Software Development Agreement - VeriFone Inc., Hewlett-Packard Co. and LynuxWorks Inc.


                        Software Development Agreement
                            Agreement No. D1279_____
                          HP Agreement No. VER-00-018
                                           ----------

THIS SOFTWARE DEVELOPMENT AGREEMENT (this "Agreement") is made as of May 25,
2000, by and between VeriFone, Inc, a division of HEWLETT-PACKARD COMPANY, a
Delaware corporation ("HP"), and LYNUXWORKS, INC., a California corporation
("Developer").

1.   DEFINITIONS

     1.1   "Developer Code" shall mean the BlueCat Linux Operating System and
           ----------------
           Cross Development Environment software source code existing as of the
           date of this Agreement which is incorporated into the source code of
           the Software. The "BlueCat Lynx Operating System and Cross
           Development Environment contains non-GPL code, as developed by
           LynuxWorks. This non-GPL code will be available under this Agreement
           in binary form only. The license terms for the non-GPL code
           (including VisualLynx) will be stated in section 4 herein.

     1.2   "Development Program" shall mean the activities undertaken by the
           ---------------------
           parties hereunder for the development of the Software and
           Documentation satisfying the Specifications pursuant to this
           Agreement.

     1.3   "Development Work" shall mean the Software, Documentation and all
           ------------------
           other results and items arising out of the Development Program,
           including without limitation, all Deliverables, programming
           materials, source code and binary code for the GPL portions of the
           code, binaries for the non-GPL portions of the code, inventions,
           designs, notes, records, memoranda, documentation and other
           materials, as well as all Enhancements, derivatives and modifications
           thereof, and all intellectual property rights thereto.

     1.4   "Deliverables" shall mean the Software, Documentation and other
           --------------
           materials to be delivered by Developer to HP with respect to each
           Milestone.

     1.5   "Documentation" shall mean the reference, implementation and user
           ---------------
           manuals which describe in reasonable detail the operation of the
           Software that is normally provided by Developer as part of its
           deliveries to its customers.

     1.6   "Enhancements" shall mean error corrections, bug fixes, modifications
           --------------
           and updates with respect to the Software.

     1.7   "HP Property" shall mean all property, including, designs, software,
           ------------- 
           documentation, models, tools, devices and other materials, owned or
           licensed to HP, which may be furnished to Developer by HP under this
           Agreement.

     1.8   "Milestone" shall mean each development or delivery milestone of the
           ----------
           Development Program as set forth in the "Milestone Schedule" attached
           hereto as Exhibit B. "Milestone Payment" means a payment obligation
           related to the achievement and acceptance of a particular Milestone.

     1.9   "Software" shall mean the computer software program(s) described in
           ---------
           Exhibit A to be developed by Developer pursuant to the Development
           Program, together-with all Enhancements made thereunder.
                    
     1.10  "Source Code" shall mean the readable forms together with make and
           ------------
           build files.

     CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
     WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
     TO THE OMITTED POTIONS.

                                       1


     1.11  "Specifications" shall mean the specifications set forth in Exhibit A
           ----------------                                            ---------
           for the Software to be developed hereunder.
 
2.  DEVELOPMENT EFFORT

     2.1  Development. Commencing upon the execution of this Agreement,
          ------------ 
Developer agrees to use its commercially reasonable efforts to perform its
obligations under the Development Program, to achieve each Milestone and to
deliver Deliverables, which satisfy the test criteria specified in Exhibit A,
section 7.0.

     2.2  Subcontractors.  Developer may subcontract the performance of the
          --------------
Development Program to third parties, provided that each such subcontractor
shall have agreed in writing to be bound by terms and conditions at least as
stringent and restrictive as the terms and conditions of this Agreement and the
license agreement covering the non-GPL code, including in particular Sections 4,
7 and 10.

