<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
AWARD SOFTWARE INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
AWARD SOFTWARE INTERNATIONAL, INC.
777 E. MIDDLEFIELD ROAD
MOUNTAIN VIEW, CA 94043
June 1, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Award Software International, Inc. ("Award") to be held at 9:30 a.m., local
time, on June 29, 1998, at the Sunnyvale Hilton Inn, 1250 Lakeside Drive,
Sunnyvale, California 94086.
At this meeting you will be asked to consider and vote upon the following
proposals:
MERGER AGREEMENT WITH PHOENIX TECHNOLOGIES LTD.
1. To approve and adopt the Agreement and Plan of Reorganization among
Phoenix Technologies Ltd., a Delaware corporation ("Phoenix"), Portland
Acquisition Corporation, a California corporation ("Merger Sub") and
Award, dated April 15, 1998, and related Agreement of Merger and to
approve the merger of Merger Sub with and into Award (the "Merger"). Upon
consummation of the Merger, Award will become a wholly owned subsidiary
of Phoenix. As a result of the Merger, each outstanding share of common
stock, no par value ("Award Common Stock") will be converted into the
right to receive 1.225 shares (the "Exchange Ratio") of common stock, par
value $.001 of Phoenix ("Phoenix Common Stock").
OTHER PROPOSALS
2. To elect directors to the Award Board of Directors to serve until the
earlier to occur of the consummation of the Merger (if approved by the
shareholders and consummated) or for the ensuing year and until their
successors are duly elected and qualified.
3. To amend the Award 1997 Equity Incentive Plan to increase the number of
shares reserved for issuance thereunder by 700,000.
4. To amend the Award Employee Stock Purchase Plan to increase the number
of shares reserved for issuance thereunder by 200,000.
5. To ratify the appointment of Price Waterhouse LLP as independent
accountants of Award for the year ending December 31, 1998.
6. To transact such other business as may properly come before the meeting
or any postponements or adjournments thereof.
After careful consideration, the Award Board of Directors has unanimously
approved the Reorganization Agreement and the transactions contemplated thereby
and has concluded that they are fair to and in the best interests of Award and
its shareholders. Your Board of Directors unanimously recommends a vote in favor
of the Merger and the other items being submitted.
Following the Merger, based upon the number of shares of Phoenix Common
Stock issued and outstanding plus the number of shares represented by
outstanding options, warrants or other rights to purchase shares of Phoenix
Common Stock as of March 31, 1998, and after giving effect to the issuance of
Phoenix Common Stock to Award's shareholders in the Merger including the
assumption by Phoenix of outstanding options, warrants or other rights to
acquire Award Common Stock, the former holders of Award Common Stock would hold,
and have voting power with respect to approximately 26% of assumed total shares
of Phoenix Common Stock as of the Effective Time, and holders of former Award
options,
<PAGE>
warrants or other rights would hold options, warrants or other rights to
purchase approximately 9% of the assumed total shares of Phoenix Common Stock.
In the materials accompanying this letter you will find a Notice of Annual
Meeting of Shareholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by the Award shareholders at the Award Annual Meeting and a
Proxy Card. The Joint Proxy Statement/Prospectus more fully describes the
proposed transactions. Shareholders are urged to review carefully the
information contained in the accompanying Joint Proxy Statement/Prospectus, in
particular the information under the captions "Risk Factors," "Award Annual
Meeting--Recommendations of Award Board of Directors," "Approval of the Merger
and Related Transactions--Joint Reasons for the Merger," "--Award's Reasons for
the Merger" and "--Material Contacts and Board Deliberations" prior to voting on
the proposal.
If you attend the Award Annual Meeting you may vote in person if you wish
even though you have previously returned your proxy. Whether or not you plan to
attend the Award Annual Meeting, it is important that your shares be represented
and voted at the Award Annual Meeting, regardless of the number you hold.
Approval of the Merger requires the affirmative vote of the holders of a
majority of the outstanding shares of Award Common Stock. Approval of the other
proposals (except the election of directors) requires the approval of the
holders of a majority of the shares of Award Common Stock present (in person or
by proxy) at the Award Annual Meeting and entitled to vote thereon. The Board of
Directors are elected by a plurality. See "Additional Matters Being Submitted to
a Vote of Only Award Shareholders--Proposal Two--Election of Board of
Directors." Therefore, please complete, sign and date, and return your proxy in
the enclosed envelope.
Sincerely,
[/S/ GEORGE C. HUANG]
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
YOUR PROXY IS IMPORTANT--PLEASE VOTE PROMPTLY
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 29, 1998
------------------------
TO THE SHAREHOLDERS OF
AWARD SOFTWARE INTERNATIONAL, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Award
Software International, Inc., a California corporation ("Award"), will be held
on June 29, 1998 at 9:30 a.m., local time, at the Sunnyvale Hilton Inn, 1250
Lakeside Drive, Sunnyvale, California 94086 to consider and vote upon the
following proposals:
1. To approve and adopt the Agreement and Plan of Reorganization (the
"Reorganization Agreement") dated as of April 15, 1998, among Award,
Phoenix Technologies Ltd., a Delaware corporation ("Phoenix") and
Portland Acquisition Corporation, a California corporation and wholly
owned subsidiary of Phoenix ("Merger Sub") and the related Agreement of
Merger, pursuant to which, among other matters, (i) Merger Sub will merge
with and into Award and Award will become a wholly owned subsidiary of
Phoenix (the "Merger") and (ii) each outstanding share of Common Stock,
no par value, of Award (the "Award Common Stock") will be converted into
the right to receive 1.225 shares of Common Stock, $.001 par value, of
Phoenix (the "Phoenix Common Stock").
2. To elect seven (7) directors to the Award Board of Directors to serve
until the earlier to occur of the consummation of the Merger (if approved
by the shareholders and consummated) or for the ensuing year until their
successors are duly elected and qualified.
3. To amend the Award 1997 Equity Incentive Plan to increase the number of
shares reserved for issuance thereunder by 700,000.
4. To amend the Award Employee Stock Purchase Plan to increase the number
of shares reserved for issuance thereunder by 200,000.
5. To ratify the appointment of Price Waterhouse LLP as independent
accountants of Award for the year ending December 31, 1998.
6. To transact such other business as may properly come before the meeting
or any postponements or adjournments thereof.
The foregoing items of business are more fully described in the Joint Proxy
Statement/Prospectus accompanying this Notice. Proposals 2, 3, 4 and 5, if
approved, are intended to enable Award to conduct its business on a stand-alone
basis until such time as the Merger is consummated and Award becomes a wholly
owned subsidiary of Phoenix, or in the event the Merger is not consummated.
Shareholders of record at the close of business on May 22, 1998 are entitled to
notice of, and to vote at, the meeting and any adjournments or postponements
thereof.
All shareholders are cordially invited to attend the meeting. However, to
ensure your representation at the meeting, you are urged to mark, sign, date and
return the enclosed proxy card as promptly as possible in the postage pre-paid
envelope enclosed for that purpose. YOU MAY REVOKE YOUR PROXY IN THE MANNER
DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AT ANY TIME
BEFORE IT HAS BEEN VOTED AT THE ANNUAL MEETING. ANY SHAREHOLDER ATTENDING THE
ANNUAL MEETING MAY VOTE IN PERSON EVEN IF HE OR SHE HAS RETURNED A PROXY.
For the Board of Directors
[/S/ KEVIN J. BERRY]
Kevin J. Berry
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND SECRETARY
Mountain View, California
June 1, 1998
<PAGE>
PHOENIX TECHNOLOGIES LTD. AND
AWARD SOFTWARE INTERNATIONAL, INC.
----------------
JOINT PROXY STATEMENT
------------------
PHOENIX TECHNOLOGIES LTD. PROSPECTUS
------------------------
Phoenix Technologies Ltd., a Delaware corporation ("Phoenix"), and Award
Software International, Inc., a California corporation ("Award"), have entered
into an Agreement and Plan of Reorganization, dated as of April 15, 1998 (the
"Reorganization Agreement"), among Phoenix, Award and Portland Acquisition
Corporation, a wholly owned subsidiary of Phoenix ("Merger Sub"). In accordance
with the Reorganization Agreement, Merger Sub will merge with and into Award,
Award will become a wholly owned subsidiary of Phoenix and each outstanding
share of Common Stock of Award, no par value ("Award Common Stock"), will be
converted into 1.225 (the "Exchange Ratio") shares of Phoenix Common Stock (all
such actions collectively, the "Merger").
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Phoenix in connection with the solicitation of proxies by the Phoenix Board of
Directors (the "Phoenix Board") for use at the Special Meeting of Phoenix
stockholders to be held on June 29, 1998 at Phoenix's headquarters at 411 E.
Plumeria Drive, San Jose, California 95134 commencing at 9:30 a.m., local time,
and at any adjournment or postponement thereof (the "Phoenix Special Meeting")
for the purposes set forth herein and in the accompanying Notice of Special
Meeting of Stockholders.
This Joint Proxy Statement/Prospectus is also being furnished to
shareholders of Award in connection with the solicitation of proxies by the
Award Board of Directors (the "Award Board") for use at the Annual Meeting of
Award shareholders to be held on June 29, 1998, at the Sunnyvale Hilton Inn,
1250 Lakeside Drive, Sunnyvale, California 94086, commencing at 9:30 a.m., local
time, and at any adjournment or postponement thereof (the "Award Annual
Meeting").
This Joint Proxy Statement/Prospectus constitutes the Prospectus of Phoenix
with respect to up to 12,000,000 shares of Common Stock of Phoenix, par value
$0.001 (the "Merger Shares") to be issued in the Merger in exchange for
outstanding shares of Award Common Stock. All information contained in this
Joint Proxy Statement/ Prospectus relating to Phoenix has been supplied by
Phoenix, and all information contained herein relating to Award has been
supplied by Award.
Throughout this Joint Proxy Statement/Prospectus the term "Combined Company"
is used to refer to the combined business and operations of Phoenix and Award
assuming the consummation of the Merger.
Phoenix Common Stock is listed on the Nasdaq National Market ("Nasdaq")
under the symbol PTEC, and following the Merger, the common stock of the
Combined Company will continue to be traded under such symbol. It is a condition
of the obligations of Phoenix and Award to the consummation of the Merger that
the shares to be issued in the Merger be approved for quotation on Nasdaq, upon
official Notice of Issuance. Following consummation of the Merger, Award Common
Stock will be removed from registration under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and will no longer be listed for
quotation on Nasdaq.
On April 15, 1998, the last full trading day prior to the public
announcement of the execution and delivery of the Reorganization Agreement, the
closing sale prices of the Phoenix Common Stock and Award Common Stock on Nasdaq
were $13.125 per share and $14.25 per share, respectively. On May 22, 1998, the
closing sale prices of the Phoenix Common Stock and Award Common Stock were
$10.6875 per share and $12.00 per share, respectively.
------------------------
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. THE
STOCKHOLDERS OF PHOENIX AND SHAREHOLDERS OF AWARD ARE URGED TO READ AND CONSIDER
CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY, INCLUDING THE
MATTERS REFERRED TO BEGINNING ON PAGE 15 UNDER "RISK FACTORS."
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
JOINT PROXY STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is May 27, 1998.
This Joint Proxy Statement/Prospectus and the accompanying proxy cards are
first being mailed to stockholders of Phoenix and shareholders of Award on or
about June 1, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 1
SUMMARY................................................................... 3
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
DATA.................................................................... 12
RISK FACTORS.............................................................. 15
COMPARATIVE PER SHARE DATA................................................ 26
COMPARATIVE MARKET PRICE DATA............................................. 27
PHOENIX SPECIAL MEETING................................................... 28
Date, Time and Place of Phoenix Special Meeting......................... 28
Purpose................................................................. 28
Record Date and Outstanding Shares...................................... 28
Vote Required........................................................... 28
Proxies................................................................. 28
Solicitation of Proxies; Expenses....................................... 29
Recommendations of Phoenix Board of Directors........................... 29
AWARD ANNUAL MEETING...................................................... 30
Date, Time and Place of Award Annual Meeting............................ 30
Purpose................................................................. 30
Record Date and Outstanding Shares...................................... 30
Vote Required........................................................... 30
Proxies................................................................. 31
Solicitation of Proxies; Expenses....................................... 31
Dissenters' Rights...................................................... 31
Recommendations of Award Board of Directors............................. 31
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS........................... 32
Joint Reasons For the Merger............................................ 32
Phoenix's Reasons For the Merger........................................ 33
Award's Reasons For the Merger.......................................... 34
Material Contacts and Board Deliberations............................... 36
Opinion of Phoenix's Financial Advisor.................................. 40
Opinion of Award's Financial Advisor.................................... 45
Certain Federal Income Tax Considerations............................... 49
Governmental and Regulatory Approvals................................... 51
Accounting Treatment.................................................... 52
TERMS OF THE MERGER....................................................... 53
Effective Time.......................................................... 53
Manner and Basis of Converting Shares................................... 53
Stock Ownership Following the Merger.................................... 53
Conduct of Phoenix's and Award's Business Prior to the Merger........... 54
Conduct Following the Merger............................................ 56
No Solicitation......................................................... 56
Break Up Fees........................................................... 58
Conditions to the Merger................................................ 58
Termination of the Reorganization Agreement............................. 59
Affiliate Agreements.................................................... 61
Voting Agreements....................................................... 61
Interests of Certain Persons............................................ 61
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Dissenters' Rights...................................................... 62
INFORMATION CONCERNING AWARD.............................................. 64
General................................................................. 64
Industry Background..................................................... 64
Award Strategy.......................................................... 66
Products--System Management and Enabling Software....................... 67
Customers............................................................... 69
Sales and Marketing..................................................... 69
Product Development..................................................... 69
Competition............................................................. 70
Intellectual Property................................................... 71
Employees............................................................... 72
Properties.............................................................. 72
Legal Proceedings....................................................... 72
AWARD SELECTED FINANCIAL DATA............................................. 73
AWARD MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 74
Overview................................................................ 74
Results of Operations................................................... 76
Liquidity and Capital Resources......................................... 80
New Accounting Pronouncements........................................... 80
The Year 2000........................................................... 81
AWARD DIRECTORS AND EXECUTIVE OFFICERS.................................... 82
Directors............................................................... 82
Executive Officers...................................................... 84
Section 16(a) Beneficial Ownership Reporting Compliance................. 85
Executive Compensation.................................................. 85
Compensation of Executive Officers...................................... 86
Stock Option Grants and Exercise........................................ 86
Employment Agreements................................................... 88
Report of Compensation Committee of the Board of Directors on Executive
Compensation.......................................................... 88
Compensation Committee Interlocks and Insider Participation............. 90
Performance Measurement Comparison...................................... 91
Security Ownership of Certain Beneficial Owners and Management.......... 92
Certain Relationships and Related Transactions.......................... 94
COMPARISON OF CAPITAL STOCK............................................... 96
Description of Phoenix Capital Stock.................................... 96
Description of Award Capital Stock...................................... 98
Comparison of Capital Stock............................................. 99
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS............... 106
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS...... 109
ADDITIONAL MATTERS BEING SUBMITTED TO A VOTE OF ONLY PHOENIX
STOCKHOLDERS............................................................ 110
Proposal Two--Amendment to Restated Certificate of
Incorporation--Increase to Authorized Common Stock.................... 110
ADDITIONAL MATTERS BEING SUBMITTED TO A VOTE OF ONLY AWARD SHAREHOLDERS... 112
Proposal Two--Election of Directors..................................... 112
Proposal Three--Amendment to 1997 Equity Incentive Plan................. 113
</TABLE>
ii
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Proposal Four--Amendment to Employee Stock Purchase Plan................ 117
Proposal Five--Ratification of Selection of Independent Accountants..... 121
LEGAL MATTERS............................................................. 122
EXPERTS................................................................... 122
REPRESENTATIVES OF INDEPENDENT ACCOUNTANTS................................ 122
STOCKHOLDER'S AND SHAREHOLDER'S PROPOSAL.................................. 122
INDEX TO FINANCIAL STATEMENTS OF AWARD.................................... F-1
ANNEX A--Agreement and Plan of Reorganization
ANNEX B--Sections 1300-1312 of the California Corporations Code
ANNEX C--Opinion of Broadview Associates LLC
ANNEX D--Opinion of BancAmerica Robertson Stephens
</TABLE>
iii
<PAGE>
AVAILABLE INFORMATION
Phoenix and Award are subject to the information reporting requirements of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material may be obtained by mail from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC also maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC at the address
http://www.sec.gov. Phoenix Common Stock and Award Common Stock are quoted on
Nasdaq and such reports, proxy statements and other information can also be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006.
Phoenix has filed with the SEC a registration statement on Form S-4 (herein,
together with all amendments and exhibits, referred to as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act").
This Joint Proxy Statement/Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. For further information,
reference is hereby made to the Registration Statement. Copies of the
Registration Statement and the exhibits and schedules thereto may be inspected,
without charge, at the offices of the SEC, or obtained at prescribed rates from
the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY, AND, IF GIVEN, ANY SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PHOENIX,
AWARD, OR ANY OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON WHERE
IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PHOENIX OR AWARD
SINCE THE DATE HEREOF, OR THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the SEC by Phoenix (File No.
0-17111) pursuant to the Exchange Act are incorporated by reference in this
Joint Proxy Statement/Prospectus:
1. Phoenix's Annual Report on Form 10-K for the fiscal year ended September
30, 1997;
2. Phoenix's Quarterly Reports on Form 10-Q for the quarters ended December
31, 1997 and March 31, 1998;
3. Phoenix's Current Report on Form 8-K dated April 24, 1998;
4. Phoenix's Current Report on Form 8-K dated May 6, 1998;
5. Any description of any securities of Phoenix which is contained in any
registration statement filed under Section 12 of the Securities Exchange Act of
1934, as amended, (the "Exchange Act") including any amendment or report filed
for the purpose of updating any such description.
6. Description of Phoenix Preferred Stock Purchase Rights contained in
Phoenix's Current Report on Form 8-K filed with the SEC on October 31, 1989.
All documents and reports subsequently filed by Phoenix pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date of the Phoenix Special Meeting and
the Award Annual Meeting shall be deemed to be incorporated by reference in this
Joint Proxy Statement/Prospectus and to be a part hereof from the dates of
filing of such documents and reports.
1
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Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any statement
so modified or superseded shall not be deemed to constitute a part hereof except
as so modified or superseded.
All information contained or incorporated by reference on this Joint Proxy
Statement/Prospectus relating to Phoenix has been supplied by Phoenix, and all
such information relating to Award has been supplied by Award.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS OF PHOENIX BY
REFERENCE THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON ORAL OR
WRITTEN REQUEST BY ANY PERSON TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS HAS
BEEN DELIVERED FROM PHOENIX, 411 E. PLUMERIA DRIVE, SAN JOSE, CALIFORNIA 95134,
ATTENTION: INVESTOR RELATIONS; TELEPHONE NUMBER: (408) 570-1000. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING OF PHOENIX
AND THE ANNUAL MEETING OF AWARD, ANY SUCH REQUEST SHOULD BE MADE BY JUNE 15,
1998.
This Joint Proxy Statement/Prospectus contains trademarks of Phoenix and
Award and may contain trademarks of others.
2
<PAGE>
SUMMARY
THE FOLLOWING CONTAINS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN A
COMPLETE STATEMENT OF ALL MATERIAL ELEMENTS OF THE PROPOSALS TO BE VOTED ON AND
IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND IN THE INFORMATION AND
DOCUMENTS ANNEXED HERETO.
THE COMPANIES
PHOENIX TECHNOLOGIES LTD.
Phoenix designs, develops and markets system and chip level software for
personal computers ("PCs"), peripheral devices and information appliances.
Phoenix's software provides compatibility, connectivity and manageability of the
various components and technologies used in such devices. Phoenix provides these
products primarily to PC manufacturers, PC peripheral equipment manufacturers,
integrated circuit manufacturers, and system board manufacturers (collectively,
"OEMs"). Phoenix's products are designed to ensure compatibility with industry
standards and permit OEMs to introduce new products quickly while enabling
product differentiation and increasing system value. Phoenix system software
products are designed to reduce an OEM's product time to market, development
risks and support costs. Phoenix markets and licenses its products and services
worldwide, primarily to OEMs. Phoenix's system software customers range from
large PC manufacturers to small system integrators. Phoenix's revenue primarily
consists of license and engineering fees. Phoenix markets its products and
services primarily through a direct sales force, but also through regional
distributors and sales representatives. Phoenix promotes its products through
company newsletters and technical bulletins, trade and business press articles,
advertising, and participation in industry trade shows and conferences.
Phoenix was incorporated in Massachusetts in September 1979 and
reincorporated into Delaware in October 1986. The principal executive offices of
Phoenix are located at 411 E. Plumeria Drive, San Jose, California 95134.
Phoenix's telephone number is (408) 570-1000.
AWARD SOFTWARE INTERNATIONAL, INC.
Award designs, develops and markets system enabling and system management
software products for the global OEM, PC and other microprocessor-based (or
"embedded") device markets.
Award was incorporated in California on March 23, 1983. The principal
executive offices of Award are located at 777 East Middlefield Road, Mountain
View, California 94043-4023. Award's telephone number is (650) 237-6800.
PORTLAND ACQUISITION CORP.
Merger Sub is a corporation recently organized by Phoenix for the purpose of
effecting the Merger. It has no material assets and has not engaged in any
activities except in connection with the Merger. Merger Sub's executive offices
are located at 411 E. Plumeria Drive, San Jose, California 95134, and its
telephone number is (408) 570-1000.
SPECIAL MEETING OF STOCKHOLDERS OF PHOENIX
TIME, DATE, PLACE AND PURPOSE
The Phoenix Special Meeting will be held at Phoenix's headquarters at 411 E.
Plumeria Drive, San Jose, California 95134, on June 29, 1998 at 9:30 a.m., local
time. The purpose of the Phoenix Special Meeting is to approve (i) the issuance
of the Phoenix Common Stock to the shareholders of Award pursuant to the
Reorganization Agreement; and (ii) the amendment to the Restated Certificate of
Incorporation of Phoenix (the "Phoenix Certificate") to increase the number of
authorized shares of
3
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common stock of Phoenix by 20 million shares to 60 million shares. See "Phoenix
Special Meeting--Date, Time and Place of Phoenix Special Meeting," and
"--Purpose."
RECORD DATE AND VOTE REQUIRED
Only Phoenix stockholders of record at the close of business on May 22, 1998
(the "Phoenix Record Date") are entitled to notice of and to vote at the Phoenix
Special Meeting. Under Delaware law, the charter documents of Phoenix and the
rules of Nasdaq, the issuance of shares of Phoenix Common Stock in the Merger
requires the affirmative vote of a majority of the total votes cast regarding
such proposal and the amendment of the Phoenix Certificate requires the
affirmative vote of the holders of a majority of the outstanding shares of
Phoenix Common Stock. See "Phoenix Special Meeting--Record Date and Outstanding
Shares" and "--Vote Required."
As of the Phoenix Record Date, there were approximately 340 stockholders of
record and 16,764,759 shares of Phoenix Common Stock outstanding, with each
share entitled to one vote on each matter to be acted upon at the Phoenix
Special Meeting. As of the Phoenix Record Date, less than 1% of the outstanding
Phoenix Common Stock were held by directors and executive officers of Phoenix
and their affiliates. See "Phoenix Special Meeting--Vote Required."
RECOMMENDATIONS OF PHOENIX BOARD OF DIRECTORS
The Phoenix Board has unanimously approved the Reorganization Agreement and
the transactions contemplated thereby and has determined that the Merger is fair
and in the best interests of Phoenix and its stockholders. After careful
consideration, the Phoenix Board unanimously recommends a vote in favor of (i)
the issuance of the Phoenix Common Stock pursuant to the Reorganization
Agreement, and (ii) the amendment of the Phoenix Certificate to increase the
number of authorized shares of Phoenix Common Stock by 20 million shares to 60
million shares. Stockholders should read this Joint Proxy Statement/ Prospectus
carefully before voting. See "Phoenix Special Meeting--Recommendations of
Phoenix Board of Directors," "Approval of the Merger and Related
Transactions--Joint Reasons for the Merger," "-- Phoenix's Reasons for the
Merger" and "--Material Contacts and Board Deliberations."
ANNUAL MEETING OF SHAREHOLDERS OF AWARD
TIME, DATE, PLACE AND PURPOSE
The Award Annual Meeting will be held at the Sunnyvale Hilton Inn, 1250
Lakeside Drive, Sunnyvale, California 94086 on June 29, 1998 at 9:30 a.m. (local
time). The purpose of the Award Annual Meeting is to vote upon the following
proposals: (i) to approve and adopt the the Reorganization Agreement and approve
the Merger, (ii) to elect seven (7) directors to the Award Board of Directors,
(iii) to amend the Award 1997 Equity Incentive Plan to increase the number of
shares reserved for issuance thereunder by 700,000, (iv) to amend the Award
Employee Stock Purchase Plan to increase the number of shares reserved for
issuance thereunder by 200,000, (v) to ratify the appointment of Price
Waterhouse LLP as independent accountants of Award for the year ending December
31, 1998, and (vi) to transact such other business as may properly come before
the Award Annual Meeting or any adjournments or postponements thereof. Proposals
(ii), (iii), (iv) and (v), if approved, are intended to enable Award to conduct
its business on a standalone basis until such time as the Merger is consummated
and Award becomes a wholly owned subsidiary of Phoenix, or in the event that the
Merger is not consummated.
RECORD DATE AND VOTE REQUIRED
Only Award shareholders of record at the close of business on May 22, 1998
(the "Award Record Date") are entitled to vote at the Award Annual Meeting. The
proposal to approve the Merger will require approval by the affirmative vote of
the holders of a majority of the outstanding shares of Award common stock. The
other matters being submitted for consideration by the Award shareholders,
except the election
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of the Board of Directors, will require the affirmative vote of the holders of a
majority of the shares of Award Common Stock present (in person or by proxy) at
the Award Annual Meeting and entitled to vote thereon. The Board of Directors is
elected by a plurality vote. See "Award Annual Meeting--Vote Required,"
"Additional Matters Being Submitted to a Vote of Only Award
Shareholders--Proposal Two-- Election of Directors."
As of the Award Record Date, there were approximately 84 shareholders of
record of Award Common Stock and 7,192,485 shares of Award Common Stock
outstanding, with each share entitled to one vote on the matter to be acted upon
at the Award Annual Meeting, except with respect to the election of directors,
which may be by cumulative voting. As of the Award Record Date, approximately
40% of the outstanding Award Common Stock was held by directors and executive
officers of Award and their affiliates. See "Award Annual Meeting--Vote
Required," "Additional Matters Being Submitted to a Vote of Only Award
Shareholders--Proposal Two--Election of Directors."
DISSENTERS' RIGHTS
Pursuant to California law, holders of Award Common Stock may be entitled to
certain dissenters' rights ("Dissenters' Rights") in connection with the Merger.
A holder of Award Common Stock who desires to pursue Dissenters' Rights must (i)
make a written demand ("Notice") on Award no later than the date of the Award
Annual Meeting for the purchase of such shares and (ii) vote against the
Reorganization Agreement, all in accordance with the California Corporations
Code. See "Award Annual Meeting--Dissenters' Rights," "Terms of the
Merger--Dissenters' Rights" and Annex B hereto.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors pertaining to the
Merger and the combined businesses of Phoenix and Award.
REASONS FOR THE MERGER; RECOMMENDATIONS OF BOARDS OF DIRECTORS
JOINT REASONS
The Boards of Directors of Phoenix and Award believe that the proposed
Merger will afford to each company the complementary strengths of the two
individual companies, will provide the Combined Company significant potential
advantages, and potentially will enable the Combined Company to address emerging
strategic opportunities more quickly and effectively. The potential benefits to
the Combined Company include principally the following: (i) the opportunity to
utilize more efficiently complementary research and development capabilities of
the two companies and to share technology; (ii) the potential to achieve cost
reductions through economics of scale and operating synergies; (iii) the
broadening and integration of the companies' product lines; (iv) the opportunity
to cross-market the two companies' products to a larger customer base and to
offer customers a more complete solution to their system enabling and management
software needs; (v) the opportunity to expand the worldwide sales and support
organization for PC OEMs, peripheral device manufacturers and information
appliance manufacturers; and (vi) the combination of the two companies'
technical expertise will potentially allow the Combined Company to respond more
quickly to technological change and evolving architecture standards.
PHOENIX'S REASONS
The Phoenix Board considered a wide variety of information and a number of
factors in connection with its evaluation of the proposed Merger and the
Reorganization Agreement, and determined that the Merger provides an opportunity
that serves the best interests of Phoenix and its stockholders. The Phoenix
Board believes that the Merger may result in a number of benefits to Phoenix and
its stockholders, including, among others: the ability to (i) provide a broader
set of products to each company's customer groups and to lower future
development costs; (ii) provide a greater diversity of technical expertise and
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more resources to enable the Combined Company to respond to rapid technological
change; (iii) compete more effectively with inhouse design teams of larger OEM
customers; (iv) work toward a common "look and feel" across product lines; (v)
better represent the combined customer base with respect to the development of
new standards; (vi) leverage the combined sales and support organizations to
provide better geographic support and service; (vii) provide greater
opportunities to Phoenix employees; and (viii) provide Phoenix's stockholders
the opportunity to participate in the potential growth of the Combined Company.
See "Approval of the Merger and Related Transactions--Phoenix's Reasons for the
Merger."
THE PHOENIX BOARD UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT AND THE
MERGER AND RECOMMENDS A VOTE IN FAVOR OF THE ISSUANCE OF THE SHARES OF PHOENIX
COMMON STOCK PURSUANT TO THE REORGANIZATION AGREEMENT.
AWARD'S REASONS
The Award Board has unanimously approved the Merger and the Reorganization
Agreement because it believes that the terms of the Merger and the
Reorganization Agreement are fair to, and in the best interests of, Award and
its shareholders and that the Merger will create a stronger combined company
with greater potential than either company would have by itself. The potential
benefits of the Merger include the following: (i) the potential for increased
volume of sales which may result from offering complementary product lines of
Award and Phoenix that represent a complete solution to their customers with
respect to new technologies; (ii) the opportunity to utilize more efficiently
research and development capabilities of the two companies and to share
technology; (iii) the opportunity to increase revenues by leveraging the
worldwide sales and support organization of the Combined Company and by
marketing to an expanded customer base; (iv) the potential to respond more
quickly to customers' demand for technological enhancement and innovation; (v)
the greater liquidity and diversification of risk offered to the shareholders of
Award by an investment in the Combined Company; and (vi) greater opportunities
to Award employees in terms of both career directions and geographic
flexibility. By capitalizing on this opportunity, the Combined Company could
potentially realize improved long-term operating and financial results and a
stronger competitive position than the respective companies would have by
themselves. See "Approval of the Merger and Related Transactions--Award's
Reasons for the Merger."
THE AWARD BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE REORGANIZATION
AGREEMENT AND THE MERGER, AND RECOMMENDS A VOTE FOR ADOPTION AND APPROVAL OF THE
REORGANIZATION AGREEMENT AND APPROVAL OF THE MERGER BY THE SHAREHOLDERS OF
AWARD.
FAIRNESS OPINIONS
Broadview Associates LLC ("Broadview") has delivered to the Phoenix Board
its written opinion, dated April 13, 1998, to the effect that, as of such date,
and subject to the various factors and assumptions set forth therein, the
Exchange Ratio was fair from a financial point of view to Phoenix's
stockholders. The full text of the opinion of Broadview, which sets forth
assumptions made, matters considered and limitations on the review undertaken,
is attached as Annex C to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference. Holders of Phoenix Common Stock are urged to,
and should, read such opinion in its entirety. See "Approval of the Merger and
Related Transactions--Opinion of Phoenix's Financial Advisor" and Annex C
hereto.
BancAmerica Robertson Stephens has delivered to the Award Board its written
opinion, dated April 13, 1998, to the effect that, as of such date and subject
to the matters set forth therein, the Exchange Ratio was fair from a financial
point of view to the holders of Award Common Stock. The full text of the written
opinion of BancAmerica Robertson Stephens, which sets forth assumptions made,
matters considered and limitations on the review undertaken in connection with
its opinion, is attached as Annex D to
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this Joint Proxy Statement/Prospectus and is incorporated herein by reference.
Holders of Award Common Stock are urged to, and should, read such opinion in its
entirety. BancAmerica Robertson Stephens' opinion is directed only to the
fairness, from a financial point of view, of the Exchange Ratio to the holders
of Award Common Stock, does not address any other aspect of the Merger or
related transactions, and does not constitute a recommendation to any
shareholder of Award as to how such shareholder should vote at the Award Annual
Meeting. See "Approval of the Merger and Related Transactions--Opinion of
Award's Financial Advisor" and Annex D hereto.
INCOME TAX TREATMENT
The Merger is intended to qualify as a reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), in which case no
gain or loss generally should be recognized by the holders of shares of Award
Common Stock on the exchange of their shares of Award Common Stock solely for
shares of Phoenix Common Stock. As a condition to the consummation of the
Merger, each of Phoenix and Award will have received an opinion from tax counsel
that the Merger will constitute a reorganization under Section 368(a) of the
Code. However, all Award shareholders are urged to consult their own tax
advisors. See "Approval of the Merger and Related Transactions--Certain Federal
Income Tax Considerations."
REGULATORY MATTERS
Consummation of the Merger is subject to compliance with the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the "HSR Act").
The notifications required under the HSR Act as well as certain other
information have been furnished to the Federal Trade Commission (the "FTC") and
the Antitrust Division of the Department of Justice (the "Antitrust Division").
On May 20, 1998, requests from the Antitrust Division for additional information
and documentary material were timely received by both Phoenix and Award. Phoenix
and Award are in the process of complying with such additional requests. The
Merger will also need to satisfy the requirements of the federal securities laws
and applicable securities and "blue sky" laws of the various states. See
"Approval of the Merger and Related Transactions-- Governmental and Regulatory
Approvals."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes in accordance with generally accepted
accounting principles. Consummation of the Merger is conditioned upon receipt at
the closing of the Merger by Phoenix and Award of letters from Ernst & Young
LLP, Phoenix's independent accountants, regarding the firm's concurrence with
Phoenix management's conclusions as to the appropriateness of pooling of
interests accounting for the Merger under Accounting Principles Board Opinion
No. 16 ("APB No. 16"), if consummated in accordance with the Reorganization
Agreement, and the receipt by Award of a letter from Price Waterhouse LLP, its
independent accountants, regarding Price Waterhouse LLP's concurrence with
Award's management's conclusions as to the appropriateness of Award being a
party to a business combination for which the pooling of interests method of
accounting would be available in accordance with APB No. 16. See "Approval of
the Merger and Related Transactions--Accounting Treatment" and "Terms of the
Merger-- Conditions to the Merger."
THE MERGER
TERMS OF THE MERGER; EXCHANGE RATIO
At the Effective Time (as defined below) of the Merger, Merger Sub will
merge with and into Award, and Award will become a wholly owned subsidiary of
Phoenix. Once the Merger is consummated, Merger Sub will cease to exist as a
corporation, and all of the business, assets, liabilities and obligations of
Merger
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Sub will be merged into Award with Award remaining as the surviving corporation
(the "Surviving Corporation"). As a result of the Merger, each outstanding share
of Award Common Stock, other than shares as to which Dissenters' Rights pursuant
to the California Corporations Code have been perfected and shares owned by
Merger Sub, Phoenix or any wholly owned subsidiary of Phoenix, will be converted
into the right to receive 1.225 shares of Phoenix Common Stock (the "Exchange
Ratio"), and each outstanding option, warrant or right to purchase Award Common
Stock will be assumed by Phoenix and will become an option, warrant or right to
purchase shares of Phoenix Common Stock.
On April 15, 1998, the last full trading day prior to the public
announcement of the execution and delivery of the Reorganization Agreement, the
closing prices per share of Phoenix Common Stock and Award Common Stock on
Nasdaq were $13.125 and $14.25, respectively. On May 22, 1998, the closing
prices per share of Phoenix Common Stock and Award Common Stock on Nasdaq were
$10.6875 and $12.00, respectively. See "Comparative Market Price Data." Because
the Exchange Ratio is fixed, changes in the market price of Phoenix Common Stock
will affect the value of the Phoenix Common Stock to be received by shareholders
of Award in the Merger. Phoenix stockholders and Award shareholders are
encouraged to obtain current market quotations for Phoenix Common Stock and
Award Common Stock prior to the Phoenix Special Meeting and Award Annual
Meeting, respectively.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of an Agreement of Merger
(the "Agreement of Merger") with the Secretary of State of the State of
California or at such later time as may be agreed in writing by Phoenix, Award
and Merger Sub and specified in the Agreement of Merger (the "Effective Time").
Assuming all conditions to the Merger are met or waived prior thereto, it is
anticipated that the Closing Date of the Merger (the "Closing Date") and
Effective Time will be after the close of business on June 29, 1998. See "Terms
of the Merger--Effective Time."
EXCHANGE OF AWARD STOCK CERTIFICATES
Promptly after the Effective Time, Phoenix, acting through Boston EquiServe,
LP as its exchange agent (the "Exchange Agent"), will deliver to each Award
shareholder of record a letter of transmittal with instructions to be used by
such shareholder in surrendering certificates which, prior to the Merger,
represented shares of Award Common Stock. CERTIFICATES SHOULD NOT BE SURRENDERED
BY THE HOLDERS OF AWARD COMMON STOCK UNTIL SUCH HOLDERS RECEIVE THE LETTER OF
TRANSMITTAL FROM THE EXCHANGE AGENT. At the Effective Time, each then
outstanding option, warrant or right to purchase Award Common Stock, whether
vested or unvested, will be assumed by Phoenix without any action on the part of
the holder thereof and will become an option, warrant or right to purchase
Phoenix Common Stock. OPTION AND WARRANT AGREEMENTS NEED NOT BE SURRENDERED. See
"Terms of the Merger--Manner and Basis of Converting Shares."
FORM S-8 REGISTRATION STATEMENT
No later than two business days after the Closing Date, Phoenix will file a
registration statement on Form S-8 under the Securities Act covering the shares
of Phoenix Common Stock issuable upon exercise of options to purchase Award
Common Stock to be assumed in the Merger. See "Terms of the Merger-- Manner and
Basis of Converting Shares."
STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the number of shares of Award Common Stock outstanding and the
number of shares issuable upon exercise of outstanding options, warrants or
rights to purchase Award Common Stock as of March 31, 1998, and assuming that no
Dissenters' Rights are perfected, an aggregate of approximately
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8,734,000 shares of Phoenix Common Stock will be issued to Award shareholders in
the Merger and Phoenix will assume Award options, warrants or rights exercisable
for up to approximately 2,922,000 additional shares of Phoenix Common Stock.
Based upon the number of shares of Phoenix Common Stock issued and outstanding
as of March 31, 1998, and after giving effect to the issuance of the Phoenix
Common Stock as described in the previous sentence, the former holders of Award
Common Stock would hold, and have voting power with respect to, approximately
26% of Phoenix's total issued and outstanding shares as of the Effective Time,
and holders of former Award options, warrants or rights would hold options,
warrants or rights to purchase approximately 9% of Phoenix's total issued and
outstanding shares (assuming the exercise of all outstanding options or
warrants). The foregoing numbers of shares and percentages are subject to change
in the event that the capitalization of either Phoenix or Award changes
subsequent to March 31, 1998 and prior to the Effective Time, and there can be
no assurance as to the actual capitalization of Phoenix or Award at the
Effective Time or Phoenix at any time following the Effective Time. See "Terms
of the Merger--Stock Ownership Following the Merger."
BOARD OF DIRECTORS; MANAGEMENT FOLLOWING THE MERGER
Pursuant to the Reorganization Agreement, the Board of Directors of the
Combined Company following the Merger will consist of four (4) members who were
members of the Phoenix Board immediately prior to the Effective Time, and two
(2) members, George C. Huang and Anthony Sun, who were members of the Award
Board immediately prior to the Effective Time.
Following the Merger, the principal executive officers of the Combined
Company will be as follows: Jack Kay will continue to be President and Chief
Executive Officer; George C. Huang will become President of the Award Software
subsidiary, Senior Vice President of Strategic Business Development and Vice
Chairman of the Board of Directors; David Frodsham will continue to be Vice
President and General Manager PC Systems Division; Laurent K. Gharda will become
Vice President Corporate Marketing; Robert J. Riopel will continue to be Vice
President, Finance, Chief Financial Officer and Treasurer; Craig K. Slayter will
continue to be Vice President, Worldwide Field Operations; and Stuart J. Nichols
will continue to be Vice President, General Counsel and Secretary. See "Terms of
the Merger--Conduct Following the Merger."
CONDUCT OF BUSINESS PRIOR TO THE MERGER
Pursuant to the Reorganization Agreement, until the earlier of the
termination of the Reorganization Agreement pursuant to its terms or the
Effective Time, each of Award (and each of its subsidiaries) and Phoenix (and
each of its subsidiaries) agrees, except (i) as indicated in their respective
disclosure schedules or (ii) to the extent that the other of them shall
otherwise consent in writing, to conduct its business diligently, in accordance
with good commercial practice, in the usual, regular and ordinary course, in
substantially the same manner as previously conducted and in compliance with all
applicable laws and regulations; to pay its debts and taxes when due subject to
good faith disputes over such debts or taxes; to pay or perform other material
obligations when due; and to use its commercially reasonable efforts consistent
with past practices and policies to preserve intact its present business
organization, keep available the services of its present officers and employees,
and preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others with which it has business dealings. Each of
Award and Phoenix have agreed to promptly notify the other of any material event
involving its business or operations. In addition, Award and Phoenix have agreed
that they shall not, without the prior written consent of the other, perform or
engage in certain activities in the conduct of their business and the business
of their subsidiaries. See "Terms of the Merger--Conduct of Phoenix's and
Award's Business Prior to the Merger."
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NO SOLICITATION
Under the terms of the Reorganization Agreement, except under certain
limited circumstances, each of Phoenix and Award has agreed that it will not
engage in certain activities relating to, or which could result in, an
acquisition proposal from a third party. See "Terms of the Merger--No
Solicitation."
TERMINATION; FEES
The Reorganization Agreement may be terminated under certain circumstances.
Each of Phoenix and Award has agreed that if the Merger is not consummated under
certain circumstances, then it will pay the other $4 million. See "Terms of the
Merger--Termination of the Reorganization Agreement" and "-- Break Up Fees."
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to certain conditions, including: (i)
certain approvals by the shareholders of Award and stockholders of Phoenix in
connection with the Merger; (ii) declaration by the SEC of the effectiveness of
the Registration Statement; (iii) the absence of any law or order prohibiting
consummation of the Merger; (iv) all waiting periods under the HSR Act relating
to the transactions contemplated by the Reorganization Agreement shall have
expired or terminated early; (v) receipt by Phoenix and Award of legal opinions
that the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code; (vi) the shares of Common Stock issuable to shareholders of
Award pursuant to the Reorganization Agreement shall have been authorized for
listing on Nasdaq; (vii) receipt by Phoenix of a letter from its independent
accountants regarding the firm's concurrence with Phoenix management's
conclusions as to the appropriateness of pooling of interests accounting for the
Merger under APB No. 16 if consummated in accordance with the Reorganization
Agreement, and the receipt by Award of a letter from its independent accountants
regarding Price Waterhouse LLP's concurrence with Award's management's
conclusions as to the appropriateness of Award being a party to a business
combination for which the pooling of interests method of accounting would be
available in accordance with APB No. 16; (viii) the accuracy of the
representations and warranties given by each party in the Reorganization
Agreement; (ix) performance of all covenants required by the Reorganization
Agreement; and (x) the absence of a material adverse effect with regard to
either Phoenix or Award. See "Terms of the Merger--Conditions to the Merger."
AFFILIATE AGREEMENTS
Each of the members of the Phoenix Board have entered into agreements
restricting sales, dispositions or other transactions reducing their risk of
investment in respect of the shares of Phoenix Common Stock held by them to help
ensure that the Merger will be treated as a pooling of interests for accounting
and financial reporting purposes. Each of the members of the Award Board and
certain shareholders of Award have entered into agreements restricting sales,
dispositions or other transactions reducing their risk of investment in respect
of the shares of the Award Common Stock held by them prior to the Merger and the
Phoenix Common Stock to be received by them in the Merger so as to comply with
the requirements of applicable federal securities and tax laws and to help
ensure that the Merger will be treated as a pooling of interests for accounting
and financial reporting purposes. See "Terms of the Merger--Conditions to the
Merger" and "--Affiliate Agreements."
VOTING AGREEMENTS
Certain directors and other affiliates of Award, who together held
approximately 34% of the Award Common Stock outstanding as of the Award Record
Date, have entered into voting agreements with Phoenix (the "Voting Agreements")
pursuant to which such directors and other affiliates of Award have agreed to
vote in favor of the Merger and have granted Phoenix an irrevocable proxy to
vote their shares of Award Common Stock in favor of the Merger. See "Terms of
the Merger." Certain directors of Phoenix
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who, as of the Phoenix Record Date together held less than 1% of the Phoenix
Common Stock, have entered into voting agreements with Award pursuant to which
such directors of Phoenix have agreed to vote in favor of the Merger and have
granted Award an irrevocable proxy to vote their shares of Phoenix Common Stock
in favor of the Merger. See "Terms of the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Award Board with respect to the
Reorganization Agreement, holders of Award Common Stock should be aware that
members of the Award Board and the executive officers of Award have certain
interests in the Merger that are in addition to the interests of holders of
Award Common Stock generally. See "Terms of the Merger--Interests of Certain
Persons."
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND PHOENIX'S CHARTER DOCUMENTS
Upon consummation of the Merger, the shareholders of Award, a corporation
organized under the laws of California, will become stockholders of Phoenix, a
corporation organized under the laws of Delaware. Certain provisions of Delaware
law applicable to Phoenix may have the effect of delaying, deterring or
preventing changes in control or management of Phoenix. The charter documents of
Phoenix contain certain additional provisions which may further this effect.
Phoenix has adopted a Rights Agreement between Phoenix and the First National
Bank of Boston, as Rights Agent, as restated and amended October 31, 1989 (the
"Phoenix Rights Plan," and each right under the Phoenix Rights Plan, a "Right").
Pursuant to the Phoenix Rights Plan, each outstanding share of Phoenix Common
Stock has a Right to purchase one one-hundredth of a share of Series A Junior
Participating Preferred Stock, $.10 par value, at a purchase price of $30.00,
subject to adjustment following the occurrence of certain events, including, but
not limited to, ten days after the commencement or announcement of a hostile
tender offer which, if consummated, would result in the beneficial ownership by
a person or group of 30% or more of the outstanding shares of Phoenix Common
Stock. Each share of Phoenix Common Stock issued to the Award shareholders in
the Merger will also include a Right pursuant to the Phoenix Rights Plan. The
Phoenix Certificate designated 400,000 shares of Series A Junior Participating
Preferred Stock for issuance under the Phoenix Rights Plan. In addition, the
Phoenix Board has authority to issue up to an additional 100,000 shares of
Preferred Stock, par value $0.10, and to fix the rights, preferences, privileges
and restrictions, including voting rights, of such shares without any further
vote or action by the stockholders. The issuance of such Preferred Stock could
have a dilutive effect upon the stockholders of Phoenix, and could discourage an
unsolicited attempt to take over Phoenix. In addition, stockholders of Phoenix
will not be eligible to call special meetings, and will not be permitted to take
actions by written consent. See "Comparison of Capital Stock."
MARKET AND PRICE DATA
Phoenix Common Stock is traded on Nasdaq under the symbol "PTEC." On April
15, 1998, the last trading day before the announcement that the parties had
executed the Reorganization Agreement, the closing price of Phoenix Common Stock
as reported on Nasdaq was $13.125 per share. On May 22, 1998, the closing price
of Phoenix Common Stock as reported on Nasdaq was $10.6875 per share. There can
be no assurance as to the actual price of Phoenix Common Stock prior to, at or
at any time following the Effective Time of the Merger, or in the event the
Merger is not consummated.
