limitations, the Board of Directors with respect to
Buyer's concerns regarding significant business issues facing the Company.
Information disclosed to or learned by the Buyer pursuant to this Section 5.4 is
subject to Section 10.16. The rights set forth in this Section 5.4 shall
terminate upon the earlier of the following: (i) if at any time the Buyer ceases
to own and control at least ten percent (10%) of the issued and outstanding
capital stock of the Company; (ii) the closing of an initial public offering of
the capital stock of the Company pursuant to an effective registration statement
under the Securities Act; or (iii) the date the Company becomes subject to the
reporting requirements of the Securities Exchange Act.
5.5 Legends.
To the extent applicable, each certificate or other document
evidencing any of the Company Shares shall be endorsed with the legend set forth
below, and Buyer covenants that, except for the transfer of shares pursuant to
Rule 144, the removal of the legend set forth in this
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Section 5.5 pursuant to Rule 144, the transfer or the distributions to any
Affiliate, and to the extent such restrictions are waived by the Company, Buyer
shall not transfer the shares represented by any such certificate without
complying with the restrictions on transfer described in the legends endorsed on
such certificate:
"THE SECURITIES REPRESENTED BY TIES CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY BE OFFERED AND
SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT
PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR IF THE COMPANY IS
PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION AND QUALIFICATION UNDER FEDERAL AND STATE SECURITIES
LAWS IS NOT REQUIRED."
5.6 Distribution and License Agreement.
The Company and Buyer shall enter into a reciprocal Distribution and
License Agreement in the form attached hereto as Exhibit "D".
5.7 Further Actions. The Company shall, within 90 days after the
Closing Date, provide to Buyer evidence of the Company's ownership of its
Subsidiaries to Buyer's reasonable satisfaction.
6. Conditions to Obligation to Close.
6.1 Conditions to Obligation of the Buyer.
The obligation of the Buyer to consummate the transactions to be
performed by it in connection with the Closing is subject to satisfaction of the
following conditions:
(a) each of the representations and warranties set forth in
Sections 3.1 and 3.2 above that is qualified by materiality shall be true and
correct at and as of the Closing Date, and each of the representations and
warranties set forth in Sections 3.1 and 3.2 above that is not so qualified
shall be true and correct in all material respects at and as of the Closing
Date;
(b) the Company and Shareholder shall have performed and
complied with all of their covenants hereunder in all material respects through
the Closing;
(c) the Company and its Subsidiaries shall have procured all
of the third party consents specified in Section 3.1 above;
(d) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, (iii) affect adversely the right of the Buyer
to own the Company Shares, or (iv) affect adversely the right of any of the
Company and its Subsidiaries to own its assets and to operate its businesses
(and no such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
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(e) the Company Shares that are being purchased by the Buyer,
when issued, sold and delivered in accordance with the terms of this Agreement
for the consideration expressed herein, will be duly and validly issued,
nonassessable and free from rights of first refusal or other restrictions.
(f) the Company shall have delivered to the Buyer a
certificate to the effect that the conditions specified above in Section
6.1(a)-(e) are satisfied in all respects;
(g) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated and the Parties, including the Company's Subsidiaries, shall have
received all other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3.1(b), Section 3.2(a), and Section
3.3(b) above;
(h) the Buyer shall have received from counsel to the Company
an opinion in form and substance as set forth in Exhibit "B" attached hereto,
addressed to the Buyer, and dated as of the Closing Date;
(i) the Buyer shall have obtained on terms and conditions
satisfactory to it all of the financing it needs in order to consummate the
transactions contemplated hereby;
(j) the Company and Shareholder shall have entered into and
delivered an Investors Rights Agreement substantially in the form attached as
Exhibit "C";
(k) the Company and the Buyer shall have entered into and
delivered the Distribution and License Agreement substantially in the form
attached as Exhibit "D"; and
(l) all actions to be taken by the Company and Shareholder in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and substance to
the Buyer.
The Buyer may waive any condition specified in this Section 6.1.
6.2 Conditions to Obligation of the Company and Shareholder.
The obligation of the Company and Shareholder to consummate the
transactions to be performed by them in connection with the Closing is subject
to satisfaction of the following conditions:
(a) the representations and warranties set forth in Section
3.3 above shall be true and correct in all material respects at and as of the
Closing Date;
(b) the Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(c) no action, suit, or proceeding shall be pending wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement
or (ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
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(d) the Buyer shall have delivered to the Company a
certificate to the effect that each of the conditions specified above in Section
6.2(a)-(c) is satisfied in all respects;
(e) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated and the Parties, including the Company's Subsidiaries, shall have
received all other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3.1(b), Section 3.2(a), and Section
3.3(b) above; and
(f) the Company and the Buyer shall have entered into and
delivered the Distribution and License Agreement substantially in the form
attached as Exhibit "D";
(g) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Company and Shareholder.
The Company and Shareholder may waive any condition specified in
this Section 6.2.
7. Remedies for Breaches of this Agreement.
7.1 Survival of Representations and Warranties.
All of the representations and warranties of the Parties contained in
Sections 3.1(a) through (e) and 3.3 of this Agreement shall survive the Closing
hereunder (even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty or covenant at the time of Closing) and
continue in full force and effect forever thereafter. The representations and
warranties of the Company contained in Section 3.1(1) (with respect to taxes)
shall survive the Closing hereunder and shall continue in full force and effect
thereafter, as they relate to any taxable year of the Company, until sixty (60)
days after the expiration of the statute of limitations applicable to the making
of adjustments or assessments by any taxing authority as the same may be
extended by the Company. All of the other representations, warranties and
covenants of the Parties contained in this Agreement shall survive the Closing
hereunder (even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty or covenant at the time of Closing) and
continue in full force and effect thereafter until two years from the Closing
Date. Except as otherwise provided in the first sentence of this Section 7.1,
after said survival period, all representations and warranties shall terminate,
and no party shall have any Liability or obligation with respect to any
representation or warranty under this Agreement, provided that once notice of
any claim has been timely given, additional related claims arising out of
substantially the same circumstances may be made at any time prior to the
resolution of such claim (by means of a final, non-appealable judgment of a
court of competent jurisdiction, a binding arbitration decision or a settlement
approved by the parties involved) even if such resolution occurs after the
expiration or termination date, if any, prescribed for such representation or
warranty in this Section 7.1.
7.2 Indemnification Provisions for Benefit of the Buyer.
(a) In the event that (i) the Company breaches any of its
representations, warranties, and covenants contained herein, then the Company
agrees to indemnify the Buyer from and against any Adverse Consequences the
Buyer may suffer through and after the date of the claim
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for indemnification (including any Adverse Consequences the Buyer may suffer
after the end of any applicable survival period) resulting from, arising out of
or caused by such breach by the Company of any of its representations,
warranties or covenants made herein, or (ii) the Shareholder breaches any of its
representations, warranties, and covenants contained herein, then the
Shareholder agrees to indemnify the Buyer from and against any Adverse
Consequences the Buyer may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Buyer may suffer after
the end of any applicable survival period) resulting from, arising out of or
caused by such breach by the Shareholder of any of its representations,
warranties or covenants made herein.
(b) In the event that a third party asserts any claim against
the Company alleging that the Company has violated the Intellectual Property
rights of such third party based on acts that occurred during the two year
period following the Closing Date, then the Company agrees to indemnify the
Buyer from and against any Adverse Consequences the Buyer may suffer through and
after the date of the claim for indemnification (including any Adverse
Consequences the Buyer may suffer after the end of any applicable survival
period) resulting from, arising out of or caused by such third party claim.
(c) Notwithstanding the foregoing provisions of this Section
7.2, no indemnification shall be payable by the Company or the Shareholder with
respect to any claim for breach of any representation, warranty or covenant made
herein or claim by any third party until the total of such claims for
indemnification shall exceed US$75,000 (the "Deductible"), in which event the
Buyer shall be entitled to recover the amount of such claims in excess of the
Deductible; and provided, further, that the aggregate liability of either the
Company or the Shareholder for indemnification payable hereunder shall not
exceed the amount of (i) the Purchase Price, plus (ii) reasonable attorneys'
fees and expenses incurred by the Buyer in seeking indemnification under this
Section 7.
7.3 Indemnification Provisions for Benefit of the Company and
Shareholder.
In the event the Buyer breaches any of its representations,
warranties, and covenants contained herein, then the Buyer agrees to indemnify
each of the Company and Shareholder from and against the entirety of any Adverse
Consequences they may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences they may suffer after the
end of any applicable survival period) resulting from, arising out of or caused
by the breach; provided, however, that no indemnification shall be payable by
the Buyer with respect to any claim for breach of any representation, warranty
or covenant made herein until the total of such claims for indemnification shall
exceed US$75,000, in which event the Company and the Shareholder, as the case
may be, shall be entitled to recover the amount of such claims in excess of the
Deductible; and provided, further, that the aggregate liability of the Buyer for
indemnification payable hereunder shall not exceed $1 million, except for any
breach of Buyer's obligation to pay the Purchase Price under Section 2.
7.4 Matters Involving Third Parties.
(a) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 7, then the
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Indemnified Party shall promptly notify each Indemnifying Party thereof in
writing; provided, however, that no delay on the part of the Indemnified Party
in notifying any Indemnifying Party shall relieve the Indemnifying Party from
any obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying
Party notifies the Indemnified Party in writing within 15 days after the
Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, or caused by the Third Party Claim, (ii) the Indemnifying
Party provides the Indemnified Party with evidence reasonably acceptable to the
Indemnified Party that the Indemnifying Party will have the financial resources
to defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (iii) the Third Party Claim involves only money damages
and does not seek an injunction or other equitable relief, (iv) settlement of,
or an adverse judgment with respect to, the Third Party Claim is not, in the
good faith judgment of the Indemnified Party, likely to establish a precedential
custom or practice materially adverse to the continuing business interests of
the Indemnified Party, and (v) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 7.4(b) above, (A)
the Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld unreasonably), and (C) the
Indemnifying Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnified Party (not to be withheld unreasonably).
(d) In the event any of the conditions in Section 7.4(b) above
is or becomes unsatisfied, however, (i) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (ii) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and (iii) the Indemnifying Parties
will remain responsible for any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of or caused by the Third Party Claim to the
fullest extent provided in this Section 7.
7.5 Determination of Adverse Consequences.
The Parties shall take into account the time cost of money (using
the Applicable Rate as the discount rate) in determining Adverse Consequences
for purposes of this Section 7.
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7.6 Recoupment Against Purchase Price.
(a) The Buyer shall have the option of recouping all or any
part of any Adverse Consequences it may suffer (in lieu of seeking any
indemnification to which it is entitled under this Section 7) at any time or
from time to time by providing the Company with at least thirty (30) days'
notice (a "Reduction Notice") of Buyer's intent to reduce the amount of Purchase
Price due to the Company in the Second Distribution and the Final Distribution,
together with all documentation and information reasonably necessary to
substantiate Buyer's Adverse Consequences and Buyer's claim for satisfaction of
such Adverse Consequences.
(b) On or prior to the thirtieth (30th) day following the
delivery of a Reduction Notice, the Company may deliver to Buyer a written
statement (a "Reduction Disputing Notice") setting forth with reasonable
specificity any disagreement with any of the amounts contained in the Reduction
Notice which could affect the necessity or amount of any reduction of the
portion of the Purchase Price due to the Company in the Second Distribution and
the Final Distribution. The sole basis for any disagreement with a Reduction
Notice shall be either (i) that the Adverse Consequences claimed by Buyer do not
give rise to a claim for indemnification under this Section 7 or (ii) that there
has been an arithmetical error in adding the Adverse Consequences. If the
Company does not submit a Reduction Disputing Notice on or prior to such
thirtieth (30th) day, then the portion of the Purchase Price due to the Company
in the Second Distribution and the Final Distribution shall be deemed to have
been reduced for purposes of this Agreement in the amount set forth in the
Reduction Notice. If the Company does submit a Reduction Disputing Notice on or
prior to such thirtieth (30th) day, any amounts contained in such Reduction
Notice which are not disputed by the Reduction Disputing Notice shall be deemed
to have been finally determined for purposes of this Agreement.
(c) For a period of sixty (60) days, Buyer and the Company
shall attempt to resolve in good faith any dispute or disagreement between a
Reduction Notice and a Reduction Disputing Notice. Amounts contained on a
Reduction Notice and resolved by such attempts shall be deemed to have been
finally determined for purposes of this Agreement. After such sixty (60) day
period, either party may commence legal proceedings to resolve any such dispute.
7.7 Exclusive Remedy for Non-Intentional Violations.
The foregoing indemnification provisions shall be the sole and
exclusive remedy for claims relating to any breach of the representations,
warranties and covenants made herein by the respective Parties with respect to
the transactions contemplated herein. Notwithstanding the foregoing limitation,
in the case of any intentional or knowing breach of the representations,
warranties or covenants made by the respective Parties herein or intentionally
fraudulent or tortious conduct ("Intentional Violations"), the indemnification
provisions herein are in addition to, and not in derogation of, any statutory,
equitable or common law remedy (including without limitation any such remedy
arising under Environmental, Health and Safety Requirements) any Party may have
with respect to the Buyer, the Company, its Subsidiaries or the transactions
contemplated by this Agreement.
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8. Tax Matters.
8.1 Certain Taxes.
All transfer, documentary, sales, use, stamp, registration and other
such Taxes and fees (including any penalties and interest) incurred in
connection with the sale of the Company Shares under this Agreement (including
any gains tax or transfer tax imposed in state or subdivision), shall be paid by
the Company when due, and the Company will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, Buyer will, and will cause its affiliates to, join
in the execution of any such Tax Returns and other documentation.
9. Termination.
9.1 Termination of Agreement.
Certain of the Parties may terminate this Agreement as provided
below:
(a) the Buyer and the Company may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(b) the Buyer may terminate this Agreement by giving written
notice to the Company prior to the Closing if the Buyer is not satisfied with
the results of its continuing business, legal, environmental, and accounting due
diligence regarding the Company and its Subsidiaries;
(c) the Buyer may terminate this Agreement by giving written
notice to the Company at any time prior to the Closing (i) in the event any of
the Company or the Shareholder has breached any material representation,
warranty, or covenant contained in this Agreement in any material respect, the
Buyer has notified the Company or the Shareholder of the breach, and the breach
has continued without cure for a period of 30 days after the notice of breach or
(ii) if the Closing shall not have occurred on or before August 31, 1999, by
reason of the failure of any condition precedent under Section 6.1 hereof
(unless the failure results primarily from the Buyer itself breaching any
representation, warranty, or covenant contained in this Agreement); and
(d) the Company may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing (i) in the event the Buyer
has breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, the Company has notified the Buyer of
the breach, and the breach has continued without cure for a period of 30 days
after the notice of breach or (ii) if the Closing shall not have occurred on or
before August 31, 1999, by reason of the failure of any condition precedent
under Section 6.2 hereof (unless the failure results primarily from any of the
Company or the Shareholder themselves breaching any representation, warranty, or
covenant contained in this Agreement).
9.2 Effect of Termination.
If any Party terminates this Agreement pursuant to Section 9.1
above, all rights and obligations of the Parties hereunder shall terminate
without any Liability of any Party to any other Party (except for any Liability
of any Party then in breach).
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10. Miscellaneous.
10.1 Press Releases and Public Announcements.
No Party shall issue any press release or make any public
announcement relating to the subject matter of this Agreement without the prior
written approval of the Buyer and the Company; provided, however, that any Party
may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
reasonable best efforts to advise the other Parties prior to making the
disclosure).
10.2 No Third-Party Beneficiaries.
This Agreement shall not confer any rights or remedies upon any
Person other than the Parties and their respective successors and permitted
assigns.
10.3 Entire Agreement.
This Agreement (including the documents referred to herein)
constitutes the entire agreement among the Parties and supersedes any prior
understandings, agreements, or representations by or among the Parties, written
or oral, to the extent they related in any way to the subject matter hereof.
10.4 Succession and Assignment.
This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted assigns. No
Party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the Buyer, the
Company and the Shareholder; provided, however, that the Buyer may (a) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates, (b) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder), and
(c) assign any or all of its rights and interests hereunder in connection with
any merger or sale of all or substantially all of its assets or capital stock.
After the Closing and without any prior approval of any other Party, this
Agreement may be assigned by any Party to any successor to its business or to
any purchaser or transferee of substantially all of its assets; provided,
however, that such assignment shall not be deemed to relieve the assigning Party
of any of its obligations hereunder.
10.5 Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
10.6 Headings.
The Section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
10.7 Notices.
All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed
28
<PAGE> 33
duly given if (and then two business days after) it is sent by registered or
certified mail, return receipt requested, postage prepaid, and addressed to the
intended recipient as set forth below:
If to the Company: Copy to:
Caldera Systems, Inc. Parsons, Behle & Latimer
240 West Center Street 1 South Main Street
Orem, Utah 84057 Suite 1800
Attn: Ransom Love, President & Salt Lake City, Utah 84145
Chief Executive Officer Attn: Brent Christensen, Esq.
If to the Shareholder: Copy to:
The Canopy Group, Inc. Parsons, Behle & Latimer
240 West Center Street 1 South Main Street
Orem, Utah 84057 Suite 1800
Attn: Ray Noorda and Ralph Yarro Salt Lake City, Utah 84145
Attn: Brent Christensen, Esq.
If to the Buyer: Copy to:
MTI Technology Corporation Morrison & Foerster LLP
4905 East La Palma Avenue 19900 MacArthur Boulevard
Anaheim, California 92807 Irvine, California 92612
Attn: Chief Financial Officer Attn: Tamara Powell Tate, Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
10.8 Governing Law.
This agreement is to be construed in accordance with and governed by
the internal laws of the State of California (as permitted by Section 1646.5 of
the California Civil Code or any similar successor provision) without giving
effect to any choice of law rule that would cause the application of the laws of
any jurisdiction other than the internal laws of the State of California to the
rights and duties of the parties.
10.9 Amendments and Waivers.
No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by the Buyer, the company and the
Shareholder. No waiver by any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
29
<PAGE> 34
10.10 Severability.
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
10.11 Expenses.
Each of the Parties will bear its own costs and expenses (including
legal fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby.
10.12 Construction.
The Parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation. The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
10.13 Incorporation of Exhibits, Annexes, and Schedules.
The Exhibits, Annexes, and Schedules identified in this Agreement
are incorporated herein by reference and made a part hereof. However, the
Distribution and License Agreement shall be deemed a separate and complete
agreement and shall exist and be governed independent of this Agreement.
10.14 Specific Performance.
Each of the Parties acknowledges and agrees that the other Parties
would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the Parties agrees that the other Parties
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the Parties and the matter
(subject to the provisions set forth in Section 10.15 below), in addition to
any other remedy to which they may be entitled, at law or in equity.
10.15 Submission to Jurisdiction.
Each of the Parties submits to the jurisdiction of any state or
federal court sitting in Orange County, California, in any action or proceeding
arising out of or relating to this Agreement
30
<PAGE> 35
and agrees that all claims in respect of the action or proceeding may be heard
and determined in any such court. Each Party also agrees not to bring any action
or proceeding arising out of or relating to this Agreement in any other court.
Each of the Parties waives any defense of inconvenient forum to the maintenance
of any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. Any
Party may make service on any other Party by sending or delivering a copy of the
process to the Party to be served at the address and in the manner provided for
the giving of notices in Section 10.7 above.
10.16 Confidentiality.
Each of the Parties and their respective representatives and
employees shall keep strictly confidential and shall not disclose or use for any
purpose other than this Agreement, any and all confidential and proprietary
information ("Confidential Information") disclosed by any of the Parties (an
"Informing Party") to any other Party (an "Informed Party") or learned by the
Informed Party from the premises, properties, personnel, books, records
(including Tax records), contracts, and documents to which it is given access.
Each Party shall limit disclosure of Confidential Information to its
representatives, financial advisors and employees on a need to know basis. The
term "Confidential Information" does not include information which (i) is or
becomes generally available to the public other than as a result of a disclosure
by the Informed Party or its representatives, (ii) was available to the Informed
Party on a non-confidential basis prior to its disclosure to the Informed Party
by the Informing Party or its representatives, or (iii) becomes available to the
Informed Party on a non-confidential basis from a source other than the
Informing Party or its representatives, provided, however, that such source is
not bound by a confidentiality agreement with the Informing Party or its
representatives. Each of the Parties shall ensure that its representatives and
employees comply with this Section 10.16.
10.17 California Corporate State Securities Law.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT
HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA OR UTAH AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT
OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION
IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY
SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF
ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION
BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
31
<PAGE> 36
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
MTI TECHNOLOGY CORPORATION, a Delaware
corporation
By: /s/ DALE R. BORD
------------------------------------
Title: Chief Financial Officer
CALDERA SYSTEMS, INC., a Utah corporation
By: /s/ RANSOM H. LOVE
-------------------------------------
Title: President & CEO
THE CANOPY GROUP, INC., a Utah corporation
By: /s/ RALPH YARRO
-------------------------------------
Title: President & CEO
32
<PAGE> 1
EXHIBIT 10.11
STOCK PURCHASE AND SALE AGREEMENT
THIS STOCK PURCHASE AND SALE AGREEMENT (this "Agreement") is made and
entered into as of this 6th day of January, 2000 by and between Lineo, Inc., a
Utah corporation ("Lineo"), and Caldera Systems, Inc., a Utah corporation
("Caldera Systems").
WHEREAS, Lineo and Caldera Systems have agreed in principle to provide
each other with certain marketing and other services pursuant to a strategic
alliance agreement, and Lineo and Caldera Systems each wishes to purchase from
the other shares of common stock;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF SHARES
1.1 PURCHASE OF LINEO STOCK.
Upon the terms and subject to the conditions herein, in reliance on the
representations and warranties set forth in Sections 2 and 4 hereof, Caldera
Systems hereby purchases from Lineo, and Lineo hereby issues and sells to
Caldera Systems 3,238,437 shares of the Common Stock of Lineo, representing
16.75% of the issued and outstanding shares of capital stock of Lineo on a
fully-diluted basis as of the date hereof (the "Lineo Shares").
1.2 PURCHASE OF CALDERA SYSTEMS STOCK.
Upon the terms and subject to the conditions herein, in reliance on the
representations and warranties set forth in Sections 3 and 4 hereof, Lineo
hereby purchases from Caldera Systems, and Caldera Systems hereby issues and
sells to Lineo, 1,250,000 shares of the Common Stock of Caldera Systems,
representing 3.35% of the issued and outstanding shares of capital stock of
Caldera Systems on a fully-diluted basis as of the date hereof (the "Caldera
Systems Shares").
1.3 CLOSING.
The closing of the purchases and sales of the Lineo Shares and the Caldera
Systems Shares contemplated by Sections 1.1 and 1.2 above (the "Closing") shall
take place at 10:00 a.m. on the date hereof, or at such other time and date as
the parties hereto mutually agree (the "Closing Date").
SECTION 2. REPRESENTATIONS AND WARRANTIES OF LINEO
In order to induce Caldera Systems to enter into this Agreement, Lineo
represents and warrants to Caldera Systems the following, except as set forth on
a Schedule of Exceptions furnished by Lineo to Caldera Systems (the "Lineo
Schedule of Exceptions"), specifically identifying the relevant subparagraph(s)
hereof, which exceptions shall be deemed to be representations and warranties as
if made hereunder:
2.1 ORGANIZATION AND CORPORATE POWER.
Lineo is a corporation duly organized and validly existing under the laws
of the State of Utah, and is qualified to do business as a foreign corporation
in each jurisdiction in which the failure to be so qualified would have a
material adverse effect on its assets, liabilities, financial condition,
business, or results of
<PAGE> 2
operations (a "Material Adverse Effect"). Lineo has all required corporate power
and corporate authority to carry on its business as presently conducted, to
enter into and perform this Agreement and the agreements contemplated hereby to
which it is a party and to carry out the transactions contemplated hereby and
thereby, including the issuance of the Lineo Shares. Lineo is not in material
violation of any term of its Articles of Incorporation (the "Lineo Articles of
Incorporation"), or Bylaws (the "Lineo Bylaws").
2.2 AUTHORIZATION AND NON-CONTRAVENTION.
The execution, delivery and performance by Lineo of this Agreement and
each other agreement, document and instrument to be executed and delivered by
Lineo pursuant to or as contemplated by this Agreement, including, without
limitation, the issuance and delivery of the Lineo Shares, have been duly
authorized, by all necessary corporate action on behalf of Lineo. This Agreement
and each such other agreement, document, and instrument, when executed and
delivered, will constitute valid and binding obligations of Lineo, enforceable
in accordance with their respective terms, except as may be limited by
applicable law and public policy and subject to (i) applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) general principles
of equity and/or laws relating to the availability of specific performance,
injunctive relief or other equitable remedies, whether such enforceability is
considered in a proceeding in equity or at law. The execution and delivery by
Lineo of this Agreement and each other agreement, document and instrument to be
executed and delivered by Lineo pursuant hereto or as contemplated hereby and
the performance by Lineo of the transactions contemplated hereby and thereby,
including, without limitation, the offer, sale, issuance and delivery of the
Lineo Shares, do not and will not: (A) violate, conflict with or result in a
default (whether after the giving of notice, lapse of time or both) under any
material contract, mortgage, indenture, contract, instrument or obligation to
which Lineo is a party or by which it or its assets are bound, or any provision
of the Lineo Articles of Incorporation or Lineo Bylaws, or cause the creation of
any material lien, charge or encumbrance upon any of the assets of Lineo; (B) to
Lineo's knowledge, violate or result in a violation of, or constitute a default
under, any provision of any material law, regulation or rule, or any judgment,
order, writ, decree or statute of, or any restriction imposed by, any court or
governmental agency applicable to Lineo; (C) require from Lineo any notice to,
declaration or filing with, or consent or approval of any governmental authority
or third party other than such filings as have been made prior to the Closing
and/or as may be required to secure an exemption from qualification of the offer
and sale of the Lineo Shares under the Securities Act of 1933, as amended (the
"Securities Act"), and applicable state securities and blue sky laws; or (D)
accelerate any obligation under, or give rise to a right of termination,
suspension, revocation or impairment of, any material agreement, permit, license
or authorization applicable to any of Lineo's, operations, assets or properties,
or by which Lineo is bound.
2.3 CAPITALIZATION.
As of the Closing, the authorized capital stock of Lineo will consist of
100,000,000 shares of Common Stock, of which 18,000,000 shares will be issued
and outstanding. As of the Closing, other than the shares described in the
preceding sentence and options to purchase 1,333,950 shares of the common stock
of Lineo granted to employees and members of the Board of Directors of Lineo
pursuant to Lineo's Stock Option Plan, Lineo has not issued any warrants,
options, rights (including, without limitation, conversion or preemptive rights
and rights of first refusal), proxy or stockholder agreements or agreements of
any kind for the purchase or acquisition from Lineo of any shares of capital
stock or other securities, including, without limitation, any securities
convertible into or exercisable or exchangeable for such shares or any warrants,
options or other rights to acquire any such convertible securities. As of the
Closing, and after giving effect to the transactions contemplated hereby, all of
the outstanding shares of capital stock of Lineo and each of its Subsidiaries
will have been duly and validly authorized and issued, fully paid and
nonassessable and not subject to any preemptive rights and will have been
offered, issued, sold and delivered
<PAGE> 3
in compliance with applicable federal and state securities laws. There are no
preemptive rights, rights of first refusal, put or call rights or obligations or
anti-dilution rights with respect to the issuance, sale or redemption of Lineo's
capital stock or other securities. Lineo is not a party or subject to any
agreement or understanding, and, to the best of Lineo's knowledge, there is no
agreement or understanding between any persons that affects or relates to the
voting or giving of written consents with respect to any security or the voting
by a director of Lineo.
2.4 VALID ISSUANCE OF LINEO SHARES.
The Lineo Shares, when issued, sold and delivered in accordance with the
terms of this Agreement for the consideration expressed herein, will be duly and
validly issued, fully paid and non-assessable, and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement and under
applicable state and federal securities laws.
2.5 SUBSIDIARIES.
Lineo does not own or control, directly or indirectly, any interest in any
other corporation, partnership, limited liability company, association or other
business entity. Lineo is not a participant in any joint venture, partnership or
similar arrangement.
2.6 CONTRACTS AND OTHER COMMITMENTS.
Lineo has not and/or is not bound by any contract, agreement, lease,
commitment, or proposed transaction, judgment, order, writ or decree, written or
oral, absolute or contingent, other than contracts entered into in the ordinary
course of business. For the purpose of this paragraph, employment and consulting
contracts and license agreements and any other agreements relating to Lineo's
acquisition or disposition of Intellectual Property (other than standard
end-user license agreements) shall not be considered to be contracts entered
into in the ordinary course of business.
2.7 RELATED-PARTY TRANSACTIONS.
No employee, officer, stockholder or director of Lineo or member of his or
her immediate family is indebted to Lineo, nor is Lineo indebted (or committed
to make loans or extend or guarantee credit) to any of them, other than (i) for
payment of salary for services rendered, (ii) reimbursement for reasonable
expenses incurred on behalf of Lineo, and (iii) for other standard employee
benefits made generally available to all employees (including stock option
agreements outstanding under any stock option plan approved by the Board of
Directors of Lineo or such Subsidiary). To the best of Lineo's knowledge, none
of such persons has any direct or indirect ownership interest in any firm or
corporation with which Lineo is affiliated or with which Lineo has a business
relationship, or any firm or corporation that competes with Lineo, except that
employees, stockholders, officers or directors of Lineo and members of their
immediate families may own stock in publicly-traded companies that may compete
with Lineo. To the best of Lineo's, no officer, director or stockholder or any
member of their immediate families is, directly or indirectly, interested in any
material contract with Lineo (other than such contracts as relate to any such
person's ownership of capital stock or other securities of Lineo).
<PAGE> 4
2.8 REGISTRATION RIGHTS.
Lineo is presently not under any obligation and has not granted any rights
to register under the Securities Act any of its presently outstanding securities
or any of its securities that may subsequently be issued.
2.9 PERMITS.
Lineo has all franchises, permits, licenses, and any similar authority
necessary for the conduct of its business as now being conducted by it, the lack
of which could materially and adversely affect the business, properties,
prospects or financial condition of Lineo, and believes it can obtain, without
undue burden or expense, any similar authority for the conduct of its business
as presently planned to be conducted. Lineo is not in default in any material
respect under any of such franchises, permits, licenses or other similar
authority.
2.10 LITIGATION.
There is no action, suit, proceeding or investigation pending or, to the
best of Lineo's knowledge, currently threatened against Lineo that questions the
validity of this Agreement, or the right of Lineo to enter into this Agreement,
or to consummate the transactions contemplated hereby, or that might result,
either individually or in the aggregate, in any material adverse change in the
assets, business, properties, prospects, or financial condition of Lineo, or in
any material change in the current equity ownership of Lineo.
2.11 RETURNS AND COMPLAINTS.
Lineo has not received any customer complaints concerning alleged defects
in its products (or the design thereof) that, if true, would materially
adversely affect the operations or financial condition of Lineo.
2.12 DISCLOSURE.
Lineo has provided Caldera Systems with all the information reasonably
available to it without undue expense that Caldera Systems has requested for
deciding whether to purchase the Lineo Shares and all information that Lineo
believes is reasonably necessary to enable Caldera Systems to make such
decision.
2.13 OFFERING.
Subject, in part, to the truth and accuracy of Caldera Systems's
representations set forth in this Agreement, the offer, sale and issuance of the
Lineo Shares as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act, and neither Lineo, nor any authorized agent
acting on its behalf will take any action hereafter that would cause the loss of
such exemption.
2.14 TITLE TO PROPERTY AND ASSETS; LEASES.
Except (i) as reflected in the Lineo Financial Statements (defined in
paragraph 2.15), (ii) for liens for current taxes not yet delinquent, (iii) for
liens imposed by law and incurred in the ordinary course of business for
obligations not past due to carriers, warehousemen, laborers, materialmen and
the like, (iv) for liens in respect of pledges or deposits under workers'
compensation laws or similar legislation or (v) for minor defects in title, none
of which, individually or in the aggregate, materially interferes with the use
of such property, Lineo has good and marketable title to its property and assets
free and clear of all mortgages, liens, claims and encumbrances. With respect to
the property and assets it leases, Lineo is in compliance
<PAGE> 5
with such leases and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances, subject to clauses (i)-(v)
above.
2.15 FINANCIAL STATEMENTS.
Lineo has made available to Caldera Systems its unaudited trial balance
sheet (which includes assets and liabilities, ending balances, revenues and
expenses, and the balance of stockholders' equity) at October 31, 1999 for the
fiscal year then ended (the "Lineo Financial Statements"). The Lineo Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated. The
Lineo Financial Statements fairly present the financial condition and operating
results of Lineo as of the dates, and for the periods, indicated therein. Except
as set forth in the Lineo Financial Statements, Lineo has no material
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to October 31, 1999 and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
the Lineo Financial Statements, which in both cases, individually or in the
aggregate, are not material to the financial condition or operating results of
Lineo. Except as disclosed in the Lineo Financial Statements, Lineo is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation. Lineo maintains and will continue to maintain a standard system of
accounting established and administered in accordance with generally accepted
accounting principles.
2.16 CHANGES.
Since October 31, 1999, there has not been any event or condition of any
type that has materially and adversely affected the business, properties or
financial condition of Lineo or any of its Subsidiaries.
2.17 INTELLECTUAL PROPERTY.
To the best of Lineo's knowledge, Lineo, and its products have not
infringed and do not infringe the copyrights of any third party. To the best of
Lineo's knowledge, Lineo has not misappropriated and is not misappropriating any
trade secrets or proprietary confidential information of any third party, and
the products of Lineo do not include or embody any trade secret or proprietary
confidential information misappropriated by Lineo from any third party. To the
best of Lineo's knowledge, Lineo and its products have not infringed and do not
infringe any patents, trademarks, service marks, or trade names of any third
party. Each item of Intellectual Property owned by or licensed to Lineo
immediately prior to the Closing hereunder will be owned by or licensed to Lineo
on identical terms and conditions immediately subsequent to the Closing
hereunder (i.e., identical to any applicable terms and conditions immediately
prior to the Closing).
(i) To the best of Lineo's knowledge, none of Lineo and its
directors and officers (and employees with responsibility for Intellectual
Property matters) has ever received any charge, complaint, claim, demand,
or notice alleging any such infringement, misappropriation, or violation
by Lineo of Intellectual Property (including any claim that Lineo must
license or refrain from using any Intellectual Property rights of any
third party). To the best of Lineo's knowledge and the knowledge of
directors and officers (and employees with responsibility for Intellectual
Property matters) of Lineo, no third party has infringed, misappropriated,
or otherwise violated any Intellectual Property rights of Lineo.
(ii) Within thirty days of the date of Closing, Lineo will provide
to Caldera Systems a schedule (the "IP Schedule") identifying (a) each
patent which has been issued or assigned to Lineo,
<PAGE> 6
(b) each pending patent application which has been filed by or for Lineo,
(c) each trademark or service mark registration issued or assigned to
Lineo, (d) each pending trademark or service mark application which has
been filed by or for Lineo, (e) each copyright registration issued or
assigned to Lineo, (f) each pending copyright application which has been
filed by or for Lineo, and (g) each license which Lineo has granted to any
third party with respect to any of Lineo's Intellectual Property excluding
licenses to end users of Company products granted in the ordinary course
of business. Lineo will deliver to Caldera Systems correct and complete
copies of all such patents, registrations, applications, and licenses (as
amended to date). The Lineo IP Schedule will also identify each trade name
and each unregistered trademark or service mark owned or claimed by Lineo
in connection with its business. With respect to each patent, application,
and registration (each an "IP item") identified in the Lineo IP Schedule:
(A) Lineo possess all right, title, and interest in and to the
IP item, free and clear of any mortgage, lien, claim, license, or
other encumbrance;
(B) to the best of Lineo's knowledge, the IP item is not
subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(C) to the best of Lineo's knowledge, no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or
demand is pending or, to the best of Lineo's or its Subsidiaries'
knowledge, and the knowledge of the directors and officers (and
employees with responsibility for Intellectual Property matters) of
Lineo and its Subsidiaries, is threatened which challenges the
legality, validity, enforceability, use, or ownership of the IP
item; and
(D) Lineo has never agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other
conflict with respect to the IP item.
(iii) The Lineo IP Schedule will identify each item of Intellectual
Property that any third party owns and licenses to Lineo, excluding
licenses to commercially available software products (e.g., Windows,
Microsoft Office, etc.) used by Lineo as an end user. Lineo will deliver
with the IP Schedule to Caldera Systems correct and complete copies of all
agreements applicable to such licenses (as amended to date). The term
"license" is intended to include "sublicense." With respect to each such
license and agreement required to be identified in the Lineo IP Schedule,
to the best of Lineo's knowledge;
the license and agreement are legal, valid, binding,
enforceable, and in full force and effect;
the license and agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms on the day
immediately following the Closing;
no party to the agreement is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default or permit termination, modification, or acceleration thereunder;
no party to the agreement has repudiated any provision
thereof;
the license is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge; and
<PAGE> 7
no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or is threatened which challenges the
legality, validity, or enforceability of the license or agreement.
(iv) To the best of Lineo's knowledge and to the knowledge of the
directors and officers (and employees with responsibility for Intellectual
Property matters) of Lineo, Lineo will not infringe, misappropriate, or
otherwise violate any Intellectual Property rights of third parties as a
result of the continued operation of its businesses as presently conducted
and as presently proposed to be conducted.
2.18 MANUFACTURING AND MARKETING RIGHTS.
Except as set forth on the Lineo Schedule of Exceptions, Lineo has not
granted rights to manufacture, produce, assemble, license, market or sell its
products to any other person and is not bound by any agreement that affects
Lineo's exclusive right to develop, manufacture, assemble, distribute, market or
sell its products.
2.19 EMPLOYEES; EMPLOYEE COMPENSATION.
To the best of Lineo's knowledge, the relationships between Lineo and its
employees are good and no labor dispute or claims are pending or threatened.
None of Lineo's employees belongs to any union or collective bargaining unit. To
the best of Lineo's knowledge, Lineo has complied in all material respects with
all applicable state and federal laws related to employment. To the best of
Lineo's knowledge, no employee of Lineo is or will be in violation of any
judgment, decree or order, or any term of any employment contract, patent
disclosure agreement, or other contract or agreement relating to the
relationship of any such employee with Lineo, or any other party because of the
nature of the business conducted or presently proposed to be conducted by Lineo
or to the use by the employee of his or her best efforts with respect to such
business. Lineo is not a party to or bound by any currently effective employment
contract, deferred compensation agreement, incentive plan, profit sharing plan,
retirement agreement or other employee compensation agreement. Lineo is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with Lineo, nor does Lineo have a present
intention to terminate the employment of any of the foregoing. Subject to
general principles related to wrongful termination of employees, the employment
of each officer and employee of Lineo is terminable at the will of Lineo.
<PAGE> 8
2.20 TAX RETURNS, PAYMENTS, AND ELECTIONS.
Lineo has timely filed all tax returns and reports (federal, state and
local) as required by law. These returns and reports are true and correct in all
material respects. Lineo has paid all taxes and other assessments due, except
those contested by it in good faith. Lineo has not elected, pursuant to the
Internal Revenue Code of 1986, as amended ("Code"), to be treated as an S
corporation or a collapsible corporation pursuant to Section 1362(a) or Section
341(f) of the Code, nor has it made any other elections pursuant to the Code
(other than elections that relate solely to methods of accounting, depreciation
or amortization) that would have a material effect on the business, properties,
prospects or financial condition of Lineo. Lineo has never had any tax
deficiency proposed or assessed against it and has not executed any waiver of
any statute of limitations on the assessment or collection of any tax or
governmental charge. None of Lineo's income tax returns (federal or otherwise)
and none of its state income or franchise tax or sales or use tax returns has
ever been audited by governmental authorities. Lineo has made adequate
provisions on its books of account for all taxes, assessments and governmental
charges with respect to its business, properties and operations for such period.
Lineo has withheld or collected from each payment made to each of its employees,
the amount of all taxes, including, but not limited to, federal income taxes,
Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes
required to be withheld or collected therefrom, and has paid the same to the
proper tax receiving officers or authorized depositaries.
2.21 ENVIRONMENTAL AND SAFETY LAWS.
Lineo is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF CALDERA SYSTEMS
In order to induce Lineo to enter into this Agreement, Caldera Systems
represents and warrants to Lineo the following, except as set forth on a
Schedule of Exceptions furnished by Caldera Systems to Lineo (the "Caldera
Systems Schedule of Exceptions"), specifically identifying the relevant
subparagraph(s) hereof, which exceptions shall be deemed to be representations
and warranties as if made hereunder:
3.1 ORGANIZATION AND CORPORATE POWER.
Each of Caldera Systems and its Subsidiaries is a corporation duly
organized and validly existing under the laws of the State of Utah, and is
qualified to own and operate its properties and assets, to do business as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have a Material Adverse Effect. Each of Caldera Systems and its
Subsidiaries has all required corporate power and corporate authority to carry
on its business as presently conducted, to enter into and perform this Agreement
and the agreements contemplated hereby to which it is a party and to carry out
the transactions contemplated hereby and thereby, including the issuance of the
Caldera Systems Shares. Caldera Systems is not in material violation of any term
of its Articles of Incorporation, as amended as of the date hereof (the "Caldera
Systems Articles of Incorporation"), or Bylaws, as amended as of the date hereof
(the "Caldera Systems Bylaws").
<PAGE> 9
3.2 AUTHORIZATION AND NON-CONTRAVENTION.
The execution, delivery and performance by Caldera Systems of this
Agreement and each other agreement, document and instrument to be executed and
delivered by Caldera Systems pursuant to or as contemplated by this Agreement,
including, without limitation, the issuance and delivery of the Caldera Systems
Shares, have been duly authorized, or will be duly authorized prior to the
Closing, by all necessary corporate action on behalf of Caldera Systems. This
Agreement and each such other agreement, document, and instrument, when executed
and delivered, will constitute valid and binding obligations of Caldera Systems,
enforceable in accordance with their respective terms, except as may be limited
by applicable law and public policy and subject to (i) applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) general principles
of equity and/or laws relating to the availability of specific performance,
injunctive relief or other equitable remedies, whether such enforceability is
considered in a proceeding in equity or at law. The execution and delivery by
Caldera Systems of this Agreement and each other agreement, document and
instrument to be executed and delivered by Caldera Systems pursuant hereto or as
contemplated hereby and the performance by Caldera Systems of the transactions
contemplated hereby and thereby, including, without limitation, the offer, sale,
issuance and delivery of the Caldera Systems Shares, do not and will not: (A)
violate, conflict with or result in a default (whether after the giving of
notice, lapse of time or both) under any material contract, mortgage, indenture,
contract, instrument or obligation to which Caldera Systems or any of its
Subsidiaries is a party or by which it or its assets are bound, or any provision
of the Caldera Systems Articles of Incorporation or Caldera Systems Bylaws, or
cause the creation of any material lien, charge or encumbrance upon any of the
assets of Caldera Systems or any of its Subsidiaries; (B) to Caldera Systems's
knowledge, violate or result in a violation of, or constitute a default under,
any provision of any material law, regulation or rule, or any judgment, order,
writ, decree or statute of, or any restriction imposed by, any court or
governmental agency applicable to Caldera Systems or any of its Subsidiaries;
(C) require from Caldera Systems any notice to, declaration or filing with, or
consent or approval of any governmental authority or third party other than such
filings as have been made prior to the Closing and/or as may be required to
secure an exemption from qualification of the offer and sale of the Caldera
Systems Shares under the Securities Act, and applicable state securities and
blue sky laws; or (D) accelerate any obligation under, or give rise to a right
of termination, suspension, revocation or impairment of, any material agreement,
permit, license or authorization applicable to any of Caldera Systems's, or any
of its Subsidiaries', business, operations, assets or properties, to which
Caldera Systems, or any of its Subsidiaries, is a party or by which Caldera
Systems is bound.
3.3 CAPITALIZATION.
As of the Closing, without giving effect to the transactions contemplated
hereby, the authorized capital stock of Caldera Systems will consist of
75,000,000 shares of common stock, of which 20,144,904 shares will be issued and
outstanding and 25,000,000 shares of preferred stock of which 6,596,146 shares
have been designated Series A Preferred Stock, all of which are issued and
outstanding, and 5,000,000 shares have been designated Series B Preferred Stock,
all of which are isssued and outstanding. As of the Closing, other than the
shares described in the preceding sentence, (ii) the conversion privileges of
the Series A Preferred Stock and the Series B Preferred Stock of Caldera, and
(iii) currently outstanding options to purchase 5,288,882 shares of the common
stock of Caldera granted to employees and members of the Board of Directors of
Caldera pursuant to Caldera's 1998 Stock Option Plan and 1999 Omnibus Stock
Incentive Plan, Caldera Systems has not issued any warrants, options, rights
(including, without limitation, conversion or preemptive rights and rights of
first refusal), proxy or stockholder agreements or agreements of any kind for
the purchase or acquisition from Caldera Systems, or any of its Subsidiaries, of
any shares of its, or any of its Subsidiaries', capital stock or other
securities, including, without limitation, any securities convertible into or
exercisable or exchangeable for such shares or any warrants, options or other
rights to acquire any
<PAGE> 10
such convertible securities. As of the Closing, and after giving effect to the
transactions contemplated hereby, all of the outstanding shares of capital stock
of Caldera Systems and each of its Subsidiaries will have been duly and validly
authorized and issued, fully paid and nonassessable and not subject to any
preemptive rights and will have been offered, issued, sold and delivered in
compliance with applicable federal and state securities laws. Except as set
forth in the Caldera Systems Articles of Incorporation and in that certain
Amended and Restated Investor Rights Agreement, dated as of December 30, 1999,
among Caldera Systems and the shareholders of Caldera Systems who are party
thereto (the "Caldera Systems Investor Rights Agreement"), there are no
preemptive rights, rights of first refusal, put or call rights or obligations or
anti-dilution rights with respect to the issuance, sale or redemption of Caldera
Systems's capital stock or other securities. Caldera Systems is not a party or
subject to any agreement or understanding, and, to the best of Caldera Systems's
knowledge, there is no agreement or understanding between any persons that
affects or relates to the voting or giving of written consents with respect to
any security or the voting by a director of Caldera Systems.
3.4 VALID ISSUANCE OF CALDERA SYSTEMS SHARES.
The Caldera Systems Shares, when issued, sold and delivered in accordance
with the terms of this Agreement for the consideration expressed herein, will be
duly and validly issued, fully paid and non-assessable, and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and under applicable state and federal securities laws.
3.5 SUBSIDIARIES.
Caldera Systems does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability company,
association or other business entity. Caldera Systems is not a participant in
any joint venture, partnership or similar arrangement.
3.6 CONTRACTS AND OTHER COMMITMENTS.
Neither Caldera Systems nor any of its Subsidiaries has and/or is bound by
any contract, agreement, lease, commitment, or proposed transaction, judgment,
order, writ or decree, written or oral, absolute or contingent, other than
contracts entered into in the ordinary course of business. For the purpose of
this paragraph, employment and consulting contracts and license agreements and
any other agreements relating to Caldera Systems's or any of its Subsidiary's
acquisition or disposition of Intellectual Property (other than standard
end-user license agreements) shall not be considered to be contracts entered
into in the ordinary course of business.
3.7 RELATED-PARTY TRANSACTIONS.
No employee, officer, stockholder or director of Caldera Systems or any of
its Subsidiaries or member of his or her immediate family is indebted to Caldera
Systems, nor is Caldera Systems or any Subsidiary indebted (or committed to make
loans or extend or guarantee credit) to any of them, other than (i) for payment
of salary for services rendered, (ii) reimbursement for reasonable expenses
incurred on behalf of Caldera Systems or such Subsidiary, and (iii) for other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option plan approved by the
Board of Directors of Caldera Systems or such Subsidiary). To the best of
Caldera Systems's or such Subsidiary's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which
Caldera Systems or such Subsidiary is affiliated or with which Caldera Systems
or such Subsidiary has a business relationship, or any firm or corporation that
competes with Caldera Systems or such Subsidiary, except that employees,
stockholders, officers or directors of Caldera
<PAGE> 11
Systems or such Subsidiary and members of their immediate families may own stock
in publicly-traded companies that may compete with Caldera Systems or such
Subsidiary. To the best of Caldera Systems's or such Subsidiary's knowledge, no
officer, director or stockholder or any member of their immediate families is,
directly or indirectly, interested in any material contract with Caldera Systems
or such Subsidiary (other than such contracts as relate to any such person's
ownership of capital stock or other securities of Caldera Systems or such
Subsidiary).
3.8 REGISTRATION RIGHTS.
Except as set forth in the Caldera Systems Investor Rights Agreement,
Caldera Systems is presently not under any obligation and has not granted any
rights to register under the Securities Act any of its presently outstanding
securities or any of its securities that may subsequently be issued.
3.9 PERMITS.
Each of Caldera Systems and its Subsidiaries has all franchises, permits,
licenses, and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects or financial condition of Caldera
Systems or any such Subsidiary, and believes it can obtain, without undue burden
or expense, any similar authority for the conduct of its business as presently
planned to be conducted. Neither Caldera Systems nor any Subsidiary is in
default in any material respect under any of such franchises, permits, licenses
or other similar authority.
3.10 LITIGATION.
There is no action, suit, proceeding or investigation pending or, to the
best of Caldera Systems's or any of its Subsidiary's knowledge, currently
threatened against Caldera Systems or any of its Subsidiary's that questions the
validity of this Agreement, or the right of Caldera Systems to enter into this
Agreement, or to consummate the transactions contemplated hereby, or that might
result, either individually or in the aggregate, in any material adverse change
in the assets, business, properties, prospects, or financial condition of
Caldera Systems or any of its Subsidiaries, or in any material change in the
current equity ownership of Caldera Systems or any of its Subsidiaries.
3.11 RETURNS AND COMPLAINTS.
Neither Caldera Systems nor any of its Subsidiaries has received any
customer complaints concerning alleged defects in its products (or the design
thereof) that, if true, would materially adversely affect the operations or
financial condition of Caldera Systems or any of its Subsidiaries.
3.12 DISCLOSURE.
Caldera Systems has provided Lineo with all the information reasonably
available to it without undue expense that Lineo has requested for deciding
whether to purchase the Caldera Systems Shares and all information that Caldera
Systems believes is reasonably necessary to enable Lineo to make such decision.
<PAGE> 12
3.13 OFFERING.
Subject, in part, to the truth and accuracy of Lineo's representations set
forth in this Agreement, the offer, sale and issuance of the Caldera Systems
Shares as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act, and neither Caldera Systems, any of its
Subsidiaries, nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
3.14 TITLE TO PROPERTY AND ASSETS; LEASES.
Except (i) as reflected in the Caldera Systems Financial Statements
(defined in paragraph 3.15), (ii) for liens for current taxes not yet
delinquent, (iii) for liens imposed by law and incurred in the ordinary course
of business for obligations not past due to carriers, warehousemen, laborers,
materialmen and the like, (iv) for liens in respect of pledges or deposits under
workers' compensation laws or similar legislation or (v) for minor defects in
title, none of which, individually or in the aggregate, materially interferes
with the use of such property, each of Caldera Systems and its Subsidiaries has
good and marketable title to its property and assets free and clear of all
mortgages, liens, claims and encumbrances. With respect to the property and
assets it leases, each of Caldera Systems and its Subsidiaries is in compliance
with such leases and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances, subject to clauses (i)-(v)
above.
3.15 FINANCIAL STATEMENTS.
Caldera Systems has delivered to Lineo its audited financial statements
(balance sheet and profit and loss statement, statement of stockholders' equity
and statement of cash flows, including notes thereto) at October 31, 1999 and
for the fiscal year then ended (the "Caldera Systems Financial Statements"). The
Caldera Systems Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated. The Caldera Systems Financial Statements
fairly present the financial condition and operating results of Caldera Systems
as of the dates, and for the periods, indicated therein. Except as set forth in
the Caldera Systems Financial Statements, neither Caldera Systems nor any of its
Subsidiaries has any material liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
October 31, 1999 and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in the Caldera Systems Financial
Statements, which in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of Caldera Systems or
any of its Subsidiaries. Except as disclosed in the Caldera Systems Financial
Statements, neither Caldera Systems nor any of its Subsidiaries is a guarantor
or indemnitor of any indebtedness of any other person, firm or corporation.
Caldera Systems and each of its Subsidiaries maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
3.16 CHANGES.
Since October, 1999, there has not been any event or condition of any type
that has materially and adversely affected the business, properties or financial
condition of Caldera Systems or any of its Subsidiaries.
<PAGE> 13
3.17 INTELLECTUAL PROPERTY.
To the best of Caldera Systems's and its Subsidiaries' knowledge, Caldera
Systems, its Subsidiaries and their products have not infringed and do not
infringe the copyrights of any third party. To the best of Caldera Systems's and
its Subsidiaries' knowledge, neither Caldera Systems nor its Subsidiaries has
misappropriated or is misappropriating any trade secrets or proprietary
confidential information of any third party, and the products of Caldera Systems
and its Subsidiaries do not include or embody any trade secret or proprietary
confidential information misappropriated by Caldera Systems or its Subsidiaries
from any third party. To the best of Caldera Systems's and its Subsidiaries'
knowledge, each of Caldera Systems and its Subsidiaries and their respective
products have not infringed and do not infringe any patents, trademarks, service
marks, or trade names of any third party. Each item of Intellectual Property
owned by or licensed to Caldera Systems and its Subsidiaries immediately prior
to the Closing hereunder will be owned by or licensed to Caldera Systems and the
Subsidiary on identical terms and conditions immediately subsequent to the
Closing hereunder (i.e., identical to any applicable terms and conditions
immediately prior to the Closing).
(i) To the best of Caldera Systems's and its Subsidiaries'
knowledge, none of Caldera Systems or its Subsidiaries or their directors
and officers (and employees with responsibility for Intellectual Property
matters) has ever received any charge, complaint, claim, demand, or notice
alleging any such infringement, misappropriation, or violation by Caldera
Systems or its Subsidiaries of Intellectual Property (including any claim
that Caldera Systems and its Subsidiaries must license or refrain from
using any Intellectual Property rights of any third party). To the best of
Caldera Systems's and its Subsidiaries' knowledge and the knowledge of
directors and officers (and employees with responsibility for Intellectual
Property matters) of Caldera Systems and its Subsidiaries, no third party
has infringed, misappropriated, or otherwise violated any Intellectual
Property rights of Caldera Systems and its Subsidiaries.
(ii) The Caldera Systems Schedule of Exceptions identifies (a) each
patent which has been issued or assigned to Caldera Systems or any of its
Subsidiaries, (b) each pending patent application which has been filed by
or for Caldera Systems or any of its Subsidiaries, (c) each trademark or
service mark registration issued or assigned to Caldera Systems or any of
its Subsidiaries, (d) each pending trademark or service mark application
which has been filed by or for Caldera Systems or any its Subsidiaries,
(e) each copyright registration issued or assigned to Caldera Systems or
any of its Subsidiaries, (f) each pending copyright application which has
been filed by or for Caldera Systems or any of its Subsidiaries, and (g)
each license which Caldera Systems and its Subsidiaries has granted to any
third party with respect to any of Caldera Systems's Intellectual Property
excluding licenses to end users of Company products granted in the
ordinary course of business. Caldera Systems has delivered to Lineo
correct and complete copies of all such patents, registrations,
applications, and licenses (as amended to date). The Caldera Systems
Schedule of Exceptions also identifies each trade name and each
unregistered trademark or service mark owned or claimed by any of Caldera
Systems and its Subsidiaries in connection with any of their businesses.