     2.3  Program Management and Changes. Each party designated the person(s)
          -------------------------------
set forth in Exhibit D as the primary contact of each party with respect to this
Agreement, which person(s) may be redesignated by a party by notice to the
other. In the event of a necessary or desired change in any material aspect of
the Development Program, the parties shall mutually agree to any such change in
writing prior to its implementation. A proposed change shall be initiated by the
proposing party in a written notice to the other party. The receiving party
shall review such proposal in a timely manner. The parties agree to discuss in
good-faith the effect on each party of such proposed change, including any
effect on the binary and/or cost of the Development Program.

3.   DELIVERY AND ACCEPTANCE

     3.1  Delivery.  Upon completion of each Milestone for which Developer is
          ---------
responsible, Developer shall promptly notify HP and deliver to HP the
corresponding Deliverables.  Prior to the delivery of any Deliverable, Developer
will have performed its internal testing to assure that such Deliverable
conforms to the Specifications.  Deliverables shall be in source code and binary
code for the GPL portions of the Software and in binary code forms for the non-
GPL Deliverable portions.  Deliverables consisting of Documentation shall be in
both human-readable and electronic formats.

     3.2  Acceptance:
          -----------

          a. Upon Developer's delivery to HP of Deliverables with respect to a
             milestone, HP will evaluate whether such Deliverables conform to
             the applicable Specifications pursuant to the acceptance test
             criteria and acceptance procedure detailed in 3.2. HP will give
             Developer written notice of acceptance or rejection of Deliverable
             within 15 business days after receipt of the Deliverable (the
             "Acceptance Period"). If a statement of rejection is given:

                Developer agrees to make commercially reasonable efforts to
                correct all nonconformities to Specifications as stated by HP
                and redeliver the corrected Deliverables for acceptance within
                fifteen (15) business days or as agreed to between the parties
                after receipt of such notice of rejection.

          b. A Milestone shall be deemed completed with Deliverables with
             respect to that Milestone accepted by HP, only when HP provides a
             written acceptance notice to Developer; 



                                       2



             provided, however, if HP fails to provide such an acceptance notice
             or a statement of rejection to Developer within Acceptance Period,
             such Deliverables will be deemed accepted by HP.

          c. In the event that Developer fails to deliver to HP acceptable
             Deliverables for any Milestone within sixty (60) days after the
             original Milestone date therefor, or after three (3) attempts to
             correct stated nonconformities to Specifications, HP may in its
             sole option, terminate this Agreement pursuant to section 8, Term
             and Termination.

     3.3  License.  Once all Deliverables have been accepted by HP, Developer
          -------                                                            
          agrees to commercially license the Software arising out of such
          Development Work within a commercially reasonable time period after
          the Development Work is complete. Developer understands that the
          payments made by HP hereunder are to expedite Developer's development
          of the Software so that HP can purchase the commercial Software
          product resulting from such Development when such Development is
          complete.

4.   OWNERSHIP AND LICENSES

     4.1  Ownership and License:
          ----------------------

          a.  Portions of the Developer Code are open source and may be
              distributed under the terms of the GNU General Public License
              (GPL), which terms are located at
              http://www.gnu.org/copyleft/gpl.html or other open source license
              ------------------------------------ 
              modules and which are incorporated herein by reference. Except as
              may otherwise be permitted, the Software, Documentation,
              Enhancements and other Development Work shall also be governed by
              the terms of the GPL. To the extent that the Software,
              Documentation, Enhancements and other Development Work or any part
              thereof falls outside the scope of Section 2 of the GPL, HP shall
              own Confidential Information that HP owned prior to the Agreement
              and for which it provided under this Agreement to Developer and
              Developer shall own the Software and any modifications to the
              Software, Documentation, Enhancements and other Development Work.
              Except for any Confidential Information of HP, Developer shall
              have the right to use, sell, sublicense and distribute the
              Software, Documentation, Enhancements and any other Development
              Work to third parties. In any event the non-GPL code will be
              delivered in binary form to HP as a Deliverable as otherwise
              required by this Agreement. To the extent not covered by the grant
              of license in the GPL or other open source licenses, Developer
              hereby grants to HP and its subsidiaries and affiliates a non-
              exclusive, worldwide, perpetual, irrevocable right and license,
              including the right to sublicense, to use, reproduce, modify and
              distribute the Software, Documentation, Enhancements and other
              Development Work to any third parties, subject to the royalty
              provisions in Exhibit B stated herein.