Award Common Stock is traded on Nasdaq under the symbol "AWRD." On April 15,
1998, the last day before the announcement that the parties had executed the
Reorganization Agreement, the closing price of Award Common Stock as reported on
Nasdaq was $14.25 per share. Following the Merger, Award Common Stock will no
longer be traded on Nasdaq. On May 22, 1998, the closing price of Award Common
Stock as reported on Nasdaq was $12.00 per share. There can be no assurance as
to the actual price of Award Common Stock prior to or at the Effective Time of
the Merger, or in the event the Merger is not consummated. See "Risk Factors"
and "Comparison of Capital Stock."
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SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL DATA
The following selected historical annual financial information of Phoenix
and Award has been derived from their respective audited historical financial
statements and should be read in conjunction with such consolidated financial
statements and notes thereto. The consolidated financial statements for Phoenix
for the three years ended September 30, 1997 are incorporated by reference in
this Joint Proxy Statement/ Prospectus. The consolidated financial statements
for Award for the three years ended December 31, 1997 are contained elsewhere in
this Joint Proxy Statement/Prospectus. The selected historical financial
information as of March 31, 1998, and for the six month periods ended March 31,
1997 and 1998, for Phoenix have been derived from the unaudited consolidated
financial statements of Phoenix, and in the opinion of Phoenix's management
reflect all adjustments, consisting of only normal recurring adjustments,
necessary for the fair presentation of the unaudited interim financial
information. The selected historical financial information as of March 31, 1998,
and for the three-month periods ended March 31, 1997 and 1998, for Award have
been derived from the unaudited consolidated financial statements of Award, and
in the opinion of Award's management reflect all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of this
unaudited interim financial information. The results of operations for interim
periods are not necessarily indicative of the results to be expected for the
entire fiscal year or any future period. The selected pro forma combined
financial information is derived from the unaudited pro forma condensed combined
financial statements, and should be read in conjunction with such unaudited pro
forma financial statements and the notes thereto included in this Joint Proxy
Statement/ Prospectus. For purposes of the pro forma combined statement of
income data, Phoenix's consolidated statements of income for the years ended
September 30, 1995, 1996 and 1997, and for the six-month periods ended March 31,
1997 and 1998 have been combined with Award's consolidated statements of income
for the years ended December 31, 1995, 1996 and 1997, and for the six-month
periods ended June 30, 1997 and March 31, 1998. The pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
Merger had been consummated at the beginning of the periods indicated, nor is it
necessarily indicative of future operating results or financial position.
<TABLE>
<CAPTION>
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
---------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PHOENIX
HISTORICAL CONSOLIDATED STATEMENT OF INCOME
DATA:
Revenue:
License fees................................. $ 26,055 $ 34,913 $ 43,448 $ 62,497 $ 68,903 $ 33,862 $ 37,902
Services..................................... 3,596 5,676 6,493 9,639 13,226 5,714 10,046
Publishing(1)................................ 36,662 45,584 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total revenue.............................. 66,313 86,173 49,941 72,136 82,129 39,576 47,948
Income from continuing operations(1)(2)........ 3,565 19,230 8,815 9,047 15,655 5,379 5,044
Net income..................................... 2,599 6,794 8,815 12,799 15,655 5,379 5,044
Earnings per share(3):
Basic:
Income from continuing operations.......... $ 0.28 $ 1.40 $ 0.62 $ 0.57 $ 0.93 $ 0.32 $ 0.30
Net income................................. $ 0.21 $ 0.49 $ 0.62 $ 0.81 $ 0.93 $ 0.32 $ 0.30
Weighted average shares outstanding........ 12,657 13,736 14,191 15,840 16,881 16,814 16,844
Diluted:
Income from continuing operations.......... $ 0.26 $ 1.30 $ 0.54 $ 0.52 $ 0.87 $ 0.29 $ 0.29
Net income................................. $ 0.19 $ 0.46 $ 0.54 $ 0.73 $ 0.87 $ 0.29 $ 0.29
Weighted average shares outstanding........ 13,704 14,755 16,231 17,436 18,025 18,264 17,542
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
----------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET DATA:
Cash and short-term investments..................... $ 8,122 $ 33,889 $ 32,944 $ 57,039 $ 47,537 $ 60,426
Working capital..................................... 15,301 28,586 36,796 63,536 68,967 71,540
Total assets........................................ 51,616 63,235 62,390 113,549 128,811 116,334
Long-term debt...................................... -- -- -- -- -- --
Stockholders' equity................................ 31,481 39,446 50,418 89,577 103,727 96,974
</TABLE>
<TABLE>
<CAPTION>
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------------------------------------------------------
AWARD
--------------------------------------------------------------------
THREE
PREDECESSOR(4) MONTHS
--------------- ENDED
SIX MONTHS SIX MONTHS YEAR-ENDED DECEMBER 31, MARCH 31,
ENDED ENDED ------------------------------------------ ---------
JULY 1, 1993 DEC. 31, 1993 1994 1995 1996 1997 1997
--------------- ------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AWARD
HISTORICAL CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Software license fees............. $ 1,763 $ 1,903 $ 5,585 $ 6,989 $ 11,721 $ 19,502 $ 4,036
Engineering services.............. 47 107 161 239 472 2,366 347
Related parties(5)................ -- 50 972 1,902 1,878 1,499 645
------ ------------- --------- --------- --------- --------- ---------
Total revenues.................. 1,810 2,060 6,718 9,130 14,071 23,367 5,028
Net income (loss)................... (655) (1,178) 1,258 1,165 2,885 4,680 892
Earnings per share:(3)
Basic net income (loss) per
share........................... $ (0.31) $ 0.33 $ 0.28 $ 0.54 $ 0.68 $ 0.13
Weighted average common shares.... 3,842 3,842 4,136 5,335 6,867 6,792
Diluted net income (loss) per
share........................... $ (0.31) $ 0.33 $ 0.25 $ 0.47 $ 0.61 $ 0.12
Weighted average number of common
and common equivalent shares.... 3,842 3,842 4,650 6,095 7,705 7,701
<CAPTION>
1998
---------
<S> <C>
AWARD
HISTORICAL CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Software license fees............. $ 5,261
Engineering services.............. 679
Related parties(5)................ 466
---------
Total revenues.................. 6,406
Net income (loss)................... 1,148
Earnings per share:(3)
Basic net income (loss) per
share........................... $ 0.16
Weighted average common shares.... 6,963
Diluted net income (loss) per
share........................... $ 0.15
Weighted average number of common
and common equivalent shares.... 7,670
</TABLE>
<TABLE>
<CAPTION>
AWARD
------------------------------------------------------------------
PREDECESSOR(4)
--------------- AS OF DECEMBER 31, AS OF
AS OF ----------------------------------------------------- MARCH 31,
JULY 1, 1993 1993 1994 1995 1996 1997 1998
--------------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents.............. $ 156 $ 280 $ 1,374 $ 6,498 $ 23,248 $ 24,631 $ 25,604
Working capital (deficit).............. (1,189) (1,113) 1,173 6,642 23,792 27,416 28,507
Total assets........................... 1,088 1,807 3,119 9,083 28,410 34,381 36,109
Shareholders' equity (deficit)......... (1,099) (468) 1,695 7,169 25,091 29,812 31,179
</TABLE>
- ------------------------------
(1) In fiscal 1994, Phoenix sold 80% of its Publishing Division to Softbank
Corporation of Japan for cash payments of $30 million. A pre-tax gain was
recognized on the sale of approximately $23.5 million.
(2) Also in fiscal 1994, Phoenix sold all the assets of its Printer Software
Division to Xionics Document Technologies, Inc. ("Xionics") in return for a
promissory note and shares of Xionics common stock. A loss on the disposal
of $10.6 million was recorded as a loss from discontinued operations. During
fiscal 1995 and 1996, Phoenix made an additional loan to Xionics, exchanged
a portion of the note for additional common shares and reflected certain
adjustments to the purchase price in the note balance. In September 1996,
Xionics completed an initial public offering of its common stock and repaid
the net amount due to Phoenix. Phoenix sold 500,000 of its Xionics shares in
the offering. The amounts received were recorded as a gain on disposal of
discontinued operations, net of income taxes, to the extent such amounts
were previously written off by a charge to discontinued operations. The
balance of the amount received of $294,000 represents investment income and
was recorded as other income. In fiscal 1997, Phoenix sold 250,000
additional shares of Xionics common stock for a realized gain of $3,217,000,
which was recorded as other income.
(3) Phoenix and Award implemented the provisions of Statement of Financial
Accounting Standards Board (SFAS) No. 128 "Earnings Per Share" as of October
1, 1997, and January 1, 1998, respectively. Phoenix's and Award's earnings
per share for all periods before implementation have been restated, as
required, to conform to the computation provisions of SFAS No. 128.
(4) The Consolidated Financial Information as of and for the six months ended
June 30, 1993 are related to Award's predecessor, Award Software, Inc. (the
"Predecessor").
(5) Related parties revenues include software licenses and non-recurring
engineering services sold to certain of Award's common shareholders.
13
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF INCOME DATA(1)(2):
Revenue:
License fees..................................................... $ 51,521 $ 75,366 $ 89,884 $ 43,035 $ 50,502
Services......................................................... 7,550 10,841 15,612 6,771 11,387
--------- --------- --------- --------- ---------
Total revenue.................................................. 59,071 86,207 105,496 49,806 61,889
Income from continuing operations.................................. 9,980 11,932 20,335 7,271 7,852
Net income......................................................... 9,980 15,684 20,335 7,271 7,852
Earnings per share:
Basic:
Income from continuing operations.............................. $ 0.52 $ 0.53 $ 0.80 $ 0.29 $ 0.31
Net income..................................................... $ 0.52 $ 0.70 $ 0.80 $ 0.29 $ 0.31
Weighted average shares outstanding............................ 19,258 22,375 25,293 24,757 25,353
Diluted:
Income from continuing operations.............................. $ 0.46 $ 0.48 $ 0.74 $ 0.27 $ 0.29
Net income..................................................... $ 0.46 $ 0.63 $ 0.74 $ 0.27 $ 0.29
Weighted average shares outstanding............................ 21,927 24,902 27,464 27,151 26,939
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
---------------
<S> <C>
COMBINED BALANCE SHEET DATA(1)(2):
Cash and short-term investments................................................................. $ 86,030
Working capital................................................................................. 94,247
Total assets.................................................................................... 151,643
Long-term debt.................................................................................. --
Stockholders' equity............................................................................ 121,553
</TABLE>
- ------------------------------
(1) Phoenix expects to incur charges to operations related to the Merger
currently estimated to be between $6 million and $9 million in the quarter
ending June 30, 1998, the quarter in which the merger is expected to be
consummated, and in subsequent periods. These charges include direct
transaction costs, primarily for financial advisory and legal fees, and
costs associated with combining the operations of the two companies,
primarily related to redundant assets and facilities. An estimated charge of
$7.5 million (the midpoint of the above range), less estimated income tax
benefits of $0.9 million, is reflected in the Unaudited Pro Forma Condensed
Combined Balance Sheet Data, but is not reflected in the Unaudited Pro Forma
Condensed Combined Statement of Income Data. This range is a preliminary
estimate only, and is, therefore, subject to change.
(2) The Unaudited Pro Forma Condensed Combined Statements of Income combine
Phoenix's historical results of operations for the fiscal years ended
September 30, 1995, 1996 and 1997, and for the six-month periods ended March
31, 1997 and 1998, with Award's historical results of operations for the
years ended December 31, 1995, 1996 and 1997, and for the six-month periods
ended June 30, 1997 and March 31, 1998. The Unaudited Pro Forma Condensed
Combined Balance Sheet combines Phoenix's balance sheet as of March 31, 1998
with Award's balance sheet as of the same date.
14
<PAGE>
RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BY HOLDERS OF AWARD
COMMON STOCK IN EVALUATING WHETHER TO APPROVE AND ADOPT THE REORGANIZATION
AGREEMENT, AND BY HOLDERS OF PHOENIX COMMON STOCK IN EVALUATING WHETHER TO
APPROVE THE ISSUANCE OF PHOENIX COMMON STOCK PURSUANT TO THE REORGANIZATION
AGREEMENT. THESE FACTORS SHOULD BE CONSIDERED IN CONJUNCTION WITH THE OTHER
INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS INCLUDING THE FACTORS DISCUSSED IN PHOENIX'S ANNUAL REPORT
ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997.
RISKS RELATED TO MERGER
DIFFICULTIES OF INTEGRATING TWO COMPANIES. The successful combination of
Phoenix and Award will require substantial attention from management. The
anticipated benefits of this Merger will not be achieved unless the operations
of Award are successfully combined with those of Phoenix in a timely manner and
the Combined Company is able to realize the expected cost savings and other
operating efficiencies. The difficulties of assimilation may be increased by the
need to integrate personnel and to combine different corporate cultures. The
diversion of the attention of management and any difficulties encountered in the
transition process could have an adverse effect on the revenues and operating
results of the Combined Company. The successful combination of the two companies
will also require integration of the companies' product offerings and the
coordination of their research and development and sales and marketing efforts.
In addition, the process of combining the two organizations could cause the
interruption of, or a loss of momentum in, the activities of either or both of
the companies' businesses, which could have a material adverse effect on their
combined operations. There can be no assurance that the Combined Company will
realize the expected cost savings and other operating efficiencies or that it
will be able to retain and successfully integrate its key management, technical,
sales and customer support personnel, or that it will realize any of the
anticipated benefits of the Merger. See "Approval of the Merger and Related
Transactions--Joint Reasons for the Merger."
RISKS ASSOCIATED WITH FIXED EXCHANGE RATIO. As a result of the Merger, each
outstanding share of Award Common Stock will be converted into the right to
receive 1.225 shares of Phoenix Common Stock. Because the Exchange Ratio is
fixed, the number of shares to be received will not increase or decrease due to
fluctuations in the market price of either Phoenix Common Stock or Award Common
Stock. The specific value of the consideration to be received by Award
shareholders in the Merger will depend on the market price of Phoenix Common
Stock at the Effective Time. In the event that the market price of Phoenix
Common Stock decreases or increases prior to the Effective Time, the market
value at the Effective Time of the Phoenix Common Stock to be received by Award
shareholders in the Merger would correspondingly decrease or increase. The
market prices of Phoenix Common Stock and Award Common Stock as of a recent date
are set forth herein under "Summary--Market and Price Data," and "Comparative
Market Price Data." Phoenix stockholders and Award shareholders are advised to
obtain recent market quotations for Phoenix Common Stock and Award Common Stock.
Phoenix Common Stock and Award Common Stock historically have been subject to
substantial price volatility. No assurance can be given as to the market prices
of Phoenix Common Stock or Award Common Stock at any time before the Effective
Time or as to the market price of the common stock of the Combined Company at
any time thereafter. See "Summary--Market and Price Data," "Comparative Market
Price Data," and "Comparison of Capital Stock."
RISKS ASSOCIATED WITH GOVERNMENT APPROVALS. The Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the rules promulgated
thereunder, prohibit the completion of the Merger until expiration or
termination of a waiting period. On May 20, 1998, requests from the Antitrust
Division for additional information and documentary material were timely
received by both Phoenix and Award. Phoenix and Award are in the process of
complying with such additional requests, which may entail the incurrence of
substantial expenses. It is possible that governmental authorities may impose
conditions or remedial actions for granting approval under the HSR Act. However,
under the terms of the
15
<PAGE>
Reorganization Agreement or otherwise, neither Phoenix nor Award is obligated to
agree to such conditions or actions in order to facilitate the consummation of
the Merger. These can be no assurance that the consummation of the Merger will
not be delayed by reason of the HSR Act, or that failure to resolve antitrust
objections to the Merger on favorable or timely terms and conditions would not
lead to termination of the Reorganization Agreement.
SUBSTANTIAL EXPENSES RESULTING FROM THE MERGER. The negotiation and
implementation of the Merger will result in aggregate pre-tax expenses to
Phoenix and Award estimated at approximately $4 to $5 million, primarily
relating to costs associated with combining the operations of the two companies
and the fees of financial advisors, attorneys and accountants. Although the
companies do not believe that the costs will exceed the aforementioned amount,
there can be no assurance that the companies' estimate is correct or that
unanticipated contingencies will not occur that will substantially increase the
costs of combining the operations of the two companies. In particular, such
expenses may increase substantially if the companies are required to respond to
requests for further information with respect to the companies' filings under
the HSR Act. In any event, costs associated with the Merger are expected to
negatively impact results of operations in the quarter in which the transaction
closes and in subsequent quarters.
DEPENDENCE ON RETENTION AND INTEGRATION OF KEY MANAGEMENT. The success of
the Combined Company is dependent on the retention and integration of the
management of Phoenix and Award. While the Combined Company intends to implement
management retention arrangements for all members of Award's senior management,
there can be no assurance that such senior management personnel will remain with
the Combined Company. The loss of services of a significant number of these
individuals or of the other key members of the Combined Company's management
team could adversely affect the Combined Company's business and financial
results.
In addition, the future success of the Combined Company is dependent, in
part, on its ability to retain and attract additional skilled personnel in all
areas of its business on a worldwide basis. Competition for such personnel is
intense. There can be no assurance that the Combined Company will be able to
retain its existing key management, engineering and sales personnel or attract
additional qualified employees in the future. This could be particularly
significant if the Combined Company needs to hire, train and assimilate a large
number of new employees. A failure to retain or attract qualified employees
could materially adversely affect the business and financial results of the
Combined Company.
RISKS RELATED TO BUSINESS AND OPERATIONS
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. Phoenix's and Award's
quarterly operating results have fluctuated in the past, and the Combined
Company's operating results are expected to fluctuate in the future. The
Combined Company's operating results will be dependent on many factors,
including the economic conditions in the PC and information appliance industry,
the size and timing of the receipt of orders from customers, customer
cancellations or delays of shipments, the Combined Company's ability to develop,
introduce and market new and enhanced products on a timely basis, the
introduction of new products by competitors, changes in average selling prices
and product mix, and exchange rate fluctuations, among others. The Combined
Company's expense levels will be based, in part, on expectations of future
revenues. If revenue levels in a particular quarter do not meet expectations,
operating results could be adversely affected. The Combined Company's results of
operations for a particular quarter could be adversely affected if anticipated
orders are not received in time to permit shipment during such quarter or, if
anticipated shipments are delayed or canceled by one or more customers. There
can be no assurance that these and other factors will not materially adversely
affect the Combined Company's future business and financial results.
DEPENDENCE ON THE UNDERLYING PC INDUSTRY; DEPENDENCE ON CURRENT PC INDUSTRY
STANDARDS. The demand for both Phoenix's and Award's system management software
depends, and the demand for the Combined Company's system management software
will depend, principally on demand in the PC and
16
<PAGE>
information appliance market. Sales of PCs and information appliances fluctuate
substantially from time to time based on numerous factors, including general
economic conditions, new hardware and software product introductions, demand for
new applications, shortages of key components and seasonality. Further, the PC
and information appliances market is extremely competitive and characterized by
rapid and frequent price reductions, resulting in pressure on suppliers to lower
costs and maintain competitive pricing. These conditions may adversely affect
the Combined Company's aggregate revenues and operating results, and no
assurance can be given that the Combined Company's revenue and operating results
will not be adversely affected by future downturns in the PC and information
appliance market. Even during periods of reduced revenues, in order to remain
competitive, the Combined Company will be required to continue to invest in
research and development and to maintain extensive ongoing worldwide customer
service and support capability which could adversely affect its financial
results.
In addition, Phoenix's and Award's PC system management software to date has
been developed primarily to support microprocessors designed by or compatible
with Intel Corporation and Microsoft Corporation's Windows operating system
software. If the PC market shifted away from Intel-compatible microprocessors or
Microsoft operating system software, the Combined Company could experience
increased product development costs and/or diminished revenues, which could have
an adverse effect on the Combined Company's business, financial condition and
results of operations.
IMPORTANCE OF MICROSOFT AND INTEL. For a number of years, Phoenix and Award
have worked closely with Microsoft Corporation and Intel Corporation in
developing standards for the PC industry. In addition, Phoenix supplies its
system level software technology to Intel, and Award supplies its system level
software technology to the OEM motherboard market, which incorporates Intel
standards. There can be no assurance, however, that either Microsoft or Intel
will not develop alternative product strategies which could conflict with the
Combined Company's product plans and marketing strategies and, accordingly,
adversely affect the Combined Company's business, financial condition and
results of operations. Both Intel and Microsoft, in their endeavors to add
value, may incorporate features or functions currently provided by Phoenix or
Award either within the microprocessor or within the operating system.
Therefore, the Combined Company must continually create new features and
functions to sustain as well as increase its added value to OEMs. There can be
no assurances that the Combined Company will be successful in these efforts.
DEPENDENCE ON NEW PRODUCTS AND PROCESSES; RAPID TECHNOLOGICAL CHANGE. Both
Phoenix and Award believe that the future success of the Combined Company will
depend in part upon its ability to develop and successfully introduce new
products and to continue to enhance existing products that meet the needs of its
current and future customers. Due to the risks inherent in transitioning to new
products, the Combined Company will be required to accurately forecast demand
for new products while managing the transition from older products. If new
products have reliability or quality problems, the Combined Company may
experience lower than anticipated orders, delays in acceptance or payment, or
additional service and warranty expense. In the past, both Phoenix and Award
have experienced delays as well as reliability and quality problems in
connection with product introductions, resulting in some of these consequences.
There can be no assurance that the Combined Company will successfully develop
and manufacture new products, or that new products introduced by the Combined
Company will be accepted in the marketplace. If the Combined Company does not
successfully introduce new products, the Combined Company's results of
operations will be materially adversely affected.
In addition, both Phoenix and Award expect the Combined Company to continue
to make significant investments in research and development. There can be no
assurance that future technologies, processes or product developments will not
render the Combined Company's current product offerings obsolete or that the
Combined Company will be able to develop and introduce new products or
enhancements to its existing products which satisfy customer needs in a timely
manner or achieve market acceptance. The failure to do so could adversely affect
the Combined Company's business, financial condition or results of operations.
17
<PAGE>
HIGHLY COMPETITIVE INDUSTRY. The markets for Phoenix's and Award's products
are, and the markets for the Combined Company's products will continue to be,
highly competitive. Each of Phoenix and Award has experienced and expects to
continue to experience substantial competition throughout the world. Both
Phoenix and Award believe that to remain competitive, the Combined Company will
require significant financial resources in order to offer a broad range of
products, to maintain customer service worldwide, and to invest in product
research and with development. Phoenix and Award compete with other independent
suppliers of system level software products as well as in-house research and
development departments of PC manufacturers and OEMs. Many of these competitors
have substantially greater financial resources and more extensive engineering,
manufacturing, marketing and customer service and support capabilities than
either Phoenix or Award have or the Combined Company will have. The Combined
Company expects its competitors to continue to enhance their current products
and to introduce new products and processes with improved price and performance
characteristics. No assurance can be given that the Combined Company will be
able to compete successfully worldwide and the failure to do so will have a
material adverse effect on the Combined Company's future business, financial
condition and results of operations.
IMPORTANCE OF INTERNATIONAL SALES. International sales accounted for 52%,
55% and 63% of Phoenix's net sales for fiscal years 1995, 1996 and 1997,
respectively, and 68%, 71% and 55% of Award's net sales for years 1995, 1996 and
1997, respectively. Both Phoenix and Award expect that international sales will
continue to represent a significant percentage of net sales of the Combined
Company. The future performance of the Combined Company will be dependent, in
part, upon its ability to continue to compete successfully in Asia, one of the
largest areas for the sale of systems level software. The Combined Company's
ability to compete in this area in the future is dependent upon the continuation
of favorable trading relationships between the region (especially Japan and
Taiwan) and the United States and the continuing ability of the Combined Company
to maintain satisfactory relationships with leading PC manufacturers in the
region. International sales and operations may be adversely affected by the
imposition of governmental controls, restrictions on export technology,
political instability, trade restrictions, changes in tariffs, and the
difficulties associated with staffing and managing international operations. In
addition, international sales may be adversely affected by the economic
conditions in each country. The net sales and income from the Combined Company's
international business may be affected by fluctuations in currency exchange
rates. Although both Phoenix and Award license products in U.S. dollars in most
contracts and attempt to manage near term currency risks through "hedging," and
the Combined Company is expected to do the same, there can be no assurance that
such efforts will be adequate. The failure of the Combined Company to compete
successfully internationally, or the existence of any of the foregoing factors,
could have a material adverse effect on the Combined Company's future business,
financial condition and results of operations.
DEPENDENCE ON KEY CUSTOMERS. Phoenix's customer base consists principally
of large OEMs in the PC market and the Combined Company's customer base is
expected to continue to consist of such customers. The loss of any key customer
and the inability of the Combined Company to replace revenues provided by a key
customer could have a material adverse effect on the Combined Company's
business, financial condition and results of operations. In addition, Phoenix
maintains significant receivable balances with major OEMs and the Combined
Company is expected to continue to maintain significant receivable balances. If
these OEMs fail to meet their payment obligations, the Combined Company's
business, financial condition and results of operations could be materially
adversely affected.
INTELLECTUAL PROPERTY MATTERS. Both Phoenix's and Award's success depends
substantially on their proprietary technology. While the Combined Company will
attempt to protect its proprietary technology through patents, copyrights and
trade secrets, there can be no assurance that the Combined Company will be able
to do so or that competitors will not be able to develop similar technology
independently. Phoenix and Award currently have a limited number of United
States patents and foreign patents and patent applications. There can be no
assurance that any patent applications will result in issued patents or that
18
<PAGE>
any patents issued to Phoenix, Award or the Combined Company will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide competitive advantages to Phoenix, Award or to the Combined
Company.
POTENTIAL VOLATILITY OF COMMON STOCK PRICE. The market price of Phoenix
Common Stock could be subject to significant fluctuations in response to
variations in quarterly operating results, shortfalls in revenues or earnings
from levels expected by securities analysts and other factors such as
announcements of technological innovations or new products by the Combined
Company or by the Combined Company's competitors, government regulations, or
developments in patent or other proprietary rights. In addition, the stock
market has in recent years experienced significant price fluctuations. These
fluctuations often have been unrelated to the operating performance of the
specific companies whose stocks are traded. Broad market fluctuations, as well
as economic conditions generally in the PC and information appliance industry,
may adversely affect the market price of the Phoenix Common Stock.
POTENTIAL ANTI-TAKEOVER EFFECTS. Certain provisions of the Phoenix Rights
Plan, the Phoenix Certificate and Delaware law could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Combined Company. In addition to the 400,000 shares of Series A Junior Preferred
Stock issuable pursuant to the Phoenix Rights Plan, the Combined Company Board
will have the authority to issue up to 100,000 shares of Preferred Stock without
any further vote or action by the stockholders. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control of
the Combined Company without further action by the stockholders and could
adversely affect the rights and powers, including voting rights, of the holders
of common stock of the Combined Company. Such effects could result in a decrease
in the market price of the Combined Company's common stock. In addition,
stockholders of the Combined Company will not be eligible to call special
meetings of stockholders, and stockholders will not be permitted to take actions
by written consent. These provisions could diminish the opportunities for a
stockholder to participate in tender offers, including tender offers at a price
above the then current market value of the common stock of the Combined Company.
Such provisions may also inhibit increases in the market price of the common
stock of the Combined Company that could result from takeover attempts. See
"Comparison of Capital Stock."
AWARD BUSINESS RISKS
DEPENDENCE ON THE UNDERLYING PC INDUSTRY; DEPENDENCE ON CURRENT PC INDUSTRY
STANDARDS. The demand for the Award's system management software depends
principally on (i) motherboard manufacturers and other customers licensing
Award's software rather than developing their own system management software,
(ii) market acceptance of the products incorporating Award's software sold by
Award's OEM customers, (iii) the emergence of new PC technologies that require
system management software solutions to provide functionality, user value and
performance, and (iv) the technological competence of Award's core products.
Sales of motherboards and PCs fluctuate substantially from time to time based on
numerous factors, including general economic conditions in the markets for
Award's customers' products, new hardware and software product introductions,
demand for new applications, shortages of key components and seasonality.
Further, the markets in the PC industry are extremely competitive and
characterized by rapid and frequent price reductions.
The introduction of new hardware architectures, microprocessors, peripheral
equipment and operating systems within the PC industry has increased the
complexity, time to market and total cost of ownership. A number of computer
manufacturers, including IBM Corporation ("IBM"), Dell and Compaq, develop some
of their own BIOS products to achieve compatibility with and integrate new
technologies into their products. While Award believes that price and
time-to-market pressures will continue to foster a trend among its customers and
potential customers to out-source system management software requirements to
third parties, there can be no assurance that this trend will continue or will
not reverse itself, which would have a material adverse effect on Award's
business, financial condition and results of operations. See "Information
Concerning Award--Industry Background" and "--Award Strategy."
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<PAGE>
Award's software to date has been primarily based on central processing
units ("CPUs") designed by or compatible with those of Intel and operating
system software designed by Microsoft. If the market for Intel and
Intel-compatible CPUs with x86 architecture is materially diminished or if
another CPU, such as Motorola's PowerPC, achieves a high degree of success,
demand for Award's current software would be reduced. In addition, most of
Award's software has been installed on computers using Microsoft's MS/ DOS or
Windows operating systems. If Microsoft's operating systems cease to be the
dominant operating systems for the PC industry, or if PC manufacturers use other
operating systems, which are not compatible with MS/DOS or Windows, Award could
experience increased product development costs and/or diminished revenues.
CONCENTRATION OF REVENUES FROM DESKTOP BIOS. Award depends on sales of
desktop BIOS to Taiwanese and Hong Kong motherboard manufacturers for a
substantial majority of its revenues. Award has not generated substantial
revenues from the sale of other products to date, including sales of mobile PC
products. If sales of Award's desktop BIOS decline for any reason, or if the
average price of desktop BIOS declines as the trend toward sub-$1,000 PCs
("Segment Zero") continues, Award's business, financial condition and results of
operations would be adversely affected unless Award is able to replace those
sales with increased sales of other products. Sales of desktop BIOS could
decline for a number of reasons, including a shift in the market for PCs away
from desktop PCs in favor of mobile PCs and a delay in expected new hardware and
software technologies from Intel and Microsoft.
COMPETITION FROM SYSTEM MANAGEMENT SOFTWARE COMPANIES AND OTHER
PARTICIPANTS, INCLUDING MICROSOFT AND INTEL, IN THE PC INDUSTRY. The markets
for Award's software are highly competitive. Award faces competition primarily
from other system management software companies, including American Megatrends,
Inc. ("AMI"), Phoenix and SystemSoft Corporation ("SystemSoft"), as well as
in-house software development staffs of current and prospective customers.
Certain of the companies with which Award competes or may in the future compete
have substantially greater financial, marketing, sales and support resources and
greater brand name and technology leadership recognition than Award. There can
be no assurance that Award will be able to develop software comparable or
superior to software offered by its competitors. In addition, the PC market
experiences intense price competition and Award expects that, to remain
competitive, it may have to decrease unit prices on some or all of its software
products. Any such decrease would have a material adverse effect on Award's
business, financial condition and results of operations.
Award believes that interdependencies may develop between system management
software companies and their customers, which would need to be overcome to
replace an entrenched competitor. While Award believes that such entrenchment
may benefit Award in its existing relationships with key participants in the
desktop PC market, customer entrenchment may make it more difficult for Award to
displace entrenched competitors or increase market presence, particularly in the
mobile PC market, where competitors may already have strong relationships with
certain mobile PC manufacturers. Intel has entered into formal agreements with,
and has become a significant shareholder in, Phoenix and SystemSoft. In
addition, SystemSoft has entered into agreements with Microsoft, IBM and Compaq
to license its PC Card software.
Operating system software vendors may in the future enter Award's primary
markets as direct competitors or may incorporate enough features into their
products to reduce the need for Award's products. Microsoft includes basic PC
Card software in its Windows 95 operating system and announced the inclusion of
full PC Card software support in its next generation Windows 98 and Windows NT
5.0 operating systems. Microsoft's recently released Windows CE 2.0 operating
system includes embedded toolkit software that incorporates system management
software features and some PC Card capabilities. As software developers provide
greater functionality and features, user value and performance in their products
that eliminate or reduce the need for Award's system management software, the
market for Award's products could be materially diminished. In addition, chipset
manufacturers, including Intel, may increase their presence in the motherboard
manufacturing market, which may have an adverse effect on Award's OEM customers.
There can be no assurance that other participants in the PC industry will not
20
<PAGE>
develop products and solutions that reduce the demand or obviate the need for
Award's products. See "Information Concerning Award--Competition."
ABILITY TO RESPOND TO RAPID TECHNOLOGICAL CHANGE. The market for system
management software is characterized by rapidly changing technology, evolving
industry standards and frequent new product introductions. The general trend in
the PC industry is toward shorter product life cycles, resulting in rapid
product and technology obsolescence. The life cycle of Award's products is
highly dependent on the life cycles of the products sold by its customers, who
are primarily in the desktop PC industry. Although Award's core products,
specifically, the desktop and embedded device BIOS, PC Card software and
embedded system enabling products, may have a life cycle as long as several
years, specific customized adaptations of Award's core products are generally
expected to have a life cycle of six months to one year. Award's future success
will depend on its ability to enhance its core software and to develop and
introduce new software that keeps pace with technological developments and
evolving industry standards, as well as its ability to respond to its customers'
and end-users' demand for greater features and functionality. Award is currently
developing certain technologies that it will need to remain competitive. There
can be no assurance that Award will be successful in developing such
enhancements or new software, or, even if successful, that it will not
experience delays in achieving such developments. Any failure or delay by Award
to develop such enhancements or new software or the failure of its software to
achieve market acceptance would adversely affect Award's business, financial
condition and results of operations. In addition, there can be no assurance that
products or technologies developed by others will not render Award's software or
technologies non-competitive or obsolete. See "Information Concerning
Award--Industry Background" and "--Product Development."
DEPENDENCE ON KEY CUSTOMER RELATIONSHIPS; CONCENTRATION OF CREDIT
RISK. Award believes that its success to date has been largely due to its
relationship with participants in the desktop PC industry, particularly OEMs in
the desktop PC market. Award works closely with its customers to provide quick
response to their product design needs and assists them in evaluating new
technological developments as they affect future products and enhancements to be
sold by Award's customers. The loss of any one of these strategic relationships
or any other significant customer in the PC industry could adversely affect
Award's product development efforts, business, financial condition and results
of operations.
Award's customer base consists primarily of motherboard manufacturers and
OEMs in the desktop PC market, and as a result Award maintains individually
significant receivable balances from these customers. If these customers fail to
satisfy their payment obligations, Award's business, financial condition and
results of operations would be adversely affected.
UNCERTAIN ACCEPTANCE IN NEW AND DEVELOPING MARKETS. Award's future success
is dependent on customer acceptance of new products and penetration of markets
outside the desktop PC market. There can be no assurance that Award will be able
to expand its products and technologies into the mobile PC, embedded device and
network computing and Internet markets or that Award will be able to increase
its market presence in the desktop PC market. Expansion of Award's software and
technology into the mobile PC market will depend primarily on Award's ability to
replace entrenched competitors. Penetration of markets outside the desktop PC
market, such as the embedded device market, will depend upon the development and
availability of system management software providing the necessary functionality
and customer acceptance of such new technology. There can be no assurance that
Award will be able to develop or obtain from third parties the necessary
software and technology to penetrate these markets, or that, if such software
and technology are developed by Award or obtained from third parties through
licensing, which may include payments of license fees or royalties in advance,
Award will be able to successfully distribute such products. There can be no
assurance that such products will not be developed by others, rendering Award's
products non-competitive or obsolete. There can be no assurance that Award will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of such new products, or that such
products will achieve market acceptance. In addition, there
21
<PAGE>
can be no assurance that the introduction of Microsoft Windows CE into the
embedded device and Internet appliance market will not have a material impact on
Award's new products for these markets.
Any increase in the demand for Award's embedded device products is dependent
upon the increasing use and complexity of embedded computer systems in new and
traditional products. No assurance can be given that this trend will continue
or, even if it does, that Award will be able to design system management
software that will address the unique requirements of the embedded device
market. Further, since Award's experience and expertise are based on Intel x86
architecture, Award's success in the embedded device market is significantly
dependent on Intel's continued commitment to, and the increased presence of x86
architecture in, this market. There can be no assurance that Intel will not
de-emphasize or withdraw its support of the embedded device market, or that the
trend toward x86 architecture in the embedded device market will continue, any
of which could result in a material adverse effect on Award's growth strategies,
financial condition and results of operations.
Certain of the markets for Award's existing and future products, such as the
Internet and private internet protocol networks ("Intranet"), have only recently
begun to develop and are rapidly evolving. Demand and market acceptance for
recently introduced or developing products are subject to a high level of
uncertainty and risk. Critical issues concerning the commercial use of the
Internet remain unresolved and could adversely affect the growth of Internet
use. There can be no assurance that commerce and communication over the Internet
or Intranet will become widespread, or that Award's planned products addressing
the Internet and Intranet markets will become widely accepted. Because these
markets for Award's existing and developing products are new and rapidly
emerging, it is difficult to predict the future growth rate, if any, and size of
these markets. There can be no assurance that such markets for Award's existing
and developing products and technology will develop or that such products will
be accepted. If these markets fail to develop, develop more slowly than
anticipated or become saturated with competitors, or if Award's products do not
obtain customer acceptance, Award's business, financial condition and results of
operations could be materially adversely affected. See "Information Concerning
Award--Award Strategy."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY. Award has
experienced and expects to continue to experience fluctuations in its quarterly
results of operations. Award's revenues are affected by a number of factors,
including the demand for PCs and embedded devices, timing of new product
introductions, product mix, volume and timing of customer orders, activities of
competitors and the ability of Award to penetrate new markets. Award's business
is seasonal with revenues generally increasing in the fourth quarter as the
result of increased PC shipments during the holiday season. Consequently, during
the three quarters ending in March, June and September, Award has historically
not been as profitable as in the quarter ending in December. In addition,
Award's profits have historically decreased in the first quarter of each year as
compared with the fourth quarter of the previous year. Award generally ships
orders as they are received and, as a result, has little or no backlog.
Quarterly revenues and results of operations therefore depend on the volume and
timing of orders received during the quarter, which are difficult to forecast.
Because Award's staffing and other operating expenses are based on anticipated
revenues, delays in the receipt of orders can cause significant variations in
results of operations from quarter to quarter. Award also may choose to reduce
prices, increase spending in response to competition or pursue new market
opportunities, each of which decisions may adversely affect Award's business,
financial condition and results of operations. Therefore, Award believes that
period-to-period comparisons of its revenues and operating results are not
necessarily meaningful and should not be relied upon as indicators of future
performance.
Due to all of the foregoing factors, it is likely that in some future
quarters Award's operating results will be below the expectations of public
market analysts and investors. Regardless of the general outlook for Award's
business, the announcement of quarterly results of operations below analyst and
investor expectations is likely to result in a decline in the trading price of
Award's Common Stock.
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<PAGE>
VARIATIONS IN OPERATING RESULTS. The revenue growth rates experienced by
Award to date may not be indicative of future growth rates and there can be no
assurance that Award will remain profitable in the future. Future results of
operations may fluctuate significantly based on numerous factors including the
demand for PCs and embedded devices, the timing of new product introductions,
product mix, volume and timing of customer orders, activities of competitors and
the ability of Award to penetrate new markets. The volume and timing of new
contracts and delays in the achievement of milestones could have a significant
impact on operating results for a particular quarter. In addition, the delay of
Windows 98 by Microsoft could slow the growth of the PC market until such time
as that product is released.
DEPENDENCE ON KEY PERSONNEL; ABILITY TO ATTRACT AND RETAIN KEY TECHNICAL
EMPLOYEES. Award's success to date has depended to a significant extent upon a
number of key management and technical employees. The loss of services of one or
more of these key employees, particularly George C. Huang, Award's Chairman of
the Board, President and Chief Executive Officer; and Lyon T. Lin, General
Manager, Taiwan and President, Award Software Hong Kong Limited, Taiwan Branch,
could have a material adverse effect on Award's business, financial condition
and results of operations. Except for two employees in the U.S. and all
employees in Germany, none of Award's employees is party to an employment
agreement with Award. Award believes that its future success will also depend in
large part upon its ability to attract and retain highly skilled technical,
management and sales and marketing personnel. Moreover, because the development
of Award's software requires knowledge of computer hardware, operating system
software, system management software and application software, key technical
personnel must be proficient in a number of disciplines. Competition for such
technical personnel is intense, and the failure of Award to hire and retain
talented technical personnel or the loss of one or more key employees could have
an adverse effect on Award's business, financial condition and results of
operations.
Future growth, if any, of Award will require additional engineering, sales
and marketing, and financial and administrative personnel to expand customer
services and support and to expand operational and financial systems. There can
be no assurance that Award will be able to attract and retain the necessary
personnel to accomplish its growth strategies or that it will not experience
constraints that will adversely affect its ability to satisfy customer demand in
a timely fashion. If Award's management is unable to manage growth effectively,
Award's business, financial condition and results of operations could be
adversely affected.
MANAGEMENT OF GROWTH. The growth of Award's business and, in particular,
Award's customer base, has placed, and is expected to continue to place, a
strain on Award's management systems and resources. Award's ability to compete
effectively and manage future growth, if any, will require Award to continue to
improve its financial and management controls, reporting systems and procedures
on a timely basis, and to expand, train and manage its work force. There can be
no assurance that Award will be able to do so successfully, and the failure to
do so would have a material adverse effect upon Award's business, financial
condition and results of operations. Award's success will depend to a
significant degree on the ability of its executive officers and other members of
its senior management, none of whom has any prior experience managing public
companies in their current roles, to manage future growth, if any.
INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS; INTERNATIONAL
UNREST. Award operates on a multinational basis, and a significant portion of
its business is conducted in currencies other than the U.S. Dollar. As a result,
Award is subject to various risks, including exposure to currency fluctuations,
greater difficulty in administering its global business, multiple regulatory
requirements and other risks associated with international sales, such as import
and export licenses, political and economic instability, overlapping or
differing tax structures, trade restrictions, changes in tariff rates, different
legal regimes, difficulty in protecting intellectual property, enforcing
agreements and collecting accounts receivable. During the year ended December
31, 1997, approximately 41% and 3% of Award's revenues were denominated in New
Taiwan Dollars and German Marks, respectively. During the three months ended
March 31, 1998, approximately 43% and 4% of Award's revenues were denominated in
Taiwan Dollars and German Marks,
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<PAGE>
respectively. Award's revenues denominated in Japanese Yen were immaterial
during the year ended December 31, 1997 and the three months ended March 31,
1998. While the impact of foreign exchange rate movements have not had a
material impact on Award's financial statements, there can be no assurance that
fluctuation in foreign currency exchange rates will not have a material adverse
effect on Award's business, financial condition and results of operations. Award
does not currently engage in foreign currency hedging transactions. There can be
no assurance that exchange rate fluctuations will not have a material adverse
effect on Award's business, financial condition or results of operations.
Award operates in Taiwan, Hong Kong, Japan, and Germany. Its business,
financial condition or results of operations could be adversely affected by
factors associated with international operations such as changes in foreign
currency exchange rates, uncertainties relative to regional economic
circumstances, political instability in emerging markets, and difficulties in
staffing and managing foreign operations, as well as by other risks associated
with international activities. In particular, the recent currency devaluations
in South East Asia and the general downturn of the economies in Asia, including
Japan, could materially adversely affect Award's business, financial condition
or results of operations. As a result of such economic instability, Dataquest,
Inc., has revised downward its forecasts of demand for PCs in the region. Any
such reduction in demand for PCs would adversely affect Award's business,
financial condition or results of operation. See "Dependence on the Underlying
PC Industry; Dependence on Current PC Industry Standards."
Award Software Hong Kong Limited, the company's wholly owned subsidiary, is
incorporated under the laws of Hong Kong ("Award Hong Kong"). Substantially all
of Award's Asian desktop motherboard and OEM development and design facilities
are operated through Award Hong Kong's branch office located in Taipei, Taiwan.
These operations could be severely affected by national or regional political
instability in China, including instability which may occur in connection with a
change in leadership in China, change of control of Hong Kong from the United
Kingdom to China, by evolving interpretation and enforcement of legal standards,
by conflicts, embargoes, increased tensions or escalation of hostilities between
China and Taiwan and by other trade customs and practices that are dissimilar to
those in the United States. Interpretation and enforcement of China's laws and
regulations continue to evolve and Award expects that differences in
interpretation and enforcement will continue in the foreseeable future.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. Award's success depends in
significant part on the development, maintenance and protection of its
intellectual property. Award regards all of its software as proprietary and
attempts to protect it with a combination of patents, copyrights, trademarks and
trade secrets, employee and third-party nondisclosure agreements and other
methods of protection. Despite these precautions and the protection of copyright
laws, it may be possible for unauthorized third parties to copy Award's software
or to reverse engineer or obtain and use information that Award regards as
proprietary. Award currently holds a patent in the U.S. for one invention and a
patent abroad for one invention which is jointly owned with a third party. Award
has patent applications pending in the U.S. and/ or abroad on seven inventions,
two of which are owned jointly with a third party. However, Award does not
generally rely on patents to protect its products. Award licenses its object and
source code under written license agreements. Certain provisions of such
licenses, including provisions protecting against unauthorized use, copying,
transfer and disclosure of the licensed programs, may be unenforceable under the
laws of certain jurisdictions. In addition, the laws of some foreign
jurisdictions, including Taiwan, do not protect Award's proprietary rights to
the same extent as do the laws of the United States. There can be no assurance
that the protections put in place by Award will be adequate.
Significant and protracted litigation may be necessary to protect Award's
intellectual property to determine the scope of the proprietary rights of others
or to defend against claims of infringement. Moreover, although Award is not
currently involved in any litigation with respect to intellectual property
rights, in the past there have been allegations that certain portions of Award's
core BIOS infringed on a third party's copyrights. In response, Award rewrote
certain software routines in a "clean room" procedure and upgraded its customers
to the new version of such software routines to avoid any further allegations of
24
<PAGE>
infringement. Award believes that its software does not presently infringe the
copyrights of any third parties. However, there can be no assurance that other
parties will not make allegations of infringement in the future. Such assertions
could require Award to discontinue the use of certain software codes or
processes, to cease the manufacture, use and sale of infringing products, to
incur significant litigation costs and expenses and to develop non-infringing
technology or to obtain licenses to the alleged infringing technology. Although
Award has been able to acquire licenses from third parties in the past, there
can be no assurance that Award would be able to develop alternative technologies
or to obtain such licenses or, if a license were obtainable, that the terms
would be commercially acceptable to Award in the event such assertions are made
in the future.
VOLATILE MARKET FOR STOCK. The market for Award's stock is highly volatile.
The trading price of Award's Common Stock has been and will continue to be
subject to fluctuations in response to financial condition and results of
operations, announcements of technological innovations or new products by Award
and its competitors, changes in Award's or its competitors' product mix or
product direction, changes in Award's revenue mix and revenue growth rates,
changes in expectations of growth for the PC industry, as well as other events
or factors which Award may not be able to influence or control. Statements or
changes in opinions, ratings or earnings estimates made by brokerage firms and
industry analysts relating to the market in which Award does business, companies
with which Award competes or relating to Award specifically could have an
immediate and adverse effect on the market price of Award's stock. In addition,
the stock market has from time to time experienced extreme price and volume
fluctuations that have particularly affected the market price for many
high-technology companies and that often have been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of Award's Common Stock.