With respect to each IP item identified in the Caldera Systems Schedule of
Exceptions:
(A) Caldera Systems and its Subsidiaries possess all right,
title, and interest in and to the IP item, free and clear of any
mortgage, lien, claim, license, or other encumbrance;
(B) to the best of Caldera Systems's and its Subsidiaries'
knowledge, the IP item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
<PAGE> 14
(C) to the best of Caldera Systems's or its Subsidiaries'
knowledge, no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the best of
Caldera Systems's or its Subsidiaries' knowledge, and the knowledge
of the directors and officers (and employees with responsibility for
Intellectual Property matters) of Caldera Systems and its
Subsidiaries, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the IP item; and
(D) none of Caldera Systems and its Subsidiaries has ever
agreed to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect to
the IP item.
(iii) The Caldera Systems Schedule of Exceptions identifies each
item of Intellectual Property that any third party owns and licenses to
any of Caldera Systems and its Subsidiaries, excluding licenses to
commercially available software products (e.g., Windows, Microsoft Office,
etc.) used by any of Caldera Systems and its Subsidiaries as an end user.
Caldera Systems has delivered to Lineo correct and complete copies of all
agreements applicable to such licenses (as amended to date). The term
"license" is intended to include "sublicense." With respect to each such
license and agreement required to be identified in the Caldera Systems
Schedule of Exceptions, to the best of Caldera Systems's or its
Subsidiaries' knowledge;
the license and agreement are legal, valid, binding,
enforceable, and in full force and effect;
the license and agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms on the day
immediately following the Closing;
no party to the agreement is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default or permit termination, modification, or acceleration thereunder;
no party to the agreement has repudiated any provision
thereof;
the license is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge; and
no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or is threatened which challenges the
legality, validity, or enforceability of the license or agreement.
(iv) To the best of Caldera Systems's and its Subsidiaries'
knowledge and to the knowledge of the directors and officers (and
employees with responsibility for Intellectual Property matters) of
Caldera Systems and its Subsidiaries, neither Caldera Systems nor any of
its Subsidiaries will infringe, misappropriate, or otherwise violate any
Intellectual Property rights of third parties as a result of the continued
operation of its businesses as presently conducted and as presently
proposed to be conducted.
3.18 MANUFACTURING AND MARKETING RIGHTS.
Except as set forth on the Caldera Systems Schedule of Exceptions, neither
Caldera Systems nor any of its Subsidiaries has granted rights to manufacture,
produce, assemble, license, market or sell its products
<PAGE> 15
to any other person and is not bound by any agreement that affects Caldera
Systems's or such Subsidiary's exclusive right to develop, manufacture,
assemble, distribute, market or sell its products.
3.19 EMPLOYEES; EMPLOYEE COMPENSATION.
To the best of Caldera Systems's and its Subsidiary's knowledge, the
relationships between Caldera Systems and its Subsidiaries and their respective
employees are good and no labor dispute or claims are pending or threatened.
None of Caldera Systems's or any of its Subsidiary's employees belongs to any
union or collective bargaining unit. To the best of Caldera Systems's and its
Subsidiaries' knowledge, Caldera Systems and each of its Subsidiaries has
complied in all material respects with all applicable state and federal laws
related to employment. To the best of Caldera Systems's and it Subsidiary's
knowledge, no employee of Caldera Systems or any such Subsidiary is or will be
in violation of any judgment, decree or order, or any term of any employment
contract, patent disclosure agreement, or other contract or agreement relating
to the relationship of any such employee with Caldera Systems, any of its
Subsidiaries, or any other party because of the nature of the business conducted
or presently proposed to be conducted by Caldera Systems or any of its
Subsidiaries or to the use by the employee of his or her best efforts with
respect to such business. Caldera Systems is not a party to or bound by any
currently effective employment contract, deferred compensation agreement,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation agreement. Neither Caldera Systems nor any of its Subsidiaries is
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with Caldera Systems or any of its
Subsidiaries, nor does Caldera Systems or any of its Subsidiaries have a present
intention to terminate the employment of any of the foregoing. Subject to
general principles related to wrongful termination of employees, the employment
of each officer and employee of Caldera Systems and each of its Subsidiaries is
terminable at the will of Caldera Systems or such Subsidiary, as applicable.
<PAGE> 16
3.20 TAX RETURNS, PAYMENTS, AND ELECTIONS.
Caldera Systems and each of its Subsidiaries has timely filed all tax
returns and reports (federal, state and local) as required by law. These returns
and reports are true and correct in all material respects. Caldera Systems and
each of its Subsidiaries has paid all taxes and other assessments due, except
those contested by it in good faith. Neither Caldera Systems nor any of its
Subsidiaries has elected pursuant to the Code, to be treated as an S corporation
or a collapsible corporation pursuant to Section 1362(a) or Section 341(f) of
the Code, nor has it made any other elections pursuant to the Code (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that would have a material effect on the business, properties,
prospects or financial condition of Caldera Systems or any of its Subsidiaries.
Neither Caldera Systems nor any of its Subsidiaries has ever had any tax
deficiency proposed or assessed against it and has not executed any waiver of
any statute of limitations on the assessment or collection of any tax or
governmental charge. None of Caldera Systems's or any Subsidiary's income tax
returns (federal or otherwise) and none of its state income or franchise tax or
sales or use tax returns has ever been audited by governmental authorities.
Caldera Systems and each of its Subsidiaries has made adequate provisions on its
books of account for all taxes, assessments and governmental charges with
respect to its business, properties and operations for such period. Caldera
Systems and each of its Subsidiaries has withheld or collected from each payment
made to each of its employees, the amount of all taxes, including, but not
limited to, federal income taxes, Federal Insurance Contribution Act taxes and
Federal Unemployment Tax Act taxes required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositaries.
3.21 ENVIRONMENTAL AND SAFETY LAWS.
Neither Caldera Systems nor any of its Subsidiaries is in violation
of any applicable statute, law or regulation relating to the environment or
occupational health and safety, and no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
<PAGE> 17
SECTION 4. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE PARTIES
(a) Each party purchasing securities hereunder represents to the other
that (i) it has such knowledge and experience in financial and business matters
and in private placement transactions of securities of companies in a similar
stage of development as the other party that it is capable of evaluating the
merits and risks of the investment contemplated by such purchasing party under
this Agreement and making an informed investment decision with respect thereto,
(ii) it is able to bear the economic risk of such investment and can afford to
sustain a substantial loss on such investment, (iii) it is an "accredited
investor" as such term is defined in Rule 501 under the Securities Act, (iv) it
is purchasing the securities purchased by it hereunder for its own account, for
investment only and not with a view to, or any present intention of, effecting a
resale ordistribution of or selling or granting any participation in such
securities or any part thereof, (v) it realizes that the basis for any exemption
pursuant to which the securities such party is purchasing hereunder have been
issued may not be present if, notwithstanding the representations made by such
party hereunder, such party has in mind merely acquiring the securities is is
purchasing hereunder for a fixed or determinable period in the future, or for a
market rise, or for sale if the market does not rise and (vi) it does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to such securities. Each party acknowledges that the securities
purchased by it hereunder have not been registered under the Securities Act or
the securities laws of any state or other jurisdiction in reliance on an
exemption from registration thereunder and reliance on such exemption by the
issuer of such securities is predicated on the representations and warranties
set forth in this Agreement. Furthermore, each party purchasing securities
hereunder acknowledges that such securities cannot be disposed of unless they
are subsequently registered under the Securities Act and any applicable state
laws or an exemption from such registration is available.
(b) Each party understands that the securities have not been registered
under the Securities Act, that there is no public market for the securities, and
that it must bear the economic risk of investment for an indefinite period of
time. In particular, such party is aware that the securities purchased by it
hereunder may not be sold pursuant to Rule 144 promulgated under the Securities
Act unless all of the conditions of that Rule are met. Among the conditions for
use of Rule 144 may be the availability of current information to the public
about the issuer of such securities. Such information is not now available and
such issuer has no present plans to make such information available.
(c) Each party represents that there are no claims for investment banking
fees, brokerage commissions, finder's fees or similar compensation (exclusive of
professional fees to lawyers and accountants) in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of such party. Such party (the "Indemnifying
Party") agrees to indemnify and to hold harmless the other from any liability
for any commission or compensation in the nature of a finder's fee (and the cost
and expenses of defending against such liability or asserted liability) for
which such Indemnifying Party or any of its officers, partners, employees or
representatives is responsible.
(d) Each party believes it has received all the information it considers
necessary or appropriate for deciding whether to purchase the securities
purchased by it hereunder. Such party further represents that it has had an
opportunity to ask questions and receive answers from the party issuing such
securities regarding the terms and conditions of the offering of such securities
and the business, properties, prospects and financial condition of such issuer
and to obtain additional information (to the extent such issuer possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to such party or
to which such party had access. The foregoing, however, does not limit or modify
the representations and warranties of such issuer in Section 2 or 3, as
applicable, of this Agreement or the right of such party to rely thereon.
<PAGE> 18
SECTION 5. CONDITIONS TO CLOSING
5.1 CONDITIONS OF CALDERA SYSTEMS'S OBLIGATIONS AT CLOSING.
The obligations of Caldera Systems under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against Caldera Systems unless it
consents in writing thereto:
(a) REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Lineo and its Subsidiaries
contained in Section 2 shall be true on and as of the Closing with the
same effect as though such representations and warranties had been made on
and as of the date of the Closing.
(b) PERFORMANCE.
Lineo shall have performed and complied with all agreements,
obligations and conditions contained in this Agreement that are required
to be performed or complied with by it on or before the Closing.
(c) QUALIFICATIONS.
All authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of
the L:ineo Shares pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
(d) PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to Caldera
Systems's counsel, which shall have received all such counterpart original
and certified or other copies of such documents as it may reasonably
request.
5.2 CONDITIONS OF LINEO'S OBLIGATIONS AT CLOSING.
The obligations of Lineo under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against Lineo unless it consents in
writing thereto:
(a) REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Caldera Systems and its
Subsidiaries contained in Section 3 shall be true on and as of the Closing
with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.
(b) PERFORMANCE.
<PAGE> 19
Caldera Systems and its Subsidiaries shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or
before the Closing.
(c) QUALIFICATIONS.
All authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of
the Caldera Systems Shares pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
(d) PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to Lineo's
counsel, which shall have received all such counterpart original and
certified or other copies of such documents as it may reasonably request.
SECTION 6. POST-CLOSING COVENANTS OF CALDERA SYSTEMS
6.1 FINANCIAL STATEMENTS.
Caldera Systems shall deliver to Lineo:
(a) as soon as available, but in any event within 45 days after the
end of each quarterly accounting period in each fiscal year, unaudited
statements of income and cash flows of Caldera Systems for such quarterly
period and for the period from the beginning of the fiscal year to the end
of such quarter, and unaudited balance sheets of Caldera Systems as of the
end of such quarterly period, setting forth in each case comparisons to
the corresponding period in the preceding fiscal year, and all such
statements shall be prepared in accordance with generally accepted
accounting principles, consistently applied, subject to the absence of
footnote disclosures and to normal year-end adjustments for recurring
accruals, and shall be certified by Caldera Systems's chief financial
officer;
(b) within 90 days after the end of each fiscal year, audited
statements of income and cash flows of Caldera Systems for such fiscal
year, and audited balance sheets of Caldera Systems as of the end of such
fiscal year, setting forth in each case comparisons to the preceding
fiscal year, all prepared in accordance with generally accepted accounting
principles, consistently applied, and accompanied by, with respect to the
consolidated portions of such statements, an opinion containing no
exceptions or qualifications (except for qualifications regarding
specified contingent liabilities) of an independent accounting firm of
recognized national standing; and
(c) prompt notification of any matter or matters which would
reasonably be expected to, individually or in the aggregate, have a
material adverse effect on the financial condition, operating results,
business, assets, operations, employee relations or customer or supplier
relations of Caldera Systems.
Each of the financial statements referred to in subparagraphs (a) and (b)
shall be true and correct in all material respects as of the dates and for the
periods stated therein, subject in the case of the unaudited financial
statements to changes resulting from normal year-end adjustments for recurring
accruals (none of
<PAGE> 20
which would, alone or in the aggregate, be materially adverse to the financial
condition, operating results, business, assets, operations, business prospects,
employee relations or customer or supplier relations of Caldera Systems).
6.2 CURRENT PUBLIC INFORMATION.
At all times after Caldera Systems has filed a registration
statement with the Securities and Exchange Commission pursuant to the
requirements of either the Securities Act or the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), Caldera Systems shall file all reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the Securities and Exchange Commission
thereunder and shall take such further action with respect to the provision of
information as any holder or holders of Caldera Systems Shares may reasonably
request, all to the extent required to enable such holders to sell Securities
pursuant to Rule 144 adopted by the Securities and Exchange Commission under the
Securities Act (as such rule may be amended from time to time) or any similar
rule or regulation hereafter adopted by the Securities and Exchange Commission.
Upon request, Caldera Systems shall deliver to any holder of Caldera Systems
Shares a written statement as to whether it has complied with such requirements.
SECTION 7. POST-CLOSING COVENANTS OF LINEO
7.1 FINANCIAL STATEMENTS.
Lineo shall deliver to Caldera Systems:
(a) audited financial statements for Lineo for the fiscal year ended
October 31, 1999 including balance sheet, profit and loss statement,
statement of stockholders' equity and statement of cash flows (including
notes thereto) which Lineo expects to be completed by January 31, 2000;
(b) as soon as available, but in any event within 45 days after the
end of each quarterly accounting period in each fiscal year, unaudited
statements of income and cash flows of Lineo for such quarterly period and
for the period from the beginning of the fiscal year to the end of such
quarter, and unaudited balance sheets of Lineo as of the end of such
quarterly period, setting forth in each case comparisons to the
corresponding period in the preceding fiscal year, and all such statements
shall be prepared in accordance with generally accepted accounting
principles, consistently applied, subject to the absence of footnote
disclosures and to normal year-end adjustments for recurring accruals, and
shall be certified by Lineo's chief financial officer;
(c) within 90 days after the end of each fiscal year, audited
statements of income and cash flows of Lineo for such fiscal year, and
audited balance sheets of Lineo as of the end of such fiscal year, setting
forth in each case comparisons to the preceding fiscal year, all prepared
in accordance with generally accepted accounting principles, consistently
applied, and accompanied by, with respect to the consolidated portions of
such statements, an opinion containing no exceptions or qualifications
(except for qualifications regarding specified contingent liabilities) of
an independent accounting firm of recognized national standing; and
(d) prompt notification of any matter or matters which would
reasonably be expected to, individually or in the aggregate, have a
material adverse effect on the financial condition, operating results,
business, assets, operations, employee relations or customer or supplier
relations of Lineo.
<PAGE> 21
Each of the financial statements referred to in subparagraphs (a), (b) and
(c) shall be true and correct in all material respects as of the dates and for
the periods stated therein, subject in the case of the unaudited financial
statements to changes resulting from normal year-end adjustments for recurring
accruals (none of which would, alone or in the aggregate, be materially adverse
to the financial condition, operating results, business, assets, operations,
business prospects, employee relations or customer or supplier relations of
Lineo).
7.2 CURRENT PUBLIC INFORMATION.
At all times after Lineo has filed a registration statement with the
Securities and Exchange Commission pursuant to the requirements of either the
Securities Act or the Exchange Act, Lineo shall file all reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action with respect to the provision of information as
any holder or holders of Lineo Shares may reasonably request, all to the extent
required to enable such holders to sell Securities pursuant to Rule 144 adopted
by the Securities and Exchange Commission under the Securities Act (as such rule
may be amended from time to time) or any similar rule or regulation hereafter
adopted by the Securities and Exchange Commission. Upon request, Lineo shall
deliver to any holder of Lineo Shares a written statement as to whether it has
complied with such requirements.
7.3 LINEO IP SCHEDULE.
Lineo shall deliver the IP Schedule to Caldera Systems within thirty
days of the date of this Agreement.
SECTION 8. GENERAL
8.1 AMENDMENTS, WAIVERS AND CONSENTS.
For the purposes of this Agreement and all agreements executed pursuant
hereto, no course of dealing between or among any of the parties hereto and no
delay on the part of any party hereto in exercising any rights hereunder or
thereunder shall operate as a waiver of the rights hereof and thereof. No
covenant or other provision hereof may be waived otherwise than by a written
instrument signed by the party or parties so waiving such covenant or other
provision. No amendment to this Agreement may be made without the written
consent of all of the parties hereto.
8.2 LEGEND ON SECURITIES.
The parties acknowledge and agree that the following legend shall be typed
on each certificate evidencing any of the securities issued hereunder held at
any time by a party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES
AND BLUE SKY LAWS RELATING TO THE DISPOSITION OF SECURITIES, PROVIDED THAT AN
OPINION OF COUNSEL TO SUCH EFFECT IS PROVIDED TO
<PAGE> 22
THE ISSUER OF SUCH SECURITIES, IN FORM SATISFACTORY TO SUCH ISSUER, IN
CONNECTION THEREWITH.
8.3 GOVERNING LAW.
This Agreement shall be deemed to be a contract made under, and shall be
construed in accordance with, the laws of the State of Utah, as applied to
agreements among Utah residents entered into and to be performed entirely within
Utah, without giving effect to conflict of laws principles thereof.
8.4 SECTION HEADINGS.
The descriptive headings in this Agreement have been inserted for
convenience only and shall not be deemed to limit or otherwise affect the
construction or interpretation of any provision thereof or hereof.
8.5 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which when so executed and delivered shall be taken to be an original; but such
counterparts shall together constitute but one and the same document.
8.6 ENTIRE AGREEMENT.
This Agreement, including the exhibits, documents and instruments referred
to herein or therein, constitutes the entire agreement, and supersedes all other
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof.
8.7 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
The warranties, representations and covenants of Lineo and Caldera Systems
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing.
8.8 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 assigns of the parties (including permitted transferees of any
securities issued hereunder). 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.
8.9 NOTICES.
Unless otherwise provided, all notices and other communications required
or permitted under this Agreement shall be in writing and shall be mailed by
United States first-class mail, postage prepaid, sent by facsimile or delivered
personally by hand or by a nationally recognized courier addressed to the party
to be notified at the address or facsimile number indicated for such person at
the address set forth below, or at such other address or facsimile number as
such party may designate by ten (10) days' advance written notice to the other
parties hereto:
If to Caldera Systems: Caldera Systems, Inc.
<PAGE> 23
240 West Center Street
Orem, Utah 84057
Attention: President
If to Lineo: Lineo, Inc.
383 South 520 West
Lindon, Utah 84042
Attention: Chief Financial Officer
All such notices and other written communications shall be effective on the date
of mailing, confirmed facsimile transfer or delivery.
8.10 ATTORNEYS' FEES.
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 be reimbursed
by the non-prevailing party for reasonable attorneys' fees, costs and
disbursements, in addition to any other relief to which such party may be
entitled.
8.11 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.
SECTION 9 DEFINITIONS
For the purposes of this Agreement, each of the following terms shall have
the meaning set forth opposite such term below:
"knowledge" of a person shall mean actual knowledge of such person after
(i) with respect to representations, warranties and statements made by or with
respect to Caldera Systems, inquiry of the officers and directors of Caldera
Systems and those management-level employees of Caldera Systems who have
responsibility for the area of inquiry and (ii) with respect to representations,
warranties and statements made by or with respect to Lineo, inquiry of the
officers and directors of Lineo and those management-level employees of Lineo
who have responsibility for the area of inquiry.
"Intellectual Property" shall mean (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures, together
with all reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations thereof, (b) all trademarks, service marks, trade
dress, logos, trade names, and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith, (c) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (d) all mask
works and all applications, registrations, and renewals in connection therewith,
(e) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (f) all computer software
(including data and related documentation), (g)
<PAGE> 24
all other proprietary rights, and (h) all copies and tangible embodiments
thereof (in whatever form or medium).
"Subsidiary" shall mean any corporation with respect to which a specified
party (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors. "Subsidiaries" shall mean, for purposes of this Agreement,
each Subsidiary of a party, collectively and individually.
<PAGE> 25
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
Lineo, Inc.,
a Utah corporation
By: /s/ BRYAN SPARKS
----------------------------------------
Bryan Sparks, President and CEO
Caldera Systems, Inc.,
a Utah corporation
By: /s/ RANSOM LOVE
----------------------------------------
Ransom Love, President and CEO
<PAGE> 1
Exhibit 10.12
SECOND AMENDED AND RESTATED
INVESTORS RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT (this
"Agreement") is made and entered into as of the 5th day of January, 2000, by and
among CALDERA SYSTEMS, INC., a Utah corporation (the "Company"), THE CANOPY
GROUP, INC., a Utah corporation ("Shareholder"), MTI TECHNOLOGY CORPORATION, a
Delaware corporation ("Holder"), and the investors listed on Schedule A attached
hereto (sometimes referred to herein individually as an "Investor" and
collectively as the "Investors"). The Shareholder, the Holder, and the Investors
are sometimes referred to herein individually as an "Owner" and collectively as
the "Owners".
WHEREAS, certain of the parties hereto have entered into an Amended and
Restated Investors Rights Agreement dated as of the 30th day of December, 1999
(the "1999 Investors Rights Agreement"); and
WHEREAS, such parties desire to amend and restate such 1999 Investors
Rights Agreement";
NOW, THEREFORE, the parties hereto hereby agree and acknowledge that the
1999 Investors Rights Agreement is hereby superceded, amended and restated in
its entirety, as follows:
SECTION 1
Registration Rights
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below.
(a) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(b) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
(c) "holder of Registrable Securities" shall mean each Owner so
long as it holds any Registrable Securities and any holder of Registrable
Securities to whom the registration rights conferred by this Agreement have been
transferred in compliance with Section 1.13 hereof.
(d) "Other Stockholders" shall mean persons other than holders
of Registrable Securities who, by virtue of agreements with the Company, are
entitled to include their securities in certain registrations hereunder.
-1-
<PAGE> 2
(e) "Qualified Public Offering" means the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement filed under the Securities Act, covering the offer and sale of Common
Stock for the account of the Company at a price per share equal to or greater
than $8.00 and in which the aggregate public offering price (before deduction of
underwriters' discounts and qualifications) equals or exceeds $25 million.
(f) "Registrable Securities" means (i) any Common Stock issued
or issuable upon the conversion of any Preferred Stock held by the Owners, and
(ii) any Common Stock issued or issuable with respect to the securities referred
to in clause (i) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Registrable Securities, such
securities shall cease to be Registrable Securities when they have been
distributed to the public pursuant to a offering registered under the Securities
Act or sold to the public in compliance with Rule 144. For purposes of this
Agreement, a Person shall be deemed to be a holder of Registrable Securities,
and the Registrable Securities shall be deemed to be in existence, whenever such
Person has the right to acquire directly or indirectly such Registrable
Securities (upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has actually been
effected, and such Person shall be entitled to exercise the rights of a holder
of Registrable Securities hereunder.
(g) The terms "register," "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
(h) "Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, the fees and
disbursements of one (1) special counsel for the participating holders of
Registrable Securities, blue sky fees and expenses, and expenses of any regular
or special audits incident to or required by any such registration, but shall
not include Selling Expenses and the compensation of regular employees of the
Company, which shall be paid in any event by the Company.
(i) "Restricted Securities" means (i) any equity securities of
the Company, including, without limitation, any Common Stock or Preferred Stock,
now or hereafter held by the Owners, (ii) any Common Stock issued or issuable
upon the conversion of any Preferred Stock held by the Owners, and (iii) any
Common Stock issued or issuable with respect to the securities referred to in
clauses (i) and (ii) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. For purposes of this Agreement, a Person shall be
deemed to be a holder of Restricted Securities, and the Restricted Securities
shall be deemed to be in existence, whenever such Person has the right to
acquire directly or indirectly such Restricted Securities (upon conversion or
exercise in connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right),
whether or not such acquisition
-2-
<PAGE> 3
has actually been effected, and such Person shall be entitled to exercise the
rights of a holder of Restricted Securities hereunder.
(j) "Rule 144" shall mean Rule 144 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(k) "Rule 145" shall mean Rule 145 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(l) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
(m) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and fees
and disbursements of counsel for any holder of Registrable Securities (other
than the fees and disbursements of counsel included in Registration Expenses).
(n) "Transfer" means any direct or indirect transfer, donation,
sale, assignment, pledge, hypothecation, granting a security interest in or
other disposal or attempt at disposing all or any portion of a security or of
any rights.
1.2 Requested Registration.
(a) Request for Registration. If the Company shall receive, from
holders of Registrable Securities holding at least twenty-two percent (22%) of
the then-outstanding Registrable Securities (the "Initiating Holders") at any
time or times not earlier than six (6) months after the effective date of the
first registration statement filed by the Company covering an underwritten
offering of any of its securities to the general public, a written request that
the Company effect any registration with respect to all or a part of the
Registrable Securities, the aggregate proceeds of which (after deduction for
underwriter's discounts and expenses related to the issuance) equal or exceed
$1,000,000 the Company will:
(i) promptly give written notice of the proposed
registration to all other holders of Registrable Securities; and
(ii) as soon as practicable, use its best efforts to
effect such registration (including, without limitation, filing
post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws, and appropriate compliance with
the Securities Act) and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any holder or holders of Registrable
Securities joining in such request as are specified in a written request
received by the Company within twenty (20) days after such written
notice from the Company is deemed received by all such holders.
-3-
<PAGE> 4
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.2:
(A) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) after the Company has initiated two such
registrations pursuant to this Section 1.2(a) (counting for these purposes only
registrations which have been declared or ordered effective and pursuant to
which the holders of Registrable Securities are able to register and sell all of
the Registrable Securities requested to be included in such registration and
registrations which have been withdrawn by the holders of Registrable Securities
as to which the holders of Registrable Securities have not elected to bear the
Registration Expenses pursuant to Section 1.6 hereof and would, absent such
election, have been required to bear such expenses);
(C) during the period starting with the date of filing
of, and ending on a date (1) one hundred eighty (180) days after the effective
date of, the first Company-initiated registration or (2) in the case of
subsequent Company-initiated registrations, one hundred twenty (120) days after
the effective date of such registration; provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective;
(D) if the Company notifies the holders of Registrable
Securities within thirty (30) calendar days of such request of the Company's
intent to file a registration statement for a public offering of its shares
within the following sixty (60) calendar days; or
(E) if the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
in connection with a request made pursuant to Section 1.7 below.
(b) Subject to the foregoing clauses (A) through (E), the
Company shall file a registration statement covering the Registrable Securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the holders of Registrable Securities; provided, however,
that if (i) in the good faith judgment of the Board of Directors of the Company,
such registration would be seriously detrimental to the Company and the Board of
Directors of the Company concludes, as a result, that it is essential to defer
the filing of such registration statement at such time, and (ii) the Company
shall furnish to such holders of Registrable Securities a certificate signed by
the President 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 for such registration statement to be filed in the near future and that
it is, therefore, essential to defer the filing of such registration statement,
then the Company shall have the right to defer such filing (except as provided
in clause (C) above) for a period of not more than ninety (90) days after
receipt of the request of such foregoing holders of Registrable Securities, and,
provided further, that the Company shall not defer its obligation in this manner
more than once in any consecutive twelve (12) month period. The registration
statement filed
-4-
<PAGE> 5
pursuant to the request of the holders of Registrable Securities may include
other securities of the Company with respect to which registration rights have
been granted, and may include securities of the Company being sold for the
account of the Company, in each case subject to Section 1.15.
(c) Underwriting. 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 part of their request made pursuant to this
Section 1.2 or any request pursuant to Section 1.7 and the Company shall include
such information in the written notice referred to in Section 1.2(a) or Section
1.7 (a), as applicable. The right of any holders of Registrable Securities to
registration pursuant to Section 1.2 shall be conditioned upon such holders'
participation in such underwriting and the inclusion of such holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
the holders of at least twenty-two percent (22%) of the Registrable Securities
and such holder with respect to such participation and inclusion) to the extent
provided herein. A holder of Registrable Securities may elect to include in such
underwriting all or a part of the Registrable Securities he, she or it holds.
(d) (d) Procedures. For any underwritten registration pursuant
to this Section 1.2, if the Company shall request inclusion of securities being
sold for its own account, or if other persons shall request inclusion, the
Initiating Holders shall, on behalf of all holders of Registrable Securities,
offer to include such securities in the underwriting and may condition such
offer on their acceptance of the further applicable provisions of this Section
1.2 (including Section 1.14). The Company shall (together with all holders of
Registrable Securities and other persons proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for such underwriting by the holders of a majority of the Registrable
Securities included in such registration, which underwriters are reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
1.2, if the representative of the underwriters advises the Initiating Holders in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 1.15 hereof. If a person
who has requested inclusion in such registration as provided above does not
agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the Initiating
Holders. Any Registrable Securities or other securities excluded or withdrawn
from such underwriting shall also be withdrawn from such registration. If shares
are so withdrawn from the registration and if the number of shares to be
included in such registration was previously reduced as a result of marketing
factors pursuant to this Section 1.2(d), then the Company shall offer to all
holders of Registrable Securities who have retained rights to include securities
in the registration the right to include additional securities in the
registration in an aggregate amount equal to the number of shares so withdrawn,
with such shares to be allocated among such holders of Registrable Securities
requesting additional inclusion in accordance with Section 1.15.
1.3 Special Registration.
(a) Request for Registration. Notwithstanding anything in this
Agreement to the contrary and in addition to the registration rights provided
for in Section 1.2, if the Company shall receive from Holder at any time or
times not earlier than six (6) months after the effective
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date of the first registration statement filed by the Company covering an
underwritten offering of any of its securities to the general public, a written
request that the Company effect any registration with respect to all or a part
of an aggregate of up to 1,500,000 shares held by Holder (the "Holder Shares"),
the Company will:
(i) promptly given written notice of the proposed
registration to all other holders of Registrable Securities; and
(ii) as soon as practicable, use its best efforts to
effect such registration (including, without limitation, filing
post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws, and appropriate compliance with
the Securities Act) and as would permit or facilitate the sale and
distribution of all or such portion of such Holder Shares as are
specified in such request, together with all or such portion of the
Registrable Securities of any holder or holders of Registrable
Securities joining in such request as are specified in a written request
or requests received by the Company within twenty (20) days after such
written notice from the Company is deemed received by all such holders.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.3:
(A) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance, unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act.
(B) After the Company has initiated two such registrations
pursuant to this Section 1.3(a) (counting for these purposes only registrations
which have been declared or ordered effective and pursuant to which the Holder
is able to register and sell all of the Holder Shares requested to be included
in such registration);
(C) During the period starting with the date of filing of, and
ending on a date (1) one hundred eighty (180) days after the effective date of,
the first Company-initiated registration or (2) in the case of subsequent
Company-initiated registrations, one hundred twenty (120) days after the
effective date of such registration; provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective and provided, further, that in the case of
subparagraph (2) of this Section 1.3(a)(ii)(C) that the portion of the Holder
Shares requested by Holder to be included in such subsequent Company-initiated
registration are included in the Registrable Securities in such registration; or
(D) If the Company notifies the holders of Registrable
Securities within thirty (30) calendar days of such request of the Company's
intent to file a registration statement for a public offering of its shares
within the following sixty (60) calendar days; provided that the Company agrees
to include the Holder Shares in such registration upon Holder's request.
(b) Subject to the foregoing clauses (A) through (D), the
Company shall file a registration statement covering the Holder Shares and other
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request of the Holder; provided,
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<PAGE> 7
however, that if (i) in the good faith judgment of the Board of Directors of the
Company, such registration would be seriously detrimental to the Company and the
Board of Directors of the Company concludes, as a result, that it is essential
to defer the filing of such registration statement at such time, and (ii) the
Company shall furnish to such holders of Registrable Securities a certificate
signed by the President 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 for such registration statement to be filed in the near future and
that it is, therefore, essential to defer the filing of such registration
statement, then the Company shall have the right to defer such filing (except as
provided in clause (C) above) for a period of not more than ninety (90) days
after receipt of the request of the Holder pursuant to this Section 1.3, and,
provided further, that the Company shall not defer its obligation in this manner
more than once in any consecutive twelve (12) month period. The registration
statement filed pursuant to the request of the Holder may include other
securities of the Company with respect to which registration rights have been
granted, and may include securities of the Company being sold for the account of
the Company, in each case subject to Section 1.15.
(c) Underwriting. If the Holder intends to distribute the Holder
Shares and other Registrable Securities covered by their request by means of an
underwriting, it shall so advise the Company as part of its request made
pursuant to this Section 1.3 and the Company shall include such information in
the written notice referred to in Section 1.3(a). The right of any other holders
of Registrable Securities to registration pursuant to Section 1.3 shall be
conditioned upon such holders' participation in such underwriting and the
inclusion of such holder's Registrable Securities in the underwriting (unless
otherwise agreed by the Holder with respect to such participation and inclusion)
to the extent provided herein. A holder of Registrable Securities may elect to
include in such underwriting all or a part of the Registrable Securities he, she
or it holds.
(d) Procedures. For any underwritten registration pursuant to
this Section 1.3, if the Company shall request inclusion of securities being
sold for its own account, or if other persons shall request inclusion, the
Holder shall, on behalf of all holders of Registrable Securities, offer to
include such securities in the underwriting and may condition such offer on
their acceptance of the further applicable provisions of this Section 1.3
(including Section 1.14). The Company shall (together with all holders of
Registrable Securities and other persons proposing to distribute their
securities through such underwriting) enter into underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for such underwriting by the Holder, which underwriters are reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
1.3, if the representative of the underwriters advises the Holder in writing
that marketing factors require a limitation on the number of shares to be
underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 1.15 hereof. If a person
who has requested inclusion in such registration as provided above does not
agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the Holder. The
securities so excluded shall also be withdrawn from registration. Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting shall also be withdrawn from such registration. If shares are so
withdrawn from the registration and if the number of shares to be included in
such registration was previously reduced as a result of marketing factors
pursuant to this Section 1.3(d), then the Company shall offer to the Holder,
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<PAGE> 8
to the extent the Holder Shares for which registration has been requested were
cut back and then to all other holders of Registrable Securities and Other
Stockholders who have retained rights to include securities in the registration
the right to include additional securities in the registration in an aggregate
amount equal to the number of shares so withdrawn, with such shares to be
allocated among the holders requesting additional inclusion in accordance with
Section 1.15.
1.4 Company Registration.
(a) If the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders exercising their respective demand registration rights (other than
pursuant to Section 1.2 or 1.7 hereof), other than a registration relating
solely to employee benefit plans, or a registration relating solely to a Rule
145 transaction, or a registration on any registration form that does not permit
secondary sales, the Company will:
(i) promptly give to each holder of Registrable
Securities written notice thereof; and
(ii) use its best efforts to include in such
registration (and any related qualification under blue sky laws or other
compliance), except as set forth in Section 1.4(b) hereof, and in any
underwriting involved therein, all the Registrable Securities specified
in a written request or requests, made by any holder of Registrable
Securities and received by the Company within ten (10) calendar days
after the written notice from the Company described in clause (i) above
is deemed received by such holder. Such written request may specify all
or a part of a holder's Registrable Securities.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the holders of Registrable Securities as a part of the
written notice given pursuant to Section 1.4(a)(i) hereof. In such event, the
right of any holder of Registrable Securities to registration pursuant to this
Section 1.4 shall be conditioned upon such holder's participation in such
underwriting and the inclusion of such holder's Registrable Securities in the
underwriting to the extent provided herein. All holders of Registrable
Securities proposing to distribute their securities through such underwriting
shall (together with the Company and the other holders of securities of the
Company with registration rights to participate therein distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected by the Company.
Notwithstanding any other provision of this Section 1.4, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Registrable Securities from, or limit the number of Registrable Securities to be
included in, the registration and underwriting. If the registration is the first
Company-initiated registered offering of the Company's securities to the general
public, the Company may limit, to the extent so advised by the underwriters, the
amount of securities (including Registrable Securities) to be included in the
registration by the Company's shareholders (including the holders of Registrable
Securities), or may exclude, to the extent so advised by the underwriters,
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<PAGE> 9
such underwritten securities entirely from such registration. If such
registration is the second or any subsequent Company-initiated registered
offering of the Company's securities to the general public, the Company may
limit, to the extent so advised by the underwriters, the amount of securities to
be included in the registration; provided, however, that the aggregate value of
Registrable Securities to be included in such registration by the holders of
Registrable Securities may not be so reduced to less than thirty percent (30%)
of the total value of all securities included in such registration. The Company
shall so advise all holders of Registrable Securities requesting registration,
and the number of shares of securities that are entitled to be included in such
registration and underwriting (other than shares to be included by the Company)
shall be allocated as set forth in Section 1.15 hereof. If any person does not
agree to the terms of any such underwriting, he, she or it shall be excluded
therefrom by written notice from the Company or the underwriter. Any Registrable
Securities or other securities excluded or withdrawn from such underwriting
shall be withdrawn from such registration.
If shares are so withdrawn from the registration and if the number of
shares of Registrable Securities to be included in such registration was
previously reduced as a result of marketing factors, the Company shall then
offer to all holders of Registrable Securities who have retained the right to
include Registrable Securities in the registration the right to include
additional shares of Registrable Securities in the registration in an aggregate
amount equal to the number of shares so withdrawn, with such shares of
Registrable Securities to be allocated among the holders requesting additional
inclusion in accordance with the terms of this Agreement.
1.5 Right to Terminate Registration. The Company shall have the right to
terminate or withdraw any registration initiated by it under Section 1.4 prior
to the effectiveness of such registration whether or not any holder of
Registrable Securities has elected to include securities in such registration.
The Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 1.6 hereof.
1.6 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 1.2, 1.3, 1.4 and 1.7 hereof (including the expenses of one (1) special
counsel to the participating holders of Registrable Securities and the
reasonable fees and disbursements of each additional counsel retained by any
holder of Registrable Securities for the purpose of rendering a legal opinion on
behalf of such holder required by the Company in connection with any
underwritten registration) shall be borne by the Company. All Selling Expenses
relating to securities so registered shall be borne by the holders of such
securities pro rata on the basis of the number of shares of securities so
registered on their behalf. The Company shall not, however, be required to pay
for expenses of any registration proceeding begun pursuant to Section 1.2, 1.3,
or 1.7, the request of which has been subsequently withdrawn by the Initiating
Holders unless the withdrawal is based upon material adverse information
concerning the Company of which the Initiating Holders were not aware at the
time of such request.
1.7 Registration on Form S-3.
(a) After its initial public offering, the Company shall use its
best efforts to qualify for registration on Form S-3 or any comparable or
successor form or forms. After the Company has qualified for the use of Form
S-3, in addition to the rights contained in the
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<PAGE> 10
foregoing provisions of this Section 1.7, the holders of Registrable Securities
shall have the right to request registrations on Form S-3 (such requests shall
be in writing and shall state the number of shares of Registrable Securities to
be disposed of and the intended methods of disposition of such shares by such
holder or holders), provided, however, that the Company shall not be obligated
to effect any such registration 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) on
Form S-3 at an aggregate price to the public of less than $500,000 or in the
circumstances described in clause (A) of Section 1.2(a)(ii), or if, in a given
twelve (12) month period the Company has effected two (2) such registrations in
such period.
(b) If a request complying with the requirements of Section
1.7(a) hereof is delivered to the Company, the Company will:
(i) promptly give written notice of the proposed
registration to all other holders of Registrable Securities; and
(ii) as soon as practicable, use its best efforts to
effect such registration (including, without limitation, filing
post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws, and appropriate compliance with
the Securities Act) and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any holder or holders joining in such request
as are specified in a written request received by the Company within
twenty (20) days after such written notice from the Company is deemed
received by such holder.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.7 in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification, or
compliance, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act.
(c) Subject to the limitations set forth in Section 1.7(a) and
(b) above, the Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request or requests of the holders of Registrable
Securities; provided, however, that if (i) in the good faith judgment of the
Board of Directors of the Company, such registration would be seriously
detrimental to the Company and the Board of Directors of the Company concludes,
as a result, that it is essential to defer the filing of such registration
statement at such time, and (ii) the Company shall furnish to such Holders a
certificate signed by the President 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 for such registration statement to be filed in the
near future and that it is, therefore, essential to defer the filing of such
registration statement, then the Company shall have the right to defer such
filing for the period during which such disclosure would be seriously
detrimental, provided that the Company may not defer the filing for a period of
more than sixty (60) days after receipt of the request of the holders of
Registrable Securities, and, provided further, that the
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<PAGE> 11
Company shall not defer its obligation in this manner more than once in any
consecutive twelve (12) month period.
The registration statement filed pursuant to the request of the holders
of Registrable Securities may, subject to the provisions of Sections 1.7(b) and
1.15 hereof, include other securities of the Company with respect to which
registration rights have been granted, and may include securities of the Company
being sold for the account of the Company, provided the inclusion of securities
of the Company does not reduce the number of Registrable Securities to be
registered by the holders of Registrable Securities.
(d) Underwriting. If the registration is for an underwritten
offering, the provisions of Sections 1.7(d) and 1.7(e) hereof shall apply to
such registration. In such event, the right of any holder of Registrable
Securities to registration pursuant to Section 1.7 hereof 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 holders and such holder with respect to
such participation and inclusion) to the extent provided herein. A holder of
Registrable Securities may elect to include in such underwriting all or a part
of the Registrable Securities he, she or it holds.
(e) Procedures. For any underwritten registration pursuant to
this Section 1.7, if the Company shall request inclusion of securities being
sold for its own account, or if other persons shall request inclusion, the
holders of Registrable Securities shall, on behalf of all holders of Registrable
Securities, offer to include such securities in the underwriting and may
condition such offer on their acceptance of the further applicable provisions of
this Section 1 (including Section 1.14 hereof). The Company shall (together with
all holders of Registrable Securities and other persons proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the representative of the underwriter or underwriters
selected for such underwriting by the holders of a majority of the Registrable
Securities included in such registration, which underwriters are reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
1.7, if the representative of the underwriters advises the holders of
Registrable Securities in writing that marketing factors require a limitation on
the number of shares to be underwritten, the number of shares to be included in
the underwriting or registration shall be allocated as set forth in Section 1.15
hereof. If a person who has requested inclusion in such registration as provided
above does not agree to the terms of any such underwriting, such person shall be
excluded therefrom by written notice from the Company, the underwriter or the
holders of Registrable Securities. The securities so excluded shall also be
withdrawn from registration. Any Registrable Securities or other securities
excluded shall also be withdrawn from such registration. If shares are so
withdrawn from the registration and if the number of shares to be included in
such registration was previously reduced as a result of marketing factors
pursuant to this Section 1.7(e), then the Company shall offer to all holders of
Registrable Securities who have retained rights to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among such holders of Registrable Securities requesting
additional inclusion in accordance with Section 1.15 hereof.
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1.8 Registration Procedures. In the case of each registration effected
by the Company pursuant to Section 1.8 hereof, the Company will keep each holder
of Registrable Securities advised in writing as to the initiation of each
registration and as to the completion thereof. In addition, the Company shall
use its best efforts to effect the registration and the sale of such Registrable
Securities in accordance with the intended method of disposition thereof, and
pursuant thereto the Company, at its expense, shall as expeditiously as
possible:
(a) prepare and file with the Securities and Exchange Commission
a registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected by the
holders of at least twenty-two percent (22%) of the Registrable Securities
covered by such registration statement copies of all such documents proposed to
be filed, which documents shall be subject to the review and comment of such
counsel);
(b) notify each holder of Registrable Securities of the
effectiveness of each registration statement filed hereunder and prepare and
file with the Securities and Exchange Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a period
of not less than 180 days with respect to a registration statement on Form S-1,
S-2 or S-3, and comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number
of copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company shall not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subsection, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading in light of the circumstances in which they were made, and, at
the request of any such seller, the Company shall prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus shall not
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<PAGE> 13
contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading in light of the
circumstances in which they were made;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use its reasonable
efforts to secure designation of all such Registrable Securities covered by such
registration statement as a NASDAQ "national market system security" within the
meaning of Rule 11Aa2-1 of the Securities and Exchange Commission or, failing
that, to secure NASDAQ authorization for such Registrable Securities and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register as such with respect to such Registrable Securities
with the NASD;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
at least twenty-two percent (22%) of the Registrable Securities being sold or
the underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities (including effecting a stock
split or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; and
(k) permit any holder of Registrable Securities which holder, in
the Company's reasonable judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included;
(l) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration
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<PAGE> 14
statement for sale in any jurisdiction, the Company shall use its best efforts
promptly to obtain the withdrawal of such order; and
(m) use reasonable efforts to obtain a cold comfort letter from
the Company's independent public accountants in customary form and covering such
matters of the type customarily covered by cold comfort letters as the holders
of at least twenty-two percent (22%) of the Registrable Securities being sold
reasonably request (provided that such Registrable Securities constitute at
least 10% of the securities covered by such registration statement).
1.9 Indemnification.
(a) In the event any Registrable Securities are included in a
Registration Statement under Section 1.2, 1.3, 1.4 or 1.7, to the fullest extent
permitted by law, the Company will indemnify each holder of Registrable
Securities, each of its officers, directors and partners, legal counsel, and
each person controlling such holder within the meaning of section 15 of the
Securities Act, with respect to which registration, qualification, or compliance
has been effected pursuant to this Section 1.9, and each underwriter, if any,
and each person who controls within the meaning of section 15 of the Securities
Act any underwriter, against all expenses, claims, losses, damages, and
liabilities (or actions, proceedings, or settlements in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, or other document (including any
related registration statement, notification, or the like) related to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification, or compliance, and will reimburse each
such holder of Registrable Securities, each of its officers, directors,
partners, legal counsel, and each person controlling such holder, each such
underwriter, and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability, or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability, or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by such holder of Registrable Securities or underwriter for use therein.
It is agreed 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).
(b) Each holder of Registrable Securities will, if Registrable
Securities held by him, her or it are included in the securities as to which
such registration, qualification, or compliance is being effected, indemnify the
Company, each of its directors, officers, partners, legal counsel, and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of section 15 of the Securities Act, each other such holder of
Registrable Securities, and each of their officers, directors, and partners, and
each person controlling such holder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on
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<PAGE> 15
any untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made, and will reimburse the
Company and such holders of Registrable Securities, directors, officers,
partners, legal counsel, persons, underwriters, or control persons for any legal
or any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability, or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular, or other document in reliance upon and
in conformity with written information furnished to the Company by such holder
of Registrable Securities for use therein provided, however, that the
obligations of such holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
holder (which consent shall not be unreasonably withheld) and provided further
that the obligations of such holders hereunder shall be limited to an amount
equal to the net proceeds from the offering received by each such holder of
Registrable Securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section
1.9 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 1.9, to the extent such
failure is not materially prejudicial. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
(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
therein, 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. 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
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<PAGE> 16
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.
1.10 Information by Holder. Each holder of Registrable Securities shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification, or compliance referred to in this Section 1.10.
1.11 Limitations on Registration of Issues of Securities. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of at least the holders of Registrable Securities holding seventy-five
percent (75%) of the then outstanding Registrable Securities enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder any registration rights the terms of
which are more favorable than the registration rights granted to the holders of
Registrable Securities hereunder.
1.12 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to
use its best efforts to:
(a) make and keep public information regarding the Company
available as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after ninety (90) days following the
effective date of the first registration under the Securities Act filed by the
Company for an offering of its securities to the general public;
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act at any time after it has become subject to such reporting
requirements; and
(c) so long as a holder of Registrable Securities owns any
Restricted Securities, furnish to such holder forthwith upon written request a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144 (at any time from and after ninety (90) days following
the effective date of the first registration statement filed by the Company for
an offering of its securities to the general public), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as a holder of
Registrable Securities may reasonably request in availing itself of any rule or
regulation of the Commission allowing a holder of Registrable Securities to sell
any such securities without registration.
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<PAGE> 17
1.13 Transfer or Assignment of Registration Rights. The rights to cause
the Company to register securities granted to a holder of Registrable Securities
by the Company under this Section 1.13 may be transferred or assigned by a
holder of Registrable Securities without restrictions as to minimum share
holdings to: (a) any partner or retired partner of any holder which is a
partnership, (b) any family member of any holder or any trust for the benefit of
any holder, (c) any member of any holder which is a limited liability company,
(d) any grantor of a holder that is a trust, (e) any stockholder of any holder
which is a corporation, or (f) any transferee or assignee acquiring, in the
aggregate, not less than twenty-five percent (25%) of the Registrable Securities
owned by such holder (as presently constituted and subject to subsequent
adjustments for stock splits, stock dividends, reverse stock splits, and the
like); provided, however, that in each of the preceding cases (a) through (e),
the Company is given written notice at the time of or within fifteen (15) days
after such transfer or assignment, stating the name and address of the
transferee or assignee and identifying the Registrable Securities being
transferred or assigned, and, provided further, that the transferee or assignee
of such rights assumes the obligations of such Holder under this Section 1.13.
1.14 "Market Stand-Off" Agreement.
(a) If requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, a holder of Registrable Securities
shall not sell or otherwise transfer or dispose of any Registrable Securities of
the Company held by such holder (other than those included in the registration)
during the one hundred eighty (180) day period following the effective date of
the initial registration statement of the Company filed under the Securities
Act; provided, however, that: (i) each of the Company's officers and directors
and holders of at least one percent (1%) of the Company's voting securities
shall likewise be bound by such one hundred eighty (180) day "Market Stand-Off"
agreement; and, (ii) any discretionary waiver by the Company or representative
of the underwriters of any person's "Market Stand-Off" agreement shall apply to
all holders pro rata based on the number of Registrable Securities owned by the
holders and the number of shares owned by the person(s) receiving the
discretionary waiver.
(b) The obligations described in this Section 1.14 shall not
apply to a registration relating solely to employee benefit plans on Form S-1 or
Form S-8 or similar forms that may be promulgated in the future, or a
registration relating solely to a Commission Rule 145 transaction on Form S-4 or
similar forms that may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares (or securities) subject to
the foregoing restriction until the end of such one hundred eighty (180) day
period.
(c) Each holder of Registrable Securities agrees to execute and
deliver such other agreements as may be reasonably requested by the Company or
the underwriter which are consistent with the foregoing or which are necessary
to give further effect thereto. In addition, if requested by the Company or the
representative of the underwriters of Common Stock (or other securities) of the
Company, each holder of Registrable Securities shall provide, within ten (10)
days of such request, such information as may be required by the Company or such
representative in connection with the completion of any public offering of the
Company's securities pursuant to a registration statement filed under the
Securities Act.
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<PAGE> 18
1.15 Allocation of Registration Opportunities.
(a) In connection with each underwritten registration, in any
circumstance in which all of the Registrable Securities and other shares of
Common Stock of the Company (including shares of Common Stock issued or issuable
upon conversion of shares of any currently unissued series of Preferred Stock of
the Company) with registration rights (the "Other Shares") requested to be
included in a registration on behalf of the holders of Registrable Securities or
Other Stockholders cannot be so included as a result of limitations of the
aggregate number of Registrable Securities and Other Shares that may be so
included, the number of Registrable Securities and Other Shares that may be so
included shall be allocated among the holders of Registrable Securities and
Other Stockholders so as to first reduce to zero (0) the number of Other Shares
to be included in such registration. Thereafter, the number of Registrable
Securities that may be so included shall be allocated among the holders of
Registrable Securities requesting inclusion of shares pro rata on the basis of
the number of Registrable Securities held by such holders; provided, however,
that such allocation among Holders shall not operate to reduce the aggregate
number of Registrable Securities to be included in such registration; and
provided, further that, in the case of a requested registration by Holder under
Section 1.3, the Holder Shares for which registration has been requested shall
not be reduced, limited or cut back unless and until all other Registrable
Securities for which requests for registration have been made have been reduced
or cut back to zero.
(b) If any holder of Registrable Securities or Other Stockholder
does not request inclusion of the maximum number of Registrable Securities and
Other Shares allocated to him pursuant to any registration hereunder, the
remaining portion of his allocation shall be reallocated among those requesting
holders of Registrable Securities and Other Stockholders whose allocations did
not satisfy their requests pro rata on the basis of the number of shares of
Registrable Securities and Other Shares which would be held by such holders and
Other Stockholders, and this procedure shall be repeated until all of the
Registrable Securities and Other Shares which may be included in the
registration on behalf of the holders of Registrable Securities and Other
Stockholders have been so allocated; provided, however, that in the case of a
requested registration by Holder under Section 1.3, the Holder shall have the
right to fully satisfy its request to register all of the Holder Shares prior to
any pro rata allocation.
(c) The Company shall not limit, cut back or in any manner
reduce the number of Registrable Securities to be included in a registration
pursuant to this Agreement in order to include shares held by stockholders with
no registration rights or to include any other shares of stock issued to
employees, officers, directors or consultants pursuant to option or benefit
plans or, with respect to registrations under Sections 1.2 and 1.7 hereof, in
order to include in such registration securities registered for the Company's
own account.
1.16 Termination of Registration Rights. The right of any Holder to
request registration or inclusion in any registration pursuant to Section 1
hereof shall terminate upon the expiration of three (3) years after the closing
of the initial public offering of Common Stock of the Company. In addition, a
Holder's registration rights shall expire if all Registrable Securities held by
and issuable to such Holder may be sold under Rule 144 during any ninety (90)
day period.
SECTION 2
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Right of First Offer
2.1 Right of First Offer. The Company hereby grants to each Owner a
right of first offer with respect to future sales of New Securities (as defined
in this Section 2) by the Company; provided, however, that no person or entity
shall be deemed an Owner for purposes of this Section 2 unless the Company's
sale of New Securities to such person or entity would be exempt from the
registration and qualification requirements of applicable securities laws.
2.2 New Securities. Except as set forth below, "New Securities" shall
mean any shares of capital stock of the Company, including Common Stock and any
series of Preferred Stock, whether now authorized or not, and rights, options or
warrants to purchase stock, and securities of any type whatsoever that are, or
may become, convertible into or exchangeable for such capital stock.
Notwithstanding the foregoing, the term "New Securities" does not include (a)
securities issuable upon conversion of the Series A Preferred Stock and the
Series B Preferred Stock; (b) Common Stock offered to the public generally
pursuant to a registration statement under the Securities Act in connection with
a public offering; (c) up to an aggregate of 6,700,000 shares of Common Stock
issued to employees, officers and directors of, and consultants to, the Company;
(d) securities issued pursuant to the acquisition of another business entity or
business segment of any such entity by the Company by merger, purchase of
substantially all the assets or other reorganization whereby the Company will
own more than fifty percent (50%) of the voting power of such business entity or
business segment of any such entity if such issuance is unanimously approved by
the Board of Directors; (e) securities issued pursuant to any borrowings by the
Company from financial institutions or pursuant to the conversion of any debt
security held by the Shareholder which is currently outstanding, including any
type of loan or payment evidenced by any type of debt instrument, with or
without equity features including warrants, options or other rights to purchase
capital stock and whether or not convertible into capital stock of the Company
if such issuance is unanimously approved by the Board of Directors; (f)
securities issued in connection with obtaining lease financing, whether issued
to a lessor or guarantor, if such issuance is unanimously approved by the Board
of Directors; (g) securities issued in connection with any stock split, stock
dividend or recapitalization of the Company; (h) up to 1,600,000 shares of
Common Stock issued to another business or entity as part of a strategic
investment in or business relationship with such other business or entity; (i)
any right, option or warrant to acquire any security convertible into the
securities excluded from the definition of New Securities pursuant to
subsections (a) through (i) above.