     4.2  Developer Code. Notwithstanding any provision to the contrary,
          --------------
          Developer shall own and retain all right, title and interest it may
          have in the Developer Code incorporated within the Software existing
          as of the effective date of this of this Agreement. With respect to
          such Developer Code incorporated within the Software, Developer hereby
          grants to HP a non-exclusive, world-wide, perpetual right and license,
          subject to applicable royalty provisions, in Exhibit B including the
          right to sublicense, to use, reproduce, modify, display and distribute
          the Developer Code, in binary code only, solely as part of the
          Software unless such Developer Code is governed by the GPL or other
          open source provisions. In such case, such provisions shall apply.



                                       3


     4.3  HP Property. HP hereby grants to Developer a non-exclusive, royalty-
          -----------
          free, non-transferable internal license to use the HP Property and
          intellectual property embodied therein, for the sole purpose of
          performing Developer's obligation under this Agreement. No HP Property
          may be provided to any third party without the prior written approval
          by HP, unless otherwise required by the GPL or other open source
          license. All HP Property shall returned immediately upon HP's request.

5.  MAINTENANCE AND SUPPORT
 
     5.1  Maintenance and Support for Software. Developer agrees to provide to
          ------------------------------------
          HP the maintenance and support services as set forth in Exhibit C for
          the duration of this Agreement. Maintenance and support thereafter
          shall be governed by a separate and independent agreement. Except as
          otherwise agreed in writing between HP and Developer, HP will be
          responsible for all maintenance and support of the Software with
          respect to any end-users.

     5.2  Product Evolution. The parties anticipate that HP may from time to
          -----------------
          time request additional functionalities to be made to the Software.
          Upon request by HP, Developer agrees to make such adaptations, or
          develop such enhancements on terms and conditions to be mutually
          agreed upon in writing, which may provide for additional payments by
          HP to Developer. The fee for any such adaptations or enhancements
          shall be at the Developer's then current rates.

     5.3  Additional Developer Services. Upon request by HP, Developer agrees to
          -----------------------------
          negotiate in good faith with HP with respect to providing additional
          maintenance, support or other service with respect to the Software for
          HP and/or its customers.

6.   COST AND FEES

     6.1  Development Costs. In consideration of the development activities to
          -----------------
          undertaken by Developer hereunder, HP will pay Developer an aggregate
          amount of [*] Dollars ($[*]), payable in installments in accordance
          with the Milestones Schedule.

     6.2  Payment Process. Unless otherwise agreed in writing, Milestone
          ---------------     
          payments will be made within thirty (30) days after acceptance by HP
          of the Deliverables associated with such Milestones. The payment
          milestones are as follows:

          [*] ([*]%) percent of the Development costs upon [*]
          [*] ([*]%) percent of the Development costs upon [*].

7.   WARRANTIES AND INDEMNIFICATION

     7.1  General Warranty. Each party warrants that it has full power and
          -----------------
          authority to enter into this Agreement, perform its obligations
          hereunder, and grant the rights to the other party granted herein.

     7.2  Media Warranty. Developer warrants that the physical media of the
          ---------------
          disks supplied to HP shall contain true and correct copies of the
          Software developed under this Agreement and shall be free from defects
          in workmanship and materials. HP's remedy for breach of the foregoing
          warranty shall be replacement of the defective disk.

          [*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
          SEPARAELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
          REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

                                       4




     7.3  No Infringement. To the extent that the Deliverables are not governed
          ----------------
          by the provisions of the GPL, Developer warrants that the Deliverables
          delivered to HP hereunder do not violate or infringe any patent,
          copyright, trade secret or other proprietary right of any third party,
          and that Developer is not aware of any facts upon which such a claim
          for infringement could be based. Developer makes no warranties as to
          the Developer's Code and/or "work based on the Program" as that term
          is used in the GPL; such code and/or work is governed by Section 11 of
          the GPL.