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<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Phoenix
and Award and combined per share data on an unaudited pro forma basis after
giving effect to the Merger as a pooling of interests. This data should be read
in conjunction with the selected historical consolidated and unaudited pro forma
combined financial data and the unaudited pro forma combined condensed financial
statements of Phoenix and Award and notes thereto, included elsewhere in this
Joint Proxy Statement/Prospectus. The pro forma combined per share data are not
necessarily indicative of the operating results or financial position that would
have occurred if the Merger had been consummated at the beginning of the periods
indicated, nor is it necessarily indicative of future operating results or
financial position.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, AS OF OR FOR THE
------------------------------------- SIX MONTHS ENDED
1995 1996 1997 MARCH 31, 1998
----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
HISTORICAL--PHOENIX
Basic earnings per share....................................... $ 0.62 $ 0.81 $ 0.93 $ 0.30
Diluted earnings per share..................................... 0.54 0.73 0.87 0.29
Book value per share(1)........................................ 5.79
<CAPTION>
YEAR ENDED DECEMBER 31, AS OF OR FOR THE
------------------------------------- SIX MONTHS ENDED
1995 1996 1997 MARCH 31, 1998
----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
HISTORICAL--AWARD
Basic net income per share..................................... $ 0.28 $ 0.54 $ 0.68 $ 0.40
Diluted net income per share................................... 0.25 0.47 0.61 0.37
Book value per share(1)........................................ 4.37
<CAPTION>
YEAR ENDED SEPTEMBER 30, AS OF OR FOR THE
------------------------------------- SIX MONTHS ENDED
1995(A) 1996(B) 1997(C) MARCH 31, 1998
----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
NEW PHOENIX PRO FORMA COMBINED(2)
Basic earnings per share....................................... $ 0.52 $ 0.70 $ 0.80 $ 0.31
Diluted earnings per share..................................... 0.46 0.63 0.74 0.29
Book value per share(4)........................................ 4.77
AWARD EQUIVALENT PRO FORMA COMBINED(2)(3)
Basic earnings per share....................................... $ 0.64 $ 0.86 $ 0.98 $ 0.38
Diluted earnings per share..................................... 0.56 0.77 0.91 0.36
Book value per share(4)........................................ 5.84
</TABLE>
- ------------------------
(A) Year ended September 30, 1995 and December 31, 1995 for Phoenix and Award,
respectively.
(B) Year ended September 30, 1996 and December 31, 1996 for Phoenix and Award,
respectively.
(C) Year ended September 30, 1997 and December 31, 1997 for Phoenix and Award,
respectively.
(1) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock outstanding at the end of
each period.
(2) Phoenix expects to incur charges to operations related to the Merger
currently estimated to be between $6 million and $9 million in the quarter
in which the merger is expected to be consummated and in subsequent periods.
These charges include direct transaction costs, primarily for financial
advisory and legal fees, and costs associated with combining the operations
of the two companies, primarily related to redundant assets and facilities.
An estimated charge of $7.5 million (the midpoint of the above range), less
estimated income tax benefits of $0.9 million, is reflected in the Unaudited
Pro Forma Condensed Combined Balance Sheet Data, but is not reflected in the
Unaudited Pro Forma Condensed Combined Statement of Operations Data. This
range is a preliminary estimate only, and is, therefore, subject to change.
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<PAGE>
(3) The Award equivalent pro forma combined per share amounts are calculated by
multiplying the Phoenix combined pro forma share amounts by the Exchange
Ratio for each share of Award Common Stock.
(4) The pro forma combined book value per share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of common stock
outstanding as of March 31, 1998.
COMPARATIVE MARKET PRICE DATA
The table below sets forth, for the calendar quarters indicated, the
reported high and low prices of Phoenix Common Stock and Award Common Stock as
reported on Nasdaq.
<TABLE>
<CAPTION>
PHOENIX COMMON STOCK AWARD COMMON STOCK
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996 CALENDAR YEAR
First Quarter....................................................... $ 15 $ 12 5/8 $ -- $ --
Second Quarter...................................................... 20 13 1/4 -- --
Third Quarter....................................................... 19 5/16 13 7/8 -- --
Fourth Quarter...................................................... 19 1/8 15 1/8 9 7/8 6 1/2
1997 CALENDAR YEAR
First Quarter....................................................... 19 3/8 14 3/4 18 1/8 9 3/8
Second Quarter...................................................... 15 5/8 11 1/8 14 3/4 10 1/4
Third Quarter....................................................... 16 17/32 13 13 9 1/8
Fourth Quarter...................................................... 17 7/8 11 5/8 13 1/2 6 7/8
1998 CALENDAR YEAR
First Quarter....................................................... 13 3/4 11 3/8 13 6 1/2
</TABLE>
On April 15, 1998, the last full trading day prior to the public
announcement of the execution and delivery of the Reorganization Agreement, the
closing prices on Nasdaq were $13.125 per share of Phoenix Common Stock and
$14.25 per share of Award Common Stock. On May 22, 1998, the closing prices on
Nasdaq were $10.6875 per share of Phoenix Common Stock and $12.00 per share of
Award Common Stock.
Because the Exchange Ratio is fixed, changes in the market price of Phoenix
Common Stock will affect the dollar value of the common stock of the Combined
Company to be received by shareholders of Award in the Merger. Phoenix
stockholders and Award shareholders are urged to obtain current market
quotations for Phoenix Common Stock and Award Common Stock prior to the Phoenix
Special Meeting and Award Annual Meeting, respectively.
Neither Phoenix nor Award has paid cash dividends. The Combined Company
currently intends to retain earnings for development of its business and not to
distribute earnings to stockholders as dividends. The declaration and payment by
the Combined Company of any future dividends and the amount thereof will depend
upon the Combined Company's results of operations, financial condition, cash
requirements, future prospects, limitations imposed by credit agreements or
senior securities and other factors deemed relevant by its Board of Directors.
27
<PAGE>
PHOENIX SPECIAL MEETING
DATE, TIME AND PLACE OF PHOENIX SPECIAL MEETING
The Phoenix Special Meeting will be held at Phoenix's headquarters at 411 E.
Plumeria Drive, San Jose, California 95134, on Monday, June 29, 1998 at 9:30
a.m. local time.
PURPOSE
The purpose of the Phoenix Special Meeting is to approve (i) the issuance of
shares of Phoenix Common Stock to the shareholders of Award pursuant to the
Reorganization Agreement ("Proposal One"); and (ii) the amendment to the Phoenix
Certificate to increase the authorized shares of Phoenix Common Stock by 20
million shares to 60 million shares ("Proposal Two"). See "Terms of the Merger"
and "Additional Matters Being Submitted to a Vote of only Phoenix
Stockholders--Proposal Two--Amendment to Restated Certificate of
Incorporation--Increase to Authorized Common Stock."
RECORD DATE AND OUTSTANDING SHARES
Only Phoenix stockholders of record on the Phoenix Record Date are entitled
to notice of and to vote at the Phoenix Special Meeting. As of the Phoenix
Record Date, there were approximately 340 stockholders of record holding an
aggregate of approximately 16,764,759 shares of Phoenix Common Stock.
On or about June 1, 1998, a notice meeting the requirements of Delaware law
will be mailed to all stockholders of record as of the Phoenix Record Date.
VOTE REQUIRED
Under Delaware law, the charter documents of Phoenix and Nasdaq rules,
approval of (i) the issuance of shares of Phoenix Common Stock pursuant to the
Reorganization Agreement requires the affirmative vote of a majority of the
total votes cast regarding such proposal and (ii) the amendment of the Phoenix
Certificate requires the affirmative vote of holders of a majority of the
outstanding shares of Phoenix Common Stock. Each stockholder of record of
Phoenix Common Stock on the Phoenix Record Date is entitled to cast one vote per
share, exercisable in person or by properly executed proxy, on each matter
properly submitted for the vote of the stockholders of Phoenix at the Phoenix
Special Meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Phoenix Common Stock entitled to vote at
the Phoenix Special Meeting shall constitute a quorum. Broker non-votes and
shares held by persons abstaining will be counted in determining whether a
quorum is present at the Phoenix Special Meeting. For Proposal One, abstentions
are counted as votes cast and accordingly have the same effect as votes against
the proposal, whereas broker non-votes are not counted as votes cast and
therefore once a quorum is present, will have no effect on the proposal. For
purpose of Proposal Two, the effect of an abstention or broker non-vote is the
same as a vote against such proposal.
The directors of Phoenix, who together hold less than 1% of the Phoenix
Common Stock, have entered into a Voting Agreement with Award pursuant to which
such directors have agreed to vote in favor of the Merger and have granted Award
an irrevocable proxy to vote their shares of Phoenix Common Stock in favor of
the Merger. See "Terms of the Merger--Voting Agreements."
PROXIES
Each of the persons named in the proxy is an officer of Phoenix. All shares
of Phoenix Common Stock that are entitled to vote and are represented at the
Phoenix Special Meeting either in person or by properly executed proxies
received prior to or at the Phoenix Special Meeting and not duly and timely
revoked will be voted at the Phoenix Special Meeting in accordance with the
instructions indicated on such
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proxies. If no such instructions are indicated, such proxies will be voted for
the approval of the issuance of shares of Phoenix Common Stock and the amendment
to the Phoenix Certificate.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Phoenix at or before the taking of the vote at the Phoenix
Special Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Phoenix before the taking of the vote at the
Phoenix Special Meeting; or (iii) attending the Phoenix Special Meeting and
voting in person (although attendance at the Phoenix Special Meeting will not in
and of itself constitute a revocation of a proxy). Any written notice of
revocation or subsequent proxy should be sent so as to be delivered to Phoenix
at 411 E. Plumeria Drive, San Jose, California 95134, Attention: Secretary, or
hand-delivered to the Secretary of Phoenix, in each case at or before the taking
of the vote at the Phoenix Special Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of Phoenix stockholders will be borne by
Phoenix. In addition, Phoenix may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation materials to such beneficial owners. Proxies may also be solicited
by certain Phoenix directors, officers and regular employees personally or by
telephone, telegram, letter or facsimile. Such persons will not receive
additional compensation, but may be reimbursed for reasonable out-of-pocket
expenses incurred in connection with such solicitation. Arrangements will also
be made with custodians, nominees and fiduciaries for forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
custodians, nominees and fiduciaries, and Phoenix will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
RECOMMENDATIONS OF PHOENIX BOARD OF DIRECTORS
The Phoenix Board has unanimously approved the Reorganization Agreement and
the transactions contemplated thereby and has determined that the Merger is fair
to, and in the best interests of, Phoenix and its stockholders. After careful
consideration, the Phoenix Board unanimously recommends a vote in favor of (i)
the issuance of the Phoenix Common Stock pursuant to the Reorganization
Agreement; and (ii) the amendment of the Phoenix Certificate to increase the
number of authorized shares of Phoenix Common Stock by 20 million shares to 60
million shares.
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AWARD ANNUAL MEETING
DATE, TIME AND PLACE OF AWARD ANNUAL MEETING
The Award Annual Meeting will be held at the Sunnyvale Hilton Inn, 1250
Lakeside Drive, California 94086, on Monday, June 29, 1998 at 9:30 a.m. local
time.
PURPOSE
The purpose of the Award Annual Meeting is to ask the Award shareholders to
consider and vote on the following proposals: (i) to approve and adopt the
Reorganization Agreement and approve the Merger, (ii) to elect seven (7)
directors to the Award Board of Directors, (iii) to amend the Award 1997 Equity
Incentive Plan to increase the number of shares reserved for issuance thereunder
by 700,000, (iv) to amend the Award Employee Stock Purchase Plan to increase the
number of shares reserved for issuance thereunder by 200,000, (v) to ratify the
appointment of Price Waterhouse LLP as independent accountants of Award for the
year ending December 31, 1998 and (vi) to transact such other business as may
properly come before the Award Annual Meeting or any adjournments or
postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Only shareholders of record of Award Common Stock on the Award Record Date
are entitled to notice of, and to vote at, the Award Annual Meeting. As of the
Award Record Date, there were approximately 84 shareholders of record holding an
aggregate of approximately 7,192,485 shares of Award Common Stock.
On or about June 1, 1998, a notice meeting the requirements of California
law will be mailed to all shareholders of record as of the Award Record Date.
VOTE REQUIRED
Pursuant to the California Corporations Code and the Award Amended and
Restated Articles of Incorporation, as amended, the affirmative vote of the
holders of a majority of the Award Common Stock outstanding as of the Award
Record Date is required to approve and adopt the Reorganization Agreement and
the Merger. All other proposals (except the election of directors) will require
the affirmative vote of the holders of a majority of the outstanding shares of
Award Common Stock present (in person or by proxy) at the Award Annual Meeting
and entitled to vote thereon. The Board of Directors is elected by a plurality.
See "Additional Matters Being Submitted to a Vote of Only Award
Shareholders--Proposal Two,--Proposal Three,--Proposal Four,--Proposal Five."
Each shareholder of record of Award Common Stock on the Award Record Date, will
be entitled to cast one vote per share on each matter to be acted upon at the
Award Annual Meeting, except in the election of directors which may be by
cumulative voting.
Certain directors and other affiliates of Award, who as of May 22, 1998,
together held approximately 34% of the Award Common Stock, have entered into
Voting Agreements with Phoenix pursuant to which such directors, officers and
other affiliates of Award have agreed to vote in favor of the Merger and have
granted Phoenix an irrevocable proxy to vote their shares of Award Common Stock
in favor of the Merger. See "Terms of the Merger--Voting Agreements."
The representation, in person or by proxy, of at least a majority of the
outstanding shares of Award Common Stock entitled to vote at the Award Annual
Meeting is necessary to constitute a quorum for the transaction of business. For
purposes of obtaining the required vote of a majority of the outstanding shares
of Award Common Stock for approval of the Merger and the other proposals, except
for the election of directors, the effect of an abstention or a broker non-vote
is the same as that of a vote against the proposal.
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PROXIES
Each of the persons named in the proxy is an officer of Award. All shares of
Award Common Stock that are entitled to vote and are represented at the Award
Annual Meeting either in person or by properly executed proxies received prior
to or at the Award Annual Meeting and not duly and timely revoked will be voted
at the Award Annual Meeting in accordance with the instructions indicated on
such proxies. If no such instructions are indicated, such proxies will be voted
for approval and adoption of the Reorganization Agreement and for the approval
of the Merger as well as the other proposals.
Execution of a proxy does not in any way affect a shareholder's right to
attend the meeting and vote in person. Any proxy may be revoked by a shareholder
at any time before it is exercised by delivering a written revocation or a
later-dated proxy to the Secretary of Award, or by attending the meeting and
voting in person. Any written notice of revocation or subsequent proxy should be
sent so as to be delivered to Award at 777 E. Middlefield Road, Mountain View,
California 94043, Attention: Secretary, or hand-delivered to the Secretary of
Award, in each case at or before the taking of the vote at the Award Annual
Meeting.
SOLICITATION OF PROXIES; EXPENSES
All costs of solicitation of proxies will be borne by Award. Brokers,
custodians and fiduciaries will be requested to forward proxy soliciting
material to the owners of stock held in their names, and Award will reimburse
them for their reasonable out-of-pocket costs. In addition, proxies may also be
solicited by certain directors, officers and employees of Award personally or by
mail, telephone or telegraph following the original solicitation. Such persons
will not receive additional compensation for such solicitation.
DISSENTERS' RIGHTS
If the Reorganization Agreement is approved by the shareholders of Award at
the Award Annual Meeting and the Merger is effected by Award, Award may have
obligations under Chapter 13 of the CCC to dissenting shareholders ("Dissenting
Shareholders"). To qualify as a Dissenting Shareholder, a shareholder must (i)
provide a Notice to Award no later than the day of the Award Annual Meeting
requesting that Award purchase and pay the fair market value in cash for the
Award Common Stock held by said shareholder, and (ii) vote such shares against
the Merger. In addition, holders of at least 5% of the outstanding shares of
Award Common Stock must file Notices. If less than 5% of the outstanding shares
of Award Common Stock send Notices to Award, under Chapter 13 of the California
Corporations Code, there shall be no Dissenting Shareholders and all shares of
Award Common Stock shall be exchanged for common stock of the Combined Company
in the Merger. If holders of more than 6% of the outstanding shares of Award
Common Stock are Dissenting Shareholders, the Merger will be precluded from
being accounted for as a pooling of interests and accordingly, one of the
closing conditions of the Merger will not be satisfied. See "Terms of the
Merger--Dissenters' Rights."
RECOMMENDATIONS OF AWARD BOARD OF DIRECTORS
The Award Board has unanimously approved the Reorganization Agreement and
the transactions contemplated thereby and has determined that the Merger is fair
to, and in the best interests of, Award and its shareholders. After careful
consideration, the Award Board unanimously recommends a vote in favor of
approval and adoption of the Reorganization Agreement and the other proposals.
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APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
THE FOLLOWING DISCUSSION SUMMARIZES THE PROPOSED MERGER AND RELATED
TRANSACTIONS. THE FOLLOWING IS NOT, HOWEVER, A COMPLETE STATEMENT OF ALL
PROVISIONS OF THE REORGANIZATION AGREEMENT AND RELATED AGREEMENTS. DETAILED
TERMS OF AND CONDITIONS TO THE MERGER AND CERTAIN RELATED TRANSACTIONS ARE
CONTAINED IN THE REORGANIZATION AGREEMENT, A CONFORMED COPY OF WHICH IS ATTACHED
TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX A. REFERENCE IS ALSO MADE TO
THE OTHER ANNEXES HERETO. STATEMENTS MADE IN THIS JOINT PROXY STATEMENT/
PROSPECTUS WITH RESPECT TO THE TERMS OF THE MERGER AND SUCH RELATED TRANSACTIONS
ARE QUALIFIED IN THEIR RESPECTIVE ENTIRETIES BY REFERENCE TO THE MORE DETAILED
INFORMATION SET FORTH IN THE REORGANIZATION AGREEMENT AND THE OTHER ANNEXES
HERETO. OTHER THAN STATEMENTS OF HISTORICAL FACT, STATEMENTS MADE IN THIS
SECTION INCLUDING STATEMENTS AS TO THE BENEFITS EXPECTED TO RESULT FROM THE
MERGER AND AS TO FUTURE FINANCIAL PERFORMANCE AND THE ANALYSES PERFORMED BY THE
FINANCIAL ADVISORS OF PHOENIX AND AWARD ARE FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE
ACT. THESE FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS REGARDING THE MARKETS
FOR PHOENIX'S, AWARD'S AND THE COMBINED COMPANY'S PRODUCTS, THEIR PLANNED
RESPONSE TO THE DEMANDS OF THESE MARKETS AND CERTAIN POTENTIAL TECHNOLOGICAL AND
OPERATING SYNERGIES HOPED TO BE ACHIEVED BY THE MERGER. ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS
A RESULT OF NUMEROUS FACTORS, INCLUDING THOSE SET FORTH IN RISK FACTORS AND
ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THESE FACTORS INCLUDE THE
ABILITY OF PHOENIX AND AWARD TO SUCCESSFULLY INTEGRATE THEIR OPERATIONS AND
ACHIEVE EXPECTED SYNERGIES; THE RISK THAT CUSTOMERS MAY DEFER PURCHASING
DECISIONS FOLLOWING THE ANNOUNCEMENT OF THE MERGER; THE ABILITY OF PHOENIX AND
AWARD TO RETAIN KEY EMPLOYEES FOLLOWING ANNOUNCEMENT OF THE MERGER; THE IMPACT
OF TRANSACTION AND RESTRUCTURING CHARGES TO BE INCURRED BY PHOENIX AS A RESULT
OF THE MERGER; CHANGES IN BUSINESS CONDITIONS AND GROWTH TRENDS AFFECTING
PHOENIX'S AND AWARD'S PRODUCTS AND MARKETS, THE PC AND INFORMATION APPLIANCE
INDUSTRY AND THE ECONOMY IN GENERAL; TECHNOLOGICAL ADVANCEMENTS AND NEW PRODUCT
OFFERINGS BY PHOENIX'S AND AWARD'S COMPETITORS; PHOENIX'S AND AWARD'S ABILITY TO
SUCCESSFULLY INTRODUCE NEW PRODUCTS AND UPGRADES TO EXISTING PRODUCTS; AND A
VARIETY OF OTHER COMPETITIVE FACTORS SUCH AS THE DEMAND BY PHOENIX'S AND AWARD'S
CUSTOMERS FOR LOWER COSTS AND COMPETITIVE PRICING.
JOINT REASONS FOR THE MERGER
The Boards of Directors of Phoenix and Award believe that the proposed
Merger will afford to each company the complementary strengths of the two
individual companies, will provide the Combined Company significant potential
advantages, and is expected to enable the Combined Company to address emerging
strategic opportunities more quickly and effectively.
The potential benefits to the Combined Company principally include the
following:
- The opportunity to leverage research and development capabilities of the
two companies and to share technology.
- The ability to achieve cost reductions through economics of scale and
operating synergies.
- The broadening and integration of the companies' product lines, which
provides the opportunity to cross-market the two companies' products to a
larger customer base and to offer their customers a more complete solution
to such customers' system enabling and management software needs.
- The opportunity to expand the worldwide sales and support organization for
PC OEMs, peripheral device manufacturers and information appliance
manufacturers.
- The combination of the two companies' technical expertise, which may allow
the Combined Company to respond more quickly to technological change and
evolving architecture standards.
Phoenix and Award have each identified additional reasons for the Merger,
which are discussed below. Each Board of Directors has recognized that the
potential benefits of the Merger may not be realized. See "Risk Factors--Risks
Related to Merger."
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PHOENIX'S REASONS FOR THE MERGER
In addition to the anticipated joint benefits described above, the Phoenix
Board believes that the following are additional reasons the Merger will be
beneficial to Phoenix and its stockholders and for Phoenix stockholders to vote
FOR the proposals set forth herein:
- The Phoenix Board believes that the companies principally serve different
market segments of the PC market and provide products that are more
complementary than competitive. Phoenix primarily provides brand name PC
OEMs with customizable software for notebook computers and high
performance desktop PCs and servers. Award primarily provides a more basic
and lower priced software product to Taiwan private label manufacturers of
desktop PCs and motherboards for desktop PCs. Both companies' products
provide compatibility, connectivity and manageability functions to PC
systems. As a result of combining the product lines, the Combined Company
will be able to offer a broader set of products to each of the customer
groups. Furthermore, the development cost of future products is
anticipated to be spread over more units resulting in lower cost to the
customer.
- Each company develops similar technologies for use in their respective
products. For example, both companies have development teams to support
new technologies, such as Microsoft's Advanced Configuration and Power
Interface, and various vendors' chipsets, which are semiconductor devices
on the motherboard which support the microprocessor or central processing
unit. Combining such teams is anticipated to free engineers to work on
other projects.
- The PC industry is subject to very rapid technological change. The
Combined Company may be better equipped, with more resources and greater
diversity of technical talent, to accomplish the rapid innovation required
to meet this challenge.
- Improved efficiencies and economies of scale enable the Combined Company
to compete more effectively with the in-house design teams of larger OEM
customers, thus offering customers more choice for their system software
requirements.
- While both code bases will be continued, the Combined Company will be able
to work toward a common "look and feel" to the end user, so that PC OEMs
can offer a consistent "look and feel" across their entire product lines.
- The Combined Company will still be small relative to the size of the most
influential companies involved in setting PC and information appliance
compatibility, connectivity and other standards, but the larger critical
mass of the Combined Company may enable it to more effectively represent
the combined customer base with respect to the development of new
standards.
- Both companies are developing new products as well as sales and support
organizations for the information appliance market. This market is in a
very early stage and is very fragmented. The Merger is anticipated to
enable the Combined Company to provide better geographic sales and support
coverage as well as a broader combined product line.
- The Phoenix Board believes that the Merger provides certain economic
benefits that may result in improved earnings for the Combined Company.
For example, both Award and Phoenix currently incur the cost of operating
as publicly held corporations. There is duplication for cost of audits and
preparation of regulatory filings. By combining the companies' operations,
the Combined Company may realize a reduction in general and administrative
expenses. In addition, stockholders may also benefit from a larger number
of the Combined Company's shares held by independent investors and
investment companies, and will have the opportunity to participate in the
potential for growth of the Combined Company after the Merger.
- Employees may have greater opportunities for advancement and professional
development as a result of the Merger through a greater choice of projects
and locations in which to work.
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The Phoenix Board considered the proposed Merger at meetings on May 13,
1997, December 2, 1997, February 18, 1998, April 9, 1998, and April 13, 1998.
The Phoenix Board considered a number of factors relating to the Merger,
including, but not limited to, the following: (i) the strategic benefits of the
Merger; (ii) historical information concerning Phoenix's and Award's respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position, including public reports
concerning results of operations during the most recent fiscal year and fiscal
quarter for each company filed with the SEC; (iii) Phoenix management's view of
the financial conditions, results of operations and businesses of Phoenix and
Award before and after giving effect to the Merger; (iv) current financial
market conditions and historical market prices, volatility and trading
information with respect to Phoenix Common Stock and Award Common Stock; (v) the
consideration to be received by Award shareholders in the Merger and a
comparison of the relative market value of the Phoenix Common Stock to be issued
in exchange for each share of Award Common Stock with the consideration issued
in comparable merger transactions; (vi) the belief that the terms of the
Reorganization Agreement, including the parties' representations, warranties and
covenants, and the conditions to their respective obligations, are reasonable;
(vii) Phoenix management's view of the prospects of Phoenix as an independent
company; (viii) the potential for other third parties to enter into strategic
relationships with or to acquire Phoenix or Award; (ix) the financial analysis
and pro forma and other information with respect to the Merger presented by
Broadview to the Phoenix Board presentations and Broadview's opinion, dated
April 13, 1998, that, as of such date, the Exchange Ratio was fair from a
financial point of view to the Phoenix stockholders; (x) the expected impact of
the Merger on Phoenix's customers and employees; (xi) reports from Phoenix
management, and legal and financial advisors as to the results of their due
diligence investigations of Award; and (xii) the expectation that the Merger
will be accounted for as a pooling of interests.
The Phoenix Board also identified and considered a variety of potentially
negative factors in its deliberations concerning the Merger, including, but not
limited to: (i) the risk that the potential benefits sought in the Merger might
not be fully realized; (ii) the possibility that the Merger might not be
consummated; (iii) the effect of public announcement of the Merger on (a)
Phoenix's revenues and operating results, (b) Phoenix's ability to attract and
retain key management, marketing and technical personnel and (c) progress of
certain development projects; (iii) the potential dilutive effect of the
issuance of Phoenix Common Stock in the Merger; (iv) the substantial charge to
be incurred, primarily in the quarter in which the Merger is consummated and in
subsequent quarters, in connection with the Merger, including costs of
integrating the businesses and the transaction expenses arising from the Merger;
(v) the risk that despite the efforts of the Combined Company, key technical and
management personnel might not remain employed by the Combined Company; and (vi)
various other risks. The Phoenix Board believed that these risks were outweighed
by the potential benefits of the Merger.
The foregoing discussion of the information and factors considered by the
Phoenix Board is not intended to be exhaustive but is believed to include all
material factors considered by the Phoenix Board. In view of the variety of
factors considered in connection with its evaluation of the Merger, the Phoenix
Board did not find it practicable to and did not quantify or otherwise assign
relative weight to the specific factors considered in reaching its
determination. In addition, individual members of the Phoenix Board may have
given different weight to different factors.
AWARD'S REASONS FOR THE MERGER
The Award Acquisition Committee considered the proposed Merger at meetings
on August 29, 1997, October 1, 1997, October 2, 1997, October 16, 1997, December
11, 1997, January 6, 1998, January 8, 1998, March 4, 1998, March 17, 1998 and
March 23, 1998. By unanimous vote at a special meeting on April 13, 1998, the
Award Acquisition Committee recommended approval of the Merger and
Reorganization Agreement and the transactions contemplated thereby to the entire
Award Board. The Award Board considered the proposed Merger at meetings on
October 23, 1997 and January 22, 1998, and, by
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unanimous vote at its special meeting on April 13, 1998, approved the
Reorganization Agreement and the transactions contemplated thereby and
determined that the Merger is fair to, and in the best interests of, Award and
its shareholders. Award's Board unanimously recommends that the Award
shareholders vote FOR the proposal to approve the Reorganization Agreement. In
addition to the anticipated joint benefits described above, the Award Board
believes the following are additional reasons for the Merger.
- The potential for increased volume of sales which may result from offering
complementary product lines of Award and Phoenix that represent a complete
solution to their customers with respect to new technologies.
- The opportunity to utilize more efficiently research and development
capabilities and to share new technology.
- The opportunity to increase the revenues from Award products and services
by leveraging the worldwide sales and support organization of the Combined
Company and by marketing to an expanded customer base.
- The potential to respond more quickly to customers' demand for
technological enhancement and innovation.
- The greater liquidity and diversification of risk offered to the
shareholders of Award by an investment in the Combined Company instead of
Award alone.
- The greater opportunities to Award employees offered by participating in
the Combined Company, in terms of both career directions and geographical
flexibility.
In assessing the proposed Merger, the Award Board considered a number of
factors, including, but not limited to, the following: (i) the potential
strategic benefits of the Merger; (ii) historical information concerning Award's
and Phoenix's respective businesses, prospects, financial performance and
condition, operations, technology, management and competitive position,
including public reports concerning results of operations during the most recent
fiscal year and fiscal quarter for each company filed with the SEC; (iii)
current financial market conditions and historical market prices, volatility and
trading information with respect to Award Common Stock and Phoenix Common Stock;
(iv) the consideration to be received by Award shareholders in the Merger and
the relationship between the market value of Phoenix Common Stock to be issued
in exchange for each share of Award Common Stock and a comparison of comparable
merger transactions; (v) the terms of the Reorganization Agreement, including
the parties' representations, warranties and covenants, and the conditions to
their respective obligations; (vi) the potential for continued independent
operation of Award in light of market and competitive conditions; (vii)
alternative acquisition transactions in which Award might engage; (viii) the
impact of the Merger on Award's employees; and (viii) reports from management,
legal, financial and accounting advisors as to the results of their due
diligence investigations of Phoenix concerning its business, technology,
products, operations, properties, assets, financial condition, operating results
and prospects. In addition, the Award Board noted that the Merger is expected to
be accounted for as a pooling of interests and that no goodwill is expected to
be created on the books of the Combined Company as a result thereof. The Award
Board also considered financial presentations by BancAmerica Robertson Stephens,
including the opinion of BancAmerica Robertson Stephens that, as of April 13,
1998, and subject to the assumptions set forth therein, the Exchange Ratio (as
defined in such opinion) is fair to the shareholders of Award from a financial
point of view.
The Award Board also identified and considered a number of uncertainties and
potentially negative factors in its deliberations concerning the Merger,
including, but not limited to: (i) the risk that the potential benefits sought
in the Merger might not be fully realized; (ii) the possibility that the Merger
would not be consummated; (iii) the effect of the public announcement of the
Merger on (a) Award's sales, customer relations and operating results and (b)
Award's ability to attract and retain key management, marketing and technical
personnel; (iv) the risk that despite the efforts of the Combined Company,
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key technical, marketing and management personnel might not choose to remain
employed by the Combined Company; (v) the risk of market confusion and potential
delay or reduction in product orders; (vi) the risk of loss of current product
brand awareness before the Combined Company gains market acceptance; and (vii)
the other risks associated with the businesses of Phoenix, Award and the
Combined Company and the Merger described under "Risk Factors" herein.
The Award Board believed that certain of these risks were unlikely to occur
or unlikely to have a material effect on the Combined Company, while others
could be avoided or mitigated by Award or by the Combined Company, and that,
overall, the risks associated with the Merger were outweighed by the potential
benefits of the Merger.
The foregoing discussion of the information and factors considered by the
Award Board is not intended to be exhaustive but is believed to include all
material factors considered by the Award Board. In view of the variety of
factors considered in connection with its evaluation of the Merger, the Award
Board did not find it practicable to and did not quantify or otherwise assign
relative weight to the specific factors considered in reaching its
determination. In addition, individual members of the Award Board may have given
different weight to different factors.
MATERIAL CONTACTS AND BOARD DELIBERATIONS
Phoenix and Award have been generally aware of the other's products and
market activities for several years. Initiation of discussions between Award and
Phoenix was principally a response to developing trends in the system enabling
and management software industry.
In response to these industry trends, Phoenix from time to time evaluates
strategic acquisitions, business combinations and joint venture opportunities to
increase Phoenix's business and operations, and increase stockholder value. In
March 1996, at the request of Phoenix, Broadview initiated contact with Award
management with the intent to arrange a meeting between the two companies to
determine the possibility of a strategic relationship. The two companies and
Broadview met on April 23, 1996. The two companies discussed their respective
strategies and the possibility of a business combination. Instead of pursuing
further discussions with Phoenix, Award elected to register for an initial
public offering of its Common Stock in June 1996, which offering was
subsequently completed in October 1996.
In March 1997, in response to such industry trends, the Award Board formed a
special committee (the "Award Acquisition Committee") authorized to review and
evaluate strategic acquisitions, business combinations and joint venture
opportunities as a way to enhance Award's business and operations and long-term
shareholder value. The Acquisition Committee was authorized to review and
evaluate strategic acquisitions, business combinations and joint venture
opportunities as a way to enhance Award's business and operations and long-term
shareholder value.
In May 1997, at the request of Phoenix, Broadview reinitiated contact with
Award management. On May 13, 1997 at a regularly scheduled meeting of the
Phoenix Board, Jack Kay, President and Chief Executive Officer and Director of
Phoenix, reported on the possibility of a business combination or other
strategic relationship with Award.
On July 10, 1997, George C. Huang, Chief Executive Officer and President of
Award, Kevin J. Berry, Chief Financial Officer, Vice President, Treasurer and
Secretary, Mr. Kay, Robert J. Riopel, Vice President, Finance, Chief Financial
Officer and Treasurer of Phoenix, and Broadview met again to discuss publicly
available information regarding their respective corporate backgrounds, product
areas and perceived industry trends, and the possibility of a strategic business
combination. Following this meeting, the parties agreed to proceed with further
discussions. On July 18 and August 25, 1997, Mr. Riopel and Mr. Berry met at
offsite locations. At these meetings the parties discussed, on a preliminary
basis, a possible business combination between Phoenix and Award. At the
conclusion of each meeting, the parties
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agreed to report back to their respective Chief Executive Officer to discuss the
basis for such evaluation and further discussion.
On August 29, 1997, the Award Acquisition Committee met at the offices of
Anthony Sun, a director of Award. Mr. Berry briefed the committee and Dr. Huang
on the status of Mr. Berry's discussion. The Award Acquisition Committee also
discussed a number of other alternate strategies and indicated to Dr. Huang and
Mr. Berry that a potential business combination with Phoenix merited further
discussions.
On September 2, 1997, Dr. Huang and Mr. Kay met to discuss a potential
business combination, and agreed that a potential business combination merited
further consideration, that information concerning the two companies should be
exchanged, and that another meeting should be scheduled.
On October 1 and 2, 1997, Dr. Huang and Mr. Berry met with the Award
Acquisition Committee at Mr. Sun's offices to discuss the status of pending
strategic initiatives, including a potential business combination with Phoenix.
On October 2, 1997, Phoenix and Award executed a Nondisclosure Agreement to
exchange and discuss certain confidential financial information of each company.
On October 16, 1997, the Award Acquisition Committee held a teleconference
at which Dr. Huang and Mr. Berry briefed the committee on the status of pending
strategic initiatives, including a potential business combination with Phoenix.
On October 17, 1997, Dr. Huang and Mr. Kay met to discuss a potential
business combination and to schedule a presentation to the Award Acquisition
Committee to be given by Phoenix and representatives of Broadview.
On October 23, 1997, at a regularly scheduled meeting of the Award Board,
Dr. Huang and Mr. Berry briefed the directors on the status of discussions
between Award and Phoenix regarding a potential business combination with
Phoenix as well as other pending strategic initiatives.
On November 29, 1997 the parties met again to discuss scheduling a
presentation.
On December 2, 1997, at a regularly scheduled meeting of the Phoenix Board,
Mr. Kay reported on the status of discussions and evaluation of a potential
business combination with Award. After discussion, the Phoenix Board unanimously
authorized Phoenix management to continue discussions and negotiation of such a
combination.
On December 11, 1997, Mr. Kay and Mr. Riopel met with Dr. Huang, Mr. Berry
and members of the Award Acquisition Committee at the offices of Mr. Sun.
Representatives of Broadview were also present. At the meeting, Phoenix
presented its proposed business model and strategic direction for the Combined
Company and discussed valuation analyses and methodologies.
On January 6 and 8, 1998, Dr. Huang and Mr. Berry met at the offices of Mr.
Sun with members of the Award Acquisition Committee to discuss alternative
business opportunities and strategies, including a potential business
combination with Phoenix.
On January 22, 1998, at a regularly scheduled meeting of the Award Board
held at the offices of Award, Dr. Huang and Mr. Berry briefed the directors on
the status of discussions between Phoenix and Award regarding a possible
business combination and other pending strategic initiatives. After discussion,
the Award Board directed Dr. Huang and Mr. Berry to continue discussions with
Phoenix.
On January 23, 1998, Dr. Huang and Mr. Kay met to discuss further a
potential business combination.
On February 16, 1998, February 19, 1998, and February 23, 1998, Dr. Huang
and Mr. Kay met at different offsite locations to discuss a potential business
combination and Award's intention to engage a financial advisor.
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On February 18, 1998, at a regularly scheduled meeting of the Phoenix Board,
Mr. Kay reported on the status of discussions and negotiations with Award
regarding a possible business combination. The Phoenix Board unanimously
authorized Phoenix management to confirm discussions and negotiations with Award
regarding such a transaction.
On February 18, 1998, Award engaged BancAmerica Robertson Stephens to act as
its financial advisor to review Award's strategic alternatives, including a
potential business combination with Phoenix.
On February 25, 1998, Mr. Berry met with Mr. Riopel at an offsite location
to inform him that Award had retained the services of BancAmerica Robertson
Stephens.
On March 4, 1998, BancAmerica Robertson Stephens made a presentation to
members of the Award Acquisition Committee, Dr. Huang and Mr. Berry at the
offices of Mr. Tai, a director of Award, regarding Award's strategic
alternatives, including a potential business combination with Phoenix. On March
4, 1998, Mr. Kay and Mr. Riopel met with Dr. Huang and Mr. Berry to present
Phoenix's proposed transaction terms. Representatives of Broadview and
BancAmerica Robertson Stephens were also present.
On March 16, 1998, Dr. Huang and Mr. Kay met at an offsite location to
discuss valuation and pricing terms.
On March 17 and 18, 1998, Dr. Huang and Mr. Berry met telephonically with
members of the Award Acquisition Committee to brief the Committee on the status
of negotiations with Phoenix. During the period from December 1997 through April
1998, Dr. Huang and Mr. Berry met informally (either in person or
telephonically) with other Award Board members to update them on the status of a
potential business combination with Phoenix.
On March 19, 1998, Dr. Huang and Mr. Kay met at an offsite location to
discuss pricing proposals and counterproposals.
On March 23, 1998, Dr. Huang and Mr. Berry met with members of the Award
Acquisition Committee to discuss pricing proposals and other material terms of a
business combination proposed by Phoenix.
On March 23, 1998, the parties along with their advisors met and reached a
non-binding understanding, subject to completion of a definitive agreement and
due diligence investigation, on pricing and certain terms of a stock-for-stock
transaction to be accounted for as a pooling of interests.
On March 24, 1998, financial advisors and legal counsel to each of Award and
Phoenix met telephonically to discuss the timetable for negotiating, drafting
and executing the definitive agreement, and due diligence efforts.
On March 26, 1998, Phoenix and Award executed a superseding confidentiality
letter agreement in connection with the exchange of further confidential
information and due diligence efforts to evaluate a possible business
combination.
On March 28 and 29, 1998, senior management of both companies met to discuss
integration of the businesses and operations of the companies and other due
diligence matters.
On March 30, 1998, Dr. Huang and Mr. Kay met at an offsite location to
discuss transaction structuring issues.
On March 31, 1998, Dr. Huang and Mr. Berry met telephonically with Mr. Kay
and Mr. Riopel to continue the discussion regarding transaction structuring
issues.
On March 31, 1998, financial, accounting and legal advisors of each of Award
and Phoenix met telephonically to discuss an accelerated timetable for
negotiating, drafting and execution of the definitive agreement, and due
diligence efforts. Stuart J. Nichols, Vice President, General Counsel and
Secretary of Phoenix, and Mr. Berry participated in the teleconference.
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On March 31, 1998, Dr. Huang and Mr. Berry met telephonically with Mr. Kay,
Mr. Riopel and Mr. Nichols to discuss due diligence efforts, transaction
structuring issues and employment matters.
On April 3, 1998, Mr. Berry and Mr. Riopel met at an offsite location to
discuss due diligence matters. Representatives of Broadview and BancAmerica
Robertson Stephens were also present.
On April 5, 1998, Mr. Berry and Mr. Riopel met at an off-site location to
discuss issues under the Reorganization Agreement.
On April 6, 7 and 8, 1998, Dr. Huang and Mr. Berry met with Mr. Kay and Mr.
Riopel together and separately at offsite locations to discuss issues under the
Reorganization Agreement.
On April 9, 10 and 11, 1998, Dr. Huang and Mr. Kay held a series of
telephonic meetings to discuss and resolve outstanding issues between the
parties.
On April 9, 1998, the Phoenix Board held a special meeting to review the
status of the transaction and the terms of the definitive agreement. At this
meeting, management of Phoenix, together with representatives of Wilson,
Sonsini, Goodrich & Rosati, professional corporation, Phoenix's outside counsel,
reported on the terms of the proposed Merger. Management responded to questions
regarding various aspects of the proposed Merger, including the proposed
definitive terms of the Reorganization Agreement and related documents, and the
proposed management of the Combined Company and management retention
arrangements. Management also discussed conditions to closing the transaction,
including issues regarding stockholder approval. Management also discussed
issues remaining to be negotiated in the transaction. Management reported on the
results of its due diligence investigation. After discussion, the Phoenix Board
unanimously agreed that management should proceed with negotiation and
investigation of the proposed combination.
On April 12, 1998, Dr. Huang, Mr. Berry and other members of Award's
management team met with Mr. Kay, Craig K. Slayter, Vice President and General
Manager Worldwide Field Operations of Phoenix, and David Frodsham, Vice
President and General Manager, PC Systems Division of Phoenix, at an offsite
location to discuss matters relating to employment and integration of
operations.
On April 13, 1998, the Award Acquisition Committee and the Award Board held
a simultaneous special meeting at the offices of Award. All directors were
present (either in person or telephonically). Representatives of BancAmerica
Robertson Stephens and Cooley Godward LLP, counsel to Award, also participated
in the meeting. Dr. Huang and Mr. Berry presented an overview of the proposed
Merger, the strategic rationale for its undertaking and the remaining
outstanding issues. Thereafter, representatives of Cooley Godward LLP reviewed
the material terms of the Merger and Reorganization Agreement, ancillary matters
and risks associated with the Merger not being consummated. Thereafter,
representatives of BancAmerica Robertson Stephens reviewed their financial
analyses with respect to the Merger and delivered an oral opinion (subsequently
confirmed in writing) that, as of April 13, 1998, based upon and subject to
certain matters stated in such written opinion, the Exchange Ratio was fair to
Award shareholders from a financial point of view. Throughout the foregoing
presentations and thereafter, questions were raised by members of the Award
Board and extensive discussions ensued regarding the potential benefits and
risks of the proposed Merger. Thereafter, the Award Acquisition Committee
concluded by unanimous vote that the Merger was fair to, and in the best
interests of, Award and its shareholders and made the Committee's formal
recommendation to the entire Award Board that the Merger be approved.
Thereafter, the Award Board by a unanimous vote concluded that the Merger was
fair to, and in the best interests of, Award and its shareholders, approved the
Merger, the execution and delivery of the Reorganization Agreement and related
agreements, and authorized and directed Award's management to proceed with the
transaction.
On April 13, 1998, the Board of Directors of Phoenix held a special meeting
at the offices of Phoenix. All directors were present (either in person or
telephonically). Representatives of Broadview and Mr. Nichols, Phoenix's Vice
President, General Counsel, also participated in the meeting. Mr. Kay and
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Mr. Riopel presented an overview of the proposed Merger, including valuation and
the strategic rationale for its undertaking. Thereafter, Mr. Nichols reviewed
the proposed terms of the Reorganization Agreement and related documents,
including the Voting Agreements and Affiliate Agreements. Broadview made a
presentation to the Board regarding its financial analyses with respect to the
Merger and delivered a written opinion that the Exchange Ratio was fair from a
financial point of view to Phoenix's stockholders. Throughout the foregoing
presentations and thereafter, questions were asked by members of the Phoenix
Board, and an extensive discussion ensued regarding the potential benefits and
risks of the Merger. Thereafter, the Phoenix Board unanimously concluded that
the Merger was fair to, and in the best interests of, Phoenix and its
stockholders, and approved the Merger, Reorganization Agreement and the
transactions and agreements related thereto.
On April 13, 1998, after Award's Board of Directors meeting, Dr. Huang and
Mr. Berry met telephonically with Mr. Kay and Mr. Riopel to resolve all
remaining outstanding issues.
On April 13, 1998, Phoenix delivered written employment offers to certain
members of Award's management team.
On April 13 and 14, 1998, legal counsel and representatives of each of
Phoenix and Award negotiated the final terms of the Reorganization Agreement.
On April 14, 1998, the directors of Phoenix entered into affiliate and
voting agreements with Phoenix and on or after April 15, 1998, certain
affiliates of Award entered into affiliate and voting agreements with Award.
On April 15, 1998, the Reorganization Agreement and the Voting Agreements
were executed by both companies, and after the close of trading on such date
Phoenix and Award issued a joint press release announcing the proposed Merger.
OPINION OF PHOENIX'S FINANCIAL ADVISOR
Phoenix engaged Broadview to act as its financial advisor and requested that
Broadview render an opinion regarding the fairness, from a financial point of
view, to Phoenix's stockholders, of the consideration to be paid by Phoenix in
the Merger. At the meeting of the Phoenix Board on Monday, April 13, 1998,
Broadview rendered its written opinion (the "Broadview Opinion") that, as of
April 13, 1998, based upon and subject to the various factors and assumptions
set forth in the Broadview Opinion, the Exchange Ratio was fair, from a
financial point of view, to the Phoenix stockholders. The Exchange Ratio was
determined pursuant to negotiations between Phoenix and Award and not pursuant
to recommendations of Broadview.
The text of the Broadview Opinion, which sets forth assumptions made,
matters considered, and limitations on the review undertaken, is attached as
Annex C to this Proxy Statement/Prospectus. Broadview will receive a fee from
Phoenix contingent upon successful conclusion of the Merger. The summary of the
Broadview Opinion set forth in this Proxy Statement/Prospectus is qualified in
its entirety by reference to the full text of such opinion.
In rendering its opinion, Broadview, among other actions: (i) reviewed the
terms of the Reorganization Agreement and the associated exhibits thereto in the
form of the draft dated April 3, 1998 which draft contained no material
differences from the definitive Reorganization Agreement; (ii) reviewed Award's
annual report and Form 10-K for the fiscal year ended December 31, 1997 which
included results for the fiscal years ended December 31, 1996 and 1997,
including the audited financial statements included therein; (iii) reviewed
certain internal financial and operating information, including projections,
relating to Award prepared by Award management; (iv) participated in discussions
with Award management concerning the operations, business strategy, current
financial performance and prospects for Award; (v) reviewed the recent reported
closing prices and trading activity for Award Common Stock; (vi) compared
certain aspects of the financial performance of Award with public companies
deemed comparable; (vii) analyzed available information, both public and
private, concerning other mergers and
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acquisitions believed to be comparable in whole or in part to the Merger; (viii)
reviewed Phoenix's annual report and Form 10-K for the fiscal year ended
September 30, 1997 which included results for the fiscal years ended September
30, 1996 and 1997, including the audited financial statements included therein,
and Phoenix's Form 10-Q for the three months ended December 31, 1997, including
the unaudited financial statements included therein; (ix) participated in
discussions with Phoenix management concerning the operations, business
strategy, financial performance and prospects for Phoenix; (x) reviewed the
recent reported closing prices and trading activity for Phoenix Common Stock;
(xi) discussed with Phoenix management its view of the strategic rationale for
the Merger; (xii) compared certain aspects of the financial performance of
Phoenix with public companies deemed comparable; (xiii) considered the total
number of shares of Phoenix Common Stock outstanding and the average weekly
trading volume of Phoenix Common Stock; (xiv) reviewed recent equity analyst
reports covering Phoenix and Award; (xv) analyzed the anticipated effect of the
Merger on the future financial performance of the consolidated entity; (xvi)
assisted in negotiations and discussions related to the Merger among Phoenix,
Award and their financial and legal advisors; and (xvii) conducted other
financial studies, analyses and investigations as deemed appropriate for
purposes of the Broadview Opinion.
