Monday, June 30, 2008

Xandros Acquires Linspire Assets in Secret Back-room Deal

Today, as a Linspire shareholder, I received the below "memorandum" from Linspire. I have confirmed with several other Linspire shareholders that they too received this same notice.

In classic Michael Robertson form, he has once again completely disregarded the 100 some-odd shareholders of Linspire by pulling off this deal without a shareholder meeting. Most states require shareholder approval of any merger or reorganization of a corporation, or the sale or transfer of all or substantially all of the corporation's assets. Regardless of state laws, common decency would dictate that even if a company only has 1 minority shareholder, there should be a shareholder meeting and the acquisition explained to all shareholders. What do Linspire shareholders get in place of a shareholder meeting? This completely worthless notice in the mail.

Why would Linspire pull off a midnight, back-room sell-off without a shareholders meeting? I'd ask them myself, but they haven't returned emails from me in the last ten months, and since they didn't hold a shareholders meeting in this matter, one is only left to speculate. So, here's my speculation...

This will end up being a completely insignificant event for Linspire shareholders and the end for Linspire customers. I predict this was done to: 1) help Robertson drain the company of its cash and resources. When I left Linspire, we had a very profitable year and the company had millions in the bank. I predict Robertson has moved this money to himself, family, and his other companies, leaving Linspire's minority shareholders with nothing. 2) help Robertson save face by issuing a "Linspire Acquired by Xandros!" press release, instead of living with the public humiliation that Linspire failed under his leadership. (Although, being out lasted by Xandros isn't much less embarrassing.) Such a press release will of course be meaningless unless the acquisition was substantial. As a shareholder, I will eventually find out. 3) Give Xandros a press release and perhaps some way for them to spin this to investors to raise money.

Just watch...this will not be good for Linspire's customers, partners or minority shareholders. I'd love nothing more than to be proven wrong! We'll know as soon as I hear what my stock is now worth.

Ten months ago, I offered Michael to purchase stock in the company for around $.50 a share (in cash). When we find out how much my stock is now worth, after this "acquisition," we'll see just how brilliant of a businessman Michael Robertson was. Let's see how much the value of that stock has changed in the short ten months since my departure. If I get more than $.50 for my shares (in cash, not some bogus, inflated valuation based on Xandros stock), then I'll be very happy and I'll be pleased with what Robertson and Kettler have done with the company. If it's worth a lot less than that, then I'll be very unhappy and it will show just how incompetent (or plane dishonest) Robertson and Kettler are.

To me, this looks like Michael, the "captain" of the Linspire ship, sees the boat sinking, so he casually tells the passengers on the ship that he's just going on a quick supply run, jumps on the only life boat with any cash and valuables he finds, paddles off to safety, and leaves everyone else behind to sink. Pathetic. I left Linspire with millions in their bank account and a plan, but Robertson and Kettler seem to have destroyed it all in ten months.

So, Michael, now that all the assets have been sold, what's my stock worth (again, no worthless Xandros stock please**), and what will happen with Linspire's customers?

Something tells me it will take a lawsuit to find out.

Kevin

**PS: Before Linspire and Xandros try to spin this into something actually positive, I'd like to offer my Linspire shares to either Michael or Andy Typaldos (Xandros' CEO) for $.10 a share. That's 80% less than what it was worth just ten months ago. If this transaction happened at a good valuation, then I'm sure Michael and/or Andy will be all over my offer, right? I'll post here when they accept my offer. Don't hold your breath.

35 comments:

Jonh said...

I just got the same letter it will be interesting to see what becomes of stock held by others.

Chris H said...

Why so negative about Xandros Kevin? They seem ideal to me to take over or integrate Linspire.

Anonymous said...

i am sorry to hear this, i really love freespire and linspire......

Clifford said...

Back when Linspire said they were moving to and Ubuntu based system instead of Debian based (same linux, different bowl) I knew there would be problems. I considered buying into the Linspire stock but was too lazy and never got around to it. I'm glad I didn't.

Kevin Carmony said...

Chris,

1. I've seen Xandros' management over the years. I've never been impressed. The fact they were a party to this acquisition and keeping it a secret from the other 100 shareholders, says a lot about them. When I emailed Andy (Xandros' CEO) about this, he shuffled me off to their attorney, who just defended Linspire's behavior by saying to me, "Though I can't speak for Linspire, I can tell u that as a Delaware corporation Linspire can take action by majority consent and without prior notice to the minority shareholders -- it just must send the minority notice of the action after the majority acts." The way this was handled says a lot, not just about Robertson, but Andy and Xandros as well. I know I would never sell OR buy a company in this fashion.