     7.4  Infringement Defense. Developer will defend any claim, suit, or
          ---------------------
          proceeding brought against HP or its customers insofar as it is based
          on a claim arising out of Developer's breach of Section 7.3, above;
          provided that Developer is notified promptly in writing of such claim,
          and given full authority, information and assistance (at Developer's
          expense) to handle the expense to handle the defense or settlement of
          any suit or proceeding. Developer agrees to pay all damages and costs
          awarded therein against HP and its customers.

     7.5  In case the Deliverables, or any part thereof not governed by the GPL,
          is held to constitute an infringement and its use is enjoined,
          Developer shall, at its own expense and at its option, either procure
          for HP and its customers the right to continue to use or, if
          applicable, replace such Deliverable or Documentation with
          noninfringing program or documentation of equivalent function and
          performance, or modify them so they become noninfringing without
          detracting from function or performance.

     7.6  Notwithstanding the forgoing, Developer shall have no responsibility
          for claims arising from (i) modifications of the Software or
          Documentation made by HP if such claim would not have arisen but for
          such modifications, or (ii) combination or use of the Software or
          Documentation with HP products if such claim would not have arisen but
          for such combination or use.

     7.7  Warranty. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER
          --------
          PARTY MAKES ANY OTHER WARRANTIES OR CONDITIONS, EITHER EXPRESS OR
          IMPLIED, REGARDING THE SOFTWARE AND RELATED DOCUMENTATION, INCLUDING
          WITHOUT LIMITATION AS TO THEIR MERCHANTABILITY OR FITNESS FOR ANY
          PARTICULAR PURPOSE.

     7.8  Program Warranty. Developer warrants that, as of the time of
          ----------------
          acceptance, the Software will operate in accordance with and
          substantially conform to the Documentation and the test criteria
          stated in Exhibit A, section 7.0, manuals and any relevant data
          sheet(s) provided by Developer.

8.   TERM AND TERMINATION

     8.1  Term. Unless terminated earlier under this Section 8, this Agreement
          -----
          will terminate upon delivery and acceptance of the final Milestone and
          fulfillment of all obligations by Developer hereunder.

     8.2  Termination for Breach. HP may terminate this Agreement by written
          -----------------------
          notice to Developer if Developer breaches any material provision of
          this Agreement and such Breach is not cured within thirty (30) days
          after receipt of written notice thereof from HP.

     8.3  Effect of Termination.
          ----------------------

          a.  In the event of termination by HP due to the material breach of
              Developer prior to delivery and acceptance of the final Software
              to HP, Developer shall immediately deliver to HP all HP property
              and information in Developer's possession relating to the


                                       5


              Software. In the event of such termination, HP shall be relieved
              of all obligations to make payment for any Deliverables that were
              not accepted by HP. This provision shall not limit or waive any
              other remedies that HP may have under law or equity.

          b.  Survival. Notwithstanding any termination of this Agreement, the
              following provisions shall survive for the period specified
              therein, if any; Sections 4.1 and 4.2 (Ownership and Licenses);
              Section 7 (Warranties and Indemnification); Section 9 (Limited
              Liability); Section 10 (Confidential Information); and Section 11
              (Other Provisions).

9.   LIMITED LIABIITY

     9.1  IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR
          CONSEQUENTIAL OR SPECIAL DAMAGES ARISING FROM ANY CLAIM OR ACTION
          HEREUNDER, BASED ON CONTRACT, TORT OR OTHER LEGAL THEORY. IN NO EVENT
          SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR DAMAGES FOR ANY CAUSE
          WHATSOEVER IN AN AMOUNT IN EXCESS OF THE AMOUNT PAYABLE TO DEVELOPER
          UNDER THIS AGREEMENT, EXCEPT FOR DAMAGES RELATING TO BREACHES
          CONCERNING SECTIONS 7.3 AND 10.