2.3 Exercise of First Offer Right. In the event the Company proposes to
issue New Securities, it shall give each Owner written notice of its intention,
describing the amount and type of New Securities, and the price and terms upon
which the Company proposes to issue the same. Each Owner shall have ten calendar
(10) days from the date it is deemed to have received any such notice to agree
to purchase up to its respective Pro Rata Share (as defined below) of such New
Securities for the price and upon the terms specified in the notice by giving
written notice to the Company and stating therein the quantity of New Securities
to be purchased. An Owner's "Pro Rata Share" of New Securities, for purposes of
this right of first offer, is the ratio that (a) the total number of shares of
Common Stock then owned by such Owner bears to (b) the total number of shares of
Common Stock of the Company then outstanding (assuming for clauses (a) and (b)
above the conversion of outstanding preferred stock or other outstanding
convertible
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<PAGE> 20
securities and the exercise of options, warrants or other exercisable securities
outstanding on the date of this Agreement).
2.4 Right of Over Allotment. If less than all of the Owners elect to
purchase their full Pro Rata Share of the New Securities, then the Company shall
promptly notify in writing the Owners who do so elect and shall offer such
Owners the right to acquire the unsubscribed portions of the other Owners' Pro
Rata Shares. Such electing Owners shall have five (5) days from the date it is
deemed to have received such notice to notify the Company of their respective
election to purchase all or part of the aggregate unsubscribed portion of such
Pro Rata Shares. For purposes of this Section 2.4, each such Owner shall be
entitled to purchase an amount of such unsubscribed portion equal to the ratio
that (a) the total number of shares of Common Stock then owned by such Owners
bears to (b) the total number of shares of Common Stock then owned by all such
Owners exercising overallotment subscription rights pursuant to this Section 2.4
(assuming for clauses (a) and (b) above the conversion of outstanding preferred
stock or other outstanding convertible securities and the exercise of options,
warrants or other exercisable securities outstanding on the date of this
Agreement).
2.5 Completion of Sale. Upon the expiration of the applicable notice
periods set forth in Sections 2.3 and 2.4 above, the Company shall have ninety
(90) days to sell the New Securities not elected to be purchased by the Owners,
at the price and upon terms that are, when taken as a whole, no more favorable
to the purchasers of such securities than specified in the Company's notice. In
the event the Company has not sold the New Securities within said ninety (90)
day period, the Company shall not thereafter issue or sell any New Securities
without first offering such securities to the Owners in the manner provided
above.
2.6 Termination of First Offer Rights. The rights set forth in this
Section 2 shall terminate upon the closing of a Qualified Public Offering.
2.7 Transfer or Assignment of Rights. The rights of first offer granted
to an Owner by the Company under this Section 2 may be transferred or assigned
by an Owner to any permitted transferee or assignee of Registrable Securities
under Section 1.12 above; provided, however, that the Company is given written
notice at the time of or within fifteen (15) days after such transfer or
assignment, stating the name and address of the transferee or assignee and
identify the securities with respect to which such rights are being transferred
or assigned, and provided further, that the transferee or assignee of such
rights assumes the obligations of such Owner under this Section 2.
SECTION 3
Covenants of the Company
3.1 Basic Financial and Other Information.
(a) The Company will provide the following reports:
(i) to each Owner, as soon as practicable after the end
of each fiscal year, and in any event within ninety (90) days
thereafter, consolidated balance sheets of the Company and its
subsidiaries, if any, as of the end of such fiscal year, and
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<PAGE> 21
consolidated statements of operations and of cash flows and
stockholders' equity of the Company and its subsidiaries, if any, for
such year, prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and
audited by independent public accountants of national standing selected
by the Company;
(ii) to each Owner, as soon as practicable after the end
of the first, second and third quarterly accounting periods in each
fiscal year of the Company, and in any event within forty-five (45) days
thereafter, a consolidated balance sheet of the Company and its
subsidiaries, if any, as of the end of each such quarterly period, and
consolidated statements of operations and of cash flows and
stockholders' equity of the Company and its subsidiaries, if any, for
such period and for the current fiscal year to date, prepared in
accordance with generally accepted accounting principles (other than for
accompanying notes), subject to changes resulting from year-end audit
adjustments, in reasonable detail and signed by the principal financial
or accounting officer of the Company;
(iii) to each Owner, as soon as practical after the end
of each month and in any event within thirty (30) days thereafter, a
consolidated balance sheet of the Company and its subsidiaries, if any,
as at the end of such month and consolidated statements of income and
cash flows of the Company and its subsidiaries, for each month and for
the current fiscal year of the Company to date, all subject to normal
year-end audit adjustments, prepared in accordance with generally
accepted accounting principles consistently applied and certified by the
principal financial or accounting officer of the Company, together with
a comparison of such statements to the corresponding periods of the
prior fiscal year and to the Company's operating plan then in effect and
approved by its Board of Directors; and
(iv) to each Owner, at least fifteen (15) days prior to
the beginning of each fiscal year, a financial plan and budget adopted
by the Company's Board of Directors for the fiscal year ("Financial
Plan"), prepared on a quarterly basis, including balance sheets and
sources and applications of funds statements for such months and, as
soon as practicable after being prepared, any other budgets or revised
budgets prepared by the Company.
(b) The Company shall permit each Owner, at such Owner'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 during normal business hours as
may be requested by such Owner; provided, however, that the Company shall not be
obligated pursuant to this Section 3.1(b) to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information. The Company shall not be required to comply under this Section
3.1(b) in respect of any Owner whom the Board of Directors reasonably determines
to be a competitor or an officer, director or greater than ten percent (10%)
owner of a competitor.
(c) The provisions of this Section 3.1 shall terminate upon the
closing of a Qualified Public Offering.
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<PAGE> 22
SECTION 4
Restrictions on Transferability
4.1 Restrictions on Transferability. The Restricted Securities shall not
be sold, assigned, transferred or pledged except upon the conditions specified
in this Agreement, which conditions are intended to ensure compliance with the
provisions of the Securities Act. The Owners will cause any proposed purchaser,
assignee, transferee, or pledgee of any such shares held by the Owners (the
"Transferee") that is not a party to this Agreement to execute and deliver to
the Secretary of the Company an agreement (the "Assumption Agreement") or
similar obligation, pursuant to which such Transferee shall agree to take and
hold such securities subject to the provisions and upon the conditions specified
in this Agreement. The terms and provisions of this Section 4.1 shall terminate
on the closing of the Company's initial public offering of its Common Stock
pursuant to an effective registration statement under the Securities Act.
4.2 Restrictive Legends. Each certificate representing the Restricted
Securities shall (unless otherwise permitted by the provisions of Section 4.3
below) be stamped or otherwise imprinted with appropriate restrictive legends.
Each Owner consents to the Company making a notation on its records and giving
instructions to any transfer agent of the Preferred Stock or the Common Stock in
order to implement the restrictions on transfer established in this Agreement.
4.3 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4.3. Prior to any proposed sale,
assignment, transfer or pledge (each, a "Transfer") of any such Restricted
Securities (other than (a) a transfer not involving a change in beneficial
ownership, (b) in transactions involving the distribution without consideration
of Restricted Securities by the Owner to any of its direct or indirect members,
partners, stockholders, retired members or retired partners, or to the estate of
any of its direct or indirect members, partners, retired members or retired
partners, (c) in transactions involving the transfer without consideration of
Restricted Securities by the Owner during his lifetime by way of gift or on
death by will or intestacy, (d) in transactions involving the transfer or
distribution of Restricted Securities by a corporation or limited liability
company to any subsidiary, parent or affiliated corporation or limited liability
company of such corporation or limited liability company or in connection with a
merger or sale of all or substantially all of its assets or capital stock, or
(e) in transactions in compliance with Rule 144), unless there is in effect a
registration statement under the Securities Act covering the proposed Transfer,
the Owner thereof shall give written notice to the Company of such Owner's
intention to effect such Transfer. Each such notice shall describe the manner
and circumstances of the proposed Transfer in sufficient detail, and shall be
accompanied, at such Owner's expense by either (i) an unqualified written
opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed Transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the Transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the Owner of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the Owner to the
Company.
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<PAGE> 23
Not later than fifteen (15) days following the date of any Transfer as
to which prior notice is not required pursuant to this Section 4, the transferor
of the Restricted Securities shall deliver to the Secretary of the Company
written notification of such Transfer setting forth the name of the transferor,
name and address of the transferee and the number of Restricted Securities which
have been so transferred.
Each certificate evidencing the Restricted Securities transferred as
above provided shall bear, except if such Transfer is made pursuant to Rule 144,
the appropriate restrictive legends, except that such certificate shall not bear
such restrictive legend if, in the opinion of counsel for such Owner and the
Company, such legends are not required in order to establish compliance with any
provision of the Securities Act.
SECTION 5
Restrictions on Transfer;
Owner's Right of Last Refusal and Co-Sale Provisions
5.1 Restrictions on Transfer. Shareholder agrees that it will not,
without the prior written consent of the Company and of the Owners holding
two-thirds of the Restricted Securities (a "Two-Thirds Interest"), Transfer all
or any portion of the shares of Common Stock of the Company (the "Shares") now
owned or hereafter acquired by it, except in connection with, and in compliance
with the conditions of, Sections 5.2 and 5.3 in each case made in accordance
with the procedures set forth therein.
5.2 Right of Last Refusal. In the event that the Shareholder receives a
bona fide offer to purchase all or any portion of the Shares held by such person
(a "Transaction Offer") from a third party (the "Offeror"), such Shareholder (a
"Transferring Shareholder") may, subject to the provisions of Section 5.3
hereof, Transfer such Shares pursuant to and in accordance with the following
provisions of this Section 5.2:
(a) Such Transferring Shareholder shall cause the Transaction
Offer and all of the material terms thereof to be reduced to writing and shall
notify each of the Owners and the Company of his or its wish to accept the
Transaction Offer and otherwise comply with the provisions of this Section 5.2
and, if applicable, Section 5.3 (such notice, the "Offer Notice"). The
Transferring Shareholder's Offer Notice shall constitute an irrevocable offer to
sell such Shares to the Owners and, if and to the extent the Owners do not elect
to purchase all of such Shares, the Company, on the basis described below at a
purchase price equal to the price contained in, and on the same terms and
conditions of, the Transaction Offer. The Offer Notice shall be accompanied by a
true copy of the Transaction Offer (if it was submitted to the Transferring
Shareholder in writing), which shall identify all material information in
connection therewith.
(b) Upon the deemed receipt of an Offer Notice, the Owners may
elect to accept the offer to sell with respect to any or all of the Shares
subject thereto as set forth herein and shall give written notice of such
election to the Transferring Shareholder as provided below. In the case of a
purchase by the Owners, each Owner shall have the right to offer to purchase up
to that number of Shares covered by the Transaction Offer as shall be equal to
the product
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<PAGE> 24
obtained by multiplying (i) the total number of Shares subject to the
Transaction Offer by (ii) a fraction, the numerator of which is the total number
of shares of Common Stock of the Company owned by such Owner on the date of the
Offer Notice, and the denominator of which is the total number of shares of
Common Stock of the Company then held by all Owners (calculated on a
fully-diluted basis) on the date of the Offer Notice, subject to increase as
hereinafter provided. The number of shares that each Owner shall be entitled to
purchase under this Section 5.2 as provided in the immediately preceding
sentence shall be referred to as its "Pro Rata Portion." In the event an Owner
does not wish to purchase its full Pro Rata Portion, then any Owner who so
elects shall have the right to offer to purchase, on a pro rata basis with any
other Owner who so elects, any Pro Rata Portion not purchased by such Owner.
Each Owner shall have the right to accept the
Transaction Offer by giving notice of such acceptance, indicating as to how many
Shares of such Owner's Pro Rata Portion the Owner elects to accept the
Transaction Offer, to the Transferring Shareholder as provided herein within
fifteen (15) days after the Offer Notice is deemed received, which notice shall
also indicate the maximum number of Shares subject thereto which the Owner and
its transferee(s) are willing to purchase in the event fewer than all Owners
elect to purchase their full Pro Rata Portions; provided that the Owners as a
group may elect to exercise the right of last refusal under Section 5.2 with
respect to fewer than all of the Shares which are subject to the Transaction
Offer. The Company may elect to purchase any or all of the Shares subject to the
Transaction Offer which the Owners do not elect to purchase, on the same basis
and terms as are provided herein with respect to the Owners, by giving notice to
the Transferring Shareholder (with a copy to the Owners) during the ten (10) day
period after receipt by the Company of notice from the Transferring Shareholder
indicating the number of such Shares available for purchase by the Company.
Following receipt of such notice from the Company (or the lapse of such ten (10)
day period), the Transferring Shareholder shall notify the Owners (the "Owners'
Final Notice") of the number of Shares subject to the Transaction Offer which
the Owners and the Company did not elect to purchase. In the event that the
price set forth in the Offer Notice is stated in consideration other than cash
or cash equivalents, the Transferring Shareholder, a Two Thirds Interest of the
Owners and, if applicable, the Company shall determine the fair market value of
such consideration, reasonably and in good faith, and the Owners and the Company
may exercise their right to purchase under this Section 5.2 by payment of such
fair market value in cash or cash equivalents.
The number of Shares to be purchased by each Owner (and
if applicable by the Company) shall be determined as follows: (x) first, there
shall first be allocated to each Owner electing to purchase a number of Shares
equal to the lesser of (A) the number of Shares as to which such Owner or
transferee accepted the Transaction Offer or (B) such Owner's Pro Rata Portion
(y) second, the balance, if any, not allocated under clause (x) above, shall be
allocated to those Owners who accepted the Transaction Offer as to a number of
Shares which exceeded their respective Pro Rata Portions, in each case on a pro
rata basis in proportion to the amount of such excess, and (z) third, the
balance, if any, not allocated under clause (x) or (y) above shall be allocated
to the Company if and to the extent it has elected to purchase.
The closing for any purchase of Shares by the Owners or
the Company under this Section 5.2 shall take place within thirty (30) days
after the expiration of the first fifteen (15) day period following the date of
the Company's deemed receipt of the Offer Notice at
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<PAGE> 25
the place and on the date reasonably specified by a Two Thirds Interest of the
Owners (as to purchases by the Owners ) or the Company (as to purchases by the
Company).
(c) In the event that the Owners and the Company do not elect to
exercise the rights to purchase under Section 5.2 with respect to all of the
Shares proposed to be sold, the Transferring Shareholder may sell all of the
Shares not so purchased to the Offeror on the terms and conditions set forth in
the Offer Notice, subject to the provisions of Section 5.3. If the Transferring
Shareholder's sale to an Offeror is not consummated in accordance with the terms
of the Transaction Offer within the later of (i) one hundred twenty (120) days
after the expiration of the right of last refusal under this Section 5.2 and the
Co-Sale Option set forth in Section 5.3 below, if applicable, (ii) ninety (90)
days after the later of the closings (if any) of the purchase of the Shares by
the Owners and the Company in accordance with Section 5.2(b) above, and (iii)
thirty (30) days after the satisfaction of all governmental approval or filing
requirements, the Transaction Offer shall be deemed to lapse, and any Transfers
of Shares pursuant to such Transaction Offer shall be deemed to be in violation
of the provisions of this Agreement unless the Owners and the Company are once
again afforded the right of last refusal provided for herein with respect to
such Transaction Offer.
5.3 Co-Sale Option of Owners. In the event that any Transferring
Shareholder receives a Transaction Offer from an Offeror, and the right of last
refusal under Section 5.2 is exercised by the Owners or the Company as to less
than all of the Shares subject to the Transaction Offer, such Transferring
Shareholder may Transfer such Shares only pursuant to and in accordance with the
following provisions of this Section 5.3:
(a) Each of the Owners shall have the right to participate in
the Transfer of Shares pursuant to the Transaction Offer with respect to any
Shares subject thereto which are not purchased pursuant to Section 5.2 by giving
written notice (the "Acceptance Notice") to the Transferring Shareholder within
ten (10) days after delivery to it of the Owners' Final Notice (the "Co-Sale
Option"). Each Acceptance Notice shall indicate the maximum number of Shares the
Owner wishes to sell including the number of Shares it would sell if one or more
other Owners do not elect to participate in the sale on the terms and conditions
stated in the Offer Notice.
(b) Each Owner shall have the right to sell a portion of its
shares of Company Common Stock pursuant to the Transaction Offer which is equal
to or less than the product obtained by multiplying (i) the total number of
Shares subject to the Transaction Offer and available for sale to the Offeror by
(ii) a fraction, the numerator of which is the total number of shares of Company
Common Stock owned by such Owner on the date of the Offer Notice (calculated on
a fully-diluted basis) and the denominator of which is the total number of
shares of Company Common Stock then held by all Owners and the Transferring
Shareholder on the date of the Offer Notice (calculated on a fully-diluted
basis). To the extent one or more Owners elects not to sell, or fails to
exercise its right to sell, the full amount of such Shares which it is entitled
to sell pursuant to this Section 5.3, the right of Owners who have elected to
sell shares of Company Common Stock shall be increased proportionately based on
their relative holdings.
(c) Within ten (10) days after the date by which the Owners were
first required to notify the Transferring Shareholder of their intent to
participate, the Transferring Shareholder shall notify each participating Owner
of the number of shares of Company Common
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<PAGE> 26
Stock held by such Owner that will be included in the sale and the date on which
the Transfer pursuant to the Transaction Offer will be consummated, which shall
be no later than as provided in Section 5.2(c) above. The Transferring
Shareholder shall be permitted to participate in such sale with respect to the
Shares subject to the Transaction Offer which were not purchased by the Owners
or the Company pursuant to Section 5.2, except to the extent any Owners elect to
sell their Shares pursuant to the terms of this Section 5.3.
(d) Each participating Owner may effect its participation in any
Transaction Offer hereunder by delivery to the Offeror, or to the Transferring
Shareholder for delivery to the Offeror, of one or more instruments or
certificates, properly endorsed for transfer, representing the shares of Company
Common Stock it elects to sell therein, provided that each such Owner shall be
required to make any representations or warranties or to provide any indemnities
in connection therewith as the Transferring Shareholder makes. At the time of
consummation of the Transaction Offer, the Offeror shall remit directly to each
selling Owner that portion of the sale proceeds to which such Owner is entitled
by reason of its participation therein (less any adjustments due to the
conversion of any convertible securities or the exercise of any exercisable
securities). No Shares may be purchased by an Offeror from the Transferring
Shareholder unless the Offeror simultaneously purchases from the participating
Owners all of the shares of Company Common Stock that they have elected to sell
pursuant to this Section 5.3.
(e) Any Shares held by a Transferring Shareholder which are the
subject of the Transaction Offer that the Transferring Shareholder desires to
sell following compliance with this Section 5.3 may be sold to the Offeror only
during the period specified in Section 5.3(c) and only on terms no more
favorable to the Transferring Shareholder than those contained in the Offer
Notice. Promptly after such sale, the Transferring Stockholder shall notify the
Owners of the consummation thereof and shall furnish such evidence of the
completion and time of completion of such sale and of the terms thereof as may
reasonably be requested by Two Thirds Interest of the Owners. So long as the
Offeror is neither a party nor an affiliate or relative of a party to this
Agreement, such Offeror shall take the Shares so Transferred free and clear of
any further restrictions of this Agreement. In the event that the Transaction
Offer is not consummated within the period required by this Section 5.3, the
Transaction Offer shall be deemed to lapse, and any Transfers of Shares pursuant
to such Transaction Offer shall be deemed to be in violation of the provisions
of this Agreement unless the Transferring Shareholder once again complies with
the provisions of Section 5.2 and this Section 5.3 hereof with respect to such
Transaction Offer.
5.4 Prohibited Transfers. If any Transfer is made or attempted contrary
to the provisions of this Agreement, such purported Transfer shall be void ab
initio; the Company and the other parties hereto shall have, in addition to any
other legal or equitable remedies which they may have, the right to enforce the
provisions of this Agreement by actions for specific performance (to the extent
permitted by law); and the Company shall have the right to refuse to recognize
any such Transferee as one of its shareholders for any purpose.
5.5 Termination of Last Refusal and Co-Sale Rights. The rights set forth
in this Section 5 shall terminate on the closing of the Company's initial public
offering of its Common Stock pursuant to an effective registration statement
under the Securities Act.
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<PAGE> 27
SECTION 6
Restrictions on Transfer;
Shareholder's Right of Last Refusal and Co-Sale Provisions
6.1 Restrictions on Transfer. Holder agrees that it will not, without
the prior written consent of the Company and the Shareholder, Transfer all or
any portion of the Shares now owned or hereafter acquired by it, except in
connection with, and in compliance with the conditions of, Sections 6.2 and 6.3
in each case made in accordance with the procedures set forth therein.
6.2 Right of Last Refusal. In the event that the Holder receives a bona
fide Transaction Offer from an Offeror, Holder may, subject to the provisions of
Section 6.3 hereof, Transfer such Shares pursuant to and in accordance with the
following provisions of this Section 6.2:
(a) Holder shall provide an Offer Notice to each of the
Shareholder and the Company relating to the Transaction Offer and otherwise
comply with the provisions of this Section 6.2 and, if applicable, Section 6.3.
Holder's Offer Notice shall constitute an irrevocable offer to sell such Shares
to the Shareholder and, if and to the extent the Shareholder does not elect to
purchase all of such Shares, the Company, on the basis described below at a
purchase price equal to the price contained in, and on the same terms and
conditions of, the Transaction Offer. The Offer Notice shall be accompanied by a
true copy of the Transaction Offer (if it was submitted to the Holder in
writing), which shall identify all material information in connection therewith.
(b) Upon receipt of an Offer Notice, the Shareholder may elect
to accept the offer to sell with respect to any or all of the Shares subject
thereto as set forth herein and shall give written notice of such election to
the Holder as provided below.
Shareholder shall have the right to accept the
Transaction Offer by giving notice of such acceptance, indicating as to how many
Shares the Shareholder elects to accept the Transaction Offer, to the Holder as
provided herein within fifteen (15) days after the deemed receipt of the Offer
Notice, which notice shall also indicate the maximum number of Shares subject
thereto which the Shareholder is willing to purchase; provided that the
Shareholder may elect to exercise the right of last refusal under Section 6.2
with respect to fewer than all of the Shares which are subject to the
Transaction Offer. The Company may elect to purchase any or all of the Shares
subject to the Transaction Offer which the Shareholder does not elect to
purchase, on the same basis and terms as are provided herein with respect to the
Shareholder, by giving notice to the Holder (with a copy to the Shareholder)
during the ten (10) day period after the deemed receipt by the Company of notice
from the Holder indicating the number of such Shares available for purchase by
the Company. Following the deemed receipt of such notice from the Company (or
the lapse of such ten (10) day period), the Holder shall notify the Shareholder
(the "Shareholders' Final Notice") of the number of Shares subject to the
Transaction Offer which the Shareholder and the Company did not elect to
purchase. In the
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<PAGE> 28
event that the price set forth in the Offer Notice is stated in consideration
other than cash or cash equivalents, the Holder and, if applicable, the Company
shall determine the fair market value of such consideration, reasonably and in
good faith, and the Shareholder and the Company may exercise their right to
purchase under this Section 6.2 by payment of such fair market value in cash or
cash equivalents.
The number of Shares to be purchased by the Shareholder
(and if applicable by the Company) shall be determined as follows: (y) there
shall first be allocated to the Shareholder the number of Shares as to which the
Shareholder accepted the Transaction Offer, and (z) the balance, if any, not
allocated under clause (y) above shall be allocated to the Company if and to the
extent it has elected to purchase.
The closing for any purchase of Shares by the
Shareholder or the Company under this Section 6.2 shall take place within thirty
(30) days after the expiration of the first fifteen (15) day period following
the date of the Company's receipt of the Offer Notice at the place and on the
date reasonably specified by the Shareholder (as to purchases by the
Shareholder) or the Company (as to purchases by the Company).
(c) In the event that the Shareholder and the Company do not
elect to exercise the rights to purchase under Section 6.2 with respect to all
of the Shares proposed to be sold, the Holder may sell all of the Shares not so
purchased to the Offeror on the terms and conditions set forth in the Offer
Notice, subject to the provisions of Section 6.3. If the Holder's sale to an
Offeror is not consummated in accordance with the terms of the Transaction Offer
within the later of (i) one hundred twenty (120) days after the expiration of
the right of last refusal under this Section 6.2 and the Co-Sale Option set
forth in Section 6.3 below, if applicable, (ii) ninety (90) days after the later
of the closings (if any) of the purchase of the Shares by the Shareholder and
the Company in accordance with Section 6.2(b) above, and (iii) thirty (30) days
after the satisfaction of all governmental approval or filing requirements, the
Transaction Offer shall be deemed to lapse, and any Transfers of Shares pursuant
to such Transaction Offer shall be deemed to be in violation of the provisions
of this Agreement unless the Shareholder and the Company are once again afforded
the right of last refusal provided for herein with respect to such Transaction
Offer.
6.3 Co-Sale Option of Shareholder. In the event that Holder receives a
Transaction Offer from an Offeror, and the right of last refusal under Section
6.2 is exercised by the Shareholder or the Company as to less than all of the
Shares subject to the Transaction Offer, the Holder may Transfer such Shares
only pursuant to and in accordance with the following provisions of this Section
6.3:
(a) Shareholder shall have the right to participate in the
Transfer of Shares pursuant to the Transaction Offer with respect to any Shares
subject thereto which are not purchased pursuant to Section 6.2 by giving
written notice (the "Acceptance Notice") to the Holder within ten (10) days
after delivery to it of the Shareholders' Final Notice (the "Shareholder's
Co-Sale Option"). Each Acceptance Notice shall indicate the maximum number of
Shares the Shareholder wishes to sell.
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<PAGE> 29
(b) Shareholder shall have the right to sell a portion of its
shares of Company Common Stock pursuant to the Transaction Offer which is equal
to or less than the product obtained by multiplying (i) the total number of
Shares subject to the Transaction Offer and available for sale to the Offeror by
(ii) a fraction, the numerator of which is the total number of shares of Company
Common Stock owned by Shareholder on the date of the Offer Notice and the
denominator of which is the total number of shares of Company Common Stock then
held by Shareholder and all of the Holders on the date of the Offer Notice.
(c) Within ten (10) days after the date by which the Shareholder
was first required to notify the Holder of its intent to participate, the Holder
shall notify the Shareholder of the number of shares of Company Common Stock
held by Shareholder that will be included in the sale and the date on which the
Transfer pursuant to the Transaction Offer will be consummated, which shall be
no later than as provided in Section 6.2(c) above. The Holder shall be permitted
to participate in such sale with respect to the Shares subject to the
Transaction Offer which were not purchased by the Shareholder or the Company
pursuant to Section 6.2, except to the extent Shareholder elects to sell its
Shares pursuant to the terms of this Section 6.3.
(d) Shareholder may effect its participation in any Transaction
Offer hereunder by delivery to the Offeror, or to the Holder for delivery to the
Offeror, of one or more instruments or certificates, properly endorsed for
transfer, representing the shares of Company Common Stock it elects to sell
therein, provided that Shareholder shall be required to make any representations
or warranties or to provide any indemnities in connection therewith as the
Holder makes. At the time of consummation of the Transaction Offer, the Offeror
shall remit directly to the Shareholder that portion of the sale proceeds to
which the Shareholder is entitled by reason of its participation therein (less
any adjustments due to the conversion of any convertible securities or the
exercise of any exercisable securities). No Shares may be purchased by an
Offeror from the Holder unless the Offeror simultaneously purchases from the
Shareholder all of the shares of Company Common Stock that it has elected to
sell pursuant to this Section 6.3.
(e) Any Shares held by the Holder which are the subject of the
Transaction Offer that the Holder desires to sell following compliance with this
Section 6.3 may be sold to the Offeror only during the period specified in
Section 6.3(c) and only on terms no more favorable to the Holder than those
contained in the Offer Notice. Promptly after such sale, the Holder shall notify
the Shareholder of the consummation thereof and shall furnish such evidence of
the completion and time of completion of such sale and of the terms thereof as
may reasonably be requested by the Shareholder. So long as the Offeror is
neither a party nor an affiliate or relative of a party to this Agreement, such
Offeror shall take the Shares so Transferred free and clear of any further
restrictions of this Agreement. In the event that the Transaction Offer is not
consummated within the period required by this Section 6.3, the Transaction
Offer shall be deemed to lapse, and any Transfers of Shares pursuant to such
Transaction Offer shall be deemed to be in violation of the provisions of this
Agreement unless the Holder once again complies with the provisions of Section
6.2 and this Section 6.3 hereof with respect to such Transaction Offer.
6.4 Prohibited Transfers. If any Transfer is made or attempted contrary
to the provisions of this Agreement, such purported Transfer shall be void ab
initio; the Company and the other parties hereto shall have, in addition to any
other legal or equitable remedies which
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<PAGE> 30
they may have, the right to enforce the provisions of this Agreement by actions
for specific performance (to the extent permitted by law); and the Company shall
have the right to refuse to recognize any such Transferee as one of its
shareholders for any purpose.
6.5 Termination of Last Refusal and Co-Sale Rights. The rights set forth
in this Section 6 shall terminate on the closing of the Company's initial public
offering of its Common Stock pursuant to an effective registration statement
under the Securities Act.
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<PAGE> 31
SECTION 7
Restrictions on Transfer;
Company's Right of Last Refusal with respect to the Investors
7.1 Restrictions on Transfer. Each Investor agrees that it will not,
without the prior written consent of the Company Transfer all or any portion of
the shares of Common Stock of the Company (the "Shares") now owned or hereafter
acquired by it, except in connection with, and in compliance with the conditions
of, Sections 7.2 and 7.3 in each case made in accordance with the procedures set
forth therein.
7.2 Right of Last Refusal. In the event that an Investor receives a bona
fide offer to purchase all or any portion of the Shares held by such person (a
"Transaction Offer") from a third party (the "Offeror"), such Investor (a
"Transferring Shareholder") may, subject to the provisions of Section 7.3
hereof, Transfer such Shares pursuant to and in accordance with the following
provisions of this Section 7.2:
(a) Such Transferring Shareholder shall cause the Transaction
Offer and all of the material terms thereof to be reduced to writing and shall
notify the Company of his or its wish to accept the Transaction Offer and
otherwise comply with the provisions of this Section 7.2 and, if applicable,
Section 7.3 (such notice, the "Offer Notice"). The Transferring Shareholder's
Offer Notice shall constitute an irrevocable offer to sell such Shares to the
Company, on the basis described below at a purchase price equal to the price
contained in, and on the same terms and conditions of, the Transaction Offer.
The Offer Notice shall be accompanied by a true copy of the Transaction Offer
(if it was submitted to the Transferring Shareholder in writing), which shall
identify all material information in connection therewith.
(b) Upon the deemed receipt of an Offer Notice, the Company may
elect to accept the offer to sell with respect to all (but not less than all) of
the Shares subject thereto as set forth herein and shall give written notice of
such election to the Transferring Shareholder as provided below. The Company
shall have the right to accept the Transaction Offer by giving notice of such
acceptance within five (5) days after receipt of the Offer Notice. In the event
that the price set forth in the Offer Notice is stated in consideration other
than cash or cash equivalents, the Transferring Shareholder shall determine the
fair market value of such consideration, reasonably and in good faith, and the
Company may exercise its right to purchase under this Section 7.2 by payment of
such fair market value in cash or cash equivalents. The closing for any purchase
of Shares by Company under this Section 7.2 shall take place immediately upon
acceptance by the Company of such Offer Notice at the place and on the date
reasonably specified by the Transferring Shareholder.
(c) In the event that the Company does not elect to exercise the
rights to purchase under Section 7.2 with respect to all of the Shares proposed
to be sold, the Transferring Shareholder may sell all of the Shares not so
purchased to the Offeror on the terms and conditions set forth in the Offer
Notice, subject to the provisions of Section 7.3. If the Transferring
Shareholder's sale to an Offeror is not consummated in accordance with the terms
of the Transaction Offer within the later of (i) one hundred twenty (120) days
after the expiration of the right of last refusal under this Section 7.2, and
(ii) thirty (30) days after the satisfaction of all
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<PAGE> 32
governmental approval or filing requirements, the Transaction Offer shall be
deemed to lapse, and any Transfers of Shares pursuant to such Transaction Offer
shall be deemed to be in violation of the provisions of this Agreement unless
the Company is once again afforded the right of last refusal provided for herein
with respect to such Transaction Offer.
7.3 Prohibited Transfers. If any Transfer is made or attempted contrary
to the provisions of this Agreement, such purported Transfer shall be void ab
initio; the Company and the other parties hereto shall have, in addition to any
other legal or equitable remedies which they may have, the right to enforce the
provisions of this Agreement by actions for specific performance (to the extent
permitted by law); and the Company shall have the right to refuse to recognize
any such Transferee as one of its shareholders for any purpose.
7.4 Termination of Last Refusal. The rights set forth in this Section 7
shall terminate on the closing of the Company's initial public offering of its
Common Stock pursuant to an effective registration statement under the
Securities Act.
SECTION 8
Miscellaneous
8.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Utah, as if entered into by and between Utah residents
exclusively for performance entirely within Utah.
8.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
8.3 Entire Agreement; Amendment; Waiver. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof. Neither this Agreement nor any term hereof may
be amended, waived, discharged or terminated, except by a written instrument
signed by the Company and the Owners representing at least seventy-five percent
(75%) of the Registrable Securities and any such amendment, waiver, discharge or
termination shall be binding on all the Owners, but in no event shall the
obligation of any Owner hereunder be materially increased, except upon the
written consent of such Owner.
8.4 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, sent by facsimile, or delivered personally by
hand or nationally recognized courier addressed (a) if to an Owner, at such
addresses as indicated on the signature pages hereto, or at such other address
or addresses as such Owner or permitted assignee shall have furnished to the
Company in writing, (b) if to the Company, at 240 West Center Street, Orem, Utah
84057, Attn: President, or at such other address as the Company shall have
furnished to each Owner in writing, or (c) if the Shareholder to 240 West Center
Street, Orem, Utah 84057, Attn: Raymond Noorda, with a copy to Ralph Yarro, or
such other address as the Shareholder shall have furnished to each Owner in
writing. All such notices and other written communications shall be
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<PAGE> 33
deemed received (i) if mailed, three (3) days after mailing, (ii) if delivered,
upon delivery or (iii) if sent by facsimile, one (1) day after facsimile
confirmation.
8.5 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any Owner, upon any breach or default of the Company
or Shareholder under this Agreement shall impair any such right, power or remedy
of such Owner 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 therefore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Owner of any breach or default under this Agreement or any
waiver on the part of any Owner of any provisions or conditions of this
Agreement must be made 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 Owner, shall be cumulative and
not alternative.
8.6 Rights; Separability. Unless otherwise expressly provided herein, an
Owner's rights hereunder are several rights, not rights jointly held with any of
the other Owners. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
8.7 [INTENTIONALLY DELETED]
8.8 Information Confidential. Each Owner acknowledges that the
information received by them pursuant hereto may be confidential and for its use
only, and it will not use such confidential information in violation of the
Exchange Act or reproduce, disclose or disseminate such information to any other
person (other than its employees or agents having a need to know the contents of
such information, and its attorneys), except in connection with the exercise of
rights under this Agreement, unless the Company has made such information
available to the public generally, such Owner is required to disclose such
information by a governmental body, such Owner previously had such information
or such Owner has independently developed such information.
8.9 Titles and Subtitles. The titles of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
8.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.11 Aggregation of Shares. Notwithstanding anything to the contrary
contained herein, an Owner may, for the purpose of exercising any right herein,
the exercise of which is conditioned upon such Owner holding a minimum number of
shares of Registrable Securities, aggregate all such shares of Registrable
Securities owned by such Owner and its affiliates, partners or members to meet
or otherwise satisfy such minimum holding requirement.
* * * * *
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<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated
Investors Rights Agreement as of the date first above written.
CALDERA SYSTEMS, INC., A UTAH
CORPORATION
By:
---------------------------------
Name: Ransom H. Love
Title: President
THE CANOPY GROUP, INC.
By:
---------------------------------
Name:
Title:
MTI TECHNOLOGY CORPORATION
By:
---------------------------------
Name:
Title:
CHICAGO VENTURE PARTNERS, L.P.
By: Chicago Venture Management,
L.L.C.
Its: General Partner
By: CVM, Inc.
Its: Manager
By:
---------------------------------
Name: John Fife
Title: President
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<PAGE> 35
CHICAGO VENTURE PARTNERS B, L.L.C.
By: Burlington Investments, Inc.
Its: Manager
By:
---------------------------------
Name: John Fife
Title: President
EGAN MANAGED-CAPITAL, L.P.
By: EMC Partners, L.P.
Its: General Partner
By:
---------------------------------
Name: Michael H. Shanahan
Title: General Partner
ENSIGN PEAK ADVISORS, INC.
By:
---------------------------------
Name: F. James Cowan
Title: Senior Vice President
THE SANTA CRUZ OPERATION, INC.
By:
---------------------------------
Name: Jenny Twaddle
Title: Acting CFO and Corporate
Controller
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<PAGE> 36
SUN MICROSYSTEMS, INC.
By:
---------------------------------
Name:
Title:
NOVELL, INC.
By:
---------------------------------
Name:
Title:
CITRIX SYSTEMS, INC.
By:
---------------------------------
Name:
Title:
ARISTA CAPITAL PARTNERS, L.P.
By: Arista Capital Management,
L.L.C.
Its: General Partner
By:
---------------------------------
Name:
Title:
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<PAGE> 37
BAYVIEW 99 I, L.P.
By: Bayview 99 GP, LLC
Its: General Partner
By:
---------------------------------
Name:
Title:
BAYVIEW 99 II, L.P.
By: Bayview 99 GP, LLC
Its: General Partner
By:
---------------------------------
Name:
Title:
BRILLIANT WORLD LIMITED
By:
---------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.13
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into effective as of the ______ day of ___________, _______, by and between
Caldera Systems, Inc., a Utah Company (the "Company"), and
______________________________, an individual (the "Indemnified Party").
R E C I T A L S :
A. The Company desires to attract and retain talented officers,
directors and other personnel.
B. In order to provide an additional incentive for qualified personnel
to become and remain directors, officers or other key personnel of the Company,
the Company is willing to enter into this Agreement setting forth its
indemnification obligations with respect to the Indemnified Party.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and valuable consideration, the Company and the
Indemnified Party hereby agree as follows:
1. Indemnification. Except as provided in Section 2 below, the Company
shall, to the maximum extent and in the manner permitted by the Utah Revised
Business Corporations Act (the "Act"), indemnify the Indemnified Party against
any liability incurred in any proceeding to which the Indemnified Party is made
a party because he or she is or was a director or officer of the Company or is
or was serving at the request of the Company as a director, officer, employee,
fiduciary or agent of another company, partnership, joint venture, trust, or
other enterprise (an "Indemnifiable Party"), if his or her conduct was in good
faith, he or she reasonably believed that his or conduct was in, or not opposed
to, the Company's best interest, and in the case of any criminal proceeding, he
or she had no reasonable cause to believe his or her conduct was unlawful.
Termination of the proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent is not, of itself, determinative
that the Indemnified Party did not meet the standard of conduct described in
this section.
2. Certain Restrictions on Indemnification. Notwithstanding anything to
the contrary in this Agreement, the Company may not indemnify the Indemnified
Party under Section 1, in connection with a proceeding by or in the right of the
Company or any affiliate of the Company in which the Indemnified Party was
adjudged liable to the Company or the respective affiliate of the Company, or in
connection with any other proceeding charging that the Indemnified Party derived
an improper personal benefit, whether or not involving action in his official
capacity, in which proceeding he was adjudged liable on the basis he derived an
improper personal benefit, unless ordered by a court of competent jurisdiction.
3. Mandatory Indemnification. The Company shall indemnify the
Indemnified Party if he or she is successful, on the merits or otherwise, in the
defense of any proceeding, or the defense of any claim, issue, or matter in the
proceeding, to which he or she was a party because he or she is or was an
Indemnifiable Party, against reasonable expenses incurred by him or her in
connection with the proceeding or claim with respect to which he or she has been
successful.
<PAGE> 2
4. Determination. Notwithstanding anything to the contrary in this
Agreement, the Company shall not indemnify the Indemnified Party under Section 1
unless authorized and a determination has been made in the specific case that
indemnification of the Indemnified Party is permissible in the circumstances
because the Indemnified Party has met the applicable standard of conduct set
forth in Section 1. Such determination shall be made (1) by the Board of
Directors by majority vote of those present at a meeting at which a quorum is
present, and only those directors not parties to the proceeding shall be counted
in satisfying the quorum, (2) if a quorum cannot be attained, by majority vote
of a committee of the Board of Directors designated by the Board of Directors,
which committee shall consist of two or more directors not parties to the
proceeding, except that directors who are parties to the proceeding may
participate in the designation of directors for the committee, (3) by special
legal counsel selected by the Board of Directors or its committee in the manner
prescribed by the Act, or (4) by the shareholders, by a majority of the votes
entitled to be cast by holders of qualified shares (i.e. shares held by an
person other than the Indemnified Person, family members of the indemnified
person, or entities owned or controlled by the Indemnified Person) that are
present in person or by proxy at a meeting. A majority of the votes entitled to
be cast by the holders of all qualified shares constitutes a quorum for purposes
of action that complies with this section. Shareholders' action that otherwise
complies with this section is not affected by the presence of holders, or the
voting, of shares that are not qualified shares.
5. General Indemnification. The indemnification and advancement of
expenses provided by this Agreement shall not be construed to be exclusive of
any other rights to which a person seeking indemnification or advancement of
expenses may be entitled under any Articles of Incorporation of the Company,
bylaw, other agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
6. Advances. The Company shall pay for or reimburse the reasonable
expenses incurred by the Indemnified Party if he or she is made party to a
proceeding in advance of final disposition of the proceeding if: (1) the
Indemnified Party furnishes the Company a written affirmation of his or her good
faith belief that he or she has met the applicable standard of conduct described
in Section 1, (2) the Indemnified Party furnishes to the Company a written
undertaking, executed personally or on his behalf, to repay the advance if it is
ultimately determined that he or she did not meet the standard of conduct and
(3) a determination is made that the facts then known to those making a
determination would not preclude indemnification under this Agreement or the
Act.
7. Scope of Indemnification. The indemnification and advancement of
expenses authorized by this Agreement is intended to permit the Company to
indemnify the Indemnified Party to the fullest extent, but not in excess of the
fullest extent, permitted by the laws of the State of Utah. In the event the Act
is amended to expand or restrict the circumstances under, extent to which, or
method by which the Company may indemnify or advance expenses to the Indemnified
Party, this Agreement shall automatically be deemed to comply with and include
the substance of such amendment to the Act.
8. [INSURANCE. THE COMPANY SHALL PURCHASE AND MAINTAIN INSURANCE ON
BEHALF OF ANY PERSON WHO IS OR WAS A DIRECTOR, OFFICER, EMPLOYEE, FIDUCIARY OR
AGENT OF THE COMPANY, OR IS OR WAS SERVING AT THE REQUEST OF THE COMPANY AS A
DIRECTOR, OFFICER, EMPLOYEE, FIDUCIARY OR AGENT OF ANOTHER COMPANY, PARTNERSHIP,
JOINT VENTURE, TRUST, OR OTHER ENTERPRISE, AGAINST ANY LIABILITY ASSERTED
AGAINST OR INCURRED BY HIM IN SUCH CAPACITY OR ARISING OUT OF HIS STATUS IN SUCH
CAPACITY, WHETHER OR NOT THE COMPANY WOULD HAVE THE POWER TO INDEMNIFY HIM
AGAINST THE LIABILITY UNDER THE PROVISIONS OF THIS AGREEMENT OR THE LAWS OF THE
STATE OF UTAH, AS THE SAME MAY HEREAFTER BE AMENDED OR MODIFIED.]
9. No New Employment Rights. This Agreement does not create in
Indemnified Person any right with respect to continuation of service, and it
shall not be deemed to interfere in
2
<PAGE> 3
any way with the Company's right to terminate, or otherwise modify, Indemnified
Person's service at any time.
10. Titles and Captions. All Section titles and captions in this
Agreement are for convenience or reference only, and shall not be deemed part of
this Agreement, and in no way define, limit, extend or describe the scope or
intent of any provision hereof.
11. Applicable Law. This Agreement shall be construed in accordance
with and shall be governed by the laws of the State of Utah.
12. Assignment/Binding Effect. The Indemnified Person may not transfer
or assign, by operation of law or otherwise, this Agreement or any interest in
this Agreement. This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns.
13. No Waiver of Breach. No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any condition or
provision of the Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
14. Termination. This Agreement may be terminated by the Indemnified
Person and the Company by mutual written agreement at any time. This Agreement
shall only apply to the Indemnified Person's acts or omissions while functioning
as an Indemnifiable Person, and this Agreement shall terminate upon the
termination of the Indemnified Person's service as an Indemnifiable Person;
provided, however, the rights and obligations of the parties under this
Agreement shall continue to apply with respect to all periods prior to the date
the Indemnified Persons cease to be an Indemnifiable Person.
15. Severability. In the event any condition, covenant or other
provision herein contained is held to be invalid or void by any court of
competent jurisdiction, the same shall be deemed severable from the remainder of
this Agreement and shall in no way affect any other covenant or condition herein
contained. If such condition, covenant or other provision shall be deemed
invalid due to its scope or breadth, such provision shall be deemed valid to the
extent of the scope or breadth permitted by law.
16. Definitions. The following words used herein shall have the same
meaning as set forth in Section 16-10a-901 of the Act: (a) "liability," (b)
"proceeding," (c) "director," and (d) "officer."
17. Amendment. This Agreement may be amended only by a writing signed
by the Company and the Indemnified Person.
[intentionally left blank; signature page follows]
3
<PAGE> 4
IN WITNESS WHEREOF, the Company and the Indemnified Person have
executed this Agreement as of the day and year first set forth above.
"COMPANY"
Caldera Systems, Inc.,
a Utah company
By:
Its:
"INDEMNIFIED PERSON"
__________________________________
Name: __________________________________
Position: __________________________________
Address: __________________________________
__________________________________
__________________________________
4
<PAGE> 1
EXHIBIT 10.14
GNU GENERAL PUBLIC LICENSE
Version 2, June 1991
Copyright (C) 1989, 1991 Free Software Foundation, Inc.
59 Temple Place, Suite 330, Boston, MA 02111-1307 USA
Everyone is permitted to copy and distribute verbatim copies of this
license document,
but changing it is not allowed.
Preamble
The licenses for most software are designed to take away your freedom to
share and change it. By contrast, the GNU General Public License is intended to
guarantee your freedom to share and change free software--to make sure the
software is free for all its users. This General Public License applies to most
of the Free Software Foundation's software and to any other program whose
authors commit to using it. (Some other Free Software Foundation software is
covered by the GNU Library General Public License instead.) You can apply it to
your programs, too.
When we speak of free software, we are referring to freedom, not price.
Our General Public Licenses are designed to make sure that you have the freedom
to distribute copies of free software (and charge for this service if you wish),
that you receive source code or can get it if you want it, that you can change
the software or use pieces of it in new free programs; and that you know you can
do these things.
To protect your rights, we need to make restrictions that forbid anyone to
deny you these rights or to ask you to surrender the rights. These restrictions
translate to certain responsibilities for you if you distribute copies of the
software, or if you modify it.
For example, if you distribute copies of such a program, whether gratis or
for a fee, you must give the recipients all the rights that you have. You must
make sure that they, too, receive or can get the source code. And you must show
them these terms so they know their rights.
We protect your rights with two steps: (1) copyright the software, and (2)
offer you this license which gives you legal permission to copy, distribute
and/or modify the software.
Also, for each author's protection and ours, we want to make certain that
everyone understands that there is no warranty for this free software. If the
software is modified by someone else and passed on, we want its recipients to
know that what they have is not the original, so that any problems introduced by
others will not reflect on the original authors' reputations.
Finally, any free program is threatened constantly by software patents. We
wish to avoid the danger that redistributors of a free program will individually
obtain patent licenses, in effect making the program proprietary. To prevent
this, we have made it clear that any patent must be licensed for everyone's free
use or not licensed at all.
The precise terms and conditions for copying, distribution and
modification follow.
1
<PAGE> 2
GNU GENERAL PUBLIC LICENSE
TERMS AND CONDITIONS FOR COPYING, DISTRIBUTION AND MODIFICATION
0. This License applies to any program or other work which contains a notice
placed by the copyright holder saying it may be distributed under the terms of
this General Public License. The "Program", below, refers to any such program or
work, and a "work based on the Program" means either the Program or any
derivative work under copyright law: that is to say, a work containing the
Program or a portion of it, either verbatim or with modifications and/or
translated into another language. (Hereinafter, translation is included without
limitation in the term "modification".) Each licensee is addressed as "you".
Activities other than copying, distribution and modification are not
covered by this License; they are outside its scope. The act of running the
Program is not restricted, and the output from the Program is covered only if
its contents constitute a work based on the Program (independent of having been
made by running the Program). Whether that is true depends on what the Program
does.
1. You may copy and distribute verbatim copies of the Program's source code as
you receive it, in any medium, provided that you conspicuously and appropriately
publish on each copy an appropriate copyright notice and disclaimer of warranty;
keep intact all the notices that refer to this License and to the absence of any
warranty; and give any other recipients of the Program a copy of this License
along with the Program.
You may charge a fee for the physical act of transferring a copy, and you
may at your option offer warranty protection in exchange for a fee.
2. You may modify your copy or copies of the Program or any portion of it,
thus forming a work based on the Program, and copy and distribute such
modifications or work under the terms of Section 1 above, provided that you also
meet all of these conditions:
a) You must cause the modified files to carry prominent notices stating
that you changed the files and the date of any change.
b) You must cause any work that you distribute or publish, that in whole
or in part contains or is derived from the Program or any part thereof, to be
licensed as a whole at no charge to all third parties under the terms of this
License.
c) If the modified program normally reads commands interactively when
run, you must cause it, when started running for such interactive use in the
most ordinary way, to print or display an announcement including an appropriate
copyright notice and a notice that there is no warranty (or else, saying that
you provide a warranty) and that users may redistribute the program under these
conditions, and telling the user how to view a copy of this License. (Exception:
if the Program itself is interactive but does not normally print such an
announcement, your work based on the Program is not required to print an
announcement.)
These requirements apply to the modified work as a whole. If identifiable
sections of that work are not derived from the Program, and can be reasonably
considered independent and separate works in themselves, then this License, and
its terms, do not apply to those sections when you distribute them as separate
works. But when you distribute the same sections as part of a whole which is a
work based on the Program, the distribution of the whole must be on the terms of
this License, whose permissions for other licensees extend to the entire whole,
and thus to each and every part regardless of who wrote it.
Thus, it is not the intent of this section to claim rights or contest your
rights to work written entirely by you; rather, the intent is to exercise the
right to control the distribution of derivative or collective works based on the
Program.
In addition, mere aggregation of another work not based on the Program
with the Program (or with a work based on the Program) on a volume of a storage
or distribution medium does not bring the other work under the scope of this
License.
2
<PAGE> 3
3. You may copy and distribute the Program (or a work based on it, under
Section 2) in object code or executable form under the terms of Sections 1 and 2
above provided that you also do one of the following:
a) Accompany it with the complete corresponding machine-readable source
code, which must be distributed under the terms of Sections 1 and 2 above on a
medium customarily used for software interchange; or,
b) Accompany it with a written offer, valid for at least three years, to
give any third party, for a charge no more than your cost of physically
performing source distribution, a complete machine-readable copy of the
corresponding source code, to be distributed under the terms of Sections 1 and 2
above on a medium customarily used for software interchange; or,
c) Accompany it with the information you received as to the offer to
distribute corresponding source code. (This alternative is allowed only for
noncommercial distribution and only if you received the program in object code
or executable form with such an offer, in accord with Subsection b above.)
The source code for a work means the preferred form of the work for making
modifications to it. For an executable work, complete source code means all the
source code for all modules it contains, plus any associated interface
definition files, plus the scripts used to control compilation and installation
of the executable. However, as a special exception, the source code distributed
need not include anything that is normally distributed (in either source or
binary form) with the major components (compiler, kernel, and so on) of the
operating system on which the executable runs, unless that component itself
accompanies the executable.
If distribution of executable or object code is made by offering access to
copy from a designated place, then offering equivalent access to copy the source
code from the same place counts as distribution of the source code, even though
third parties are not compelled to copy the source along with the object code.
4. You may not copy, modify, sublicense, or distribute the Program except as
expressly provided under this License. Any attempt otherwise to copy, modify,
sublicense or distribute the Program is void, and will automatically terminate
your rights under this License. However, parties who have received copies, or
rights, from you under this License will not have their licenses terminated so
long as such parties remain in full compliance.
5. You are not required to accept this License, since you have not signed it.
However, nothing else grants you permission to modify or distribute the Program
or its derivative works. These actions are prohibited by law if you do not
accept this License. Therefore, by modifying or distributing the Program (or any
work based on the Program), you indicate your acceptance of this License to do
so, and all its terms and conditions for copying, distributing or modifying the
Program or works based on it.
6. Each time you redistribute the Program (or any work based on the Program),
the recipient automatically receives a license from the original licensor to
copy, distribute or modify the Program subject to these terms and conditions.
You may not impose any further restrictions on the recipients' exercise of the
rights granted herein. You are not responsible for enforcing compliance by third
parties to this License.
7. If, as a consequence of a court judgment or allegation of patent
infringement or for any other reason (not limited to patent issues), conditions
are imposed on you (whether by court order, agreement or otherwise) that
contradict the conditions of this License, they do not excuse you from the
conditions of this License. If you cannot distribute so as to satisfy
simultaneously your obligations under this License and any other pertinent
obligations, then as a consequence you may not distribute the Program at all.
For example, if a patent license would not permit royalty free redistribution of
the Program by all those who receive copies directly or indirectly through you,
then the only way you could satisfy both it and this License would be to refrain
entirely from distribution of the Program.
If any portion of this section is held invalid or unenforceable under any
particular circumstance, the balance of the section is intended to apply and the
section as a whole is intended to apply in other circumstances.
It is not the purpose of this section to induce you to infringe any
patents or other property right claims or to contest validity of any such
claims; this section has the sole purpose of protecting the integrity of the
free software
3
<PAGE> 4
distribution system, which is implemented by public license practices. Many
people have made generous contributions to the wide range of software
distributed through that system in reliance on consistent application of that
system; it is up to the author/donor to decide if he or she is willing to
distribute software through any other system and a licensee cannot impose that
choice.
This section is intended to make thoroughly clear what is believed to be a
consequence of the rest of this License.
8. If the distribution and/or use of the Program is restricted in certain
countries either by patents or by copyrighted interfaces, the original copyright
holder who places the Program under this License may add an explicit
geographical distribution limitation excluding those countries, so that
distribution is permitted only in or among countries not thus excluded. In such
case, this License incorporates the limitation as if written in the body of this
License.
9. The Free Software Foundation may publish revised and/or new versions of the
General Public License from time to time. Such new versions will be similar in
spirit to the present version, but may differ in detail to address new problems
or concerns.