In rendering the Broadview Opinion, Broadview relied, without independent
verification, on the accuracy and completeness of all the financial and other
information (including without limitation the representations and warranties
contained in the Agreement) that was publicly available or furnished by Phoenix,
Award, or Award's financial advisor. Broadview assumed that those projections
prepared and provided by Award were reasonably prepared and reflected the best
available estimates and good faith judgments of the management of Award as to
the future performance of Award. Broadview did not make or obtain an independent
appraisal or valuation of any of Award's assets. With regard to any analyses
relating to valuations of comparable public companies, the share prices used
were for the close of trading on April 9, 1998, the last trading day before the
Phoenix Board met to give final consideration to the proposed Merger.
The following is a summary explanation of the various sources of information
and valuation methodologies employed by Broadview in conjunction with rendering
the Broadview Opinion regarding the proposed Merger.
PUBLIC COMPANY COMPARABLES ANALYSIS. Total Market Capitalization/Revenue
("TMC/R") and Price/ Earnings ("P/E") multiples indicate the value public
markets place on companies in a particular market segment. Within the embedded
systems software market, there are several companies that are comparable to
Award based on revenue size, business model and management structure. Broadview
reviewed ten public company comparables in the embedded systems management
software market from a financial point of view including each company's:
Trailing Twelve Month ("TTM") Revenue; TTM Revenue Growth; TTM Operating Margin;
5-year EPS Compound Annual Growth Rate ("CAGR"); Equity Market Capitalization;
TTM P/E ratio; Price/Forward Calendar 1998 EPS ratio ("Forward P/E"); Forward
Calendar 1998 P/E to Growth ratio ("Forward PEG"); and TTM TMC/R ratio. The
public company comparables were selected from the Broadview Barometer, a
proprietary database of publicly-traded Information Technology ("IT") companies
maintained by Broadview and broken down by industry segment. In order of
descending TTM TMC/R, the public company comparables consist of: (i) Citrix
Systems, Inc.; (ii) Wind River Systems, Inc.; (iii) Geoworks Corp.; (iv)
Microware Systems Corp.; (v) Spyglass, Inc.; (vi) Metrowerks, Inc.; (vii)
Integrated Systems, Inc.; (viii) Puma Technology, Inc.; (ix) SystemSoft
Corporation; and (x) Phoenix Technologies Ltd. These comparables have a TTM P/E
ratio range of 25.1 to 75.3 with a median of 52.0; Forward P/E ratio range of
17.6 to 42.9 with a median of 31.2; Forward PEG ratio range of 0.59 to 1.17 with
a median of 0.83; and a TTM TMC/R ratio range of 1.57 to 15.64 with a median of
4.09.
The equity value per share range implied by the TTM P/E multiples is $16.14
to $48.38 with a median implied value of $33.36. The equity value per share
range implied by the Forward P/E multiples is $14.24 to $34.73 with a median
implied value of $25.27. The equity value per share range implied by the Forward
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PEG multiples is $13.05 to $25.95 with a median implied value of $18.60. The
equity value per share range implied by the TTM TMC/R multiples is $7.43 to
$47.20 with a median implied value of $14.54.
EVALUATION OF PHOENIX EQUITY. Broadview compared the ranges and medians of
the same public company comparables as were comparable to Award, except for the
removal of Phoenix and the addition of Award as a comparable, with the multiples
implied by Phoenix's April 9, 1998 share price of $12.00, and its current and
projected performance.
TRANSACTION COMPARABLES ANALYSIS. Valuation statistics from transaction
comparables indicate the Adjusted Price/Revenue ("P/R") and Equity Price/Pretax
Income ("Equity Price/Pretax") multiples acquirers have paid for comparable
companies in a particular market segment. Broadview reviewed six comparable
public company and three private company merger and acquisition ("M&A")
transactions from 1996 through the present with seller revenue between $10 and
$150 million that involved sellers sharing many characteristics with the Company
including size, markets served and business model. Transactions were selected
from Broadview's proprietary database of published and confidential M&A
transactions in the IT industry. These transactions represent nine sellers in
the systems management software segment of the IT market. In order of descending
P/R multiple, the six public company transactions used are the acquisition of:
(i) Tivoli Systems, Inc. by IBM Corp.; (ii) OpenVision Technologies, Inc. by
VERITAS Software Corp.; (iii) BGS Systems Inc by BMC Software Inc; (iv) Software
Artistry, Inc. by IBM Corp. (Tivoli Systems, Inc.); (v) Unison Software, Inc. by
IBM Corp. (Tivoli Systems, Inc.); and (vi) TGV Software, Inc. by Cisco Systems,
Inc. The P/R multiples of the six public seller transactions range from 2.56 to
14.15 with a median of 4.84. The Equity Price/Pretax multiples of these six
transactions range from 19.4 to 151.4 with a median of 30.0.
The equity value per share range implied by the P/R multiples of the six
public seller transaction comparables is $10.23 to $43.00 with a median implied
value of $16.68. The equity value per share range implied by the Equity
Price/Pretax multiples in the six public seller transaction comparables is
$16.84 to $131.39 with a median implied value of $26.02.
In order of descending P/R multiple, the three private company transactions
used are the acquisition of: (i) Datastorm Technologies, Inc. by Quarterdeck
Corp.; (ii) MAXM Systems Corp. by Boole & Babbage, Inc.; and (iii) NetSoft by
NetManage, Inc. The P/R multiples of all nine transactions range from 0.71 to
14.15 with a median of 3.46. The Equity Price/Pretax multiples of all nine
transactions range from 7.3 to 151.4 with a median of 23.3.
The equity value per share range implied by the P/R multiples in all nine
transaction comparables is $4.98 to $43.00 with a median implied value of
$12.76. The equity value per share range implied by the Equity Price/Pretax
multiples in the nine transaction comparables with either available or
meaningful data is $6.30 to $131.39 with a median implied value of $20.24.
TRANSACTION PREMIUMS PAID ANALYSIS. Premiums paid in comparable public
seller transactions indicate the amount of consideration acquirers are willing
to pay above the seller's equity market capitalization. In this analysis, the
value of consideration paid in transactions involving stock is computed using
the buyer's stock price immediately prior to announcement, while the seller's
equity market capitalization is measured one day prior and thirty days prior to
announcement. Broadview reviewed 37 comparable M&A transactions involving
software vendors from January 1, 1995 to the present with total consideration
between $25 and $250 million. Transactions were selected from Broadview's
proprietary database of published and confidential M&A transactions in the IT
industry. In order of descending premium paid 30 days prior to announce date,
the software transactions used were the acquisition of: (i) High Level Design
Systems, Inc. by Cadence Design Systems, Inc.; (ii) GMIS Inc. by HBO & Company;
(iii) Softdesk, Inc. by Autodesk, Inc.; (iv) National Health Enhancement
Systems, Inc. by HBO & Company; (v) Triad Systems Corp. by Cooperative
Computing, Inc.; (vi) Visigenic Software, Inc. by Borland International, Inc.;
(vii) Interactive Group by Dataworks Corp.; (viii) TGV Software, Inc. by Cisco
Systems, Inc.; (ix) Open Environment
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Corp. by Borland International, Inc.; (x) Technology Modeling Associates, Inc.
by Avant! Corp.; (xi) Hogan Systems, Inc. by Continuum Co.; (xii) Software
Artistry, Inc. by IBM Corp. (Tivoli Systems); (xiii) Aurum Software Inc. by Baan
International BV; (xiv) Datalogix International, Inc. by Oracle Corp.; (xv)
Integrated Silicon Systems, Inc. by ArcSys, Inc.; (xvi) Learmonth & Burchett
Management Systems, Inc. (pending) by PLATINUM technology, inc.; (xvii) Trinzic
Corp. by PLATINUM technology, inc.; (xviii) Amisys Managed Care Systems, Inc. by
HBO & Company; (xix) Logic Works, Inc. by PLATINUM technology, inc.; (xx) Saber
Software Corp. by McAfee Associates, Inc.; (xxi) Clinicom, Inc. by HBO &
Company; (xxii) Altai, Inc. by PLATINUM technology, inc.; (xxiii) Maxis, Inc. by
Electronic Arts, Inc.; (xxiv) Easel Corp by VMARK Software; (xxv) CIS
Technologies, Inc. by National Data Corp.; (xxvi) Wavefront Technologies, Inc.
by Silicon Graphics, Inc.; (xxvii) Microtec Research, Inc. by Mentor Graphics
Corp.; (xxviii) HPR Inc. by HBO & Company; (xxix) Edmark Corp. by IBM Corp.;
(xxx) PHAMIS, Inc. by IDX Systems Corp.; (xxxi) Enterprise Systems, Inc. by HBO
& Company; (xxxii) Unison Software, Inc. by IBM Corp. (Tivoli Systems); (xxxiii)
Premenos Corp. by Harbinger Corp.; (xxxiv) Raptor Systems, Inc. by AXENT
Technologies, Inc.; (xxxv) Meta-Software, Inc. by Avant! Corp.; (xxxvi) Fractal
Design Corp. by MetaTools, Inc.; and (xxxvii) FireFox Communications Inc. by FTP
Software, Inc. Based upon Broadview's analysis of premiums paid in comparable
software transactions, Broadview found that premiums/(discounts) paid to
sellers' equity market capitalizations (using the buyer's share price on the day
prior to the announcement date of the transaction to calculate consideration in
stock transactions) 30 days prior to announce date ranged from (47.8%) to 138.5%
with a median of 44.2%. The premiums/(discounts) paid to each sellers' equity
market capitalization one day prior to announce date ranged from (8.8%) to 87.4%
with a median of 29.6%.
The equity value per share range implied by the premiums paid to the share
price 30 days prior to announce is $4.99 to $22.81 with a median implied value
of $13.79. The equity value per share range implied by the premiums paid to the
share price one day prior to announce is $12.08 to $24.83 with a median implied
value of $17.17.
STOCK PERFORMANCE ANALYSIS. For comparative purposes, Broadview examined
the weekly historical volume and trading prices and the daily relative share
prices for both Phoenix and Award common stock. Broadview examined the
following: (i) Phoenix and Award actual share prices and trading volumes from
April 4, 1997 to April 6, 1998; (ii) Phoenix, Award and their respective Public
Company Comparables Indexed share prices from April 4, 1997 to April 3, 1998;
(iii) Relative ratio of Award to Phoenix actual share prices from April 4, 1997
to April 6, 1998.
RELATIVE CONTRIBUTION ANALYSIS. A relative contribution analysis measures
each of the merging companies' contributions to items such as Revenue and Net
Income on a percentage basis. Broadview examined the relative contributions
during the TTM ended September 30, 1997, TTM ended September 30, 1998 and
Projected Calendar 1998 based upon analyst estimates for Phoenix and Award for
each of the following income statement items: (i) Revenue; (ii) Earnings Before
Interest and Taxes (EBIT); (iii) Pretax Income; and (iv) Net Income. Award's
relative contribution for Revenue for the TTM ended September 30, 1997, TTM
ended September 30, 1998 and Projected Calendar 1998 is 19.9%, 22.7% and 22.8%,
respectively. Award's relative contribution for EBIT for the TTM ended September
30, 1997 and Projected Calendar 1998 is 34.5%, 37.3% and 36.1%, respectively.
Pretax Income for the TTM ended September 30, 1998 and Projected Calendar 1998
is 33.0%, 35.5% and 34.8%, respectively. Award's relative contribution for Net
Income for the TTM ended TTM ended September 30, 1997, TTM ended September 30,
1998 and Projected Calendar 1998 is 32.4%, 35.7% and 35.1%, respectively.
RELATIVE OWNERSHIP ANALYSIS. A relative ownership analysis measures each of
the merging companies' relative equity ownership and relative entity values (net
of cash) at various exchange ratios. Broadview examined the relative equity
ownership and relative entity value at exchange ratios ranging from 1.0700
through 1.4483. At an exchange ratio of 1.0700, the implied equity ownership is
33.0% for Award and 67.0% for Phoenix, while the implied entity ownership is
35.8% for Award and 64.2% for Phoenix. At an
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exchange ratio of 1.4483, the implied equity ownership is 40.0% for Award and
60.0% for Phoenix, while the implied entity ownership is 44.9% for Award and
55.1% for Phoenix. At an exchange ratio of 1.225, the implied equity ownership
is 36.1% for Award and 63.9% for Phoenix while the implied entity ownership is
39.9% for Award and 60.1% for Phoenix.
PRO FORMA POOLING MODEL ANALYSIS. A pro forma merger analysis calculates
the EPS accretion/ dilution of the pro forma combined entity taking into
consideration various financial affects which will result from a consummation of
the Merger. This analysis relies upon certain financial and operating
assumptions provided by equity research analysts and on publicly available data
about Award and Phoenix. Based on analysts' forecasts for both Phoenix and Award
(assuming no cost savings), the pro forma pooling analysis indicates EPS
accretion/(dilution) without acquisition expenses for the fiscal year ending
September 30, 1998 of 2.6%.
PRESENT VALUE OF PROJECTED SHARE PRICE ANALYSIS. Broadview calculated the
present value of the potential future price of shares of Phoenix Common Stock on
a standalone basis using analyst estimates for the fiscal year ending September
30, 1998 discounted to today at discount rates from 15.0% to 25.0%. The
potential future share price based on September 30, 1998 financial results is
calculated based upon an estimated calendar 1998 EPS (as estimated using analyst
projections) and assumes TTM P/E multiples of between 20.0x and 30.0x, in line
with comparable public company multiples for Phoenix. Based on this analysis,
Broadview calculated present values of potential future share prices ranging
from $10.37 to $16.30. In addition, Broadview performed an analysis of the pro
forma present value per Phoenix share assuming the consummation of the Merger.
This analysis applied TTM P/E multiples of between 20.0x and 30.0x, in line with
comparable public company multiples for Phoenix to estimated fiscal year 1998
EPS for the combined entity (based on analyst estimates for both Phoenix and
Award) and discounted the future share prices to today using discount rates from
15.0% to 25.0%. Based on this analysis, Broadview estimated present values of
future share prices ranging from $10.64 to $16.72.
CONSIDERATION OF THE DISCOUNTED CASH FLOWS VALUATION METHODOLOGY. While
discounted cash flows analysis is a commonly used valuation methodology,
Broadview did not employ such an analysis for the purposes of this opinion.
Discounted cash flows analysis is most appropriate for companies which exhibit
relatively steady or somewhat predictable streams of future cash flows. Given
the uncertainty in estimating both Award's future cash flows and sustainable
long-term growth rate, Broadview considered a discounted cash flows analysis
inappropriate for valuing Award.
The Phoenix Board selected Broadview as its financial advisor on the basis
of Broadview's reputation and experience in the Information Technology sector
and the computer software industry in particular, as well as Broadview's
historical relationship with Phoenix. Pursuant to the terms of an engagement
letter between Phoenix and Broadview, the fees payable by Phoenix to Broadview
upon completion of the Merger are based upon consideration to be paid by Phoenix
pursuant to the Merger. Broadview will be reimbursed by Phoenix for certain of
its expenses incurred in connection with its engagement. The terms of the fee
arrangement with Broadview, which Phoenix and Broadview believe are customary in
transactions of this nature, were negotiated at arms' length between Phoenix and
Broadview, and the Phoenix Board was aware of the nature of the fee arrangement,
including the fact that a significant portion of the fees payable to Broadview
is contingent upon completion of the Merger.
The above summary of the presentations by Broadview to the Phoenix Board
does not purport to be a complete description of such presentations or of all
the advice rendered by Broadview. Broadview believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, could create an
incomplete view of the process underlying the analyses set forth in Broadview's
presentations to the Phoenix Board and in the Broadview Opinion. The Broadview
Opinion is necessarily based upon market, economic, financial and other
conditions as they existed and could be evaluated as of the date of the
Broadview Opinion. The Broadview Opinion expresses no opinion as to the price at
which Phoenix Common Stock will trade at any time. In performing its
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analyses, Broadview made numerous assumptions with respect to software industry
performance and general economic conditions, many of which are beyond the
control of Phoenix or Award. The analyses performed by Broadview are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses.
OPINION OF AWARD'S FINANCIAL ADVISOR
BancAmerica Robertson Stephens was engaged to act as Award's financial
advisor in connection with the Merger pursuant to an engagement letter (the
"BancAmerica Robertson Stephens Engagement Letter") dated February 18, 1998.
Pursuant to the BancAmerica Robertson Stephens Engagement Letter, Award retained
BancAmerica Robertson Stephens to provide financial advisory and investment
banking services in connection with a possible sale of or business combination
involving Award, and to render an opinion as to the fairness of the exchange
ratio in such a business combination, from a financial point of view, to the
shareholders of Award.
On April 13, 1998, at a meeting of the Award Board held to evaluate the
proposed Merger, BancAmerica Robertson Stephens delivered to the Award Board its
oral opinion which was subsequently confirmed as a written opinion dated April
13, 1998 (the "BancAmerica Robertson Stephens Opinion") that as of April 13,
1998 and based on the matters described therein, the Exchange Ratio was fair,
from a financial point of view, to the shareholders of Award (other than Phoenix
or any affiliate of Phoenix). No limitations were imposed by the Award Board on
BancAmerica Robertson Stephens with respect to the investigations made or
procedures followed by it in furnishing its opinion. The Exchange Ratio was
determined through negotiations between the managements of Award and Phoenix.
Although BancAmerica Robertson Stephens did assist the management of Award in
those negotiations, it was not asked by, and did not recommend to, Award that
any specific exchange ratio constituted the appropriate exchange ratio for the
Merger. BancAmerica Robertson Stephens also assisted Award's management in the
negotiations leading to an agreement on principal structural terms of the
transaction. BancAmerica Robertson Stephens expresses no opinion as to tax
consequences of the Merger, and BancAmerica Robertson Stephens' opinion as to
the fairness of the Exchange Ratio does not take into account the particular tax
status or position of any shareholder of Award. In furnishing its opinion,
BancAmerica Robertson Stephens was not engaged as an agent or fiduciary of
Award's shareholders or any other third party.
THE FULL TEXT OF THE BANCAMERICA ROBERTSON STEPHENS OPINION, WHICH SETS
FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX D AND IS INCORPORATED
HEREIN BY REFERENCE. SHAREHOLDERS OF AWARD ARE URGED TO READ THE BANCAMERICA
ROBERTSON STEPHENS OPINION IN ITS ENTIRETY. THE BANCAMERICA ROBERTSON STEPHENS
OPINION WAS PREPARED FOR THE BENEFIT AND USE OF THE AWARD BOARD IN ITS
CONSIDERATION OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO
SHAREHOLDERS OF AWARD AS TO HOW THEY SHOULD VOTE AT THE AWARD ANNUAL MEETING IN
CONNECTION WITH THE MERGER. THE BANCAMERICA ROBERTSON STEPHENS OPINION DOES NOT
ADDRESS THE RELATIVE MERITS OF THE MERGER AND ANY OTHER TRANSACTIONS OR BUSINESS
STRATEGIES DISCUSSED BY THE AWARD BOARD AS ALTERNATIVES TO THE REORGANIZATION
AGREEMENT OR THE UNDERLYING BUSINESS DECISION OF THE AWARD BOARD TO PROCEED WITH
OR EFFECT THE MERGER. THE SUMMARY OF THE BANCAMERICA ROBERTSON STEPHENS OPINION
SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF THE BANCAMERICA ROBERTSON STEPHENS OPINION.
In connection with the preparation of the BancAmerica Robertson Stephens
Opinion, BancAmerica Robertson Stephens, among other things, (i) reviewed
financial information relating to Award furnished to it by Award, including
certain internal financial analyses and forecasts prepared by the managements of
Award respectively; (ii) reviewed certain publicly available information
concerning Award and Phoenix, including their respective stock price and trading
histories; (iii) held discussions with the management of Award concerning the
business, past and current business operations, financial condition and future
prospects of Award; (iv) reviewed the financial terms and conditions of the
April 13, 1998 draft of the
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Reorganization Agreement; (v) reviewed the valuations of publicly traded
companies that were deemed comparable to Award; (vi) prepared discounted cash
flow analyses of Award; (vii) compared the financial terms of the Merger set
forth in the April 13, 1998 draft of the Reorganization Agreement with other
transactions that were deemed relevant; (viii) prepared pro forma merger
analyses for the Merger; (ix) prepared a relative contribution analysis for
Award and Phoenix; and (x) made such other studies and inquiries, and reviewed
such other data, as it deemed relevant.
In conducting its review and arriving at its opinion, BancAmerica Robertson
Stephens assumed and relied upon, without independent verification, the
accuracy, completeness and fairness of the information furnished to or otherwise
reviewed by or discussed with it for purposes of rendering its opinion.
BancAmerica Robertson Stephens did not obtain or make or assume responsibility
for obtaining or making any independent evaluation or appraisal of the
properties or assets of Award or Phoenix, nor has BancAmerica Robertson Stephens
been furnished with any such evaluations or appraisals. BancAmerica Robertson
Stephens received estimates of Award's projected financial performance that were
prepared by the management of Award. BancAmerica Robertson Stephens also
reviewed publicly-available projections of analysts regarding the financial
performance of Phoenix. With the consent of the Award Board, this information
was used by BancAmerica Robertson Stephens in comparable company, precedent
transaction, exchange ratio and implied premium analysis, discounted cash flow,
relative contribution and pro forma earnings analyses summarized below. With
respect to financial and operating forecasts of Award provided to BancAmerica
Robertson Stephens, BancAmerica Robertson Stephens assumed that such forecasts
were reasonably prepared in good faith on the basis of reasonable assumptions,
reflecting the best available estimates and judgments of the managements of
Award. BancAmerica Robertson Stephens assumed that the Merger would be accounted
for as a "pooling of interests" under generally accepted accounting principles.
The BancAmerica Robertson Stephens Opinion is based on the closing trading price
of Phoenix Common Stock as of April 8, 1998 and on market, economic and other
conditions as they existed or were disclosed to BancAmerica Robertson Stephens
and could be evaluated as of the date of the BancAmerica Robertson Stephens
Opinion and made available to BancAmerica Robertson Stephens on such date. In
rendering the BancAmerica Robertson Stephens Opinion, BancAmerica Robertson
Stephens assumed that the Merger would be consummated upon the terms described
in the Reorganization Agreement, without material alteration thereof.
The following is a summary of the material financial analyses performed by
BancAmerica Robertson Stephens in connection with rendering the BancAmerica
Robertson Stephens Opinion:
COMPARABLE COMPANY ANALYSIS. Using publicly available information,
BancAmerica Robertson Stephens analyzed, among other things, the market values
plus net debt (the "Total Capitalization") and trading multiples of Award and
selected publicly traded companies in the software industry, including:
Microware Systems Corporation, Phoenix, Puma Technology, Inc., and SystemSoft
Corporation (collectively, the "Comparable Companies"). Multiples compared by
BancAmerica Robertson Stephens included Total Capitalization to revenues and
operating income for calendar 1997 and to estimated revenues and operating
income for calendar 1998 and 1999 and market capitalization to net income for
calendar 1997 and to estimated net income for calendar 1998 and 1999. All
multiples were based on closing stock prices as of April 8, 1998. Applying a
range of multiples for the Comparable Companies of calendar year 1997 and
estimated calendar years 1998 and 1999 revenues of 1.6x to 4.4x, 1.3x to 3.6x
and 1.1x to 2.5x, respectively, to corresponding financial data for Award
resulted in an equity reference range for Award of approximately $7.75 to $16.68
per share. Applying a range of multiples for the Comparable Companies of
calendar year 1997 and estimated calendar years 1998 and 1999 operating income
of 14.5x, 9.5x to 14.5x, and 5.8x to 9.4x, respectively, to corresponding
financial data for Award resulted in an equity reference range for Award of
approximately $10.96 to $17.66 per share. Applying a range of calendar year 1997
and estimated calendar years 1998 and 1999 price/earnings multiples for the
Comparable Companies of 25.0x, 18.8x to 22.1x, and 16.0x to 16.4x, respectively,
to corresponding financial data for Award resulted in an equity reference range
for Award of approximately $14.80 to $17.90 per share. These equity reference
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ranges compared to the equity value implied by the Exchange Ratio of
approximately $14.70 per share based on the closing stock price of Award Common
Stock on April 8, 1998.
PRECEDENT TRANSACTION ANALYSIS. Using publicly available information,
BancAmerica Robertson Stephens analyzed the consideration offered plus net debt
assumed (the "Total Consideration") and implied transaction value multiples paid
or proposed to be paid in selected merger or acquisition transactions in the
software industry (the "Comparable Transactions"). BancAmerica Robertson
Stephens compared, among other things, the total consideration in such
transaction as a multiple of latest 12 months revenues. Applying a range of
multiples for the Comparable Transactions of latest 12 months revenues of 3.3x
to 4.7x to corresponding financial data for Award resulted in an equity
reference range for Award of approximately $12.54 to $16.57 per share, as
compared to the equity value implied by the Exchange Ratio of approximately
$14.70 per share based on the closing stock price of Award Common Stock on April
8, 1998. All multiples for the Comparable Transactions were based on public
information available at the time of the announcement of such transactions,
without taking into account differing market and other conditions during the
period in which the Comparable Transactions occurred.
No company, transaction or business used in Comparable Company Analysis or
Precedent Transaction Analysis as a comparison is identical to Award, Phoenix or
the Merger. Accordingly, an analysis of the results of the foregoing is not
entirely mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the acquisition, public trading and other values of
the Comparable Companies, Comparable Transactions or the business segment,
company or transactions to which they are being compared.
EXCHANGE RATIO AND IMPLIED PREMIUM ANALYSIS. BancAmerica Robertson Stephens
reviewed and analyzed the historical ratio of the daily per share market closing
prices of Award Common Stock and Phoenix Common Stock over several time periods,
each ending on April 8, 1998. BancAmerica Robertson Stephens noted that the
Exchange Ratio represents a premium of 51.5% to the average price ratio for the
two companies for the last 12 months, a premium of 60.1% to the average price
ratio for the last nine months, a premium of 61.9% to the average price ratio
for the last six months, a premium of 53.3% to the average price ratio for the
last three months, a premium of 34.7% to the average price ratio for the
trailing 30 trading days, a premium of 23.0% to the average price ratio for the
trailing 20 trading days, a premium of 12.4% to the average price ratio for the
trailing 10 trading days, a premium of 40.4% to the average price ratio for the
four weeks prior to April 8, 1998, and a premium of 9.4% to the average price
ratio on April 8, 1998.
RELATIVE CONTRIBUTION ANALYSIS. BancAmerica Robertson Stephens analyzed the
respective contributions of Award and Phoenix to the revenues, gross profit,
earnings before interest and taxes ("EBIT"), and net income of the combined
company for calendar year 1997 and to the estimated revenues, gross profit,
EBIT, and net income of the combined company for calendar years 1998 and 1999.
This analysis indicated that (i) in calendar year 1997, Award would have
contributed approximately 21.7% of revenue, approximately 23.9% of gross profit,
approximately 38.8% of EBIT and approximately 35.9% of net income and Phoenix
would have contributed approximately 78.3% of revenue, approximately 76.1% of
gross profit, approximately 61.2% of EBIT and approximately 64.1% of net income,
of the combined company, (ii) in calendar year 1998, Award would contribute
approximately 22.8% of revenue, approximately 24.3% of gross profit,
approximately 36.1% of EBIT and approximately 35.1% of net income, and Phoenix
would contribute approximately 77.2% of revenue, approximately 75.7% of gross
profit, approximately 63.9% of EBIT and approximately 64.9% of net income, of
the combined company, and (iii) in calendar year 1999, Award would contribute
approximately 24.1% of revenue, approximately 25.5% of gross profit,
approximately 31.8% of EBIT and approximately 31.7% of net income, and Phoenix
would contribute approximately 75.9% of revenue, approximately 74.5% of gross
profit, approximately 68.2% of EBIT and approximately 68.3% of net income, of
the combined company. Based on market capitalizations of Award
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and Phoenix as of April 8, 1998, shareholders of Award and Phoenix would own
approximately 34.4% and 65.6%, respectively, of the combined company upon
consummation of the Merger.
DISCOUNTED CASH FLOW ANALYSIS. BancAmerica Robertson Stephens performed a
discounted cash flow analysis of the unlevered (before interest expense)
after-tax cash flows of Award using the Award estimates for the fiscal years
1998 through 2003. BancAmerica Robertson Stephens first discounted the
projected, unlevered after-tax cash flows through December 31, 2003 using a
range of discount rates from 25% to 30%. Award unlevered after-tax cash-flows
were calculated as the after-tax operating earnings of Award adjusted to add
back non-cash expenses and deduct uses of cash not reflected in the income
statement. BancAmerica Robertson Stephens then added to the present value of the
cash flows the terminal value of Award in the fiscal year ending December 31,
2003, discounted back at the same discount rate. The terminal value was computed
by multiplying Aware's projected EBIT in fiscal 2003 by terminal multiples
ranging from 6.0x to 10.0x. The range of terminal multiples selected reflect
BancAmerica Robertson Stephens's judgment as to an appropriate range of
multiples at the end of the referenced period. The discounted cash flow
valuation resulted in an equity reference range of approximately $11.96 to
$17.67 per share, as compared to the equity value implied by the Exchange Ratio
of approximately $14.70 per share based on the closing price of Award Common
Stock on November 13, 1997.
PRO FORMA EARNINGS ANALYSIS. BancAmerica Robertson Stephens analyzed
certain pro forma effects resulting from the Merger, including, among other
things, the impact of the Merger on the projected earnings per share ("EPS") of
the combined company for the fiscal years 1998 and 1999. Without taking into
account certain cost savings that the combined company may realize in its
operations, the results of the pro forma earnings analysis suggested that the
Merger could be accretive to the combined company's EPS in the fiscal years 1998
and 1999. The actual results achieved by the combined company may vary from
projected results and the variations may be material.
OTHER FACTORS AND COMPARATIVE ANALYSES. In rendering its opinion,
BancAmerica Robertson Stephens considered certain other factors and conducted
certain other comparative analyses, including, among other things, a review of
(i) the history of trading prices and volume for each of Award Common Stock and
Phoenix Common Stock for the period April 8, 1997 to April 8, 1998, and (ii)
selected published analysts' reports on each of Award and Phoenix, including
analysts' estimates as to the earnings growth potential of Award and Phoenix.
While the foregoing summary describes certain analyses and factors that
BancAmerica Robertson Stephens deemed material in its presentation to the Award
Board of Directors, it is not a comprehensive description of all analyses and
factors considered by BancAmerica Robertson Stephens. The preparation of a
fairness opinion is a complex process that involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. BancAmerica
Robertson Stephens believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, would create an incomplete view of
the evaluation process underlying the BancAmerica Robertson Stephens Opinion.
Several analytical methodologies were employed and no one method of analysis
should be regarded as critical to the overall conclusion reached by BancAmerica
Robertson Stephens. Each analytical technique has inherent strengths and
weaknesses, and the nature of the available information may further affect the
value of particular techniques. The conclusions reached by BancAmerica Robertson
Stephens are based on all analyses and factors taken as a whole and also on
application of BancAmerica Robertson Stephens' own experience and judgment. Such
conclusions may involve significant elements of subjective judgment and
qualitative analysis. BancAmerica Robertson Stephens therefore gives no opinion
as to the value or merit standing alone of any one or more parts of the analysis
it performed. In performing its analyses, BancAmerica Robertson Stephens
considered general economic, market and financial conditions and other matters,
many of which are beyond the control of Award and Phoenix. The analyses
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performed by BancAmerica Robertson Stephens are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than those suggested by such analyses. Accordingly, analyses relating
to the value of a business do not purport to be appraisals or to reflect the
prices at which the business actually may be purchased. Furthermore, no opinion
is being expressed as to the prices at which shares of Award Common Stock may
trade at any future time.
Award engaged BancAmerica Robertson Stephens pursuant to the BancAmerica
Robertson Stephens Engagement Letter on February 18, 1998. The BancAmerica
Robertson Stephens Engagement Letter provides that, for its services,
BancAmerica Robertson Stephens is entitled to receive, contingent upon
consummation of the Merger, a transaction fee based upon the Aggregate
Transaction Value (as defined in the BancAmerica Robertson Stephens Engagement
Letter). Award has also agreed to reimburse BancAmerica Robertson Stephens for
certain of its out-of-pocket expenses and to indemnify and hold harmless
BancAmerica Robertson Stephens and its affiliates and any person, director,
employee or agent of BancAmerica Robertson Stephens or any of its affiliates, or
any person controlling BancAmerica Robertson Stephens or its affiliates for
certain losses, claims, damages, expenses and liabilities relating to or arising
out of services provided by BancAmerica Robertson Stephens as financial advisor
to Award. The terms of the fee arrangement with BancAmerica Robertson Stephens,
which Award and BancAmerica Robertson Stephens believe are customary in
transactions of this nature, were negotiated at arm's length between Award and
BancAmerica Robertson Stephens, and the Award Board was aware of such fee
arrangements, including the fact that a significant portion of the fees payable
to BancAmerica Robertson Stephens is contingent upon completion of the Merger.
BancAmerica Robertson Stephens was retained based on BancAmerica Robertson
Stephens' experience as a financial advisor in connection with mergers and
acquisitions and in securities valuations generally, as well as BancAmerica
Robertson Stephens investment banking relationship and familiarity with Award.
BancAmerica Robertson Stephens is a nationally recognized investment banking
firm. As part of its investment banking business, BancAmerica Robertson Stephens
is frequently engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements and other purposes. BancAmerica
Robertson Stephens may actively trade the equity securities of Award and Phoenix
for its own account and for the account of its customers and, accordingly, may
at any time hold a long or short position in such securities.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of Award
Common Stock. This discussion is based on currently existing provisions of the
Code, existing and proposed Treasury Regulations thereunder, current
administrative rulings, and court decisions, all of which are subject to change.
Any such change, which may or may not be retroactive, could alter the tax
consequences to Phoenix, Award, or the Award shareholders as described herein.
Award shareholders should be aware that this discussion does not deal with
all U.S. federal income tax considerations that may be relevant to particular
Award shareholders in light of their particular circumstances, such as
shareholders who are dealers in securities, banks, insurance companies or
tax-exempt organizations who are subject to the alternative minimum tax
provisions of the Code, foreign persons, shareholders who acquired their shares
in connection with previous mergers involving Award or an affiliate, or
shareholders who acquired their shares in connection with stock option or stock
purchase plans or in other compensatory transactions or who hold their shares as
a hedge or as part of hedging, straddle, conversion or other risk reduction
transactions. In addition, the following discussion does not address the tax
consequences of transactions effectuated prior to or after the Merger (whether
or not such transactions are in connection with the Merger), including without
limitation transactions in which shares of Award
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Common Stock were or are acquired or shares of Phoenix Common Stock or common
stock of the Combined Company were or are disposed of. Furthermore, no foreign,
state or local tax considerations are addressed herein. ACCORDINGLY, AWARD
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES.
The parties are not requesting a ruling from the Internal Revenue Service
("IRS") in connection with the Merger. Phoenix and Award have each received an
opinion from their respective legal counsel, Wilson Sonsini Goodrich & Rosati
Professional Corporation, and Cooley Godward LLP, respectively, to the effect
that, for federal income tax purposes, the Merger will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. These
opinions, which are collectively referred to herein as the "Tax Opinions,"
neither bind the IRS nor preclude the IRS from adopting a contrary position. In
addition, the Tax Opinions are subject to certain assumptions and qualifications
and are based on the truth and accuracy of certain representations made by
Phoenix, Merger Sub and Award, including representations in certificates
delivered to counsel by the respective managements of Phoenix, Merger Sub and
Award.
The Merger is intended to constitute a "reorganization" within the meaning
of Section 368(a) of the Code, with each of Phoenix, Merger Sub and Award
intended to qualify as a "party to the reorganization" under Section 368(b) of
the Code, in which case the following U.S. federal income tax consequences will
result (subject to the limitations and qualifications referred to herein):
(a) No gain or loss will be recognized for federal income tax purposes by
holders of Award Common Stock solely upon their receipt of common stock of the
Combined Company in the Merger in exchange therefor (except to the extent, if
any, of cash received in lieu of fractional shares);
(b) The aggregate tax basis of the common stock of the Combined Company
received in the Merger by an Award shareholder (including any fractional share
of the common stock of the Combined Company not actually received) will be the
same as the aggregate tax basis of Award Common Stock surrendered in exchange
therefor;
(c) The holding period of the common stock of the Combined Company received
in the Merger by an Award shareholder will include the period during which the
shareholder held the Award Common Stock surrendered in exchange therefor,
provided that the Award Common Stock so surrendered is held as a capital asset
at the time of the Merger;
(d) Cash payments received by holders of Award Common Stock in lieu of a
fractional share will be treated as if such fractional share of Award Common
Stock had been issued in the Merger and then redeemed by Award. An Award
shareholder receiving such cash will recognize gain or loss upon such payment,
measured by the difference (if any) between the amount of cash received and the
basis in such fractional share. The gain or loss should be capital gain or loss,
provided that each such fractional share of Award Common Stock was held as a
capital asset at the Effective Time;
(e) An Award shareholder who exercises Dissenters' Rights with respect to a
share of Award Common Stock and receives payments for such stock in cash will
generally recognize gain or loss for federal income tax purposes, measured by
the difference between the holder's basis in such shares and the amount of cash
received, provided that the payment is neither essentially equivalent to a
dividend within the meaning of Section 302 of the Code nor has the effect of a
distribution of a dividend within the meaning of Section 356(a)(2) of the Code
(collectively, a "Dividend Equivalent Transaction"). Such gain or loss will be
capital gain or loss, provided that the Award Common Stock is held as a capital
asset at the Effective Time of the Merger. A sale of Award Common Stock pursuant
to an exercise of Dissenters' Rights will generally not be a Dividend Equivalent
Transaction if, as a result of such exercise, the shareholder exercising
appraisal rights owns no shares of Phoenix Common Stock or Award Common Stock
(either actually or constructively within the meaning of Section 318 of the
Code); and
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(f) None of Phoenix, Merger Sub or Award will recognize gain or loss solely
as a result of the Merger.
A successful IRS challenge to the "reorganization" status of the Merger
would result in significant adverse consequences to the Award shareholders. An
Award shareholder would recognize gain or loss with respect to each share of
Award Common Stock surrendered equal to the difference between the shareholder's
basis in such share and the fair market value, as of the Effective Time of the
Merger, of the common stock of the Combined Company received in exchange
therefor. In such event, a shareholder's aggregate basis in the common stock of
the Combined Company so received would equal such fair market value and his
holding period for such stock would begin the day after the Closing Date.
Certain noncorporate Award shareholders may be subject to backup withholding
at a rate of 31% on cash payments received in lieu of a fractional share
interest in Phoenix Common Stock. Backup withholding will not apply, however, to
a shareholder who furnishes a correct taxpayer identification number ("TIN") and
certifies that he is not subject to backup withholding on the substitute Form
W-9 included in the Transmittal Letter, who provides a certificate of foreign
status on Form W-8, or who is otherwise exempt from backup withholding. A
shareholder who fails to provide the correct TIN on Form W-9 may be subject to a
$50 penalty imposed by the IRS.
Each Award shareholder will be required to retain records and file with such
holder's U.S. federal income tax return a statement setting forth certain facts
relating to the Merger.
GOVERNMENTAL AND REGULATORY APPROVALS
Under the HSR Act, and the rules promulgated thereunder by the FTC, the
Merger cannot be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and the
specified waiting period has been satisfied. The notifications required under
the HSR Act as well as certain information have been furnished to the FTC and
the Antitrust Division. On May 20, 1998, requests from the Antitrust Division
for additional information and documentary material (the "Second Requests") were
timely received by both Phoenix and Award. Phoenix and Award are in the process
of complying with the Second Requests. Phoenix and Award have met with the
Antitrust Division to discuss the status of the Antitrust Division's review and
have made presentations on areas of the companies' business of interest to the
Antitrust Division. Phoenix and Award expect these meetings to continue as the
companies and the Antitrust Division seek to bring the review to closure and in
connection therewith may discuss with the Antitrust Division the terms and
conditions necessary to resolve any regulatory objections to the Merger. As part
of this process, Phoenix and Award may voluntarily extend the HSR Act waiting
period to allow the Antitrust Division additional time to review the Merger. If
no agreement is reached prior to the expiration of the period (as extended, if
applicable), the Antitrust Division may decide to challenge the Merger. If the
Antitrust Division were to challenge the Merger, Phoenix and Award would have to
decide whether or not to litigate the matter. Phoenix and Award anticipate
incurring additional expenses in order to comply with the Second Requests. In
addition, if the HSR Act waiting period were to be extended or if the Antitrust
Division were to challenge the Merger and Phoenix and Award decided to litigate
the matter, Phoenix and Award would incur substantial additional expenses.
Phoenix and Award have agreed to use reasonable efforts to terminate the
waiting period under the HSR Act. However, under the Reorganization Agreement or
otherwise, neither Phoenix nor Award is obligated to agree to any condition or
remedial governmental action that may be required to obtain governmental
approval under the HSR Act. There can be no assurance that the Antitrust
Division will have completed its review or that the waiting period will have
expired at the time of the Award Annual Meeting or the Phoenix Special Meeting.
At any time before or after consummation of the Merger, and notwithstanding that
the HSR Act waiting period may have expired, the Antitrust Division, the FTC or
any state or foreign governmental authority, could take such action under the
antitrust laws as it deems
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necessary or desirable in the public interest. Private parties may also seek to
take legal action under the antitrust laws under certain circumstances.
There can be no assurance that the consummation of the Merger will not be
delayed by reason of the HSR Act or that failure to resolve antitrust objections
to the Merger on favorable or timely terms and conditions would not lead to
termination of the Merger Agreement. There can be no assurance that a challenge
to the consummation of the Merger on antitrust grounds will not be made or that,
if such a challenge were made, Phoenix and Award would prevail.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes in accordance with generally accepted
accounting principles. Consummation of the Merger is conditioned upon receipt at
the closing of the Merger by Phoenix and Award of letters from Ernst & Young
LLP, Phoenix's independent accountants, regarding the firm's concurrence with
Phoenix management's conclusions as to the appropriateness of pooling of
interests accounting for the Merger under Accounting Principles Board Opinion
No. 16 ("APB No. 16"), if consummated in accordance with the Reorganization
Agreement, and the receipt by Award of a letter from Price Waterhouse LLP, its
independent accountants, regarding Price Waterhouse LLP's concurrence with
Award's management's conclusions as to the appropriateness of Award being a
party to a business combination for which the pooling of interests method of
accounting would be available in accordance with APB No. 16.
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TERMS OF THE MERGER
THE FOLLOWING IS A BRIEF SUMMARY OF THE MATERIAL PROVISIONS OF THE
REORGANIZATION AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX A TO THIS JOINT
PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THIS SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL AND COMPLETE TEXT OF THE
REORGANIZATION AGREEMENT.
EFFECTIVE TIME
Subject to the provisions of the Reorganization Agreement, Phoenix, Award
and Merger Sub shall cause the Merger to be consummated by filing an Agreement
of Merger, with the Secretary of State of the State of California in accordance
with the relevant provisions of California law as soon as practicable on or
after the Closing Date. The closing of the Merger (the "Closing") shall take
place at the offices of Wilson Sonsini Goodrich & Rosati Professional
Corporation at a time and date to be specified by the parties, which shall be no
later than the second business day after the satisfaction or waiver of the
conditions set forth in the Reorganization Agreement, or at such other time,
date and location as the parties hereto agree in writing. The Closing is
anticipated to occur after the close of business on June 29, 1998.
MANNER AND BASIS OF CONVERTING SHARES
At the Effective Time of the Merger, Merger Sub will merge with and into
Award and Phoenix will become the owner of all of the capital stock of Award. As
a result of the Merger, each outstanding share of Award Common Stock, other than
any shares held in the treasury of Award or owned by Merger Sub, Phoenix or any
direct or indirect wholly owned subsidiary of Phoenix or Award, will be
converted into the right to receive 1.225 (the "Exchange Ratio") shares of
Phoenix Common Stock. Pursuant to the Merger, each outstanding option or right
to purchase Award Common Stock under Award's 1997 Equity Incentive Plan,
Employee Stock Purchase Plan and 1995 Stock Option Plan, and each outstanding
warrant or other right to purchase Award Common Stock, will be assumed by
Phoenix and will become a warrant, option or other right to purchase Phoenix
Common Stock, with appropriate adjustments to be made to the number of shares
issuable thereunder and the exercise price thereof based on the Exchange Ratio.
In addition, each share of Phoenix Common Stock issued to the Award Shareholders
in the Merger will also include a Right pursuant to the Phoenix Rights Plan.
No fraction of a share of Phoenix Common Stock will be issued by virtue of
the Merger, but in lieu thereof each holder of shares of Award Common Stock who
would otherwise be entitled to a fraction of a share of Phoenix Common Stock
(after aggregating all fractional shares to be received by such holder) will
receive an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the closing price of a share of
Phoenix Common Stock on the trading day immediately prior to the Effective Time,
as reported on the Nasdaq National Market.
At or promptly after the Effective Time, Phoenix, acting through the
Exchange Agent, will deliver to each Award shareholder of record (as of the
Effective Time) a letter of transmittal with instructions to be used by such
shareholder in surrendering certificates which, prior to the Merger, represented
shares of Award Common Stock. CERTIFICATES SHOULD NOT BE SURRENDERED BY THE
HOLDERS OF AWARD COMMON STOCK UNTIL SUCH HOLDERS RECEIVE THE LETTER OF
TRANSMITTAL FROM THE EXCHANGE AGENT. At the Effective Time, each then
outstanding option, warrant or right to purchase Award Common Stock will be
assumed by Phoenix without any action on the part of the holder thereof. OPTION
AGREEMENTS AND WARRANTS NEED NOT BE SURRENDERED.
STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the capitalization of Award as of the close of business on March
31, 1998 (including the number of shares of Award Common Stock outstanding and
the number of shares issuable upon exercise
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of outstanding options, warrants and other rights to purchase Award Common
Stock), and assuming that no holder of Award Common Stock exercises Dissenters'
Rights, an aggregate of approximately 8.7 million shares of Phoenix Common Stock
will be issued to Award shareholders in the Merger and Phoenix will assume
options, warrants and rights for up to approximately 2.9 million additional
shares of Phoenix Common Stock. Based upon the number of shares of Phoenix
Common Stock issued and outstanding plus the number of shares represented by
outstanding options, warrants or other rights to purchase shares of Phoenix
Common Stock as of March 31, 1998, and after giving effect to the issuance of
the Phoenix Common Stock to Award's shareholders in the Merger including the
assumption by Phoenix of outstanding options, warrants or other rights to
acquire Award Common Stock, the former holders of Award Common Stock would hold,
and have voting power with respect to, approximately 26% of Phoenix's total
issued and outstanding shares, and holders of former Award options, warrants or
rights would hold options, warrants or rights exercisable for approximately 9%
of Phoenix's total issued and outstanding shares (assuming the exercise of
Phoenix's outstanding options, warrants or rights). The foregoing numbers of
shares and percentages are subject to change in the event that the
capitalization of either Phoenix or Award changes subsequent to March 31, 1998
and prior to the Effective Time, and there can be no assurance as to the actual
capitalization of Phoenix or Award at the Effective Time or of Phoenix at any
time following the Effective Time.
CONDUCT OF PHOENIX'S AND AWARD'S BUSINESS PRIOR TO THE MERGER
Pursuant to the Reorganization Agreement, each of Phoenix and Award has
agreed, on behalf of itself and its subsidiaries, that during the period from
the date of the Reorganization Agreement and continuing until the earlier of the
termination of the Reorganization Agreement pursuant to its terms or the
Effective Time, except as set forth in certain disclosure schedules or to the
extent that the other party shall otherwise consent in writing, to carry on its
business diligently and in accordance with good commercial practice and to carry
on its business in the usual, regular and ordinary course, in substantially the
same manner as heretofore conducted and in compliance with all applicable laws
and regulations, to pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, to pay or perform other material obligations
when due, and to use its commercially reasonable efforts consistent with past
practices and policies to preserve intact its present business organization,
keep available the services of its present officers and employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings.