10.  CONFIDENTIAL INFORMATION

     10.1  Confidential Information. During the term of this Agreement, either
           ------------------------
           party may receive or have access to technical information, as well as
           information about product plans and strategies, promotions, customers
           and related non-technical business information which the disclosing
           party considers to be confidential ("Confidential Information"). In
           the event such information is disclosed, the parties shall first
           agree to disclose and receive such information in confidence. If then
           disclosed, the information shall (i) be marked as confidential at the
           time of disclosure, or (ii) if disclosed orally but stated to be
           confidential, be designated as confidential in writing by the
           disclosing party summarizing the Confidential Information disclosed
           and sent to the receiving party within a reasonable period of time
           after such oral disclosure. Notwithstanding any provision to the
           contrary, all source code provided by Developer or HP to the other,
           and all business information with respect to any unpublished
           Developer or HP products, are deemed Confidential Information for the
           purposes of this Section 10.

     10.2  Nondisclosure. Confidential Information may be used by the receiving
           --------------
           party only with respect to performance of its obligations under this
           Agreement, and only by those employees of the receiving party who
           have a need to know such information for the purposes related to this
           Agreement. The receiving party shall protect the Confidential
           Information of the disclosing party by using the same degree of care
           (but no less than a reasonable degree of care) to prevent the
           unauthorized use, dissemination or publication of such Confidential
           Information, as the receiving party uses to protect its own
           confidential information of like nature. The receiving party's
           obligation under this Section 10 shall be for a period of ten (10)
           years after the date of disclosure.

     10.3  The foregoing obligation shall not apply to any information which is
           (i) already known by the receiving party prior to disclosure; (ii)
           publicly available through no fault of the receiving party; (iii)
           rightfully received from a third party without a duty of
           confidentially (iv) disclosed by the disclosing party to a third
           party without a duty of confidentially on such third party; (v)
           independently developed by the receiving party prior to or
           independent of the disclosure; 



                                       6

           (vi) disclosed under operation of law; or (vii) disclosed by the
           receiving party with the disclosing party's prior written approval.

     10.4  Access to Information Systems. Access, if any, to HP's systems is
           ------------------------------    
           granted solely to perform the Work under this Agreement, and is
           limited to those specific HP systems time periods and personnel as
           are separately agreed to by HP and Developer from time to time. HP
           may require Developer's employees, Subcontractors or agents to sign
           individual agreements prior to access to HP's systems. Use of any
           other HP systems is expressly prohibited. This prohibition applies
           even when an HP system that Developer is authorized to access serves
           as a gateway to other systems outside the Developer's scope of
           authorization. Developer agrees to access systems only from specific
           locations approved for access by HP. For access outside of HP
           premises, HP will designate the specific network connections to be
           used to access systems.

     10.5  Security of Information. Without limiting the foregoing, Developer
           ------------------------    
           agrees to maintain security measures to comply with the above
           obligations and to ensure that access granted will not impair the
           integrity and availability of HP systems. Upon reasonable notice, HP
           may audit Developer to verify Developer's compliance with these
           obligations.

 
11.  OTHER PROVISIONS

     11.1  Publicity. Each party agrees not to publish or disclose the existence
           ---------
           or terms of this Agreement to any third party without the prior
           written consent of the other except as required by law. In
           particular, no press releases shall be made without the mutual
           written consent of each party, nor may Developer use HP marks or HP's
           name as a customer reference. Notwithstanding the previous sentence,
           the parties agree to issue a joint press release concerning this
           program at the earliest convenient date after Agreement execution.

     11.2  Independent Contractors. The relationship of the parties under this
           -----------------------
           Agreement is that of independent contractors, and neither party is an
           employee, agent, partner or joint venturer of the other.

     11.3  Dispute Resolution. In the event of disagreement with respect to any
           -------------------    
           aspect of this Agreement, the parties agree to discuss in good-faith
           to reach an amicable resolution, and to escalate such resolution
           process to the appropriate members of their respective management
           organization who have the power and authority to achieve a successful
           resolution.

     11.4  Notice.  Unless otherwise stated, all notices required under this
           ------- 
           Agreement shall be in writing and shall be considered given upon
           personal delivery of the written notice or within forty eight (48)
           hours after deposit in the U.S. Mail, certified or registered, and
           addressed to the appropriate relationship manager as set forth in
           Exhibit D.