2. Xandros has no users, traffic, solid prospects, etc.

http://tinyurl.com/69bszk

3. Michael and Andy will have pulled off some smoke and mirror bogus valuation trick. If not, then they'll be jumping at my offer to buy my stock at such a discounted price.

The one thing you CAN say about Andy and Xandros...they outlasted Robertson.

Kevin

Kevin Carmony said...

I've since been contacted by other Linspire shareholders, willing to make the same $.10/share offer I made. Michael and/or Andy should be able to make a nice profit here, right? ...still waiting for their call...

Kevin

Duane said...

There's apparently some speculation on the Freespire forums that this is all faked.

For the record, I just got the same memo today. I'll be watching this pretty carefully - I purchased my options when I left, and trusted MR with the stewardship of that equity. I certainly hope there aren't any shenanigans here.

Doug said...

"2. Xandros has no users, traffic, solid prospects, etc."

Xandros is the OS installed on the Asus Eee. No users?

Kevin Carmony said...

To be more clear...

Relative to Ubuntu, Novell, Red Hat, PCLinux, Mint, and others, Xandros has no users. (That's why I included the link.)

For that matter, relative to so many other devices, cell phones and laptops, the Eee also has virtually no users.

Again, if Xandros is worth so much, I'm sure my phone will be ringing any moment from someone to buy my stock...

Kevin

Anonymous said...

Ah, well this is could be a problem because Linspire uses lots of proprietary apps, and Xandros signed that nasty Patent agreement with Microsoft. So, what happens if the companies holding those proprietary apps don't want to deal with Microsoft?

Randy said...

I received the same memo today too.

Like Duane, I exercised options and trusted Linspire with stewardship over that equity. I'm looking forward to more specific information.

former mp3.com user/shareholder said...

I'm sorry, you get what you deserve, Kevin. You should have bailed immediately. Are you totally unfamiliar with his history? How blind can one be?

Anonymous said...

What makes this so sad and me mad is that Linspire had the resources and potential to do great things with Linux on the desktop. I don't believe it was just a financial screw up here. I believe the company had allot of the wrong people working for it. For instance allot of the products in CNR I felt were too quirky. The company should have worried more about meeting the needs of the basic consumer. Did any of the engineers work for a retail store that sold computers? How about as a PC tech at one of these stores? I doubt it. I can't say that I knew everything two years ago that I do now. I do know now how to design an integrated desktop environment that works for the masses right now. I also know now how I would target it at the masses. Linspire 6 should have been sold as an add-on product for discontented Vista users at the time of sale. If it had included free vitalization /w support for Vista any PC tech at any of the major chains like Staples, BestBuy, CircuitCity, or elsewhere would have been able to install it on select notebooks and desktops. People will buy what you tell them and enough of the hardware works out of the box perfectly that it isn't an issue.

The reason I would target these companies is they love tech services. They make 85% and higher margins on the tech work performed. In comparison they make almost nothing on the computers they sell. When on sale they actually loose money on the PCs sold. The warranties are about 46% (these numbers are real and exact of one particular chain). In any case they would all LOVE this as an add-on service since it doesn't directly compete with other products since it supports MS Windows applications. Now- it doesn't work when you sell it as a boxed product since the MS Windows license costs too much, but within this add-on services environment it works beautifully.

Putting this distribution together that is designed for stupid PC techs doesn't take rocket science either. What Linspire did right was get license support for the major formats, auto mounting, and a store (even though it wasn't great) to purchase other commercial software. Once they had the deal with a major outlet they should have gone and regularly tested the products being sold providing the stores with an updated list to inform sales associates of compatible products. It would have been even better if Linspire could finagle the manufacturers that write open source drivers already (HP guys) to list it on the boxes. Many other products do list Linux right now. Brother & Samsung do list Linux for printers/multi-functions. Sandisk for flash drives. I don't know any digital cameras list it. I do know 9/10 cameras are standards complaint and work in Linux. The networking section has enough support-though few list support (Netgear has a PCMCIA card that listed it until recently). Other than that at least one Linksys USB wifi card have the right chip sets if only they listed Linux. I could keep going with lots of other products... from 56k modem support to other devices. One thing I almost forgot to mention is iPod support is needed as much as I might dislike it.