Each version is given a distinguishing version number. If the Program
specifies a version number of this License which applies to it and "any later
version", you have the option of following the terms and conditions either of
that version or of any later version published by the Free Software Foundation.
If the Program does not specify a version number of this License, you may choose
any version ever published by the Free Software Foundation.
10. If you wish to incorporate parts of the Program into other free programs
whose distribution conditions are different, write to the author to ask for
permission. For software which is copyrighted by the Free Software Foundation,
write to the Free Software Foundation; we sometimes make exceptions for this.
Our decision will be guided by the two goals of preserving the free status of
all derivatives of our free software and of promoting the sharing and reuse of
software generally.
NO WARRANTY
11. BECAUSE THE PROGRAM IS LICENSED FREE OF CHARGE, THERE IS NO WARRANTY FOR
THE PROGRAM, TO THE EXTENT PERMITTED BY APPLICABLE LAW. EXCEPT WHEN OTHERWISE
STATED IN WRITING THE COPYRIGHT HOLDERS AND/OR OTHER PARTIES PROVIDE THE PROGRAM
"AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING,
BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE
PROGRAM IS WITH YOU. SHOULD THE PROGRAM PROVE DEFECTIVE, YOU ASSUME THE COST OF
ALL NECESSARY SERVICING, REPAIR OR CORRECTION.
12. IN NO EVENT UNLESS REQUIRED BY APPLICABLE LAW OR AGREED TO IN WRITING WILL
ANY COPYRIGHT HOLDER, OR ANY OTHER PARTY WHO MAY MODIFY AND/OR REDISTRIBUTE THE
PROGRAM AS PERMITTED ABOVE, BE LIABLE TO YOU FOR DAMAGES, INCLUDING ANY GENERAL,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR INABILITY
TO USE THE PROGRAM (INCLUDING BUT NOT LIMITED TO LOSS OF DATA OR DATA BEING
RENDERED INACCURATE OR LOSSES SUSTAINED BY YOU OR THIRD PARTIES OR A FAILURE OF
THE PROGRAM TO OPERATE WITH ANY OTHER PROGRAMS), EVEN IF SUCH HOLDER OR OTHER
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
END OF TERMS AND CONDITIONS
4
<PAGE> 5
How to Apply These Terms to Your New Programs
If you develop a new program, and you want it to be of the greatest
possible use to the public, the best way to achieve this is to make it free
software which everyone can redistribute and change under these terms.
To do so, attach the following notices to the program. It is safest to
attach them to the start of each source file to most effectively convey the
exclusion of warranty; and each file should have at least the "copyright" line
and a pointer to where the full notice is found.
(one line to give the program's name and a brief idea of what it does.)
Copyright (C) 19yy (name of author)
This program is free software; you can redistribute it and/or modify it
under the terms of the GNU General Public License as published by the Free
Software Foundation; either version 2 of the License, or (at your option)
any later version.
This program is distributed in the hope that it will be useful, but WITHOUT
ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or
FITNESS FOR A PARTICULAR PURPOSE. See the GNU General Public License for
more details.
You should have received a copy of the GNU General Public License along with
this program; if not, write to the Free Software Foundation, Inc., 59 Temple
Place, Suite 330, Boston, MA 02111-1307 USA
Also add information on how to contact you by electronic and paper mail.
If the program is interactive, make it output a short notice like this
when it starts in an interactive mode:
Gnomovision version 69, Copyright (C) 19yy name of author
Gnomovision comes with ABSOLUTELY NO WARRANTY; for details type `show w'.
This is free software, and you are welcome to redistribute it under certain
conditions; type `show c' for details.
The hypothetical commands `show w' and `show c' should show the
appropriate parts of the General Public License. Of course, the commands you use
may be called something other than `show w' and `show c'; they could even be
mouse-clicks or menu items--whatever suits your program.
You should also get your employer (if you work as a programmer) or your
school, if any, to sign a "copyright disclaimer" for the program, if necessary.
Here is a sample; alter the names:
Yoyodyne, Inc., hereby disclaims all copyright interest in the program
`Gnomovision' (which makes passes at compilers) written by James
Hacker.
(signature of Ty Coon), 1 April 1989
Ty Coon, President of Vice
This General Public License does not permit incorporating your program
into proprietary programs. If your program is a subroutine library, you may
consider it more useful to permit linking proprietary applications with the
library. If this is what you want to do, use the GNU Library General Public
License instead of this License.
5
<PAGE> 1
EXHIBIT 10.15
COMPUTER SOFTWARE
DISTRIBUTION AGREEMENT
This Agreement is made and is effective as of the December 14th day of 1998 by
and between Navarre Corporation ("Navarre") of 7400 49th Avenue North, New
Hope, Minnesota, 55428 and Caldera Systems, Inc. ("Vendor") of 240 West Center
St. Orem, Utah 84057.
The Parties have agreed as follows:
1. DEFINITIONS
1.1 The term "Product(s)" shall mean all computer software and hardware, and
related products manufactured or marketed by Vendor during the term of this
Agreement.
1.2 The term "Dealer(s)" shall mean any third party or entity to which Navarre
markets any Products for remarketing.
2. GRANT OF MARKETING RIGHTS
2.1 Vendor grants to Navarre and Navarre accepts from Vendor the right to
purchase Products and to market and distribute Products to Customers in the
United States and Canada, unless other territories are approved in writing.
This grant is non-exclusive unless otherwise agreed to by the parties.
3. TERM
3.1 The initial term of this Agreement shall be for a period of one (1) year,
unless sooner terminated as provided by this Agreement.
3.2 After the initial term, this Agreement shall be automatically renewed for
successive one (1) year periods, unless either party gives the other written
notice at least ninety (90) days prior to the expiration of the then current
contract period that it does not desire that the Agreement continue. If such
<PAGE> 2
notice is given, the Agreement shall terminate at the end of the then current
term.
4. ORDERS AND SHIPMENT AND DELIVERY OF PRODUCTS
4.1 Navarre shall issue orders in writing (which includes facsimile
transmission.)
4.2 Vendor shall deliver all products ordered by Navarre within the time
agreed to.
4.3 All Products shall be shipped freight paid by Vendor, F.O.B. destination.
4.4 Navarre may cancel all or part of any order prior to the date of shipment.
4.5 Navarre shall have the option to accept or reject any partial shipments.
4.6 A packing list showing Navarre's purchase order number, quantity ordered,
quantity shipped and a detailed identification of the Products must accompany
all shipments.
4.7 All Products shall bear a UPC part code (sell code), and all shipping
cartons shall contain a UPC shipping code (ship unit)[UPC number and bar code.]
The UPC numbers and codes on Products and shipping cartons shall conform to the
Uniform Code Council, National Office Products Association and Retail Industry
Standards.
4.8 Navarre has the right to charge back to Vendor costs incurred by Navarre
or its Customers due to missing, defective or inaccurate UPC codes.
5. PURCHASE PRICE
5.1 Vendor represents and warrants that the price, discounts, payment terms
and return provisions set forth with respect to any Product shall never be less
favorable to Navarre than those made available by Vendor to any other
purchasers of such Product. Vendor agrees that if such a sale occurs, Vendor
will sell the Product to Navarre at the same terms and reimburse Navarre
retroactively from the date of such sale for the difference.
5.2 Navarre has the option to add any or all future products manufactured or
marketed by Vendor. The Navarre price and the suggested retail price for any
new release may only be increased by sixty (60) days advance written notice
given by Vendor to Navarre.
5.3 Any announced or published price decrease by Vendor shall apply to Navarre
orders shipped on or after the date the price decrease was announced or
published. In addition, Vendor shall credit to Navarre an amount equal to the
difference between the old cost to Navarre for a Product and the new cost, times
the total number of units of the Product held in Navarre's inventory, defined as
current on hand inventory, units sold within five (5) working days of price
protection notification, and in-transit returns. A similar credit shall be made
available for all affected Product held by Navarre's Customers at the time of a
price decrease. Vendor shall cooperate with Navarre to implement the credit for
Dealer stocks of Product affected by a price decrease.
<PAGE> 3
6. PAYMENT
6.1 On or after the date of shipment, Vendor shall invoice Navarre for the
purchase of Product. Initial purchase order shall be invoiced to Navarre at net
[****] days from receipt of goods. Additional purchase orders shall be invoiced
to Navarre at net sixty (60) days from receipt of goods. Navarre shall have the
option to withhold payment of up to [****] of any invoice at a reserve against
future returns, debit balances or chargebacks. This reserve will be released
after two-hundred forty (240) days from the date of receipt of Products. Navarre
shall have the option to deduct from invoices due Vendor any credits or money
due Navarre from Vendor. In case there is a balance due Navarre, Vendor shall
issue a check to Navarre within thirty (30) days for the credit balance. In case
of a disputed account balance, both parties will make good faith effort to
reconcile account within twenty-one (21) days.
7. STOCK BALANCING, RETURNS, PRODUCT RECALLS AND CREDITS
7.1 All defective inventory, either identified upon receipt from Vendor, or
determined to be defective when returned from Navarre's customers, will be
reported to Vendor. Vendor shall advise Navarre regarding the disposition of
defective inventory within twenty-one (21) days of return request. Otherwise,
the defective inventory will be destroyed. Vendor shall bear all expenses
regarding the destruction or other disposition of defective inventory and will
issue an immediate credit to Navarre for the purchase price plus all return
freight charges for defective product.
7.2 Navarre may return for full credit up to 100% of all inventory received
from Vendor. Upon receipt of return authorization request, Vendor shall provide
a Return Authorization within seven (7) days of notice. Upon receipt of such
Product, Vendor shall credit Navarre's account with the amount originally paid
for the Product. Items delisted by Vendor (discontinued and/or version changes)
must be communicated in writing to Navarre. Delisted items will be available for
return with immediate and full credit for a period no less than [****] days.
Returns to Vendor, FOB Destination.
7.3 Credits for products returns, advertising allowances or other credits
provided for by this Agreement will be handled by the issuance of charge backs
by Navarre, and the issuance of a credit memo by Vendor.
8. WARRANTIES, EXCLUSION OF CONSEQUENTIAL DAMAGES
8.1 Neither party shall, under any circumstances, be liable to the other for
consequential, incidental, indirect or special damages arising out of or
related to this Agreement or the transactions contemplated herein, even if such
party has been appraised of the likelihood of such damages occurring. This
Section 8.1 does not apply to the infringement of intellectual property and
shall not limit the remedies for such infringement.
****CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO SUCH OMITTED PORTION.
<PAGE> 4
8.2 Except as provided otherwise in Section 9, in no event shall the aggregate
liability of vendor for all claims (Regardless of the form of action, whether
contract, warranty, tort, product liability and/or otherwise) relating to a
product exceed the amount paid to vendor under this agreement for the product.
8.3 Vendor makes no warranty to Navarre not expressly set forth in this
agreement. All implied warranties, including the implied warranties of
noninfringement, merchantability and fitness for a particular purpose are
disclaimed and excluded by Vendor.
9. INDEMNIFICATION
9.1 In the event that a Product infringes any patent, trademark, copyright or
trade secret of a third party not affiliated with Navarre, Vendor shall
indemnify Navarre against any amounts, including damages, attorneys' fees, and
cost, awarded by a court of competent jurisdiction to the third party because of
such infringement, provide that: (i) Navarre promptly gives notice to Vendor of
any claim against Navarre alleging such infringement, (ii) Navarre allows Vendor
to control the defense and settlement of such claim, (iii) Navarre fully
cooperates with Vendor in connection with the defense and settlement of such
claim, and (iv) if requested by Vendor, Navarre ceases all use, distribution and
sale of the infringing Product and returns all infringing Product units on hand
to vendor. If Navarre is enjoined from continued sale of any infringing Product
or if Navarre ceases sale of any Product at the request of Vendor under (iv)
above, then Vendor shall (at its expense and option): (a) obtain the right for
Navarre to continue to sell the infringing Product, (b) modify the infringing
Product to eliminate the infringement, (c) provide substitute noninfringing
Product to Navarre under this Agreement, or (d) refund to Navarre that the
amount paid under this Agreement for the infringing Product upon its return to
Vendor. Vendor has no other obligation or liability in the event of
infringement. Vendor has no obligation of indemnification or to defend or hold
harmless relating to infringement. Vendor shall not be liable for any costs or
expenses incurred without its prior written authorization. Vendor shall have no
obligation of indemnification or any liability if the infringement is based upon
(a) any altered, charged or modified form of the Product not made by Vendor, or
(b) the Product in combination with anything not provided by Vendor, or (c) any
process in which the Product is used in a manner not contemplated by the
Product's documentation or is used together with anything not provided by
Vendor, or (d) the laws of any country other than the United States of America
or its states.
9.2 Navarre's Liability -- If Navarre modifies the Product or its packaging
and such modification results in a claim, suit, or proceeding brought against
the Vendor on the issue of infringement of any patent, trademark, copyright, or
trade secret, Navarre shall indemnify Vendor against and defend and hold Vendor
harmless from any such claim, suit, or processing.
<PAGE> 5
10. ADVERTISING
10.1 Navarre shall have the right to utilize Vendor's trade name and any
trademarks and service marks associated with the Products to identify the
origin of the Products in advertising and promotional materials. With respect
to Products made by a third party, Vendor shall ensure that Navarre has the
right to use the third party's trademarks and service marks associated with the
Products in Navarre's advertising and promotional materials.
10.2 Vendor shall support Navarre and Navarre's Customers with advertising,
marketing and promotional activities. As a part of these activities, Vendor
shall implement cooperative advertising and market development programs that
Navarre and its Customers can participate in.
10.3 Vendor agrees that it will provide support to Navarre for its advertising,
marketing and promotional activities. This support can be in the form of ad
production assistance, catalog direct mail programs, shows, advertising in
regional or national trade and/or consumer publications, and sales training
days. Vendor shall make available an amount equal to [****] percent of the total
dollar amount Navarre has purchased from Vendor, to be held in reserve for use
in Navarre's advertising and marketing programs described in Exhibit "B". Funds
will only be applied upon Vendor's prior approval on a case-by-case basis.
Participation in any Navarre advertising, marketing or promotional activity
which exceeds [****] percent of the total dollar amount Navarre has purchased
from Vendor will be charged back monthly to the Vendor, and Vendor will issue a
credit memo for these costs.
10.4 All cooperative advertising and market development funds (MDF) charges
for product ordered through Navarre must be authorized in writing prior to
placement. No verbal commitments will be accepted. In the event that such
Cooperative Advertising and/or Market Development Fund expenditure would cause
Navarre's account to move to a debit balance, Navarre reserves the right to
require Vendor to pay for these expenditures in advance. Claims for advertising
and market development expenditure will be made by charge backs to the Vendor,
and Vendor will issue a credit memo for these costs.
11. TERMINATION
11.1 Either party may terminate this Agreement not less than sixty (60) days
after written notice in the event of a material breach by the other party, and
the failure of such other party to cure such breach within thirty (30) days of
such notification.
11.2 Upon expiration or termination of this Agreement, Navarre shall have the
right, for one-hundred twenty (120) days after the termination, to return to
Vendor all or portion of the Products in Navarre's inventory. Vendor agrees to
repurchase any such returned Products at the prices paid for them by Navarre.
****CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO SUCH OMITTED PORTION.
<PAGE> 6
11.3 Sections 8, 9 and 10.1 shall survive the expiration or termination of
this Agreement.
12. MISCELLANEOUS
12.1 This agreement shall be governed by the laws of the state of Minnesota.
Any dispute arising out of this Agreement shall be brought and prosecuted in a
court within Hennepin County Minnesota. For this purpose, Vendor appoints the
Secretary of State of Minnesota as its agent for service of process.
12.2 This Agreement shall not be assignable by either party, except that
Vendor may assign this Agreement to any person or entity who acquires Vendor's
intellectual property in the products.
12.3 This Agreement supersedes all prior oral or written proposals and
communications between the parties related to this Agreement, and shall not be
modified, rescinded, waived or otherwise changed except with the written
consent of the parties.
12.4 Each party confirms that no inducements, promises or representations,
not written herein, caused it to enter into this Agreement.
12.5 Notwithstanding anything in this Agreement to the contrary:
(1) The Products are computer software and all use and rights thereto are
subject to any governed by the license agreements included by Vendor in or with
the Products.
(2) To the extent they are included in any Product, Linux and any other
general public license software to which Vendor has rights under the GNU General
Public License shall be governed by such GNU General Public License, including,
without limitation the "No Warranty" provisions of the GNU General Public
License - GNU General Public License Version 2, June 1991. Vendor does not own
Linux or such general public license software and makes no warranty or promise
to indemnify with respect thereto.
(3) Navarre shall comply with all applicable laws and regulations,
including, without limitation, U.S. export laws and regulations.
(4) No purchase order or other document submitted by Navarre to Vendor will
alter any of the terms of this agreement.
12.6 Neither party to this Agreement is the employee, agent or legal
representative of the other for any purpose whatsoever.
The parties, by the actions of their authorized representatives, have executed
this
<PAGE> 7
Agreement, including the attached Exhibit A, as of the date first mentioned
above.
VENDOR NAVARRE CORPORATION
/s/ RANSOM H. LOVE /s/ VICE PRESIDENT/GENERAL MANAGER
- ----------------------------------- -----------------------------------
By By
President & CEO Vice President/General Manager
- ----------------------------------- -----------------------------------
Title Title
12/15/98 12/15/98
- ----------------------------------- -----------------------------------
Date Date
<PAGE> 8
EXHIBIT "A"
to DISTRIBUTION AGREEMENT OF 12/15/98
--------------------
(Date)
Between NAVARRE CORPORATION and Caldera Systems, Inc.
--------------------------
(Vendor)
ADDITIONAL SERVICE COMMITMENTS
*Show volume discounts and minimum order quantities here.
TITLES COVERED UNDER THIS AGREEMENT
<TABLE>
<CAPTION>
Product Name UPC Number MRP Price Navarre Price
- -------------------------------- --------- -------------
<S> <C> <C>
1. Open Linux 1.3 (761480502308) [****] [****]
$20 mail in rebate
2. $ $
3. $ $
4. $ $
5. $ $
</TABLE>
The above program (5% DFI, Deduct from Invoice) applies to all current and
future retail products, published or distributed by the vendor, during the
terms of this agreement.
Set up sheets should be attached to this agreement.
Please Sign this Page
/s/ RANSOM H. LOVE /s/ VICE PRESIDENT/GENERAL MANAGER
- ----------------------------------- ----------------------------------------
VENDOR NAVARRE
12/15/98 12/15/98
- ----------------------------------- ----------------------------------------
DATE DATE
****CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO SUCH OMITTED PORTIONS.
<PAGE> 9
EXHIBIT "B"
NAVARRE MARKETING AND ADVERTISING PROGRAMS
1. Computer Retail Week (Industry Trade Publication)
Bi-Monthly full page advertisement that features ten software titles at
$2,500 per title. (Circulation approximately 40,000)
2. USA Today
Full page, black and white, national advertisement featuring a major retailer.
The ad is featured in the Lifestyles section on the last Thursday of the month
includes approximately twenty software titles at $5,000 per title. (Circulation
approximately 6 million)
3. Sales Training
An opportunity to meet one-on-one with each of Navarre's account executives and
formulate sales strategies. Second Tuesday of every month. Cost $3,000.
4. New Release Report
Monthly resource mailed to all retail software buyers and executives on a
national basis includes AA titles and new releases by category, publisher, title
and release date. $1,000 per title per 1/4 page 4-color advertisement.
5. Spread The Bytes
Two versions of a quarterly demo CD-ROM. One is received by over 3,000 stores
nationwide and the other is customized for a major retailer and sold to
consumers. $3,000 for the first title and $2,000 for each subsequent title.
6. Interchange
Four day annual symposium that brings together publishers and retailers from
across the country to lock in holiday merchandising, marketing, and promotion
plans. Cost determined annually.
7. Other
Navarre may add new programs from time-to-time which Vendor will have the option
of participating in.
*Prices quoted are subject to change with 30 day advance notification
masters\distrib February 19, 1998
<PAGE> 1
EXHIBIT 10.16
[EVERGREEN LOGO]
OEM RECIPROCAL LICENSE AGREEMENT
This OEM Agreement (the "Agreement" or "License") is made as of January 6, 2000
between EVERGREEN INTERNET, INC., an Arizona Corporation having offices at 3260
North Colorado Street, Chandler, Arizona 85225 ("Evergreen" or "Licensor") and
Caldera Systems, Inc., a Utah Corporation, having offices at 240 West Center,
Orem Utah 84057 ("Caldera" or "Licensee").
This OEM License Agreement is a "Contract" made pursuant to a Master Agreement
of even date. This Agreement, the Master Agreement and Exhibits B, C, D and E of
the Master Agreement will become effective simultaneously, as of the date when
this Agreement, the Master Agreement and all such Exhibits of the Master
Agreement have been mutually signed and delivered by the parties.
1. DEFINITIONS
"Code" means the computer programming code relating to ECential(TM) and
OpenLinux(TM) software products in object and/or executable code form
(machine-readable) not to include source code.
"Documentation" means the textual materials relating to the Code
provided to each other by Evergreen and Caldera, including operating
instructions, related technical information, and user documentation.
"ECential" means the ECential software products and programs for Linux,
as listed in Exhibit A including their Code and Documentation, and any
other existing or future e-Commerce Products that Evergreen determines
is appropriate for Linux, including their Code and Documentation.
Exhibit A shall be updated to keep it current with future e-Commerce
Products of Evergreen for Linux and Updates.
"e-Commerce Products" means software products and programs that are used
in the creation, analysis, management and promotion of Internet
E-Commerce web sites, storefronts, customer service, business logic,and
e-commerce transactions for consumer-to-business and
business-to-business solutions across the Internet or Intranets.
Software products or programs that are not competitive with eCential or
future releases thereof shall not be deemed to be within the definition
of ecommerce products.
"Marks" means Evergreen Marks and Caldera Marks. "Evergreen Marks" means
the trademarks and/or product names of Evergreen. "Caldera Marks" means
the trademarks and/or product names of Caldera.
1
<PAGE> 2
"Proprietary Data" means any proprietary "know-how" which a disclosing
party discloses to a receiving party relating to the development or use
of the disclosing parties design, structure, configuration, programming,
and protocol of the disclosing parties software. "Know-how" may include
computer program designs, algorithms, subroutines, system
specifications, programming logic, manufacturing techniques, and program
architecture.
"Evergreen Software" means any software proprietary to Evergreen
including ECential programs or Code. It also refers to any ECential
programs used in conjunction with Caldera Software.
"Caldera Software" means the software proprietary to Caldera which is
included by Caldera in OpenLinux eServer.
"OpenLinux eServer" mean the Linux software distribution designated by
Caldera for eServer. This Linux software distribution for eServer
includes a Linux kernel, Caldera Software and OpenLinux Third Party
Software. OpenLinux for eServer includes existing and future versions
thereof.
Third Party Software. "Third Party Software" means the software
proprietary third parties which is included in eBuilder. "OpenLinux
Third Party Software means the Third Party Software included by Caldera
in OpenLinux for eBuilder. "ECential Third Party Software" means the
Third Party Software included by Evergreen in ECential.
"OpenLinux eBuilder" means the bundled combination of ECential with
OpenLinux eServer plus third party software, plus any other software the
parties agree to add.
"Evergreen's version of the bundle" means the bundled combination of
OpenLinux eServer with eCential plus any software the parties agree to
add.
"Reseller" shall mean a distributor, OEM, VAR, integrator, retailer,
dealer or other reseller.
"Updates" shall means updates and upgrades to, new versions of, and
replacements for ECential.
2. OWNERSHIP
2.1 OWNERSHIP
ECential is the proprietary product of Evergreen and others in
accordance with Sections 3.3 and 3.4 below and is protected by the
Copyright and Trademark Laws of the United States of America. Caldera
acknowledges that Evergreen and others in accordance with Sections 3.3
and 3.4 below own the intellectual property in ECential software and
Caldera makes no claim of ownership to their intellectual property in
ECential or ECential itself.
2.2 EVERGREEN AND CALDERA MARKINGS
Caldera and Evergreen shall not in any manner act adversely to each
others Marks, Proprietary Data, or other intellectual property.. Caldera
shall not remove the Evergreen Marks from ECential, unless granted in
written permission from Evergreen. Evergreen shall not remove the
Caldera Marks from OpenLinux, unless granted in written permission from
Evergreen.
2.3 MUTUAL RIGHTS AND OBLIGATIONS
2
<PAGE> 3
Evergreen acknowledges that all rights, ownership, and trademarks of
OpenLinux for eBuilder are the exclusive property of Caldera and/or
Caldera's licensors / suppliers. Caldera acknowledges that all rights,
ownership and trademarks of eCential are the exclusive property of
Evergreen and/or Evergreens licensors/suppliers. Evergreen shall not in
any manner act adversely to the Caldera Marks, Caldera's Proprietary
Data or other intellectual property of Caldera. The eBuilder product
name and trademark shall belong exclusively to Caldera. The parties will
work together in the spirit of an equal partnership so that there is
agreement on all product issues such as content, look and feel and
licensing terms. Caldera will be sure that the name eCential is featured
in all packaging and promotion, web sites and software so that brand
equity is built for both parties and their respective products (eBuilder
and eCential). OpenLinux eBuilder must give prominent credit to eCential
in all packaging and promotion. Evergreen must have the opportunity to
approve packaging and promotional materials. Evergreen marketing
materials, packaging and look & feel must come through in Caldera's
packages, web sites and collateral. Evergreen is entitled to create its
own version of the bundled software and for that version hereby extends
to Caldera the same terms listed above.
3. LICENSE
3.1 LICENSE GRANT
Evergreen grants a, non-transferable (except under Section 9. Y. of the
Master Agreement), worldwide right and license for the Linux market
during the term of this Agreement, (and Caldera grants Evergreen a
non-transferable (except under Section 9. Y. of the Master Agreement),
worldwide right and license for the linux market during the term of this
agreement) to do the following:
3.1.1 bundle ECential with OpenLinux for eServer to create
eBuilder and Evergreen's version of the bundled product.
3.1.2 market, distribute, package, and publish Ecential and
OpenLinux, including ECential and OpenLinux Software and
documentation, only as part of eBuilder or Evergreen's version
of the bundled product and sell Ecential and OpenLinux licenses
to end users who receive eBuilder;
3.1.3 use ECential (such use being limited to use by employees
or by independent contractors of Caldera for internal use only).
Such internal use will require payment of VisiBroker license
fees based on the number of CPUs being used. Caldera shall be
entitled to purchase such VisiBroker licenses from Evergreen at
Evergreen's cost. Evergreen employees and independent
contractors may use OpenLinux for internal development.
3.1.4 copy and reproduce ECential and OpenLinux for the purposes
of this Agreement.
3.2 ECential is licensed, not sold. Title to the intellectual property
and Source Code in ECential remains with Evergreen and its suppliers
under Sections 3.3 and 3.4. Evergreen and/or its suppliers reserve all
rights not expressly granted herein. Without limiting the foregoing,
Caldera shall not modify, port, translate, localize, add features or
functionality in the Code, or create derivative works of ECential,
decompile, deencrypt, disassemble or otherwise reverse engineer
ECential, the logic,
3
<PAGE> 4
algorithms or program code of ECential, or attempt to do any of the
same. Caldera shall not receive any rights by implication or otherwise
in ECential or any component thereof, except as provided in the Business
Alliance.
3.3 Caldera and Evergreen may market, distribute, package and publish
ECential and OpenLinux under 3.1.2 above, directly to end users and/or
indirectly to end users through Caldera's or Evergreen's Resellers.
Bundling may be accomplished by physical bundling (e.g., inclusion of
ECential physical media with OpenLinux eBuilder media) or electronic
bundling (e.g., by making downloads of ECential available through the
same web page as downloads of OpenLinux eBuilder) or by otherwise making
ECential available in conjunction with eBuilder. The license and rights
granted to Caldera may be exercised with respect to any or all of the
ECential products as defined in Exhibit A.
3.4 FORM OF USER LICENSE
If and to the extent that the parties agree it is practicable, use by an
end user of ECential will require a license key. To obtain a license key
for ECential, registration is required by the registered user of the
product or by Caldera's Reseller. Registration is accomplished by the
end user or Caldera's Reseller accessing a web registration page hosted
by Evergreen and/or Caldera and filling in the required registration
information. Upon completion of the registration process, the registered
user will obtain (or the Reseller will obtain for its end user customer)
the license key and a User License for the ECential software product
being registered. The User License shall be the Software License
Agreement of Attachment B. If obtained by either parties Reseller, then
it will be passed on to the end user. Evergreen will provide Caldera
with the information requested by Caldera to create and maintain the
Caldera web page. Caldera will reciprocate.
If this registration process is not utilized or if it does not include a
procedure acceptable to Evergreen by which the end user accepts the
Software License Agreement, then Caldera has the following obligation:
The ECential licenses from Evergreen that Caldera is authorized to sell
under Section 3.1 above shall be sold on behalf of Evergreen under this
Agreement and are to include the Software License Agreement attached as
Exhibit B to this Agreement. Caldera shall include a copy of the
applicable Software License Agreement with each license of ECential that
Caldera sells. If Caldera believes that it is not practicable to obtain
written signatures for the Software License Agreement, then Evergreen
shall incorporate into the Software License Agreement and the ECential
Code terms and procedures that provide for acceptance of the Software
License Agreement by the end user by installing or using ECential.
Caldera shall not interfere with such contract acceptance terms and
procedures.
The Software License Agreement shall govern the use of ECential by end
user customers. The Software License Agreement includes a grant by
Evergreen to the end user to use ECential (including the third party
software of Sections 3.3 and 3.4). The Software License Agreement is an
agreement between Evergreen and the end user. Caldera is not a party to
the Software License Agreement and has no obligation or liability
thereunder.
3.5 VISIBROKER LICENSE
Visibroker, a product of Inprise, is an embedded product in ECential.
Licenses granted by Visibroker are per CPU, and the number of licenses
granted is determined by the product purchased. As described in Exhibit
A, additional licenses are obtained by purchasing the additional CPU
product.
4
<PAGE> 5
3.6 THIRD PARTY SOFTWARE
Caldera understands and agrees that the ECential Software utilizes
software or software components (including Visibroker) from third
parties as described in Exhibit 2 to Software License Agreement of
Exhibit B, and said third party software is licensed to an end user each
time Caldera sells an ECential license to an end user. The Software
License Agreement will include a reference to and copy of the applicable
third party license agreements. The end user must agree to abide by the
terms of the applicable third party license agreement(s) through
acceptance of the end user's Software License Agreement as provided in
Section 3.4. Evergreen and Caldera will amend said Exhibit 2 as
necessary to keep it current with the third party software in ECential.
Evergreen shall be responsible for payment to the applicable third
parties for the license fees, royalties and other payments or costs of
third party software in ECential arising from licenses of ECential to
end users ("third party fees"). If Caldera is the "Selling Party" (as
defined in Section 4.2), then end users will pay such third party fees
to Evergreen through Caldera. Caldera shall be responsible for
collection of these third party fees. Third party fees shall be
Evergreen's actual cost, without mark-up.
3.7 REPORTS
By the 20th day of each month following the calendar quarter end,
Caldera will provide Evergreen the following activity reports:
a. License Report: List of all ECential licenses sold to end users or
Resellers in conjunction or bundled with the eBuilder. If the registered
user obtains the license key and User License through the web site as
described in Section 3.4, this report will be generated by the parties
from web site information. Otherwise, Caldera will be required to
provide this list as agreed to in 3.7.a. The list may include channel
partners and/or registered end users of the product. The report should
include copies of OpenLinux that Caldera knows will be used to deploy an
ecommerce internet or intranet site.
b. Trouble Report: Problems or bugs believed by Caldera to be caused by
errors in the Evergreen Software.
c. Enhancement Report: Any enhancements and suggestions for improvement
of Evergreen Software which Caldera desires to suggest to Evergreen.
d. CPU Report: To the extent that VisiBroker is included in ECential,
Caldera is required to provide a listing of server(s) and total CPUs per
server per license distributed. Report is to include the name of the end
user, address, version of eBuilder, hardware and operating system and
the number of CPUs. This report, in addition to any other purposes, is
required to provide compliance with Visibroker license requirements as
indicated in 3.2 above. If however, the registered user obtains the
license key and User License through the web site as described in
Section 3.4, then this report will be generated by the parties from web
site information. Otherwise, Caldera will be required to provide this
list as agreed to in 3.7.d.
3.8 MASTER COPY OF THE SOFTWARE
Evergreen will provide Caldera with a master copy of the ECential
software products and programs listed in Exhibit A and for each Update
(see Section 6.3). Caldera is authorized to reproduce any such copy
solely in connection with exercising the rights granted under this
Agreement. Upon termination of this Agreement for any reason, Caldera
shall return to Evergreen the master copy or
5
<PAGE> 6
copies of the program and all other copies of the Evergreen Software
except as needed for continued support under Section 5.3. Caldera will
provide a master copy of OpenLinux under the same terms.
3.9 EVERGREEN MARKS
Caldera shall use the Evergreen Marks in connection with ECential. The
use of the Evergreen Marks by Caldera shall strictly adhere to the most
recent reasonable written guidelines provided by Evergreen. In the
absence of written guidelines from Evergreen, Caldera shall submit the
proposed use of any Evergreen Mark to Evergreen for Evergreen's written
approval before such use. All use of the Evergreen Marks by Caldera
shall inure to the benefit of Evergreen. In bundled software packaging,
whether physical or on-line, Evergreen shall have the right to approve
all such packaging as to ECential prior to offering the bundle to
market. Evergreen shall not unreasonably withhold or delay approval.
3.10 GNU General Public License
Both parties understand that Linux and certain software in eBuilder are
or may be subject to or governed by the applicable GNU General Public
License and/or other applicable open source agreements, and nothing in
this Agreement or the Business Alliance shall require either party to
act in contradiction of the applicable GNU General Public License and/or
other applicable open source agreements.
3.11 EXCLUSIVE RIGHT TO DISTRIBUTE
For a period of one year from the Date of First Distribution or March
31, 2000 (whichever is first) , Evergreen agrees that it will not bundle
ECential with any other Linux operating system software that competes
with Caldera's OpenLinux other than Caldera's OpenLinux for eBuilder and
that Evergreen will promote Caldera andOpenLinux for eBuilder as the
preferred Linux solutions for ECential. During this same one year
period, Caldera agrees that it will not bundle with Open Linux or
OpenLinux for eBuilder any other e-Commerce Product that competes with
ECential and that Caldera will promote Evergreen and ECential as the
preferred e-Commerce Product solution for Linux. This Section 3.11
imposes no restrictions or obligations on the parties hereto other than
as stated in Section 3.11. Neither this paragraph nor the Business
Alliance create any exclusive distributorship on behalf of Caldera or
Evergreen. Either party to this Business Alliance may distribute the
bundled OpenLinux/ECential products directly or indirectly through their
respective distribution channels.
3.13 OpenLinux for eBuilder is licensed, not sold. The Linux kernel and
any other GNU General Public License software or open source software
are distributed pursuant to and governed by the applicable GNU General
Public License or open source software agreement. Title to the
intellectual property and source code in OpenLinux for eBuilder remains
with Caldera and its licensors or suppliers as applicable. Caldera
and/or its licensors and suppliers reserve all rights not expressly
granted herein. Without limiting the foregoing, Caldera shall not
modify, port, translate, localize, add features or functionality in
OpenLinux for eBuilder, or create derivative works of OpenLinux for
eBuilder, decompile, deencrypt, disassemble or otherwise reverse
engineer OpenLinux for eBuilder, the logic, algorithms or program code
of OpenLinux for eBuilder, or attempt to do any of the same,
6
<PAGE> 7
except as permitted in the applicable license agreements (see Sections
3.14 and 3.15 below). Evergreen shall not receive any rights by
implication or otherwise in OpenLinux for eBuilder or any component
thereof, except as provided in the Business Alliance.
3.14 FORM OF USER LICENSE
All copies of eBuilder marketed, distributed or published by Evergreen
must include copies of all license agreements applicable to OpenLinux
for eBuilder as provided by Caldera to Evergreen. Such license
agreements shall govern use and licensing of OpenLinux for Builder.
Evergreen shall respect any terms and procedures in any such license
agreement or the software that provide for acceptance of the license
agreement by the end user by installing or using the software to which
the license agreement applies. Evergreen shall not interfere with such
contract acceptance terms and procedures.
Each such license agreement is an agreement between Caldera or its
licensor or supplier, as applicable, and the end user. Evergreen is not
a party to these license agreements and has no obligation or liability
thereunder.
3.15 OPENLINUX THIRD PARTY SOFTWARE
Evergreen understands and agrees that OpenLinux for eBuilder includes
OpenLinux Third Party Software from third parties and said OpenLinux
Third Party Software is licensed (under a license agreement under
Section 3.14 above) to an end user each time Evergreen or its Reseller
distributes or otherwise provides eBuilder to an end user. The end user
must agree to abide by the terms of the applicable license agreements
through acceptance of the these license agreements as provided in
Section 3.14. As OpenLinux Third Party Software or the applicable
license agreements change, Caldera will provide Evergreen with new forms
of such license agreements as necessary to keep current with the
OpenLinux Third Party Software, and Evergreen shall use the
then-most-current version of the license agreements. The same applies to
any new Caldera Software or changes in Caldera Software license
agreements. Caldera shall be responsible for payment to the applicable
third parties for the license fees, royalties and other payments or
costs of OpenLinux Third Party Software in eBuilder arising from the
distribution of eBuilder to end users ("third party fees"). If Evergreen
is the "Selling Party" (as defined in Section 4.2), then end users will
pay such third party fees to Caldera through Evergreen. Evergreen shall
be responsible for collection of these third party fees. Third party
fees shall be Caldera's actual cost, without mark-up.
3.16 REPORTS
BY THE 20TH DAY OF EACH MONTH FOLLOWING THE CALENDAR QUARTER END,
EVERGREEN SHALL PROVIDE REPORTS TO CALDERA ON ALL COPIES OF EBUILDER
DISTRIBUTED OR PUBLISHED BY EVERGREEN TO END USERS OR RESELLERS. SUCH
REPORTS SHALL BE AS SIMILAR AS POSSIBLE TO THE REPORTS UNDER SECTION
3.7, BUT DESIGNED TO INCLUDE INFORMATION NEEDED BY CALDERA FOR ROYALTY
PURPOSES, FOR PURPOSES OF OPENLINUX THIRD PARTY SOFTWARE, AND AS
OTHERWISE REASONABLY REQUESTED BY CALDERA. THE REPORT WILL INCLUDE
INFORMATION ON SALES OF ECENTIAL THAT EVERGREEN KNOWS WILL BE DEPLOYED
ON LINUX AT THE TIME OF THE TRANSACTION.
3.17 MASTER COPY OF THE SOFTWARE
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Caldera will provide Evergreen with a master copy of eBuilder and
updates to and new versions of eBuilder (including the OpenLinux for
eBuilder software therein). Caldera is authorized to reproduce any such
copy solely in connection with exercising the rights granted under this
Agreement. Upon termination of this Agreement for any reason, Caldera
shall return to Evergreen the master copy or copies of the program and
all other copies of the OpenLinux for eBuilder except as needed for
continued support under Section 5.3.
3.18 EVERGREEN MARKS
Evergreen shall use the Caldera Marks in connection with OpenLinux for
eBuilder (including any marketing, distribution, packaging or
publication of eBuilder under Section 3.12), and shall use "eBuilder"
(and no other trademark or product name unless and as approved in
writing by Caldera) as the trademark and product name for the eBuilder
product. The use of the Caldera Marks by Evergreen shall strictly adhere
to the most recent reasonable written guidelines provided by Caldera. In
the absence of written guidelines from Caldera, Evergreen shall submit
the proposed use of any Caldera Mark to Caldera for Caldera's written
approval before such use. All use of the Caldera Marks by Evergreen
shall inure to the benefit of Caldera. In bundled software packaging,
whether physical or on-line, Caldera shall have the right to approve all
such packaging as to eBuilder or OpenLinux for eBuilder prior to
offering the bundle to market. Caldera shall not unreasonably withhold
or delay approval.
4. FEES
4.1 INITIAL PAYMENT
Caldera and Evergreen will pay each other a license fee of $100,000 in
each of the first two quarters after the agreement is signed. The first
payment will be made within ten days of the execution of this agreement.
The second payment will be made with the second quarterly report. This
Agreement shall become effective only upon the investment in Evergreen
by Caldera and the stock exchange referred to in the Master Agreement
4.2 ROYALTY
The "Selling Party" shall mean the party who sells, distributes and/or
licenses a copy of eBuilder or Evergreen's version of the bundled
product directly to an end user or to a Reseller. The other party is the
"Other Party." "Proceeds" shall mean the gross revenue received by the
Selling Party from an end user or a Reseller, whichever is applicable,
for the sale, distribution and/or licensing of eBuilder or Evergreen's
version of the bundled product.
"Third Party Software Payments" shall mean payments to third parties for
Third Party Software in eBuilder or Evergreen's version of the bundled
product.
From the Proceeds, all payments payable for applicable Third Party
Software shall be made. If Caldera is the Selling Party, then Caldera
shall pay such payments for OpenLinux Third Party Software directly to
the applicable third parties and shall pay such payments for ECential
Third Party Software to Evergreen, and Evergreen shall pass such payment
on to the applicable third parties. If Evergreen is the Selling Party,
then Evergreen shall pay such payments for ECential Third Party
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Software directly to the applicable third parties and shall pay such
payments for OpenLinux Third Party Software to Caldera, and Caldera
shall pass such payment on to the applicable third parties.
Proceeds do not include fees or payments for any support, maintenance or
services not included in the price for eBuilder. For example, support,
maintenance and other services invoiced or charged separate from the
price for the sale, distribution and/or licensing of eBuilder or
Evergreen's version of the bundled product, are not subject to the
Royalty. Software products which are distributed or licensed in
conjunction with eBuilder, but not included by either party in eBuilder
or Evergreen's version of the bundled product, shall not be subject to
the Royalty, i.e., the Royalty is not payable on the sales price
received by the Selling Party for such other software products.
"Net Proceeds" shall mean Proceeds minus Third Party Software Payments.
"Net Revenue" shall mean 50% of Net Proceeds.
The "Royalty" payable by the Selling Party to the Other Party shall be
[****] of Net Revenue [****].
The parties agree that they will review on a quarterly basis by the last
day of March, June, September, and December of each calendar year, the
definition and percentages of net revenue.
Evergreen may have customers who choose to deploy eCential on Linux
distributions that compete with Caldera. Evergreen will promote the
eBuilder bundle or Evergreen's version of the bundled product to
customers who ask for Linux. If the customer insists on purchasing
eCential and not the bundle Evergreen may sell it to them. If Evergreen
knows at the time of any transaction that eCential will be deployed on
Linux then that sale is subject to the royalty payments described above.
Evergreen may choose to refer customers who seek a Linux Support
Agreement to Caldera. If Caldera signs an agreement with a customer
referred by Evergreen then Caldera will give Evergreen [****] of the
first 12 months revenue as a referral fee.
Caldera may choose to refer customers who seek support on eCential to
Evergreen. If Evergreen signs an agreement with a customer referred by
Caldera then Evergreen will give Caldera [****] of the first 12 months
revenue as a referral fee.
4.3 PAYMENT
Selling Party will make quarterly payments to Other Party of the royalty
amounts Other Party is entitled to receive hereunder. Payments will
accompany the quarterly reports described in section 3.5. Reports and
payments are due the 20th day of that month which follows the end of
each calendar quarter. To compensate for the loss of the use of money
and the administrative expense involved in collecting past due amounts,
all amounts past due or in default under this Agreement shall bear
interest at a rate of one (1.5%) per month.
4.4 TAXES AND OTHER FEES.
As between Selling Party and Other Party, Selling Party shall be
responsible for payment of all sales, use and other taxes, fees and/or
assessments of any sort which come due because of or are related to
transactions between Selling Party and its customers. Selling Party
shall also pay, at its own expense, all import and export licenses and
permits, customs charges, and duty fees required to
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**** CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO SUCH OMITTED PORTIONS.
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accomplish the export and import of the licenses sold by Selling Party.
However, all of the foregoing are not including in Proceeds. Nothing
herein applies to Other Parties income taxes.
4.5 INSPECTION OF SELLING PARTY RECORDS.
Upon twenty (20) days written notice to Selling Party, at Other Parties
expense (except as otherwise provided below), and no more often than
once per year, Other Parties designated representative, or its
independent certified public accountant shall have the right to inspect
Selling Parties records relevant to the royalty or selling parties
compliance with the alliance during business hours solely for the
purposes of verifying the royalty amounts due to Other Party and Selling
Parties compliance with the provisions of this License and all related
Contracts under the Master Agreement. A final inspection shall occur no
later than one year after the termination of this Agreement. Selling
Party shall make immediate payment of any amounts that an inspection
accurately shows to be due to Other Party. If, as a result of any such
inspection, it is accurately determined that the amount paid or due from
Selling Party to Other Party for the period being reviewed has been
understated by an amount in excess of five percent (5%) of the total
amount due Other Party, then Selling Party shall promptly pay the
reasonable cost of such inspection. Other Parties representative or
independent certified public accountant must agree in writing with
Selling Party to keep confidential Selling Parties records and the
contents thereof, except for reasonable disclosures to Other Party
relating to Selling Parties failure to pay the royalty and/or Selling
Parties failure to comply with its obligations under any of the
contracts to the Business Alliance. Other Party must keep such
disclosures confidential and not use for any purpose, except as
necessary to enforce Selling Parties royalty obligation or any terms of
the contracts of the Business Alliance.
5. TERM AND TERMINATION
5.1 TERM.
Unless terminated earlier as provided herein, the initial term of this
Agreement shall be three (3) years from the date of this Agreement, and
the term of this Agreement shall automatically renew for an unlimited
number of successive one-year terms. However, either party may terminate
this Agreement by giving at least 90 days advance written notice of
termination to the other party, provided that the date of such
termination does not occur prior to the end of said initial three year
term. Either party may terminate this Agreement for any reason or no
reason as provided in the Master Agreement.
5.2 RIGHTS NOT TERMINATED.
The termination or expiration of this Agreement shall not affect any
licenses granted or sold to end-users prior to such termination or
expiration. Upon such termination or expiration, each party (the "first
party") shall use all commercially reasonable efforts to return or
destroy all materials provided by other party to the first party during
the term of this Agreement, as specifically provided in the Master
Agreement, but subject to Section 5.3.
5.3 SUPPORT OF EXISTING END USERS
Notwithstanding anything herein to the contrary, in the event of
termination or expiration of this Agreement, the parties shall cooperate
to ensure that end users who received eBuilder under this Agreement
prior to termination or expiration shall continue to receive the support
and maintenance contemplated by this Agreement for at least three years.
Caldera and Evergreen may continue to
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meet their respective support and maintenance obligations to such end
users as established in good faith prior to the date of termination.
5.4 TERMINATION FOR NON-PERFORMANCE
In the event that eBuilder has not been made available for shipping by
June 30, 2000 either party may terminate this agreement with 30 days
written notice.
6. SOFTWARE SUPPORT, DEVELOPMENT SUPPORT, UPGRADES AND TRAINING
6.1 SUPPORT OBLIGATIONS.
The selling party shall provide first and second line support to
customers for the Caldera Software and the Evergreen Software during the
term of this Agreement. The non-selling partyshall provide third line
support. The Selling party will be responsible to communicate third line
support requests to the other party. Third line support means technical
support, consultation with support personnel (and end users if
necessary), trouble shooting, diagnosis of problems, and back-up support
to first and second lines of support. Evergreen and Caldera shall
provide respective support for their Software in accordance with the
following support hours and response times. Evergreen and Caldera will
review support hours and response times guidelines on a quarterly basis
and make appropriate adjustments as mutually agreed upon.: Working Hours
(Hours of Live Support byboth parties) live escalation call support
Monday - Friday 9am - 5pm Mountain Time during normal business days
(non-holidays).
Holidays
Evergreen will notify Caldera each year of Evergreen's annual holiday
schedule, and vice versa.
Response Times
Evergreen and Caldera will accept escalation support incidents from each
other via e-mail and/or elephone for Severity 2 or 3 incidents, and the
other party will acknowledge such incidents within 4 working hours. Each
party will make best effort to reply to and resolve Severity 2 incidents
within 2 business days, and Severity 3 incidents within 5 business days.
The parties will accept escalation support incidents from each other
only via telephone for Severity 1 incidents, and the other party will
acknowledge such incidents within 1 working hour. Each party will make
best effort to reply to and resolve Severity 1 incidents within 4
business hours.
Severity is the impact the problem has on business operations. Severity
1, 2, and 3 incidents are defined below:
"1" - for Errors that result in an emergency condition that cause
critical impact to end user's schedule, cause a serious security breach,
or that make performance or continued performance of any feature or
function impossible or impracticable by the end user.
"2" - for errors that significantly affect an end user's schedule, cause
a minor security breach or which make the performance or continued
performance of any feature
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or function difficult that cannot be circumvented or avoided on a
temporary basis by the end user.
"3" - for errors 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.
6.2 DEVELOPMENT SUPPORT
Development and Software implementation for the integration of ECential
to the Caldera OpenLinux eBuilder Caldera Software and tools will be
defined through Evergreen and Caldera Product Management procedures.
Both parties will dedicate resources to support and ensure integration
and success of the bundled Software.
6.3 UPDATES AND BUG FIXES. Evergreen shall maintain ECential and correct
bugs and programming errors in ECential. Within a commercially
reasonable time, Evergreen shall provide maintenance fixes, corrections,
and patches to Caldera for distribution by Caldera to end users under
licenses sold by Caldera. Such maintenance fixes, corrections, and
patches shall be governed by this Agreement as part of ECential. When
possible, Evergreen shall provide work-around solutions and temporary
fixes as soon as possible while Caldera and end users are awaiting such
maintenance fixes, corrections, and patches. Caldera shall use
commercially reasonable efforts to provide to Evergreen information
known to Caldera necessary (including, where appropriate, reproducible
test cases and other diagnostic information) to diagnose and correct or
repair such problems as Caldera may report to Evergreen. Caldera makes
the same promises to Evergreen.
Evergreen shall deliver Updates to Caldera as soon as they become
available. Updates shall be governed by this Agreement as ECential.
Caldera makes the same promises to Evergreen.
As Evergreen creates commercial versions of ECential for other operating
systems or platforms, Evergreen will also port such commercial versions
to OpenLinux and provide the same to Caldera as Updates, provided that
the port to OpenLinux is commercially viable. In the event Evergreen
elects to not make any such port to OpenLinux, then Caldera may do so at
its expense.
6.4 TRAINING
Within sixty (60) days of the execution of this Agreement, Evergreen
will provide three (3) days of free training for two (2) Caldera
employees. Caldera is responsible for travel and expense costs of
Caldera personnel to Evergreen facilities in Arizona. If Caldera
requests that training take place at Caldera facilities and Evergreen
agrees, then Caldera will be charged for the time of Evergreen's
personnel, travel, hotels, and other associated costs for Evergreen's
personnel, as well as training facilities and associated costs.
For their respective support obligations Evergreen and Caldera will pay
each other $20,000 per month for the life of the agreement (unless each
party agrees to waive the fee). Payment will be due quarterly at the
same time as the product royalty payment.
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Evergreen will provide Caldera with a training manual that both parties
agree is sufficient for Caldera's internal use within 20 days of the
signing of this agreement.
7. COVENANTS OF THE PARTIES
7.1 PROTECT INTELLECTUAL PROPERTY.
Caldera shall use its best commercially reasonable efforts to protect
Evergreen's and its licensors' / suppliers' intellectual property and
proprietary rights in the Evergreen Software, Proprietary Data,
Evergreen Marks, and other intellectual property of Evergreen. Evergreen
shall use its best commercially reasonable efforts to protect Caldera's
and its licensors' / suppliers' intellectual property and proprietary
rights in the Caldera Software, Proprietary Data, Caldera Marks, and
Caldera's other intellectual property.
7.2 REPRESENTATIONS/WARRANTIES BY CALDERA OR EVERGREEN CONCERNING
SOFTWARE.
Caldera shall make no representations or warranties about the Evergreen
Software in excess of the representations or warranties contained in the
Exhibit B Software License Agreement attached hereto or otherwise made
by Evergreen if in writing and made specifically for Caldera or its
end-users. Evergreen shall make no representations or warranties about
the OpenLinux for eBuilder software in excess of the representations or
warranties contained in the license agreements of Sections 3.14 and
3.15, or otherwise made by Evergreen, if in writing and made
specifically for Evergreen or its end-users.
7.3 Mutual Representations.
Each party (the "first party") represents and warrants to the other
party that the first party (a) has not relied on any promises or
representations not expressly made in this Agreement or the Business
Alliance; (b) possesses the facilities, personnel, and experience
necessary to meet its financial and other commitments under this
Agreement; (c) has the full right, power and authority to enter into
this Agreement and to carry out its obligations under this Agreement;
and (d) knows of no impediments that would prevent the first party from
complying with all the terms of this Agreement.
7.5 NOTIFICATION OF INFRINGEMENT.
If the management of Caldera becomes aware of the unauthorized use,
copying, or disclosure of the Evergreen Software, Evergreen Marks, or
Evergreen's Proprietary Data, Caldera will notify an Evergreen
representative. Caldera shall assist Evergreen, at Evergreen's request
and expense, in the investigation and prosecution of such unauthorized
use, copying, or disclosure.
If the management of Evergreen becomes aware of the unauthorized use,
copying, or disclosure of the OpenLinux for eBuilder software, Caldera
Marks, or Caldera's Proprietary Data, Evergreen will notify a Caldera
representative. Evergreen shall assist Caldera, at Caldera's request and
expense, in the investigation and prosecution of such unauthorized use,
copying, or disclosure.
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8. WARRANTIES
8.1 LIMITED WARRANTIES.
(1) Evergreen represents and warrants to and for the benefit of Caldera
that (a) the Evergreen Software and ECential do not infringe any valid
United States patent, copyright, or trademark, or include any
misappropriated trade secret, or violate any privacy or other rights of
any third party and (b) Evergreen has full right, power, and authority
to enter into this Agreement and to carry out its obligations hereunder.
(2) Evergreen represents and warrants that the Evergreen Software is and
will be Year 2000 Compliant. "Year 2000 Compliant" means that the
Evergreen Software is designed for use prior to, during and after
January 1, 2000 and will conform to the following:
1. Date data representative of years are represented or stored
in a four digit format, i.e., full representation of the year
(e.g., "1998") rather than partial representation of the year
(e.g., "98").
2. The screen displays, reports and printed output generated by
the Evergreen Software will show years in four digit format.
3. The Evergreen Software will not include any two digit
representation of years that causes: (a) execution of the
Evergreen Software to terminate abnormally, (b) invalid
values or incorrect results in century date data, (c)
ambiguity in the recognition of century date data, or (d)
other errors or problems.
4. The calculations performed by the Evergreen Software will
accommodate the use of both same-century date values and
multi-century date values.
5. The calculations performed by the Evergreen Software will
accurately accommodate the occurrence of leap years.
This warranty is subject to the following: This warranty does
not apply to any third party software integrated into ECential
or to modifications or enhancements to the Evergreen Software
made by persons other than Evergreen or its contractors. All
date data and date values received by the Evergreen Software
must be accurate, in a four digit century format, and otherwise
compatible with the Evergreen Software. Evergreen is not
responsible for inaccuracies, inadequacies or problems caused
by: (a) any computer programs and databases not licensed by
Evergreen to Caldera, and (b) any hardware. Any use of, or
interaction with, the Evergreen Software must be in accordance
with Evergreen's then-current documentation and instructions and
within the scope of the License.