     11.5  No Assignment. Neither party may assign or transfer any of the rights
           --------------     
           or responsibilities set forth herein, or change its control of
           ownership, without the express written consent of the other party
           (which consent shall not be unreasonably withheld or delayed) and any
           purported attempt to do so shall be deemed void. Notwithstanding the
           foregoing, such written consent is not required in the event of a
           merger or sale of all or substantially all of the assets of either
           company, in which case this Agreement shall be assigned to the
           surviving entity.

     11.6  Governing Law. This Agreement is made under and shall be construed in
           --------------
           accordance with the law of the State of California, without reference
           to conflict of laws principles.



                                       7

 
     11.7  Severability. The terms of this Agreement shall be applicable
           -------------
           severally to each Software program, if more than one, and any dispute
           affecting either party's rights or obligations as to one or more
           Software program(s) shall not affect the rights granted hereunder as
           to any other Software program. If any provision of this Agreement is
           held to be invalid or unenforceable by a court of competent
           jurisdiction, then the remaining provisions will nevertheless remain
           in full force and effect, and the parties will negotiate in good-
           faith a substitute, valid and enforceable provision which most nearly
           effects the parties' intent in entering into this Agreement.

     11.8  Headings. The captions of and headings used in this Agreement are for
           ---------
           convenience of reference only and are not to be considered in any way
           as material terms or be used to interpret the provisions of this
           Agreement.

     11.9  No Use Obligation. Except as expressly provided herein, HP may in its
           ------------------
           sole discretion decide whether or not to use or distribute the
           Software as it deems appropriate. Nothing in this Agreement shall be
           construed or interpreted as placing a "best efforts" standard upon HP
           with respect to the use and distribution of the Software.

     11.10 Non-Restrictive Relationship. Nothing in this Agreement shall be
           -----------------------------
           construed to preclude HP from independently developing, acquiring
           from other third parties, distributing or marketing software programs
           or other products which may perform the same or similar functions as
           the Software provided under this Agreement.

11.11  Modifications.  This Agreement may only be modified only by a writing
       --------------                                                      
       signed by an authorized representative of each party.

11.12  Waiver.  Neither party's failure to exercise any of its rights hereunder
       -------                                                                 
       shall constitute or be deemed a waiver or forfeiture of any such rights.

11.13  Force Majeure.  Nonperformance of either party will be excused to the
       --------------                                                       
       extent that performance is rendered impossible by strike, fire, flood,
       governmental acts or orders or restrictions, or other similar reason
       where failure to perform is beyond the control and not caused by the
       negligence of the non-performing party, provided that the non-performing
       party gives prompt notice of such conditions to the other party and makes
       all reasonable efforts to perform.

11.14  Export Control.  Each party agrees to comply with all applicable United
       ---------------                                                        
       States laws and regulations which may govern the export of Software
       abroad, including the Export Administration Act of 1979, as amended, any
       successor legislation, and the Export Administration Regulations issued
       by the Department of Commerce.

11.15  Entire Agreement.   This document represents the entire agreement between
       -----------------                                                        
       the parties as to the matter set forth herein and supersedes all prior
       discussions or understandings between them.

11.16  Exhibits.  Each Exhibit referred to in this Agreement is incorporated in
       ---------                                                               
       full in this Agreement whatever reference to it is made:

       EXHIBIT A    SOFTWARE DESCRIPTION AND STATEMENT OF WORK

       EXHIBIT B    ROYALTIES AND PRICING

       EXHIBIT C    SUPPORT AND MAINTENANCE

       EXHIBIT D    RELATIONSHIP MANAGERS

11.17  Counterparts.  This Agreement may be executed in counterparts, each of
       -------------                                                         
       which shall be deemed an original.



                                       8



Agreed:

HEWLETT-PACKARD COMPANY                DEVELOPER

By: /s/ Mario Gonzalez                 By: /s/ Bhupi Singh                  
   ---------------------------------      ----------------------------------
                                                                        
Printed Name: Mario Gonzalez           Printed Name: Bhupi Singh   
             -----------------------                ------------------------
                                                                        
Title: Controller                      Title: V.P. Finance & CFO
      ------------------------------         -------------------------------

Jennifer/LynuxWorks/hp.software.dev.051700

                                       9

 
                                   Exhibit A
                           SOFTWARE DESCRIPTION AND
                         DEVELOPMENT STATEMENT OF WORK

Software:
-------- 

BlueCat Linux Operating System and Cross Development Environment for the [*]
microprocessor.