In addition, except as set forth in certain disclosure schedules to the
Reorganization Agreement, without the prior written consent of the other,
Phoenix and Award have agreed that neither shall do any of the following nor
permit their subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or authorize cash
payments in exchange for any options granted under any of such plans;
(b) Enter into any material partnership arrangements, joint development
agreements or strategic alliances, agreements to create "standards" or
agreements with "standards" bodies;
(c) Grant any severance or termination pay to any officer or employee except
payments in amounts consistent with policies and past practices or pursuant to
written agreements outstanding, or policies existing, on the date of the
Reorganization Agreement and as previously disclosed in writing to the other, or
adopt any new severance plan;
(d) Transfer or license to any person or entity or otherwise extend, amend
or modify in any material respect any rights to the intellectual property of
Award or the intellectual property of Phoenix, as the case may be, other than in
the ordinary course of business, or enter into grants to future patent rights,
other than in the ordinary course of business;
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(e) Declare or pay any dividends on or make any other distributions (whether
in cash, stock or property) in respect of any capital stock, or split, combine
or reclassify any capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for any capital stock,
other than pursuant to the Phoenix Rights Plan;
(f) Repurchase or otherwise acquire, directly or indirectly, any shares of
capital stock except pursuant to rights of repurchase of any such shares under
any employee, consultant or director stock plan existing on the date of the
Reorganization Agreement, and other than pursuant to the Phoenix Rights Plan;
(g) Issue, deliver, sell, authorize or propose the issuance, delivery or
sale of any shares of capital stock or any securities convertible into shares of
capital stock, or subscriptions, rights, warrants or options to acquire any
shares of capital stock or any securities convertible into shares of capital
stock, or enter into other agreements or commitments of any character obligating
it to issue any such shares or convertible securities, other than (i) the
issuance of shares of Phoenix Common Stock or Award Common Stock pursuant to the
exercise of stock options or warrants therefor outstanding as of the date of the
Reorganization Agreement, (ii) options to purchase shares of Award Common Stock
or Phoenix Common Stock, as the case may be, to be granted at fair market value
in the ordinary course of business, consistent with past practice and in
accordance with stock option plans existing on the date of the Reorganization
Agreement, (iii) shares of Award Common Stock or Phoenix Common Stock, as the
case may be, issuable upon the exercise of the options referred to in clause
(ii), (iv) shares of Award Common Stock or Phoenix Common Stock, as the case may
be, issuable to participants in the Award Employee Stock Purchase Plan or the
Phoenix 1991 Employee Stock Purchase Plan, as the case may be, consistent with
past practice and the terms thereof, and (v) shares of Phoenix Preferred Stock
pursuant to the Phoenix Rights Plan;
(h) Cause, permit or propose any amendments to any charter document or
Bylaws (or similar governing instruments of any subsidiaries);
(i) Except as set forth in the disclosure schedules of Phoenix and Award, as
the case may be, acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or a material portion of the assets of,
or by any other manner, any business or any corporation, partnership interest,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to the business of Award or Phoenix, as the case may be, or enter
into any joint ventures, strategic partnerships or alliances;
(j) Sell, lease, license, encumber or otherwise dispose of any properties or
assets which are material, individually or in the aggregate, to the business of
Award or Phoenix, as the case may be, except in the ordinary course of business
and consistent with past practice;
(k) Incur any indebtedness for borrowed money (other than ordinary course
trade payables or pursuant to existing credit facilities in the ordinary course
of business) or guarantee any such indebtedness or issue or sell any debt
securities or warrants or rights to acquire debt securities of Award or Phoenix,
or guarantee any debt securities of others;
(l) Except as set forth in the disclosure schedules of Phoenix and Award,
adopt or amend any employee benefit or stock purchase or employee option plan,
or enter into any employment contract, pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its officers or employees other than in the ordinary course of business,
consistent with past practice, or change in any material respect any management
policies or procedures;
(m) Pay, discharge or satisfy any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business;
(n) Make any grant of exclusive rights to any third party;
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(o) Take any action that would be reasonably likely to interfere with
Phoenix's ability to account for the Merger as a pooling of interests; or
(p) Agree in writing or otherwise to take any of the actions described in
the foregoing.
CONDUCT FOLLOWING THE MERGER
Once the Merger is consummated, Merger Sub will cease to exist as a
corporation, and all of the business, assets, liabilities and obligations of
Merger Sub will be merged into Award with Award remaining as the Surviving
Corporation.
Pursuant to the Reorganization Agreement, the Articles of Incorporation of
Merger Sub in effect immediately prior to the Effective Time will become the
Articles of Incorporation of the Surviving Corporation and the Bylaws of Merger
Sub will become the Bylaws of the Surviving Corporation. The Board of Directors
of the Surviving Corporation will consist of the directors who are serving as
directors of Merger Sub immediately prior to the Effective Time. The officers of
Merger Sub immediately prior to the Effective Time will remain as officers of
the Surviving Corporation, until their successors are duly elected or appointed
or qualified.
Pursuant to the Reorganization Agreement, the Combined Company Board
following the Merger will consist of six members, four of whom will be the
current directors of Phoenix, and two of whom will have been directors of Award
immediately prior to the Merger (including George C. Huang and Anthony Sun). The
Combined Company will have a staggered board, with three classes of directors:
Class I, II and III. The classes are elected sequentially. The two designees of
Award shall be designated Class I directors. At the Combined Company's next
Annual Meeting, currently expected to take place in February 1999, the Class III
directors will stand for election. If, prior to the Effective Time, any of the
Award designees decline or are unable to serve as directors of the Combined
Company, then Award shall designate another person to serve in such person's
stead, which person will be reasonably acceptable to Phoenix.
NO SOLICITATION
Under the terms of the Reorganization Agreement, until the earlier of the
Effective Time or termination of the Reorganization Agreement pursuant to its
terms, each of Phoenix and Award has agreed that it will not, its subsidiaries
will not, and it will instruct its respective directors, officers, employees,
representatives, investment bankers, agents and affiliates not to, directly or
indirectly, (i) solicit or knowingly encourage submission of, any proposals or
offers by any person, entity or group (other than Award or Phoenix, as the case
may be, and its affiliates, agents and representatives), or (ii) participate in
any discussions or negotiations with, or disclose any non-public information
concerning itself or any of its subsidiaries to, or afford any access to the
properties, books or records of itself or any of its subsidiaries to, or
otherwise assist or facilitate, or enter into any agreement or understanding
with, any person, entity or group (other than Award or Phoenix, as the case may
be, and its affiliates, agents and representatives), in connection with any
Acquisition Proposal with respect to itself. For the purposes of the
Reorganization Agreement, an "Acquisition Proposal" with respect to an entity
means any proposal or offer relating to (i) any merger, consolidation, sale of
substantial assets or similar transactions involving the entity or any
subsidiaries of the entity (other than sales of assets or inventory in the
ordinary course of business or as permitted under the terms of the
Reorganization Agreement); (ii) sale of 10% or more of the outstanding shares of
capital stock of the entity (including without limitation by way of a tender
offer or an exchange offer); (iii) the acquisition by any person of beneficial
ownership or a right to acquire beneficial ownership of, or the formation of any
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) which beneficially owns, or has the right to acquire
beneficial ownership of, 10% or more of the then outstanding shares of capital
stock of the entity (except for acquisitions for passive investment purposes
only in circumstances where the person or group qualifies for and files a
Schedule 13G with respect thereto); or (iv) any public announcement of a
proposal, plan or intention to do any of
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the foregoing or any agreement to engage in any of the foregoing. Under the
terms of the Reorganization Agreement, each of Phoenix and Award have agreed to
immediately cease any and all existing activities, discussions or negotiations
with any parties with respect to any of the foregoing. In addition, Phoenix and
Award have agreed to (i) notify the other as promptly as practicable if any
inquiry or proposal is made or any information or access is requested in writing
in connection with an Acquisition Proposal or potential Acquisition Proposal and
(ii) as promptly as practicable notify the other of the terms of any such
Acquisition Proposal. In addition, subject to the other provisions set forth in
the section of the Reorganization Agreement summarized here, each of Phoenix and
Award has agreed, until the earlier of the Effective Time or termination of the
Reorganization Agreement pursuant to its terms, that it and its subsidiaries
will not, and it and its subsidiaries will instruct their respective directors,
officers, employees, representatives, investment bankers, agents and affiliates
not to, directly or indirectly, make or authorize any public statement,
recommendation or solicitation in support of any Acquisition Proposal made by
any person, entity or group (other than Award or Phoenix, as the case may be);
provided, that Phoenix and Award have agreed that the Boards of Directors of
Phoenix and Award may take and disclose to the stockholders of Phoenix or the
shareholders of Award, respectively, a position with respect to a tender offer
pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act.
Notwithstanding the foregoing, Phoenix and Award have agreed that, prior to
the approval of the Reorganization Agreement by the stockholders of Phoenix or
the shareholders of Award, as the case may be, each of Phoenix and Award may, to
the extent its Board of Directors determines, in good faith, after consultation
with outside legal counsel, that the Board's fiduciary duties under applicable
law require it to do so, participate in discussions or negotiations with, and,
subject to the requirements of the following paragraph, furnish information to
any person, entity or group after such person, entity or group has delivered to
Phoenix or Award, as the case may be, in writing, an unsolicited bona fide
Acquisition Proposal which the Board of Directors of Phoenix or Award,
respectively, in its good faith reasonable judgment determines, after
consultation with its independent financial advisors, would result in a
transaction more favorable than the Merger to the stockholders of Phoenix or the
shareholders of Award, respectively, and for which financing, to the extent
required, is then committed or which, in the good faith reasonable judgment of
the Board of Directors of Phoenix or Award, as the case may be (based upon the
advice of independent financial advisors), is reasonably capable of being
financed by such person, entity or group and which is likely to be consummated
(a "Superior Proposal"). In addition, notwithstanding the provisions of the
preceding paragraph, in connection with a possible Acquisition Proposal, each of
Phoenix and Award may refer any third party to the section of the Reorganization
Agreement summarized here or make a copy of such section available to a third
party. In the event either Phoenix or Award receives a Superior Proposal,
nothing contained in the Reorganization Agreement (but subject to the terms of
the Reorganization Agreement) will prevent the Board of Directors of Phoenix or
Award, as the case may be, from recommending such Superior Proposal to the
shareholders of such company, if such Board determines, in good faith, after
consultation with outside legal counsel, that such action is required by its
fiduciary duties under applicable law; in such case, the Board of Directors of
such company may withdraw, modify or refrain from making its recommendations
concerning the Merger, and, to the extent the Board of Directors of such company
so changes its recommendations, such company may refrain from soliciting proxies
and taking such other action necessary to secure the vote of its shareholders as
may be required by the Reorganization Agreement; provided, however, that each of
Phoenix and Award has agreed that it will not recommend a Superior Proposal to
its shareholders for a period of not less than 48 hours after the other's
receipt of a copy of such Superior Proposal (or a description of the significant
terms and conditions thereof, if not in writing); and PROVIDED FURTHER, that
nothing contained in the section of the Reorganization Agreement summarized here
limits the obligations of Phoenix and Award to hold and convene the Phoenix
Special Meeting or the Award Special Meeting, as the case may be (regardless of
whether the recommendations of the Board of Directors of Phoenix or Award have
been withdrawn, modified or not yet made).
Notwithstanding the foregoing, each of Phoenix and Award has agreed that it
will not provide any non-public information to a third party unless: (i) it
provides such non-public information pursuant to a
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nondisclosure agreement with terms regarding the protection of confidential
information at least as restrictive as the terms contained in that certain
confidentiality agreement between Phoenix and Award dated as of March 26, 1998;
and (ii) such non-public information is the same information previously
delivered to the other.
BREAK UP FEES
Except as set forth below, all fees and expenses incurred in connection with
the Reorganization Agreement and the transactions contemplated thereby will be
paid by the party incurring such expenses, whether or not the Merger is
consummated. Each of Phoenix and Award has agreed that if the Reorganization
Agreement is terminated because (i) its Board of Directors withholds, withdraws
or modifies, in a manner adverse to the other, its recommendation in favor of
adoption of the Reorganization Agreement and approval of the Merger, (ii) its
Board of Directors shall have failed to include in its Proxy Statement the
recommendation without dissenting vote in favor of the adoption of the
Reorganization Agreement and approval of the Merger, (iii) its Board of
Directors fails to reaffirm its recommendation in favor of the adoption of the
Reorganization Agreement and approval of the Merger within ten (10) business
days after the other party requests that such recommendation be reaffirmed at
any time following the public announcement of an Acquisition Proposal with
respect to such company, (iv) its Board of Directors shall have approved or
publicly recommended any Acquisition Proposal, (v) it shall have entered into
any letter of intent or similar document or any contract accepting any
Acquisition Proposal, or (vi) a tender or exchange offer relating to its
securities shall have been commenced by a person unaffiliated with the other
party and it shall not have sent to its security holders within ten (10)
business days after such tender or exchange offer is first published, sent or
given, a statement disclosing that it recommends rejection of such tender or
exchange offer then it will pay to the other party an amount equal to $4 million
within three days of such termination of the Reorganization Agreement.
Each of Phoenix and Award has further agreed that if the Reorganization
Agreement is terminated because it has not obtained the required vote of its
stockholders or shareholders at a meeting of its stockholders or shareholders
properly convened to vote on the adoption of the Reorganization Agreement and
approval of the Merger and (i) an Acquisition Proposal has been consummated with
respect to it or (ii) it shall have entered into a definitive agreement with
respect to an Acquisition Proposal in either case at any time prior to six
months after the date of the Reorganization Agreement, then it will pay to the
other party an amount equal to $4 million contemporaneously with the earlier of
(i) the consummation of such Acquisition or (ii) the public announcement by it
of its entry into a definitive agreement with respect to such Acquisition
Proposal.
Phoenix and Award have agreed that payment of the fees described in this
section will not be in lieu of damages incurred in the event of breach of the
Reorganization Agreement.
CONDITIONS TO THE MERGER
The respective obligations of each party to the Reorganization Agreement to
effect the Merger are subject to the satisfaction at or prior to the Effective
Time of the following conditions: (i) certain approvals by the stockholders of
Phoenix and the shareholders of Award shall have been obtained; (ii) the SEC
shall have declared the Registration Statement effective and no stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose, and no similar
proceeding in respect of the Joint Proxy Statement/Prospectus shall have been
initiated or threatened in writing by the SEC; (iii) no court, administrative
agency or commission or other governmental authority or instrumentality (a
"Governmental Entity") shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect and
which has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger and all waiting periods under the HSR Act relating to
the transactions contemplated by the Reorganization Agreement will have expired
or
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terminated early; (iv) Phoenix and Award shall each have received written
opinions from legal counsel to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code; provided,
however, that if the legal counsel to either Phoenix or Award does not render
such opinion, this condition shall nonetheless be deemed to be satisfied with
respect to such party if counsel to the other party renders such opinion to such
party; (v) the shares of Common Stock issuable to shareholders of Award pursuant
to the Reorganization Agreement and such other shares required to be reserved
for issuance in connection with the Merger shall have been authorized for
listing on Nasdaq; (vi) Phoenix shall have received a letter from its
independent accountant reaffirming the firm's concurrence with Phoenix
management's conclusions as to the appropriateness of pooling-of-interests
accounting for the Merger under APB No. 16; and (vii) Award shall have received
a letter from its independent accountants regarding Price Waterhouse LLP's
concurrence with Award's management's conclusions as to the appropriateness of
Award being a party to a business combination for which the pooling of interests
method of accounting would be available in accordance with APB No. 16; provided,
however, that if the independent accountants of Award does not render such
opinion or withdraws or modifies such opinion, this condition shall nonetheless
be deemed to be satisfied if the independent accountant of Phoenix renders such
opinion.
In addition, the obligation of Award to consummate and effect the Merger is
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, exclusively by
Award: (i) the representations and warranties of Phoenix and Merger Sub
contained in the Reorganization Agreement shall be true and correct, except in
all such cases where the failure to be so true and correct primarily result from
or relate to (x) the announcement or pendency of the Merger, (y) conditions
affecting the general global economy or regional economy in which Phoenix
operates its business, or (z) conditions affecting the system level software
industry as a whole, or would not have a material adverse effect with respect to
Phoenix; (ii) Phoenix and Merger Sub shall have performed or complied in all
material respects with all agreements and covenants required by the
Reorganization Agreement to be performed or complied with by them on or prior to
the Effective Time; and (iii) no material adverse effect with respect to Phoenix
shall have occurred since the date of the Reorganization Agreement, except
material adverse effects that result from or relate to (i) the announcement of
pendency of the Merger, (ii) conditions affecting the general global economy or
regional economy in which Phoenix operates its business or (iii) conditions
affecting the system level software industry as a whole.
Further, the obligations of Phoenix and Merger Sub to consummate and effect
the Merger are subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing,
exclusively by Phoenix: (i) the representations and warranties of Award
contained in the Reorganization Agreement shall be true and correct, except in
all such cases where the failure to be so true and correct primarily result from
or relate to (x) the announcement or pendency of the Merger, (y) conditions
affecting the general global economy or regional economy in which Award operates
its business, or (z) conditions affecting the system level software industry as
a whole, or would not have a material adverse effect with respect to Award; (ii)
Award shall have performed or complied in all material respects with all
agreements and covenants required by the Reorganization Agreement to be
performed or complied with by it on or prior to the Effective Time; and (iii) no
material adverse effect with respect to Award shall have occurred since the date
of the Reorganization Agreement, except material adverse effects that result
from or relate to (i) the announcement of pendency of ther Merger, (ii)
conditions affecting the general global economy or regional economy in which
Award operates its business or (iii) conditions affecting the system level
software industry as a whole.
TERMINATION OF THE REORGANIZATION AGREEMENT
The Reorganization Agreement provides that it may be terminated at any time
prior to the Effective Time (i) by mutual written consent duly authorized by the
Boards of Directors of Phoenix and Award; (ii) by either Award or Phoenix if the
Merger has not been consummated by September 30, 1998; provided,
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that the right to terminate the Reorganization Agreement under this provision is
not available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Merger to occur on or before such
date and such action or failure to act constitutes a breach of the
Reorganization Agreement; (iii) by either Award or Phoenix if a Governmental
Entity issues an order, decree or ruling or takes any other action, in any case
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger, which order, decree or ruling is final and nonappealable; (iv) by
either Award or Phoenix if the required approvals of the shareholders of Award
or the stockholders of Phoenix contemplated by the Reorganization Agreement have
not been obtained by reason of the failure to obtain the required vote upon a
vote taken at a meeting of shareholders or stockholders duly convened therefor
or at any adjournment thereof (provided that the right to terminate the
Reorganization Agreement under this provision is not available to any party
where the failure to obtain shareholder or stockholder approval of such party
was caused by the action or failure to act of such party in breach of the
Reorganization Agreement); (v) by Phoenix or Award if (a) the Board of Directors
of either party shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to the other party its recommendation without
dissenting vote in favor of, the adoption and approval of the Reorganization
Agreement or the approval of the Merger, (b) either party shall have failed to
include in the Proxy Statement the recommendation without dissenting vote of its
Board of Directors in favor of the adoption and approval of the Reorganization
Agreement and the approval of the Merger, (c) the Board of Directors of either
party fails to reaffirm its recommendation without dissenting vote in favor of
the adoption and approval of the Reorganization Agreement and the approval of
the Merger within ten (10) business days after the other party requests in
writing that such recommendation be reaffirmed at any time following the public
announcement of an Acquisition Proposal with respect to the former party, (d)
the Board of Directors of either party shall have approved or publicly
recommended any Acquisition Proposal with respect to it, (e) either party shall
have entered into any letter of intent or similar document or any contract
accepting any Acquisition Proposal with respect to it; (vi) a tender or exchange
offer relating to securities of either party shall have been commenced by a
person unaffiliated with the other party, and the former party shall not have
sent to its security holders pursuant to Rule 14e-2 promulgated under the
Securities Act, within ten (10) business days after such tender or exchange
offer is first published, sent or given, a statement disclosing that it
recommends rejection of such tender or exchange offer; (vii) by Award, upon
certain breaches of any representation, warranty, covenant or agreement on the
part of Phoenix set forth in the Reorganization Agreement, or if any
representation or warranty of Phoenix shall become untrue (provided that if such
inaccuracy in Phoenix's representations and warranties or breach by Phoenix is
curable by Phoenix prior to or during the 30-day period commencing after
delivery by Award of a written notice of breach, then Award may not terminate
the Reorganization Agreement provided Phoenix continues to exercise all
reasonable efforts to cure such breach); (viii) by Phoenix, upon certain
breaches of any representation, warranty, covenant or agreement on the part of
Award set forth in the Reorganization Agreement, or if any representation or
warranty of Award shall become untrue (provided that if such inaccuracy in
Award's representations and warranties or breach by Award is curable by Award
prior to or during the 30-day period commencing after delivery by Phoenix of a
written notice of breach, then Phoenix may not terminate the Reorganization
Agreement provided Award continues to exercise all reasonable efforts to cure
such breach); or (ix) by Phoenix or Award if, at any time prior to the
Registration Statement being declared effective, the independent accountant of
Phoenix shall have indicated in writing that it is unable to issue a letter
regarding concurrence with Phoenix's management's conclusions as to the
appropriateness of pooling of interest accounting in accordance with APB Opinion
No. 16 and that it cannot reasonably be anticipated that it will be able to
issue such letter within thirty (30) days of the date of such indication,
provided, however, that in the event that the independent accountant of Phoenix
is unable to issue such letter as a result of a breach by either Phoenix or
Award of any representation, warranty or covenant in the Reorganization
Agreement, the breaching party may not terminate the Reorganization Agreement as
a result of the failure of the independent accountant of Phoenix to issue such
letter.
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AFFILIATE AGREEMENTS
Each of the members of the Phoenix Board and certain officers of Phoenix
have entered into agreements restricting sales, dispositions or other
transactions reducing their risk of investment in respect of the shares of
Phoenix Common Stock held by them to help ensure that the Merger will be treated
as a pooling of interests for accounting and financial reporting purposes. Each
of the members of the Award Board and certain officers of Award have entered
into agreements restricting sales, dispositions or other transactions reducing
their risk of investment in respect of the shares of Award Common Stock held by
them prior to the Merger and the shares of Phoenix Common Stock received by them
in the Merger so as to comply with the requirements of applicable federal
securities and tax laws and to help ensure that the Merger will be treated as a
pooling of interests for accounting and financial reporting purposes.
VOTING AGREEMENTS
Directors of Phoenix holding less than 1% of Phoenix Common Stock as of the
Phoenix Record Date have entered into Voting Agreements with Award, pursuant to
which such directors have agreed to vote in favor of the Merger and have granted
Phoenix an irrevocable proxy to vote their shares of Award Common Stock in favor
of the Merger.
Certain directors and other affiliates of Award, who together hold
approximately 34% of the Award Common Stock outstanding as of the Award Record
Date, have entered into Voting Agreements with Phoenix pursuant to which such
directors and other affiliates of Award have agreed to vote in favor of the
Merger and have granted Phoenix an irrevocable proxy to vote their shares of
Award Common Stock in favor of the Merger. See "Terms of the Merger."
INTERESTS OF CERTAIN PERSONS
Certain members of Award's management and Board of Directors may be deemed
to have certain interests in the Merger that are in addition to their interests
as shareholders of Award generally. The Award Board was aware of these interests
and considered them, among other matters, in approving the Reorganization
Agreement and the transactions contemplated thereby.
From and after the Effective Time, the Surviving Corporation will fulfill
and honor in all respects the obligations of Award pursuant to any
indemnification agreements between Award and its directors and officers existing
prior to the date of the Reorganization Agreement. The Articles of Incorporation
and Bylaws of the Surviving Corporation will contain the provisions with respect
to indemnification set forth in the articles of incorporation and bylaws of
Award, which provisions will not be amended, repealed or otherwise modified for
a period of six years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who, immediately prior to the
Effective Time, were directors, officers, employees or agents of Award, unless
such modification is required by law.
After the Effective Time, the Surviving Corporation will, to the fullest
extent permitted under applicable law or under the Surviving Corporation's
Articles of Incorporation or Bylaws, indemnify and hold harmless, each present
director or officer of Award (collectively, the "Indemnified Parties") against
any costs or expenses (including attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement in connection with
any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, to the extent arising out of or pertaining to
any action or omission in his or her capacity as a director or officer of Award
arising out of or pertaining to the transactions contemplated by the
Reorganization Agreement for a period of six years after the date of the
Reorganization Agreement. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) any counsel retained by the Indemnified Parties for any period after
the Effective Time must be reasonably satisfactory to the Surviving Corporation
and Phoenix; (ii) after the Effective Time, the Surviving Corporation will pay
the reasonable fees and expenses of such counsel, promptly after statements
therefor are received; and (iii) the Surviving Corporation will
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cooperate in the defense of any such matter; PROVIDED, HOWEVER, that neither
Phoenix, the Surviving Corporation nor any Indemnified Party will be liable for
any settlement effected without its written consent (which consent will not be
unreasonably withheld); and PROVIDED, FURTHER, that, in the event that any claim
or claims for indemnification are asserted or made within such six-year period,
all rights to indemnification in respect of any such claim or claims will
continue until the disposition of any and all such claims.
For a period of six years after the Effective Time, Phoenix will cause the
Surviving Corporation to use its commercially reasonable efforts to maintain in
effect, if available, directors' and officers' liability insurance covering
those persons who are currently covered by Award's directors' and officers'
liability insurance policy on terms comparable to those applicable to the then
current directors and officers of Phoenix; provided, however, that in no event
will the Combined Company or the Surviving Corporation be required to expend in
excess of 200% of the annual premium currently paid by Award for such coverage
or such coverage as is available for such 200% of the annual premium.
Phoenix intends to enter into employment agreements with certain current
Award officers following consummation of the Merger.
Vobis Microcomputer AG ("Vobis"), a shareholder of Award, has entered an
agreement with Award whereby Award will provide to Vobis certain support,
maintenance and development of basic input/output system code. Mr. Willy Weck, a
director of the Award, serves as Chief Financial Officer of Vobis.
On April 13, 1998, Award, Sun Corporation ("Sun") and Axis Corporation
("Axis") entered into a Common Stock Purchase Agreement, whereby Award will
purchase Sun's 19% interest and Axis's 19% interest in Award Japan for an
aggregate of approximately 20,000 shares of Award common stock. Mr. Masami
Maeda, a director of Award, is President, Chief Executive Officer and a majority
shareholder of Sun. Sun is a shareholder of Award.
DISSENTERS' RIGHTS
If the Merger is consummated, and if holders of 5% or more of the
outstanding Award Common Stock properly exercise the rights described herein,
holders of Award Common Stock which were outstanding on the Award Record Date
and who fully comply with all applicable provisions of Chapter 13 of the
California Corporations Code (See Annex B hereto), are entitled to require Award
to purchase such shares (any and all of such shares being referred to in this
Joint Proxy Statement/Prospectus as "Dissenting Shares") for cash at their "fair
market value" as of the day preceding the first announcement of the terms of the
proposed Merger, excluding any appreciation or depreciation in consequence of
the proposed Merger. The terms of the proposed Merger were first publicly
announced on April 16, 1998 (the "Merger Announcement Date").
Dissenters' Rights are exercisable only by the holder of record, not by a
beneficial owner who does not hold the shares of record.
An Award shareholder who wishes to demand that Award purchase all or a
portion of his shares for cash at such value must do all of the following with
respect to such shares:
1. Vote such shares of Award Common Stock against the Merger.
2. Make a written demand on Award for the purchase of such shares and for
the payment in cash of the fair market value of such shares. Such demand will
not be effective unless it is received by Award not later than the date of the
Award Annual Meeting.
3. Submit to Award, within 30 days after the date on which notice of
approval of the Merger is mailed to such shareholder by Award, the stock
certificates representing the shares which such shareholder demands Award
purchase. Award will endorse such certificate to indicate they represent
Dissenting Shares.
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The written demand and the stock certificates should be delivered or
addressed to Award at 777 E. Middlefield Road, Mountain View, California 94043,
Attention: Secretary.
The required written demand (the second-numbered requirement above) must
state: the number of shares held of record which the shareholder demands be
purchased and the amount that such shareholder claims to be the fair market
value of such shares as of the day preceding the Merger Announcement Date. The
statement of fair market value will constitute an offer by the shareholder to
sell such shares at the price set forth in the statement. Thereafter, the
shareholder may withdraw a demand for payment only if Award consents to such
withdrawal.
If the holders of 6% or more of the outstanding shares of Award Common Stock
are Dissenting Shareholders, the Merger will be precluded from being accounted
for as a pooling of interests and Phoenix's independent accountant will be
unable to issue a letter regarding concurrence with Phoenix's management's
conclusion as to the appropriateness of pooling of interests accounting.
Accordingly, one of the closing conditions of the Merger will not be satisfied.
If Award and such shareholder agree that the shareholder has properly
exercised Dissenters' Rights in accordance with Chapter 13 of the California
Corporations Code, and agree upon the relevant fair market value of the
Dissenting Shares, then Award, upon timely surrender of the certificates
representing such shares as set forth above, will make payment of the agreed
upon amount (plus interest at the legal rate from the date of such agreement)
within 30 days after such agreement (or within 30 days after the Effective Date
of the Merger, if later). If Award denies that such shareholder has properly
exercised Dissenters' Rights, or Award and such shareholder fail to agree on the
relevant fair market value of such shares, such shareholder may, within six
months after the date on which the notice of shareholder approval is mailed to
such shareholder, but not thereafter, file a complaint in the Superior Court for
the County of Santa Clara, State of California, requesting the purchase of and
payment for such shares or to determine their fair market value or both. The
cost of any such action would be assessed or apportioned as the court considered
equitable. However, if the court were to determine that the fair market value
exceeded the price offered to the shareholder by Award by at least 25%, then
Award would be required to pay costs (including, in the court's discretion,
attorneys' fees, fees of expert witnesses and interest at the legal rate).
The foregoing is merely a summary and does not purport to be a complete
statement of the rights of Dissenting Shareholders. It is qualified in its
entirety by reference to the applicable statutory provisions of Chapter 13 of
the California Corporations Code which are set forth in full in Annex B to this
Joint Proxy Statement/Prospectus.
STOCKHOLDERS OF PHOENIX
Stockholders of Phoenix are not entitled to appraisal rights under the
Delaware General Corporation Law in connection with the Merger.
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INFORMATION CONCERNING AWARD
GENERAL
Award designs, develops and markets system enabling and management software
for the global computing market. System enabling and management software is one
of the fundamental layers in any microprocessor-based system (including personal
computers) architecture and provides an essential interface between the system's
operating system software and hardware. Award's principal system enabling and
management software products include a suite of Basic Input/Output System
software ("BIOS"). Award's customers include designers and manufacturers of
motherboards, personal computer ("PC") systems and other microprocessor-based
(or "embedded") devices. Award believes that its products and engineering
services enable customers to rapidly develop new motherboard designs for
state-of-the-art computer systems. Award markets and licenses its products and
services worldwide and has established itself as a leading provider of desktop
system management software in Asia, which accounts for over 60% of worldwide
desktop motherboard production.
The BIOS, which is the software initially executed after the system is
turned on, tests and initializes hardware components, initiates the operating
system and then provides advanced interface functions. Award's desktop BIOS
products enable a PC to support a number of key advanced technologies, including
Plug and Play, Peripheral Component Interconnect ("PCI"), Desktop Management
Interface ("DMI"), Universal Serial Bus ("USB") and Advanced Configuration and
Power Interface ("ACPI"). Award is currently developing further enhancements to
its BIOS, including support for emerging standards such as IEEE-1394 and
Intelligent I/O ("I2O"). IEEE-1394 is a high-speed data interface for PCs,
peripherals and consumer electronic products. I2O is an intelligent input and
output subsystem used primarily with data storage devices. Award also provides
BIOS upgrades to end-users of desktop PCs who wish to extend the life of their
systems without replacing them entirely. In addition to Award's proprietary
suite of system enabling and management software products, Award offers PC Card
software that enables PCs and other electronic devices to recognize, install,
configure and operate peripheral devices, such as network and modem cards.
Award has recently embarked on a program to provide the leading PC
technologies to manufacturers of embedded devices. Supporting systems using real
time operating systems ("RTOS"), for example, Award's products provide PC bus
connectivity, PC software compatibility and PC hardware enabling. Certain
vertical markets within the embedded systems arena, such as Internet appliance
manufacturers, are also targeted with industry specific solutions.
Award currently licenses its products to more than 200 customers worldwide,
including Compaq Computer Corporation ("Compaq"), LG Electronics Inc. ("LG
Electronics), Micron Electronics, Inc. ("Micron"), Motorola, Inc. ("Motorola"),
NEC Corporation ("NEC") and Packard Bell. In response to its customers' need to
develop and integrate new technologies rapidly, Award has developed its business
with a particular emphasis on providing local engineering service and support in
each of its major target regions: Asia (primarily Taiwan), North America and
Europe.
Award Software International-Registered Trademark-, Award Software-TM-,
Award-TM-, APIACCESS-TM-, AwardBIOS-TM-, CARDWARE-Registered Trademark-, MR
BIOS-Registered Trademark-, PC DIAG-Registered Trademark-,
POSTcard-Registered Trademark-, SMSACCESS-Registered Trademark-,
Unicore-Registered Trademark-, USBACCESS-TM- and WWWACCESS-TM- are either
pending trademark approval or are trademarks of Award.
INDUSTRY BACKGROUND
PC systems consist of four layers: the hardware, the BIOS, the operating
system and the application software. The computer's primary hardware component,
the motherboard, is connected to peripheral hardware devices, such as a
keyboard, hard disk drive and mouse. The BIOS is stored in a non volatile memory
chip on the motherboard while the operating system and application software are
stored on the hard disk drive. The BIOS, which is the software initially
executed after the system is turned on, tests and
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initializes hardware components and initiates the operating system. After the
BIOS completes the start up or "booting" of the system, it serves as the
interface between the computer hardware and the operating system. By acting as
the bridge between the operating system and the computer hardware, the BIOS
makes it possible to develop hardware and software independently. As a result,
the pace of innovation for hardware products in the PC industry, where the
typical life cycle of a hardware design is six to twelve months, has not been
constrained by the slower pace of operating system development, where
generational advances can take several years to develop.
Enhanced BIOS and other system management software have been developed to
support implementation of new industry standards and technologies, such as Plug
and Play, PC Card, DMI, "hot-docking" and ACPI. Improved versions of BIOS are
currently being developed to support IEEE-1394 and the latest PC industry
standards. Many of these new technologies will play an important part in the
development of PCs and embedded devices for the Internet and other network
computing environments.
Several important trends are currently affecting the system management
software industry:
OUTSOURCING OF SYSTEM MANAGEMENT SOFTWARE DEVELOPMENT. The rapid pace of
technological innovation in recent years has required system makers to adapt to
short production cycles and operate in an environment of continuous innovation.
As PC and motherboard designers and manufacturers continuously improve their
hardware products, they must ensure the compatibility of these new designs with
existing operating systems through a customized BIOS. While many PC and
motherboard manufacturers have the capability to or do develop system management
software internally, increasingly complex technology, demand for compatibility
with industry standards and competitive market pressures are driving some
manufacturers to consider resorting to dedicated system management software
providers. These manufacturers demand high levels of support at all stages of
product development, making it necessary for system management software vendors
to provide effective localized engineering support during the production
process.
OUTSOURCING OF MOTHERBOARD PRODUCTION. Competitive pressures in the PC
market, including sub-$1,000 PCs ("Segment Zero"), have also caused many system
manufacturers to outsource PC motherboard production to reduce cost and stay
current with advancing technologies. Manufacturers in Taiwan have taken
advantage of this trend to become significant participants in the world desktop
system and motherboard production market. Further, their role has expanded to
include design decisions, such as the selection of the BIOS and other system
management software. To rapidly integrate new motherboard designs into the
overall PC system, these manufacturers require locally based system management
software engineering resources.
RAPID GROWTH OF THE EMBEDDED DEVICE MARKET. Embedded devices perform a
single or limited number of tasks for a dedicated purpose. These devices require
advanced capabilities for data analysis, communication, control and ease-of-use
and depend upon highly customized system management software solutions to ensure
performance, reliability and functionality. Two distinct trends are emerging in
the embedded systems market. First, traditional PC architecture, which is based
on the x86 design, is being adopted for use in the embedded computer market. The
implementation of x86 architecture permits the development of open systems that
can employ standard software, development tools and peripheral hardware
products. Second, new generations of high-performance, low-cost Reduced
Instruction Set Computing ("RISC")-based processors are fostering the invention
of new types of devices and the miniaturization of existing products such as
Internet telephones and personal communicators. To minimize time to market,
these classes of designs are relying more and more on technologies and standards
emanating from the PC industry.
NEED TO REDUCE TOTAL COST OF OWNERSHIP ("TCO"). As PC use by less
technically sophisticated home and business users has grown, PC system
manufacturers have been searching for cost-effective solutions to reduce TCO.
Today's computing environment potentially provides system manufacturers with the
ability to access the hardware and operating systems to ascertain the problems
of the user and to make repairs.
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Additionally, manufacturers of embedded systems are searching for cost-effective
ways to maintain and support their products, which are broadly distributed and
sometimes installed in remote locations that cannot be directly accessed by
support personnel. To address this opportunity, providers of system management
software are beginning to work closely with system manufacturers to develop
products with remote access, diagnostic and repair capabilities. Management
Information System ("MIS") organizations and individuals are seeking ways to
prolong the useful life of PCs that have enough computing power for daily usage,
but are no longer compatible with hardware technologies introduced after the PCs
were manufactured.
AWARD STRATEGY
Award's objective is to become the leading designer, developer and marketer
of system enabling and management software by providing innovative solutions to
the desktop PC, mobile PC and embedded device markets. Award's strategy includes
the following key elements:
BUILD ON DESKTOP LEADERSHIP IN ASIA. Award is currently a leading provider
of system management software to the Asian desktop motherboard market and will
attempt to increase market share in this important region. Award believes that
PC manufacturers worldwide increasingly outsource PC design decisions, including
the selection of system management software and solutions used to reduce TCO, to
the OEMs and original design manufacturers in Taiwan that form the core of
Award's client base. Award further believes its long-standing focus on Asia
positions it to take advantage of this market growth, and Award plans to
maintain a high level of engineering and management resources in this region.
See "Business--Business Risks, International Operations; Currency Fluctuations;
International Unrest."
LEVERAGE EXISTING CUSTOMER RELATIONSHIPS AND DESKTOP PC EXPERTISE TO PURSUE
THE MOBILE MARKET. Award believes that it can leverage its desktop system
management software expertise to design and develop products for the mobile PC.
To complement its mobile BIOS products, Award also offers system management
software to support the PC Card standard, which is broadly implemented in the
mobile PC market. Award believes that the leading Taiwanese desktop system and
motherboard manufacturers, many of which are Award customers, will enter the
mobile PC market and provide Award with opportunities to license its mobile BIOS
products. In addition, Award has established a full-service joint venture
subsidiary operation in Yokohama, Japan to market, customize and support system
management software to the mobile PC manufacturers in Japan, which are
significant participants in the mobile PC market.
PROVIDE THE EMBEDDED SYSTEMS MARKETPLACE WITH INNOVATIVE PRODUCTS BASED ON
AWARD'S PC INDUSTRY CORE COMPETENCIES. With the increasing uniformity of the PC
industry, where products generally must be Intel-and Microsoft-compatible,
software developers and peripherals manufacturers can design products with very
large and instantaneous markets. Designers of embedded systems cannot benefit
from this broad product availability, given the traditional embedded system's
incompatibility with Microsoft Corp. ("Microsoft") Windows and Intel Corporation
("Intel") products. Award's strategy is to bridge the two environments by
leveraging its PC expertise and making PC technologies available on embedded and
real-time systems. In 1997, Award released several products based on PC
technology and geared toward the embedded systems market. Award's USBACCESS
provides embedded system connectivity to USB devices. WWWACCESS, which includes
web browser technology licensed from third parties, provides embedded
devices--including intelligent terminals, set-top boxes and telephones--with
Internet capabilities. APIACCESS enables developers of embedded systems to
develop application software using PC development tools and paradigms, including
the Win32-Registered Trademark- application program interface standard.
PROVIDE LOCALIZED CUSTOMER SERVICE IN KEY MARKETS. Award provides
responsive and competitive system management software engineering and support by
maintaining engineering, marketing and sales staff in the four key PC design
centers around the world: Taiwan, the U.S., Germany and Japan. For many of its
customers, Award serves as an important source of research and development,
providing customized solutions within the tight timeframes required in the
competitive motherboard market. In addition,
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Award's local service centers allow it to act as an important conduit between
the technology centers in the U.S. and key PC design centers. Easy
accessibility, frequent communication and localized interaction are crucial to
the selection and implementation of Award system enabling and management
software. Award believes that its emphasis on local service enables it to
perform high-quality, reliable and timely engineering and support services and
provides it with a competitive advantage.
PRODUCTS--SYSTEM MANAGEMENT AND ENABLING SOFTWARE
PERSONAL COMPUTER SOFTWARE PRODUCTS
AWARD SYSTEM BIOS
The Award System BIOS, or AwardBIOS, consists of core software code that can
be combined with additional software modules to add specific functions and
features, including Plug and Play, PCI, APM, USB and DMI. Award integrates the
core software code with some or all of these software modules to create a
product that meets the needs of its three principal markets: desktop PCs,
embedded devices and mobile PCs. To date, the majority of Award's software
license fees have been derived from sales in the desktop PC market.
DESKTOP BIOS integrates the core software code with modules that support the
following technological advancements:
- PLUG AND PLAY permits the BIOS and operating system software to
automatically recognize and configure PC hardware and peripherals, such as
printers, network cards and multimedia accessories. A variation of this
technology, known as "Hot" Plug and Play, allows for the installation,
recognition and removal of peripherals while power is on.
- PCI was developed by a consortium led by Intel and provides an
automatically configured interface between high-speed peripheral
components and PC systems.
- APM reduces power consumption by continuously monitoring system activity,
sensing idle time and powering down or powering off components.
- DMI is an industry standard that allows the desktop configuration data to
be easily accessed locally or over a network. This software is capable of
detecting and storing configuration information from devices and systems
that comply with the industry standard Desktop Management Task Force
specification.
- USB is a new Plug and Play interface designed to provide an easy
connection of slow- and medium-speed peripherals to a PC by supplying a
uniform connector to make installing a peripheral as simple as plugging in
a telephone.
MOBILE PC BIOS is a customized BIOS solution for use in notebook and other
portable PCs. It integrates the core software code with modules that support
Plug and Play, PCI, APM, DMI and USB. In addition, this new product supports the
hardware associated with mobile PCs, such as chipsets and keyboard controllers,
as well as other advanced technologies. For example, "hot docking" allows users
to connect to and disconnect from their mobile PCs to desktop docking stations
without turning off their machines. Award has also developed smart battery
support that ensures compatibility and monitors diagnostic information for the
advanced batteries found in mobile PCs.
REMOTE MANAGEMENT SOFTWARE
AWARD PREBOOT MANAGER, and its companion product, AWARD PREBOOT AGENT, is a
patent-pending solution developed by Award that allows technical support
personnel to remotely access a disabled PC via a modem or network connection.
Award believes that this software is unique because it operates without a
functioning hard drive or operating system and thus can solve a number of system
problems. AWARD PREBOOT
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MANAGER allows an expert system or technical support person to run BIOS setup,
see error messages, download files and download diagnostic software.
Consequently, PC manufacturers will be able to efficiently diagnose and
potentially repair systems without the usual user telephone relay or site visit.
The AWARD PREBOOT MANAGER and AWARD PREBOOT AGENT solution benefits PC system
manufacturers as well as third-party service providers because it can reduce
both the time and cost expended to diagnose and repair the system.
PC CARD SOFTWARE
The Personal Computer Memory Card International Association ("PCMCIA") was
formed to enact standards for credit card size computer memory and peripheral
add-on products called PC Cards. Award supplies software to enable PCs and other
electronic devices to recognize, install, configure and operate peripheral
devices that comply with PCMCIA standards. Award's PC Card software, CardWare,
provides a number of benefits over traditional PC Card software, including the
efficient use of system memory, greater portability, ease of maintenance and a
more modular design.
BIOS UPGRADE SOLUTIONS
Computers manufactured a few years ago often have enough computing power to
meet the users' needs, but may lack support for certain technologies, such as
large, removable media, which did not exist when the PC was built. Award
provides BIOS upgrades for PCs based on Award's and its competitors' BIOS,
allowing the end-users to extend the useful life of their PC systems.
PC DIAGNOSTICS SOFTWARE
With the mounting complexity of today's PCs, the ability to distinguish
between user mistakes ("operator errors") and actual system failures becomes
more important. Award's PC DIAG and POSTcard offer standalone software and
hardware diagnostic solutions, respectively, allowing MIS personnel and PC
end-users alike to quickly determine the causes of their system failures.
EMBEDDED SYSTEMS SOFTWARE PRODUCTS
EMBEDDED SYSTEM BIOS
AwardBIOS for Embedded Systems integrates the core software code with
selected modules and additional custom features. Award works closely with
embedded device customers to incorporate BIOS into design intensive embedded
hardware. Unlike PC products, which typically experience short product cycles, a
typical embedded device solution has a relatively long product life, with most
designs lasting through the life cycles of the products into which they are
integrated.
WIN32-COMPATIBLE SOFTWARE FOR EMBEDDED DEVICES
The Win32 application program interface ("API") standard has become the
computer industry's most popular programming environment. As such, large numbers
of application programs and software development tools are available for
Microsoft Windows software end-users and developers. Award's APIACCESS product
enables developers of embedded systems to use many of the same software
development tools that they currently use for developing PC applications, and
then to compile, link and run these applications on non-Windows-based, RISC or
x86 systems, reducing time to market and development costs.
INTERNET-ENABLING SOFTWARE FOR EMBEDDED DEVICES
To reduce time to market, manufacturers of Internet-enabled embedded
devices, such as Internet telephones, set-top boxes and intelligent terminals,
require off-the-shelf, integrated solutions combining the operating system, an
Internet browser and other connectivity or productivity applications. The
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traditional approach is to license a RTOS and a RTOS-specific version of a
browser, requiring the manufacturer to develop other supporting applications
using the RTOS vendor's development tools. Award's WWWACCESS product brings the
Win32 paradigm to these classes of embedded devices, providing a complete
Internet Appliance solution while also enabling the manufacturer to develop or
select Windows-based commercial applications, such as email tools or
connectivity solutions for inclusion on their devices.
USB-ENABLING SOFTWARE
USB is the emerging standard for PC connectivity of slow- and medium-speed
peripherals such as keyboards, mice, printers and scanners. Windows 98,
currently scheduled to be released in mid-1998, will be the first operating
system to support USB, although PC systems have had USB hardware connectivity
built-in since 1997. Award's USBAccess product enables non-Windows operating
systems, including RTOS, to support the same USB standard and the same PC
peripherals available on the market.
CUSTOMERS
Award services over 200 customers worldwide, including designers and
manufacturers of desktop PC motherboards, PC systems and notebooks, hardware
components and embedded devices. Current customers include Compaq, LG
Electronics, Micron, Motorola, NEC and Packard Bell. From time to time, Award
has worked with selected customers to co-develop certain products and expects to
pursue additional co-development opportunities in the future. For the years
ended December 31, 1997, 1996 and 1995, Vobis Microcomputer AG ("Vobis")
accounted for approximately 5%, 11% and 13% of Award's revenues, respectively.
SALES AND MARKETING
Award markets its products directly and through independent sales
representatives. In North America, Award sales managers operate from Award's
headquarters in Mountain View, California and North Andover, Massachusetts. In
Asia, Award operates from its office in Taipei, Taiwan, Hong Kong, China;
Yokohama, Japan, and through an independent sales representative in Korea. In
Europe, Award markets through its office in Munich, Germany. Award supports its
sales efforts with marketing programs that include exhibitions at trade shows,
participation in industry associations and events, attendance at technical
seminars and designation as hardware reference platform designs by processor and
chipset manufacturers.