(3) Evergreen warrants to Caldera that no master copy of the Evergreen
Software provided by Evergreen under this Agreement, except for
demonstration or evaluation software, will contain or be accompanied by
any Self-Help Code or Unauthorized Code (as defined below). This
warranty shall not applied to Evergreen software delivered over the
Internet to which such Unauthorized Code may have been attached outside
of Evergreen's control.
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"Self-Help Code" means any back door, time bomb, drop dead
device, or other routine, code, algorithm or hardware component
designed or used: (i) to disable, erase, alter or harm the
Evergreen Software or any computer system, program, database,
data, hardware or communications system, automatically with the
passage of time, or under the control of, or through some
affirmative action by, a person other than Caldera or its
Affiliate, or (ii) to access any computer system, program,
database, data, hardware or communications system of Caldera or
its Affiliate. "Self-Help Code" does not include any code in the
Evergreen Software or any accompanying hardware component
designed and used to permit Evergreen to obtain access to the
Evergreen Software on Caldera's or its Affiliate's computer
system (e.g., remote access via modem) solely for purposes of
providing maintenance or technical support to Caldera or its
Affiliate, provided that such code or hardware component is
first disclosed to Caldera and approved by Caldera in writing.
"Unauthorized Code" means any virus, Trojan horse, worm, or
other routine, code, algorithm or hardware component designed or
used to disable, erase, alter, or otherwise harm any computer
system, program, database, data, hardware or communications
system, or to consume, use, allocate or disrupt any computer
resources, in a manner which is malicious or intended to damage
or inconvenience. The term Unauthorized Code does not include
Self-Help Code.
Evergreen warrants that ECential will conform to the Documentation
provided by Evergreen in connection with ECential and any then effective
published specifications, descriptions or statements from Evergreen
concerning ECential that are made in writing to Caldera for the benefit
of Caldera or its end users. Caldera makes the same warranties and
covenants to Evergreen with respect to Caldera's products as contained
in this section.
8.2 EXCLUSIONS.
Evergreen makes no warranty concerning, and shall have no liability with
respect to (a) software not delivered by Evergreen; (b) use of the
Evergreen Software in a manner for which it was not designed; (c)
Caldera's modification of the Evergreen Software in a manner to become
infringing; or (d) any use of the Software in violation of this
Agreement. Evergreen does not warrant that the Software is free from
errors or that it will interface without any problems with Caldera's or
any end-user's computer system, however, this does not negate or limit
Evergreen's obligations of maintenance and support. Evergreen shall not
be liable for any damage or loss to Caldera's computer or data resulting
from the evaluation or use of the Evergreen Software.
Caldera makes no warranty concerning, and shall have no liability with
respect to (a) software not delivered by Caldera; (b) use of the Caldera
Software in a manner for which it was not designed; (c) Evergreen's
modification of the Caldera Software in a manner to become infringing;
or (d) any use of the Software in violation of this Agreement. Caldera
does not warrant that the Software is free from errors or that it will
interface without any problems with Evergreen's or any end-user's
computer system, however, this does not negate or limit Caldera's
obligations of maintenance and support. Caldera shall not be liable for
any damage or loss to Evergreen's computer or data resulting from the
evaluation or use of the Caldera Software.
8.3 DISCLAIMER.
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EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THE BUSINESS
ALLIANCE, THE EVERGREEN SOFTWARE IS OFFERED "AS IS" WITH ALL FAULTS.
CALDERA MAKES NO WARRANTIES NOT EXPRESSLY SET FORTH IN THE BUSINESS
ALLIANCE. ALL WARRANTIES AND OTHER TERMS WHICH WOULD OTHERWISE BE
IMPLIED OR INCORPORATED INTO THIS AGREEMENT BY STATUTE OR COMMON LAW ARE
HEREBY EXCLUDED BY THE PARTIES. THE WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE ARE SPECIFICALLY DISCLAIMED BY
EVERGREEN AND CALDERA. IT IS EXPRESSLY AGREED THAT EVERGREEN SHALL NOT
BE IN ANY WAY RESPONSIBLE FOR THE COMMERCIAL SUCCESS OF THE EVERGREEN
SOFTWARE OR THE BUNDLED SOFTWARE AND THAT CALDERA SHALL NOT BE IN ANY
WAY RESPONSIBLE FOR THE COMMERCIAL SUCCESS OF CALDERA SOFTWARE OR
EVERGREEN SOFTWARE BUNDLED WITH CALDERA SOFTWARE. THERE ARE NO
GURANATEED SALES OR MINIMUM ROYALTIES. NEITHER PARTY MAKES ANY
WARRANTIES CONCERNING ANY THIRD PARTY SOFTWARE AND HAS NO OBLIGATION TO
INDEMNIFY, DEFEND OR HOLD HARMLESS WITH RESPECT TO THIRD PARTY SOFTWARE.
8.4 RESPONSE TO ANY INFRINGEMENT CLAIM.
If Caldera receives notice of any claim that the Evergreen Software
infringes a United States or foreign patent or copyright, Caldera shall
promptly give written notice of the claim to Evergreen in accordance
with Section 9.2 below. If Evergreen determines that the claim may have
merit, Evergreen may instruct Caldera to cease selling licenses for the
Evergreen Software. Evergreen shall have no obligation to indemnify
Caldera for any sales of licenses that occur (a) after Caldera has
notice of the infringement claim but before notice of such claim is
given to Evergreen, or (b) after Evergreen has instructed Caldera to
cease selling licenses, except for sales that are required by
contractual commitments existing prior to (a) and (b) above. Upon
receiving notice of the claim and determining that the claim may have
merit, Evergreen shall use commercially reasonable efforts to (a)
procure the right to continue using the Evergreen Software or portions
thereof and all rights and licenses necessary for this Agreement and the
Business Alliance; or (b) modify or replace all or part of the concerned
Evergreen Software to avoid any infringement, provided that the modified
Evergreen Software or the replacement is substantially the same or
better in functions, features and performance. If Evergreen determines
that it is not able to do either of the foregoing in a commercially
reasonable fashion, as determined by Evergreen in Evergreen's sole
discretion, Evergreen may terminate Caldera's license to sell further
licenses of the Evergreen Software (i.e., remove the infringing
Evergreen Software from eBuilder. In such case, Caldera shall have the
right to terminate all future obligations of the parties under the
Business Alliance, including this Agreement.
If Evergreen receives notice of any claim that the Caldera Software
infringes a United States or foreign patent or copyright, Evergreen
shall promptly give written notice of the claim to Caldera in accordance
with Section 9.2 below. If Caldera determines that the claim may have
merit, Caldera may instruct Evergreen to cease selling licenses for the
Caldera Software. Caldera shall have no obligation to indemnify
Evergreen for any sales of licenses that occur (a) after Evergreen has
notice of the infringement claim but before notice of such claim is
given to Caldera, or (b) after Caldera has instructed Evergreen to cease
selling licenses, except for sales that are required by contractual
commitments existing prior to (a) and (b) above. Upon receiving notice
of the claim and determining that the claim may have merit, Caldera
shall use commercially reasonable efforts to (a) procure the right to
continue using the Caldera Software or portions thereof and all rights
and licenses necessary for this Agreement and the Business Alliance; or
(b) modify or replace all or part of the concerned Caldera Software to
avoid any infringement, provided that the modified Caldera Software or
the replacement is substantially the same or better in functions,
features and performance. If Caldera determines that it is not able to
do either of the foregoing in a commercially reasonable fashion, as
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determined by Caldera in Caldera's sole discretion, Caldera may
terminate Evergreen's license to sell further licenses of the Caldera
Software (i.e., remove the infringing Caldera Software from eBuilder).
In such case, Evergreen shall have the right to terminate all future
obligations of the parties under the Business Alliance, including this
Agreement.
9. CROSS INDEMNITY
9.1 INDEMNIFICATION
Each party (the "first party") hereby agrees to indemnify, defend and
hold the other party harmless from and against any and all losses,
damages, judgments, settlements, liabilities, costs, charges and
expenses, including reasonable attorneys' fees, arising out of or from
any infringement or claim of infringement of any patent, copyright,
trade secret, trademark or other proprietary right. When the
infringement or claim of infringement applies to Evergreen Software,
then Evergreen is the "first party." When the infringement or claim of
infringement applies to Caldera Software, then Caldera is the "first
party." The exclusions of Section 8.2 or elsewhere shall also be
exclusions from the first parties obligations to indemnify, defend and
hold harmless the other party hereunder. Regarding the part of said
indemnity running from first party in favor of the other party, the
first party shall indemnify, defend and hold harmless the other party
only if: (i) the infringement is not caused by the combination of the
Software (Evergreen Software if Evergreen is the first party; and
Caldera Software if Caldera is the first party) with any other item not
provided by the first party, including but not limited to software,
data, or hardware, (ii) notification by the indemnified party shall be
in accordance with Section 9.2 below. and (iii) the indemnified party
allows the indemnifying party to control any litigation and settlement
of such infringement charges in accordance with Sections 9.3 and 9.4
below. Should any portion of the Software (Evergreen Software if
Evergreen is the first party; and Caldera Software if Caldera is the
first party) or its intended use become, or in the first parties opinion
be likely to become, the subject of a claim of infringement of a United
States patent, copyright or other proprietary right, then Section 8.4
above shall apply. The first parties liability and obligation to the
other party in the event of infringement or claimed infringement shall
be strictly limited to the obligations set forth in this Article 9.
9.2 NOTICE OF CLAIMS.
A party entitled to indemnification under Section 9.1, or any other
provision of this Agreement (an "Indemnified Party") shall give the
party required to provide such indemnification (the "Indemnifying
Party") written notice of any claim for indemnification promptly after
the Indemnified Party actually learns of the existence of such claim.
The Indemnifying Party shall have no obligation with respect to any
claim to the extent that failure to promptly give such notice materially
prejudices the ability of the Indemnifying Party to defend such claim.
9.3 CONDUCT OF DEFENSE.
The Indemnified Party shall permit the Indemnifying Party to assume the
defense of any claim covered by the indemnification. The Indemnified
Party shall have the right to approve the counsel who shall conduct the
defense of the claim but shall not withhold such approval unreasonably.
The Indemnified Party may participate in the defense at the Indemnified
Parties expense.
9.4 SETTLEMENTS.
No Indemnifying Party, in the defense of any claim, shall, except with
the consent of each Indemnified Party, consent to entry of any judgment
or enter into any settlement that does not include an unconditional
release by the claimant of the Indemnified Party from all liability in
respect to the
17
<PAGE> 18
claim. The Indemnified Party shall not settle any Claim without the
consent of the Indemnifying Party. The consent of the Indemnifying Party
is a condition to the obligation of the Indemnifying Party to pay money
pursuant to this Article 9. The Indemnifying Party shall not
unreasonably withhold consent to any proposed settlement. The settlement
must not include any obligation on the part of the Indemnified Party,
i.e., the settlement must be satisfied by the Indemnifying Party in
full.
10. LIMITATION OF LIABILITY
10.1 EXTENT OF LIABILITY.
Except for liabilities and obligations under Section 8.4 or Article 9,
and the royalty fees due Caldera pursuant to this Agreement and any
interest thereon, Evergreen's liability arising out of this Agreement or
arising out of the use or distribution of the Evergreen Software by
Caldera shall be limited to the amount paid by Caldera to Evergreen for
the Evergreen Software. Except for liabilities and obligations under
Section 8.4 and Article 9, and the royalty fees due Evergreen pursuant
to this Agreement and any interest thereon, Caldera's aggregate
liability to Evergreen shall not exceed a limit equal to the same
amount. Notwithstanding the foregoing, the limitation of liability under
this section 10.1, does not apply to liabilities that arise to either
party as a result of actions that infringe intellectual property or
violate Confidential Information responsibilities under this Agreement.
10.2 DISCLAIMER.
IN NO EVENT SHALL EVERGREEN OR CALDERA BE LIABLE FOR COSTS OF
PROCUREMENT OF SUBSTITUTE GOODS BY ANYONE (OTHER THAN AS PROVIDED FOR IN
SECTIONS 8.4 AND 9.1), NOR WILL EVERGREEN OR CALDERA BE LIABLE FOR ANY
SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES, INCLUDING WITHOUT LIMITATION LOST PROFITS, RELATING TO THIS
AGREEMENT OR RESULTING FROM A USE OR INABILITY TO USE THE EVERGREEN
SOFTWARE OR CALDERA SOFTWARE, OR EBUILDER OR OPENLINUX FOR EBUILDER,
HOWEVER CAUSED, ARISING UNDER ANY CAUSE OF ACTION, INCLUDING WITHOUT
LIMITATION, BREACH OF CONTRACT, WARRANTY, STRICT LIABILITY, NEGLIGENCE
OR OTHERWISE, AND WHETHER OR NOT EVERGREEN OR CALDERA HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES. THE ESSENTIAL PURPOSE OF THIS
SECTION 10.2 IS TO LIMIT THE POTENTIAL LIABILITY OF EVERGREEN AND
CALDERA ARISING OUT OF THIS AGREEMENT. Notwithstanding the foregoing,
the limitation of liability under this section 10.2, does not apply to
liabilities that arise to either party as a result of actions that
infringe intellectual property or violate Confidential Information
responsibilities under this Agreement.
11. CONFIDENTIALITY.
Evergreen and Caldera agree that each of them shall, during the term of
this Agreement and for so long thereafter as the information remains
confidential, take all steps which are reasonable to safeguard the
confidentiality of, and proprietary rights to, the confidential
information ("Confidential Information") of the other party which may be
disclosed under this Agreement (including, but not limited to, product
plans, designs, business plans, technical specifications, research, and
customer or financial data, and Proprietary Data) and shall not, without
the prior written consent of the other party, (a) use such Confidential
Information for its own benefit or the benefit of any third party except
for purposes expressly provided for in this Agreement, or (b) disclose
such Confidential Information to any third party. This Article 11 shall
not be construed to restrict, and Confidential Information shall not
include, information which (a) is publicly known at the time of its
disclosure to the receiving party, (b) is lawfully received by a party
from a third party not bound in a confidential relationship to the
disclosing party, (c) was already known by the receiving party prior to
disclosure by the disclosing party, or (d) is independently developed or
created by the receiving party without use of the Confidential
Information from the disclosing party. There is no restriction on
disclosures required by
18
<PAGE> 19
law or court order. If, however, either party is issued a Subpoena or
court order requiring disclosure of confidential information, it shall
provide the other party hereto notice of such Subpoena or notice and
provide said party an opportunity to contest it. Confidential
Information which becomes publicly known through no fault of the
receiving party after disclosure to the receiving party shall cease to
be Confidential Information.
12. RESTRICTED RIGHTS OF GOVERNMENT USERS
If an end user of any Evergreen Software will be an agency, department,
or other entity of the United States Government (the "Government"), the
end user's Software License Agreement shall include such "restricted
rights of government users" clause as Evergreen has included in Exhibit
B.
IN WITNESS WHEREOF the parties through their duly authorized representatives
have caused this OEM License Agreement to be executed as of the date first set
forth above.
CALDERA SYSTEMS, INC. EVERGREEN INTERNET, INC.
By: /s/ RANSOM H. LOVE By: /s/ PHILLIP E. BROUDBENT
-------------------------------- ---------------------------------
Name: Ransom H. Love Name: Phillip E. Broudbent
------------------------------ -------------------------------
Title: CEO / President Title: CEO / President
----------------------------- ------------------------------
19
<PAGE> 20
EXHIBIT A TO OEM LICENSE AGREEMENT
------------------------------------------------ -----------------
------------------------------------------------ -----------------
------------------------------------------------ -----------------
------------------------------------------------ -----------------
ECential
ECential(TM) Enterprise
ECential(TM) Multi-Store
Additional Store-Fronts for ECential Multi-Store
Additional Server License
ECential(TM) Enterprise Annual Software Maintenance
ECenital(TM) Multi-Store Annual Software Maintenance
Pricing for Visibroker
[Insert Pricing]
Visibroker for Linux
Each party will unilaterally determine the price at which it sells, licenses or
distributes eBuilder.
As of the date of this Agreement there are no fees payable for any third party
software in ECential other than Visibroker. If any fees become payable to third
parties for third party software in ECential, then Evergreen shall provide as
much advance written notice as reasonably possible and this Exhibit shall be
amended by the parties to make it current.
Evergreen will use its best reasonable efforts to negotiate and obtain the most
favorable pricing for Visibroker and other third party software in ECential.
20
<PAGE> 21
EXHIBIT B to OEM License Agreement
ECENTIAL(TM) 2.X
SOFTWARE LICENSE AGREEMENT
PLEASE READ THIS AGREEMENT CAREFULLY BEFORE INSTALATION AND USE OF THE PROGRAM.
EVERGREEN INTERNET WILL LICENSE THE PROGRAM TO YOU (LICENSEE) ONLY IF YOU FIRST
ACCEPT THE TERMS OF THIS AGREEMENT. BY USING THE PROGRAM YOU AGREE TO THESE
TERMS. IF YOU DO NOT AGREE TO THE TERMS OF THIS AGREEMENT, EXIT INSTALATION NOW.
ERASE, DESTROY, OR RETURN THE SOFTWARE TO EVERGREEN.
1. LICENSE GRANT AND LIMITATION.
a.) LICENSE. Subject to the terms and conditions of this Agreement,
Evergreen grants Licensee a perpetual (except in the event of
termination under section 13(b)), nontransferable, nonassignable,
nonexclusive license to use one copy of Ecential(TM) Software
("Software") and user documentation. The Software licenses covered by
this agreement are listed in Exhibit 1 hereto. B.) MODULAR BASED.
Licensee understands and agrees that the Software is modular based to
facilitate distributive computing.
a.)
c.) LIMITATIONS. Evergreen and/or its suppliers reserve all rights not
expressly granted herein. Without limiting the generality of the
preceding sentence, Licensee receives no rights and agrees:
1.) not to modify, port, translate, localize, add features or
functionality, or create derivative works of the Software,
2.) not to decompile, deencrypt, disassemble or otherwise
reverse engineer the Software, algorithms, logic or program
code of the Software or any derivative work thereof, or
attempt to do any of the same. Licensee does not and shall
not receive any rights by implication or otherwise in the
Software or any component thereof.
3.) WEB SITE DISPLAY. Licensee shall, throughout its use of the
Software, display the following or something similar on its
home page and product pages:
"Ecential(TM) by Evergreen Internet, Inc.,
Setting the Standard for Open Commerce."
or, a "powered by ECentialTM button represented with an
Evergreen/ECential graphic provided by Evergreen.
2. DELIVERABLES. Evergreen or its distributor shall provide Licensee one
executable copy of the object code version of the Software and one copy of
the Software's user documentation. Licensee shall not copy the Software
(except for one archival copy for back up purposes only) or the user
documentation, subject to the conditions referred to in the license grant
herein.
3. TITLE. The Software is licensed, not sold. Title to the Software remains
with Evergreen. Title to any third party software used by the Software
remains with the third party.
4. THIRD PARTY SOFTWARE. Licensee understands and agrees that the Software
utilizes software components from third parties as described in Exhibit 2
and said third party software is licensed to Licensee pursuant to the terms
of the license agreement(s) as stated in Exhibit 2. Licensee hereby agrees
to abide by the terms of the third party license agreement(s) included in
Exhibit 2 which accompany this Agreement. Evergreen makes no warranties
regarding third party software.
5. INSTALLATION. Licensee shall be responsible for installation of the
Software.
21
<PAGE> 22
6. CONFIDENTIALITY. Licensee agrees that neither Licensee, its agents nor its
employees shall in any manner use, disclose or otherwise communicate any
information with respect to the Software which might enable use or copying
of all or any portion of the Software. Licensee agrees to take all necessary
action to protect the confidential and proprietary information included in
the Software, including appropriate instruction and agreement with its
employees.
7. SOFTWARE SUPPORT POLICY This license does not guarantee software support
from Evergreen. Any software support is provided by separate agreement with
the distributor of this software.
8. WARRANTIES.
a.) Evergreen warrants that it has clear title to the Software. Evergreen
warrants to Licensee that it has all necessary rights, power and
authority to enter into this Agreement and to grant the rights granted
under this Agreement.
b.) Licensee warrants that it has all necessary rights, power and authority
to enter into this Agreement and to grant the rights granted under this
Agreement.
c.) Evergreen warrants that the Software as delivered to Licensee is not
contaminated by harmful computer programming code.
d.) Company warrants that the software accurately processes date/time data
(including but not limited to, calculating, comparing and sequencing)
from, into, and between the twentieth and twenty-first centuries, and
the years 1999 and 2000 and leap year calculations, to the extent that
other information technology properly exchanges date/time data with it.
e.) For 90 days from the date software is installed, Evergreen warrants that
the Software will perform substantially in accordance with the
accompanying documentation, and the Software media will be free from
defects in materials and workmanship. In the event of a breach of this
warranty, Evergreen shall (a) refund to Licensee the price paid for the
Software, or (b) repair or replace the Software that does not meet this
Limited Warranty.
f.) EXCEPT AS OTHERWISE PROVIDED HEREIN, THE SOFTWARE AND THE ACCOMPANYING
WRITTEN MATERIALS ARE PROVIDED "AS IS" WITHOUT EXPRESS OR IMPLIED
WARRANTY OF ANY KIND. EVERGREEN FURTHER DISCLAIMS ALL IMPLIED
WARRANTIES, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. EVERGREEN DOES NOT
WARRANT THAT THE SOFTWARE WILL BE ERROR FREE OR WILL OPERATE WITHOUT
INTERRUPTION OR THAT THE SOFTWARE DOES NOT INFRINGE ANY COPYRIGHT,
PATENT, ETC. OF ANY THIRD PARTY. THE ENTIRE RISK ARISING OUT OF THE USE
OR PERFORMANCE OF THE SOFTWARE AND ACCOMPANYING WRITTEN MATERIALS
REMAINS WITH LICENSEE.
The Software is not designed or licensed for use in hazardous
environments requiring fail-safe controls, including without limitation
operation of nuclear facilities, aircraft navigation or communication
systems, air traffic control, and life support or weapons systems.
Without limiting the generality of the foregoing, Evergreen specifically
disclaims any express or implied warranty of fitness for such purposes.
9. INDEMNITY. Both parties shall indemnify, defend and hold the other party
harmless from and against any and all losses, damages, liabilities, costs,
charges and expenses, including reasonable attorneys' fees, arising out of
any breach by either party of their obligations under this agreement or from
any infringement or claim of infringement of any patent, copyright, trade
secret, trademark or other proprietary right based on or arising out of the
creation, use or installation by Licensee of the Software. Regarding the
part of said indemnity running from Evergreen in favor of Licensee,
Evergreen shall indemnify and hold harmless Licensee for any liability for
infringement of any United States patent, copyright or trade secret rights
of and due to a third party caused solely by the use of the Software in
accordance with the Software's documentation, provided that: (i) the
infringement is not caused by the combination of the Software with any other
item not provided by the Evergreen, including but not limited to software,
data, or
22
<PAGE> 23
hardware, (ii) Licensee notifies Evergreen in writing within ten (10) days
of Licensee's first knowledge of a charge of infringement of patent,
copyright or trade secret rights by another party, and (iii) Licensee agrees
to allow Evergreen to fully control any litigation and settlement of such
infringement charges provided any such settlement does not require the
Licensee to make any payment.
10. NO CONSEQUENTIAL DAMAGES. Evergreen shall not be liable to Licensee for
indirect, special, incidental, exemplary, punitive, or consequential damages
(including, without limitation, lost profits) related to this Agreement or
resulting from Licensee's use or inability to use the Software, arising from
any cause of action whatsoever, including without limitation, contract,
warranty, strict liability, or negligence, even if notified of the
possibility of such damages.
11. LIMITATION ON RECOVERY. UNDER NO CIRCUMSTANCES, INCLUDING NEGLIGENCE, SHALL
EVERGREEN BE LIABLE FOR ANY INCIDENTAL, SPECIAL, INDIRECT, PUNITIVE OR
CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATING TO THIS LICENSE. SOME
JURISDICTIONS DO NOT ALLOW THE LIMITATION OF INCIDENTAL OR CONSEQUENTIAL
DAMAGES SO THIS LIMITATION MAY NOT APPLY TO YOU. In no event shall either
Evergreen's total liability to you for all damages exceed the amount paid
for this License for the Software.
12. PROPRIETARY RIGHTS. Except as expressly provided for in Section 1 of this
Agreement, Evergreen and/or its suppliers retain any and all right, title
and interest in and to the Software. This Agreement grants no additional
express or implied license, right or interest in any copyright, patent,
trade secret, trademark, invention or other intellectual property right of
Evergreen Internet, Inc. or its suppliers. Licensee receives no rights to
and will not distribute, sublicense, sell, assign, lease market, transfer,
encumber or suffer to exist any lien or security interest on the Software,
nor will Licensee take any action that would cause the Software to be placed
in the public domain. Licensee will not remove, or allow to be removed, any
Evergreen copyright, trade secret or other proprietary rights notice from
the Software. Licensee will not make any warranties with respect to the
Software beyond those made to Licensee by Evergreen under this Agreement.
Evergreen and its suppliers reserve all rights not specifically granted
under this License.
13. GENERAL PROVISIONS.
a. ASSIGNMENT. Licensee shall not assign or otherwise transfer the Software
or this Agreement to anyone, including any parent, subsidiaries,
affiliated entities or third parties, or as a part of the sale of any
portion of its business, or pursuant to any merger, consolidation or
reorganization, without Evergreen's prior written consent. Third
parties, such as consultants, subcontractors, or agents of licensee who
have been contracted by the licensee to implement the Software on
Licensee's behalf at licensee's facility, or in a hosting facility, and
who have agreed in writing to use the Software only in accordance with
the terms and conditions of this license, do not violate this Section
13(a).
b. TERMINATION. Without prejudice to other rights, Evergreen may terminate
this License if Licensee fails to comply with the terms and conditions
of the License, provided that prior to any termination Evergreen shall
have provided written notice to Licensee specifying the nature of such
failure to comply and Licensee shall have failed to remedy such failure
within 30 days of receipt of such notice. In such event, Licensee must
destroy all copies of the Software and all of its component parts and
shall certify in writing to Evergreen that such destruction has
occurred.
c. NOTICES. Any notice required or permitted to be sent to a party under
this Agreement will be in writing, effective on receipt by that party,
and will be sent by overnight carrier, fax, first-class mail or personal
delivery to the Address for Notice given for that party below. Either
party may change its notice address by giving written notice to the
other party at the other party's notice address.
d. EXPORT. Licensee may not export or re-export the Software to a national
of a country in Country Groups E:1 or E:2 without a license or a license
exception from the U.S. Department of Commerce nor otherwise violate any
provision of U.S. export laws.
23
<PAGE> 24
IMPORTANT NOTICE: THIS SOFTWARE OR ANY UNDERLYING INFORMATION OR ANY
UNDERLYING TECHNOLOGY MAY NOT BE DOWNLOADED, DISTRIBUTED OR OTHERWISE
EXPORTED OR RE-EXPORTED OUTSIDE THE UNITED STATES (OR CANADA) OR TO ANY
FOREIGN ENTITY OR "FOREIGN PERSON" AS DEFINED BY U.S. GOVERNMENT
REGULATIONS. INCLUDING WITHOUT LIMITATION ANYONE WHO IS NOT A CITIZEN,
NATIONAL, OR LAWFUL PERMANENT RESIDENT OF THE UNITED STATES (OR CANADA)
OR TO ANYONE ON THE U.S. TREASURY DEPARTMENT'S LIST OF SPECIALLY
DESIGNATED NATIONALS OR ON THE U.S. COMMERCE DEPARTMENT'S TABLE OF
DENIAL ORDERS OR ENTITY LIST, OR INTO (OR TO A NATIONAL OR RESIDENT OF)
CUBA, IRAQ, LIBYA, NORTH KOREA, IRAN OR ANY OTHER COUNTRY TO WHICH THE
U.S. EMBARGOES GOODS. BY DOWNLOADING OR USING THIS SOFTWARE, YOU AND
YOUR COMPANY ARE AGREEING TO ABIDE BY THE FOREGOING AND ARE WARRANTING
THAT YOU AND YOUR COMPANY ARE NOT A FOREIGN PERSON OR FOREIGN ENTITY
(OTHER THAN A CANADIAN PERSON OR CANADIAN ENTITY) OR UNDER THE CONTROL
OF A FOREIGN PERSON OR FOREIGN ENTITY (OTHER THAN A CANADIAN PERSON OR
CANADIAN ENTITY).
e. ARBITRATION. Evergreen and the Licensee shall settle any controversy
arising out of this Agreement by arbitration in the State of Arizona in
accordance with the rules of the American Arbitration Association. A
single arbitrator shall be agreed upon by Evergreen and the Licensee or,
if Evergreen and the Licensee cannot agree upon an arbitrator within
thirty (30) days, then Evergreen and the Licensee agree that a single
arbitrator shall be appointed by the American Arbitration Association.
The arbitrator may award attorneys' fees and costs as part of the award.
The award of the arbitrator shall be binding and may be entered as a
judgment in any court of competent jurisdiction. The arbitrator shall
not have the power to award non-monetary, injunctive or equitable relief
of any sort, which may be sought in court as provided in section 13(l),
in addition to any other legal remedies that may be available hereunder.
f. COMPLETE AGREEMENT. Evergreen and the Licensee agree that this Agreement
is the complete and exclusive statement of the agreement between
Evergreen and the Licensee, which supersedes and merges all prior
proposals, understandings and all other agreements, oral or written,
between the Evergreen and the Licensee relating to this Agreement.
g. AMENDMENT. This Agreement may not be modified, altered or amended except
by written instrument duly executed by both Evergreen and the Licensee.
h. WAIVER. The waiver or failure of either Evergreen or the Licensee to
exercise in any respect any right provided for in this Agreement shall
not be deemed a waiver of any further right under this Agreement. Any
waiver must be in writing, signed by the party waiving its rights.
i. SEVERABILITY. If any provision of this Agreement is invalid, illegal or
unenforceable under any applicable statute or rule of law, it is to that
extent to be deemed omitted. The remainder of the Agreement shall be
valid and enforceable to the maximum extent possible.
j. RECORDS INSPECTION. Upon three business days written notice, Licensee
shall allow Evergreen and/or its agents to inspect and audit all of
Licensee's records, in any media, relating to the Software and this
Agreement, at the Licensee's regular place of business and at such
reasonable times as shall not disrupt Licensee's business operations, to
confirm Licensee's compliance with its obligations hereunder. If such
inspection and/or audit discloses that Licensee has not complied with
its obligations, Licensee shall bear the full cost of the inspection and
audit, in addition to any other rights Evergreen may have hereunder.
k. GOVERNING LAW. This agreement and performance hereunder shall be
governed by the laws of the State of Arizona without regard to conflict
of law principles. Any Dispute shall be resolved in Maricopa County,
Arizona, and
24
<PAGE> 25
Licensee submits to the personal jurisdiction in Arizona of the
arbitrator and/or the Arizona court, as appropriate under the Agreement.
25
<PAGE> 26
IN WITNESS WHEREOF, by virtue of accepting the Software by electronic means,
downloading, installing the Software, or by using the Software in any way, the
parties hereto have caused this Ecential(TM) License to be executed and consider
this AGREEMENT to be effective as of the day and year the software was acquired.
Address for Notice:
Evergreen Internet, Inc.
3260 North Colorado Street
Phoenix, AZ 85225
Phone: 602-926-4500 Fax: 602-926-8939
26
<PAGE> 1
EXHIBIT 10.17
SUN COMMUNITY SOURCE LICENSE
Version 2.3
(Rev. Date Feb. 22, 1999) as revised by Sun Microsystems, Inc.
("Original Contributor") and Caldera Systems, Inc. ("You")
RECITALS
Original Contributor has developed Specifications and Source Code
implementations of certain Technology; and
Original Contributor desires to license the Technology to a large community to
facilitate research, innovation and product development while maintaining
compatibility of such products with the Technology as delivered by Original
Contributor; and
Original Contributor desires to license certain Sun Trademarks for the purpose
of branding products that are compatible with the relevant Technology delivered
by Original Contributor; and
You desire to license the Technology and possibly certain Sun Trademarks from
Original Contributor on the terms and conditions specified in this License.
In consideration for the mutual covenants contained herein, You and Original
Contributor agree as follows:
AGREEMENT
1. Introduction. The Sun Community Source License and attachments ("License")
may include five distinct licenses: Research Use, TCK, Internal Deployment Use,
Commercial Use and Trademark License. The Research Use, TCK and Internal
Deployment Use licenses are effective when You sign this License. The Commercial
Use and Trademark licenses must be signed by You and Original Contributor in
order to become effective. Once effective, these licenses and the associated
requirements and responsibilities are cumulative. Capitalized terms used in this
License are defined in the Glossary.
2. License Grants.
2.1 Original Contributor Grant. Subject to Your compliance with Sections 3, 8.10
and Attachment A of this License (and Your right to cure breaches to the extent
provided in Section 6.), Original Contributor grants to You a worldwide,
royalty-free, non-exclusive license, to the extent of Original Contributor's
Intellectual Property Rights covering the Original Code, Upgraded Code and
Specifications, to do the following:
a) Research Use License:
(i) use, reproduce and modify the Original Code, Upgraded Code and
Specifications to create Modifications and Reformatted Specifications for
Research Use by You,
Agreement No. 55391 Page 1
<PAGE> 2
(ii) publish and display Original Code, Upgraded Code and Specifications
with, or as part of Modifications, as permitted under Section 3.1 b) below,
(iii) reproduce and distribute copies of Original Code and Upgraded Code
to Licensees and students for Research Use by You,
(iv) compile, reproduce and distribute Original Code and Upgraded Code in
Executable form, and Reformatted Specifications to anyone for Research Use by
You.
b) Other than the licenses expressly granted in this License, Original
Contributor retains all right, title, and interest in Original Code and Upgraded
Code and Specifications.
2.2 Your Grants.
a) To Other Licensees. You hereby grant to each Licensee a license to Your Error
Corrections and Shared Modifications, of the same scope and extent as Original
Contributor's licenses under Section 2.1 a) above relative to Research Use,
Attachment C relative to Internal Deployment Use, and Attachment D relative to
Commercial Use.
b) To Original Contributor. You hereby grant to Original Contributor a
worldwide, royalty-free, non-exclusive, perpetual and irrevocable license, to
the extent of Your Intellectual Property Rights covering Your Error Corrections,
Shared Modifications and Reformatted Specifications, to use, reproduce, modify,
display and distribute Your Error Corrections, Shared Modifications and
Reformatted Specifications, in any form, including the right to sublicense such
rights through multiple tiers of distribution.
c) Other than the licenses expressly granted in Sections 2.2 a) and b) above,
and the restriction set forth in Section 3.1 d)(iv) below, You retain all right,
title, and interest in Your Error Corrections, Shared Modifications and
Reformatted Specifications.
2.3 Contributor Modifications. You may use, reproduce, modify, display and
distribute Contributor Error Corrections, Shared Modifications and Reformatted
Specifications, obtained by You under this License, to the same scope and extent
as with Original Code, Upgraded Code and Specifications.
2.4 Independent Contractors. You may deliver the Source Code of Covered Code to
other Licensees having at least a Research Use license, for the sole purpose of
furnishing development services to You in connection with Your rights granted in
this License. All such Licensees must execute appropriate documents with respect
to such work consistent with the terms of this License, and acknowledging their
work-made-for-hire status or assigning exclusive right to their work product and
associated Intellectual Property Rights to You.
3. Requirements and Responsibilities.
Agreement No. 55391 Page 2
<PAGE> 3
3.1 Research Use License. As a condition of exercising the rights granted under
Section 2.1 a) above, You agree to comply with the following:
a) Your Contribution to the Community. All Error Corrections and Shared
Modifications which You create or contribute to are automatically subject to the
licenses granted under Section 2.2 above. You are encouraged to license all of
Your other Modifications under Section 2.2 as Shared Modifications, but are not
required to do so. Your Modification will be a Shared Modification only if You
deliver it to Original Contributor or disclose it to third party software
developers as provided herein (other than Your agents acting on Your behalf and
independent contractors engaged by You to perform services for You, and
excluding Compliant Covered Code distributed under Attachment D). You agree to
notify Original Contributor of any errors in the Specification which come to
Your attention.
b) Source Code Availability. You agree to provide all Your Error Corrections to
Original Contributor as soon as reasonably practicable and, in any event, prior
to Internal Deployment Use or Commercial Use, if applicable, or if created after
Internal Deployment Use or Commercial Use, then as soon as reasonably
practicable. Original Contributor may, at its discretion, post Source Code for
Your Error Corrections and Shared Modifications on the Community Webserver. You
may also post Error Corrections and Shared Modifications on a web-server of Your
choice; provided, that You must take reasonable precautions to ensure that only
Licensees have access to such Error Corrections and Shared Modifications. Such
precautions shall mean a password protection scheme limited to Licensees and a
click-on, download certification of Licensee status required of those attempting
to download from the server. An example of an acceptable certification is
attached as Attachment A-2. Original Contributor can require additional
reasonable precautions from time to time. This precaution applies only to the
Source Code of such Error Corrections and Shared Modifications, and not to the
executable form thereof, which is covered under Section 3.1 d) below.
c) Notices. All Error Corrections and Shared Modifications You create or
contribute to must include a file documenting the additions and changes You made
and the date of such additions and changes. You must also include the notice set
forth in Attachment A-1 in the file header. If it is not possible to put the
notice in a particular Source Code file due to its structure, then You must
include the notice in a location (such as a relevant directory file or
accompanying documentation), where a recipient would be most likely to look for
such a notice.
d) Redistribution.
(i) Source. Covered Code may be distributed in Source Code form only to
another Licensee (except for students as provided below). You may not offer or
impose any terms on any Covered Code that alter the rights, requirements, or
responsibilities of such Licensee. You may distribute Covered Code to students
for use in
Agreement No. 55391 Page 3
<PAGE> 4
connection with their course work and research projects undertaken at accredited
educational institutions. Such students need not be Licensees, but must be given
a copy of the notice set forth in Attachment A-3 and such notice must also be
included in a file header or prominent location in the Source Code made
available to such students.
(ii) Executable. You may distribute Executable version(s) of Covered Code
to Licensees and other third parties only for the purpose of evaluation and
comment in connection with Research Use by You and under a license of Your
choice, but which limits use of such Executable version(s) of Covered Code only
to that purpose.
(iii) Modified Class, Interface and Package Naming. In connection with
Research Use by You only, You may use Original Contributor's class, interface
and package names only to accurately reference or invoke the Source Code files
You modify. Original Contributor grants to You a limited license to the extent
necessary for such purposes.
(iv) You expressly agree that any distribution, in whole or in part, of
Modifications developed by You shall only be done pursuant to the term and
conditions of this License.
e) Extensions.
(i) Covered Code. You may not include any Source Code of Community Code in
any Extensions;
(ii) Publication. No later than the date on which You first distribute
such Extension for Commercial Use, You must publish to the industry, on a
non-confidential basis and free of all copyright restrictions with respect to
reproduction and use, an accurate and current specification for any Extension.
In addition, You must make available an appropriate test suite, pursuant to the
same rights as the specification, sufficiently detailed to allow any third party
reasonably skilled in the technology to produce implementations of the Extension
compatible with the specification. Such test suites must be made available as
soon as reasonably practicable but, in no event, later than ninety (90) days
after Your first Commercial Use of the Extension. You must use reasonable
efforts to promptly clarify and correct the specification and the test suite
upon written request by Original Contributor.
(iii) Open. You agree to refrain from enforcing any Intellectual Property
Rights You may have covering any interface(s) of Your Extension, which would
prevent the implementation of such interface(s) by Original Contributor or any
Licensee. This obligation does not prevent You from enforcing any Intellectual
Property Right You have that would otherwise be infringed by an implementation
of Your Extension.
(iv) Class, Interface and Package Naming. You may not add any packages, or
any public or protected classes or interfaces
Agreement No. 55391 Page 4
<PAGE> 5
with names that originate or might appear to originate from Original Contributor
including, without limitation, package or class names which begin with "sun",
"java", "javax", "jini", "net.jini", "com.sun" or their equivalents in any
subsequent class, interface and/or package naming convention adopted by
Original Contributor. It is specifically suggested that You name any new
packages using the "Unique Package Naming Convention" as described in "The Java
Language Specification" by James Gosling, Bill Joy, and Guy Steele, ISBN 0-201-
63451-1, August 1996. Section 7.7 "Unique Package Names", on page 125 of this
specification which states, in part:
"You form a unique package name by first having (or belonging to an organization
that has) an Internet domain name, such as "sun.com". You then reverse the name,
component by component, to obtain, in this example, "Com.sun", and use this as a
prefix for Your package names, using a convention developed within Your
organization to further administer package names."
4. Versions of the License.
4.1 License Versions. Original Contributor may publish revised versions of the
License from time to time. Each version will be given a distinguishing version
number.
4.2 Effect. Once a particular version of Covered Code has been provided under a
version of the License, You may always continue to use such Covered Code under
the terms of that version of the License. You may also choose to use such
Covered Code under the terms of any subsequent version of the License. No one
other than Original Contributor has the right to promulgate License versions.
5. Disclaimer of Warranty.
5.1 COVERED CODE IS PROVIDED UNDER THIS LICENSE "AS IS," WITHOUT WARRANTY OF ANY
KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES THAT
THE COVERED CODE IS FREE OF DEFECTS, MERCHANTABLE, FIT FOR A PARTICULAR PURPOSE
OR NON-INFRINGING. YOU AGREE TO BEAR THE ENTIRE RISK IN CONNECTION WITH YOUR USE
AND DISTRIBUTION OF COVERED CODE UNDER THIS LICENSE. THIS DISCLAIMER OF WARRANTY
CONSTITUTES AN ESSENTIAL PART OF THIS LICENSE. NO USE OF ANY COVERED CODE IS
AUTHORIZED HEREUNDER EXCEPT SUBJECT TO THIS DISCLAIMER
ERROR CORRECTIONS AND SHARED MODIFICATIONS ARE PROVIDED BY YOU "AS IS," WITHOUT
WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
WARRANTIES THAT THE ERROR CORRECTIONS OR SHARED MODIFICATIONS ARE FREE OF
DEFECTS, MERCHANTABLE, FIT FOR A PARTICULAR PURPOSE OR NONINFRINGING. ORIGINAL
CONTRIBUTOR AGREES TO BEAR THE ENTIRE RISK IN CONNECTION WITH ITS USE AND
DISTRIBUTION OF SUCH ERROR CORRECTIONS AND SHARED MODIFICATIONS. THIS DISCLAIMER
OF WARRANTY CONSTITUTES AN ESSENTIAL PART OF THIS LICENSE. NO USE OF ANY SUCH
ERROR CORRECTIONS OR SHARED MODIFICATIONS IS AUTHORIZED HEREUNDER EXCEPT SUBJECT
TO THIS DISCLAIMER.
Agreement No. 55391 Page 5
<PAGE> 6
5.2 You acknowledge that Original Code, Upgraded Code and Specifications are not
designed or intended for use in (i) on-line control of aircraft, air traffic,
aircraft navigation or aircraft communications; or (ii) in the design,
construction, operation or maintenance of any nuclear facility. Original
Contributor disclaims any express or implied warranty of fitness for such uses.
Original Contributor acknowledges that Error Corrections and Shared
Modifications provided by You are not designed or intended for use in (i)
on-line control of aircraft, air traffic, aircraft navigation or aircraft
communications; or (ii) in the design, construction, operation or maintenance of
any nuclear facility. You disclaim any express or implied warranty of fitness
for such uses.
5.3 This License, the Trademark License and the Master Support Agreement do not
restrict, limit or apply to any Caldera Independent Product or Third Party
Independent Product or the Commercialization of any Independent Product. A
"Caldera Independent Product" means any product, code, service or technology
which is created or developed without infringing any intellectual property
rights of Original Contributor by or for You independent of and without the use
of any Covered Code (code or software which is lawfully received by You from a
source other than Original Contributor and not under this License, and that You
could have rightfully obtained in the absence of this License, shall not be
deemed Covered Code for this purpose), provided the Commercialization of such
product, code, service or technology does not infringe any intellectual property
rights of Original Contributor. A "Third Party Independent Product "means any
product, code, service or technology lawfully licensed or provided to You by a
source other than Original Contributor that You could have rightfully obtained
in the absence of this License, provided the Commercialization of such product,
code, service or technology does not infringe any intellectual property rights
of Original Contributor. An "Independent Product" means either a Caldera
Independent Product or a Third Party Independent Product. Subject to the
foregoing provisions of this Section, an Independent Product might or might not
be a product, code, service or technology implementing or relating to the
Technology, Java based code or Java Specifications. The term "Commercialization
of an Independent Product" means any creation, development, modification, use,
copying, distribution, manufacture, sale, display, publication, and/or
Commercialization of the Independent Product without the infringement of any
valid and unexpired intellectual property right of Original Contributor. The
intent of the parties is to ensure that any activity which You could lawfully
engage in, in the absence of this License, the Trademark License and the Master
Support Agreement, will not be prohibited or restricted by this License, the
Trademark License or the Master Support Agreement. This Section 5.3 does not
grant expressly or by implication any license or rights to You to any
intellectual property of Original Contributor.
6. Termination.
Agreement No. 55391 Page 6
<PAGE> 7
6.1 By You. You may terminate this Research Use license or the License at
anytime by providing written notice to Original Contributor.
6.2 By Original Contributor. This License and the rights granted hereunder will
terminate:
(i) automatically if You materially breach the terms of this License and
fail to cure such breach within 30 days of receipt of written notice of the
breach. Said notice must describe the breach and facts upon which the breach is
alleged. If more than 30 days is required to cure the breach, then the 30 day
period shall be extended as reasonably necessary provided that You begin the
cure within said 30 days and are diligent to complete the cure as soon as
reasonably possible. If the breach is of an incurable nature, then it shall be
deemed cured for the purposes of this section if You take reasonable steps to
ensure that the breach is not repeated and inform Original Contributor of such
steps. If You dispute the existence of the breach, then You shall have the right
to have such dispute first resolved in accordance with Section 8.6 before
termination under this Section 6.2(i) and the 30 day cure period begin. Nothing
in this Section 6.2 shall limit the injunctive relief or other remedies to which
Original Contributor may be entitled for any copying, use or distribution by You
of Covered Code outside the scope of this License.
(ii) notwithstanding Section 6.2(i) above, immediately in the event of
circumstances specified in Section 7.1 or a violation of Original Contributor's
intellectual property rights (except for Your first curable violation that was
inadvertent or occurred despite Your exercise of reasonable care and good faith,
which will be covered by Section (i) above except as provided herein); or
(iii) at Original Contributor's discretion upon any action initiated in
the first instance by You alleging that use or distribution by Original
Contributor or any Licensee, of Original Code, Upgraded Code, Error Corrections
or Shared Modifications contributed by You, or Specifications, infringe a patent
owned or controlled by You.
6.3 Effect of Termination. Upon termination, You agree to discontinue use and
return or destroy all copies of Covered Code in your possession. However, for
termination for any reason other than a violation of Original Contributor's
intellectual property rights, You may continue to use Covered Code in compliance
with the License in connection with the support of Your customers and end-users
existing on the date of termination and the distribution of error corrections to
them in compliance with the terms of the License governing distribution. The
foregoing limitation does not apply to violations that were inadvertent or
occurred despite Your exercise of reasonable care and good faith (or if in good
faith but due to lack of reasonable care, You have taken appropriate steps to
ensure that it does not happen again). All sublicenses and licenses to the
Covered Code which you have properly granted shall survive any termination of
this
Agreement No. 55391 Page 7
<PAGE> 8
License. Provisions which, by their nature, should remain in effect beyond the
termination of this License shall survive including, without limitation,
Sections 2.2, 3, 5, 7 and 8 hereof and Section 5 of the Commercial Use license.
6.4 Each party waives and releases the other from any claim to compensation or
indemnity for permitted or lawful termination of the business relationship
established by this License.
7. Liability.
7.1 Infringement. Should any of the Original Code, Upgraded Code, TCK or
Specifications ("Materials") become the subject of a claim of infringement,
Original Contributor may, at its sole option, (i) attempt to procure the rights
necessary for You to continue using the Materials, (ii) modify the Materials so
that they are no longer infringing, or (iii) terminate Your right to use the
Materials, immediately upon written notice, and refund to You the amount, if
any, having then actually been paid by You to Original Contributor for the
Original Code, Upgraded Code and TCK, depreciated on a straight line, five year
basis.
7.2 LIMITATION OF LIABILITY. EXCEPT FOR VIOLATIONS OF ORIGINAL CONTRIBUTOR'S OR
YOUR INTELLECTUAL PROPERTY RIGHTS:
TO THE FULL EXTENT ALLOWED BY APPLICABLE LAW, YOUR LIABILITY TO ORIGINAL
CONTRIBUTOR AND ORIGINAL CONTRIBUTOR'S LIABILITY TO YOU FOR CLAIMS RELATING TO
THIS LICENSE, WHETHER FOR BREACH OR IN TORT, SHALL BE LIMITED TO ONE HUNDRED
PERCENT (100%) OF THE AMOUNT HAVING THEN ACTUALLY BEEN PAID BY YOU TO ORIGINAL
CONTRIBUTOR UNDER THIS LICENSE (THIS LIMIT DOES NOT APPLY TO YOUR OBLIGATION TO
MAKE PAYMENTS UNDER SECTION 7 OF ATTACHMENT D). IN NO EVENT WILL YOU OR ORIGINAL
CONTRIBUTOR BE LIABLE FOR ANY INDIRECT, PUNITIVE, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES IN CONNECTION WITH OR ARISING OUT OF THIS LICENSE
(INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS, USE, DATA, OR OTHER ECONOMIC
ADVANTAGE), HOWEVER IT ARISES AND ON ANY THEORY OF LIABILITY, WHETHER IN AN
ACTION FOR CONTRACT, STRICT LIABILITY OR TORT (INCLUDING NEGLIGENCE) OR
OTHERWISE, WHETHER OR NOT YOU OR ORIGINAL CONTRIBUTOR HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGE AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE
OF ANY REMEDY.
8. Miscellaneous.
8.1 Trademark. You agree to comply with the then current Sun Trademark & Logo
Usage Requirements accessible through the SCSL Webpage. Except as expressly
provided in the License, You are granted no right, title or license to, or
interest in, any Sun Trademarks. You agree not to (i) challenge Original
Contributor's ownership or use of Sun Trademarks; (ii) attempt to register any
Sun Trademarks, or any mark or logo substantially similar thereto; or (iii)
incorporate any Sun Trademarks into your own trademarks, product names,
service marks, company names, or domain names.
Agreement No. 55391 Page 8
<PAGE> 9
8.2 Integration. This License represents the complete agreement concerning the
subject matter hereof.
8.3 Assignment. Original Contributor may assign this License, and its rights and
obligations hereunder, in its sole discretion. You may assign or transfer this
License to any third party who acquires all or substantially all of Your
business assets relating to this License, except to a competitor of Original
Contributor, in which case You cannot assign or transfer this License (including
by way of merger, even if You are the surviving entity) without Original
Contributor's prior written consent, not to be unreasonably withheld or delayed.
8.4 Severability. If any provision of this License is held to be unenforceable,
such provision shall be reformed only to the extent necessary to make it
enforceable. Notwithstanding the foregoing, if You are prohibited by law from
fully and specifically complying with Sections 2.2 or 3, this License will
continue in effect upon the agreement of the parties to revised terms that most
nearly accomplish the same effect as the present Sections 2.2 and 3.
8.5 Governing Law. This License shall be governed by the laws of the United
States and the State of California, as applied to contracts entered into and to
be performed in California between California residents. The application of the
United Nations Convention on Contracts for the International Sale of Goods is
expressly excluded.
8.6 Dispute Resolution.
a) Any dispute arising out of or relating to this License shall be finally
settled by arbitration as set out herein, except that either party may bring any
action, in a court of competent jurisdiction (which jurisdiction shall be
exclusive), with respect to any dispute relating to such party's Intellectual
Property Rights or with respect to Your compliance with the TCK license.
Arbitration shall be administered: (i) by the American Arbitration Association
(AAA), (ii) in accordance with the applicable rules of the American Arbitration
Association (the "Rules") in effect at the time of arbitration as modified
herein; and (iii) the arbitrator will apply the substantive laws of California
and United States. Judgement upon the award rendered by the arbitrator may be
entered in any court having jurisdiction to enforce such award.
b) All arbitration proceedings shall be conducted in English by a single
arbitrator selected in accordance with the Rules, who must be fluent in English
and be either a retired judge or practicing attorney having at least ten (10)
years litigation experience and be reasonably familiar with the technology
matters relative to the dispute. Unless otherwise agreed, arbitration venue
shall be in San Francisco if You demand the arbitration and in Salt Lake City if
Original Contributor demands the arbitration. The arbitrator may award monetary
damages only and nothing shall preclude either party from seeking provisional or
emergency relief from a court of competent
Agreement No. 55391 Page 9
<PAGE> 10
jurisdiction. The arbitrator shall have no authority to award damages in excess
of limitations on liability set forth in this License and any such award in
excess is void to the extent of the excess. All awards will be payable in U.S.
dollars and may include, for the prevailing party (i) pre-judgment award
interest, (ii) reasonable attorneys' fees incurred in connection with the
arbitration, and (iii) reasonable costs and expenses incurred in enforcing the
award. The arbitrator will order each party to produce identified documents and
respond to no more than twenty-five single question interrogatories.
8.7 Construction. Any law or regulation which provides that the language of a
contract shall be construed against the drafter shall not apply to this License.
8.8 U.S. Government End Users. The Covered Code is a "commercial item," as that
term is defined in 48 C.F.R. 2.101 (Oct. 1995), consisting of "commercial
computer software" and "commercial computer software documentation," as such
terms are used in 48 C.F.R. 12.212 (Sept. 1995). Consistent with 48 C.F.R.
12.212 and 48 C.F.R. 227.7202-1 through 227.7202-4 (June 1995), all U.S.
Government End Users acquire Covered Code with only those rights set forth
herein. You agree to pass this notice to Your licensees.
8.9 Press Announcements. All press announcements relative to the execution of
this License must be reviewed and approved by Original Contributor and You prior
to release.
8.10 International Use.
a) Export/Import laws. Covered Code is subject to U.S. export control laws and
may be subject to export or import regulations in other countries. Each party
agrees to comply strictly with all such laws and regulations and acknowledges
their responsibility to obtain such licenses to export, re-export, or import as
may be required. You agree to pass these obligations to Your licensees.
b) Intellectual Property Protection. Due to limited intellectual property
protection and enforcement in certain countries, You agree not to redistribute
the Original Code, Upgraded Code, TCK and Specifications to any country other
than the list of restricted countries on the SCSL Webpage. This section 8.10 b)
does not apply to distribution of executable code.
8.11 Language. This License is in the English language only, which language
shall be controlling in all respects, and all versions of this License in any
other language shall be for accommodation only and shall not be binding on the
parties to this License. All communications and notices made or given pursuant
to this License, and all documentation and support to be provided, unless
otherwise noted, shall be in the English language.