This includes [*] cross (VisualLynuxWorks) and. Cogent Computer Systems [*]
Motherboard with [*] CPU Module, which will be the reference platform.

Specifications:
-------------- 

Statement of Work

1.0 Introduction
This Exhibit provides the Statement of Work for the Development Program.

2.0 Project Description

The Development Program is to create a version of the BlueCat Linux Operating
System operating on the [*] microprocessor. The development environment shall be
based on [*] and Microsoft [*] or later. This development environment is called,
at the time of this contract execution, "VisualLynx."

The Development Program also includes the development of Flash File System (FFS)
and Advanced Power Management (APM) for BlueCat Linux. The FFS and APM
requirements are described below.

3.0 Requirements

.    3.1 BlueCat Linux for [*]          

     BlueCat Linux 2.0 shall be ported to run on the [*] microprocessor. The
     "reference platform" for this port shall be the [*] Computer Systems [*]
     Motherboard with the [*] CPU Module. BlueCat Linux shall run in [*] mode.
     BlueCat Linux shall support programs written in both C and C++.

.    3.2 VisualLynx for [*]

     VisualLynx shall be ported to support BlueCat Linux and the [*]. The host
     platform will be a Microsoft Windows 98/NT based personal computer running
     Microsoft [*] or later. The VisualLynx GNU debugger (gdb) shall use the
     [*]. VisualLynx shall provide support for developing C or C++ applications.
     BlueCat Linux kernel or driver development shall be supported using the
     underlying GNU tools.


[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.

                                       10

 
.    3.3 FFS

     Flash File System (FFS) shall be provided to run with the BlueCat Linux
     operating system on the [*]. The FFS shall support the [*] device, [*], or
     its equivalent. Developer and HP shall develop a mutually agreeable
     requirements specification for FFS. The following FFS requirements have
     been tentatively identified.

        -  [*] and [*] support
        -  [*]
        -  [*] mapping
        -  [*] recovery

.    3.4 APM

     Advanced Power Management (APM) shall be provided to run with the BlueCat
     Linux operating system on the [*]. Developer and HP shall develop a
     mutually agreeable requirements specification for APM. The following APM
     requirements have been tentatively identified:

        -  [*]
        -  [*]
        -  [*] and [*] Monitoring
        -  [*] Mode
        -  [*] control

4.0  Non-Requirements

The following have been deemed non-requirements as they have not been considered
in the scope of this project:

.    4.1 VisualLynx for BlueCat Linux kernel

     VisualLynx provides an application development environment for
     LynuxWorks/'/ LynxOS and BlueCat Linux operating systems. This application
     development environment is highly integrated with Microsoft Visual C++.
     VisualLynx does not currently provide the ability to develop and debug
     operating system kernel or driver software. However, bundled with
     VisualLynx are the standard GNU development tools. These GNU development
     tools have been modified to run on Microsoft Windows in a "command window"
     (or sometimes called a "DOS window") and may be used to perform operating
     system kernel and driver development.

5.0  Deliverables

Following are the deliverables for the project. Tstart is defined to be start of
the development efforts described above and shall be no later than the execution
date of this agreement.

.    BlueCat Linux Development Environment for Windows (including
     VisualLynx)
          
     Alpha Release: Tstart + [*] months

     Final Release: Tstart + [*] months

.    BlueCat Linux Flash File System

     Alpha Release: TBD (based on finalizing requirements between Developer and 
     HP)


[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

                                       11

 
     Final Release: TBD

.    BlueCat Linux Advanced Power Management

     Alpha Release: TBD (based on finalizing requirements between Developer and 
     HP)

     Final Release: TBD


6.0  Software Quality Assurance

LynuxWorks shall develop all software associated with this Statement of Work to
established LynuxWorks' ISO 9001 practices and procedures.