Award believes that customer service and technical support are important
competitive factors in the system management software market. Accordingly, Award
provides local service and support for its customers in the U.S., Asia and
Europe. In addition, Award provides worldwide technical support from the U.S.
for end-users of its products through dial-in telephone services, facsimile,
e-mail and Award's web site on the World Wide Web. Information contained in
Award's home page shall not be deemed to be a part of this Joint Proxy
Statement/Prospectus. Award believes that close contact with its customers not
only improves its customers' level of satisfaction, but also provides early
access to its customers' new product plans and requirements.
PRODUCT DEVELOPMENT
Award's research and development efforts consist of new product development,
product enhancements and product customization for individual customers. Award
develops new products in response to emerging PC standards such as IEEE-1394 and
I2O, and to address perceived opportunities in related markets such as mobile
computing, remote diagnostics and embedded systems. Award's engineers actively
participate in a number of relevant industry standard groups, such as the I2O
Special Interest Group, the Personal Computer Memory Card International
Association, the Desktop Management Task Force, the
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Peripheral Component Interconnect Special Interest Group and the IEEE-1394 Trade
Association, which help guide Award's product planning. Award's software is
developed in a modular fashion to facilitate changes and updates as needed to
meet customer requirements and rapid development of new products.
An important function of Award's engineering group is to perform the
customization of the BIOS for each new motherboard and the customization of
other enabling software for new embedded designs. Award works closely with the
customer's engineers to ensure that the final motherboard design and the Award
BIOS, or the customers' embedded systems and Award's other enabling software,
are developed efficiently. The turnaround time for customizing a BIOS for a
customer can be as short as one week. Customization of embedded products can
take longer, depending on Award's product in question. Customization of BIOS or
other enabling software can be done in the U.S., Taiwan, Japan or Germany,
depending on resource availability and customer needs.
Because the development of Award's software products requires knowledge of
computer hardware, operating system software, system management software and
application software, key technical personnel must be proficient in a number of
disciplines. Competition to attract and retain such personnel is intense, and
the failure of Award to hire and retain talented technical personnel or the loss
of one or more key technical employees could have an adverse effect on Award's
business, financial condition and results of operations. See "Risk
Factors--Award Business Risks--Dependence on Key Personnel; Ability to Attract
and Retain Key Technical Employees."
COMPETITION
The markets for Award's products are highly competitive. The principal
competitive factors affecting the markets for Award's software include
technological excellence, timeliness of product introduction, responsiveness to
customer requirements, customer relationships, industry relationships,
engineering services, ease of use, ease of integration and price. Due to its
technological competence, large customer base in the desktop PC market, and
strong relationships with industry participants, Award believes it competes
favorably with respect to all of these factors. Further, part of Award's
strategy is to develop innovative software product solutions to address the
emerging trends in the PC and embedded device markets. There can be no assurance
that such products or technologies will be successfully developed by Award or
that such products will not be developed by others, rendering Award's software
or technologies non-competitive or obsolete. Failure to successfully implement
this strategy could have a material adverse effect upon Award's business,
financial condition and results of operations. See "Information Concerning
Award--Industry Background" and "--Product Development."
Award faces competition primarily from other PC and embedded systems
management software companies, including AMI, Phoenix and SystemSoft, and also
from the in-house software development staffs of current and prospective
customers. Certain of the companies with which Award competes or may in the
future compete have substantially greater financial, marketing, sales and
support resources and greater brand name and technological leadership
recognition than Award. There can be no assurance that Award will be able to
develop software comparable or superior to software offered by its competitors.
In addition, the PC market experiences intense price competition and Award
expects that, to remain competitive, it may have to decrease unit prices on some
or all of its software products. Any such decrease would have a material adverse
effect on Award's business, financial condition and results of operations.
Award believes that interdependencies may develop between system management
software companies and their customers, which would need to be overcome to
replace an entrenched competitor. While Award believes such entrenchment may
benefit Award in its existing relationships with key participants in the PC
market, especially with its customers in Taiwan, customer entrenchment may make
it more difficult for Award to displace competitors or increase market presence,
particularly in the mobile PC market, where competitors may have strong
relationships with certain mobile PC manufacturers. Intel, for example, has
entered into formal agreements with, and become a significant shareholder in,
Phoenix and SystemSoft. In
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addition, SystemSoft has entered into agreements with Microsoft, IBM and Compaq
to license its PC Card software.
Award believes that competitive pressures in the system management software
market may increase as operating software system software vendors incorporate
more system management software into their products. As software manufacturers
provide greater functionality and features, user value and performance to their
products that eliminate or encroach upon the need for Award's software products,
the market for such products could be materially diminished. Microsoft's
recently released Windows CE operating system includes embedded toolkit software
that incorporates system management software features.
Microsoft includes basic PC Card software in its Windows 95 operating system
and has announced the inclusion of full PC Card software support in its next
generation Windows 98 and Windows NT 5.0 operating systems. Award has developed
PC Card software for Microsoft's Windows NT. If end-users of Microsoft's version
of the basic PC Card and Plug and Play software included in its operating
systems perceive such software as being adequate for their computing needs,
Award's revenues from PC Card software would be adversely affected. While Award
believes that the trend in the PC industry toward greater complexity will
continue and that Award's products offer a technologically proven, timely and
cost-effective solution to this need, there can be no assurance that other
participants in the PC industry will not develop products and solutions that
encroach upon the demand, or obviate the need, for Award's products. See "Risk
Factors--Award Business Risks--Dependence on Key Customer Relationships;
Concentration of Credit Risk."
INTELLECTUAL PROPERTY
Award's success depends in significant part on the development, maintenance
and protection of its intellectual property. Award regards all of its software
as proprietary and attempts to protect it with a combination of patents,
copyrights, trademarks and trade secrets, employee and third-party nondisclosure
agreements and other methods of protection. Despite these precautions and the
protection of copyright laws, it may be possible for unauthorized third parties
to copy Award's software or to reverse engineer or obtain and use information
that Award regards as proprietary. Award currently holds patent in the U.S. for
one invention and a patent abroad for one invention which is jointly owned with
a third party. Award has patent applications pending in the U.S. and/or abroad
on seven inventions, two of which are owned jointly with a third party. However,
Award does not generally rely on patents to protect its products. Award licenses
its object and source code under written license agreements. Certain provisions
of such licenses, including provisions protecting against unauthorized use,
copying, transfer and disclosure of the licensed programs, may be unenforceable
under the laws of certain jurisdictions. In addition, the laws of some foreign
jurisdictions, including Taiwan, do not protect Award's proprietary rights to
the same extent as do the laws of the United States. There can be no assurance
that the protections put in place by Award will be adequate.
Significant and protracted litigation may be necessary to protect Award's
intellectual property rights to determine the scope of the proprietary rights of
others or to defend against claims of infringement. Moreover, although Award is
not currently involved in any litigation with respect to intellectual property
rights, in the past there have been allegations that certain portions of Award's
core BIOS infringed on a third party's copyrights. In response, Award rewrote
certain software routines in a "clean room" procedure and upgraded its customers
to the new version of such software routines to avoid any further allegations of
infringement. Award believes that its software does not presently infringe the
copyrights of any third parties. However, there can be no assurance that other
parties will not make allegations of infringement in the future. Such assertions
could require Award to discontinue the use of certain software routines, to
cease the manufacture, use and sale of infringing products, to incur significant
litigation costs and expenses and to develop non infringing technology or to
obtain licenses to the alleged infringing technology. Although Award has been
able to acquire licenses from third parties in the past, there can be no
assurance that Award would be able to develop alternative technologies or to
obtain such licenses or, if a license is
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obtainable, that the terms would be commercially acceptable to Award in the
event such assertions are made in the future.
EMPLOYEES
As of December 31, 1997, Award had 163 full-time employees, of whom 82 are
engaged in engineering and technical positions, 49 in sales and marketing, and
32 in finance, operations and administration. Except for two employees in the
U.S. and all employees in Germany, none of Award's employees is party to an
employment agreement with Award. No employee of Award is represented by a labor
union or is subject to a collective bargaining agreement. Award has never
experienced a work stoppage due to labor difficulties and believes that its
employee relations are good.
PROPERTIES
Award's headquarters are located in Mountain View, California. Award
subleases approximately 36,800 square feet in this facility renewable on a
yearly basis after December 31, 1996. Award also leases office space in Irvine,
California; North Andover, Massachusetts; Taipei, Taiwan; Hong Kong, China;
Yokohama, Japan; and Munich, Germany. These offices provide sales and technical
support to its customers in Southern California, Canada and the Eastern U.S.,
Asia, Japan and Europe, respectively. Award believes that its facilities are
adequate to support operations for the next twelve months. In the event that
additional space is needed, Award believes that suitable additional or
alternative space adequate to serve its needs will be readily available on
commercially reasonable terms.
LEGAL PROCEEDINGS
Award is not currently engaged in any material litigation or legal
proceedings.
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AWARD SELECTED FINANCIAL DATA
The following table sets forth, for the periods indicated, certain selected
consolidated financial data of Award. This data should be read in conjunction
with the audited consolidated financial statements and notes related thereto
included elsewhere in this Joint Proxy Statement/Prospectus. The selected
consolidated financial data as of and for the six months ended July 1, 1993 and
December 31, 1993 and the four years ended December 31, 1997 have been derived
from the consolidated financial statements of Award and its Predecessor, audited
by Price Waterhouse LLP. The selected consolidated financial data as of and for
the three-months periods ended March 31, 1997 and 1998 have been derived from
the unaudited consolidated financial statements of Award, which in the opinion
of Award's management reflect all adjustments, consisting only of normal
recurring adjustments, necessary for fair presentation of the unaudited interim
financial information. The results of operations for interim periods are not
necessarily indicative of the results that may be expected for the full year or
any future period.
<TABLE>
<CAPTION>
AWARD
PREDECESSOR --------------------------------------------------------------- THREE MONTHS
------------- SIX MONTHS ENDED
SIX MONTHS ENDED YEAR ENDED MARCH 31,
ENDED JULY 1, DECEMBER 31, DECEMBER 31, --------------------
1993 1993 1994 1995 1996 1997 1997 1998
------------- ------------- --------- --------------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues
Software license fees.... $ 1,763 $ 1,903 $ 5,585 $ 6,989 $ 11,721 $ 19,502 $ 4,036 $ 5,261
Engineering services..... 47 107 161 239 472 2,366 347 679
Related parties.......... -- 50 972 1,902 1,878 1,499 645 466
------ ------------- --------- ------ --------- --------- --------- ---------
Total revenues............. $ 1,810 $ 2,060 $ 6,718 $ 9,130 $ 14,071 $ 23,367 $ 5,028 $ 6,406
------ ------------- --------- ------ --------- --------- --------- ---------
------ ------------- --------- ------ --------- --------- --------- ---------
Income (loss) from
operations............... $ (628) $ (1,125) $ 2,057 $ 1,861 $ 3,961 $ 5,641 $ 1,098 $ 1,327
------ ------------- --------- ------ --------- --------- --------- ---------
------ ------------- --------- ------ --------- --------- --------- ---------
Net income (loss).......... $ (655) $ (1,178) $ 1,258 $ 1,165 $ 2,885 $ 4,680 $ 892 $ 1,148
------ ------------- --------- ------ --------- --------- --------- ---------
------ ------------- --------- ------ --------- --------- --------- ---------
Basic net income (loss) per
share (1)................ $ (0.31) $ 0.33 $ 0.28 $ 0.54 $ 0.68 $ 0.13 $ 0.16
------------- --------- ------ --------- --------- ---------
------------- --------- ------ --------- --------- ---------
Weighted average common
shares................... 3,842 3,842 4,136 5,335 6,867 6,792 6,963
Diluted net income (loss)
per share (1)............ $ (0.31) $ 0.33 $ 0.25 $ 0.47 $ 0.61 $ 0.12 $ 0.15
------------- --------- ------ --------- --------- ---------
------------- --------- ------ --------- --------- ---------
Weighted average number of
common and common
equivalent shares........ 3,842 3,842 4,650 6,095 7,705 7,701 7,670
</TABLE>
<TABLE>
<CAPTION>
AWARD
---------------------------------------------------------
PREDECESSOR
----------- DECEMBER 31,
JULY 1, --------------------------------------------------------- MARCH 31,
1993 1993 1994 1995 1996 1997 1998
----------- --------- --------- ------------- --------- --------- -------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 156 $ 280 $ 1,374 $ 6,498 $ 23,248 $ 24,631 $ 25,604
Working capital (deficit)...... (1,189) (1,113) 1,173 6,642 23,792 27,416 28,507
Total assets................... 1,088 1,807 3,119 9,083 28,410 34,381 36,109
Shareholder's equity
(deficit).................... (1,099) (468) 1,695 7,169 25,091 29,812 31,179
</TABLE>
- ------------------------
(1) For an explanation of the number of shares used to compute basic net income
(loss) per share and diluted net income (loss) per share, see Note 5 of
Notes to Consolidated Financial Statements.
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AWARD MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21A OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, WHICH INVOLVE RISKS AND UNCERTAINTIES. AWARD'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH UNDER "RISK FACTORS--AWARD BUSINESS RISKS" AND ELSEWHERE IN THIS JOINT
PROXY STATEMENT/PROSPECTUS.
OVERVIEW
Award's predecessor, Award Software, Inc. (the "Predecessor"), was founded
in 1983 to design, develop and market a suite of Basic Input/Output System
software ("BIOS") for the system management software market. During the mid- and
late-1980s, Award established a significant market presence by providing BIOS
for the 286/386 PC markets and achieved early market success as a BIOS supplier
to the Taiwanese motherboard market. Award was acquired in July 1993 by GCH
Systems, Inc. ("GCH"), an independent developer of microcomputers and
application-specific integrated circuits, and operated as a wholly owned
subsidiary. On October 25, 1996, Award consummated the initial offering of its
Common Stock to the public. Award markets and licenses its products and services
worldwide and is a leading provider of system management software to the PC
motherboard market in Asia, which accounts for over 60% of worldwide motherboard
production.
Award has historically generated the substantial majority of its revenues
from the licensing of desktop system management software, primarily to
motherboard manufacturers and PC OEMs. Sales from international operations,
particularly to customers in Taiwan, comprise a substantial portion of Award's
total revenues. During the three year periods ended December 31, 1995, 1996,
1997 and for the three months ended March 31, 1997 and 1998, revenues from
international operations represented 68%, 71%, 55%, 53% and 56% of Award's total
revenues, respectively. Software license fees are recognized upon delivery of
the product, fulfillment of acceptance terms, if any, and satisfaction of
significant support obligations, if any. Engineering services revenues generally
consist of amounts charged for customization of the software prior to delivery
and are generally recognized as the services are performed. Related parties
revenues include software license fees and non-recurring engineering services
provided to a Common Stock shareholder and a Common Stock warrant holder. Award
believes that its business is subject to seasonal fluctuations, with shipments
in the fourth calendar quarter being somewhat higher due to higher levels of PC
shipments in that time period.
Award has an established international presence and consequently generates a
significant portion of its revenues and expenses in currencies other than the
U.S. Dollar, primarily the New Taiwan Dollar and the German Mark. As a result,
any appreciation or depreciation in the U.S. Dollar against these currencies
could adversely affect Award's business, financial condition, results of
operations and cashflows. In addition, foreign currency transaction gains and
losses arising from normal business operations are credited to or charged
against earnings in the period incurred. During the years ended December 31,
1995, 1996, 1997 and for the three month period ended March 31, 1998,
fluctuations in the value of currencies in which Award conducts its business
relative to the U.S. Dollar were not significant on an annual basis. See "Risk
Factors--Award Business Risks--International Operations; --Currency
Fluctuations; --International Unrest."
On September 10, 1997, Award entered into a Master Original Equipment
Manufacturer (OEM) Software License Agreement ("the License Agreement") with
Intel to market and distribute Intel's LANDesk Client Manager software to its
Taiwan customers. Products incorporating this software, coupled with or without
Award products, would then be distributed throughout the world. The License
Agreement is non-exclusive, royalty-bearing, and automatically renews for
additional one-year terms subject to certain
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termination rights. Intel's software, because it is designed as a PC and
network-based solution to ease both client and system administration to reduce
the total cost of PC ownership, compliments the existing system management
software offerings of Award to existing and potential customers around the
world.
On May 30, 1997, Award acquired all of the outstanding stock of Unicore
through the Unicore Merger pursuant to the Merger Agreement, dated as of May 29,
1997, by and among Award, its wholly owned subsidiary, Unicore and Narath.
Unicore is engaged in the business of providing basic input/output software
upgrades for personal computers and embedded systems. Pursuant to the terms of
the Merger Agreement, Award issued to Narath, the selling shareholder, 218,571
shares of Award's common stock. The Merger is being treated as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended, and is being
accounted for as a pooling of interests. The terms of the Merger Agreement were
determined through arm's-length negotiations between Award and Unicore and
Narath. In addition, Narath entered into an employment agreement with Award
pursuant to which Narath serves as a Vice President of Award and President of
Unicore, Award's wholly owned subsidiary.
On April 30, 1997, Award entered into a memorandum of understanding with Sun
and Axis Corporation ("Axis") to establish a majority-owned subsidiary, Award
Software Japan KK ("Award Japan"), a joint venture corporation incorporated
under the laws of Japan and based in Yokohama, Japan (the "Japan Joint
Venture"). The objective of Award Japan is to market and distribute Award's
products in Japan. Award, Sun and Axis contributed approximately $310,000,
$95,000 and $95,000 for 62%, 19% and 19% ownership of Award Japan, respectively.
On April 13, 1998, Award, Sun Corporation ("Sun") and Axis Corporation ("Axis")
entered into a Common Stock Purchase Agreement, whereby Award will purchase
Sun's 19% interest and Axis' 19% interest in Award Japan for an aggregate of
approximately 20,000 shares of Award Common Stock. Mr. Masami Maeda, a director
of Award, is President, Chief Executive Officer and a majority shareholder of
Sun. Sun is a shareholder of Award.
On February 21, 1997, Award acquired certain assets of Willows software
("Willows acquisition") for $400,000 cash, direct acquisition costs of $40,000
and the assumption of liabilities totaling $44,000. The purchase price was
allocated based upon the estimated fair market value of identifiable tangible
and intangible assets and liabilities assumed, including $289,000 to in-process
research and development. The amount allocated to in-process research and
development relates to acquired development projects that had not reached
technological feasibility at the acquisition date and had no alternative future
use.
The Unicore Merger, Japan Joint Venture and Willows acquisition were
motivated by many factors, including the desire to obtain new technologies, the
desire to expand and enhance Award's product lines and the desire to attract key
personnel. The integration of such operations is typically difficult, time
consuming and subject to a number of inherent risks. In the case of software
development enterprises, the success of acquisitions is dependent upon the
integration and retention of existing employees. There can be no assurance that
key employees of an acquired enterprise will remain with Award after an
acquisition. The success of acquisitions and joint ventures will also be
dependent upon Award's ability to fully integrate the management information and
accounting systems and procedures of such entities with those of Award. Award's
management will be required to devote substantial time and attention to the
integration of these businesses and to any material operational or financial
problems that may occur as a result of such transactions. There can be no
assurance that operational or financial problems will not occur as a result of
any acquisition, business combination or joint venture. Failure to effectively
integrate such businesses could have a material adverse effect on Award's
business, results of operations and financial condition.
On April 16, 1998, Award and Phoenix announced the completion of a
definitive merger agreement. Under the terms of the proposed transaction, all of
Award's outstanding stock will be acquired through the merger of a wholly owned
subsidiary of Phoenix with and into Award (the "Merger") pursuant to the
Reorganization Agreement by and among Phoenix, its wholly owned subsidiary and
Award. Pursuant to the terms of the Reorganization Agreement, shareholders of
Award will receive 1.225 shares of Phoenix Common Stock for each share of Award
Common Stock. The completion of the Merger is subject to
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customary conditions to closing, including shareholder approval of both
companies and regulatory approval, including expiration or termination of all
waiting periods under the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
as amended. The transaction is intended to be treated as a tax free
reorganization pursuant to the provisions of Section 368 of the Internal Revenue
Code of 1986 and a pooling of interests for financial reporting and accounting
purposes.
The success of the Combined Company will depend upon a number of factors,
including (i) the Combined Company's ability to integrate the various functional
groups, such as sales and engineering, effectively and achieve costs savings;
(ii) the risk that customers may defer purchasing decisions following the
announcement of the Merger; (iii) the ability of Phoenix, Award and the Combined
Company to retain key employees following the announcement of the Merger; (iv)
the impact of transaction and restructuring charges to be incurred by the
Combined Company; and (v) the Combined Company's ability to successfully
introduce new products and upgrades to existing products. Further information on
factors that could affect the consummation of the Merger and the business and
operations of the Combined Company's results are detailed in the "Risk Factors"
section of this Joint Proxy Statement/Prospectus.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
consolidated statement of income information as a percentage of Award's total
revenues represented by each item. Award's historical results are not
necessarily indicative of results in any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED
DECEMBER 31, 31,
------------------------------------- -------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
(AS A PERCENTAGE OF
TOTAL REVENUES)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees.................................... 77% 83% 84% 80% 82%
Engineering services..................................... 2 4 10 7 11
Related parties.......................................... 21 13 6 13 7
--- --- --- --- ---
Total revenues......................................... 100 100 100 100 100
--- --- --- --- ---
Cost of revenues:
Software license fees.................................... 4 4 8 4 6
Engineering services..................................... 1 1 3 2 3
Related parties.......................................... 2 2 0 1 0
--- --- --- --- ---
Total cost of revenues................................. 7 7 11 7 9
--- --- --- --- ---
Gross profit............................................... 93 93 89 93 91
--- --- --- --- ---
Operating expenses:
Research and development................................. 30 30 28 33 26
Sales and marketing...................................... 25 20 21 21 27
General and administrative............................... 17 15 16 17 17
--- --- --- --- ---
Total operating expenses............................... 72 65 65 71 70
--- --- --- --- ---
Income from operations..................................... 21 28 24 22 21
Interest expense........................................... -- -- -- 5 5
Interest and other income, net............................. 1 4 5 0 0
--- --- --- --- ---
Income before income taxes................................. 22 32 29 27 26
Provision for income taxes................................. 9 12 9 9 8
--- --- --- --- ---
Net income................................................. 13% 20% 20% 18% 18%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
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COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
REVENUES. Award's revenues increased 54% from $9.1 million in 1995 to $14.1
million in 1996. Software license fees increased 68% from $7.0 million in 1995
to $11.7 million in 1996. The increase was primarily due to higher unit
shipments to Award's existing Taiwanese motherboard customers, and to a lesser
degree to existing U.S. customers, partially offset by a decrease in software
license fees from a European customer due to weak economic conditions and a
decrease in demand for PCs in the German economy. A significant customer, which
accounted for 5% of total revenues and approximately 83% of revenues from
distribution of Award's PC Card software for the year ended December 31, 1996,
discontinued licensing Award's PC Card software in the second half of 1996.
Accordingly, Award does not currently expect to receive any revenues from that
customer from the distribution of Award's PC Card software in the foreseeable
future. Revenues from the distribution of Award's PC Card software accounted for
6% and 15% of Award's total revenues in the years ended December 31, 1996 and
1995, respectively. Engineering services revenues increased from $239,000 in
1995 to $472,000 in 1996. This increase was primarily due to higher engineering
services revenues from customers in the U.S. Related parties revenues were
unchanged at $1.9 million in 1996 and 1995. Revenues derived from international
operations were 71% and 68% of Award's revenues in 1996 and 1995, respectively.
During the year ended December 31, 1996, 47% and 8% of Award's revenues were
denominated in New Taiwan Dollars and German Marks, respectively. Fluctuations
in foreign currency exchange rates did not have a material impact on total
revenues in 1995 or 1996. However, there can be no assurance that future
fluctuations in foreign currency exchange rates will not have a material adverse
effect on Award's future revenues, business, financial condition and results of
operations.
COST OF REVENUES. Cost of revenues increased 54% from $636,000, or 7% of
revenues, in 1995 to $980,000, or 7% of revenues, in 1996. Cost of software
license fees increased 35% from $387,000 in 1995 to $521,000 in 1996. This
increase was primarily due to increased volume. Cost of engineering services
revenues increased 205% from $43,000 in 1995 to $131,000 in 1996. This increase
was primarily due to increased engineering services provided to customers. Cost
of related parties revenues increased 59% from $206,000 in 1995 to $328,000 in
1996. This increase was primarily due to direct costs associated with
engineering services partially offset by a decrease from cost of engineering
services revenues associated with a related party product development effort.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 53%
from $2.8 million, or 30% of revenues, in 1995 to $4.2 million, or 30% of
revenues, in 1996. This increase was primarily due to the growth in research and
development personnel from 45 to 55 individuals during the year. These
additional personnel were hired as part of the effort to develop new software
products, such as mobile BIOS and the SMSAccess product suite. Award anticipates
that it will continue to devote substantial resources to product research and
development and that such expenses will continue to increase in absolute
dollars.
SALES AND MARKETING. Sales and marketing expenses increased 25% from $2.3
million, or 25% of revenues, in 1995 to $2.9 million, or 20% of revenues, in
1996. This increase was primarily due to the hiring of sales and marketing
personnel and related expenses and higher sales commissions for increased
revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
30% from $1.6 million, or 17% of revenues, in 1995 to $2.1 million, or 15% of
revenues, in 1996. The increase was primarily due to higher professional
services fees and a one-time employee severance cost of $90,000 in Award's
European operations and amortization of deferred stock compensation expense.
Amortization of deferred compensation expense of $75,000 and $42,000 is included
in general and administrative expense in 1996 and 1995, respectively.
INTEREST EXPENSE. Interest expense decreased from $9,000 in 1995 to $6,000
in 1996, due to a decrease in short-term borrowings.
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INTEREST AND OTHER INCOME. Interest and other income increased from
$105,000 in 1995 to $552,000 in 1996, primarily due to an increase in interest
income earned on higher cash balances.
PROVISION FOR INCOME TAXES. Award's effective tax rate decreased from 40%
in 1995 to 36% in 1996. The decrease in effective tax rate was primarily due to
an increase in income taxable in Taiwan at rates lower than the applicable
statutory rates in the U.S. and Germany.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
REVENUES. Award's revenues increased 66% from $14.1 million in 1996 to
$23.4 million in 1997. Software license fees increased 66% from $11.7 million in
1996 to $19.5 million in 1997. The increase was primarily due to higher unit
shipments to new and existing motherboard customers in Taiwan and the U.S. and
to embedded systems customers in the U.S. Revenues from the distribution of
Award's PC Card software accounted for 3% and 6% of Award's total revenues in
the years ended December 31, 1997 and 1996, respectively. Engineering services
revenues increased from $472,000 in 1996 to $2.4 million in 1997, primarily due
to higher engineering services revenues from customers in the U.S. and Japan.
Related parties revenues decreased 20% from $1.9 million in 1996 to $1.5 million
in 1997 primarily due to lower volume of software license fees and engineering
services. Revenues from international operations were 55% and 71% of Award's
revenues in 1997 and 1996, respectively. During the year ended December 31,
1997, 41% and 3% of Award's revenues were denominated in New Taiwan Dollars and
German Marks, respectively. Fluctuations in foreign currency exchange rates did
not have a material impact on total revenues in either 1997 or 1996. However,
there can be no assurance that future fluctuations in foreign currency exchange
rates will not have a material adverse effect on Award's future revenues,
business, financial condition and results of operations.
COST OF REVENUES. Cost of revenues increased from $980,000, or 7% of
revenues, in 1996 to $2.6 million, or 11% of revenues, in 1997. Cost of software
license fees increased from $521,000 in 1996 to $1.8 million in 1997. This
increase was primarily due to increased volume and higher costs of royalty fees
associated with the Intel LANDesk Client Management software, which Award began
shipping in the fourth quarter. Cost of engineering services revenues increased
from $131,000 in 1996 to $686,000 in 1997. This increase was primarily due to
higher engineering salary and related costs. Cost of related parties revenues
decreased 77% from $328,000 in 1996 to $76,000 in 1997. This decrease was
primarily due to a decrease in cost of software license fees and cost of
engineering services revenues from a related party product development effort.
Award anticipates that if sales of the Intel Software increase, there will be
additional increases in cost of revenues.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 57%
from $4.2 million, or 30% of revenues in 1996, to $6.6 million, or 28% of
revenues, in 1997. This increase was primarily due to the growth in research and
development personnel from 55 to 82 individuals during the year hired as part of
the effort to develop new software products and to service new and existing
customers, and a one-time charge of $289,000 for in-process research and
development as a result of the Willows acquisition. Award anticipates that it
will continue to devote substantial resources to product research and
development and that such expenses will continue to increase in absolute
dollars.
SALES AND MARKETING. Sales and marketing expenses increased 74% from $2.9
million, or 20% of revenues, in 1996 to $5.0 million, or 21% of revenues, in
1997. This increase was primarily due to the hiring of sales and marketing
personnel and related expenses, higher sales commissions for increased revenues,
increased participation in trade shows and higher professional services fees.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
73% from $2.1 million, or 15% of revenues, in 1996 to $3.6 million, or 16% of
revenues, in 1997. This increase was primarily due to higher public company
expenses, the hiring of general and administrative personnel and related
expenses, higher professional services fees and higher facilities costs.
Amortization of deferred compensation expense of $74,000 and $75,000 is included
in general and administrative expense in 1997 and 1996, respectively.
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INTEREST EXPENSE. Interest expense increased from $6,000 in 1996 to $33,000
in 1997 due to a short-term borrowing under an existing loan agreement of one of
Award's subsidiaries, which credit line was terminated in the third quarter.
INTEREST AND OTHER INCOME. Interest and other income increased from
$552,000 in 1996 to $1.2 million in 1997 primarily due to an increase in
interest income earned on higher cash balances.
PROVISION FOR INCOME TAXES. Award's effective tax rate decreased from 36%
in 1996 to 31% in 1997. The decrease in effective tax rate was primarily due to
an increase in income taxable in Taiwan at rates lower than the applicable
statutory rates in the U.S. and Germany.
COMPARISON OF THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
REVENUES. Award's revenues consist of software license fees and engineering
services revenues. Revenues increased by $1.4 million, or 27%, for the
three-month period ended March 31, 1998, from the same period of the prior year.
Software license fees increased by $1.2 million, or 30% for the three-month
period ended March 31, 1998, from the same period of the prior year primarily
due to higher unit shipments to new and existing motherboard customers in Taiwan
and the United States, and embedded systems customers in the United States.
Engineering services revenues increased by $332,000, or 96%, for the three-month
period ended March 31, 1998, from the same period of the prior year primarily
due to higher engineering services revenues from customers in the U.S. Related
parties revenues decreased by $179,000, or 28%, for the three-month period ended
March 31, 1998, from the same period of the prior year primarily due to lower
volume of software license fees and engineering services.
COST OF REVENUES. Cost of revenues consists primarily of the cost of
materials and freight expenses associated with software license fees and the
direct costs associated with engineering services revenues. Cost of revenues as
a percentage of revenues increased to 9% of revenues for the three-month period
ended March 31, 1998, as compared to 7% of revenues for the same period of the
prior year. This increase was primarily due to higher costs of royalty fees
associated with the Intel LANDesk Client Management software, which Award began
shipping in the fourth quarter of 1997, and higher cost of software license fees
and cost of engineering services revenues, mainly due to higher engineering
salary and related costs, partially offset by a decrease in cost of software
license fees and cost of engineering services revenues from a related party
product development effort.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of engineering personnel and related expenses and equipment costs.
Research and development expenses decreased by $26,000, or 2%, for the
three-month period ended March 31, 1998, from the same period of the prior year
primarily due to a one-time charge of $289,000 for in-process research and
development as a result of the Willows acquisition in 1997. Without the one-time
charge, research and development expenses increased by $263,000, or 19%,
primarily due to the hiring of engineering personnel and related expenses to
develop new software products. Award anticipates that it will devote substantial
resources to product research and development and that such expenses will
increase in absolute dollars.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
personnel and related expenses, sales commissions and travel costs. Sales and
marketing expenses increased by $732,000, or 70%, for the three-month period
ended March 31, 1998, from the same period of the prior year primarily due to
the hiring of sales and marketing personnel and related expenses, higher sales
commissions for increased revenues, increased participation in trade shows and
higher professional services fees.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of personnel and related expenses, professional services and
facilities costs. General and administrative expenses increased by $184,000, or
21%, for the three-month period ended March 31, 1998, from the same period of
the prior year primarily due to higher public company expenses, the hiring of
general and administrative personnel and related expenses, higher professional
services fees and higher facilities costs.
INTEREST INCOME, NET. Interest income, net consists primarily of interest
expense associated with short-term borrowings and interest income on cash and
cash equivalents, net of expenses. Interest income, net
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<PAGE>
increased by $78,000 for the three-month period ended March 31, 1998, from the
same period of the prior year primarily due to an increase in interest income
earned on higher cash balances and lower interest expense on a short-term
borrowing.
PROVISION FOR INCOME TAXES. Award's effective tax rate decreased to 30%
from 34% for the three-month periods ended March 31, 1998 and March 31, 1997,
respectively, primarily due to an increase in income taxable in Taiwan at rates
lower than the applicable statutory rates in the U.S. and Germany.
LIQUIDITY AND CAPITAL RESOURCES
Award has funded its operations primarily through the sale of equity
securities and from cash generated from operations. As of March 31, 1998, Award
had cash and cash equivalents of $25.6 million and working capital of $28.5
million.
Net cash provided by operating activities was $1.2 million for the
three-month period ended March 31, 1998 and was primarily due to reductions in
accrued liabilities and an increase in accounts receivable partially offset by
higher income and collections on receivables from related parties. Net cash used
in investing activities was $408,000 for the three-month period ended March 31,
1998 and was primarily due to Award's purchase of computer hardware and software
equipment, the purchase of equipment resulting from the Willows acquisition and
an increase in capitalized software development costs. Net cash provided by
financing activities was $72,000 for the three-month period ended March 31, 1998
and was primarily due to proceeds from Common Stock issuances as a result of
purchases of stock under the Employee Stock Purchase Plan partially offset by
payment under note obligations.
Net cash provided by operating activities was $1.4 million, $2.6 million and
$3.0 million in 1995, 1996 and 1997, respectively, and was primarily due to
higher net income partially offset by reductions in accrued liabilities and
increases in accounts receivable and other current assets.
Net cash used in investing activities was $147,000, $788,000 and $1.8
million in 1995, 1996 and 1997, respectively, and was primarily due to Award's
purchase of computer hardware and software equipment, the purchase of equipment
resulting from the Willows acquisition and an increase in capitalized software
development costs.
Net cash provided by financing activities was 3.8 million, $15.1 million and
$255,000 in 1995, 1996 and 1997 respectively, and was primarily due to proceeds
from Common Stock issuances as a result of a public offering of stock or under
the Employee Stock Purchase Plan partially offset by payments under note
obligations.
On October 25, 1996, Award completed the initial offering of its Common
Stock to the public ("IPO"). Pursuant to the IPO, Award sold an aggregate of
1,250,000 shares of Common Stock at $8.00 per share, resulting in net proceeds
to Award of approximately $7.8 million. Award believes that the net proceeds
from the sale of Common Stock, together with anticipated cash flows from
operations and existing cash balances, will satisfy Award's projected
expenditures through 1998 for working capital and general corporate purposes,
including an increase in the Company's internal product development, staffing in
connection with new product introductions and other related product-development
expenditures. From time to time, in the ordinary course of business, Award
enters into strategic relationships with its customers or other participants in
the PC industry. Such strategic relationships may include equity investments in
Award. If additional funds are raised through the issuance of equity securities,
the percentage ownership of the shareholders of Award will be reduced,
shareholders may experience additional dilution, or such equity securities may
have rights, preferences or privileges senior to those of the holders of Award's
Common Stock.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standard No. 131 ("SFAS No. 131"), "Disclosures About
Segments of an Enterprise and Related Information." SFAS No. 131 is effective
for annual reports for fiscal years beginning after December 15, 1997, and is
applicable to interim financial statements beginning with the second year of
application.
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<PAGE>
Award believes that the effect of adopting the new standards will not be
material to its consolidated financial statements.
In March 1998, the AICPA issued Statement of Position No. 98-4 ("SOP 98-4"),
"Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue
Recognition". SOP 98-4 defers, for one year, the application of certain passages
in SOP 97-2 which limit what is considered vendor-specific objective evidence
("VSOE") necessary to recognize revenue for software licenses in
multiple-element arrangements when undelivered elements exist. Additional
guidance is expected to be provided prior to adoption of the deferred provision
of SOP 97-2. The Company will determine the impact, if any, the additional
guidance will have on current revenue recognition practices when issued.
THE YEAR 2000
The Year 2000 Issue is the result of computer programs using two digits
rather than four to define the applicable year. Award's internal programs that
have time-sensitive software may recognize a date using "00" as the calendar
year 1900 rather than the calendar year 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. Because Award licenses and provides services relating to PC software and
firmware, Award may become involved in investigations or allegations regarding
the Year 2000 Issue.
Award is in the process of conducting a comprehensive review of its internal
computer systems to identify the systems that could be affected by the Year 2000
Issue and is developing an enterprise-wide implementation plan to resolve any
identified issues. Award also believes, with modifications to existing
operational software, the Year 2000 Issue will not pose significant operational
problems for Award's computer systems as so modified and converted. Award
expects to incur internal staff costs as well as consulting and other expenses
related to the enhancements necessary to prepare the systems for the year 2000.
Award has no reasonable estimate of the amount associated with the transitions
of the Company's remaining systems. If modifications and conversions are not
completed in a timely manner, the Year 2000 Issue may have a material impact on
Award's operations. Furthermore, there can be no assurance that the systems of
other companies with which Award deals and on which Award's systems rely will
also be timely converted or that any such failure to convert by another company
would not have a material impact on Award's operations.
Award believes its current products do not require modification for the Year
2000 Issue, and does not anticipate any material exposures related to the Year
2000 Issue for its products and services. Award cannot anticipate the degree to
which it may be the subject of claims or complaints regarding the Year 2000
Issue.
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<PAGE>
AWARD DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
The Directors of Award and their ages as of December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION/POSITION HELD WITH AWARD
- -------------------------------------- --- ------------------------------------------------
<S> <C> <C>
George C. Huang....................... 56 Chairman of the Board of Directors, President,
Chief Executive Officer and Director of Award
Cheng Ming Lee........................ 55 President and Chief Executive Officer, Taiwan
Venture Capital Corporation and Fidelity
Venture Capital Corporation and Director of
Award
David S. Lee.......................... 60 Chairman, CMC Industries, Inc. and Director of
Award
Masami Maeda.......................... 64 President and Chief Executive Officer, Sun
Corporation and Director of Award
Anthony Sun........................... 45 General Partner, Venrock Associates and Director
of Award
William P. Tai........................ 34 General Partner, Institutional Venture Partners
and Director of Award
Willy Weck............................ 46 Finance Manager and Chief Financial Officer,
Vobis Microcomputer AG and Director of Award
</TABLE>
GEORGE C. HUANG has served as Chairman of the Board of Directors, President,
Chief Executive Officer and Director since July 1993. From January 1984 to the
present, Dr. Huang has served as Chairman of the Board of Directors of GCH
Systems, Inc. ("GCH"), a company that develops and markets embedded controllers,
Application Specific Integrated Circuits and PC Systems, and from January 1984
until November 1994, he also served as Chief Executive Officer of GCH. From
February 1987 to the present, Dr. Huang has served as a Director of GCH-Sun
Systems Company Ltd. ("GSS"), a subsidiary of GCH. From January 1990 to May
1996, Dr. Huang served as a Director of Fidelity Venture Capital Corporation
("FVCC"), a shareholder of GCH and Award. Dr. Huang received a B.S. from
National Taiwan University, an M.S. from Washington State University and a Ph.D.
in Electrical Engineering from the University of Washington. Dr. Huang and Lyon
T. Lin, an executive officer of Award, are brothers-in-law.
CHENG MING LEE has served as a director since July 1993. From April 1987 to
the present, Dr. Lee has served as the President and Chief Executive Officer of
Taiwan Venture Capital Corporation ("TVCC") and FVCC, both of which are
shareholders of Award. Dr. Lee serves on the Board of Directors of Taiwan
Opportunities Fund Limited and CNET Technology Corp. Dr. Lee received a B.S.
from National Taiwan University, an M.S. from Stanford University and a Ph.D. in
Chemical Engineering from the University of Houston.
DAVID S. LEE has served as a director since December 1994. From May 1995 to
the present, Mr. Lee has served as the Chairman of CMC Industries, Inc., a
contract manufacturing company. From November 1985 to August 1994, Mr. Lee
served as the President and Chief Executive Officer of DTC Data Technology
Corporation (formerly Qume Corporation), a manufacturer of disk controller and
communication peripherals. Mr. Lee serves on the Board of Directors of Linear
Technology Corporation, Photonics Corporation and Centigram Communications
Corporation. In addition, Mr. Lee is a member of the Board of Regents of the
University of California. Mr. Lee holds an Honorary Doctorate of Engineering and
a B.S.
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in Mechanical Engineering from Montana State University and an M.S. in
Mechanical Engineering from North Dakota State University.
MASAMI MAEDA has served as a director since January 1995. From April 1971 to
the present, Mr. Maeda has served as President and Chief Executive Officer of
Sun Corporation, a manufacturer of electronic devices. He is also a member of
the Board of Directors of GCH and GSS.
ANTHONY SUN has served as a director since October 1995. From 1979 to the
present, Mr. Sun has been a general partner at Venrock Associates, a venture
capital firm. Previously, Mr. Sun was employed by Hewlett Packard, TRW and Caere
Corporation. Mr. Sun is a director of Cognex Corporation, a computer systems
company, 3dFx Interactive, Inc., a 3-d semiconductor company, Inference
Corporation, a client/ server internet help desk software company, Komag, Inc.,
a computer storage component company, and Worldtalk Communications Corporation,
a software application router company. Mr. Sun holds S.B.E.E., S.M.E.E. and
Advanced Engineer degrees from the Massachusetts Institute of Technology and an
M.B.A from Harvard University.
WILLIAM P. TAI has served as a director since June 1995. From July 1997 to
the present, Mr. Tai has been a general partner of funds managed by
Institutional Venture Partners. From September 1991 to July 1997, Mr. Tai was
affiliated with the Walden Group of Venture Capital Funds. From August 1987 to
September 1991, Mr. Tai established Alex. Brown & Sons Inc.'s research effort in
the semiconductor industry. Mr. Tai also serves on the Board of Directors of
8x8, Inc., Network Peripherals, Inc., and is Chairman of AUNET Corporation. Mr.
Tai holds a B.S. with Honors in Electrical Engineering from the University of
Illinois and an M.B.A. from Harvard University.
WILLY WECK has served as a director since April 1997. From December 1993 to
the present, Mr. Weck has served as Finance Manager and Chief Financial Officer
of Vobis Microcomputer AG, a computer and peripherals retailing and production
company. From January 1992 to December 1993, Mr. Weck served as head of the
Controlling Department of Vobis Microcomputer AG. For a description of the
voting agreement relating to Mr. Weck and Vobis Microcomputer AG, see "Certain
Relationships and Related Transactions."
BOARD COMMITTEES AND MEETINGS
During the year ended December 31, 1997, the Award Board held four meetings.
During the year ended December 31, 1997, all directors except Dr. Cheng Ming Lee
and Mr. Willy Weck attended at least 75% of the meetings of the Award Board and
of the committees on which they served, held during the period for which they
were a director or committee member, respectively. The Award Board has an Audit
Committee and a Compensation Committee.
The Audit Committee meets with Award's independent accountants at least
annually to review the results of the annual audit and to discuss the financial
statements; recommends to the Award Board the independent accountants to be
retained; and receives and considers the accountants' comments as to controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. The Audit Committee is composed of two
non-employee directors: Messrs. David S. Lee and William P. Tai. It met five (5)
times during such year.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of three non-employee
directors: Messrs. David S. Lee, Anthony Sun and William P. Tai. It met five (5)
times during such year.
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EXECUTIVE OFFICERS
MANAGEMENT
The executive officers of Award and their ages as of December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- ------------------------------------------------
<S> <C> <C>
George C. Huang....................... 56 Chairman of the Board, President, Chief
Executive Officer and Director
Reza Afghan........................... 37 Vice President and General Manager, System
Software; President, Award Software Japan KK
Kevin J. Berry........................ 48 Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary
Maurice W. Bizzarri................... 42 Vice President, Research and Development
Laurent K. Gharda..................... 39 Vice President, Marketing
Lyon T. Lin........................... 45 General Manager, Taiwan; President, Award
Software Hong Kong Limited
Pierre A. Narath...................... 34 Vice President and President, Unicore Software,
Inc.
Ann P. Shen........................... 57 Senior Vice President, Strategic Business
David J. Wippich...................... 33 Vice President and General Manager, Internet and
Embedded Products
</TABLE>
GEORGE C. HUANG has served as Chairman of the Board of Directors, President,
Chief Executive Officer and Director since July 1993. From January 1984 to the
present, Dr. Huang has served as Chairman of the Board of Directors of GCH
Systems, Inc. ("GCH"), a company that develops and markets embedded controllers,
application specific integrated circuits and PC systems; and from January 1984
until November 1994, he also served as Chief Executive Officer of GCH. From
February 1987 to the present Dr. Huang has served as a Director of GCH-Sun
Systems Company Ltd. ("GSS"), a subsidiary of GCH. From January 1990 to May
1996, Dr. Huang served as a Director of Fidelity Venture Capital Corporation
("FVCC"), a shareholder of GCH and Award. Dr. Huang received a B.S. from
National Taiwan University, an M.S. from Washington State University, and a
Ph.D. in Electrical Engineering from the University of Washington.
REZA AFGHAN has served as Vice President and General Manager of System
Software since January 1998, and President of Award Software Japan KK since
March 1997. From January 1997 to January 1998, Mr. Afghan served as Vice
President, Mobile Products. From January 1994 to December 1997, he served as
Vice President, Operations. From November 1987 to January 1994, Mr. Afghan
served as Vice President, Sales and Operations of GCH. He received his B.S. in
Electrical Engineering and Mathematics from Oregon State University.
KEVIN J. BERRY has served as Vice President, Finance, Chief Financial
Officer and Treasurer since June 1995 and Secretary since October 1995. From
December 1988 to May 1995, Mr. Berry served as Vice President, Finance for the
CMX and Aurora divisions of Chyron Corporation, a developer and manufacturer of
software and systems for the video marketplace. Mr. Berry received a B.S. in
Finance and an M.B.A. from New York University.
MAURICE W. BIZZARRI has served as Vice President, Research and Development
since January 1998. From July 1995 to January 1998, Mr. Bizzarri served as Vice
President, Engineering. From June 1992 to
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July 1995, he consulted in the systems software industry. From November 1990 to
June 1992, he served as Vice President, Research and Development of Connective
Strategies, Inc., a hardware/software company.
LAURENT K. GHARDA has served as Vice President, Marketing since February
1997. From July 1996 to February 1997, Mr. Gharda served as Vice President,
Marketing and Sales of Willows Software, a developer of software used to migrate
Windows applications to alternative platforms. In April 1995, he founded and
served as President of QualSoft Corp., a provider of UNIX and Windows software
development and migration tools, until it was merged with Willows Software. From
1993 to April 1995, Mr. Gharda served as Vice President, Sales of Veritas
Software, a developer of storage management technology. Mr. Gharda received a
B.A. in Computer Science from the University of California at Berkeley.
LYON T. LIN has served as General Manager, Taiwan, and President, Award
Software Hong Kong Limited, since July 1993. From January 1984 to June 1993, Mr.
Lin served as Vice President of GCH. Mr. Lin is also a director of GSS. Mr. Lin
received a B.S. in Electrical Engineering from National Chiao-Tung University
and an M.S. in Electrical Engineering from Santa Clara University. Mr. Lin is
the brother-in-law of George C. Huang.