8.12 Consultation. Original Contributor shall, upon Your request, consult with
You on questions or issues concerning this
Agreement No. 55391 Page 10
<PAGE> 11
License and other agreements referenced herein and Your compliance therewith.
AGREED TO AND ACCEPTED BY:
You: Original Contributor:
Caldera Systems, Inc. Sun Microsystems, Inc.
By: By:
Title: Title:
Date: Date:
GLOSSARY
1. "Commercial Use" means any use (excluding Internal Deployment Use) or
distribution, directly or indirectly of Compliant Covered Code by You to any
third party, alone or bundled with any other software or hardware, for direct or
indirect commercial or strategic gain or advantage.
2. "Community Code" means the Original Code, Upgraded Code, Error Corrections,
Shared Modifications, or any combination thereof.
3. "Community Webserver(s)" means the webservers designated by Original
Contributor for posting Error Corrections and Shared Modifications.
4. "Compliant Covered Code" means Covered Code that complies with the
requirements of the TCK.
5. "Contributor" means each Licensee that creates or contributes to the creation
of any Error Correction or Shared Modification.
6. "Covered Code" means the Original Code, Upgraded Code, Modifications, or any
combination thereof.
7. "Error Correction" means any change made to Community Code which conforms to
the Specification and corrects the adverse effect of a failure of Community Code
to perform any function set forth in or required by the Specifications.
Agreement No. 55391 Page 11
<PAGE> 12
7. "Executable" means Covered Code that has been converted to a form other than
Source Code.
9. "Extension(s)" means any additional classes or other programming code and/or
interfaces developed by or for You which: (i) are designed for use with the
Technology;(ii) constitute an API for a library of computing functions or
services; and (iii) are disclosed to third party software developers for the
purpose of developing software which invokes such additional classes or other
programming code and/or interfaces. The foregoing shall not apply to software
development by Your subcontractors or independent contractors to be exclusively
used by You.
10. "Intellectual Property Rights" means worldwide statutory and common law
rights associated with (i) patents and patent applications; (ii) works of
authorship including copyrights, copyright applications, copyright registrations
and "moral rights"; (iii) the protection of trade and industrial secrets and
confidential information; and (iv) divisions, continuations, renewals, and re-
issuances of the foregoing now existing or acquired in the future.
11. "Internal Deployment Use" means use of Compliant Covered Code (excluding
Research Use) within Your business or organization only by Your employees and/or
agents and independent contractors, subject to execution of Attachment C by You
and Original Contributor.
12. "Licensee" means any party that has entered into and has in effect a version
of the Sun Community Source License with Original Contributor.
13. "Modification(s)" means (i) any change to Covered Code; (ii) any new file or
other such representation of computer program statements that contains any
portion of Covered Code; and/or (iii) any new Source Code implementing any
non-trivial portion of the Specifications (subsection (iii) does not include an
implementation of a portion of the Specifications not specific to Java or the
Technology and in common usage (or a combination of such common usage portions
of the Specifications provided such combination is not specific to Java or the
Technology and in common usage), that is independently developed without use of
Specifications.
14. "Original Code" means the initial Source Code for the Technology as
described on the Technology Download Site.
15. "Original Contributor" means Sun Microsystems, Inc., its affiliates and its
successors and assigns.
16. "Reformatted Specifications" means any revision to the Specifications which
translates or reformats the Specifications (as for example in connection with
Your documentation) but which does not alter, subset or superset the functional
or operational aspects of the Specifications.
Agreement No. 55391 Page 12
<PAGE> 13
17. "Research Use" means use and distribution of Covered Code only for Your
research, development, testing, gaining familiarity, educational or personal and
individual use, and expressly excludes Internal Deployment Use and Commercial
Use.
18. "SCSL Webpage" means the Sun Community Source license webpage located at
http://sun.com/software/communitysource, or such other URL that Sun may
designate from time to time.
19. "Shared Modifications" means Modifications provided by You, at Your option,
pursuant to Section 2.2, or received by You from a Contributor pursuant to
Section 2.3.
20. "Source Code" means computer program statements written in any high-level,
readable form suitable for modification and development.
21. "Specifications" means the specifications for the Technology and other
documentation, as designated on the Technology Download Site, as may be revised
by Original Contributor from time to time.
22. "Sun Trademarks" means Original Contributor's SUN, JAVA, and JINI trademarks
and logos, whether now used or adopted in the future.
23. "Technology" means the technology described or identified in Attachment B,
and Upgrades.
24. "Technology Compatibility Kit" or "TCK" means the test programs, procedures
and/or other requirements, designated by Original Contributor for use in
verifying compliance of Covered Code with the Specifications, in conjunction
with the Original Code and Upgraded Code. Original Contributor may, in its sole
discretion and from time to time, revise a TCK to correct errors and/or
omissions and in connection with Upgrades. Original Contributor agrees that the
test programs, procedures and/or other requirements of the TCK will be applied
to You in a nondiscriminatory manner.
25. "Technology Download Site" means the site(s) designated by Original
Contributor for access to the Original Code, Upgraded Code, TCK and
Specifications.
26. "Upgrade(s)" means new versions of Technology designated exclusively by
Original Contributor as an "Upgrade" and released by Original Contributor from
time to time.
27. "Upgraded Code" means the Source Code for Upgrades, possibly including
Modifications made by Contributors.
28. "You(r)" means Caldera Systems,Inc. "You(r)" includes any entity that by
majority voting interest controls, is controlled by, or is under common control
with You.
Agreement No. 55391 Page 13
<PAGE> 14
ATTACHMENT A
REQUIRED NOTICES
ATTACHMENT A-1
REQUIRED IN ALL CASES
"The contents of this file, or the files included with this file, are subject to
the current version of Sun Community Source License for [fill in name of
applicable Technology] (the "License"); You may not use this file except in
compliance with the License. You may obtain a copy of the License at
http://sun.com/software/communitysource. See the License for the rights,
obligations and limitations governing use of the contents of the file.
The Original and Upgraded Code is [fill in name and version of applicable
Technology]. The developer of the Original and Upgraded Code is Sun
Microsystems, Inc. Sun Microsystems, Inc. owns the copyrights in the portions it
created. All Rights Reserved.
Contributor(s):
Associated Test Suite(s) Location:
ATTACHMENT A-2
SAMPLE LICENSEE CERTIFICATION
"By clicking the `Agree' button below, You certify that You are a Licensee in
good standing under the Sun Community Source License, [fill in applicable
Technology and Version] ("License") and that Your access, use and distribution
of code and information You may obtain at this site is subject to the License."
ATTACHMENT A-3
REQUIRED STUDENT NOTIFICATION
"This software and related documentation has been obtained by your educational
institution subject to the Sun Community Source License, [fill in applicable
Technology]. You have been provided access to the software and related
documentation for use only in connection with your course work and research
activities as a matriculated student of your educational institution. Any other
use is expressly prohibited.
Agreement No. 55391 Page 14
<PAGE> 15
THIS SOFTWARE AND RELATED DOCUMENTATION CONTAINS PROPRIETARY MATERIAL OF SUN
MICROSYSTEMS, INC, WHICH ARE PROTECTED BY VARIOUS INTELLECTUAL
PROPERTY RIGHTS.
You may not use this file except in compliance with the License. You may obtain
a copy of the License on the web at http://sun.com/software/communitysource."
ATTACHMENT B
Java(tm) 2 Standard Edition ("J2SE") Technology
Description of "Technology"
Java(tm) 2 Standard Edition Technology v.1.2 as described on the Technology
Download Site.
ATTACHMENT C
INTERNAL DEPLOYMENT USE
This Attachment C is only effective for the Technology specified in Attachment
B,upon execution of Attachment D (Commercial Use License). In the event of a
conflict between the terms of this Attachment C and Attachment D, the terms of
Attachment D shall govern.
1. Internal Deployment License Grant. Subject to Your compliance with Section 2
below, and Section 8.10 of the Research Use license (and Your right to cure
breaches to the extent provided in Section 6. of the Research Use license); in
addition to the Research Use license and the TCK license, Original Contributor
grants to You a worldwide, non-exclusive license, to the extent of Original
Contributor's Intellectual Property Rights covering the Original Code, Upgraded
Code and Specifications, to do the following:
a) reproduce and distribute internally, Original Code and Upgraded Code as part
of Compliant Covered Code, and Specifications, for Internal Deployment Use,
b) compile such Original Code and Upgraded Code, as part of Compliant Covered
Code, and reproduce and distribute internally the same in Executable form for
Internal Deployment Use, and
c) reproduce and distribute internally, Reformatted Specifications for use in
connection with Internal Deployment Use.
2. Additional Requirements and Responsibilities. In addition to the requirements
and responsibilities described under Section 3.1 of the Research Use license,
and as a condition to exercising the
Agreement No. 55391 Page 15
<PAGE> 16
rights granted under Section 3 above, You agree to the following additional
requirements and responsibilities:
2.1 Compatibility. All Covered Code must be Compliant Covered Code prior to any
Internal Deployment Use or Commercial Use, whether originating with You or
acquired from a third party. Successful compatibility testing must be completed
in accordance with the TCK License. If You make any further Modifications to any
Covered Code previously determined to be Compliant Covered Code, you must ensure
that such modified Covered Code is Compliant Covered Code.
ATTACHMENT D COMMERCIAL USE LICENSE
1. Effect. This Attachment D is to the Sun Community Source License version 2.3
for Java2 Standard Edition ("SCSL"). You and Original Contributor have agreed to
the terms of the SCSL. You acknowledge that the SCSL is binding on You. This
Attachment D is effective only if signed below by You and Original Contributor,
and applies to Your Commercial Use of Original Code and Upgraded Code. All
capitalized terms used herein shall have the same meaning setforth in the SCSL
unless otherwise stated. In the event of a conflict between the express terms of
this Attachment D and the Research Use license Section 3.1, the terms of this
Attachment D shall govern.
2. Term. Upon execution of this Attachment D by You and Original Contributor,
this Commercial Use license shall have a term of 18 months. Upon payment by You
of the amounts set forth in Section 7 hereof, the term of this Attachment D
shall be extended by one or two years, as applicable.
3. Commercial Use License Grant. Subject to Your compliance with Section 4
below, Section 8.10 of the SCSL, and the TCK license (and Your right to cure
breaches to the extent provided in Section 6 of the SCSL); in addition to the
Research Use license, the TCK license, and the Internal Deployment Use license,
Original Contributor grants to You a worldwide, non-exclusive, non-transferable
license, to the extent of Original Contributor's Intellectual Property Rights
covering the Original Code, Upgraded Code and Specifications, to do the
following within the specified field of use:
a) reproduce and distribute Compliant Covered Code and authorize or license its
use in compliance with the License by other Licensees;
b) compile Compliant Covered Code and reproduce and distribute the same in
Executable form directly to end users or through one or multiple tiers of
distribution and authorize or license its use by others in compliance with the
License;
c) reproduce and distribute Reformatted Specifications in association with
Compliant Covered Code and authorize or license their use by others in
compliance with the License; and
Agreement No. 55391 Page 16
<PAGE> 17
d) create Modifications for Commercial Use or Internal Deployment Use under the
provisions of this Attachment D and Section 2.a)(i) of the Research Use license.
4. Additional Requirements and Responsibilities. In addition to the requirements
and responsibilities specified in the Research Use license, the TCK license and
the Internal Deployment license, and as a condition to exercising the rights
granted in Section 3 above, You agree to the following additional requirements
and responsibilities:
a) Distribution of Source Code. Source Code of Compliant Covered Code may be
distributed only to another Licensee of the same Technology.
b) Distribution of Executable Code. You may distribute the Executable version(s)
of Compliant Covered Code under a license of Your choice, which may contain
terms different from this License, provided (i) that You are in compliance with
the terms of this License, and (ii) You must make it absolutely clear that any
terms which differ from this License are offered by You alone, not by Original
Contributor or any other Contributor. Commencing with Your first release of
Compliant Covered Code, each binary copy of Your Linux operating system
distributed by You must include the executable version of Your implementation of
the Technology (and which must conform to the definition of Compliant Covered
Code), except that for binary copies made available via web download, You must
instead make the executable version of Your implementation of the Technology
(and which must conform to the definition of Compliant Covered Code) available
for download as well. This section does not require bundling of Your
implementation of the Technology with Your OpenLinux software in fields of use
outside the scope of Section 7, or in distributions limited to demonstration,
evaluation, or promotional purposes or copies of Your OpenLinux software which
must be distributed in order to comply with the GNU General Public License.
c) Branding. Products integrating Compliant Covered Code used for Commercial Use
must be branded with the Technology compliance logo under a separate trademark
license required to be executed by You and Original Contributor concurrent with
execution of this Attachment D.
5. Indemnity/Limitation of Liability. The provisions of Section 7.1 of the
Research Use license are superseded by the following:
a) Your Indemnity Obligation. You hereby agree to defend, at Your expense, any
legal proceeding brought against Original Contributor or any Licensee to the
extent it is based on a claim: (i) that the use, reproduction or distribution of
any of Your Error Corrections or Shared Modifications is an infringement of a
third party trade secret or a copyright in a country that is a signatory to the
Berne Convention; (ii) based on any representation, warranty, support,
indemnity, liability or other license terms You may offer in connection with any
Covered Code; or (iii) arising from Your
Agreement No. 55391 Page 17
<PAGE> 18
Commercial Use of Covered Code, other than a claim covered by Section 5.b)
below, or a patent claim based solely on Covered Code not provided by You. You
will pay all damages, costs and fees awarded by a court of competent
jurisdiction, or such settlement amount negotiated by You, attributable to such
claim.
b) Original Contributor's Indemnity Obligation. Original Contributor will
defend, at its expense, any legal proceeding brought against You, to the extent
it is based on a claim that Your authorized Commercial Use of Original Code and
Upgraded Code is an infringement of a third party trade secret or a copyright in
a country that is a signatory to the Berne Convention, and will pay all damages,
costs and fees awarded by a court of competent jurisdiction, or such settlement
amount negotiated by Original Contributor, attributable to such claim. The
foregoing shall not apply to any claims of intellectual property infringement
based upon the combination of code or documentation supplied by Original
Contributor with code, technology or documentation from other sources.
c) Right of Intervention. Original Contributor will have the right, but not the
obligation, to defend You, at Original Contributor's expense, in connection with
a claim that Your Commercial Use of Original Code and Upgraded Code is an
infringement of a third party patent and will, if Original Contributor chooses
to defend You, pay all damages, costs and fees awarded by a court of competent
jurisdiction, or such settlement amount negotiated by Original Contributor,
attributable to such claim.
d) Prerequisites. Under Sections 5.b) and c) above, You must, and under Section
5.a) above, Original Contributor or any Licensee must: (i) provide notice of the
claim promptly to the party providing an indemnity; (ii) give the indemnifying
party sole control of the defense and settlement of the claim; (iii) provide the
indemnifying party, at indemnifying party's expense, all available information,
assistance and authority to defend; and (iv) not have compromised or settled
such claim or proceeding without the indemnifying party's prior written consent.
e) Additional Remedies. Should any Original Code, Upgraded Code, TCK,
Specifications, Error Corrections, or Modifications become, or in the
indemnifying party's opinion be likely to become, the subject of a claim of
infringement for which indemnity is provided above, the indemnifying party may,
at its sole option, attempt to procure on reasonable terms the rights necessary
for the indemnified party to exercise its license rights under this License with
respect to the infringing items, or to modify the infringing items so that they
are no longer infringing without substantially impairing their function or
performance. If the indemnifying party is unable to do the foregoing after
reasonable efforts, then the indemnifying party may send a notice of such
inability to the indemnified party together with a refund of any license fees
received by the indemnifying party from the indemnified party for the infringing
items applicable to the indemnified party's future use or distribution of such
infringing items, in which case the indemnifying party will not be liable for
any
Agreement No. 55391 Page 18
<PAGE> 19
damages resulting from infringing activity with respect to the infringing items
occurring after such notice and refund.
6. Support Programs.
Support to You. Technical support is not provided to You by Original Contributor
under this License. You may contract for one or more support programs from
Original Contributor relating to the Technology which are described on the SCSL
Webpage.
Customer Support. You are responsible for providing technical and maintenance
support services to Your customers for Your products and services incorporating
the Compliant Covered Code.
7. Technology and Payments.
Technology specified in Attachment B.
Field of Use: OpenLinux for the x86, UltraSPARC, Itanium (Merced), and Power PC
processors
The Solaris reference port and the "release candidate" pre-release version of
the Linux reference port of the Technology will be made available to You
promptly following execution hereof. Original Contributor will provide
subsequent releases of the Linux reference port as released until general
commercial availability of such port. Thereafter, You will receive subsequent
releases as provided under the Master Support Agreement entered into
concurrently herewith. Original Contributor is planning an initial release of
the Linux reference port of the Technology by June 30, 2000, which will be made
available to You promptly upon release. In addition, at Your option, Original
Contributor will separately make available to You (i) its "Blackdown" binary
reference port of the Java2 Standard Edition runtime environment, under Original
Contributor's then standard terms and conditions for such software (except that
in addition You must not expose any APIs to the software, or indicate in any way
that it is included in any of Your products), at no charge to You; and (ii) its
commercially released binary Linux reference port of the Java2 Standard Edition
runtime environment, under Original Contributor's then standard terms and
conditions for such software (except that You may bundle the software with Your
LinuxOS), at no charge to You. Your license to the Blackdown port will terminate
no later than upon release of the Linux reference port of the Technology.
For the right to distribute, for 18 months from the execution of this Attachment
D, Compliant Covered Code for Java2 Standard Edition and the Java HotSpot
Performance Engine (as provided in the separate SCSL and Attachment D entered
into between the parties concurrently herewith) in compliance with and subject
to the provisions of the applicable SCSL and its attachments, and in
consideration of the Master Support Agreement between the parties entered into
concurrently herewith, You hereby agree to pay Original Contributor
a nonrefundable payment in the amount of $1,250,000 as follows: $400,000 within
30
Agreement No. 55391 Page 19
<PAGE> 20
days from execution of this Attachment D, and $850,000 by March 24, 2000.
You may elect to pay Original Contributor a nonrefundable payment of $3,100,000
by March 24, 2000 (instead of $850,000), in which case this Attachment D will
have a term of three years and six months. Alternatively, You may renew this
Attachment D (i) for a year (following the 18 month initial term) by paying
Original Contributor a nonrefundable payment of $1,500,000 by the 18 month
anniversary of the execution date hereof, and (ii) for a third year by paying
Original Contributor an additional nonrefundable payment of $1,750,000 by the
thirtieth month anniversary of the execution date hereof. The exercise of option
(i) does not require You to exercise option (ii). Provided that this Attachment
has been extended to three and a half years as above, You may elect to extend
this Attachment for up to an additional three years. If You elect to extend the
term of this Attachment, the pricing for such additional term (excluding
support) will not exceed Original Contributor's applicable then-current standard
pricing for the license and rights granted herein.
b) [****].
c) Taxes. All payments required by this License shall be made in United States
dollars, are exclusive of taxes, and You agree to bear and be responsible for
the payment of all such taxes, including, but not limited to, all sales, use,
rental receipt, personal property or other taxes and their equivalents which may
be levied or assessed in connection with this License (excluding only taxes
based on Original Contributor's net income). To the extent You are required to
withhold taxes based upon Original Contributor's income in any country, You
agree to provide Original Contributor with written evidence of such withholding,
suitable for Original Contributor to obtain a tax credit in the United States.
8. Notice of Breach or Infringement. Each party shall notify the other
immediately in writing when it becomes aware of any breach or violation of the
terms of this License, or when You become aware of any potential or actual
infringement by a third party of the Technology or Sun's Intellectual Property
Rights therein.
9. Proprietary Rights Notices. You may not remove any copyright notices,
trademark notices or other proprietary legends of Original Contributor or its
suppliers contained on or in the Original Code, Upgraded Code and
Specifications.
10. Notices. All written notices required by this License must be delivered in
person or by means evidenced by a delivery receipt and will be effective upon
receipt by the persons at the addresses specified below.
Original Contributor: You:
Agreement No. 55391 Page 20
****CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO SUCH OMITTED PORTIONS.
<PAGE> 21
Sun Microsystems, Inc. Caldera Systems, Inc.
901 San Antonio Road 240 West Center St.
Palo Alto, California 94303 Orem UT 84057
Attn.: VP, Sun Software and
Technology Sales Attn: President,
cc: Sun Software and Technology, cc: Contracts Administrator
General Counsel
11. Disclaimer of Agency. The relationship created hereby is that of licensor
and licensee and the parties hereby acknowledge and agree that nothing herein
shall be deemed to constitute You as a franchisee of Original Contributor. You
hereby waive the benefit of any state or federal statutes dealing with the
establishment and regulation of franchises.
12. Marketing. The parties agree on the following:
- - Your participation at Original Contributor's Java/Linux press announcement.
- - A Java.Sun.Com home page story announcing the parties' relationship, and a
link from that home page to Your website for six months from the execution
hereof.
- - A link to Your website from the appropriate Partner Webpage as determined by
Original Contributor.
- - Java on Linux user group co-marketing efforts.
- - You may participate in Original Contributor's beta and early access programs
for the Linux port of the Java2 Standard Edition and the Java HotSpot
Performance Engine, under Original Contributor's standard terms and conditions
for such participation.
- - If and when Original Contributor introduces a J2EE-Ready or similar branding
program, You may participate at Your option in such program and receive access
to the TCK as required for such program, all under Original Contributor's then-
standard terms and conditions for such program, except with no fee to You.
- - Meeting between You and Original Contributor to discuss Caldera OpenLinux as
an Original Contributor reference port.
- - You are entitled to two guest speaking slots at each of two Original
Contributor events, as reasonably selected by Original Contributor.
- - You are entitled to two slots in a mutually agreed program at Original
Contributor's Java University or other similar education facility.
- - Original Contributor will pay up to $50,000 in matching Your actual payments
for purchasing web banner advertisements promoting all of You, Java2 Standard
Edition and Original Contributor. To qualify for payment from Original
Contributor, You must obtain Original Contributor's prior approval for such
banner advertisement.
- - Original Contributor will facilitate meetings between You and Original
Contributor's investment arm, a guest spot on one of Original Contributor's
internal "radio" broadcasts to employees, meetings with Java marketing and
product marketing to discuss an international press tour, and a meeting with
Original Contributor Education executives.
Agreement No. 55391 Page 21
<PAGE> 22
- - Original Contributor will work with You to include You as appropriate in
future public events during the term involving Java technology on the Linux
platform.
13. Confidentiality. You and Original Contributor shall keep and maintain in
confidence the terms and conditions of this License. However, either party may
disclose the general nature of the rights and obligations under this Attachment
D in the course of business or as required by law or court order.
Agreed:
You: Original Contributor:
Caldera Systems, Inc. Sun Microsystems, Inc.
By: By:
----------------------------- -----------------------------
Title: Title:
-------------------------- --------------------------
Date: Date:
--------------------------- ---------------------------
ATTACHMENT E
TECHNOLOGY COMPATIBILITY KIT
The following license is effective for the Java(tm)2 Standard Edition Version
1.2 Technology Compatibility Kit and subsequent releases made available only
upon execution of a separate Master Support Agreement entered into concurrently
herewith. The Technology Compatibility Kit for the Technology specified in
Attachment B may be accessed at the Technology Download Site only upon execution
of the support agreement.
1. TCK License.
a) Subject to the restrictions set forth in Section 1.b below and Section 8.10
of the SCSL (and Your right to cure breaches to the extent provided in Section
6. of the SCSL), in addition to the Research Use license, Original Contributor
grants to You a worldwide, non-exclusive, non-transferable license, to the
extent of Original Contributor's Intellectual Property Rights in the TCK
(without the right to sublicense), to use the TCK to develop and test
Covered Code. Such Compliant Covered Code may be distributed by You under the
Commercial Use license.
b) TCK Use Restrictions. You are not authorized to create derivative works of
the TCK or use the TCK to test any implementation of the Specification that is
not Covered Code. You may not publish Your test results or make claims of
comparative compatibility with respect to other implementations of the
Specification. In consideration for the license grant in Section 1.a above You
agree not
Agreement No. 55391 Page 22
<PAGE> 23
to develop Your own tests which are intended to validate conformation with the
Specification.
2. Requirements for Determining Compliance.
2.1 Definitions.
a) "Added Value" means code which:
(i) has a principal purpose which is substantially different from that of
the stand-alone Technology;
(ii) represents a significant functional and value enhancement to the
Technology;
(iii) operates in conjunction with the Technology; and
(iv) is not marketed as a technology which replaces or substitutes for the
Technology.
The parties agree that Your current (as of the execution date hereof) version of
OpenLinux operating system software is "Added Value."
b) "Java Classes" means the specific class libraries associated with each
Technology defined in Attachment B.
c) "Java Runtime Interpreter" means the program(s) which implement the Java
virtual machine for the Technology as defined in the Specification.
d) "Platform Dependent Part" means those Original Code and Upgraded Code files
of the Technology which are not in a "share" directory or subdirectory thereof.
e) "Shared Part" means those Original Code and Upgraded Code files of the
Technology which are identified as "shared" (or words of similar meaning) or
which are in any "share" directory or subdirectory thereof, except those files
specifically designated by Original Contributor as modifiable.
f) "User's Guide" means the user's guide for the TCK which Sun makes available
to You to provide direction in how to run the TCK and properly interpret the
results, as may be revised by Sun from time to time.
2.2 Development Restrictions. Compliant Covered Code:
a) must include (such as by being bundled with) Added Value;
b) must fully comply with the Specifications for the Technology specified in
Attachment B;
c) must include the Shared Part, complete and unmodified;
Agreement No. 55391 Page 23
<PAGE> 24
d) may not modify the functional behavior of the Java Runtime Interpreter or the
Java Classes;
e) may not modify, subset or superset the interfaces of the Java Runtime
Interpreter or the Java Classes;
f) may not subset or superset the Java Classes; and
g) may not modify or extend the required public class or public interface
declarations whose names begin with "java", "javax", "jini", "net.jini",
"sun.hotjava", "COM.sun" or their equivalents in any subsequent naming
convention.
2.3 Compatibility Testing. Successful compatibility testing must be completed by
You (or at Original Contributor's option at commercially reasonable cost and
timeliness, a third party designated by Original Contributor to conduct such
tests) in accordance with the User's Guide. Further, compatibility testing must
be conducted using the most current version of the applicable TCK that was
available from Original Contributor one hundred twenty (120) days (two hundred
forty [240] days in the case of silicon implementations) prior to: (i) Your
Internal Deployment Use; and (ii) each release of Compliant Covered Code by You
for Commercial Use. In the event that You elect to use a version of Upgraded
Code that is newer than that which is required under this Section 2.3, then You
agree to pass the version of the TCK that corresponds to such newer version of
Upgraded Code.
2.4 Test Results. You agree to provide to Original Contributor or the third
party test facility if applicable, Your test results that demonstrate that
Covered Code is Compliant Covered Code and that Original Contributor may publish
or otherwise distribute such test results.
Agreement No. 55391 Page 24
<PAGE> 1
EXHIBIT 10.18
SUN COMMUNITY SOURCE LICENSE
Version 2.7
(Rev. Date Sept. 16, 1999)
This Sun Community Source License (the "License") is made and entered into by
and between Sun Microsystems, Inc. ("Original Contributor") and Caldera Systems,
Inc. ("You"), and is effective as of the date signed by Sun below ("Effective
Date"). This License is entered into concurrently with a separate Sun Community
Source License for Java2 Standard Edition (Agreement No. 55391).
The parties hereby incorporate by reference as if fully and separately set forth
herein, the entirety of Agreement No. 55391 except for the header before
"RECITALS" on page 1, and Attachments B, D and E thereto, which are all as set
forth herein.
AGREED TO AND ACCEPTED BY:
You: Original Contributor:
Caldera Systems, Inc. Sun Microsystems, Inc.
By: By:
-------------------------- ------------------------------
Title: Title:
------------------------ ---------------------------
Date: Date:
------------------------ ----------------------------
ATTACHMENT B
Hotspot Virtual Machine Technology
Description of "Technology"
Hotspot Virtual Machine Technology v.1.0.1 as described on the Technology
Download Site.
ATTACHMENT D
COMMERCIAL USE LICENSE
1. Effect. This Attachment D is to the Sun Community Source License version 2.7
for the Hotspot Virtual Machine Technology ("SCSL"). You and Original
Contributor have agreed to the terms of the SCSL. You acknowledge that the SCSL
is binding on You. This Attachment D is effective only if signed below by
Agreement No. 55543 Page 1
<PAGE> 2
You and Original Contributor, and applies to Your Commercial Use of Original
Code and Upgraded Code. All capitalized terms used herein shall have the same
meaning set forth in the SCSL unless otherwise stated. In the event of a
conflict between the express terms of this Attachment D and the Research Use
license Section 3.1, the terms of this Attachment D shall govern.
2. Term. Upon execution of this Attachment D by You and Original Contributor,
this Commercial Use license shall have a term of 18 months. Upon payment by You
of the amounts set forth in Section 7 hereof, the term of this Attachment D
shall be extended by one or two years, as applicable.
3. Commercial Use License Grant. Subject to Your compliance with Section 4
below, Section 8.10 of the SCSL, and the TCK license (and Your right to cure
breaches to the extent provided in Section 6. of the SCSL); in addition to the
Research Use license, the TCK license, and the Internal Deployment Use license,
Original Contributor grants to You a worldwide, non-exclusive, non-transferable
license, to the extent of Original Contributor's Intellectual Property Rights
covering the Original Code, Upgraded Code and Specifications, to do the
following within the specified field of use:
a) reproduce and distribute Compliant Covered Code and authorize or license its
use in compliance with the License by other Licensees;
b) compile Compliant Covered Code and reproduce and distribute the same in
Executable form directly to end users or through one or multiple tiers of
distribution and authorize or license its use by others in compliance with the
License;
c) reproduce and distribute Reformatted Specifications in association with
Compliant Covered Code and authorize or license their use by others in
compliance with the License; and
d) create Modifications for Commercial Use or Internal Deployment Use under the
provisions of this Attachment D and Section 2.a)(i) of the Research Use license.
4. Additional Requirements and Responsibilities. In addition to the requirements
and responsibilities specified in the Research Use license, the TCK license and
the Internal Deployment license, and as a condition to exercising the rights
granted in Section 3 above, You agree to the following additional requirements
and responsibilities:
a) Distribution of Source Code. Source Code of Compliant Covered Code may be
distributed only to another Licensee of the same Technology.
b) Distribution of Executable Code. You may distribute the Executable version(s)
of Compliant Covered Code under a license of Your choice, which may contain
terms different from this License, provided (i) that You are in compliance with
the terms of this
Agreement No. 55543 Page 2
<PAGE> 3
License, and (ii) You must make it absolutely clear that any terms which differ
from this License are offered by You alone, not by Original Contributor or any
other Contributor. Commencing with Your first release of Compliant Covered Code,
each binary copy of Your Linux operating system distributed by You must include
the executable version of Your implementation of the Technology (and which must
conform to the definition of Compliant Covered Code), except that for binary
copies made available via web download, You must instead make the executable
version of Your implementation of the Technology (and which must conform to the
definition of Compliant Covered Code) available for download as well. This
section does not require bundling of Your implementation of the Technology with
Your OpenLinux software in fields of use outside the scope of Section 7, or in
distributions limited to demonstration, evaluation, or promotional purposes or
copies of Your OpenLinux software which must be distributed in order to comply
with the GNU General Public License.
c) Branding. Products integrating Compliant Covered Code used for Commercial Use
must be branded with the Technology compliance logo under a separate trademark
license required to be executed by You and Original Contributor concurrent with
execution of this Attachment D.
5. Indemnity/Limitation of Liability. The provisions of Section 7.1 of the
Research Use license are superseded by the following:
a) Your Indemnity Obligation. You hereby agree to defend, at Your expense, any
legal proceeding brought against Original Contributor or any Licensee to the
extent it is based on a claim: (i) that the use, reproduction or distribution of
any of Your Error Corrections or Shared Modifications is an infringement of a
third party trade secret or a copyright in a country that is a signatory to the
Berne Convention; (ii) based on any representation, warranty, support,
indemnity, liability or other license terms You may offer in connection with any
Covered Code; or (iii) arising from Your Commercial Use of Covered Code, other
than a claim covered by Section 5.b) below, or a patent claim based solely on
Covered Code not provided by You. You will pay all damages, costs and fees
awarded by a court of competent jurisdiction, or such settlement amount
negotiated by You, attributable to such claim.
b) Original Contributor's Indemnity Obligation. Original Contributor will
defend, at its expense, any legal proceeding brought against You, to the extent
it is based on a claim that Your authorized Commercial Use of Original Code and
Upgraded Code is an infringement of a third party trade secret or a copyright in
a country that is a signatory to the Berne Convention, and will pay all damages,
costs and fees awarded by a court of competent jurisdiction, or such settlement
amount negotiated by Original Contributor, attributable to such claim. The
foregoing shall not apply to any claims of intellectual property infringement
based upon the combination of code or documentation supplied by Original
Contributor with code, technology or documentation from other sources.
Agreement No. 55543 Page 3
<PAGE> 4
c) Right of Intervention. Original Contributor will have the right, but not the
obligation, to defend You, at Original Contributor's expense, in connection with
a claim that Your Commercial Use of Original Code and Upgraded Code is an
infringement of a third party patent and will, if Original Contributor chooses
to defend You, pay all damages, costs and fees awarded by a court of competent
jurisdiction, or such settlement amount negotiated by Original Contributor,
attributable to such claim.
d) Prerequisites. Under Sections 5.b) and c) above, You must, and under Section
5.a) above, Original Contributor or any Licensee must: (i) provide notice of the
claim promptly to the party providing an indemnity; (ii) give the indemnifying
party sole control of the defense and settlement of the claim; (iii) provide the
indemnifying party, at indemnifying party's expense, all available information,
assistance and authority to defend; and (iv) not have compromised or settled
such claim or proceeding without the indemnifying party's prior written consent.
e) Additional Remedies. Should any Original Code, Upgraded Code, TCK,
Specifications, Error Corrections, or Modifications become, or in the
indemnifying party's opinion be likely to become, the subject of a claim of
infringement for which indemnity is provided above, the indemnifying party may,
at its sole option, attempt to procure on reasonable terms the rights necessary
for the indemnified party to exercise its license rights under this License with
respect to the infringing items, or to modify the infringing items so that they
are no longer infringing without substantially impairing their function or
performance. If the indemnifying party is unable to do the foregoing after
reasonable efforts, then the indemnifying party may send a notice of such
inability to the indemnified party together with a refund of any license fees
received by the indemnifying party from the indemnified party for the infringing
items applicable to the indemnified party's future use or distribution of such
infringing items, in which case the indemnifying party will not beliable for any
damages resulting from infringing activity with respect to the infringing items
occurring after such notice and refund.
6. Support Programs.
Support to You. Technical support is not provided to You by Original Contributor
under this License. You may contract for one or more support programs from
Original Contributor relating to the Technology which are described on the SCSL
Webpage.
Customer Support. You are responsible for providing technical and maintenance
support services to Your customers for Your products and services incorporating
the Compliant Covered Code.
7. Technology and Payments.
Technology specified in Attachment B.
Agreement No. 55543 Page 4
<PAGE> 5
Field of Use: OpenLinux for the x86, UltraSPARC, Itanium (Merced), and PowerPC
processors
You hereby agree to pay Original Contributor a nonrefundable payment as provided
in the Sun Community Source License Attachment D for Java2 Standard Edition
entered into by the parties concurrently herewith (Agreement No. 55391), for the
right, for 18 months from the execution hereof, to distribute Compliant Covered
Code in compliance with and subject to the provisions of the SCSL and its
attachments.
Upon payment of the applicable $3,100,000 fee as specified in Agreement
No. 55391, this Attachment D will have a term of three years and six months.
Alternatively, this Attachment D will renew for a second and third year
(following the 18 month initial term) upon payment of the applicable $1,500,000
and $1,750,000 fees as specified in Agreement No. 55391. Payment as provided
above under Section 7 of Attachment D of the SCSL for Java2 Standard Edition
constitutes payment under this Section 7, i.e., You are not obligated to make
double payments.
Provided that this Attachment has been extended to three and a half years as
above, You may elect to extend this Attachment for up to an additional three
years. If You elect to extend the term of this Attachment, the pricing for such
additional term (excluding support) will not exceed Original Contributor's
applicable then-current standard pricing for the license and rights granted
herein.
b) [****]
c) Taxes. All payments required by this License shall be made in United States
dollars, are exclusive of taxes, and You agree to bear and be responsible for
the payment of all such taxes, including, but not limited to, all sales, use,
rental receipt, personal property or other taxes and their equivalents which may
be levied or assessed in connection with this License (excluding only taxes
based on Original Contributor's net income). To the extent You are required to
withhold taxes based upon Original Contributor's income in any country, You
agree to provide Original Contributor with written evidence of such withholding,
suitable for Original Contributor to obtain a tax credit in the United States.
8. Notice of Breach or Infringement. Each party shall notify the other
immediately in writing when it becomes aware of any breach or violation of the
terms of this License, or when You become aware of any potential or actual
infringement by a third party of the Technology or Sun's Intellectual Property
Rights therein.
9. Proprietary Rights Notices. You may not remove any copyright notices,
trademark notices or other proprietary legends of Original Contributor or its
suppliers contained on or in the Original Code, Upgraded Code and
Specifications.
Agreement No. 55543 Page 5
**** CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO SUCH OMITTED PORTIONS.
<PAGE> 6
10. Notices. All written notices required by this License must be delivered in
person or by means evidenced by a delivery receipt and will be effective upon
receipt by the persons at the addresses specified below.
Original Contributor: You:
Sun Microsystems, Inc. Caldera Systems, Inc.
901 San Antonio Road 240 West Center St.
Palo Alto, California 94303 Orem UT 84057
Attn.: VP, Sun Software and
Technology Sales Attn: President,
cc: Sun Software and Technology, cc: Contracts Administrator
General Counsel
11. Disclaimer of Agency. The relationship created hereby is that of licensor
and licensee and the parties hereby acknowledge and agree that nothing herein
shall be deemed to constitute You as a franchisee of Original Contributor. You
hereby waive the benefit of any state or federal statutes dealing with the
establishment and regulation of franchises.
12. Confidentiality. You and Original Contributor shall keep and maintain in
confidence the terms and conditions of this License. However, either party may
disclose the general nature of the rights and obligations under this Attachment
D in the course of business or as required by law or court order.
Agreed:
You: Original Contributor:
Caldera Systems, Inc. Sun Microsystems, Inc.
By: By:
----------------------------- -------------------------------
Title: Title:
-------------------------- ----------------------------
Date: Date:
--------------------------- ----------------------------
ATTACHMENT E
TECHNOLOGY COMPATIBILITY KIT
Agreement No. 55543 Page 6
<PAGE> 1
EXHIBIT 10.19
COMMERCIAL LEASE AGREEMENT
The undersigned CALDERA SYSTEMS, INC., (hereinafter called "Tenant") has on this
1st day of September, 1998, leased from Caldera, Inc. (hereinafter called
"Caldera") the premises located at 240 West Center Street, in the City of Orem,
County of Utah, State of Utah, beginning on the 1st day of September, 1998, and
terminating on the 31st day of August, 2000. This is a TWENTY-FOUR (24) month
Lease Agreement.
THE PARTIES FURTHER AGREE AS FOLLOWS:
BASE RENT The monthly base rent for said premises Tenant agrees to pay is A
PORTION OF THE ENTIRE ESNET LEASE BASED ON SQUARE FOOTAGE TO BE DETERMINED
MONTHLY paid upon receipt of monthly invoice from Caldera. The rate shall
increase based on the same terms outlined in the EsNet lease agreement with
Caldera Inc.
PAYMENT SCHEDULE Tenant agrees that the total rent is due and payable to Caldera
on receipt of monthly invoice from Caldera.
INDEMNIFICATION Tenant accepts the premises in its present condition. Caldera
shall not be liable for any damage or injury to Tenant, or any other person, or
to any property, occurring on the premises, or any part thereof, or in common
areas thereof, for any act of neglect of employees or other tenants of said
building, or for any reason from whatsoever cause in and about said premises,
except as provided by law.
DUTIES, CARE, AND RESPONSIBILITY OF TENANT The Tenant shall take good care of
the property and shall not alter or decorate property in any way without prior
written consent from Caldera. Tenant shall not allow accumulation of refuse or
waste matter on or about the premises. Tenant shall not allow the demise or
destruction of lawn and landscaping. Tenant shall maintain the premises,
including floor coverings, draperies, and patio in good order and in a clean and
sanitary condition. Tenant agrees to reimburse Caldera for any damages caused by
Tenant's neglect or misuse.
DUTIES, CARE, AND RESPONSIBILITY OF CALDERA The building owner and Caldera
agree, at their expense, to maintain any furnishings provided by them in a safe
and operable condition, unless caused by misuse or neglect of Tenant.
USE Tenant agrees that the premises are to be used and occupied by Tenant and
Tenant's employees as a commercial office space and for IT Training, and for no
other purpose.
OPERATING EXPENSES In addition to the Base Rent above, Tenant agrees to pay
PROPORTIONATE PORTIONS OF UTILITIES AND CLEANING EXPENSES on receipt of monthly
invoice from Caldera. These charges include charges for Janitorial, Utilities,
General, Repair/Maintenance, Management Fees to building owner, Real Estate
Taxes and Insurance.
ACCESS Tenant shall allow the building owner and Caldera access at all
reasonable times to said premises for the purpose of inspection or to show said
premises to prospective purchases, mortgages, or to make necessary repairs or
improvements.
SUBLEASE Tenant shall not sell or assign this Lease Agreement or sublease the
premises without the written consent of Caldera.
MUNICIPAL REGULATIONS Tenant and Caldera shall comply with all laws, ordinances,
public rules and government regulations applicable to said premises or the use
thereof.
<PAGE> 2
ATTORNEY'S FEES In the event of any action or proceeding brought by either party
against the other under this agreement, the prevailing party shall be entitled
to recover for the fees of its attorneys in such action or proceeding such
amount(s) as the court my adjudge as reasonable attorney's fees.
DAMAGE TO PREMISES In the event the premises is damaged by fire or other
casualty, the building owner shall have the option to either (1) repair or
restore such damage, this agreement continuing in full force and effect, or (2)
give notice to Tenant at any time within THIRTY (30) days after such damage
terminating this Lease Agreement as of a date to be specified in such notice. In
the event of the filing of such notice, this agreement shall expire and all
interest of the Tenant in the premises shall terminate.
WAIVER The waiver by Caldera of the breach by Tenant of any term, covenant, or
condition herein contained shall not be deemed to be a waiver of any subsequent
breach of the same or any other term, covenant, or condition herein contained.
All parts and portions of this agreement shall be given full force and effect.
HOLDOVER TENANCY Upon termination of this Lease Agreement a month-to-month
tenancy shall be in effect. Caldera must terminate a month-to-month tenancy by
delivering to the other party ninety (90) days' written notice to vacate.
RULES AND REGULATIONS Tenant shall comply with all state and local laws, the
rules shown herein below and any additional rules applicable to the premises
which Caldera may deem necessary and which are publicly posted:
1. No animals or pets of any kind shall be kept or harbored in or about
premises without written permission from Caldera.
2. All garbage shall be put into appropriate container.
3. Tenant shall report defects or needed repairs immediately to Caldera.
4. Tenants are not permitted access to the roof except in case of
emergency.
5. Gasoline or any explosive liquid on the premises is prohibited.
PREMISES CONDITION The Tenant acknowledges that inspection of the premises has
been made and that said premises are in good condition and fire alarm system is
operational. Any exceptions to be noted hereunder. If the Tenant fails to notify
Caldera by a written statement within THREE (3) days after occupancy of any
deficiencies not previously noted hereunder shall be the conclusive
determination of the premises conditions at the time of occupancy. THIS REPORT
WILL BE USED TO DETERMINE THE REFUND OF SECURITY DEPOSIT (IF ANY) AT THE END OF
YOUR TENANCY.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year
first written above.
CALDERA, INC. CALDERA SYSTEMS, INC.
By: /s/ RAY NOORDA By: /s/ RANSOM H. LOVE
------------------------------ -------------------------------
Title: Chairman Title: President & CEO
---------------------------- ----------------------------
Date: 12/20/99 Date: 12/20/99
----------------------------- -----------------------------
<PAGE> 1
EXHIBIT 10.20
ASSIGNMENT AND EXTENSION OF LEASE
Agreement made this 6th day of October, 1999, between and among Voxel,
Inc., hereinafter referred to as Assignor, Caldera Systems, Inc., herein
referred to Assignee, and Bank of American Fork, hereinafter referred to as
Landlord.
RECITALS
1. Assignor entered into a Lease, as Tenant herein, on April 13, 1999,
with Landlord for a term of one year commencing May 1, 1999, and terminating
April 30, 2000.
2. Assignor desires to assign, and Assignee desires to assume, the
rights, duties and liabilities of Tenant thereunder and to extend the term of
the Lease for a period of three months, terminating on July 31, 2000.
3. Pursuant to the terms of the Lease, Assignor may not assign its
rights, duties and liabilities as Tenant under the Lease, nor may Assignee
assume such Lease, without the express written consent of Landlord.
4. Landlord is willing to consent to the assignment of the lease and to
the extension of the term thereof.
In consideration of the mutual covenants contained herein, the parties
agree as follows:
Assignee shall assume all rights and duties required of Assignor under the
Lease including all payments required thereby and shall comply with all terms
and conditions of the Lease.
Landlord consents to the assignment and transfer of the Lease, including
all terms and conditions thereof, to Assignee and to the extension of the term
of the Lease to July 31, 2000.
<PAGE> 2
The Lease, originally scheduled to terminate on May 30, 2000, is hereby
extended for an additional period of three months, to terminate on July 31,
2000. The rent during the extension period of the Lease shall be in the same
amount and payable in the same manner as set forth in the Lease.
In witness whereof, the parties have executed this assignment and
extension to the Lease the day and year first above written.
VOXEL, INC., Assignor
By: /s/ PRESIDENT/CEO
-----------------------------
Its: President/CEO
-----------------------------
CALDERA SYSTEMS, INC., Assignee
By: /s/ RANSOM H. LOVE
-----------------------------
Its: President/CEO
-----------------------------
BANK OF AMERICAN FORK, Landlord
By: /s/ PRESIDENT
-----------------------------
Its: President
-----------------------------
2
<PAGE> 3
STANDARD OFFICE LEASE
BANK OF AMERICAN FORK
1280 SOUTH 800 EAST
OREM, UTAH 84058
This Lease ("Lease") dated, for reference purposes only, April 13, 1999,
is made by and between Bank of American Fork, ("Landlord") and VOXEL, INC.
("Tenant"), with reference to certain office space in that certain office
building located at 1280 South 800 East in Orem, Utah (the "Building"), which
Building and associated improvements including certain parking facilities are
located on the land described in Exhibit "B" hereto (the "Property").
In consideration of the rents and covenants hereinafter set forth,
Landlord hereby leases to Tenant, and Tenant hereby rents from Landlord, the
following described Premises, upon the following terms and conditions:
ARTICLE 1 FUNDAMENTAL LEASE PROVISIONS
1.1 Fundamental Lease Provisions. Each reference in this Lease to the
"Fundamental Lease Provisions" shall mean and refer to the following terms:
(a) Premises: That portion of the 2nd floor of the Building more
fully shown on the Floor Plan attached hereto as Exhibit "A" and more fully
defined in Article 2 which contains 6,780 square feet. In addition, basement
space which contains approximately 1,500 square feet as more fully shown on the
Floor Plan attached hereto as Exhibit "AA".
(b) Landlord's Address: Bank of American Fork
P.O. Box 307
33 East Main
American Fork, Utah 84003
(c) Tenant's Notice Address: VOXEL, INC.
Suite 200
1280 South 800 East
Orem, Utah 84097
(d) Term Commencement Date: May 1, 1999
(e) Term: One (1) year & 3 months on addendum
(f) Basic Monthly Rent: 1st Year $10,000.00 per month
(g) Tenant's Proportionate Share of Additional Operating Expenses:
28 percent.
(h) Tenant's Base Year: 1999
<PAGE> 4
(i) Parking Facilities: Subject to the provisions of Article 9,
Tenant shall have a non-exclusive license to use non-reserved parking spaces in
the parking area located on the Property (the "Parking Facilities").
(j) Security Deposit: $10,000.00.
(k) Landlord's Broker: Clark Commercial c/o Jim Clark.
ARTICLE 2 PREMISES
2.1 The Premises. The premises demised and leased hereunder (the
"Premises") are shown on the Floor Plan attached hereto as Exhibits "A" and "AA"
and incorporated herein by this reference.
2.2 Tenant's Right To Use In Common. Tenant shall have, as appurtenant
to the Premises, rights to use in common, subject to reasonable rules of general
applicability to tenants of the Building from time to time made by Landlord and
of which Tenant is given notice, the following areas of the Building: the common
lobbies, corridors, stairways and stairwells, restrooms, elevators, and common
walkways and driveways necessary for access to the Building (the "Common
Areas"). Tenant hereby agrees that Landlord shall have the right, for the
purposes of accommodating the other tenants of the Building, to increase or
decrease the configuration and dimensions or to otherwise alter the common
corridors on any floor so long as Tenant's access to the Premises, restrooms,
stairwells and elevators is not unreasonably restricted thereby.
2.3 No Warranty. Tenant agrees that neither Landlord nor any agent of
Landlord has made any representation or warranty as to the suitability of the
Premises for the conduct of Tenant's business, nor has Landlord agreed to
undertake any modification, alteration or improvement to the Premises except as
provided in this Lease. Tenant further agrees that neither Landlord nor any
agent of Landlord has made any representation or warranty with respect to the
physical condition of the Building, the land upon which it is erected, the
Parking Facilities, or the Premises, or the expenses of operation of the
Building, the Parking Facilities, or the Premises, or any other matter or thing
affecting or related to the Premises, except as herein expressly set forth, and
no rights, easements or licenses are acquired by Tenant by implication or
otherwise except as expressly set forth in the provisions of this Lease. Except
as set forth in this Lease, Tenant shall inspect the Parking Facilities, the
Building and the Premises prior to the delivery of possession of the Premises
and agrees to take the same "as is", and acknowledges that the taking of
possession of the Premises by Tenant shall be conclusive evidence that the
Premises, the Building and the Parking Facilities were in good and satisfactory
condition at the time such possession was so taken. Tenant acknowledges and
agrees that neither Landlord nor any agent of Landlord has made any
representation or warranty whatsoever or at all concerning (a) the safety of the
Premises, the Building, the Common Areas, the Parking Facilities or of any part
thereof, whether for the use of Tenant or any other person, including Tenant's
employees, agents, invitees, or customers, or (b) the existence or adequacy of
any security system(s) which may be installed or used by
2
<PAGE> 5
Landlord. All understandings and agreements heretofore made between the parties
hereto are merged in this Lease.
ARTICLE 3 TERM
3.1 COMMENCEMENT OF TERM AND DURATION. Tenant shall have and hold the
Premises for a period (herein referred to as the "term of this Lease" or "the
term hereof") commencing on the date (the Commencement Date) which shall be May
1, 1999.
3.2 DELIVERY OF PREMISES. Premises to be delivered to Tenant for
occupancy on or before May 1, 1999.
3.3 EARLY ENTRY. Tenant may, at any time prior to the Term Commencement
Date, at Tenant's sole risk, and without incurring any obligation to pay rent
under this Lease, enter upon the Premises and install therein such furniture,
trade fixtures, equipment and leasehold improvements, including but not limited
to wall covering, floor covering and millwork, as Tenant may elect; provided
however, that (a) Tenant shall not commence to do business within the Premises;
(b) Tenant shall execute and deliver to Landlord an indemnity agreement in favor
of Landlord in form and substance satisfactory to Landlord, prior to entry, (c)
Tenant shall deliver to Landlord evidence of insurance issued by an insurance
carrier approved in writing by Landlord, with coverage of the Premises as
reasonably requested by Landlord, prior to entry, and (d) Tenant shall obtain in
writing Landlord's consent to such early entry, prior to entry. Such entry shall
not be deemed possession of the Premises by the Tenant for purposes of Sections
3.1 or 4.1.
3.4 QUIET POSSESSION. Landlord covenants and agrees with Tenant that
upon paying the Rent and other monetary sums due under this Lease, and
performing the covenants and conditions on the part of Tenant to be performed
hereunder, Tenant shall quietly have, hold and enjoy the Premises during the
term of this Lease.
3.5 SURRENDER OF PREMISES. At the expiration or earlier termination of
this Lease, Tenant shall surrender to Landlord the Premises and all alterations
and additions thereto in good order, repair and condition (except for ordinary
wear and tear). Tenant shall remove all personal property and trade fixtures
prior to the expiration of the term, including any signs, notices and displays
installed by Tenant. Tenant shall perform all necessary restoration, including,
without limitation, restoration made necessary by the removal of Tenant's
personal property and trade fixtures (or of any Alterations required to be
removed by Tenant pursuant to the provisions of Section 10.1 hereof) prior to
the expiration or earlier termination of this Lease. Landlord can elect to
retain or dispose of, in any manner, any Alterations, Tenant's personal property
or trade fixtures that Tenant does not remove from the Premises on expiration or
earlier termination of the term as allowed or required by this Lease. Title to
any such Alterations, Tenant's personal property or trade fixtures that Landlord
elects to retain or dispose of on expiration of the term shall vest in Landlord.
Tenant waives all claims against Landlord for any damage to Tenant resulting
from Landlord's retention or disposition of any such Alterations, Tenant's
personal
3
<PAGE> 6
property or trade fixtures. Tenant shall be liable to Landlord for Landlord's
costs for storing, removing and disposing of any Alterations, Tenant's personal
property or trade fixtures and shall indemnify and hold Landlord harmless from
the claim of any third party to an interest in the personal property.
3.6 ACTION BY LANDLORD. No act or conduct of Landlord, including,
without limitation, the acceptance of keys to the Premises, shall constitute an
acceptance of the surrender of the Premises by Tenant before the expiration of
the term. Only a notice from Landlord to Tenant shall constitute acceptance of
the surrender of the Premises and accomplish a termination of the Lease.
3.7 HOLDING OVER. If Tenant holds over after the expiration or earlier
termination of the term hereof without the express written consent of Landlord,
Tenant shall become a tenant at will only, at a rental rate equal to one and one
half times the immediately prior Rent, together with any additional rent, and
otherwise subject to the terms, covenants and conditions herein specified, so
far as applicable. Acceptance by Landlord of Rent after such expiration or
earlier termination shall not constitute a holdover hereunder or result in a
renewal.
3.8 INDEMNIFICATION. If Tenant fails to surrender the Premises upon the
expiration of this Lease despite demand to do so by the Landlord, Tenant shall
indemnify and hold Landlord harmless from any claim made by any succeeding
tenant founded on or resulting from such failure to surrender. The provisions of
this Section 3.8 are in addition to and do not affect Landlord's right of
re-entry or any rights of Landlord hereunder or as otherwise provided by law.
ARTICLE 4 RENT
4.1 BASIC RENT. Throughout the term of this Lease, Tenant shall pay as
rent for the Premises the Basic Monthly Rent (sometimes referred to as "Basic
Rent") set forth in the Fundamental Lease Provisions hereof. Basic Rent shall be
payable in equal monthly installments in advance on the first day of each and
every calendar month, in full, without deduction, abatement or set-off. The
monthly payment for the first full month after the Commencement Date of the term
of the Lease is to be made concurrently with the execution hereof. If the
Commencement Date is other than the first day of a calendar month, then the
Basic Rent payable hereunder shall be prorated on a daily basis, based on a 360
day year, and the rent for such partial month following the Commencement Date
shall be payable on the Commencement Date.