At that point the company needed to offer both to the retail company (CNR sales kickbacks) AND incentives and the associates selling it (very important).

You only need to really support a few major software titles. One of the big ones missing from the list of must haves at the moment for CrossOver Office is TaxCut and TurboTax. The other important application is Microsoft Office Home & Student (as you can see I work in retail since I know exactly what is being sold). What I want to point out is that the software support need not be around for TurboTax/TaxCut for the customer doesn't care if once in a while they need to boot-up MS Windows (and the virtual machine makes this really easy). I would advise that MS Office 2007 Home & Student be supported through WINE. For any other MS Windows application the user can purchase CrossOver Office/CrossOver Games/Cedega if they so desire to run it without virtual emulation. The typical user doesn't need these though so long as they have a fallback to booting XP in a VM.

Most associates recommend the HP product lines for printers that all support Linux. It is possible to support these by including and integrating HP's OPEN SOURCE driver application suite.

If any of you are wondering how long this would take to put together it isn't long and it doesn't take more than one or two competent engineers. Add in a quality assurance person for accessories testing and RESEARCH (not all products are created equal- ditch product support for most Linux products /w non-free drivers- it just wastes time. in the past gfx cards, modems, and a few exceptions did exist). Right now the HP notebooks seem to be well supported for most people concerning hardware for things that matter (I haven't been testing the modems though since they are obsolete for notebook users). All of these employees must have a passion for Linux. Then you need a guy to go around supporting and selling the product to associates. Once again you better get someone who is in love with Linux. Add in or outsource a person for graphics/web design. You might even want to consider using the engineers for the web design, but definitely out source the graphics design. You do need a competent support person too.

Add in some executives, part time financial people, & lawyers, and you have a company that could sell this thing.

I also respect how difficult it is to get these products sold at retail stores. The executives who make this happen deserve allot of credit. Now we need to get past just getting it in the store to making it sell.

Miguel said...

Who cares? No one uses Linspire (or should I say Lindows?) for anything serious or decent anyway. Totally irrelevant.

Anonymous said...

my understanding is both companies had a deal with microsoft. i wonder what microsuck will get out of this and what they had to do with it. it sound just like how they operate.

Anonymous said...

Do Linspire and Xandros actually have customers? I am surprised.

Duane Maxwell said...

From what little I can tell, this appears to be simple asset purchase - the buyer creates a wholly owned subsidiary, the seller sells the assets to the subsidiary, and leaves nothing in the seller company except either debt or (hopefully) cash, which would presumably be distributed pro rata to the existing shareholders when the seller is (ultimately) liquidated.

The questions I'd ask would be:

1) Was this an "arms length" transaction? Did any Linspire shareholder benefit disproportionately?

2) Did Linspire's board meet their fiduciary responsibilities to *all* of the shareholder, not just the majority holders?

3) What was the post-transaction status of the seller company? Will there be a distribution of the remaining cash?

Some shenanigans that unscrupulous people do at this point is keep the seller company "alive" in order to bleed off the cash in bogus agreements and settlements. Ethical folks pay off the debts and distribute the remaining capital to the owners/shareholders.

I hope that something comes out of this for those of us with minority stakes. While I'm sympathetic to the vast amount of capital that Michael has personally invested in Linspire, he *did* choose to take on minority shareholders and thus has responsibilities to them.

I'm sure the current employees of the other MR companies are also watching this situation - how MR treats the folks that converted Linspire options will make people think about whether or not it's a good idea to take on equity in these companies in the future.

San Diego is a small town when it comes to business - people remember stuff like this.

Kevin Carmony said...

Well said Duane.

In regards to your three points:

1. One of the reasons I resigned from Linspire, is that Michael wanted to issue a dividend only to himself and his father-in-law. (We had a very profitable year, and there was a lot of cash in the accounts.) I told him the way the company was structured, any dividend would need to be issued to ALL shareholders, not just him and his father-in-law. He protested to me, saying it was common to do this in companies. I went out and had TWO different outside law firms confirm I was right, and that "this" company (Linspire) was not organized that way. Once Michael saw me pushing back, he started making obvious moves to see the CEO (myself), CFO, and Controller removed from the company. He also fired everyone on the Board of Directors other than himself. It was pretty clear to me he was carving a path to get to the cash. After my departure, I had my lawyer fight to see the books, something I should have certainly been entitled to, given my history and the amount of shares I held. Robertson pushed back, and to this day I have not been allowed to review the books.