PIERRE A. NARATH has served as Vice President, and President, Unicore
Software, Inc., since May 1997. From February 1990 to May 1997, Mr. Narath
founded and served as President of Unicore Software, Inc.
ANN P. SHEN has served as Senior Vice President, Strategic Business since
January 1997. From December 1994 to January 1997, Dr. Shen served as Vice
President, Sales and Marketing. From June 1994 to December 1994, she served as
Vice President, Engineering and Marketing and from August 1993 to June 1994 she
served as Vice President, Engineering. Dr. Shen served as Vice President,
Engineering at GCH from October 1992 to June 1994. From March 1990 to August
1992, Dr. Shen served as Vice President, Engineering and Manufacturing of OPTA,
a digital camera and high-end graphic/video card company. Dr. Shen received a
B.S. in Physics from National Taiwan University, an M.S. in Physics from the
University of California, Los Angeles and a Ph.D. in Solid State Physics from
New York Polytechnical University.
DAVID J. WIPPICH has served as Vice President and General Manager, Internet
and Embedded Products since January 1997. From November 1995 to January 1997,
Mr. Wippich served as Director of Sales, North America. From December 1994 to
November 1995, he served as Chief Operating Officer and Executive Vice President
of TEI Contract Manufacturing Services, a contract manufacturing company. From
September 1992 to December 1994, Mr. Wippich served as Director of Marketing and
Sales. Mr. Wippich received a B.S. in Business from the University of Phoenix.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To Award's knowledge, based solely on review of the copies of such reports
furnished to Award during, and with respect to, its most recent fiscal year and
written representations that no other reports were required, if any, the filing
requirements of Section 16(a) applicable to its officers, directors and 10%
shareholder were satisfied during the fiscal year ended December 31, 1997,
except as follows. Mr. Weck did not file Form 3.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
During the fiscal year ended December 31, 1997, Drs. Huang and Lee, and
Messrs. Lee, Maeda, Sun, Tai and Weck received $3,000, $4,000, $4,089, $6,000,
$3,000, $3,000, and $2,000, respectively, cash compensation for service on the
Board of Directors, and reimbursement of expenses in connection with attendance
at Board meetings. As of December 31, 1997, cash compensation for service on any
committee thereof, and reimbursement of expenses in connection with committee
meetings were unpaid.
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<PAGE>
During the fiscal year ended December 31, 1997, Messrs. Lee, Sun and Tai,
members of the Acquisition Committee, were granted options to purchase 25,000,
25,000 and 35,000 shares of the Award Common Stock, respectively, at an exercise
price of $10.625 per share. In addition, Mr. Weck, as a new director, was
granted options to purchase 30,000 shares of the Award Common Stock at an
exercise price of $10.625 per share.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal year ended December 31, 1997,
compensation awarded or paid to, or earned by, Award's Chief Executive Officer
and its other four most highly compensated executive officers at December 31,
1997 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- --------------------------------- --------- ---------- ---------- --------------------- ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
George C. Huang ................. 1997 $ 160,000 $ 72,000 -- 30,000 --
Chairman of the Board, 1996 $ 133,503 $ 52,650 -- 35,000 --
President and Chief Executive 1995 $ 92,986 -- -- -- --
Officer
Kevin J. Berry(l) ............... 1997 $ 110,000 $ 49,500 -- 27,500 --
Vice President, Finance, Chief 1996 $ 87,885 $ 32,063 -- 17,500 --
Financial Officer, Treasurer
and Secretary
Lyon T. Lin ..................... 1997 $ 101,513 $ 222,877(2) -- -- --
General Manager, Taiwan; 1996 $ 94,500 $ 150,285(3) -- 20,000 --
President, Award Software Hong 1995 $ 110,618 $ 62,703(4) -- -- --
Kong Limited
Ann P. Shen ..................... 1997 $ 95,000 $ 98,549(4) -- -- --
Senior Vice President, 1996 $ 91,461 $ 65,967(4) -- 7,500 --
Strategic Business 1995 $ 85,000 $ 32,090(4) -- -- --
Pierre A. Narath(5) ............. 1997 $ 229,633 $ 51,871 -- 55,000 --
Vice President and President,
Unicore
</TABLE>
- ------------------------
(1) Total annual compensation for 1995 did not exceed $100,000.
(2) Represents sales commissions earned of $193,040 and cash bonus of $29,837.
(3) Represents sales commissions earned of $141,458 and cash bonus of $8,827.
(4) Represents sales commissions earned.
(5) This Named Executive Officer was not an Officer of Award prior to January 1,
1997.
STOCK OPTION GRANTS AND EXERCISE
Award grants options to its executive officers under its 1995 Stock Option
Plan (the "1995 Plan") and 1997 Equity Incentive Plan (the "1997 Plan"). In
March 1997, Award increased the number of shares of Common Stock issuable under
the 1995 Plan by 268,446 shares for option grants made to existing and newly
hired employees of Award, none of whom were directors or executive officers. In
June 1997, Award
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<PAGE>
adopted the 1997 Plan, under which 700,000 shares of Common Stock are reserved
for issuance to eligible employees, directors and consultants upon exercise of
the stock options. As of March 31, 1998, options to purchase a total of
1,288,884 shares were outstanding and 0 options to purchase shares remained
available for grant thereunder under the 1995 Plan, and options to purchase a
total of 700,000 shares were outstanding and 0 options to purchase shares
remained available for grant thereunder under the 1997 Plan.
The following tables show, for the fiscal year ended December 31, 1997,
certain information regarding options granted to, exercised by, and held at year
end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATE OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(4)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH)(3) DATE 5% ($) 10% ($)
- ---------------------------------- ------------- --------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
George C. Huang................... 30,000 3.32% $ 10.63 03/25/07 $ 200,494 $ 508,088
Kevin J. Berry.................... 27,500 3.04% $ 10.63 03/25/07 $ 183,786 $ 465,747
Lyon T. Lin....................... -- -- -- -- -- --
Ann P. Shen....................... -- -- -- -- -- --
Pierre A. Narath.................. 55,000 6.08% $ 10.25 07/30/07 $ 354,599 $ 898,618
</TABLE>
- ------------------------
(1) Options granted generally become exercisable at the rate of 25% on the first
anniversary date of grant and 1/48th monthly thereafter, except for Dr.
Huang and Mr. Berry, whose options granted became exercisable at the rate of
25% on March 26, 1997 and 1/28th monthly thereafter. The term of the option
is ten years.
(2) Based on an aggregate of 904,400 options granted to employees of,
consultants to and directors of Award during fiscal year ended December 31,
1997, including the Named Executive Officers.
(3) The exercise price per share of each option is equal to the fair market
value of the Common Stock on the date of grant.
(4) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated by assuming that the
stock price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. No gain to the optionee is possible unless the stock price increases
over the option term, which will benefit the shareholder.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES NUMBER OF
UNDERLYING SECURITIES VALUE OF VALUE OF
UNEXERCISED UNDERLYING UNEXERCISED UNEXERCISED
SHARES OPTIONS AT UNEXERCISED IN-THE-MONEY IN-THE-MONEY
ACQUIRED 12/31/97 OPTIONS AT OPTIONS AT OPTIONS AT
ON VALUE (#) 12/31/97 (#) 12/31/97 ($) 12/31/97 ($)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE(1)
- ------------------------- --------------- --------------- ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
George C. Huang.......... -- -- 75,475 49,525 $ 179,766 --
Kevin J. Berry........... -- -- 39,671 30,329 $ 40,995 --
Lyon T. Lin.............. -- -- 44,791 25,209 $ 216,145 $ 58,856
Ann P. Shen.............. -- -- 22,119 11,431 $ 115,649 $ 34,927
Pierre A. Narath......... -- -- -- 55,000 -- --
</TABLE>
- ------------------------
(1) Based on the fair market value of the Award Common Stock as of December 31,
1997 ($7.50), minus the exercise price, multiplied by the number of shares
underlying the option.
EMPLOYMENT AGREEMENTS
Except for two employees in the United States and all employees in Germany,
none of Award's employees is party to an employment agreement with Award. Eight
executive officers of Award are parties to severance benefits agreements. See
"Certain Relationships and Related Transactions" for a discussion of the
severance benefits agreements.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors ("Committee") is
composed of Messrs. David S. Lee, Anthony Sun and William P. Tai, none of whom
are currently officers or employees of Award. The Committee is responsible for
establishing Award's compensation programs for all employees, including
executives. For executive officers, the Committee evaluates performance and
determines compensation policies and levels.
COMPENSATION PHILOSOPHY
The goals of the compensation program are to align compensation with
business objectives and performance and to enable Award to attract, retain and
reward executive officers and other key employees who contribute to the
long-term success of Award and to motivate them to enhance long-term shareholder
value. Key elements of this philosophy are:
- Total compensation should be sufficiently competitive with other
high-growth companies in the software industry so that Award can attract
and retain qualified executives.
- Award maintains annual incentive opportunities sufficient to provide
motivation to achieve specific operating goals and to generate rewards
that bring total compensation to competitive levels.
- Award provides significant equity-based incentives for executives and
other key employees to ensure that they are motivated over the long-term
to respond to Award's business challenges and opportunities as owners and
not just as employees.
BASE SALARY. The Committee annually reviews each executive officer's base
salary. When reviewing base salaries, the Committee considers individual and
corporate performance, levels of responsibility, prior experience, breadth of
knowledge and competitive pay practices.
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ANNUAL INCENTIVE. The bonus targets for executive officers are individually
based. The Committee determines the amount targeted for the chief executive
officer and the chief executive officer recommends to the Committee the bonus
targets for the remainder of the executive officers. The amount of the bonus
earned has historically been tied to Award's sales and operating income.
Specific financial and business objectives established under the bonus program
are confidential commercial and business information and, as such, need not be
disclosed pursuant to instruction 2 to Item 402(k) of Regulation S-K.
As a percent of total cash compensation (percentage determined by dividing
the target bonus by the sum of base salary and target bonus), 1997 target
bonuses for the Named Executive Officers, ranged from 18 % to 69 % with an
average of 40%.
The annual bonus is a variable pay program for officers and other senior
managers of Award to earn additional annual compensation (the "Bonus Plan"). The
actual bonus award earned depends on the extent to which Award and individual
performance objectives are achieved. At the start of each year, the Committee
reviews and approves the annual performance objectives for Award and individual
officers. Award objectives consist of operating, strategic and financial goals
that are considered to be critical to Award's fundamental long-term
goal-building shareholder value. With respect to officers and senior management
other than the chief executive officer, the Committee places considerable weight
on the recommendations of the chief executive officer.
LONG-TERM INCENTIVES. Award's long-term incentive program consists of the
1995 Stock Option Plan and 1997 Equity Incentive Plan. The option program
utilizes vesting periods (generally four years) to encourage key employees to
continue in the employ of Award. Through option grants, executives receive
significant equity incentives to build long-term shareholder value. Grants are
made at 100% of fair market value on the date of grant. Executives receive value
from these grants only if Award's Common Stock appreciates over the long-term.
The size of option grants is determined based on competitive practices at
leading companies in the software development industry and Award's philosophy of
significantly linking executive compensation with shareholder interests. In
1997, the Committee granted executive stock options that will vest over a
four-year period.
EMPLOYMENT AGREEMENTS. In recognition of their past and anticipated future
contributions to the long-term success of Award and shareholder value, and in
light of the competitive market for qualified and experienced executives in the
software industry, Award entered into a Severance Benefits Agreement (each a
"Severance Agreement") with all of its executive officers, except for one
executive officer who is a party to an employment agreement with Award. The
Committee believes that each Severance Agreement is consistent with the
arrangements of other similarly qualified executive officers in the software
industry. See "Certain Relationships and Related Transactions" for a discussion
of the Severance Agreements, as amended.
CORPORATE PERFORMANCE AND CHIEF EXECUTIVE OFFICER COMPENSATION
Dr. Huang's base salary at the beginning of 1997 as President and Chief
Executive Officer was $160,000. In setting this amount, the Committee took into
account (i) the scope of Dr. Huang's responsibility and (ii) the Board's
confidence in Dr. Huang to lead Award's continued development. Considering these
factors, Dr. Huang was granted an option to purchase 30,000 shares of Award
Common Stock (representing less than 1% of Award's fully diluted equity) as an
incentive for future performance, an amount the Committee determined was
consistent with competitive practices.
During 1997, Award achieved all of its corporate objectives. The Committee
rated Dr. Huang's individual performance as successful primarily reflecting
Award's achievement of its financial and other strategic goals including the
Unicore Merger, Japan Joint Venture and Willows acquisition. This performance
level resulted in a cash bonus of $72,000 for 1997 or 31% of his total cash
compensation.
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ACQUISITION COMMITTEE
In response to industry trends and customer demands to provide greater
service at low costs and competitive pricing, the Award Board formed the Award
Acquisition Committee to review, evaluate and make recommendations regarding
strategic acquisitions, business combinations and joint venture opportunities as
a way to enhance Award's business and operations and long-term shareholder
value. In connection with their duties and responsibilities to the Award
Acquisition Committee, Dr. Huang and Mr. Berry were granted options to purchase
30,000 and 27,500 shares of Award's common stock, respectively, at an exercise
price of $10.625 per share.
CONCLUSION
Through the plans described above, a significant portion of Award's
compensation program and Dr. Huang's compensation are contingent on Company
performance, and realization of benefits is closely linked to increases in
long-term shareholder value. Award remains committed to this philosophy of pay
for performance, recognizing that the competitive market for talented executives
and the volatility of Award's business may result in highly variable
compensation for a particular time period.
COMPENSATION COMMITTEE
David S. Lee, Anthony Sun and William P. Tai.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. David S. Lee, Anthony Sun and
William P. Tai. No member of the Compensation Committee of Award serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of Award's Board of
Directors or Compensation Committee. For a description of transactions and
relationships involving Award and members of the Compensation Committee, see
"Certain Relationships and Related Transactions."
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PERFORMANCE MEASUREMENT COMPARISON(L)
The following performance graph assumes an investment of $100 on October 25,
1996, the date of Award's initial public offering, and compares the change to
December 31, 1997 in the market price of the Common Stock with a broad market
index (S&P 500) and an industry index (S&P Computers (Software & Services)).
Award paid no dividends during the periods shown and the performance of the
indices is shown on a total return (dividend reinvestment) basis. The graph
lines merely connect the prices on the dates indicated and do not reflect
fluctuations between those dates.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AWARD SOFTWARE INTERNATIONAL, INC. S&P GROUP INDEX S&P 500 INDEX
<S> <C> <C> <C>
10/25/96 $100 $100 $100
12/31/96 $122 $110 $105
12/31/97 $94 $153 $141
</TABLE>
- ------------------------
(1) This section is not "soliciting material," is not being filed with the
Securities and Exchange Commission, and is not to be incorporated by
reference into any filing of Award under the Securities Act or the Exchange
Act whether made before or after the date hereof and irrespective of any
general incorporation language in such filing.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the ownership
of Award's Common Stock as of March 1, 1998 by: (i) each director; (ii) each of
the Named Executive Officers in the Summary Compensation Table employed by Award
in that capacity on March 1, 1998; (iii) all executive officers and directors of
Award as a group; and (iv) all those known by Award to be beneficial owners of
more than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(1)
----------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- --------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Vobis Microcomputer AG(2)............................................ 993,742 13.59%
Carlo-Schmid-Strasse
D-5102 Wurselen Germany
George C. Huang (3).................................................. 626,409 8.86%
Award Software International, Inc.
777 East Middlefield Road
Mountain View, CA 94043
Wellington Management Company, LLP................................... 442,400 6.36%
75 State Street
Boston, MA 02109
Sun Corporation...................................................... 424,797 6.10%
250 Asahi, Kochino-Cho
Konan City, Aichi Prefecture 483 Japan
Venrock Associates (4)............................................... 416,666 5.91%
30 Rockfeller Plaza, Room 5508
New York, NY 10112
Fidelity Management & Research Company............................... 349,500 5.02%
82 Devonshire Street
Boston, MA 02109
Willy Weck (5)....................................................... 1,001,867 13.68%
Cheng Ming Lee (6)................................................... 572,929 8.23%
Masami Maeda (7)..................................................... 455,265 6.53%
Anthony Sun (8)...................................................... 453,919 6.41%
Lyon T. Lin (9)...................................................... 171,597 2.45%
William P. Tai (10).................................................. 54,708 *
David S. Lee (11).................................................... 47,857 *
Ann P. Shen (12)..................................................... 38,870 *
Kevin J. Berry (13).................................................. 48,298 *
Pierre A. Narath..................................................... 196,714 2.83%
All directors and executive officers as a group (15 persons) (14).... 3,757,744 48.15%
</TABLE>
- ------------------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal shareholders and Schedule 13D and 13G filed with the Securities
and Exchange Commission ("SEC"). Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, Award believes that each of the shareholders named in this
table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
6,961,154 shares outstanding on March 1, 1998, adjusted as required by
rules promulgated by the SEC.
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(2) Includes (i) 272,394 shares issuable pursuant to a warrant exercisable
within 60 days of March 1, 1998 and (ii) 80,146 shares issuable pursuant to
exercise of Vobis' Catch-up Right. See "Certain Relationships and Related
Transactions." Mr. Weck, a director of Award, is Finance Manager and Chief
Financial Officer of Vobis Microcomputer AG. Mr. Weck disclaims beneficial
ownership of such shares held by Vobis.
(3) Includes (i) 14,582 shares held by Margaret Huang, (ii) 17,727 shares held
by Dwight Huang, (iii) 17,190 shares held by Edina Huang, Dr. Huang's wife,
son and daughter, respectively. Also includes 87,678 and 20,000 shares
issuable pursuant to options exercisable within 60 days of March 1, 1998 by
Dr. Huang and his wife, respectively. Dr. Huang disclaims beneficial
ownership of shares held by his wife, son and daughter.
(4) Includes (i) 229,302 shares held by Venrock Associates, (ii) 104,031 shares
held by Venrock Associates II, L.P. and (iii) 57,325 and 26,008 shares
issuable pursuant to warrants exercisable within 60 days of March 1, 1998
by Venrock Associates and Venrock Associates II, L.P., respectively. Mr.
Sun, a director of Award, is a general partner of Venrock Associates. Mr.
Sun disclaims beneficial ownership of shares held by such entities, except
to the extent of his pecuniary interest therein.
(5) Includes 993,742 shares beneficially held by Vobis Microcomputer AG of
which Mr. Weck disclaims beneficial ownership. See footnote (2) above. Also
includes 8,125 shares issuable pursuant to options exercisable within 60
days of March 1, 1998.
(6) Includes (i) 348,285 shares held by Taiwan Venture Capital Corporation,
(ii) 186,945 shares held by Fidelity Venture Capital Corporation and (iii)
14,211 shares held by Hwaxing Capital Corporation. Dr. Lee, a director of
Award, is President and Chief Executive Officer of Taiwan Venture Capital
Corporation, Fidelity Venture Capital Corporation and Hwaxing Capital
Corporation. Dr. Lee is deemed to have voting power over the shares held by
such entities. He disclaims beneficial ownership of the shares held by such
entities.
(7) Includes (i) 424,797 shares held by Sun Corporation and (ii) 10,156 shares
issuable pursuant to options exercisable within 60 days of March 1, 1998.
Mr. Maeda, a director of Award, is President, Chief Executive Officer and
majority shareholder of Sun Corporation.
(8) Includes (i) 229,302 shares held by Venrock Associates, (ii) 104,031 shares
held by Venrock Associates II, L.P. and (iii) 57,325 and 26,008 shares
issuable pursuant to warrants exercisable within 60 days of March 1, 1998
by Venrock Associates and Venrock Associates II, L.P., respectively. Mr.
Sun, a director of Award, is a general partner of Venrock Associates. Mr.
Sun disclaims beneficial ownership of shares held by such entities, except
to the extent of his pecuniary interest therein. Also includes 37,253
shares issuable pursuant to options exercisable within 60 days of March 1,
1998.
(9) Includes (i) 6,862 shares held by Anne Lin, Mr. Lin's wife, (ii) 5,000
shares held by each of Christine Lin and Eric Lin, Mr. Lin's children, and
(iii) 50,625 and 6,093 shares issuable pursuant to options exercisable
within 60 days of March 1, 1998 by Mr. Lin and his wife, respectively. Mr.
Lin disclaims beneficial ownership of shares held by his wife and children.
(10) Includes 42,708 shares issuable pursuant to options exercisable within 60
days of March 1, 1998.
(11) Includes 17,857 shares issuable pursuant to options exercisable within 60
days of March 1, 1998.
(12) Includes 24,915 shares issuable pursuant to options exercisable within 60
days of March 1, 1998.
(13) Includes 46,725 shares issuable pursuant to options exercisable within 60
days of March 1, 1998.
(14) Includes 407,601, 355,727, and 80,146 shares issuable pursuant to options,
warrants and other rights, respectively, to purchase shares exercisable
within 60 days of March 1, 1998 by executive officers and directors as a
group.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FINANCINGS
In January 1996, Vobis Microcomputer AG ("Vobis") purchased 570,033 shares
of Award Common Stock at $12.28 per share and a warrant (the "Vobis Warrant") at
$0.02 per warrant share to purchase 272,394 shares of Award Common Stock with an
exercise price of $12.28 per share. Pursuant to that certain Investors' Rights
Agreement, dated as of January 12, 1996, among Award, Vobis and the other
parties thereto (the "Investors Rights Agreement"), Vobis may elect in respect
of future issuances of Award's equity securities to purchase that number of
shares as is necessary to maintain its ownership interest (in no event to exceed
17.5% assuming the exercise of the Vobis, Walden and Venrock Warrants) in Award
existing immediately prior to such future issuances, subject to certain
restrictions (the "Catch-up Right"). Pursuant to the Catch-up Right, Vobis had
the right until May 10, 1998 to purchase (a) up to 32,026 shares at a per share
price of $14.00 and (b) up to 48,120 shares at a per share price of $7.625. That
right expired without being exercised. The Catch-up Right expires and terminates
in accordance with its terms upon the earlier of (i) the date upon which Vobis
owns less than 8% of Award's Common Stock assuming the exercise of the Vobis,
Walden and Venrock Warrants or (ii) completion of an offering of shares of
Award's Common Stock under the Securities Act with an aggregate offering price
to the public of at least $10,000,000 and a per share price of at least $13.60
(a "Qualified Public Offering"). In July 1996 and December 1996, Vobis acquired
41,169 and 30,000 shares at a per share price of $10.00 and $8.00, respectively,
pursuant to its Catch-up Right.
In connection with Vobis' investment, Award entered into a voting agreement
with Vobis, Walden Capital Partners II, L.P. and Walden Technology Ventures II,
L.P. (collectively, "Walden"), Venrock Associates and Venrock Associates II,
L.P. (collectively, "Venrock") and Award's Chief Executive Officer pursuant to
which such shareholders agreed not to reduce the number of directors of the
Board of Directors below five and to elect a person designated by Vobis to the
Award Board. Presently, Mr. Willy Weck is Vobis' designee to the Award Board.
This agreement will terminate upon the earlier of (i) January 12, 1999, (ii) a
change of control of Award, (iii) the date upon which Vobis owns less than 8% of
Award's outstanding shares of Award Common Stock assuming the exercise of the
Vobis, Walden and Venrock Warrants, or (iv) completion of a Qualified Public
Offering.
The Vobis, Walden and Venrock Warrants contain a net exercise provision and
expire upon the earlier of (i) September 30, 2000 or (ii) completion of a
Qualified Public Offering. The holders of these warrants are entitled to certain
rights with respect to the registration of the shares of Common Stock issuable
upon exercise thereof under the Securities Act. Under the Investors' Rights
Agreement, Vobis, Walden and Venrock have the right to purchase equity
securities of Award in respect of certain future issuances thereof, which right
terminates upon a Qualified Public Offering.
MISCELLANEOUS
Award currently leases the Taiwan Office in Taipei, Taiwan, from Sun, a
shareholder, and GSS. In 1997, Award made lease payments to Sun of $69,188.
Award also made lease payments to GSS of $147,294 during 1997.
Award has entered into an agreement with Sun pursuant to which Sun provides
Award with marketing services in Japan and access to office space in Tokyo,
Japan. Award made payments to Sun of $31,200 during 1997.
As of December 1, 1997, Award entered into Severance Agreements with each of
the following executive officers of Award that provide for payment of certain
severance amounts in the event of an
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<PAGE>
involuntary termination of employment without cause or constructive termination
of employment without cause from Award.
<TABLE>
<CAPTION>
NAME % OF SALARY/BONUS/COMMISSION
- -------------------------------------------- -----------------------------
<S> <C>
Reza Afghan................................. 50%
Kevin J. Berry.............................. 100%
Maurice W. Bizzarri......................... 50%
Lyon T. Lin................................. 100%
Laurent K. Gharda........................... 50%
Ann P. Shen................................. 50%
David J. Wippich............................ 50%
</TABLE>
As of December 1, 1997, Award entered into the Severance Agreement with Dr.
Huang providing for a severance payment of 200% of his then existing base salary
plus bonus in the event of an involuntary termination of employment without
cause or constructive termination of employment without cause from Award. This
agreement also provides that in the event any excise taxes or penalties are
levied on Dr. Huang in respect of such severance payment, including pursuant to
Section 4999 of the Internal Revenue Code, Dr. Huang shall be entitled to
receive additional amounts equal to such taxes and penalties.
On March 1, 1998, Award made a loan to Pierre A. Narath, Vice President of
Award and President of Unicore, in the principal amount of $200,000. This loan
earns interest at 8.25% per annum payable quarterly in arrears. All principal
and unpaid interest becomes due and payable upon the sooner of March 1, 2000 or
the date of termination of Mr. Narath's employment or voluntary resignation. In
consideration of this loan, Mr. Narath agreed to terminate his right to register
shares of Award's common stock held by him under the Securities Act of 1933, as
amended, pursuant to that certain Registration Rights Agreement, dated as of May
30, 1997, between Award and Mr. Narath.
Award believes that the foregoing transactions were in its best interests.
As a matter of policy, all future transactions between Award and any of its
officers, directors or principal shareholders will be approved by a majority of
the independent and disinterested members of the Award Board, will be on terms
no less favorable to Award than could be obtained from unaffiliated third
parties and will be in connection with bona fide business purposes of Award.
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<PAGE>
COMPARISON OF CAPITAL STOCK
DESCRIPTION OF PHOENIX CAPITAL STOCK
The authorized capital stock of Phoenix consists of 40,000,000 shares of
Common Stock, $0.001 par value and 500,000 shares of Preferred Stock, $0.10 par
value. At the Phoenix Special Meeting, stockholders will be asked to approve an
amendment to Phoenix's Restated Certificate of Incorporation to increase the
authorized Common Stock of Phoenix by 20 million shares to 60 million shares.
See "Additional Matters Being Submitted to a Vote of only Phoenix
Stockholders--Proposal Two--Amendment to Restated Certificate of
Incorporation--Increase to Authorized Common Stock."
PHOENIX COMMON STOCK
As of the Phoenix Record Date, there were approximately 340 shares of
Phoenix Common Stock outstanding held of record by approximately 16,764,759
stockholders. Phoenix Common Stock is listed on Nasdaq under the symbol PTEC.
The holders of Phoenix Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The stockholders do not have a
right to take action by written consent nor may they cumulate votes in
connection with the election of directors. The holders of Phoenix Common Stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of Phoenix, the holders
of Phoenix Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities. The Phoenix Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Phoenix Common Stock. All outstanding
shares of Phoenix Common Stock are fully paid and non-assessable, and the shares
of Phoenix Common Stock to be outstanding upon completion of the Merger will be
fully paid and non-assessable.
PREFERRED STOCK
Phoenix has 500,000 shares of Preferred Stock authorized, of which, 400,000
Shares are designated Series A Junior Participating Preferred Stock. As of the
Phoenix Record Date, no shares of Preferred Stock were outstanding. The Phoenix
Board has the authority to issue these shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions granted
to or imposed upon any unissued and undesignated shares of Preferred Stock and
to fix the number of shares constituting any series and the designations of such
series, without any further vote or action by the stockholders. Although it
presently has no intention to do so, the Phoenix Board, without stockholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power or other rights of the holders of
Phoenix Common Stock and the issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of Phoenix.
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Phoenix has 400,000 of Series A Junior Participating Preferred Stock
authorized, of which, as of the Phoenix record date, no shares were outstanding.
The Phoenix Board has the authority to increase or decrease the number of shares
of Series A Junior Participating Preferred Stock authorized; provided, however,
that no decrease shall reduce the number of shares of Series A Preferred Stock
to a number less than the number of shares of Series A Preferred Stock then
outstanding plus the number of shares reserved for issuance upon the conversion
of any outstanding securities convertible into Series A Preferred Stock. The
holders of the Series A Preferred Stock are entitled to receive, in preference
to the holders of Common Stock, quarterly dividends in an amount per share equal
to the greater of (a) one dollar ($1.00) or (b) 100 times the aggregate per
share amount of all cash dividends and 100 times the aggregate per share amount
of all non-cash dividends or other distributions (subject to adjustment for
stock splits, consolidations and the like) declared on the Common Stock since
the immediately preceding quarterly
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dividend payment date or, with respect to the first quarterly dividend payment
date, since the first issuance of any share of Series A Preferred Stock. Accrued
by unpaid dividends do not bear interest. In the event of any liquidation,
dissolution or winding up of Phoenix, the Series A Preferred Stock shall be
entitled to a liquidation preference of the greater of (a) one hundred dollars
($100.00) per share, plus an amount equal to accrued but unpaid dividends, or
(b) an amount equal to 100 times the aggregate amount to be distributed per
share to holders of Common Stock or to holders of shares of stock ranking on a
parity with the Series A Preferred Stock. Each share of Series A Preferred is
entitled to 100 votes on all matters submitted to a vote of the stockholders of
Phoenix, subject to adjustment for stock splits, consolidations and the like;
provided, however, that if at any time dividends on the Series A Preferred Stock
shall be in arrears in an amount equal to six (6) quarterly dividends thereon,
the holders of the Series A Preferred Stock, voting as a separate series, shall
be entitled to elect two (2) members of the Board of Directors and the
authorized number of directors will automatically be increased by two (2) to
serve until the next annual meeting of the stockholders and until his successor
shall be elected and qualified. If quarterly dividends or other dividends
payable on the Series A Preferred Stock are in arrears, thereafter and until
such time as all dividends have been paid in full, the Corporation shall be
restricted from taking certain actions including the declaration or payment of
dividends on any other shares of stock ranking on a parity or junior to the
Series A Preferred Stock, or redeem or otherwise acquire shares of any stock
ranking on a parity with or junior to the Series A Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of the Phoenix Common Stock is Boston
EquiServe, LP and its telephone number is (781) 575-2000.
PHOENIX STOCKHOLDER RIGHTS PLAN
The Phoenix Rights Plan provides that each holder of record of a Right,
other than an Acquiring Person (as defined below), will have the right to
purchase, following a Distribution Date (as defined below) a unit consisting of
one one-hundredth of a share (a "Unit") of Series A Junior Participating
Preferred Stock of Phoenix, $.10 par value, at a purchase price of $30.00 per
Unit, subject to adjustment. The Rights will expire on the earliest of (i) the
close of business on October 31, 1999, (ii) five months after the commencement
of a firmly-financed, all cash tender offer for all of the outstanding shares of
Phoenix Common Stock, or (iii) the redemption or exchange of the Rights by
Phoenix (the earliest to occur being the "Expiration Date"). The Rights will
generally become exercisable and will trade separately from the Phoenix Common
Stock on the earlier of (i) ten days following a public announcement that a
person or group ("Acquiring Person") has acquired or obtained the right to
acquire, beneficial ownership of 20% or more of the outstanding shares of
Phoenix Common Stock (the "Stock Acquisition Date") or (ii) ten business days
following the commencement of a tender offer or exchange offer which, if
consummated, would result in a beneficial ownership by a person or group of 30%
or more of the outstanding shares of Phoenix Common Stock (the earlier of which
to occur being the "Distribution Date").
In the event that (i) Phoenix is the surviving corporation in a merger with
an Acquiring Person and Phoenix Common Stock is not changed or exchanged, (ii) a
person becomes the beneficial owner of more than 20% of the then outstanding
shares of Phoenix Common Stock except pursuant to an offer for all outstanding
shares of Phoenix Common Stock which the independent directors determine to be
fair to, and otherwise in the best interests of, shareholders, or (iii) an
Acquiring Person engages in one or more "self-dealing" transactions as set forth
in the Rights Agreement, each holder of a Right will thereafter have the right
to receive, upon exercise, that number of shares of Phoenix Common Stock (or, in
certain circumstances, cash, property or other securities of Phoenix) which
equals the exercise price of the Right divided by one-half of the current market
price (as defined in the Rights Agreement) of Phoenix Common Stock at the date
of the occurrence of the event. However, Rights are not exercisable following
the occurrence of any of the events set forth above until such time as the
Rights are no longer redeemable by
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<PAGE>
Phoenix in accordance with the terms of the Rights Agreement. Notwithstanding
any of the foregoing, following the occurrence of any of the events set forth is
this paragraph, all Rights that are, or (under certain circumstances specified
in the Rights Agreement) were, beneficially owned by any Acquiring Person will
be null and void.
Phoenix may redeem the Rights for $0.01 per Right, at its option and with
the approval of the Phoenix Board, at any time on or prior to the earlier of (i)
Stock Acquisition Date or (ii) December 6, 2006. The Rights are also redeemable
after the Stock Acquisition Date under certain circumstances described in the
Phoenix Rights Plan.
DESCRIPTION OF AWARD CAPITAL STOCK
The authorized capital stock of Award consists of 40,000,000 shares of
Common Stock, no par value per share, and 5,000,000 shares of Preferred Stock,
no par value per share.
AWARD COMMON STOCK
As of the Award Record Date, there were approximately 7,192,485 shares of
Award Common Stock outstanding held of record by approximately 84 shareholders.
Award Common Stock is listed on Nasdaq under the symbol AWRD. Holders of Award
Common Stock are entitled to one vote per share on all matters to be voted upon
by the shareholders. However, each shareholder who gives such notice at the
Award Annual Meeting prior to the election of directors shall be entitled to
cumulate his votes and give one nominee that number of votes equal to the number
of directors to be elected multiplied by the number of shares held by such
shareholder, or to allocate such votes among as many nominees as such
shareholder chooses ("cumulative voting"). If any one shareholder gives such
notice, all shareholders shall be entitled to cumulative voting. Award's Amended
and Restated Articles of Incorporation (the "Award Articles") abolish cumulative
voting upon Award being qualified for trading on The Nadsaq National Market and
having at least 800 beneficial holders of its shares of common stock as of the
record date for its most recent shareholders' annual meeting. Pursuant to the
Award Articles the shareholders do not have a right to take action by written
consent. The holders of Award Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Award Board out
of funds legally available therefor. In the event of a liquidation, dissolution
or winding up of Award, the holders of Award Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities. The Award Common
Stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to the Award Common
Stock. All outstanding shares of Award Common Stock are fully paid and
non-assessable, and the shares of Phoenix Common Stock which are received in
exchange for the Award Common Stock to be outstanding upon completion of the
Merger will be fully paid and non-assessable.
PREFERRED STOCK
Award has 5,000,000 shares of Preferred Stock authorized, of which, as of
the Award Record Date, no shares were outstanding. The Award Board has the
authority to issue these shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions granted to or imposed
upon any unissued and undesignated shares of Preferred Stock and to fix the
number of shares constituting any series and the designations of such series,
without any further vote or action by the shareholders. Although it presently
has no intention to do so, the Award Board, without shareholder approval, can
issue Preferred Stock with voting and conversion rights which could adversely
affect the voting power or other rights of the holders of Award Common Stock and
the issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of Award.
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TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of the Award Common Stock is Boston
EquiServe, LP and its telephone number is (781) 575-2000.
COMPARISON OF CAPITAL STOCK
After consummation of the Merger, the holders of Award Common Stock who
receive Phoenix Common Stock under the terms of the Reorganization Agreement
will become stockholders of the Combined Company. As shareholders of Award,
their rights are presently governed by California law and by the Award Articles
and the Award Amended and Restated Bylaws (the "Award Bylaws"). As stockholders
of the Combined Company, their rights will be governed by Delaware law and by
the Phoenix Certificate and Phoenix By-laws (the "Phoenix Bylaws"). The
following discussion summarizes the material differences between the rights of
holders of Award Common Stock and holders of Phoenix Common Stock and
differences between the charters and bylaws of Award and Phoenix. This summary
does not purport to be complete and is qualified in its entirety by reference to
the Award Articles and Award Bylaws, the Phoenix Certificate and Phoenix Bylaws
and the relevant provisions of California and Delaware law.
SIZE OF THE BOARD OF DIRECTORS. Under California law, although changes in
the number of directors must in general be approved by a majority of the
outstanding shares, the exact number of directors within a stated range set
forth in the articles of incorporation or bylaws may be fixed by approval of the
board of directors or shareholders. A bylaw or amendment to the articles of
incorporation specifying or changing the maximum or minimum number of directors
must be approved by the majority of the outstanding shares. The Award Bylaws
provide the Award Board the authority to set the exact number of directors
within the range of five (5) to nine (9). Delaware law permits the board of
directors alone to change the authorized number, or the range, of directors by
amendment to the bylaws, unless the directors are not authorized to amend the
bylaws or the number of directors is fixed in the certificate of incorporation
(in which case a change in the number of directors may be made only by amendment
to the certificate of incorporation following approval of such change by the
shareholders). The Phoenix Certificate states that the number of directors will
not be less than three (3) nor more than thirteen (13), and authorizes the
Phoenix Board to fix the number within the range by resolution.
LOANS TO OFFICERS AND EMPLOYEES. Under California law, any loan or guaranty
to or for the benefit of a director or officer of the corporation or its parent
requires approval of the shareholders unless such loan or guaranty is provided
under a plan approved by shareholders owning a majority of the outstanding
shares of the corporation. In addition, under California law, shareholders of
any corporation with 100 or more shareholders of record may approve a bylaw
authorizing the board of directors alone (without counting the vote of any
interested director) to approve loans or guaranties to or on behalf of officers
(whether or not such officers are directors) if the board determines that any
such loan or guaranty may reasonably be expected to benefit the corporation.
Under Delaware law, a corporation may make loans to, guarantee the obligations
of or otherwise assist its officers or other employees and those of its
subsidiaries (including directors who are also officers or employees) when such
action, in the judgment of the directors, may reasonably be expected to benefit
the corporation. The Phoenix Bylaws are silent as to whether Phoenix may make
loans to, guarantee the obligations of or otherwise assist its officers or other
employees and those of its subsidiaries (including directors who are also
officers or employees) and accordingly Delaware law governs the ability of
Phoenix to make such loans.
VOTING BY BALLOT. California law provides that the election of directors
may proceed in the manner described in a corporation's bylaws. Award's Bylaws
provide that upon the demand of any shareholder made at a meeting before the
voting begins, the election of directors shall be by ballot. Under Delaware law,
the right to vote by written ballot may be restricted if so provided in the
certificate of incorporation. The Certificate provides that the election of
directors at a stockholders' meeting need not be by ballot.
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CUMULATIVE VOTING. Generally, under California law, if any shareholder has
given notice of his intention to cumulate votes for the election of directors,
he and any other shareholder of the corporation is also entitled to cumulate his
or her votes at such election, unless the corporation's articles of
incorporation abolish the right to cumulative voting. Under Delaware law,
cumulative voting in the election of directors is not mandatory. The Award
Articles abolish cumulative voting, effective upon Award being qualified for
trading on the Nasdaq National Market and upon having at least 800 beneficial
holders of its shares of common stock as of the record date for its most recent
shareholders' annual meeting. As of the Award Record Date, Award does not have
800 beneficial holders and, therefore, the Award shareholders are entitled to
cumulative voting. The Phoenix Certificate does not provide for cumulative
voting.
CLASSIFIED BOARD OF DIRECTORS. A classified board is one to which a certain
number, but not all, of the directors are elected on a rotating basis each year.
Under California law, California corporations meeting certain qualifications may
amend their articles of incorporation or bylaws to provide for a classified
board, but for corporations not so qualified directors must be elected annually
and a classified board is not permitted. Delaware law permits, but does not
require, a classified board of directors, with staggered terms under which
one-half or one-third of the directors are elected for terms of two or three
years, respectively. This method of electing directors makes changes in the
composition of the board of directors, and thus a potential change in control of
a corporation, a lengthier and more difficult process. The Phoenix Certificate
provides for a classified board of directors with three classes of directors.
The Combined Company's staggered board will have three classes.
POWER TO CALL SPECIAL SHAREHOLDERS' MEETINGS; ADVANCE NOTICE OF SHAREHOLDER
BUSINESS AND NOMINEES. Under California law, a special meeting of shareholders
may be called by the board of directors, the chairman of the board, the
president, the holders of shares entitled to cast not less than 10% percent of
the votes at such meeting and such additional persons as are authorized by the
articles of incorporation or the bylaws. Under Delaware law, a special meeting
of shareholders may be called by the board of directors or by any other person
authorized to do so in the certificate of incorporation or the bylaws. Pursuant
to the Award Bylaws, special meetings may be called by shareholders holding 10%
of the voting stock, the Board of Directors, Chairman or President. The Phoenix
Bylaws eliminate the right of shareholders to call a special meeting of
shareholders; instead, the Phoenix Bylaws authorize only the Phoenix Board (or
the Secretary at the request of the Board) or the Chief Executive Officer to
call a special meeting of stockholders. Such a limitation could make it more
difficult for stockholders to initiate action that is opposed by the Phoenix
Board. Such action on the part of stockholders could include the removal of an
incumbent director, the election of a stockholder nominee as a director or the
implementation of a rule requiring stockholder ratification of specific
defensive strategies that have been adopted by the Phoenix Board with respect to
unsolicited takeover bids. In addition, the Phoenix Bylaws require timely
advance notice in proper written form of stockholder nominees for election as
director or stockholder business to be brought before a meeting, and allow the
chairman of the meeting to refuse to acknowledge the nomination of any person or
the proposal of any business not made in compliance with the procedures set
forth in the Phoenix Bylaws. The ability of the Phoenix Board under Delaware law
to limit or eliminate the right of stockholders to initiate action at
stockholder meetings may make it more difficult to change the existing Phoenix
Board and management.
ELIMINATION OF ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS. Under California
and Delaware law, shareholders may take action by written consent in lieu of
voting at a shareholders meeting. Both California law and Delaware law permit a
corporation to eliminate the ability of shareholders to act by written consent
in its charter. Elimination of written consents of shareholders could lengthen
the amount of time required to take shareholder actions because certain actions
by written consent are not subject to the minimum notice requirement of a
shareholders' meeting. The elimination of shareholders' written consents,
however, would deter hostile takeover attempts in an environment where a
corporation's stock is actively traded in a public market. Without the
stockholder's written consent provision, a holder or group of holders
controlling a majority in interest of Phoenix's capital stock would not be able
to amend the
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Phoenix Bylaws or remove directors pursuant to a stockholder's written consent.
Both the Award Articles and the Phoenix Certificate provide for the elimination
of the ability of shareholders to act by written consent of shareholders.
SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS. In the last several
years, a number of states (but not California) have adopted special laws
designed to make certain kinds of "unfriendly" corporate takeovers, or other
transactions involving a corporation and one or more of its significant
shareholders, more difficult. Under Section 203 of the Delaware General
Corporation Law ("Section 203"), certain "business combinations" by Delaware
corporations with "interested shareholders" are subject to a three-year
moratorium unless specified conditions are met. Under Section 1203 of the
California General Corporation Law, certain business combinations with a
majority shareholder are subject to specified conditions, but there is no
equivalent provision to Section 203, which addresses business combinations with
a significant but not majority shareholder.
Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for three years following the date
that such person becomes an interested stockholder. With certain exceptions, an
interested stockholder is a person or group who or which owns 15% or more of the
corporation's outstanding voting stock (including any rights to acquire stock
pursuant to an option, warrant, agreement, arrangement or understanding, or upon
the exercise of conversion or exchange rights, and stock with respect to which
the person has voting rights only), or is an affiliate or associate of the
corporation and was the owner of 15% or more of such voting stock at any time
within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested shareholder; sales
or other dispositions to the interested shareholder (except proportionately with
the corporation's other shareholders) of assets of the corporation or a
subsidiary equal to ten percent or more of the aggregate market value of the
corporation's consolidated assets or its outstanding stock; the issuance or
transfer by the corporation or a subsidiary of stock of the corporation or such
subsidiary to the interested shareholder (except for transfers in a conversion
or exchange or a pro rata distribution or certain other transactions, none of
which increase the interested shareholder's proportionate ownership of any class
or series of the corporation's or such subsidiary's stock); or receipt by the
interested shareholder (except proportionately as a shareholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (i) prior to the date on which such shareholder becomes an
interested shareholder, the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested shareholder; (ii) the interested shareholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
or her an interested shareholder (excluding from the 85% calculation shares
owned by directors who are also officers of the target corporation and shares
held by employee stock plans which do not permit employees to decide
confidentially whether to accept a tender or exchange offer); or (iii) on or
after the date such person becomes an interested shareholder, the board approves
the business combination and it is also approved at a shareholder meeting by
66 2/3% of the voting stock not owned by the interested shareholder.
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, is quoted on an
interdealer quotation system such as Nasdaq (as is the Phoenix Common Stock) or
is held of record by more than 2,000 stockholders. However, a Delaware
corporation may elect not to be governed by Section 203 by a provision in its
original certificate of incorporation or an amendment thereto or to the bylaws,
which amendment must be approved by majority stockholder vote and may not be
further amended by the board of directors. Phoenix is governed by Section 203.
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REMOVAL OF DIRECTORS. Under California law, any director or the entire
board of directors may be removed, with or without cause, with the approval of a
majority of the outstanding shares entitled to vote; however, no individual
director may be removed (unless the entire board is removed) if the number of
votes cast against such removal would be sufficient to elect the director under
cumulative voting. Under Delaware law, a director may be removed with or without
cause with the approval of the majority of shares entitled to vote on an
election of directors, except as follows. A director of a corporation that has a
classified board of directors may be removed only with cause and with the
approval of a majority of the outstanding shares entitled to vote, except as
provided in the Company's certificate of incorporation. A director of a
corporation with cumulative voting may not be removed without cause, if less
than the entire Board is removed, if the votes cast against removal would be
sufficient to re-elect the director if voted cumulatively. The Certificate
provides for a classified board, although it does not permit cumulative voting
and permits the removal of a director with or without cause with the approval of
at least two-thirds of the outstanding shares entitled to vote.
FILLING VACANCIES ON THE BOARD OF DIRECTORS. Under California law, any
vacancy on the board of directors may be filled by the board unless otherwise
provided by the articles or bylaws and except for vacancies created by removal
of a director. If the number of directors is less than a quorum, a vacancy may
be filled by the unanimous written consent of the directors then in office, by
the affirmative vote of a majority of the directors at a meeting held pursuant
to notice or waivers of notice or by a sole remaining director. A vacancy
created by removal of a director may be filled by the board only if the board is
so authorized. The Award Bylaws permit the Award Board to fill any vacancies on
the Award Board. Where a vacancy is not filled by the Board, the Bylaws permit
the vacancy to be filled by majority shareholder vote. Under Delaware law,
vacancies and newly created directorships may be filled by a majority of the
directors then in office (even though less than a quorum) unless otherwise
provided in the certificate of incorporation or bylaws (and unless the
certificate of incorporation directs that a particular class is to elect such
director, in which case any other directors elected by such class, or a sole
remaining director, shall fill such vacancy). The Phoenix Certificate allows any
vacancy on the Board to be filled by a majority of the directors then in office.
INDEMNIFICATION AND LIMITATION OF LIABILITY. California and Delaware have
similar laws respecting indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states also permit
corporations to adopt a provision in their charters eliminating the liability of
a director to the corporation or its shareholders for monetary damages for
breach of the director's fiduciary duty of care (with certain limitations in
California). There are nonetheless certain differences between the laws of the
two states with respect to indemnification and limitation of liability.