4.2 ADDITIONAL RENT FOR ADDITIONAL OPERATING EXPENSES. In addition to
Basic Rent, Tenant shall pay each year during the term hereof additional rent in
an amount equal to the amount by which "Tenant's Proportionate Share" (as set
forth in the Fundamental Lease Provisions hereof) of the "Operating Expenses"
(as defined below) for such year exceeds the Operating Expenses for the
"Tenant's Base Year" (as set forth in the Fundamental Lease Provisions hereof),
all in accordance with the following provisions:
4
<PAGE> 7
(a) DEFINITION OF OPERATING EXPENSES. The term "Operating Expenses"
shall be defined as those reasonable expenses incurred by Landlord with respect
to the repair, alteration, improvement, replacement, operation, management and
maintenance of the Premises, the Building (including any vacant space and space
leased to other tenants in the Building), the Common Areas and the Parking
Facilities, in accordance with accepted principles of sound accounting practice
as applied to the operation, management, maintenance and security of a
first-class office building, which costs shall include, without limitation,
utilities (except sub-metered or allocated utility charges billed separately to
any tenant); elevators; plumbing; electrical; ventilating; heating;
air-conditioning; roof; exterior walls; floor slabs; waste and refuse disposal;
water and sewer charges; repair and maintenance; landscaping services; costs of
janitorial, window washing, security and other services and maintenance
contracts therefor; supplies, materials, equipment and tools; compensation and
all fringe benefits, worker's compensation insurance premiums and payroll taxes
paid to, for, or with respect to, all persons engaged in the operating,
maintaining, or cleaning of the Premises, the Building, the Common Areas and the
Parking Facilities; compliance with all environmental laws or laws relating to
"Hazardous Substances" (as defined below) or any directive, regulation, order or
judgment pursuant thereto; glass replacement; maintenance of ceiling
light-fixtures and replacement of light bulbs and tubes therefor; management
fees at reasonable rates, not to exceed 5% of gross revenues, consistent with
the type of occupancy and the service rendered (applicable whether the Building
is managed by Landlord or an affiliate of Landlord, or managed for Landlord by a
property management company); amortization or rental of personal property used
in maintenance or repair; all costs required by a governmental entity for energy
conservation, life safety or other purposes or made by Landlord to reduce
operating expenses; insurance, including fire and extended coverage, all risk
public liability and property damage, rental abatement insurance (including one
year's Basic Rent and property taxes for all tenants in the Building), war risk
insurance, earthquake insurance and such other insurance as may otherwise be
required by the first mortgagee of the Building or by Landlord in the exercise
of its discretion; the cost of any capital improvements made to the Building
after completion of its construction as a labor-saving device or to effect other
economies in the operation or maintenance of the Building, or made to the
Building after the date of this lease that are required under any governmental
law or regulation that was not applicable to the Building at the time that
permits for the construction thereof were obtained, such costs to be amortized
over such reasonable period as Landlord shall determine, together with interest
on the unamortized balance at a market rate; costs and upkeep of the Common
Areas, including loading platforms, washrooms, lounges, shelters and other
facilities available for the common use of tenants, employees, invitees and the
public; gross receipts taxes (whether assessed against Landlord or assessed
against Tenant, and collected by Landlord, or both); "property taxes" as
hereinafter defined, and all other charges directly related to the operation and
maintenance of the Premises, the Building and the Parking Facilities, but
excluding the cost of constructing any tenant improvements initially. Any of the
services which may be included in the computation of the Operating Expenses may
be performed by subsidiaries or affiliates of Landlord, provided that the
contracts for the performance of such services shall be competitive with similar
contracts and transactions with unaffiliated entities for the performance of
such services in comparable buildings within the governmental jurisdiction
wherein the Building is located.
5
<PAGE> 8
(b) DEFINITION OF PROPERTY TAXES. As used herein, the term "property
taxes" shall include any form of assessment, license fee, license tax, business
license fee, commercial rental tax, levy, charge, penalty tax or similar
imposition, imposed by any authority having the direct power to tax, including
any city, county, state or federal government, or any school, agricultural,
lighting, drainage or other improvement or special assessment district thereof,
as against any legal or equitable interest of Landlord in the Building and
Parking Facilities or any interest in leasehold improvements which is taxed to
Landlord and not to a specific tenant, but excluding Landlord's income taxes or
corporate franchise taxes whether fixed or levied on net income. Landlord shall
have the right in its discretion to contest the amount or validity of any
property taxes by appropriate legal proceedings and to include in the Operating
Expenses the reasonable cost of any such contest, including attorneys' fees.
(c) ALLOCATION OF OPERATING EXPENSES. Landlord shall pay that portion of
Tenant's Proportionate Share of the Operating Expenses for each year during the
term hereof which is equal to the Operating Expenses for Tenant's Base Year. The
Basic Rent is established on the basis that Landlord shall pay only such amount
in connection with the Operating Expenses and that Tenant will reimburse
Landlord to the extent that Tenant's Proportionate Share of the Operating
Expenses for any year exceed the Operating Expenses for Tenant's Base Year and
on the basis that the Basic Rent shall never be decreased if Tenant's
Proportionate Share of the actual Operating Expenses for any year is less than
the Operating Expenses for Tenant's Base Year. Therefore, if Tenant's
Proportionate Share of the Operating Expenses for any year shall be greater
than the Operating Expenses for Tenant's Base Year, then Tenant shall pay as
additional rent during such year an amount equal to the difference between
Tenant's Proportionate Share of the Operating Expenses for such year and the
Operating Expenses for Tenant's Base Year, all in accordance with the
provisions of Section 4.2(d).
(d) DETERMINATION OF OPERATING EXPENSES. From time to time during the
term of this Lease, Landlord shall furnish to Tenant a written statement
showing in reasonable detail Landlord's reasonable estimate of the Operating
Expenses for the calendar year in question (the "Estimated Costs Statement").
Tenant shall pay to Landlord monthly with installments of Basic Rent
one-twelfth (1/12) of Tenant's Proportionate Share of Operating Expenses as
shown on the last Estimated Costs Statement provided by Landlord to Tenant to
the extent that Tenant's Proportionate Share of such Operating Expenses exceeds
the Operating Expenses for Tenant's Base Year. Within a reasonable time after
the expiration of a calendar year ending during the term of this Lease or
ending immediately after the end of the term of this Lease, Landlord shall
furnish Tenant with a written statement showing in reasonable detail the actual
Operating Expenses for the preceding calendar year. Within 30 days after the
delivery of the statement showing actual Operating Expenses, Tenant shall pay
to Landlord the amount by which Tenant's Proportionate Share of actual
Operating Expenses, less an amount equal to Operating Expenses for Tenant's
Base Year, exceeds the amount of additional rent actually paid by Tenant toward
the Operating Expenses for the calendar year in question. Such payment by Tenant
shall be made, notwithstanding that the statement of actual Operating Expenses
shall be furnished to Tenant after the expiration of the term. If the
statement of actual Operating Expenses indicates that the amount of additional
rent actually paid by Tenant toward Operating Expenses for the relevant calendar
6
<PAGE> 9
year exceeds Tenant's Proportionate Share of Operating Expenses, less an amount
equal to Operating Expenses for Tenant's Base Year, Landlord shall pay the
amount of such excess additional rent paid to Tenant. No failure by Landlord to
provide any statements described in this paragraph or to require the payment of
Tenant's Proportionate Share of Operating Expenses for any period shall
constitute a waiver of Landlord's right to collect such amount for such period.
(e) ADJUSTMENTS IF BUILDING NOT FULLY OCCUPIED. Notwithstanding any
other provision herein to the contrary, it is agreed that in the event less than
90% of all rentable areas of the Building are occupied or are provided with
Building standard services during any calendar year (on average), an equitable
adjustment shall be made in computing each component of the Operating Expenses
for such year so that Operating Expenses shall be computed for such year as
though 90% of all rentable areas of the Building had been fully occupied during
such year and as though 90% of all rentable areas of the Building had been
provided with Building standard services during such year.
4.3 DELETED.
4.4 PERSONAL PROPERTY AND LEASEHOLD IMPROVEMENT TAXES. Tenant hereby
agrees to pay all taxes which may be levied with respect to Tenant's personal
property and trade fixtures located upon the Premises. Tenant agrees to use its
best efforts to cause such personal property and trade fixtures to be taxed or
assessed separately from the Premises and not as a lien thereon. If leasehold
improvements are made to the Premises (including any Tenant improvement
installed prior to the commencement of the term hereof and subsequent Tenant
alterations, additions, substitutions and improvements, but not including the
original tenant improvements constructed pursuant to the provisions of Section
5.1 below), and such improvements are used by a taxing authority in the
calculating of any property tax payable by Landlord, Tenant shall pay the
property taxes attributable to such leasehold improvements throughout the term
of this Lease within 30 days after being billed therefor by Landlord. Tenant
agrees to give to Landlord copies of all contracts for such leasehold
improvements within ten days of the execution of such contracts. Landlord shall
use those materials available to it (including the working papers of the taxing
authority) to determine the amount of taxes allocable to such leasehold
improvements and will calculate Tenant's bill for such taxes accordingly.
4.5 TENANT'S PAYMENT OF ADDITIONAL RENT. Except as otherwise
specifically provided herein, any sum, amount, item or charge designated or
considered as additional rent in this Lease or any other sum, amount, item or
charge payable by Tenant to Landlord pursuant to this Lease (all of which sums
together with Basic Rent are sometimes referred to in this Lease as "Rent")
shall be paid by Tenant to Landlord on the first day of the month following the
date on which Landlord notifies Tenant of the amount payable or on the tenth day
after the giving of such notice, whichever shall be later. Any such notice shall
specify in reasonable detail the basis of such additional Rent. Additional Rent
shall be paid by Tenant to Landlord without offset or deduction.
4.6 LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant
to Landlord of Rent and other sums due hereunder will cause Landlord to incur
costs not
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<PAGE> 10
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges and late charges which may be imposed on Landlord by the
terms of any trust deed covering the Premises. Accordingly, if any installment
of Rent or other sum due from Tenant shall not be received by Landlord or
Landlord's designee within five days after such amount shall be due, Tenant
shall pay to Landlord a late charge equal to five percent (5%) of such overdue
amount, or a minimum of $250.00, whichever is greater. The parties hereby agree
that such late charge by Landlord shall in no event constitute a waiver of
Tenant's default with respect to such overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies granted by law or equity or
pursuant to this Lease.
4.7 SECURITY DEPOSIT. Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord the amount of the security deposit as
set forth in the Fundamental Lease Provisions hereof. The sum shall be held by
Landlord as a security deposit for the faithful performance by Tenant of all of
the terms, covenants and conditions of this Lease, including but not limited to
the provisions relating to the payment of Rent and payment of any other amount
required to be paid by Tenant under this Lease or which Landlord may spend by
reason of Tenant's default or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default. If any portion
of the deposit is so used or applied, Tenant shall within ten days after written
demand therefor, deposit the original amount with Landlord. Tenant's failure to
so do shall be a material breach of this Lease. Landlord shall not be required
to keep this security deposit separate from its general funds, and Tenant shall
not be entitled to interest on such deposit. If Tenant shall fully and
faithfully perform every provision of this Lease to be performed by it, the
security deposit or any balance thereof shall be returned to Tenant (or, at
Landlord's option, to the last assignee of Tenant's interests hereunder) at the
expiration of the Lease term and after Tenant has vacated the Premises.
4.8 RECEIPT OF PAYMENTS. The receipt and acceptance by Landlord of
delinquent Rent or a portion of the Rent or other payment due shall not
constitute a waiver of the delinquency of the remaining portion of the Rent or
other payment due or a waiver of any other default, and shall not constitute
waiver of the right to command a late charge with respect to such payment.
4.9 PAYMENTS FROM TENANT. Any rental payments or other sums received
from Tenant or any other person in connection with this Lease shall be
conclusively presumed to have been paid by Tenant or on Tenant's behalf, unless
(a) Landlord has been given prior written notice to the contrary by Tenant, and
(b) Landlord has consented to payment of such sums by such person other than
Tenant. In no event shall the foregoing be construed as requiring Landlord to
accept any rental payments or other sums from any person other than Tenant.
ARTICLE 5 PREMISES IN "AS IS" CONDITION
5.1 LANDLORD'S WORK. The Premises shall be leased "as is".
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5.2 TENANT DELAYS. Deleted
5.3 EXCESS COSTS. Deleted
ARTICLE 6 USE OF THE PREMISES
6.1 PERMITTED USE. Tenant shall use the Premises solely for general
office purposes. Not withstanding the foregoing, the Premises shall not be used
for title Company purposes nor for medical or dental offices. The general office
space may be used for sale and display of holograms and basement space may be
used for storage. Provided, however, in accordance with the provisions of
Article 17, no Hazardous Substances, as defined in Article 17, may be brought
upon or kept or used in or about the Premises or the Building by the Tenant.
6.1(a) EXCLUSIVE USE. Deleted
6.2 EFFECT OF USE ON INSURANCE. Tenant shall not do or permit anything
to be done in or about the Premises nor bring or keep anything therein which
will in any way increase the existing rate or affect any fire or other
insurance upon the Building or any of its contents, or cause a cancellation of
the insurance policy covering the Building or any part thereof or any of its
contents, nor shall Tenant sell or permit to be kept, used or sold in or about
said Premises any articles which may be prohibited by a standard form policy of
insurance. Without limitation upon Landlord's remedies for Tenant's breach of
this covenant, Tenant shall promptly upon demand reimburse Landlord for any
additional premium charged upon such policy by reason of Tenant's failure to
comply with the provisions of this Article.
6.3 PROHIBITED USES. In addition to those uses prohibited in section 6.l
above, Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of any
other tenants of the Building or injure or annoy them, nor shall Tenant cause,
maintain or permit any nuisance in, on or about the Premises. Tenant shall not
commit or suffer to be committed any waste in or upon the Premises.
6.4 RULES AND REGULATIONS. The Rules and Regulations attached to this
Lease as Exhibit "E", as well as such reasonable rules and regulations as may be
hereafter adopted by Landlord for the safety, care, utilization and cleanliness
of the Premises, the Building, the Common Areas and the Parking Facilities, and
the preservation of good order thereon (the "Rules and Regulations"), are hereby
expressly made a part hereof, and Tenant agrees to comply with such rules and
regulations and the violation of any of them shall constitute a default by
Tenant under this Lease. If there is a conflict between the Rules and
Regulations and any of the provisions of this Lease, the provisions of this
Lease shall prevail. Landlord shall not be responsible to Tenant for the
nonperformance by any other tenant or occupant of the Building of any of said
Rules and Regulations.
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6.5 SAFETY. Tenant shall keep the Premises equipped with all safety
appliances required by law or ordinance or any other regulation of any public
authority because of any use made by Tenant. Tenant shall procure all licenses
and permits so required because of such use and, if requested by Landlord, shall
do any work so required because of such use, it being understood that the
foregoing provisions shall not be construed to broaden in any way the uses on
the Premises permitted under this Lease.
6.6 NO ILLEGAL USE. Tenant shall not use the Premises in any way, or
permit anything to be done in or about the Premises, which will conflict with
law, ordinance or governmental rule or regulation or requirement of duly
constituted public authorities now in force or which may hereafter be enacted or
promulgated. Tenant shall at its sole cost and expense promptly comply with all
laws, statutes, ordinances and governmental rules, regulations or requirements
now in force or which may hereafter be in force and the requirements of any
board of fire underwriters or other similar body now or hereafter constituted
relating to or affecting the condition, use or occupancy of the Premises.
ARTICLE 7 SERVICE AND UTILITIES
7.1 LANDLORD'S OBLIGATIONS. Subject to Article 4 and Section 7.3 hereof,
and subject to the Rules and Regulations and subject to governmental regulation,
Landlord agrees to make available to the Premises water and electricity suitable
for the intended use of the Premises, and heat and air conditioning required in
Landlord's reasonable judgment for the comfortable use and occupancy of the
Premises, trash removal and exterior window washing customary for similar
buildings in the geographical area. Landlord shall also provide janitorial
service for the Common Areas only and also maintain and keep lighted the common
stairs, entries and toilet rooms in the Building.
7.2 INTERRUPTION OF SERVICES. Landlord shall not be in default hereunder
or be liable for any damages directly or indirectly resulting from, nor shall
the Rent herein reserved be abated by reason of (a) the installation, use or
interruption of use of any equipment in connection with the furnishing of any of
the foregoing utilities and services unless due to Landlord's gross negligence,
(b) failure or delay in furnishing any such utilities or services when such
failure or delay is caused by Acts of God or the elements, the making of
reasonable repairs or improvements to the Premises or to the Building, labor
disturbances of any character, or any other accidents or conditions beyond the
reasonable control of Landlord, or (c) the limitation, curtailment, rationing or
restriction on use of water or electricity, gas or any other form of energy or
any other service or utility whatsoever serving the Premises or the Building.
Furthermore, Landlord shall be entitled to cooperate voluntarily with the
efforts of national, state or local governmental agencies or utilities suppliers
in reducing energy or other resources consumption.
7.3 TENANT'S OBLIGATIONS. Tenant shall pay for, prior to delinquency,
all telephone and all other materials and services not expressly required to be
provided by Landlord, which may be furnished to or used in, on or about the
Premises during the term of this Lease. Tenant shall also
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pay, prior to delinquency, all charges and fees required to be paid by Tenant by
the Rules and Regulations. Notwithstanding any contrary provision of this
Article, Tenant agrees to bear the cost of no less than that portion of the
services provided by Landlord described in Section 7.1 which clearly reflects
the use by Tenant of the Premises and the services provided by Landlord with
respect thereto, such as computer utility costs and unusual electricity, air
conditioning, heat or water requirements, and Landlord may, in its sole
discretion, increase or decrease, from time to time during the term of this
Lease, the portion of such cost of such services to be paid by Tenant in
addition to Tenant's Proportionate Share of Operating Expenses. Landlord may,
but shall have no obligation to, install (a) at Tenant's cost, separate meters
to measure the consumption by Tenant of utility resources including but not
limited to, electricity, or (b) meters to measure such utility resource
consumption by two or more tenants, the prorate share of Tenant and each such
other tenant(s) for both installation and resource usage to be equitably
determined by Landlord. Tenant shall not, without the written consent of
Landlord, use any apparatus or device in the Premises, including without
limitation, electronic data processing machines, punch card machines, and
machines using excess lighting or using current in excess of 120 volts, which
will in any way increase the amount of electricity or water usually furnished or
supplied for use of the Premises as general office space; nor connect with
electric current, except through existing electrical outlets in the Premises, or
water pipes, any apparatus or device for the purposes of using electrical
current or water. If Tenant shall require water or electric current or any other
resource in excess of that usually furnished or supplied for use of the Premises
as general office space, Tenant shall first procure the consent of Landlord
which Landlord may refuse, to the use thereof. The cost of any electrical or
other distribution equipment above the scope of Landlord's responsibility set
forth in Exhibit "C" and of installation, maintenance, and repair thereof
shall be paid for by Tenant; space for electrical or other distribution
equipment (including but not limited to electrical panels, switches, feeders,
sub-feeders and transformers) shall be provided in the Premises as required by
code and good space planning procedures, as determined by Landlord. Tenant
agrees to pay Landlord promptly upon demand by Landlord for all such water,
electric current or other resource consumed, as shown by any meters, at the
rates charged by the local public utilities furnishing the same, plus any
additional expense incurred in keeping account of the water, electric current or
other resource so consumed. Tenant shall be responsible, at Tenant's sole cost,
for finding space within the Premises for, Tenant's telephone system and
equipment, and Tenant acknowledges that use by Tenant of any common telephone
board, room or closet shall be at Landlord's sole discretion. Any sums payable
pursuant to the foregoing provisions of this Section 7.3 shall be considered
additional rent and may be added to any installment of rent thereafter becoming
due, and Landlord shall have the same remedies for a default in payment of such
sum as for a default in the payment of rent. Tenant shall also provide and pay
for janitorial services and interior window washing for the Premises.
7.4 LOBBY DIRECTORY. The ground-level floor of the Building shall
include a directory of the Building where Tenant names shall be listed as
determined by Landlord from time to time. To the extent Landlord deems
reasonable, Landlord shall accommodate the listing of as many as possible of the
names of executive employees at the Premises.
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ARTICLE 8 MAINTENANCE AND REPAIRS
8.1 LANDLORD'S OBLIGATIONS. Except as otherwise provided in Section 8.2
below, Landlord shall make such repairs to the roof, exterior walls, floor
slabs, Building mechanical and electrical systems (including all plumbing,
pipes, fixtures, electrical wiring, breakers and switches, and heating,
ventilating and air conditioning equipment) and the Common Area and the Parking
Facilities, as may be necessary to keep them in serviceable condition. Tenant
hereby waives the right to make repairs at Landlord's expense under the
provisions of any applicable laws. Any maintenance or repair of Building
mechanical and electrical systems required by reason of damage or misuse by
Tenant or its employees, agents or invitees shall be made by Landlord and may be
billed to Tenant as additional rent under Article 4 of this Lease.
8.2 TENANT'S OBLIGATIONS.
(a) Tenant shall maintain the Premises at Tenant's sole cost and expense
in good order, condition and repair. The Tenant's obligation under this
paragraph shall extend to the interior surfaces of the ceilings, walls and
floors located within the Premises, all surfaces of all doors, door frames,
windows and glass within the Premises or separating the Premises from the
Common Areas, all plumbing, pipes, fixtures, electrical wiring, breakers and
switches, servicing the Premises exclusively (but only to the extent maintenance
or repair is required by damage or misuse as distinguished from ordinary wear
and tear), any heating, ventilating and air conditioning equipment servicing the
Premises exclusively (but only to the extent maintenance or repair is required
by damage or misuse as distinguished from ordinary wear and tear), all tenant
improvements and fixtures, and any equipment installed by or at the expense of
Tenant.
(b) Tenant agrees to repair any damage to the Premises or the Building
caused by or in connection with (i) the moving by Tenant or, its employee or
agents into the Premises, (ii) the use of the Premises or portions of the
Building by Tenant or its employees, agents or invitees, or (iii) the removal of
any articles of personal property, business or trade fixtures, machinery,
equipment, cabinetwork, furniture, movable partition or permanent improvements
or additions, including without limitation thereto, repairing the floor and
patching and painting the walls where required by Landlord to Landlord's
reasonable satisfaction, all at the Tenant's sole cost and expense. Tenant
agrees to give Landlord notice of any damage and Landlord shall have the right
to repair the damage at Tenant's expense or to supervise Tenant's repair of the
damage.
(c) In the event Tenant fails to maintain the Premises in good order,
condition and repair, or to repair damage as provided above, Landlord may (but
shall not be obligated to) give Tenant notice to do such acts as are reasonably
required to so maintain the Premises. In the event that after such notice Tenant
shall fail to promptly commence such work and diligently prosecute it to
completion, then Landlord shall have the right to do such acts and expend such
funds at the expense of Tenant as are reasonably required to perform such work.
Any amount so expended by Landlord shall be paid by Tenant promptly after demand
with interest from the date of such work.
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ARTICLE 9 PARKING
9.1 USE OF PARKING. During the term of this Lease, Tenant shall be
assigned 27 parking stalls in the parking area located on the Property which
may, at Landlord's option, be designated by Landlord as stalls reserved for
Tenant or its employees or invitees, provided, however, that no less than 2.5%
of such stalls shall be designated as parking for Tenant's invitees. The 25%
invitee stalls may be used for parking by Tenant or its employees unless in
Landlord's sole determination, such use results in Tenant's invitees use of
other parking stalls which adversely impacts other tenant assigned parking
space. If Landlord makes such determination, Landlord will give Tenant written
notice of such determination and Tenant shall immediately cease using Tenant
invitee stalls for Tenant or Tenant's employee parking. Parking stalls may be
reserved for any other tenants based upon 4 parking stalls for each 1,000 square
feet of space rented by such other tenants under the same conditions as
hereinabove set forth for Tenant. In the event that parking stalls are
designated or reserved for exclusive use by other tenants or their employees and
invitees, such parking stalls shall not be available for parking by Tenant or
its employees or invitees. Landlord further reserves the right to designate
non-assigned parking stalls for patrons of the Building. Such parking stalls
shall not be available for parking by Tenant or its employees and shall be used
for patrons of the Building on a first-come, first-serve basis.
9.2 EMPLOYEE PARKING. Tenant acknowledges that its employees and the
employees of other tenants of Landlord within the Building shall not be entitled
to the use of parking spaces in the parking area located on the Property which
may from time to time be designated for patrons of the Building. Landlord may
designate the location of all stalls designated for employee parking and for
invitee parking. Landlord shall have the right to change the location of such
designated parking stalls from time to time. Tenant and its employees shall park
their cars only in those portions of the parking area, if any, designated by
Landlord for the purpose of employee parking.
9.3 SUITABLE. Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representation or warranty as to the suitability of the
parking area for the conduct of Tenant's business.
9.4 LANDLORD CONTROL. Landlord shall have certain rights and authority
relative to the use and control of the parking areas, including, without
limitation, the right to rearrange the parking spaces and improvements in the
parking area, to take all or any portion of the parking area for the purpose of
maintaining, repairing or restoring same, or for any other purpose, and to do
and perform such other acts in, to and with respect to the parking area at the
sole discretion of Landlord.
ARTICLE 10 ALTERATIONS AND ADDITIONS
10.1 CONSENT. Tenant shall not, without Landlord's prior written consent,
which consent shall not be unreasonable withheld, make any alterations,
decorations, improvements, or additions
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(hereinafter collectively "Alterations"), in, to or about the Premises. If,
prior to the termination of this Lease, or within 15 days thereafter, Landlord
so directs by written notice to Tenant, Tenant shall, prior to termination or
within ten days after receipt of such notice (whichever is later), remove any
Alterations which were placed in or on the Premises by Tenant and which are
designated in such notice, and shall repair any damage occasioned by such
removal and in default thereof Landlord may effect any removals and repairs at
Tenant's expense.
10.2 PLANS REQUIRED. Any Alterations in or about the Premises that Tenant
shall desire to make shall be presented to Landlord in written form, with
proposed detailed plans. If Landlord shall give its consent, the consent shall
be deemed conditioned upon Tenant acquiring a permit to do the work from
appropriate governmental agencies, the furnishing of a copy of such permit to
Landlord prior to the commencement of the work, and the compliance by Tenant
with all conditions of the permit in a prompt and expeditious manner. Landlord
may, as a condition to its consent to any Alterations, require Tenant to provide
Landlord, at Tenant's sole cost and expense, a performance and/or payment bond
or a lien and completion bond in an amount equal to one and one-half (1/l/2)
times the estimated cost of the Alterations, to insure Landlord that Alterations
shall be completed satisfactorily to Landlord. In performing the work of any
such Alterations, Tenant agrees to use a bondable contractor, which contractor
shall be either (a) one of the contractors set forth in a listing of approved
contractors prepared by Landlord or (b) if not set forth on such a listing,
approved by Landlord in writing prior to the commencement of Tenant's work.
10.3 ATTACH TO PREMISES. Unless Landlord requires their removal as set
forth above, all Alterations shall become the property of Landlord and remain
upon and be surrendered with the Premises at the expiration of the term or
earlier termination of this Lease.
10.4 PERFORMANCE. Tenant shall construct Alterations in a good and
workmanlike manner and shall diligently prosecute such construction to
completion, to the end that the improvements on the Premises shall at all times
be a complete unit except during the period of work. Tenant shall have the work
performed in such a manner so as not to (a) obstruct the access of any other
tenant in the Building, (b) interfere with the rights of quiet enjoyment of the
premises of the other tenants in the Building, or (c) damage any portion of the
Building, including the Common Areas.
10.5 COMPLIANCE. Any Alterations shall be performed and done strictly in
accordance with the laws and ordinances relating thereto, and with the
requirements of all carriers of insurance on the Premises and on the Building,
and the Board of Underwriters, Fire Rating Bureau, or similar organization.
10.6 NOTICE OF WORK. Before commencing any such work or construction in
or about the Premises, Tenant shall notify Landlord in writing at least ten days
prior to the expected date of commencement thereof. Landlord shall have the
right at any time and from time to time to post and maintain on the Premises
such notices as Landlord deems necessary to protect the Premises and Landlord
from the liens of mechanics, laborers, materialmen, suppliers or vendors.
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10.7 ALTERATIONS NOT COVERED BY INSURANCE. In the event that any
Alterations are constructed pursuant to the terms and provisions of this
Article, Tenant agrees to carry such insurance as required by Article 13 below
covering any such Alterations, it being expressly understood and agreed that
none of such Alterations shall be insured by Landlord under such insurance as it
may carry upon the Building, nor shall Landlord be required under any provisions
of reconstruction of the Premises to reinstall any such Alterations.
10.8 MECHANICS' LIENS NOT PERMITTED. Tenant hereby agrees that it will
pay or cause to be paid all costs for work done by it or caused to be done by it
on the Premises. Tenant shall not permit any mechanics', laborers',
materialmen's or similar liens on account of work done by Tenant or persons
claiming under it to be filed against the Building, nor against Tenant's
leasehold interest in the Premises. If Tenant shall desire to contest any claim
of lien, it shall furnish Landlord adequate security of the value or in the
amount of the claim, plus estimated costs and interest, or a bond of a
responsible corporate surety acceptable to Landlord in such amount as is
necessary to release the lien; provided, however, if a final judgment
establishing the validity or existence of a lien for any amount is entered,
Tenant shall pay and satisfy the same at once. Landlord shall have the right at
all reasonable times to post and keep posted on the Premises any notices which
it deem's necessary for protection from such liens.
10.9 LANDLORD'S RIGHT TO CAUSE RELEASE. Subject to Section 10.8 above, if
any such liens are filed, Landlord may, without waiving its rights and remedies
based on such breach of Tenant and without releasing Tenant from any of its
obligations, cause such liens to be released by any means it shall deem proper,
including payment and satisfaction of the claim giving rise to such lien. Tenant
shall pay to Landlord at once, upon notice by Landlord, any sum paid by Landlord
to remove such liens, together with interest.
ARTICLE 11 RIGHTS RESERVED TO LANDLORD
11.1 RIGHT OF ENTRY. Landlord reserves to itself and shall at any and all
times have the right to enter the Premises to inspect the same or to perform any
obligation of Tenant hereunder which Tenant has failed to perform
satisfactorily, to display the Premises to prospective purchasers or tenants, to
post and maintain notices of nonresponsibility, or any other notice, deemed
necessary by Landlord for the protection of its interest, to maintain or repair
the Premises or to alter, improve, maintain or repair any other portion of the
Building, specifically including its mechanical, electrical and telephone
systems, all without being deemed guilty of any eviction of Tenant and without
abatement of Rent, and may, in order to carry out such purposes, erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed as well as keep and store upon the
Premises all tools, materials and equipment necessary for such purposes,
provided that the business of Tenant shall not be unreasonably interfered with
or disrupted. The right of entry provided in this Section may be exercised
through agents or contractors engaged by Landlord, specifically including
contractors who will be responsible to maintain and repair the Building's
mechanical electrical and telephone systems. For each of the aforesaid purposes,
Landlord shall at all times have and retain a key with which to
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unlock all of the doors in, upon and about the Premises, excluding Tenant's
vaults and safes, and Landlord shall have the right to use any and all means
which Landlord may deem proper to open such doors in an emergency in order to
obtain entry to the Premises. Notwithstanding any contrary provision of this
Section 11.1, Landlord shall not enter the Premises during business hours
without the consent of Tenant, which consent shall not be unreasonably withheld,
except Landlord shall have the immediate right of entry at any time in an
emergency.
11.2 BUILDING NAME CHANGE. Landlord reserves to itself and shall at any
and all times have the right to change the name or street address of the
Premises or the Building.
11.3 SIGNS. Landlord reserves to itself and shall at any and all times
have the right to install and maintain signs on the exterior and interior of the
Building, except within the Premises.
11.3a Tenant shall have the right to install signs at locations designated
by Landlord within the Premises. In addition, Tenant shall have the right to
install, at Tenant's sole expense, a sign on the exterior sign pedestal of the
Building located at the southeast comer of the Bank drive-up canopy. Tenant
agrees to submit plans for such sign to the Landlord for its approval at least
fifteen (15) days before installation. Such signage shall be compatible with
other Building signage. Landlord's approval shall not be unreasonably withheld.
Tenant shall reimburse Landlord for all costs of maintenance and repair of such
sign.
11.4 REMODELING. Landlord reserves to itself and shall at any and all
times have the right to decorate, remodel, alter or otherwise repair the
Premises for reoccupancy during the last six months of the term hereof if Tenant
has vacated the Premises, or any time after Tenant abandons the Premises.
11.5 WORK IN OR NEAR BUILDING. Landlord reserves to itself and shall at
any and all times have the right to do or permit to be done any work in or about
the exterior of the Building.
11.6 BUSINESS IN BUILDING. Landlord reserves to itself and shall at any
and all times have the right to grant to anyone the exclusive right to conduct
any business or render any service in the Building, provided such exclusive
right shall not operate to exclude Tenant from the use expressly permitted by
this Lease.
11.7 OTHER TENANCIES. Landlord reserves to itself and shall at any and
all times have the right to effect such other tenancies in the Building as
Landlord in the exercise of its sole business judgment shall determine to best
promote the interest of the Building. Tenant does not rely on the fact nor does
Landlord represent that any specific tenant or number of tenants shall during
the term of this Lease occupy any space in the Building.
11.8 RIGHT TO OBTAIN TENANT ESTOPPEL CERTIFICATE. Within five days after
written request therefor from Landlord, Tenant shall execute and deliver to
Landlord a statement as Landlord may reasonably request, or as a prospective
purchaser or encumbrancer of the Building
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may request (a) certifying that this Lease is in full force and effect, without
modification (or if modified, stating the nature of such modification and
certifying that this Lease, as so modified is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, (b)
acknowledging that there are not any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if they are claimed, and (c) responding
to any other requirements of a prospective purchaser or encumbrancer of the
Premises or the Building. Any such statements may be conclusively relied upon by
any prospective purchaser or encumbrancer of the Premises or the Building.
Tenant's failure to deliver such statement within such time shall be a binding
agreement of Tenant (i) that this Lease is in full force and effect, without
modification except as may be represented by Landlord, (ii) that there are no
uncured defaults in Landlord's performance hereunder, (iii) that not more than
one monthly installment of the Basic Rent has been paid in advance, and (iv)
that any terms or conditions of Landlord's or such purchaser's or encumbrance's
estoppel certificate are satisfied and agreed to by Tenant.
11.9 SALE OF BUILDING. In the event of any sale or exchange of the
Building, other than a transfer for security purposes only, Landlord shall be
entirely freed and relieved of all liability under this Lease, including any
obligations arising out of any act, occurrence or omission relating to the
Premises or this Lease which occur after the consummation of such sale or
exchange and/or assignment. This Lease shall not be affected by any such sale
and Tenant agrees to attorn to the purchaser or assignee provided all Landlord's
obligations hereunder are assumed in writing by the transferee.
11.10 NON-RECOURSE. The obligations of Landlord under this Lease do not
constitute personal obligations of the Landlord nor of its directors, officers
or shareholders, and Tenant shall look solely to the real estate that is the
subject of this Lease and to no other assets of the Landlord for satisfaction of
any liability in respect of this Lease and will not seek recourse against the
Landlord nor against its directors, officers or shareholders nor against any of
their personal assets for such satisfaction other than the Property or the
Building or any interest they may have in or to the Property or the Building or
any portion thereof.
ARTICLE 12 INDEMNITY
12.1 HOLD HARMLESS. Except for the willful misconduct or gross negligence
of Landlord, Tenant shall indemnify and hold Landlord harmless from and defend
Landlord against any and all claims or liability for any injury or damage to any
person or property whatsoever (a) occurring in, on or about the Premises, and
(b) occurring in, on or about the Common Areas and the Parking Facilities, when
such injury or damage is caused in part or in whole by the act, neglect, fault
or omission of any duty with respect to the same by Tenant, its agents,
contractors, employees or invitees. Tenant shall further indemnify and hold
Landlord harmless from and against any and all claims arising from any breach or
default in the performance of any obligation on Tenant's part to be performed
under the provisions of this Lease, or arising from any act or negligence of
Tenant, or any of its agents, contractors, employees and from and against all
costs, attorneys' fees, expenses and liabilities incurred in the defense of any
such claim or any action or proceeding
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brought thereon. In case any action or proceeding be brought against Landlord by
reason of any such claim, Tenant, upon notice from Landlord, shall defend the
same at Tenant's expense by counsel satisfactory to Landlord. Tenant, as a
material part of the consideration to Landlord, hereby assumes all risk of
damage to property or injury to persons in, upon or about the Premises from any
cause, and Tenant hereby waives all claims in respect thereof against Landlord,
except for damages resulting from Landlord's willful misconduct or gross
negligence. Landlord shall not be liable for any damages arising from any act or
neglect of any other tenant of the Building.
12.2 EXEMPTION OF LANDLORD FROM LIABILITY. Except for the willful
misconduct or gross negligence of Landlord, Landlord shall not be liable to
Tenant for any compensation or reduction of Rent by reason of inconvenience or
annoyance or for loss of business arising from the necessity of Landlord or its
agents entering the Premises for any of the purposes authorized in this Lease,
or for repairing the Premises or any portion of the Building, however the
necessity may occur. In case Landlord is prevented or delayed from making any
repairs, alterations or improvement, or furnishing any services or performing
any other covenant or duty to be performed on Landlord's part pursuant to the
provisions of this Lease, by reason of any cause beyond Landlord's reasonable
control, including without limitation the causes set forth in Section 21.11
below, Landlord shall not be liable to Tenant therefor, nor, except as expressly
otherwise provided in Articles 14 and 15 below, shall Tenant be entitled to any
abatement or reduction of Rent by reason thereof, nor shall the same give rise
to a claim in Tenant's favor that such failure constitutes actual or
constructive, total or partial, eviction from the Premises. Tenant hereby agrees
that Landlord, except for the willful misconduct or gross negligence of Landlord
shall not be liable for injury to Tenant's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Tenant, Tenant's employees, invitees, customers or any other person in or about
the Premises, nor shall Landlord be liable for injury to the person of Tenant,
Tenant's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause whatsoever. Landlord shall not be liable for any damages arising from any
act or neglect of any other tenant of the Building, theft, fire, act of God,
public enemy, injunction, riot, strike, insurrection, war, court order,
requisition, or order of governmental body or authority, or any other matter
beyond the reasonable control of Landlord.
ARTICLE 13 TENANT'S INSURANCE
13.1 POLICIES. All insurance required to be carried by Tenant hereunder
shall be issued by responsible insurance companies, qualified to do business in
the State in which the Premises are located and acceptable to Landlord and
Landlord's lender. Each policy shall name Landlord, and at Landlord's request
any mortgagee of Landlord, as an additional insured, as their respective
interests may appear, and as certificate holders, and copies of all policies or
certificates evidencing the existence and amounts of such insurance shall be
delivered to Landlord by Tenant at least ten days prior to Tenant's occupancy in
the Premises. No such policy shall be subject to cancellation or modification
except after 30 days written notice to Landlord and Landlord's lender. Tenant
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shall furnish Landlord and Landlord's lender with renewals or "binders' of any
such policy at least 30 days prior to the expiration thereof. Tenant shall have
the right to provide such insurance coverage pursuant to blanket policies
obtained by the Tenant provided such blanket policies expressly afford coverage
to the Premises and to Tenant as required by this Lease. In the event of any
loss which is insured by a policy provided by Tenant and by any policy held by
Landlord, the parties agree that Tenant's insurance coverage shall be primary.
13.2 PROPERTY INSURANCE. At all times during the term hereof, Tenant
shall maintain in effect policies of casualty insurance covering (a) all
leasehold improvements (including any alterations, additions or improvements as
may be made by Tenant pursuant to the provisions of Article 10 hereof), and (b)
trade fixtures, merchandise and other personal property from time to time in, on
or upon the Premises, in an amount not less than 100% of their actual
replacement cost from time to time during the term of this Lease, providing
protection against any peril included within the classification "All Risks". The
proceeds of such insurance shall be used for the repair or replacement of the
property so insured, except that upon termination of this Lease following a
casualty as set forth herein, the proceeds under (a) above shall be paid to
Landlord and the proceeds under (b) above shall be paid to Tenant if Tenant
would have the right to remove such trade fixtures, merchandise and other
personal property under this Lease. Otherwise, the proceeds under (b), or the
proportionate amount thereof relating to items that Tenant would not have the
right to remove, shall also be paid to Landlord.
13.3 PUBLIC LIABILITY. Tenant shall at all times during the term hereof
and at its own cost and expense procure and continue in force Personal Injury,
Bodily Injury, and Property Damage Liability Insurance adequate to protect
Landlord against liability, including contractual, for injury to or death of any
person or damage to property in connection with the construction of improvements
on the Premises or with the use, operation or condition of the Premises or in
connection with the use by Tenant and its employers and agents of the common
areas of the Building and Parking Facilities. Such insurance at all times shall
have a combined single limit of not less than $3,000,000 on a per location
basis. The limits shall be adjusted from time to time during the term hereof,
upon request by Landlord, to such higher limits, as in Landlord's reasonable
judgment are customarily carried in the locale where the Building is located
with respect to similar properties.
13.4 OTHER INSURANCE. Tenant shall also maintain any other form or forms
of Insurance as Tenant or Landlord or the mortgagees or ground lessors of
Landlord may reasonably require from time to time in the form and amounts and
against the risks which a prudent tenant would protect itself.
13.5 WAIVER OF SUBROGATION. Any policy or policies of fire, extended
coverage or similar casualty insurance which Tenant obtains in connection with
the Premises shall include a clause or endorsement denying the insurer any right
of subrogation against Landlord to the extent rights have been waived by the
insured prior to the occurrence of injury or loss. Tenant hereby waives any
rights of recovery against Landlord for injury or loss due to hazards covered by
insurance to the extent of the injury or loss covered thereby.
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13.6 VIOLATIONS. Tenant agrees that it will not keep, use, sell or offer
for sale in or upon the Premises any article which may be prohibited by any
insurance policy in force from time to time covering the Premises. In the event
Tenant's occupancy or conduct of business in or on the Premises, whether or not
Landlord has consented to the same, results in any increase in premiums for the
insurance carried from time to time by Landlord with respect to the Premises,
Tenant shall pay any such increased premiums as additional rent within ten (10)
days after being billed therefor by Landlord. In determining whether increased
premiums are a result of Tenant's use or occupancy of the Premises, a schedule
issued by the organization computing the issuance rate on the Premises, or the
Tenant Improvements showing the various components of such rate, shall be
conclusive evidence of the several items and charges which make up such rate.
Tenant shall promptly comply with all reasonable requirements of the insurance
authority or of any insurer now or hereafter in effect relating to the Premises.
If any insurance policy carried by Landlord shall be canceled or cancellation
shall be threatened, or the coverage thereunder reduced or threatened to be
reduced in any way, by reason of the use or occupation of the Premises or any
part thereof by Tenant or by any assignee or sub-tenant of Tenant or by anyone
permitted by Tenant to be upon the Premises, and if Tenant fails to remedy the
condition giving rise to cancellation, threatened cancellation or reduction of
coverage within forty-eight (48) hours after notice thereof, Landlord may, at
its option, either terminate this Lease or enter upon the Premises and attempt
to remedy such condition, and Tenant shall forthwith pay the cost thereof to
Landlord as additional rent. Landlord shall not be liable for any damage or
injury caused to any property of Tenant or of others located in the Premises as
a result of such entry. In the event that Landlord shall be unable to remedy
such condition, then Landlord shall have all of the remedies provided for in
this Lease in the event of a default by Tenant. Notwithstanding the foregoing.
provisions of this Section 13.6, if Tenant fails to remedy as aforesaid, Tenant
shall be in default of its obligation hereunder and Landlord shall have no
obligation to attempt to remedy such default.
13.7 TENANT'S FAILURE TO INSURE. If Tenant fails to maintain any
insurance required by this Lease, Tenant shall be liable for any loss or cost
resulting from the failure. This Section shall not be deemed to be a waiver of
any of Landlord's rights and remedies under any other provision of this Lease.
ARTICLE 14 DAMAGE AND RESTORATION
14.1 DAMAGE/RESTORATION. If any part of the Premises shall be damaged by
fire or other casualty or if any part of the Building shall be damaged by fire
or other casualty and such damage shall affect Tenant's occupancy of the
Premises, Tenant shall give prompt notice thereof to Landlord and Landlord shall
with reasonable diligence repair such damage, and if any part of the Premises
shall be rendered untenantable by reason of such damage (including
untenantability due to lack of access thereto or services therein), the Basic
Rent shall be equitably abated for a period from the date of such damage to the
date when such part of the Premises shall have been made tenantable unless (a)
Landlord shall make available to Tenant, during the period of such repair, other
space in the Building which is reasonably suitable for the temporary conduct of
Tenant's business or (b) such fire or other casualty shall have resulted from
the fault or neglect of Tenant
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or its employees, licensees or invitees. Except for Landlord's willful
misconduct or gross negligence, Landlord shall not be liable for any
inconvenience or annoyance to Tenant or injury to the business of Tenant
resulting in any way from such damage or the undertaking of such repair,
reconstruction or restoration. Landlord shall have no obligation to carry
insurance of any kind on Tenant's goods, furniture or furnishings or on Tenant's
property, and Landlord shall not be obligated to repair any damage thereto or to
replace the same.
14.2 EXCEPTIONS TO OBLIGATION TO REBUILD. Notwithstanding the provisions
of Section 14.1 above, if substantial alteration or reconstruction of the
Building shall be required as a result of damage by fire or other casualty
(whether or not the Premises shall have been damaged by such fire or other
casualty and whether or not such damage is covered by insurance carried by
Landlord), or if the proceeds of available insurance are less than 100% of the
cost of restoration, or if the damage to the Premises or Building is a result of
an uninsured risk, then this Lease and the term and estate hereby granted may be
terminated by Landlord by its giving to Tenant within 90 days after the date of
such damage a notice specifying a date, not less than 30 days after the giving
of such notice, for such termination. In the event of the giving of such notice
of termination, this Lease and the term and estate hereby granted shall cease
and terminate as of the date specified therefor in such notice, and the Basic
Rent payable hereunder shall be prorated as of the date of such damage.
14.3 MUTUAL RELEASE. Upon any termination of this Lease under any of the
provisions of this Article, the parties shall be released thereby without
further obligation to the other from the date possession of the Premises is
surrendered to Landlord, except for items which have theretofore accrued and are
then unpaid.
14.4 DELAY IN RESTORATION. Tenant shall not be released from any of its
obligations under this Lease by reason of fire or other casualty, except to the
extent and upon the conditions expressly stated in this Article. Notwithstanding
anything to the contrary contained in this Article, should Landlord be delayed
or prevented from repairing or restoring the damaged Premises or Building by
reason of acts of God, war, governmental restrictions, inability to procure the
necessary labor or materials, or any other cause beyond the reasonable control
of Landlord, Landlord shall be relieved of its obligation to make such repairs
or restoration for a period equal to such delay or prevention, provided however,
if such delay in restoration exceeds a period of 90 days, Tenant shall have the
option to terminate this Lease, in such event, Landlord shall not be liable to
Tenant for any loss or damage whatsoever and Tenant shall not be liable for any
additional rent.
14.5 EXTENT OF LANDLORD'S OBLIGATION TO REPAIR. It is hereby understood
that if Landlord is obligated to or elects to repair or restore as herein
provided, Landlord shall be obligated to make repairs or restoration only of
those portions of the Building and the Premises which were originally provided
at Landlord's expense, and the repair and restoration of items not provided at
Landlord's expense shall be the obligation of Tenant.
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14.6 LAST YEAR OF TERM. Notwithstanding anything to the contrary
contained in this Article, Landlord shall not have any obligation whatsoever to
repair, reconstruct or restore the Building or tile Premises when the damage
resulting from any casualty covered under this Article occurs during the last 12
months of the term of this Lease or any extension hereof.
14.7 EXPRESS AGREEMENT. This Lease shall be considered an express
agreement governing any case of damage to or destruction of the Building or the
Premises by fire or other casualty, and any law which purports to govern the
rights of Landlord and Tenant in such a contingency in the absence of express
agreement, and any successor or other law of like import, shall have no
application.
ARTICLE 15 CONDEMNATION
15.1 CONDEMNATION. If all or a substantial part of the Premises shall be
taken or appropriated for public or quasi-public use by the right of eminent
domain, with or without litigation or transferred by agreement in connection
with such public or quasi-public use, either party hereto shall have the right
at its option exercisable within 30 days of receipt of notice of such taking to
terminate this Lease as of the date possession is taken by the condemning
authority, provided, however, that before Tenant may terminate this Lease by
reason of taking or appropriation as provided herein above, such taking or
appropriation shall be of such an extent and nature as to economically frustrate
Tenant's business as well as to substantially handicap, impede or impair
Tenant's use of the Premises. If any part of the Building other than. the
Premises shall be taken or appropriated, for public or quasi-public use,
Landlord shall have the right at its option to terminate this Lease. In the
event of a partial taking with respect to which a right of termination of this
Lease does not exist or is not exercised, Basic Rent shall be equitably abated
to the extent Tenant's business is economically impaired. A sale by Landlord
under threat of condemnation shall constitute a "taking" for the purpose of this
Article.
15.2 RESTORATION. In the event of a partial taking which does not result
in a terminations of this Lease, Landlord shall proceed with reasonable
diligence to restore the remaining portion of the Premises (other than Tenant's
property or any of Tenant's goods, furniture or furnishings) as nearly as
practicable to its condition prior to such condemnation or taking. Tenant agrees
that Landlord's obligation to restore is limited by the provisions of Sections
14.4 and 14.5 above.
15.3 AWARD. In the event of any condemnation or taking of all or a part
of the Building, Landlord shall be entitled to receive the entire award in the
condemnation proceeding, including any award made for the value of the estate
vested by this Lease in Tenant, and Tenant hereby assigns to Landlord any and
all right, title and interest of Tenant now or hereafter arising in or to any
such award or any part thereof, and Tenant shall be entitled to receive no part
of such award; provided, however, that nothing shall preclude Tenant from
intervening in any such condemnation proceeding to claim or receive from the
condemning authority any compensation to which Tenant may otherwise lawfully be
entitled in such case with respect only to Tenant's personal property or for
relocation costs.
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15.4 CONDEMNATION FOR A LIMITED PERIOD. Notwithstanding the provisions of
Sections 15.1, 15.2 and 15.3 above, if all or any portion of the Premises shall
be condemned or taken for governmental occupancy for a limited period, Lease,
shall not terminate, there shall be no abatement of Basic Rent or additional
rent payable hereunder, and Tenant shall be entitled to receive the entire award
therefor (whether paid as damages, rent or otherwise) unless the period of
governmental occupancy extends beyond the expiration of this Lease, in which
case Landlord shall be entitled to such part of such award as shall be properly
allocable to the cost of restoration of the Premises, and the balance of such
award shall be apportioned between Landlord and Tenant as of the date of such
expiration. If the termination of such governmental occupancy is prior to
expiration of this Lease, Tenant shall, to the extent an award has been made for
the purpose of restoring the Premises, after application for the diligent
pursuit of such award by Tenant, restore the Premises as nearly as possible to
the condition of the Premises prior to the condemnation or taking.
ARTICLE 16 ASSIGNMENT, SUBLEASE AND ENCUMBRANCE
16.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or by
operation of law assign, license, franchise, transfer, mortgage, hypothecate, or
otherwise encumber all or any part of this Lease or any interest therein, and
shall not sublet, franchise, change ownership or license all or any part of the
Premises, without first obtaining the prior written consent of Landlord thereto,
which consent shall not be unreasonably withheld. Any attempted assignment,
license, franchise, transfer, mortgage, encumbrance, subletting or change of
ownership without such consent being first had and obtained shall be wholly void
and shall confer no rights upon any third parties even if Landlord accepts rent
from the third party. Landlord's consent shall not be deemed unreasonably
withheld if the proposed new tenant is anyone with whom Landlord has negotiated
for a direct lease within the preceding 12 months, anyone with whom Landlord is
negotiating a direct lease at the time of such proposed assignment or sublease,
anyone on Landlord's list of prospective new tenants, or any current or prior
occupant or tenant of the Building; or if in Landlord's opinion the business
operation conducted on the Premises is or may in any way adversely affect the
Building or other tenants during the term of the Lease by such proposed
assignment, license, franchise, transfer, mortgage, encumbrance or subletting;
or the financial worth of a proposed new tenant is less than that of Tenant or
the financial worth of the guarantor of a proposed new tenant is less than that
of the guarantor of Tenant. Furthermore, Landlord hereby reserves the right to
condition Landlord's consent to any assignment or sublease upon Landlord's
receipt from Tenant of a written agreement, in form and substance acceptable to
Landlord, pursuant to which Tenant shall pay over to Landlord all rent or other
consideration received by Tenant from any such subtenant or assignee, either
initially or over the term of the assignment or sublease, in excess of the rent
called for hereunder, or, in case of the sublease of a portion of the Premises,
in excess of such rent allocable to such portion, after appropriate adjustments
to assure that all other payments called for hereunder are taken into account.
Tenant shall indemnify and hold Landlord harmless from and defend Landlord
against any and all claims
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or liability (including, without limitation, the claim of or liability to any
proposed assignee or sublessee or any broker) for Landlord's reasonable refusal
to consent.
16.2 TENANT'S APPLICATION (ASSIGNMENT AND SUBLEASE). In the event that
Tenant desires at any time to assign this Lease or to sublet the Premises or any
portion thereof Tenant shall submit to Landlord at least 60 days prior to the
proposed effective date of the assignment or sublease ("Proposed Effective
Date"), in writing: (a) a request for permission to assign or sublease, setting
forth the Proposed Effective Date, which shall be no less than 60 nor more than
90 days after the sending of such notice; (b) the name of the proposed subtenant
or assignee; (c) the nature of the proposed subtenant's or assignee's business
to be carried on in the Premises (reference is made to Section 17.3 in this
regard); (d) the name of the guarantor, if any, of the proposed subtenant or
assignee; (e) the terms and provisions of the proposed sublease or assignment;
(f) current audited financial statements of the proposed subtenant or assignee
and the guarantor, if any, of the proposed subtenant or assignee, and (g) the
fee for review pursuant to Section 16.4.
16.3 RECAPTURE. If Tenant proposes to assign this Lease, Landlord may, at
its option, exercisable upon written notice to Tenant within 30 days after
Landlord's receipt of the notice from Tenant set forth in Section 16.2 above,
elect to recapture the Premises and terminate this Lease. If Tenant proposes to
sublease all or part of the Premises, Landlord may, at its option exercisable
upon written notice to Tenant, within 30 days after Landlord's receipt of the
notice from Tenant set forth in Section 16.2 above, elect to recapture such
portion of the Premises as Tenant proposes to sublease and, upon such election
by Landlord, this Lease shall terminate as to the portion of the Premises
recaptured. In the event a portion only of the Premises is recaptured the rent
payable under this Lease shall be proportionately adjusted. If Landlord does not
elect to recapture pursuant to this Section 16.3, Tenant may thereafter enter
into a valid assignment or sublease with respect to the Premises, provided
Landlord, pursuant to this Article, consents thereto, and provided further that
(a) such assignment or sublease is executed within 90 days after notification to
Landlord of such proposal, and (b) the rental therefor is not less or greater
than that stated in such notification. Notwithstanding the aforesaid, no
termination of this Lease with respect to the Premises shall become effective
without the prior written consent of the holder of any first deed of trust to
which this Lease is then subject.