2. A few years back, Linspire had a 5-man independent board, with three of the board members being outside of the company. Today, Michael Robertson is the only board member. So, if you're looking for "the board" to be responsible, you're banking on the ethics of this one man.

3. I predict you're going to be given a handful of Xandros stock. The cash will magically be gone.

Duane, I've known Michael Robertson for nearly ten years. I don't expect he'll treat you or any of the other minority shareholders fairly. A lawsuit will be required to unearth the "shenanigans." Of course, Michael has the opportunity to do the right thing here and prove me wrong.

Kevin

Anonymous said...

Hey, didn't both companies sign so-called patent deals with Microsoft ?

Perhaps MS is pulling the strings behind this to try to save both companies, so that it doesn't appear that making a deal with MS is always a huge disaster.

Kevin Carmony said...

I can assure you, this "deal" has nothing to do with Microsoft. My belief is it has to do with the three items I mention in my blog.

Kevin

John said...

First a response to one of the anon posters.
I am a former linspire employee and have spent many years working in and around teh computer industry. what a can guarantee is normal end users do card about software and they want things to be totaly seamless. the dont now or are what virtualbox is and dont want to start that to run windows to do their taxes. they just wnat to start turbotax. they also want Quicken. you can try to get them over ti GNU cash but they know how to use quicken and like how it works and dont want to relearn the software. think about how much flack M$ got over the redesign of the new version of office... how may customers at the big blue box store yelled at you over the software being total crap...
--
What Linspire was trying to do was noble. we wanted to give the word a linux that was not only as easy to use as windows but easier. That is a really high bar to hit. I personally think that 5.0 came very close to this goal. I truly think this is a sad day if Linspire dies.
I also want to see what happens with the options that I sturck while I was there. Only time will tell what will happen with these.

there is not much i can add that has not been said by duane or KC.
Note to self update inspire status on résumé.

wael said...

I did not get the letter yet but honestly i never expected anything from it. I knew the company will close down at anytime and i never had faith in it or it's managers.
wael

Nathan said...

This is so sad to see. Not so long ago Linspire was set to turn the Linux world on its ear.

I hadn't been following the details that closely lately, and didn't realize that such a rift had developed between you and MR over the last few months.

Here's hoping that something else manages to bring Linux to the masses. Looks like Ubuntu is going to be it.

Nathan (formerly AlexDeGruven in the Linspire/Freespire forums)

Kevin said...

I received the "memo" as well (as a minority shareholder). At least current Linspire management still have my mailing address - they seem to have forgotten everything and everyone else but themselves.

Thanks for the well-reasoned analysis, Duane. I agree, San Diego *is* a small town when it comes to business.

Anonymous said...

I SERIOUSLY believe that Ubuntu Hardy Heron will be the defacto- standard for Linux in the near future. Xandros and Linspire were smaller attempts at the easy to use Linux OS. In the advent of MS dropping the ball with support for Xp and the bunt of an OS release with Vista, Ubuntu is starting to have much more merit. I have resorted to it heavily recently.

Kevin Carmony said...

Today, Xandros' CEO, Andy Typaldos, did a Q & A about this deal. I've posted my reaction here.

Kevin

Anonymous said...

John,

I'm not sure if I have the right face or not. Not that it matters. I'm not saying the engineers were incompetent exactly. I'm just saying that it seemed like a lack of experience with the real world. I just don't think anybody had a real good idea what the distribution needed to be like. If somebody did then it just didn't happen. Having two or three monitors seemed to be more of an interest to some of the engineers. Or they were obsessed with Mac not Linux! Or just being impressed with some idiot intern. I would have expected those with the real jobs to have known better. That didn't seem to be the case to me. Not support, not sales, not the executives/management, not QA, not the engineers, not anybody as far as I noticed was really going to make the desktop distribution be all that it could be.

I would agree that virtual emulation isn't the perfect solution. The thing is that the people selling it need to be able to ensure the customers that "Yea, even if it doesn't work you always have MS Windows to fall back on". I know at the time the blame game was going on between sales and engineering. Maybe that was part of the problem.

Virtual emulation is not perfect, but basic users don't need more than email, word, and web browsing. The few other MS Windows only applications basic users sometimes need are generally not run very often and they will go ahead with the Linux purchase since running these MS Windows applications can be a once a year thing or a once a month deal. In these instances emulation does work. You have to narrow down the customer. This just wasn't done.