7.0  Acceptance Test Criteria

Valid acceptance of the BlueCat [*] port shall be the ability for Developer to
demonstrate and HP to reproduce the following:

.    Successful installation of VisualLynx for BlueCat Linux onto an HP owned
     [*] cross development workstation with a VeriFone supplied copy of Visual
     C++ Version 6.0.

.    Successful build on this Windows workstation of the acceptance tests
     targeting the [*] reference platform.

.    Successful execution and debugging of the acceptance test demo applications
     running on the reference platform, debugging with GDB from the Windows
     NT/98 workstation across both serial and Ethernet connections.

.    Successful execution of the FFS acceptance test demonstrating
     integrity during power fail.

.    Successful execution of the APM acceptance test.


HP must provide all acceptance tests, which must be acceptable to Developer, to
Developer no later than 2 months prior to scheduled deliveries against which the
tests will be executed.


[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

                                       12

 
                                   Exhibit B
                             ROYALTIES AND PRICING

1.1  BlueCat Lynux Run-Time License Royalty Price
     --------------------------------------------

The BlueCat OS run-time royalty fee is $[*].

1.2  BlueCat Lynux Operating System Source Code
     -------------------------------------------

Source code for the BlueCat Lynux operating system kernel and Linux utilities is
included with the standard Cross Development Environment at no additional
charge.

1.3  VisualLynx Run-Time Pricing
     ---------------------------

The run-time royalties license price for VisualLynx will be: $[*] per seat for a
single unit quantity.


1.4  LynuxWorks Product Training
     ---------------------------

Standard Factory Training is offered in the form of the following BlueCat
workshop:

.  Building Embedded Systems with BlueCat Linux
.  On-Site Training (customized for your application requirement)

These workshops are offered on a repeating scheduled basis in San Jose. All
workshops are 5 days in length and are $[*] per student.

On-Site training can be obtained for any of the four training programs to be
presented at a customer site, plus options, as follows:

.  Standard Workshops conducted at customer location
.  Customer provides the hardware to be used for the training class
.  Workshops are typically [*] to [*] days in length

On-site training at the customer site is $[*] plus travel and expenses for a
class of up to [*] students. Additional students beyond the original [*] may be
added at a cost of $[*] per student with a maximum of 5 additional students.

1.5  HP Board Support Package Validation
     -----------------------------------

In addition to providing a standard reference platform for the [*] processor,
Developer's Professional Services Organization offers a standard Board Support
Package validation service available for a mutually agreed upon fee per hardware
platform. The final price for this service is based on the complexity and custom
nature of the HP's hardware platform, so this is discussed and agreed upon in
advance between Developer and HP.

1.6  Support Pricing
     ---------------

Lynx will provide Priority Support pursuant to the terms contained in that 
separate agreement at the price of $[*] per year per developer.

[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.

                                       13

 
                                   Exhibit C
                            MAINTENANCE AND SUPPORT

Prior to the alpha release of the Deliverables, Developer shall provide support
to the BlueCat product, pursuant to the Priority Support Agreement, contained in
a separate Agreement.  After the release of the alpha release by Developerof the
Deliverables (currently expected to be BlueCat, FlashFile and Advanced Power
Management), Developer's engineering staff will provide support until the time
of final release for Deliverables, pursuant to the terms of the Priority Support
Agreement, contained under a separate agreement.  Points of contact will be
established under those agreements.

After the final release of the Deliverables, Developer will provide support for
the Deliverables by the Customer Support organization, pursuant to the Priority
Support Agreement.



                                       14

 
                                   EXHIBIT D
                             RELATIONSHIP MANAGERS

The relationship manager for Developer is:  Rick Iorillo
                                            ---------------------------
                              PHONE:        408-626-2616
                                     ----------------------------------
                              E-MAIL:       riorillo@lynx.com
                                     ----------------------------------


The relationship manager for HP is:         
                                      Lance Nakamura
                                      ----------------------------------
                              PHONE:  805-625-3207                           
                                      ----------------------------------
                              E-MAIL: lance_nakamura@hp.com
                                     ----------------------------------


                                       15