16.4 FEES FOR REVIEW. In the event that Tenant shall request to assign,
transfer, mortgage, pledge, hypothecate or encumber this Lease or any interest
therein, or sublet the Premises or any part thereof, Tenant shall pay to
Landlord a non-refundable $250.00 fee for Landlord's time and processing
efforts, and for expenses incurred by Landlord in connection with reviewing such
transaction. In addition to such fee, Tenant shall pay to Landlord in the event
Landlord retains the services of an attorney to review the transaction, all
reasonable attorneys' fees incurred by Landlord in connection therewith but not
less than $250.00. Tenant shall pay such nonreimbursable fee as provided in
Section 16.2 hereof and shall pay such attorneys' fees to Landlord within five
days after written request therefor and such payment shall be a condition to any
approval by Landlord.
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16.5 COLLECTION/NO RELEASE. If this Lease be assigned, or if the Premises
or any part thereof may be sublet or occupied by anybody other than Tenant,
Landlord may collect rent from the assignee, subtenant or occupant and apply the
net amount collected to the Rent herein reserved and retain any excess rent so
collected, but no such assignment, subletting, occupancy or collection shall be
deemed a waiver of Tenant's covenant set forth in the first sentence of Section
16.1 above, nor shall such assignment, subletting, occupancy or collection be
deemed an acceptance by Landlord of the assignee, subtenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. No assignment or subletting
shall affect the continuing primary liability of Tenant hereunder (which,
following assignment, shall be joint and several with the assignee), and Tenant
shall not be released from performing any of the terms, covenants and conditions
of this Lease.
16.6 IMPLIED ASSIGNMENT. If Tenant hereunder is a corporation, a limited
liability company, an unincorporated association or a partnership, the transfer,
merger, assignment or hypothecation of any stock or interest in such
corporation, limited liability company, association or partnership in the
aggregate in excess of 25% shall be deemed an assignment within the meaning and
provisions of this Article; provided however, that a transfer or assignment of
any such stock or interest by a shareholder or member to his spouse, children or
grandchildren is excepted from the foregoing provision.
16.7 DELETED
ARTICLE 17 HAZARDOUS SUBSTANCES
17.1 TENANT'S COVENANTS REGARDING HAZARDOUS SUBSTANCES.
(a) LANDLORD'S CONSENT REQUIRED. Tenant shall not cause or permit any
"Hazardous Substances," as defined below, to be brought upon or kept or used in
or about the Premises or the Building by Tenant, its agents, employees,
contractors, or invitees.
(b) COMPLIANCE WITH ENVIRONMENTAL LAWS. Tenant shall at all times and in
all respects comply with all local, state, and federal laws, ordinances,
regulations and orders (collectively, "Hazardous Substances Laws") relating to
industrial hygiene, environmental protection, or the use, analysis, generation,
manufacture, storage, disposal, or transportation of any Hazardous Substances.
(c) DEFINITION OF HAZARDOUS SUBSTANCES. As used in this Agreement, the
term "Hazardous Substances" means any hazardous or toxic substances, materials
or wastes, including, but not limited to, those substances, materials, and
wastes listed in the United States Department of Transportation Hazardous
Materials Table (49 CFR 172.101) or by the Environmental Protection Agency as
hazardous substances (40 CFR Part 302) and amendments thereto, or such
substances, materials and wastes which are or become regulated under any
applicable local, state or federal law including, without limitation, any
material, waste or substance which is (i) petroleum, (ii) asbestos, (iii)
polychlorinated biphenyls, (iv) defined as a "hazardous waste," under
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Section 19-6-102 of the Utah Code Annotated, Solid and Hazardous Waste Act, or
any rule promulgated thereunder, (v) designated as a "hazardous substance"
pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Section 1251, et seg.
(33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean Water
Act (33 U.S.C. Section 1317), (vi) defined as a "hazardous waste" pursuant to
Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901, et seq. (42 U.S.C. Section 6903), (vii) defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601, et seg. (42 U.S.C.
Section 9601), or (viii) any hazardous air pollutants listed pursuant to Section
112 of the Clean Air Act (42 U.S.C. Section 7412).
17.2 INDEMNIFICATION OF LESSOR. Tenant shall indemnify, defend (by
counsel acceptable to Landlord), protect, and hold harmless Landlord, and each
of Landlord's partners, directors, officers, employees, agents, attorneys,
successors, and assigns, from and against any and all claims, liabilities,
penalties, fines, judgments, forfeitures, losses (including, without limitation,
diminution in the value of the Premises or the Building, damages for the loss or
restriction on use of rentable or usable space or of any amenity of the Premises
or the Building, costs or expenses (including attorneys' fees, consultant fees,
and expert fees) for the death of or injury to any person or damage to any
property whatsoever, arising from or caused in whole or in part, directly or
indirectly, (a) by the presence in, on, under, or about the Premises, or any
discharge or release in or from the Premises of any Hazardous Substances or
Tenant's use, analysis, storage, transportation, disposal release, threatened
release, discharge, or generation of Hazardous Substances to, in, on, under,
about, or from the Premises or the Building, or (b) Tenant's failure to comply
with any Hazardous Substances Law. Tenant's obligations under this Section 17.2
shall include, without Limitation, and whether foreseeable or unforeseeable, any
and all costs incurred in connection with any investigation of site conditions,
and any and all costs of any required or necessary repair, cleanup,
detoxification, or decontamination of the Premises or The Building, and the
preparation and implementation of any closure, remedial action, or other
required plans in connection therewith. Tenant's obligations under this Section
17.2 shall survive the expiration or earlier termination of the term of the
Lease. For purposes of the release and indemnity provisions hereof any acts or
omissions of Tenant, or by employees, agents, assignees, contractors, or
subcontractors of Tenant or others acting for or on behalf of Tenant (whether or
not they are negligent, intentional, willful or unlawful), shall be strictly
attributable to Tenant.
17.3 WITHHOLDING CONSENT TO PROPOSED TRANSFEREES. Tenant acknowledges and
agrees that it shall not be unreasonable for Landlord to withhold its consent to
any proposed assignment, subletting or transfer of Tenant's interest in this
Lease if (a) the anticipated use of the Premise by the proposed assignee,
subtenant, or transferee (collectively, a "Transferee") involves the generation,
storage, use, treatment, or disposal of Hazardous Substances; (b) the proposed
Transferee has been required by any prior lessor, lender, or governmental
authority to make remedial action in connection with Hazardous Substances
contaminating a property, if the contamination resulted from such Transferee's
actions or use of the property in question; or (c) the proposed Transferee is
subject to au enforcement order issued by any governmental authority in
connection with the use, disposal or storage of a Hazardous Substance.
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ARTICLE 18 DEFAULTS
18.1 DEFAULT BY TENANT. The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant:
(a) FAILURE TO PAY RENT. Any failure by Tenant to pay Rent or to make
any other payments required to be made by Tenant hereunder where such failure
continues for five days after such payment is due and payable.
(b) ABANDONMENT. The abandonment as defined by Utah law or vacation of
the Premises by Tenant.
(c) NON-PERFORMANCE of Other Covenants. A failure by Tenant to observe
and perform any other provision of this Lease to be observed or performed by
Tenant, where such failure continues for 30 days after written notice thereof by
Landlord to Tenant; provided however, that if the nature of such default is such
that the same cannot reasonably be cured within such 30 day period Tenant shall
not be deemed to be in default if Tenant shall within such period commence such
cure and thereafter diligently prosecute the same to completion.
(d) INSOLVENCY, BANKRUPTCY OR ASSIGNMENT. The failure by Tenant or by
any guarantor of this Lease to generally pay its debts when due or the admission
in writing of inability to pay debts by such a party; the making by Tenant or by
any guarantor of this Lease of any general assignment for the benefit of
creditors; the filing by or against Tenant or by or against any guarantor of
this Lease of a petition to have Tenant or any guarantor of this Lease
liquidated or of a petition for reorganization or arrangement under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors (unless
in the case of a petition filed against Tenant or any guarantor of this Lease,
the same is dismissed within 60 days; the appointment of a trustee or receiver
to take possession of substantially all of Tenant's assets or all of the assets
of such guarantor of this Lease located at the Premises or of Tenant's interest
in this Lease where possession is not restored to Tenant within 30 days; or the
attachment, execution or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease, where such
seizure is not discharged within 30 days.
18.2 RECOVERY FROM TENANT ON TERMINATION. In the event of any such
default by Tenant, then in addition to any other remedies available to Landlord
at law or in equity, Landlord shall have the immediate option to terminate this
Lease and all rights of Tenant hereunder by giving written notice of such
intention to terminate. In the event that Landlord shall elect to so terminate
this Lease, then Landlord may recover from Tenant:
(a) PAST RENT. The worth at the time of award of any unpaid Rent or
other charges which had been earned at the time of such termination; plus
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(b) RENT PRIOR TO AWARD. The worth at the time of award of the amount by
which the unpaid Rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss Tenant proves could have
been reasonably avoided; plus
(c) DELETE
(d) PROXIMATELY CAUSED DAMAGES. Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or which in the ordinary course would be likely
to result therefrom; and
(e) ADDITIONAL DAMAGES. At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
18.3 WORTH AT TIME OF AWARD. As used in Sections 18.2(a) and (b) above,
the "worth at the time of award" is computed by allowing interest at a rate per
annum equal to the "Reference Rate" plus two percent (2%), but not to exceed the
maximum rate of interest allowed by law. As used herein, "Reference Rate" shall
be the highest prime or base lending rate for determining interest on unsecured
commercial loans as published in the Wall Street Journal Money Rates Section
from time to time, with changes in the Reference Rate to be effective on the
date of publication. If the Wall Street Journal fails to publish a comparable
rate, Landlord may substitute a comparable Reference Rate announced by a major
bank in the city where the Property is located.
18.4 RIGHT OF RE-ENTRY ON DEFAULT. In the event of any such default by
Tenant, Landlord shall also have the right, with or without terminating this
Lease, to re-enter the Premises and remove all personal property from the
Premises; such property may be removed and stored in a public warehouse or
elsewhere at the cost of and for the account of Tenant.
18.5 VACATION OR ABANDONMENT. In the event of the vacation or abandonment
of the Premises by Tenant or in the event that Landlord shall elect to re-enter
as provided above or shall take possession of the Premises pursuant to legal
proceedings or pursuant to any notice provided by law, then if Landlord does not
elect to terminate this Lease as provided above, Landlord may from time to time,
without terminating this Lease, either recover all Rent as it becomes due or
relet the Premises or any part thereof for such term and upon such terms and
conditions as Landlord in its sole discretion may deem advisable, Landlord
hereby reserving the right in such instances to make alterations and repairs to
the Premises.
18.6 LANDLORD'S RIGHT TO RELET. In the event that Landlord shall elect to
so relet, then any rent received by Landlord from such reletting shall be
applied: first, to the payment of any indebtedness other than Rent due hereunder
from Tenant to Landlord; second, to the payment of any cost of such reletting;
third, to the payment of the cost of any alterations and repairs to the
Premises; fourth, to the payment of Rent due and unpaid hereunder; and the
residue, if any, shall be held by Landlord and applied in payment of future Rent
as the same may become due and payable hereunder. Should that portion of such
rent received from such reletting during any month
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which is applied to the payment of Rent hereunder be less than the Rent payable
during that month by Tenant hereunder, then Tenant shall pay such deficiency to
Landlord immediately upon demand therefor by Landlord. Such deficiency shall be
calculated and paid monthly. Tenant shall also pay to Landlord, as soon as
ascertained, any costs and expenses incurred by Landlord in such reletting or in
making such alterations and repairs not covered by the rent received from such
reletting.
18.7 ELECTION TO TERMINATE LEASE. No reentry into or taking of possession
of the Premises by Landlord pursuant to this Article shall be construed as an
election to terminate this Lease unless a written notice of such intention be
given to Tenant. Notwithstanding any reletting without termination by Landlord
because of any default by Tenant, Landlord may at any time after such reletting
elect to terminate this Lease for any such default.
18.8 DEFAULT BY LANDLORD. In the event of any breach, default or
noncompliance hereunder by Landlord, Tenant shall, before exercising any right
or remedy provided herein or by law, give Landlord written notice of the claimed
breach, default or noncompliance and if prior to its giving such notice to the
Landlord, Tenant has been notified in writing (by way of any notice of
assignment of rents and leases, or otherwise) of the address of the holder of
any mortgage, trust deed or other security agreement then affecting Landlord's
interest in the Building, concurrently with giving the aforesaid notice to
Landlord, Tenant shall, by registered mail, transmit a copy thereof to such
holder. For the 30 days following the giving of the notice(s) required by the
foregoing portion of this section (or such longer period of time as may be
reasonably required to cure a matter which, due to its nature, cannot reasonably
be rectified within 30 days), Landlord shall have the right to cure the breach,
default, or noncompliance involved. If Landlord has failed to cure a default on
its part within that period, the aforesaid holder shall have an additional 30
days within which to cure the same or, if such default cannot be cured within
that period, such additional time as may be necessary if within such 30 day
period the holder has commenced and is diligently pursuing the actions or
remedies necessary to cure the breach, default, or noncompliance involved
(including but not limited to commencement and prosecution of proceedings to
foreclose the mortgage, hold a trustee's sale or otherwise, if necessary to
effect such cure), in which event this Lease may not be terminated by Tenant
while such actions or remedies are being diligently pursued by the holder. If,
at the expiration of the applicable period(s) provided for in this Paragraph,
such default, breach or noncompliance has not been cured, Tenant may exercise
any available right or remedy. Nothing contained in this Section 18.8 shall be
deemed to impose any obligation on any lender to correct or cure any condition.
ARTICLE 19 SUBORDINATION
19.1 SUBORDINATION AND ATTORNMENT. Tenant's interest under this Lease is
and shall be subordinate at all times to the lien of any lender holding a first
or second lien secured by the Property, whether now existing or hereafter
created. Tenant covenants and agrees that it will promptly execute without
further consideration any and all instruments desired by Landlord or Landlord's
mortgagee subordinating this Lease in the manner requested by Landlord to all
ground or underlying leases and to the lien of any mortgage and/or any deed of
trust or other encumbrance
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which may now or hereafter affect the Premises, together with all renewals,
modifications, consolidations, replacements or extensions thereof; provided that
any lienor or encumbrancer relying on the subordination reflected in this Lease
or in such additional agreements will covenant with Tenant that this Lease shall
remain in full force and effect, and Tenant shall not be disturbed in the event
of sale, foreclose or other actions so long as Tenant is not in default
hereunder; and provided further that in the event any provision of this Lease
conflicts with any provision of any document executed by Landlord in connection
with any loan, the provisions of such loan documents shall supersede the
provisions of this Lease. Tenant agrees to attorn to the successor in interest
of Landlord following any transfer of such interest either voluntarily or by
operation of law and to recognize such successor as Landlord under this Lease.
However, if Landlord or any such mortgagee so elects, this Lease shall be deemed
prior in lien to any mortgage, deed of trust or other encumbrance upon or
including the Premises regardless of date of recording and Tenant will execute a
statement in writing to such effect at Landlord's request.
19.2 ASSIGNMENT. Notwithstanding the provisions of Section 21.16 below,
in the event that any mortgagee or its respective successor in title shall
succeed to the interest of Landlord hereunder, the liability of such mortgagee
or successor shall exist only so long as it is the owner of the Building or any
interest therein, or is the tenant under any ground or underlying lease referred
to in Section 19.1 above. No Basic Rent, additional rent or any other charge
shall be paid more than ten days prior to the due date thereof (except the
payment for the first full month's Basic Rent) and payments made in violation of
this provision shall (except to the extent that such payments are actually
received by a mortgagee) be a nullity as against any mortgagee and Tenant shall
be liable for the amount of such payments to such mortgagee.
ARTICLE 20 BANKRUPTCY OR INSOLVENCY
In the event that the Tenant shall become a debtor under any chapter of
the U. S. Bankruptcy Code, all rights and duties relating to this Lease shall be
governed by the provisions of 11 U.S.C. Sec. 365, or any successor thereto, and
Landlord and Tenant shall be entitled to all rights and subject to all
obligations therein set forth.
ARTICLE 21 MISCELLANEOUS
21.1 DELAY IN OR FAILURE TO ENFORCE. No delay or omission in the exercise
of any right or remedy of Landlord on any default by Tenant shall impair such
right or remedy or be construed as a waiver.
21.2 WAIVER IN WRITING. Any waiver by Landlord of any default must be in
writing. One or more waivers by Landlord of a breach by Tenant of any covenant,
term or condition of this Lease shall not be construed as a waiver by Landlord
of a subsequent breach by Tenant of the same covenant, term or condition. The
consent or approval of Landlord to or of any act by Tenant
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of a nature requiring consent or approval shall not be deemed to waive or render
unnecessary consent to or approval of any subsequent similar act.
21.3 NOTICES. Whenever any notice, approval, consent, request or election
is given or made pursuant to this Lease, it shall be in writing. Communications
and payments shall be addressed if to Landlord at Landlord's Notice Address as
set forth in the Fundamental Lease Provisions, or at such other address as may
have been specified by prior notice to Tenant, and if to Tenant, at Tenant's
Notice Address as set forth in the Fundamental Lease Provisions, or at such
other place as may have been specified by prior notice to Landlord, or at the
Premises. Any communication so addressed shall be deemed duly served if
personally delivered or if mailed by registered or certified mail, return
receipt requested. If Landlord by notice to Tenant at any time designates some
other person to receive payments or notices, all payments or notices thereafter
by Tenant shall be paid or given to the agent designated until notice to the
contrary is received by Tenant from Landlord.
21.4 TITLES. The titles of the Articles and Sections are for convenience
only and are not to be considered in construing the provisions of this Lease.
21.5 NO PARTNERSHIP. Nothing herein contained, either in the method of
computing rent or otherwise, shall create between the parties hereto, or be
relied upon by others as creating, any relationship of partnership, association,
joint venture, or otherwise. The sole relationship of the parties hereto shall
be that of Landlord and Tenant.
21.6 GOVERNING LAW. The laws of the State in which this property is
located shall govern the validity, performance and enforcement of this Lease.
21.7 ATTORNEYS FEES. In the event that at any time during the term of
this Lease either Landlord or Tenant shall institute any action or proceedings
against the other relating to the provisions of this Lease, or any default
thereunder, then and in that event, the unsuccessful party in such action or
proceeding agrees to reimburse the prevailing party therein for the reasonable
expense of attorneys' fees and disbursements incurred therein by the prevailing
party. In the event that at any time during the term of this Lease, Landlord
consults with an attorney with respect to a delinquency or non-performance of
Tenant or serves Tenant with a notice to pay (or perform) or quit and Tenant
subsequently cures, or is permitted by Landlord to cure, such delinquency or
non-performance, Tenant shall pay to Landlord all of Landlord's reasonable
service of process fees, filing fees (for any civil action) and reasonable
attorneys' fees.
21.8 MEANING OF "TENANT". The word "Tenant" shall be deemed and taken to
mean each and every person or party mentioned as a tenant herein, be the same
one or more; and if there shall be more than one tenant, any notice required or
permitted by the terms of this Lease may be given by or to any one thereof, and
shall have the same force and effect as if given by or to all thereof. The use
of the neuter singular pronoun to refer to Tenant shall be deemed a proper
reference even though Tenant may be an individual, a partnership, a corporation
or a group of two or more individuals or corporations. The necessary grammatical
changes required to make the
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provisions of this Lease apply in the plural sense where there is more than one
Tenant and to either corporations, associations, partnerships or individuals,
males or females, shall in all instances be assumed as though in each case fully
expressed.
21.9 EXCLUSIVE AGREEMENT. It is understood that there are no oral
agreements or representations between the parties hereto affecting this Lease,
and this Lease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements, or representations and understandings, if
any, between the parties hereto or displayed by Landlord to Tenant with respect
to the subject matter thereof, and none thereof shall be used to interpret or
construe this Lease. There are no representations or warranties between the
parties except as expressly set forth in this Lease, an all reliance with
respect to same is solely upon the representations and agreements contained in
this Lease.
21.10 SEVERABILITY. If any of the provisions of this Lease shall be
determined to be void by any court of competent jurisdiction, then such
determination shall not affect any other provisions of this Lease and all such
other provisions shall remain in full force and effect; and it is the intention
of the parties hereto that if any provision of this Lease is capable of two
constructions, one of which would render the provision void and the other of
which would render the provision valid, then the provision shall have the
meaning which renders it valid.
21.11 FORCE MAJEURE. Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes therefor, governmental restrictions, governmental
regulations, governmental controls, enemy or hostile governmental action, civil
commotion, and other similar causes beyond the reasonable control of the party
obligated to perform, shall excuse the performance by such party for a period
equal to any such prevention, delay or stoppage, except the obligations imposed
with regard to Rent and other charges to be paid by Tenant pursuant to this
Lease.
21.12 WRITTEN AMENDMENTS. This Lease shall not be modified or amended in
any respect except by written agreement executed by Landlord and Tenant.
21.13 GUARANTEE. In the event that this Lease shall have been guaranteed,
any such guarantee shall be deemed a material part of the consideration for
Landlord's execution of this Lease. In the event the Guarantor under any such
guarantee is or becomes bankrupt or insolvent, makes an assignment for the
benefit of creditors, or institutes or is the subject of any proceeding under
the Bankruptcy Act or other similar law for the protection of creditors (or, if
the Guarantor is a partnership or consists of more than one person or entity, if
any partner of the partnership or other such person or entity is or becomes
bankrupt or insolvent, institutes any such proceeding, or makes an assignment
for the benefit of creditors), then Landlord shall have the option to terminate
this Lease upon 30 days' written notice unless Tenant, within such 30 day
period, provides Landlord with either (a) a substitute or additional guarantor
satisfactory to Landlord and Landlord's lender, or (b) adequate assurance of the
performance of each and every obligation of Tenant hereunder, satisfactory to
Landlord and Landlord's lender.
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21.14 LENDER APPROVAL. Tenant acknowledges and agrees that this Lease may
be subject to the approval of Landlord's lender, and Tenant hereby agrees to
cooperate with Landlord's lender, and Tenant hereby agrees to make such
modifications of this Lease as shall be reasonably requested by Landlord's
lender.
21.15 RECORDATION. Tenant agrees not to record this Lease, a short form
memorandum of this Lease or any other document evidencing this Lease, but upon
the expiration of the term or if this Lease is terminated before the term of
this Lease expires, the parties agree that, upon the request of either party, a
recordable instrument acknowledging the date of termination shall be executed by
the parties and recorded.
21.16 BINDING EFFECT. The obligations of this Lease shall run with the
land, and this Lease shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that only the
original Landlord named herein shall be liable for obligations accruing before
the beginning of the Term, and thereafter the original Landlord named herein and
each successive owner of the Premises shall be liable only for obligations
accruing during the period of its ownership.
21.17 BROKER. Landlord's Broker identified as a Fundamental Lease Term has
entered into an agreement to represent Landlord and Landlord shall be
responsible to pay any commissions due to Landlord's Broker. Tenant shall hold
Landlord harmless from all damages (including attorneys' fees and costs)
resulting from any claims that may be asserted against Landlord by any broker,
finder, or other person with whom Tenant has or purportedly has dealt, except
Landlord's Broker.
21.18 INTEREST. Except as expressly provided herein, any amount due to
Landlord not paid when due shall bear interest at the "Reference Rate" as
defined in Section 18.3 plus two percent (2%) per annum, from the due date, but
not to exceed the maximum rate of interest allowed by law. Payment of such
interest shall not excuse or cure any default by Tenant under this Lease.
21.19 TIME OF ESSENCE. Time is of the essence of this Lease and each and
every provision hereof. All the terms, covenants and conditions contained in
this Lease to be performed by either party, if such party shall consist of more
than one person or organization, shall be deemed to be joint and several, and
all rights and remedies of the parties shall be cumulative and non-exclusive of
any other remedy at law or in equity.
21.20 CORPORATE RESOLUTION. If Tenant is a corporation, Tenant shall, upon
execution of this Lease, deliver to Landlord a certified copy of a resolution of
the Board of Directors of the corporation authorizing or ratifying the execution
of this Lease.
21.21 CONDOMINIUM. Tenant acknowledges that Landlord reserves the right to
record a declaration and a record of survey map for office condominiums in the
Building, that the Building may be subjected to such a declaration and map at
any time, and that fee title to one or more units as shown on such map may be
sold from time to time. Tenant hereby agrees that upon notice from
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Landlord, Tenant shall execute without further consideration any and all
instruments desired by Landlord in connection with the creation, sale or
financing of office condominiums in -the Building.
21.22 OPTION.
(a) Landlord covenants with Tenant that Landlord shall, at Tenant's
option, grant and lease to Tenant at the expiration of the Lease Term, the
Premises pursuant to the provisions of the Lease for and during the term of two
(2) years thereafter, on the same general terms and conditions, except as to
monthly base rentals, which base rentals shall be determined by negotiation
between the parties. Notwithstanding any other provisions of this Lease, if the
parties cannot agree on the base rentals for an extended renewal term, this
Lease shall terminate as provided herein.
(b) To exercise the option hereunder, Tenant must give Landlord written
notice of its desire to extend the Lease an additional term at least sixty (60)
days prior to the end of the then Lease Term. Failure to timely exercise the
option shall revoke and terminate any right to exercise the option.
(c) The parties shall have thirty (30) days after the Landlord receives
the option notice in which to agree on the base rentals terms during the
extended or renewal term. If the parties agree during that period, they shall
immediately execute an amendment to this Lease stating such terms.
(d) If the parties are unable to agree on the terms within the specified
period, the option notice shall be of no effect and this Lease shall expire at
the end of its term. Neither parry to this Lease shall have the right to have a
court or other third party set the base rentals or the terms of the personal
guarantee.
21.23 Tenant agrees not to sub-lease any space to title insurance
companies during the term of this Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date and year first above written.
LANDLORD: BANK OF AMERICAN FORK
By: /s/ PRESIDENT
----------------------------------
Its: President
------------------------------
TENANT: VOXEL INC.
By: /s/ PRESIDENT
----------------------------------
Its: President
------------------------------
(If Tenant is a CORPORATION, the authorized officers must sign on behalf of the
corporation and indicate the capacity in which they are signing, This Office
Lease must be executed by the president or vice-president and the secretary or
assistant secretary unless the bylaws or a resolution
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of the board of directors shall otherwise provide, in which event the bylaws or
a certified copy of the resolution, as the case may be, must be attached hereto.
Also, the appropriate corporate seal must be affixed.)
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EXHIBIT D
BANK OF AMERICAN FORK
1280 South 800 East
Orem, Utah 84058
ACCEPTANCE AND STATEMENT OF PREMISES, AREA AND TERM
The undersigned, VOXEL, INC., Tenant under that certain OFFICE Lease for Bank of
American Fork Building, 1280 South 800 East, Orem, Utah, dated April 13, 1999,
hereby certifies to Landlord and any mortgage holder, and hereby agrees with
Landlord to the following:
1. Premises. The Premises consists of the area shown on the attached as
built floor plan.
2. The Rentable Area. The Rentable Area for the Premises is 8,316
square feet.
3. Commencement Date. The Commencement Date for purposes of the Lease
is May 1, 1999.
4. End of Lease Term. The parties agree that the initial term of this
Lease (subject to any exercised options to renew) shall terminate on April 30,
2000.
5. Acceptance of Premises. Tenant has inspected the Premises and all
Tenant Improvements constructed therein and certifies that, premises are
acceptable. Tenant further acknowledges that Landlord has tendered possession of
the Premises in accordance with the provisions of the Lease.
6. No Default. Tenant hereby certifies that as of the date of this
Acceptance, neither Landlord or Tenant are in default under any obligations
under the Lease.
Landlord: Bank of American Fork
By: /s/ President
-------------------------------
Its: President
------------------------------
Tenant: VOXEL, INC.
By: /s/ President
-------------------------------
Its: President
------------------------------
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EXHIBIT E
BANK OF AMERICAN FORK
1280 South 800 East
Orem, Utah 84058
RULES AND REGULATIONS
(1) No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Building or the Premises or to the inside of any exterior window or glass
wall, without the written consent of Landlord first had and obtained which
consent shall not be unreasonably withheld and Landlord shall have the right to
remove any such sign, placard, picture, advertisement, name or notice without
notice to and at the expense of Tenant. All approved signs or lettering on doors
shall be printed, painted, affixed or inscribed at the expense of Tenant by a
person approved by Landlord.
(2) The directory of the Building will be provided exclusively for the
display of the name and location of tenants and tenants subtenants only and
Landlord reserves the right to exclude any other names therefrom.
(3) The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress to and egress from their respective Premises. The
halls, passages, exits, entrances, elevators, stairways, balconies and roof are
not for the use of the general public and the Landlord shall in all cases retain
the right to control and prevent access thereto by all persons whose presence in
the judgment of the Landlord shall be prejudicial to the safety, character,
reputation and interests of the Building and its tenants, provided that nothing
herein contained shall be construed to prevent such access to persons with whom
the Tenant normally deals in the ordinary course of Tenant's business unless
such persons are engaged in illegal activities or activities which disturb the
quiet enjoyment of the other tenants. No Tenant, employee, invitees, contractor
or agent of any tenant shall go upon the roof of the Building.
(4) Except for the installation of locks on the doors of offices and
suites which are sub-leased by Tenant in the ordinary course of business, Tenant
shall not alter any lock or install any new or additional locks or any bolts on
any door of the Premises without the prior written consent of Landlord, which
consent shall not be unreasonably withheld.
(5) The toilet rooms, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage
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resulting from the violation of this rule shall be borne by the Tenant who, or
whose employees, invitees, contractors or agents shall have caused it.
(6) Tenant shall not overload the floor of the Premises or in any way
deface the Premises or any part thereof. No boring, cutting or stringing wires
shall be permitted except with the prior written consent of the Landlord and as
Landlord may direct. No tenant shall lay linoleum, tile, carpet or other similar
floor covering so that the same shall be affixed to the floor of the Premises in
any manner except as approved by Landlord. The expense of repairing any damage
resulting from a violation of this rule or removal of any floor covering shall
be borne by the tenant by whom or by whose contractors, employees or invitees
the damage shall have been caused.
(7) No furniture, freight or equipment of any kind shall be brought into
the Building without the consent of Landlord and all moving of the same into or
out of the Building shall be done at such time and in such manner as Landlord
shall designate. Landlord shall have the right to prescribe the weight, size and
position of all safes and other heavy equipment brought into the Building and
also the times and manner of moving the same in and out of the Building Safes
and other heavy objects shall, if considered necessary by Landlord, stand on
wood strips of such thickness as is necessary to properly distribute the weight.
Landlord will not be responsible for loss of or damage to any such safe or
property from any cause and all damage done to the Building by moving or
maintaining any such safe or other property shall be repaired at the expense of
Tenant. There shall not be used in any space, or in the public halls of the
Building, either by any tenant or others, any hand trucks except those equipped
with rubber tires and side guards. Landlord shall, however, cooperate with
Tenant with respect to the moving by and out of sub-tenants of Tenant in the
ordinary course of Tenant's business.
(8) Except with the written consent of Landlord, no person or persons
other than those approved by Landlord shall be permitted to enter the Building
for the purpose of cleaning the same. Tenant shall not cause any unnecessary
labor by reason of tenant's carelessness or indifference in the preservation of
good order and cleanliness. Landlord shall in no way be responsible to any
Tenant for any loss of property on the Premises, however occurring, or for any
damage done to the effects of any Tenant by the janitor or any other employee or
any other person. Janitor service shall include ordinary dusting and cleaning
and shall not include moving of furniture and other special services. Janitor
service will not be furnished on nights when rooms are occupied after 7:30 P.M.
Window cleaning shall be done only by Landlord, at such times as Landlord may
determine.
(9) Tenant shall not use, keep or permit to be used or kept any food or
noxious gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Landlord or other
occupants of the Building by reason of noise, odors and/or vibrations or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building. No Tenant shall make or permit to be made any unseemly or disturbing
noises or disturb or interfere with occupants of this or neighboring buildings
or Premises or those
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having business with them whether by the use of any musical instrument, radio,
phonograph, unusual noise, or in any other way. No tenant shall throw anything
out of doors or down the passageways.
(10) The Premises shall not be used for manufacturing or for the storage
of merchandise except as such storage may be incidental to the use of the
Premises for general office purposes. No tenant shall occupy or permit any
portion of his Premises to be occupied for the manufacture or sale of liquor,
narcotics, or tobacco in any form, or as a medical office, or as a barber shop
or manicure shop. No tenant shall advertise for laborers giving an address at
the Premises. The Premises shall not be used for any illegal purposes.
(11) Tenant agrees that it shall comply with all fire security
regulations that may be issued from time to time by Landlord and if requested,
Tenant also shall provide Landlord with the name of a designated responsible
employee to represent Tenant in all matters pertaining to such fire or security
regulations. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or use any
method of heating or air conditioning other than that supplied by Landlord.
(12) Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of Landlord. The location of telephones, call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
(13) All keys to offices, rooms and toilet rooms shall be obtained from
Landlord's Building Management Office. The Tenant upon termination of the
tenancy, shall deliver to Landlord the keys of the offices, rooms and toilet
rooms which shall have been furnished, shall pay the Landlord the cost of
replacing same or of changing the lock or locks opened by such lost key if
Landlord deems it necessary to make such change.
(14) No furniture, packages, supplies, equipment or merchandise will be
received in the Building or carried up or down in the elevators, except between
such hours and in such elevators as shall be designated by Landlord. Such hours
shall reasonably accommodate Tenant's and sub-tenant's needs in this regard.
(15) On Saturdays, Sundays, legal holidays and other days between the
hours of 6:00 P.M. and 7:00 A.M., access to the Building, or to the halls,
corridors, elevators or stairways in the Building, or to the Premises may be
refused unless the person seeking access is known to the employee of the
Building in charge and has a pass or is properly identified. The Landlord shall
in no case be liable for damages for any error with regard to the admission to
or exclusion from the Building of any person. In case of invasion, mob, riot,
public excitement, or other commotion, the Landlord reserves the right to
prevent access to the Building during the continuance of same by closing the
doors or otherwise, for the safety of the tenants and protection of property in
the Building and the Building. Landlord reserves the right to close and keep
locked all entrance and exit doors of the Building on Saturdays, Sundays, legal
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holidays and on other days between the hours of 6:00 P.M. and 7:00 A.M., and
during such further hours as Landlord may deem advisable for the adequate
protection of said Building and the Property in the Building of its tenants.
(16) Landlord shall furnish heating, ventilation and, when necessary in
Landlord's judgment, air conditioning during the hours of 7:00 A.M. to 6:00 P.M.
Monday through Friday, except for holidays. In the event Tenant requires
lighting, electrical energy, heating and/or air conditioning during off-hours,
Saturdays, Sundays or holidays, Tenant shall pay for services at such rate as
may be required by Landlord, in Landlord's sole discretion. Landlord intends to
establish an hourly rate with a minimum number of hours for after hours HVAC use
by Tenant and to adjust the rate from time to time to reflect increased energy
costs and other costs of providing such services including depreciation.
(17) Tenant shall see that the doors of the Premises are closed and
securely locked before leaving the Building and must observe strict care and
caution that all water faucets or water apparatus are entirely shut off before
Tenant or Tenant's employees leave the building, and that all electricity shall
likewise be carefully shut off, so as to prevent waste or damage, and I for any
default or carelessness Tenant shall make good all inquiries sustained by other
tenants or occupants of the Building.
(18) Tenant shall not disturb or canvass any occupant of the Building nor
shall Tenant solicit in the Building and Tenant shall cooperate to prevent any
such disturbance, canvassing and/or solicitation. Landlord reserves the right to
exclude or expel from the Building any person who, in the judgment of Landlord,
is intoxicated or under the influence of liquor or drugs, or shall in any manner
do any act in violation of any of the Rules and Regulations of the Building.
(19) The requirements of Tenant will be attended to only upon application
at the Management Office of the Building. Employees or Agents of Landlord shall
not perform any work or do anything outside their regular duties unless under
special instructions from the Landlord, and no employee shall admit any person
(Tenant or otherwise) to any office without specific instructions from the
Landlord.
(20) Landlord reserves the right by written notice to Tenant, to rescind,
alter or waive any rule or regulation at any time prescribed for the Building
when, in Landlord's judgment, it is necessary, desirable or proper for the best
interest of the Building and its tenants.
44
<PAGE> 43
EXHIBIT F
BANK OF AMERICAN FORK
1280 South 800 East
Orem, Utah 84058
DEPOSIT TO SECURE LEASE
WHEREAS, a certain lease (the "Lease") of even date herewith has been,
or will be, executed by and between Bank of American Fork (therein and herein
referred to as "Landlord"), and VOXEL, INC., (therein and herein referred to as
"Tenant"), covering certain "Premises" in the City of Orem, County of Utah,
State of Utah; and
WHEREAS, the Landlord under the Lease requires as a condition to its
execution of the Lease that the undersigned deposit $60,000.00 with Bank of
American Fork and pledge said deposit as collateral for the performance of lease
payments. Interest on said deposits to accrue to the account of Tenant.
NOW THEREFORE in consideration of the execution of the Lease by Landlord,
the Tenant hereby agrees to execute the Pledge Agreement, a copy of which is
attached hereto as Exhibit F1.
TENANT: VOXEL, INC.
By: /s/ President
-----------------------------------
Its: President
----------------------------------
45
<PAGE> 44
OFFICER'S CERTIFICATE
The undersigned duly appointed officer of Voxel, Inc., a Delaware
corporation (the "Company") does hereby certify as follows:
1. As an officer of the Company, the undersigned is familiar with the
business and operations of the Company, has access to the Company's corporate
records, and is familiar with the matters covered by this Certificate.
2. The Company is a corporation duly organized, validly existing, and
in good standing as a corporation under the laws of the State of Delaware.
3. The following resolution has been adopted by the Company's Board of
Directors in accordance with the Company's Certificate of Incorporation and
Bylaws, remains in full force and effect as of the date of this Certificate, and
has not been amended or repealed:
RESOLVED: The President of the Corporation is hereby
authorized and empowered to execute on behalf of the Corporation any
and ail agreements, leases, and other instruments or documents
necessary or desirable for the conduct of the day-to-day business of
the Corporation in the ordinary course of its business. The Board
shall set policy as to the expenditure of all funds of the
Corporation.
4. Pursuant to the resolution set out above, the undersigned officer of
the Company is authorized to enter into the lease covering offices located at
1282 S. 800 E., Orem, Utah. The execution and delivery of the lease and the
performance by the Company of its obligations thereunder will not violate any
provision of the Certificate of Incorporation or Bylaws of the Company and will
not, to the best knowledge of the undersigned officer, violate or be in conflict
with any applicable law.
In witness of the foregoing, I have signed this Certificate on this
27th day of April, 1999.
/s/ JOHN W. WRIGHT, PRESIDENT
----------------------------------
John W. Wright, President
<PAGE> 1
EXHIBIT 10.21
CALDERA SYSTEMS, INC.
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made as of December 30,
1999, between Caldera Systems, Inc., a Utah corporation (the "Company"), each of
the holders of Series A Preferred Stock (as defined below), and each of the
holders of Series B Preferred Stock (as defined below). Such holders are
sometimes referred to herein individually as a "Stockholder" and collectively as
the "Stockholders". Certain capitalized terms used herein are defined in Section
4 hereof.
The Company and the Stockholders desire to enter into this Agreement
for the purposes, among others, of establishing the composition of the Company's
Board of Directors (the "Board"). The execution and delivery of this Agreement
is a condition to the purchase of Series B Preferred Stock by certain
Stockholders pursuant to a purchase agreement dated as of the date hereof (the
"Series B Purchase Agreement").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. BOARD OF DIRECTORS.
(a) From and after the date hereof and until the earlier of
(x) the six month anniversary of the date of this Agreement if the Company has
not completed a Qualified Public Offering (as defined in Section 4) by such date
or (y) when the provisions of this Section 1 cease to be effective, each holder
of Stockholder Shares shall vote all of its Stockholder Shares which are voting
shares and any other voting securities of the Company over which such holder has
voting control and shall take all other reasonably necessary or desirable
actions within its control (whether in its capacity as a stockholder, director,
member of a board committee or officer of the Company or otherwise, and
including, without limitation, attendance at meetings in person or by proxy for
purposes of obtaining a quorum and execution of written consents in lieu of
meetings), and the Company shall take all reasonably necessary or desirable
actions within its control (including, without limitation, calling special board
and stockholder meetings), so that:
(i) the authorized number of directors on the Board shall be
established at nine (9) directors;
(ii) the following individuals shall be elected to the Board:
(A) two (2) representatives designated by the Series
A Preferred Stockholders, determined by a vote of the holders
of a majority of the Stockholder
1
<PAGE> 2
Shares held by all such Series A Preferred Stockholders (the
"Series A Directors"), which shall initially be Ray Noorda and
Ralph Yarro III;
(B) one (1) representative designated by Citrix
Systems, Inc. (the "Citrix Director"), which shall initially
be Edward Iacobucci;
(C) one (1) representative designated by Egan
Managed-Capital, L.P. (the "Egan Managed-Capital Director"),
which shall initially be John R. Egan;
(D) one (1) representative designated by Novell, Inc.
(the "Novell Director"), which shall initially be Carl
Ledbetter;
(E) one (1) representative designated by Sun
Microsystems, Inc. (the "Sun Director"), who remains to be
identified;
(F) the chief executive officer of the Company (the
"CEO Director"), which shall initially be Ransom H. Love;
(G) one (1) representative designated by MTI
Technology Corporation (the "MTI Director"), which shall
initially be Thomas Raimondi; and
(H) one (1) representative designated by all holders
of Stockholder Shares determined on the basis of a vote of a
majority of the Stockholder Shares held by all Stockholders,
provided that such representative is not a member of the
Company's management or an employee or officer of the Company
(the "Outside Director"), and provided further that such
Outside Director is experienced in and familiar with the
management of a publicly-traded software company;
(iii) the removal from the Board (with or without cause) of
any representative designated hereunder pursuant to subsection (ii)
above shall be at the written request of the parties so designating
such representative, but only upon such written request and under no
other circumstances (in each case, determined on the same basis as the
identity of such representative was determined pursuant to the
applicable provision of subsection (ii) above), provided that if any
director elected pursuant to subsection (ii)(D) above ceases to be the
chief executive officer of the Company, he shall be promptly removed as
a director; and
(iv) in the event that any representative designated hereunder
pursuant to subsection (ii) above ceases to serve as a member of the
Board during his term of office, the resulting vacancy on the Board
shall be filled by a representative designated pursuant to subsection
(ii) above in accordance with the same clause of subsection (ii) above
as such representative was originally designated.
(v) Immediately upon the date when any of Citrix Systems,
Inc., Egan Managed-Capital, L.P., Novell, Inc. or Sun Microsystems,
Inc. shall own less than 500,000 shares of the Series B Preferred Stock
or Common Stock issued upon conversion of the
2
<PAGE> 3
Series B Preferred Stock (other than due to reverse stock splits or
other action of the Company), such entity will no longer be entitled to
a representative on the Board as required by paragraph 1(a)(ii)(B),
(C), (D) or (E) and such entity's representative on the Board shall be
deemed to have resigned effective as of such date. The Board may, at
the option of the Board, reduce the size of the Board by one director
or, in the alternative, the vacancy may be filled pursuant to the
provisions of paragraph 1(a)(ii)(H). It is the intention of the parties
that the entities specified in subparagraph 1(a)(ii)(B), (C), (D) and
(E) shall only be able to designate a director so long as they own
500,000 shares or more of Series B Preferred Stock of the Company or
Common Stock issued upon conversion of the Series B Preferred Stock and
that the right to elect a director shall not apply once such entity
ceases to own at least 500,000 shares of the Series B Preferred Stock
of the Company or Common Stock issued upon conversion of the Series B
Preferred Stock.
(b) Commencing on the sixth month anniversary of the date of this
Agreement and continuing until the provisions of this Section 1 cease to be
effective, each holder of Stockholder Shares shall vote all of its Stockholder
Shares which are voting shares and any other voting securities of the Company
over which such Stockholder has voting control and shall take all other
reasonable and necessary or desirable actions within its control (whether in its
capacity as a Stockholder, director, member of a Board committee or officer of
the Company or otherwise, and including, without limitation, attendance at
meetings in person or by proxy, for purposes of obtaining a quorum and execution
of written consents in lieu of meetings), and the Company shall take all
reasonably necessary or desirable actions within its control (including, without
limitation, calling special board and stockholder meetings), so that:
(i) the authorized number of directors on the Board
shall be established at eleven (11) directors;
(iii) the following individuals shall be elected to
the Board:
(A) four (4) representatives designated by the Series
A Preferred Stockholders, determined by a vote of the holders
of a majority of the Stockholder Shares held by all such
Series A Preferred Stockholders (the "Series A Directors");
(B) one (1) representative designated by Citrix
Systems, Inc. (the "Citrix Director"), which shall initially
be Edward Iacobucci;
(C) one (1) representative designated by Egan
Managed-Capital, L.P. (the "Egan Managed-Capital Director"),
which shall initially be John R. Egan;
(D) one (1) representative designated by Novell, Inc.
(the "Novell Director"), which shall initially be Carl
Ledbetter;
(E) one (1) representative designated by Sun
Microsystems, Inc.] (the "Sun Director");
3
<PAGE> 4
(F) the chief executive officer of the Company (the
"CEO Director"), which shall initially be Ransom H. Love;
(G) one (1) representative designated by MTI
Technology Corporation (the "MTI Director") which shall
initially be Thomas Raimondi; and
(H) one (1) representative designated by all holders
of Stockholder Shares determined on the basis of a vote of a
majority of the Stockholder Shares held by all Stockholders,
provided that such representative is not a member of the
Company's management or an employee or officer of the Company
(the "Outside Director"), and provided further that such
Outside Director is experienced in and familiar with the
management of a publicly-traded software company;
(iii) the removal from the Board (with or without cause) of
any representative designated hereunder pursuant to subsection (ii)
above shall be at the written request of the parties so designating
such representative, but only upon such written request and under no
other circumstances (in each case, determined on the same basis as the
identity of such representative was determined pursuant to the
applicable provision of subsection (ii) above), provided that if any
director elected pursuant to subsection (ii)(D) above ceases to be the
chief executive officer of the Company, he shall be promptly removed as
a director; and
(iv) in the event that any representative designated hereunder
pursuant to subsection (ii) above ceases to serve as a member of the
Board during his term of office, the resulting vacancy on the Board
shall be filled by a representative designated pursuant to subsection
(ii) above in accordance with the same clause of subsection (ii) above
as such representative was originally designated.
(vi) Immediately upon the date when any of Citrix Systems,
Inc., Egan Managed-Capital, L.P., Novell, Inc. or Sun Microsystems,
Inc. shall own less than 500,000 shares of the Series B Preferred Stock
or Common Stock issued upon conversion of the Series B Preferred Stock
(other than due to reverse stock splits or other action of the
Company), such entity will no longer be entitled to a representative on
the Board as required by paragraph 1(b)(ii)(B), (C), (D) or (E) and
such entity's representative on the Board shall be deemed to have
resigned effective as of such date. The Board may, at the option of the
Board, reduce the size of the Board by one director or, in the
alternative, the vacancy may be filled pursuant to the provisions of
paragraph 1(b)(ii)(H). It is the intention of the parties that the
entities specified in subparagraph 1(b)(ii)(B), (C), (D) and (E) shall
only be able to designate a director so long as they own 500,000 shares
or more of Series B Preferred Stock of the Company or Common Stock
issued upon conversion of the Series B Preferred Stock and that the
right to elect a director shall not apply once such entity ceases to
own at least 500,000 shares of the Series B Preferred Stock of the
Company or Common Stock issued upon conversion of the Series B
Preferred Stock.
(c) The Company shall pay the reasonable out-of-pocket
expenses incurred by each director in connection with attending the meetings of
the Board and any committee thereof.
4
<PAGE> 5
(d) The provisions of this Section 1 shall terminate
automatically and be of no further force and effect upon the first to occur of
(i) the written agreement of the parties hereto to terminate this Section 1 or
(ii) a Qualified Public Offering (as defined in Section 4 hereof).
(e) If any party fails to designate a representative to fill a
directorship pursuant to the terms of this Section 1, the individual previously
holding such directorship shall be elected to such position, or if such
individual fails or declines to serve, the election of an individual to such
directorship shall be accomplished in accordance with the Company's Bylaws and
applicable law; provided that the Stockholders shall vote to remove such
individual if the party which failed to designate such directorship so directs.
2. REPRESENTATIONS AND WARRANTIES. Each Stockholder represents and
warrants that (i) such Stockholder is the record owner of the number of shares
of Preferred Stock and Stockholder Shares set forth opposite its name on
Schedule A attached hereto, as applicable, (ii) this Agreement has been duly
authorized, executed and delivered by such Stockholder and constitutes the valid
and binding obligation of such Stockholder, enforceable in accordance with its
terms, and (iii) such Stockholder has not granted and is not a party to any
proxy, voting trust or other agreement which is inconsistent with, conflicts
with or violates any provision of this Agreement. No holder of Stockholder
Shares shall grant any proxy or become party to any voting trust or other
agreement which is inconsistent with, conflicts with or violates any provision
of this Agreement.
3. TRANSFER. Prior to transferring any Stockholder Shares (other than a
Public Sale) to any Person, the transferring holder of Stockholder Shares shall
cause the prospective transferee to be bound by this Agreement and to execute
and deliver to the Company and the other holders of Stockholder Shares a
counterpart of this Agreement.
4. DEFINITIONS.
"Common Stock" means the Company's Common Stock, no par value per
share.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" means the Company's Series A Preferred Stock and
Series B Preferred Stock.
"Public Sale" means any sale of Stockholder Shares to the public
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
adopted under the Securities Act.
"Qualified Public Offering" means the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act, covering the
5
<PAGE> 6
offer and sale of Common Stock for the account of the Company at a price per
share equal to or greater than $8.00 and in which the aggregate public offering
price (before deduction of underwriters' discounts and qualifications) equals or
exceeds $25 million.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"Series A Preferred Stock" means the Company's Series A Preferred
Stock, no par value per share.
"Series B Preferred Stock" means the Company's Series B Preferred
Stock, no par value per share.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"Stockholder Shares" means (i) any Common Stock issued or issuable
directly or indirectly upon conversion of the Preferred Stock and (ii) any
Common Stock issued or issuable with respect to the securities referred to in
clause (i) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. For purposes of this Agreement, any Person who holds Preferred
Stock shall be deemed to be the holder of the Stockholder Shares issuable
directly or indirectly upon conversion of the Preferred Stock in connection with
the transfer thereof or otherwise and regardless of any restriction or
limitation on the conversion thereof. As to any particular Stockholder Shares,
such shares shall cease to be Stockholder Shares when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them or (b) distributed to the public
through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar provision then in force).
"Transfer" means any transfer, assignment, pledge or other disposition
(whether with or without consideration and whether voluntarily or involuntarily
or by operation of law) of any interest in Stockholder Shares.
5. TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or attempted
Transfer of any Stockholder Shares in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Stockholder Shares as the owner
of such shares for any purpose.
6. AMENDMENT AND WAIVER. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Stockholders unless such modification,
amendment or waiver is approved in writing by the Company and the holders of the
Stockholder Shares. The failure of any party to enforce any of the provisions of
this Agreement shall in no way be construed as a waiver of such provisions and
shall not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
7. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be
6
<PAGE> 7
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement in such jurisdiction affect the validity, legality or enforceability
of any provision in any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
8. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein,
this Agreement embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
9. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and the respective successors and assigns of each
of them, so long as they hold Stockholder Shares.
10. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
11. REMEDIES. The Company and the holders of Stockholder Shares shall
be entitled to enforce their rights under this Agreement specifically, to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights existing in their favor. The parties hereto agree
and acknowledge that money damages would not be an adequate remedy for any
breach of the provisions of this Agreement and that the Company and any holder
of Stockholder Shares may in its sole discretion apply to any court of law or
equity of competent jurisdiction for specific performance and/or injunctive
relief (without posting a bond or other security) in order to enforce or prevent
any violation of the provisions of this Agreement.
12. NOTICES. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the Company at the address set forth below and to any other
recipient at the address indicated on the schedules hereto and to any subsequent
holder of Stockholder Shares subject to this Agreement at such address as
indicated by the Company's records, or at such address or to the attention of
such other person as the recipient party has specified by prior written notice
to the sending party. Notices shall be deemed to have been given hereunder when
delivered personally, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service. The Company's address
is:
Caldera Systems, Inc.
240 West Center Street
Orem, Utah 84057
7
<PAGE> 8
13. GOVERNING LAW. The issues and questions concerning the
construction, validity, interpretation and enforceability of this Agreement and
the schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of Utah, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of Utah or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Utah. In furtherance of the foregoing, the internal law
of the State of Utah shall control the interpretation and construction of this
Agreement (and all schedules hereto), even though under that jurisdiction's
choice of law or conflict of law analysis, the substantive law of same other
jurisdiction would ordinarily apply.
14. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
* * * * *
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
CALDERA SYSTEMS, INC.
By:
----------------------------------------
Its:
---------------------------------------
9
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 10, 2000
<TABLE> <S> <C>
<ARTICLE> 5
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<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> OCT-31-1997 OCT-31-1998 OCT-31-1999
<PERIOD-START> NOV-01-1996 NOV-01-1997 NOV-01-1998
<PERIOD-END> OCT-31-1997 OCT-31-1998 OCT-31-1999
<CASH> 397,579 75,586 121,989
<SECURITIES> 0 0 0
<RECEIVABLES> 497,621 166,546 760,043
<ALLOWANCES> 112,000 15,000 90,000
<INVENTORY> 331,682 49,746 169,409
<CURRENT-ASSETS> 1,526,930 453,483 2,869,965
<PP&E> 614,680 784,444 1,371,819
<DEPRECIATION> 234,048 366,269 652,399
<TOTAL-ASSETS> 3,914,969 871,658 3,713,815
<CURRENT-LIABILITIES> 1,595,576 481,086 2,192,023
<BONDS> 0 0 5,762
0 0 0
0 3,967 6,596
<COMMON> 0 12,033 20,011
<OTHER-SE> 2,319,393 374,572 1,489,423
<TOTAL-LIABILITY-AND-EQUITY> 0 871,658 3,713,815
<SALES> 1,116,794 1,057,088 2,772,878
<TOTAL-REVENUES> 1,116,794 1,057,088 3,050,307
<CGS> 1,142,187 1,016,682 2,388,601
<TOTAL-COSTS> 1,142,187 2,398,377 2,926,478
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 593,182 1,081,179 225,657
<INCOME-PRETAX> (8,147,917) (7,929,357) (9,331,813)
<INCOME-TAX> 0 33,780 34,775
<INCOME-CONTINUING> (8,147,917) (7,963,137) (9,366,588)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (8,147,917) (7,963,137) (9,366,588)
<EPS-BASIC> (0.68) (0.66) (0.67)
<EPS-DILUTED> (0.68) (0.66) (0.67)
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