I didn't know the answer three years ago and I didn't give anybody my opinion either even though I may have been more knowledgeable than allot of people there about these issues. Maybe I should have given my outsider opinion. Certainly it was needed. Somebody needed to take a part time job to get experience with the real world user base. Sitting behind a desk coding all day every day doesn't cut it. Putting up polls doesn't cut it either. You aren't interacting with the audience you are targeting, nor are those the people answering the polls. That is however what I saw being done. I know Kevin did pick up a few computers that he had some people outside trying it out. That was good... not good enough though.

In any case John. I totally agree it was a very high bar to hit. 5.0 was the only version that came very close too to hitting that high bar. It just didn't sync the deal. It had too many bugs, better integration than anybody else yet not integrated enough. In the end the business didn't do enough to make it work.

I have to say the fall guy is an ass from the few interactions I've had with him. Even though at least one of my interactions with Kevin were once misinterpreted I have some respect for him. Regarding taking no money though I believe that was in fact something he said to me personally. I'm baffled that he is now denying that. I can understand why he said it though. When you feel attacked you say things you shouldn't. Maybe he meant it the way he said it here in the comments though. The fact he was frequently posting on the forums/mailing list was probably not a good idea. When you talk too much you end up offending people or being miss-interpreted. I have that same problem when I comment too much just like anybody else. It also doesn't help development if you post allot. I know Kevin wasn't exactly working on the development aspects- I'm sure he still had other better things he could have been doing especially given he was being paid $350,000.

Daniel Glazman said...

Hello Kevin. It's now public...

artiphys said...

As an early Lindows user I'm saddened to see it all end, and on such a sour note. I learned in my own startup experience not to depend on statutory protection -- you need to really look at the shareholder's agreement, and you have to stay on top of founders. There's some sort of disease with some entrepeneurs where they can't seem to distinguish between themselves as individuals and the company they have created. Not to excuse MR, but it's a strange paradox that often the personality with the vision also has various personality flaws.

The minority shareholders should get together, hire a lawyer, and do what you can to get whatever is coming to you. Just be aware that it may not amount to much. Another aspect of 'founderitis' I've noticed is a disconnection from reality, especially when it comes to failure or retreat. It may be that there isn't as much money floating around as you imagine. Or maybe he's just a classic grifter, I don't know.

You guys did an incredible thing long before it was obvious. You should be proud of your accomplishments. The spirit of Lindows lives on in Ubuntu and in the general fact that M$ era of hegemony is coming to an end.

Good luck in your future endeavors.

- one happy customer

MD Tilson said...

I have read this blog with interest. The points you have made about secrecy at Lindows are also relevant to Xandros management. I was one of the early Xandros investors, because of my friendship with Rick Berenstein (who, you must know, died young, and is deeply missed by his friends). Xandros has *never* felt any obligation to keep shareholders informed; and AFAIK there has never even been a newsletter. I would appreciate any suggestions from you, or other readers, about how to go about finding out what my shares are worth today ($). TIA,

MD Tilson
mdt1@columbia.edu

Anonymous said...

I think its time for the SEC to get involved in this and start freezing assets across the board. Where is the freakin SEC when you need them.

Anonymous said...

My understanding is that Xandros teamed up with Viyya Technologies to create the most awesome and unique internet search experience. The search engine throws away the junk websites and concentrates on what the viewer is looking for, giving a competitive edge in the work, home, and entertainment environments. Instead of getting 1,000,000,000,000,000,000,000,000,000,000 responses to a search with 99.9999999999999999999999999999% irrelevance, you will get only what you are looking for, eliminating the need to look through useless websites and refining searches until you find what you are looking for hours or days later. Remember folks, something for free does not save you or your company money. The proper management of time is what saves money. Xandros and Viyya Technologies have the tools available to save you and your company time and money. Which leads me to 2 questions.
1. How does Xandros buying Linspire fit into this?
2. Is Xandros a publicly traded company? If so, on what board and what is their symbol?

Robert said...

Xandros is signing a deal with Viyya Technologies and eventually Microsoft which is rumored in talks with AOL, will end up buying Xandros and using Viyya as their search engine.

Kevin Carmony said...

So?

http://tinyurl.com/viyyatraffic

Kevin

web design said...

nice post