The Award Articles eliminate the liability of directors for monetary damages
to the fullest extent permissible under California law. California law does not
permit the elimination of monetary liability where such liability is based on:
(i) intentional misconduct or knowing and culpable violation of law; (ii) acts
or omissions that a director believes to be contrary to the best interests of
the corporation or its shareholders, or that involve the absence of good faith
on the part of the director; (iii) receipt of an improper personal benefit; (iv)
acts or omissions that show reckless disregard for the director's duty to the
corporation or its shareholders, where the director in the ordinary course of
performing a director's duties should be aware of a risk of serious injury to
the corporation or its shareholders; (v) acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation and its shareholders; (vi) interested transactions
between the corporation and a director in which a director has a material
financial interest; and (vii) liability for improper distributions, loans or
guarantees.
The Phoenix Certificate also eliminates the liability of directors to the
fullest extent permissible under Delaware law, as such law exists currently or
as it may be amended in the future. Under Delaware law, such provision may not
eliminate or limit director monetary liability for: (i) breaches of the
director's duty of loyalty to the corporation or its shareholders; (ii) acts or
omissions not in good faith or involving
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intentional misconduct or knowing violations of law; (iii) the payment of
unlawful dividends or unlawful stock repurchases or redemptions; or (iv)
transactions in which the director received an improper personal benefit. Such
limitation of liability provisions also may not limit a director's liability for
violation of, or otherwise relieve Phoenix or its directors from the necessity
of complying with, federal or state securities laws, or affect the availability
of non-monetary remedies such as injunctive relief or rescission.
California corporations may include in their charter a provision which
extends the scope of indemnification through agreements, bylaws or other
corporate action beyond that specifically authorized by statute. The Award
Articles include a provision authorizing Award to indemnify its directors and
officers to the fullest extent permissible under California law.
Delaware law states that the indemnification provided by statute shall not
be deemed exclusive of any other rights under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise. The Certificate includes a
provision providing that Phoenix shall indemnify its directors to the fullest
extent permissible under Delaware law.
INSPECTION OF SHAREHOLDERS LIST. Both California and Delaware law allow any
shareholder to inspect and copy the shareholders list for a purpose reasonably
related to such person's interest as a shareholder. California law provides, in
addition, for an absolute right to inspect and copy the corporation's
shareholders list by persons holding an aggregate of 5% or more of a
corporation's voting shares, or, under certain other circumstances, shareholders
holding an aggregate of 1% or more of such shares. Delaware law does not provide
for any such absolute right of inspection, and no such right is granted under
the Certificate or Phoenix Bylaws. Restricted access to shareholder records,
even though unrelated to the shareholder's interests as a shareholder, could
result in impairment of the shareholder's ability to coordinate opposition to
management proposals, including proposals with respect to a change in control of
the Combined Company.
DIVIDENDS AND REPURCHASES OF SHARES. California law dispenses with the
concepts of par value of shares as well as statutory definitions of capital,
surplus and the like. The concepts of par value, capital and surplus are
retained under Delaware law.
Under California law, a corporation may not make any distribution (including
dividends, whether in cash or other property, and repurchases of its shares)
unless either the corporation's retained earnings immediately prior to the
proposed distribution equal or exceed the amount of the proposed distribution
or, immediately after giving effect to such distribution, the corporation's
assets (exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1 1/4 times its liabilities (not
including deferred taxes, deferred income and other deferred credits), and the
corporation's current assets would be at least equal to its current liabilities
(or 1 1/4 times its current liabilities if the average pre-tax and pre-interest
expense earnings for the preceding two fiscal years were less than the average
interest expense for such years). Such tests are applied to California
corporations on a consolidated basis.
Delaware law permits a corporation to declare and pay dividends out of
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year as long as
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if such redemption or
repurchase would not impair the capital of the corporation.
SHAREHOLDER VOTING. Both California and Delaware law generally require that
the holders of a majority of the outstanding voting shares of the acquiring and
target corporations approve statutory mergers. Delaware law does not require a
shareholder vote of the surviving corporation in a merger (unless the
corporation provides otherwise in its certificate of incorporation) if (i) the
merger agreement
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does not amend the existing certificate of incorporation; (ii) each share of the
surviving corporation outstanding before the merger is equal to an identical
outstanding or treasury share after the merger; and (iii) the number of shares
to be issued by the surviving corporation in the merger does not exceed 20% of
the shares outstanding immediately prior to the merger. California law contains
a similar exception to its voting requirements for reorganizations where
shareholders or the corporation itself, or both, immediately prior to the
reorganization will own immediately after the reorganization equity securities
constituting more than five-sixths of the voting power of the surviving or
acquiring corporation or its parent entity. The Certificate does not require any
special vote of the shareholders to approve the Merger.
Both California and Delaware law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the voting shares of the corporation transferring such assets.
With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. By contrast, Delaware law
generally does not require class voting, except in certain transactions
involving an amendment to the certificate of incorporation which adversely
affects a specific class of shares.
California law also requires that holders of nonredeemable common stock
receive nonredeemable common stock in a merger of the corporation with the
holder of more than 50% but less than 90% of such common stock or its affiliate
unless all of the holders of such common stock consent to the transaction. This
provision of California law may have the effect of making a "cash-out" merger by
a majority shareholder more difficult to accomplish. Although Delaware law does
not parallel California law in this respect, under some circumstances Section
203 of the Delaware General Corporation Law does provide similar protection
against coercive two-tiered bids for a corporation in which the shareholders are
not treated equally.
INTERESTED DIRECTOR TRANSACTIONS. Under both California and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable because of such interest
provided that certain conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full disclosure, are met. With
certain exceptions, the conditions are similar under California and Delaware
law. Under California and Delaware law, either (i) the shareholders or the board
of directors must approve any such contract or transaction after full disclosure
of the material facts, and in the case of board approval the contract or
transaction must also be "just and reasonable" to the corporation (in
California) or approved in good faith (in Delaware), or (ii) the contract or
transaction must have been just and reasonable (in California) or fair (in
Delaware) as to the corporation at the time it was approved. In the latter case,
California law explicitly places the burden of proof on the interested director.
Under California law, if shareholder approval is sought, the interested director
is not entitled to vote his shares at a shareholder meeting with respect to any
action regarding such contract or transaction. If board approval is sought, the
contract or transaction must be approved by a majority vote of a quorum of the
directors, without counting the vote of any interested directors (except that
interested directors may be counted for purposes of establishing a quorum).
Under Delaware law, if board approval is sought, the contract or transaction
must be approved by a majority of the disinterested directors (even though less
than a majority of a quorum). Therefore, certain transactions that the Award
Board would lack the authority to approve because of the number of interested
directors, could be approved by a majority of the disinterested directors of
Phoenix representing less than a majority of a quorum. Neither Phoenix nor Award
is aware of any plans to propose any transaction involving interested directors
of Award or Phoenix which the Award Board would lack the authority to approve
under California law but could approve under Delaware law.
DISSENTERS' RIGHTS. Under both California and Delaware law, a shareholder
of a corporation participating in certain major corporate transactions may,
under varying circumstances, be entitled to appraisal rights pursuant to which
such shareholder may receive cash in the amount of the fair market value of his
or her shares in lieu of the consideration he or she would otherwise receive in
the transaction. Under
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Delaware law, such dissenters' rights are not available (i) with respect to the
sale, lease or exchange of all or substantially all of the assets of a
corporation; (ii) with respect to a merger or consolidation by a corporation the
shares of which are either listed on a national securities exchange or are held
of record by more than 2,000 holders, if in either case such shareholders
receive only shares of the surviving corporation, shares of any other
corporation which are either listed on a national securities exchange or held of
record by more than 2,000 holders, and/or cash in lieu of fractional shares; or
(iii) to shareholders of a constituent corporation surviving a merger if no vote
of the shareholders of the surviving corporation is required to approve the
merger because the merger agreement does not amend the existing certificate of
incorporation, each share of the surviving corporation outstanding prior to the
merger is an identical outstanding or treasury share after the merger, and the
number of shares to be issued in the merger does not exceed 20% of the shares of
the surviving corporation outstanding immediately prior to the merger and if
certain other conditions are met.
In contrast, shareholders of a California corporation whose shares are
listed on a national securities exchange or on a list of over-the-counter margin
stocks issued by the Board of Governors of the Federal Reserve System generally
do not have appraisal rights unless the holders of at least 5% of the class of
outstanding shares claim the right or unless the corporation or any law
restricts the transfer of such shares. Dissenters' rights are unavailable,
however, if the shareholders of a corporation or the corporation itself, or
both, immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its parent entity, and
if the shares of the surviving corporation have the same rights, preferences,
privileges and restrictions as the shares of the disappearing corporation that
are surrendered in exchange.
DISSOLUTION. Under California law, shareholders holding 50% or more of the
total voting power may authorize a corporation's dissolution, with or without
the approval of the corporation's board of directors, and this right may not be
modified by the articles of incorporation. Under Delaware law, unless the board
of directors approves the proposal to dissolve, the dissolution must be approved
by shareholders holding 100% of the total voting power of the corporation. Only
if the dissolution is initially approved by the board of directors may it be
approved by a simple majority of the corporation's shareholders. In the event of
such a board-initiated dissolution, Delaware law allows a Delaware corporation
to include in its certificate of incorporation a supermajority voting
requirement in connection with dissolutions. The Certificate contains no such
supermajority voting requirement, however, and a majority of shares voting at a
meeting at which a quorum is present would be sufficient to approve a
dissolution of Phoenix which had previously been approved by the Phoenix Board.
SHAREHOLDER DERIVATIVE SUITS. California law provides that a shareholder
bringing a derivative action on behalf of a corporation need not have been a
shareholder at the time of the transaction in question, provided that certain
tests are met. Under Delaware law, a stockholder may only bring a derivative
action on behalf of the corporation if the stockholder was a stockholder of the
corporation at the time of the transaction in question or his or her stock
thereafter devolved upon him or her by operation of law. California law also
provides that the corporation or the defendant in a derivative suit may make a
motion to the court for an order requiring the plaintiff shareholder to furnish
a security bond. Delaware does not have a similar bonding requirement.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
have been prepared to give effect to the Merger, using the pooling-of-interests
method of accounting. Phoenix's fiscal year ends on September 30.
The unaudited pro forma condensed combined balance sheet combines the
unaudited condensed consolidated balance sheet of Phoenix and the unaudited
condensed consolidated balance sheet of Award as of March 31, 1998.
The unaudited pro forma condensed combined statements of operations give
effect to the Merger as if it occurred as of the beginning of the earliest year
presented and combines the historical consolidated statements of operations of
Phoenix for each of the three years ended September 30, 1997 and the six month
periods ended March 31, 1997 and 1998, with the historical consolidated
statements of operations of Award for each of the three years ended December 31,
1997, and the six-month periods ended June 30, 1997 and March 31, 1998.
Phoenix and Award estimate that they will incur transaction costs of
approximately $6 million to $9 million associated with the Merger, which will be
charged to operations when incurred. There can be no assurance that the Combined
Company will not incur additional charges to reflect costs associated with the
Merger or that management will be successful in its efforts to integrate the
operations of the two companies.
Such unaudited pro forma condensed combined financial information is
presented for illustrative purposes only and is not necessarily indicative of
the financial position or results of operations that would have actually been
reported had the Merger occurred at the beginning of the periods presented, nor
is it necessarily indicative of future financial position or results of
operations. These unaudited pro forma condensed combined financial statements
are based upon the respective historical consolidated financial statements of
Phoenix and Award and should be read in conjunction with the respective
historical consolidated financial statements and notes thereto incorporated by
reference in this Joint Proxy Statement/Prospectus, and do not incorporate, nor
do they assume, any benefits from cost savings or synergies of operations of the
Combined Company.
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UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
----------------------------------------------------
PRO FORMA PRO FORMA
PHOENIX AWARD ADJUSTMENTS COMBINED
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term investments......................... $ 60,426 $ 25,604 $ -- $ 86,030
Accounts receivable, net................................ 21,766 5,441 -- 27,207
Other current assets.................................... 6,194 2,201 -- 8,395
------------ ------------ ----------- -----------
Total current assets.................................. 88,386 33,246 -- 121,632
Other marketable securities............................... 9,813 -- -- 9,813
Property and equipment, net............................... 10,641 1,370 -- 12,011
Computer software costs, net.............................. 5,080 1,170 (500) 5,750
Other assets.............................................. 2,414 323 (300) 2,437
------------ ------------ ----------- -----------
Total assets............................................ $ 116,334 $ 36,109 $ (800) $ 151,643
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 3,089 $ 358 $ -- $ 3,447
Payroll and related liabilities......................... 3,898 1,280 -- 5,178
Other accrued liabilities............................... 5,547 1,307 6,700 13,554
Income taxes payable.................................... 4,312 1,794 (900) 5,206
------------ ------------ ----------- -----------
Total current liabilities............................. 16,846 4,739 5,800 27,385
Long-term obligations..................................... 2,514 191 -- 2,705
Stockholders' equity:
Common stock............................................ 17 22,555 (22,547) 225
Additional paid-in capital.............................. 71,181 -- 22,547 93,728
Retained earnings....................................... 22,930 9,468 (6,600) 25,798
Unrealized gain on available-for-sale securities........ 3,768 -- -- 3,768
Accumulated translation adjustment...................... (922) (844) -- (1,766)
------------ ------------ ----------- -----------
Total stockholders' equity............................ 96,974 31,179 (6,600) 121,553
------------ ------------ ----------- -----------
Total liabilities and stockholders' equity.............. $ 116,334 $ 36,109 $ (800) $ 151,643
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>
See accompanying notes.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
License fees............................................. $ 51,521 $ 75,366 $ 89,884 $ 43,035 $ 50,502
Services................................................. 7,550 10,841 15,612 6,771 11,387
--------- --------- --------- --------- ---------
Total revenue.............................................. 59,071 86,207 105,496 49,806 61,889
Cost of revenue:
License fees............................................. 4,080 8,061 7,795 2,554 4,623
Services................................................. 6,138 7,661 10,844 4,648 7,543
--------- --------- --------- --------- ---------
Total cost of revenue...................................... 10,218 15,722 18,639 7,202 12,166
Gross margin............................................... 48,853 70,485 86,857 42,604 49,723
Operating expenses:
Research and development................................. 13,789 24,826 32,920 16,182 19,905
Sales and marketing...................................... 16,637 18,377 22,363 10,778 13,759
General and administrative............................... 8,296 11,756 15,167 7,673 8,214
Cost of acquisition...................................... -- 889 -- -- --
--------- --------- --------- --------- ---------
Total operating expenses................................... 38,722 55,848 70,450 34,633 41,878
Income from operations..................................... 10,131 14,637 16,407 7,971 7,845
Interest and other income, net............................. 2,124 2,796 13,397 2,777 3,472
--------- --------- --------- --------- ---------
Income before income taxes............................... 12,255 17,433 29,804 10,748 11,317
Provision for income taxes................................. 2,275 5,501 9,469 3,477 3,465
--------- --------- --------- --------- ---------
Income before discontinued operations...................... 9,980 11,932 20,335 7,271 7,852
Gain on discontinued operations (after income taxes)....... -- 3,752 -- -- --
--------- --------- --------- --------- ---------
Net income................................................. $ 9,980 $ 15,684 $ 20,335 $ 7,271 $ 7,852
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic earnings per share:
Earnings from continuing operations...................... $ 0.52 $ 0.53 $ 0.80 $ 0.29 $ 0.31
Earnings from discontinued operations.................... -- 0.17 -- -- --
--------- --------- --------- --------- ---------
Earnings per share....................................... $ 0.52 $ 0.70 $ 0.80 $ 0.29 $ 0.31
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of shares........................ 19,258 22,375 25,293 24,757 25,353
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted earnings per share:
Earnings from continuing operations...................... $ 0.46 $ 0.48 $ 0.74 $ 0.27 $ 0.29
Earnings from discontinued operations.................... -- 0.15 -- -- --
--------- --------- --------- --------- ---------
Earnings per share....................................... $ 0.46 $ 0.63 $ 0.74 $ 0.27 $ 0.29
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of shares........................ 21,927 24,902 27,464 27,151 26,939
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
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<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
1. The unaudited Pro Forma Condensed Combined Financial Statements reflect the
issuance of 1.225 shares of Phoenix Common Stock for each share of Award
Common Stock outstanding. The following table sets forth the pro forma share
issuances in connection with the Merger (in thousands):
<TABLE>
<S> <C>
Award Common Stock Outstanding as of March 31, 1998............ 7,130
1.225 :
Exchange Ratio................................................. 1.00
----------
Number of shares of Phoenix Common Stock to be Exchanged....... 8,734
Number of shares of Phoenix Common Stock Outstanding as of
March 31, 1998............................................... 16,755
----------
Number of shares of Phoenix Common Stock Outstanding after
completion of the Merger..................................... 25,489
----------
----------
</TABLE>
Additionally at the Effective Time, all outstanding options and warrants to
purchase Award Common Stock will be exchanged for options to purchase
Phoenix Common Stock, based upon the exchange ratio of 1.225, and Phoenix
will assume outstanding obligations under Award's Employee Stock Purchase
Plan. As of March 31, 1998, options to purchase 1,988,884 shares and
warrants to purchase 395,728 shares of Award Common Stock were outstanding.
2. The Unaudited Pro Forma Condensed Combined Statements of Operations combine
Phoenix's historical results of operations for the fiscal years ended
September 30, 1995, 1996 and 1997, and for the six-month periods ended March
31, 1997 and 1998, with Award's historical results of operations for the
fiscal years ended December 31, 1995, 1996 and 1997, and for the six-month
periods ended June 30, 1997 and March 31, 1998. Accordingly, the results of
operations of Award for the three months ended December 31, 1997, which
include revenues of $7,535,000 and net income of $1,660,000, are included in
the pro forma condensed combined statements of income for both the fiscal
year ended September 30, 1997 and the six months ended March 31, 1998. The
Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet combines
Phoenix's balance sheet as of March 31, 1998 with Award's balance sheet as
of the same date.
3. Phoenix expects to incur charges to operations related to the Merger
currently estimated to be between $6 million and $9 million in the quarter
ending June 30, 1998, the quarter in which the Merger is expected to be
consummated and in subsequent periods. These charges include direct
transaction costs, primarily for financial advisory services and legal fees,
and costs associated with combining the operations of the two companies,
primarily related to redundant assets and facilities. An estimated charge of
$7.5 million (the mid-point of the above range), less estimated income tax
benefits of $0.9 million, is reflected in the pro forma balance sheet but is
not reflected in the Unaudited Pro Forma Condensed Combined Statements of
Operations. The range is a preliminary estimate only, and is therefore
subject to change.
4. Certain amounts have been reclassified to conform to the pro forma
presentation.
5. There have been no material differences between the accounting policies of
Phoenix and Award and, accordingly, no pro forma conforming adjustments are
required in the Unaudited Pro Forma Condensed Combined Statements of
Operations.
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<PAGE>
ADDITIONAL MATTERS BEING SUBMITTED TO A
VOTE OF ONLY PHOENIX STOCKHOLDERS
PROPOSAL TWO-- AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION--INCREASE TO
AUTHORIZED COMMON STOCK
On May 14, 1998, the Phoenix Board approved an amendment (the "Amendment")
to the Certificate to increase the number of authorized shares of Common Stock
by 20 million shares to 60 million shares. Under the Amendment, subject to
stockholder approval, Article FOURTH of the Certificate would be amended and
restated to read as follows:
"FOURTH:
(a) The total number of shares of stock which the Corporation shall have
authority to issue shall be 60,500,000 shares, of which 60,000,000 shares
shall be designated as Common Stock each of which shall have a par value of
$.001 (the "Common Stock"), and 500,000 shall be designated as Preferred
Stock each of which shall have a par value of $.10 (the "Preferred Stock").
(b) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors of the Corporation is hereby authorized,
within the limitations and restrictions stated in this Restated Certificate
of Incorporation, to determine or alter the rights, preferences, powers,
privileges and the restrictions, qualifications and limitations granted to
or imposed upon any wholly unissued series of Preferred Stock, and the
number of shares constituting any such series and the designation thereof;
and to increase or decrease the number of shares constituting any such
series; and to increase or decrease the number of shares of any series
subsequent to issue of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series
shall be so decreased, the shares then constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series."
As of March 31, 1998, there were 40,000,000 shares of Phoenix Common Stock
authorized, of which approximately 16,754,746 shares were issued and outstanding
and approximately 6,199,689 of which were reserved for issuance under Phoenix's
stock benefit plans, leaving only approximately 17,045,565 authorized shares
available for future issuance. The issuance of Phoenix Common Stock to the
shareholders and optionholders and warrant holders of Award pursuant to Proposal
One herein will require approximately 11,600,000 shares of Phoenix Common Stock.
Although Phoenix has no specific plans to use the additional authorized
shares of Phoenix Common Stock other than as described above, the Phoenix Board
believes that it is prudent to increase the number of authorized shares of
Phoenix Common Stock to the proposed level in order to provide a reserve of
shares available for issuances in connection with possible future actions. Such
actions may include increases in the number of shares available for issuance
pursuant to Phoenix's stock option plans, stock splits or stock dividends if the
Phoenix Board were to determine that such would be desirable to facilitate a
broader base of stockholders. The Phoenix Board also believes that the increased
number of shares will provide the flexibility to effect other possible actions
such as financings, corporate mergers, acquisitions of property, employee
benefit plans and for other general corporate purposes. Having such additional
authorized Phoenix Common Stock available for issuance in the future would allow
the Phoenix Board to issue shares of Phoenix Common Stock without the delay and
expense associated with seeking stockholder approval. Elimination of such delays
and expense occasioned by the necessity of obtaining stockholder approval will
better enable Phoenix, among other things, to engage in financing transactions
and acquisitions as well as to take advantage of changing market and financial
conditions on a more competitive basis as determined by the Phoenix Board.
The Phoenix stockholders are being asked to approve such amendment. The
affirmative vote of the holders of a majority of the shares of Phoenix Common
Stock issued and outstanding on the Phoenix
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Record Date will be required to approve the amendment of the Certificate. The
effect of an abstention and broker non-vote is the same as that of a vote
against the proposal.
The increase in authorized Phoenix Common Stock will not have any immediate
effect on the rights of existing stockholders. To the extent that the additional
authorized shares are issued in the future, they will decrease the existing
stockholders' percentage equity ownership and, depending on the price at which
they are issued, could be dilutive to the existing stockholders.
The increase in the authorized number of shares of Phoenix Common Stock
could have an anti-takeover effect. Shares of authorized and unissued Phoenix
Common Stock could (within the limits imposed by applicable law) be issued in
one or more transactions that would make a takeover of Phoenix more difficult,
and therefore less likely. Any such issuance of additional stock could have the
effect of diluting the earnings per share and book value per share of
outstanding shares of Phoenix Common Stock, and such additional shares could be
used to dilute the stock ownership or voting rights of persons seeking to obtain
control of Phoenix.
Phoenix has previously adopted certain measures that may have the effect of
helping it to resist an unfriendly takeover attempt, including the Phoenix
Rights Plan, providing for the distribution of rights to purchase additional
shares of Phoenix stock in the event of certain attempts to acquire control of
Phoenix.
THE PHOENIX BOARD UNANIMOUSLY RECOMMENDS THAT PHOENIX STOCKHOLDERS VOTE
"FOR" THE AMENDMENT OF THE CERTIFICATE TO INCREASE THE AUTHORIZED PHOENIX COMMON
STOCK TO 60,000,000 SHARES.
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<PAGE>
ADDITIONAL MATTERS BEING SUBMITTED TO A VOTE OF ONLY AWARD SHAREHOLDERS
PROPOSAL TWO--ELECTION OF DIRECTORS
There are seven nominees for the seven board positions presently authorized
in Award's Bylaws. Each director to be elected will hold office until the next
annual meeting of shareholders and until his successor is duly elected and
qualified, or until such director's earlier death, resignation or removal. Each
nominee listed below is currently a director of Award.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the nominees named below. In the event that
any nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as management may propose. Each person nominated for election has agreed
to serve if elected and management has no reason to believe that any nominee
will be unable to serve.
Each share of common stock shall be entitled to one vote per share. However,
each shareholder who gives such notice at the Award Annual Meeting prior to the
election of directors shall be entitled to cumulate his votes and give one
nominee that number of votes equal to the number of directors to be elected
multiplied by the number of shares held by such shareholder, or to allocate such
votes among as many nominees as such shareholder chooses ("cumulative voting").
If any one shareholder gives such notice, all shareholders shall be entitled to
cumulative voting. Award's Articles of Incorporation abolish cumulative voting
upon Award being qualified for trading on the Nasdaq National Market and having
at least 800 beneficial holders of its shares of common stock as of the record
date for its most recent shareholders' annual meeting.
The seven candidates receiving the highest number of affirmative votes cast
at the meeting will be elected directors of the Company.
In January 1996, in connection with the purchase by Vobis Microcomputer AG
("Vobis") of 570,033 shares of Award Common Stock and a warrant to purchase
272,394 shares of Award Common Stock, Award entered into a voting agreement with
Vobis, Walden Capital Partners II, L.P. and Walden Technology Ventures II, L.P.,
Venrock Associates and Venrock Associates II, L.P. and Award's Executive Officer
pursuant to which such shareholders agreed not to reduce the number of directors
of the Board of Directors below five and to elect a person designated by Vobis
to the Company's Board of Directors. Presently, Mr. Willy Weck is Vobis's
designee to Award's Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees are: George C. Huang, Cheng Ming Lee, David S.
Lee, Masami Maeda, Anthony Sun, William P. Tai and Willy Weck. For biographical
information and background experience on each of the nominees, see
"Award--Directors and Executive Officers--Directors."
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<PAGE>
PROPOSAL THREE--AMENDMENT TO 1997 EQUITY INCENTIVE PLAN
In April 1997, the Award Board adopted and the shareholders subsequently
approved, Award's 1997 Equity Incentive Plan (the "1997 Plan") and reserved
700,000 shares of Award Common Stock for issuance thereunder. The 1997 Plan was
designed to provide for the grant of options to purchase shares of Award Common
Stock to selected officers and employees of and consultants to Award. Award, by
means of the 1997 Plan, seeks to attract and retain the best available personnel
for service as employees holding key positions and to provide incentives for
such persons to exert maximum efforts for the success of Award.
As of March 31, 1998, options (net of canceled, repurchased or expired
options) covering an aggregate of 700,000 shares of Award Common Stock had been
granted under the 1997 Plan and no shares (other than any shares that might in
the future be returned to the reserve as a result of cancellations or expiration
of options) remained available for future grants under the 1997 Plan. During the
last fiscal year, under the 1997 Plan, Award granted to officers, employees and
consultants as a group options to purchase 414,200 shares of Common Stock at
exercise prices ranging from $9.25 to $11.25 per share.
On January 22, 1998, the Award Board approved an amendment to the 1997 Plan,
subject to shareholder approval, to increase the number of shares authorized for
issuance under the 1997 Plan by 700,000 shares, to a total of 1,400,000 shares.
The proposed increase in shares under the 1997 Plan is necessary to permit
ongoing grants in accordance with the terms of the plan.
Shareholders are requested in this proposal to approve the 1997 Plan, as
amended to increase the number of shares of Common Stock authorized for issuance
by 700,000 shares (the "1997 Plan Proposal"). The affirmative vote of the
holders of a majority of the shares present in person or represented by proxy
and entitled to vote at the meeting will be required to approve the 1997 Plan,
as amended.
THE AWARD BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the 1997 Plan are outlined below:
GENERAL
The 1997 Plan provides for the grant of both incentive and nonstatutory
stock options. Incentive stock options granted under the 1997 Plan are intended
to qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock
options granted under the 1997 Plan are intended not to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of incentive and nonstatutory stock options.
PURPOSE
The 1997 Plan was adopted to provide a means by which selected officers and
employees of and consultants to Award and its affiliates could be given an
opportunity to purchase stock in Award, to assist in retaining the services of
employees holding key positions, to secure and retain the services of persons
capable of filling such positions and to provide incentives for such persons to
exert maximum efforts for the success of Award. All of Award's employees and
consultants are eligible to participate in the 1997 Plan.
ADMINISTRATION
The 1997 Plan is administered by the Award Board. The Award Board has the
power to construe and interpret the 1997 Plan and, subject to the provisions of
the 1997 Plan, to determine the persons to whom and the dates on which options
will be granted, the number of shares to be subject to each option, the time or
times during the term of each option within which all or a portion of such
option may be exercised, the exercise price, the type of consideration and other
terms of the option. The Award Board is authorized to
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<PAGE>
delegate administration of the 1997 Plan to a committee composed of not fewer
than two members of the Award Board who may, in the discretion of the Award
Board, be non-employee directors within the meaning of Rule 16b-3 promulgated
under the Securities Act of 1934, as amended ("Rule 16b-3"). The Award Board has
delegated administration of the 1997 Plan to the Compensation Committee of the
Award Board. As used herein with respect to the 1997 Plan, the "Award Board"
refers to the Compensation Committee as well as to the Award Board of Directors
itself.
Regulations under Section 162(m) of the Code require that the directors who
serve as members of such committee must be "outside directors." The 1997 Plan
provides that, in the Award Board's discretion, directors serving on any such
committee will also be "outside directors" within the meaning of Section 162(m).
This limitation would exclude from the committee (i) current employees of Award,
(ii) former employees of Award receiving compensation for past services (other
than benefits under a tax-qualified retirement plan), (iii) current and former
officers of Award and (iv) directors currently receiving direct or indirect
remuneration from Award in any capacity (other than as a director), unless any
such person is otherwise considered an "outside director" for purposes of
Section 162(m).
ELIGIBILITY
Incentive stock options may be granted under the 1997 Plan to all employees
(including officers) of Award and its affiliates. All employees (including
officers) and consultants are eligible to receive nonstatutory stock options
under the 1997 Plan.
No option may be granted under the 1997 Plan to any person who, at the time
of the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of Award or any affiliate of Award, unless the
option exercise price is at least 110% of the fair market value of the stock
subject to the option on the date of grant, and the term of the option does not
exceed five years from the date of grant. For incentive stock options granted
under the 1997 Plan, the aggregate fair market value, determined at the time of
grant, of the shares of Common Stock with respect to which such options are
exercisable for the first time by an optionee during any calendar year (under
all such plans of Award and its affiliates) may not exceed $100,000.
No person shall be eligible to be granted options covering more than 500,000
shares of Award's Common Stock in any calendar year. The purpose of this
limitation is generally to permit Award to continue to be able to deduct for tax
purposes the ordinary income attributable to the options granted under the 1997
Plan.
STOCK SUBJECT TO THE 1997 PLAN
There are 700,000 shares of Award's Common Stock authorized for issuance
under the 1997 Plan. If options granted under the 1997 Plan expire or otherwise
terminate without being exercised, the Common Stock not purchased pursuant to
such options again becomes available for issuance under the 1997 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
1997 Plan. Individual option grants may be more restrictive as to any or all of
the permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
under the 1997 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The exercise price of nonstatutory options under the 1997 Plan may not be less
than 85% of the fair market value of Award Common Stock subject to the option on
the date of the option grant. However, if options were granted with exercise
prices below market value, deductions for compensation attributable to the
exercise of such options could be limited by Section 162(m). See "Federal Income
Tax Information." At
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March 31, 1997, the closing price of Award's Common Stock as reported on the
Nasdaq National Market was $11.50 per share.
In the event of a decline in the value of Award's Common Stock, the Award
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. Award has provided that opportunity to employees in the
past. To the extent required by Section 162(m), an option repriced under the
1997 Plan is deemed to be cancelled and a new option granted. Both the option
deemed to be cancelled and the new option deemed to be granted will be counted
against the 500,000 share individual calendar year limitation.
The exercise price of options granted under the 1997 Plan must be paid
either: (a) in cash at the time the option is exercised; (b) at the discretion
of the Award Board, (i) by delivery of other Common Stock of Award, (ii)
pursuant to a deferred payment arrangement; or (c) in any other form of legal
consideration acceptable to the Award Board.
OPTION EXERCISE. Options granted under the 1997 Plan may become exercisable
in cumulative increments ("vest") as determined by the Award Board. Shares
covered by options to be granted under the 1997 Plan may be subject to different
vesting terms but will typically vest at the rate of 25% on the first
anniversary of the date of grant with 1/48th per month thereafter (25% per year)
during the optionee's employment or service as a consultant. The Award Board has
the power to accelerate the time during which an option may be exercised. In
addition, options granted under the 1997 Plan may permit exercise prior to
vesting, but in such event the optionee may be required to enter into an early
exercise stock purchase agreement that allows Award to repurchase shares not yet
vested at their exercise price should the optionee leave the employ of Award
before vesting. To the extent provided by the terms of an option, an optionee
may satisfy any federal, state or local tax withholding obligation relating to
the exercise of such option by a cash payment upon exercise, by authorizing
Award to withhold a portion of the stock otherwise issuable to the optionee, by
delivering already-owned stock of Award or by a combination of these means.
TERM. The maximum term of options under the 1997 Plan is ten years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the 1997 Plan terminate three months after termination of the
optionee's employment or relationship as a consultant or director of Award or
any affiliate of Award, unless (a) such termination is due to such person's
permanent and total disability (as defined in the Code), in which case the
option may be exercised (to the extent the option was exercisable at the time of
the optionee's disability) within twelve months after such termination; (b) the
optionee dies while employed by or serving as a consultant or director of Award
or any affiliate of Award, or within a period specified in the option after
termination of such relationship, in which case the option may be exercised (to
the extent the option was exercisable at the time of the optionee's death)
within eighteen months after the optionee's death by the person or persons to
whom the rights to such option pass by will, by the laws of descent and
distribution, or by beneficiary designation; or (c) the option by its terms
specifically provides otherwise. Individual options by their terms may provide
for exercise within a longer or shorter period of time following termination of
employment or the consulting relationship. The option term may also be extended
in the event that exercise of the option within these periods is prohibited for
specified reasons.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1997 Plan or subject to
any option granted under the 1997 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the 1997 Plan and options
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to such plan, the maximum number of shares
which may be granted to an employee during any calendar year, and the class,
number of shares and price per share of stock subject to such outstanding
options.
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EFFECT OF CERTAIN CORPORATE EVENTS
The 1997 Plan provides that, in the event of a dissolution or liquidation of
Award, specified type of mergers or other corporate reorganizations or a change
in ownership of 50% or more of the combined voting power of Award's capital
stock, any surviving corporation will be required to either assume options
outstanding under the 1997 Plan or substitute similar options for those
outstanding under such plan. If any surviving corporation declines to assume or
continue options outstanding under the 1997 Plan, or to substitute similar
options, then the vesting of such options and the time during which such options
may be exercised will be accelerated in the case of optionees performing
services for Award and the options terminated if not exercised prior to the
corporate event; in the case of all other optionees, such options will be
terminated if not exercised prior to the corporate event.
DURATION, AMENDMENT AND TERMINATION
The Award Board may suspend or terminate the 1997 Plan without shareholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1997 Plan will terminate on the day before the tenth anniversary
of the date the Plan was approved by the Award Board or approved by the Award
shareholders, whichever is earlier.
The Award Board may also amend the 1997 Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
shareholders of Award to the extent shareholder approval is required to comply
with Rule 16b-3, Section 422 of the Code or any Nasdaq or securities exchange
listing requirements. The Award Board may submit any other amendment to the 1997
Plan for shareholder approval, including, but not limited to, amendments
intended to satisfy the requirements of Section 162(m) of the Code regarding the
exclusion of performance-based compensation from the limitation on the
deductibility of compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Under the 1997 Plan, an incentive stock option may not be transferred by the
optionee otherwise than by will or by the laws of descent and distribution and
during the lifetime of the optionee, may be exercised only by the optionee. A
nonstatutory stock option may not be transferred except by will or by the laws
of descent and distribution or pursuant to a domestic relations order, unless
otherwise provided in a stock option agreement. In any case, the optionee may
designate in writing a third party who may exercise the option in the event of
the optionee's death. In addition, shares subject to repurchase by Award under
an early exercise stock purchase agreement may be subject to restrictions on
transfer which the Award Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the 1997 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
Generally, there are no federal income tax consequences to the optionee or
Award by reason of the grant or exercise of an incentive stock option. However,
the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will realize taxable
ordinary income equal to the lesser of (a) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (b) the optionee's
actual gain, if any, on the purchase and sale. The
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<PAGE>
optionee's additional gain, or any loss, upon the disqualifying disposition will
be a capital gain or loss, which will be long-term, mid-term or short-term
depending on how long the optionee holds the stock. Capital gains currently are
generally subject to lower tax rates than ordinary income. Slightly different
rules may apply to optionees who acquire stock subject to certain repurchase
options or who are subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, Award will generally be entitled (subject to the
requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. There are no federal income tax consequences to
the optionee or Award by reason of the grant of a nonstatutory stock option.
Upon exercise of a nonstatutory stock option, the optionee normally will
recognize taxable ordinary income equal to the excess of the stock's fair market
value on the date of exercise over the option exercise price. Generally, with
respect to employees, Award is required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, the provisions of Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, Award will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the optionee. Upon disposition of the stock, the
optionee will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock plus any amount
recognized as ordinary income upon exercise of the option. Such gain or loss
will be long-term, mid-term or short-term depending on how long the optionee
holds the stock. Slightly different rules may apply to optionees who acquire
stock subject to certain repurchase options or who are subject to Section 16(b)
of the Exchange Act.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
certain employees in a taxable year to the extent that compensation exceeds
$1,000,000 for a covered employee. It is possible that compensation attributable
to awards under the 1997 Plan, when combined with all other types of
compensation received by a covered employee from Award, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m) of the Code,
compensation attributable to stock options will qualify as performance-based
compensation, provided that: (i) the stock option plan contains a per-employee
limitation on the number of shares for which stock options may be granted during
a specific period; (ii) the per-employee limitation is approved by the
shareholders; (iii) the award is granted by a compensation committee comprised
solely of "outside directors"; and (iv) the exercise price of the option is no
less than the fair market value of the stock on the date of grant. Options
granted under the 1997 Plan that have an exercise price at least equal to the
fair market value of Award's Common Stock on the date of grant should qualify as
performance-based compensation that is exempt from the $1,000,000 deduction
limitation.
PROPOSAL FOUR--AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN
In May 1996, the Award Board adopted and the shareholders subsequently
approved, the Employee Stock Purchase Plan (the "Purchase Plan"), and authorized
and reserved up to 150,000 shares of Award's Common Stock for issuance under the
plan. As of March 31, 1998, an aggregate of 72,391 shares had been issued under
the Purchase Plan and 77,609 shares remained for the grant of future rights
under the Purchase Plan.
In January 1998, the Award Board adopted, subject to shareholder approval,
an amendment to the Purchase Plan to increase the number of shares authorized
for issuance under the Purchase Plan by 200,000 shares for a total of 350,000
shares. This amendment is intended to afford Award the opportunity to continue
providing employees of Award and its affiliates with stock incentives and to
ensure that Award
117
<PAGE>
can continue to provide such incentives at levels determined appropriate by the
Board of Directors so as to retain the services of its employees, to secure and
retain the services of new employees and to provide incentives for such persons
to exert maximum efforts for the success of Award. During the last fiscal year,
shares were purchased in the amounts and at the weighted average prices per
share under the Purchase Plan as follows: an aggregate of 72,391 shares at a
weighted average price of $8.08 per share; 6,246 shares at a weighted average
price of $7.97 to all Award Named Executive Officers as a group; and 66,145
shares at a weighted average price of $8.09 to all employees (excluding such
Named Executive Officers) as a group.
Shareholders are requested in this proposal to approve the Purchase Plan, as
amended (the "Purchase Plan Proposal"). The affirmative vote of the holders of a
majority of the shares present in person or represented by proxy and entitled to
vote at the meeting will be required to approve the Purchase Plan, as amended.
THE AWARD BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
The essential features of the Purchase Plan are outlined below:
PURPOSE
The Purchase Plan provides a means by which employees of Award (and any
parent or subsidiary of Award designated by the Award Board to participate in
the Purchase Plan) may be given an opportunity to purchase Common Stock of Award
through payroll deductions (and other additional payments specifically provided
for by the Board), to assist Award in retaining the services of its employees,
to secure and retain the services of new employees, and to provide incentives
for such persons to exert maximum efforts for the success of Award. All of
Award's employees who have been in the continuous employment of Award for such
period as shall be specified in each offering (but in any event less than two
years) are eligible to participate in the Purchase Plan.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Code.
ADMINISTRATION
The Purchase Plan is administered by the Award Board, which has the final
power to construe and interpret the Purchase Plan and the rights granted under
it.
OFFERINGS
The Purchase Plan is implemented by offering periods lasting no longer than
twenty seven (27) months (an "offering").
ELIGIBILITY
Any person who is customarily employed at least twenty (20) hours per week
and five (5) months per calendar year by Award (or by any parent or subsidiary
of Award designated from time to time by the Board) on the first day of an
offering is eligible to participate in that offering under the Purchase Plan,
provided such employee has been in the continuous employ of Award for such
period as shall be specified in the offering (but in any event less than two
years).
Notwithstanding the foregoing, no employee is eligible for the grant of any
rights under the Purchase Plan if, immediately after such grant, the employee
would own, directly or indirectly, stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of Award or of
any parent or subsidiary of Award (including any stock which such employee may
purchase under all outstanding rights and options), nor will any employee be
granted rights under this Plan that would permit such employee's rights to
purchase common stock to accrue at a rate which exceeds twenty five thousand
118
<PAGE>
dollars ($25,000) worth of such stock (determined at the fair market value of
the shares at the time such rights are granted) for each calendar year under all
employee stock purchase plans of Award.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the Purchase Plan by delivering to
Award, prior to the date selected by the Award Board as the offering date for
the offering, a participation agreement authorizing payroll deductions of up to
a maximum percentage designated by the Award Board not exceeding fifteen percent
(15%) of such employees' earnings (as defined in the offering).
PURCHASE PRICE
The purchase price per share at which shares are sold in an offering under
the Purchase Plan shall be the lower of (a) 85% of the fair market value of a
share of Award Common Stock on the date of commencement of the offering or (b)
85% of the fair market value of a share of Award Common Stock on the specified
purchase date.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering period. A participant may reduce or increase his or her
participation level during an offering period, as provided in the offering.
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, the employee
is entitled to purchase shares under such plan. In connection with offerings
made under the Purchase Plan, the maximum number of shares any employee may
purchase during each calendar year during an offering shall be the number of
shares as has a fair market value (determined as of the first day of the
offering period, equal to (i) $25,000 multiplied by the number of calendar years
in which the right under such offering has been outstanding at any time, minus
(ii) the fair market value of any shares of Award Common Stock (determined as of
the relevant offering date with respect to such shares), purchased in all such
calendar years under the Purchase Plan and other employee stock purchase plans
of Award. Furthermore, if the aggregate number of shares to be purchased upon
exercise of rights granted in the offering would exceed the maximum aggregate
number which may be purchased by all participants pursuant to the offering, the
Award Board will make a pro rata allocation of shares available in a uniform and
equitable manner. Unless the employee's participation is discontinued, his right
to purchase shares is exercised automatically at the end of the purchase period
at the applicable price. See "Withdrawal" below.
WITHDRAWAL
While each participant in the Purchase Plan is required to sign an agreement
authorizing payroll deductions, the participant may withdraw from a given
offering by terminating his or her payroll deductions and by delivering to Award
a notice of withdrawal from the Purchase Plan. Such withdrawal may be elected at
any time prior to the end of an offering except as provided by the Award Board
in such offering.
Upon any withdrawal from an offering by an employee, Award will distribute
to the employee his or her accumulated payroll deductions without interest, less
any accumulated deductions previously applied to the purchase of stock on the
employee's behalf during such offering, and such employee's interest in the
offering will be automatically terminated.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Purchase Plan terminate
immediately upon cessation of an employee's employment for any reason, and Award
will distribute to such employee all of his or her accumulated payroll
deductions, without interest.
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<PAGE>
RESTRICTIONS ON TRANSFER
Rights granted under the Purchase Plan are not transferable otherwise than
by will or the laws of descent and distribution, or by a beneficiary
designation, which beneficiary shall receive any shares and cash in the event of
the participant's death prior to the end of the offering, and may be exercised
only by the person to whom such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Award Board may suspend or terminate the Purchase Plan at any time.
Unless terminated earlier, such plan will terminate at the time that all of the
shares subject to the Purchase Plan's share reserve, as increased and/or
adjusted from time to time, have been issued under the terms of the Purchase
Plan.
The Award Board may amend the Purchase Plan at any time. Any amendment of
the Award Purchase Plan must be approved by the Award shareholders within 12
months of its adoption by the Award Board if the amendment would (a) increase
the number of shares of Award Common Stock reserved for issuance under the
Purchase Plan, (b) modify the requirements relating to eligibility for
participation in the Purchase Plan, or (c) modify any other provision of the
Purchase Plan if such modification requires Award shareholder approval to obtain
employee stock purchase plan treatment under Section 423 of the Code or to
comply with Rule 16b-3 promulgated under the Exchange Act, as amended.
Rights granted before amendment or termination of the Purchase Plan will not
be altered or impaired by any amendment, suspension or termination of such plan,
except as expressly provided in the Purchase Plan or with consent of the person
to whom such rights were granted, or except as necessary to ensure that the
Purchase Plan and/or rights granted under the Purchase Plan comply with any
laws, governmental regulation, or the requirements of Section 423 of the Code.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution or liquidation of Award, a merger or
consolidation in which Award is not the surviving corporation, a reverse merger
in which Award is the surviving corporation but the shares of Award Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, or any other capital reorganization in which more than 50% of the
shares of Award entitled to vote are exchanged, then, as determined by the Award
Board in its sole discretion, any successor corporation may assume such
outstanding rights or substitute similar rights for those outstanding under the
Purchase Plan, such rights may continue in full force and effect, or
participants' accumulated payroll deductions may be used to purchase Award
Common Stock immediately prior to the transaction described above and the
participant's rights under the ongoing offering terminated.
SHARES SUBJECT TO THE PURCHASE PLAN
If rights granted under the Purchase Plan expire, lapse or otherwise
terminate without being exercised, the Award Common Stock not purchased under
such rights again becomes available for issuance under such plan. The stock
subject to the Purchase Plan may be unissued shares or reacquired shares, bought
on the market or otherwise.
FEDERAL INCOME TAX INFORMATION
Rights granted under the Purchase Plan are intended to qualify for favorable
federal income tax treatment associated with rights granted under an employee
stock purchase plan which qualifies under provisions of Section 423 of the Code.
If the stock is disposed of at least two years after the beginning of the
offering period and at least one year after the stock is transferred to the
participant, then the lesser of (a) the excess of the fair market value of the
stock at the time of such disposition over the purchase price or (b) an amount
equal to fifteen percent (15%) of the fair market value of the shares on the
first day of the applicable offering period will
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<PAGE>
be treated as ordinary income. Any further gain or any loss will be taxed as a
capital gain or loss. Capital gains currently are generally subject to lower tax
rates than ordinary income.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the purchase date over the purchase price will be treated as ordinary
income at the time of such disposition, and Award may, in the future, be
required to withhold income taxes relating to such ordinary income from other
payments made to the participant. The balance of any gain will be treated as
capital gain. Even if the stock is later disposed of for less than its fair
market value on the purchase date, the same amount of ordinary income is
attributed to the participant, and a capital loss is recognized equal to the
difference between the sales price and the fair market value of the stock on
such purchase date. Any capital gain or loss will be long-term, mid-term or
short-term depending on the length of time the stock has been held.
There are no federal income tax consequences to Award by reason of the grant
or exercise of rights under the Purchase Plan. Award is entitled to a deduction
to the extent amounts are taxed as ordinary income to a participant (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation).
PROPOSAL 5--RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Award Board has selected Price Waterhouse LLP as Award's independent
accountants for the fiscal year ending December 31, 1998 and has further
directed that management submit the selection of independent accountants for
ratification by the shareholders at the Award Annual Meeting. Price Waterhouse
LLP audited Award's financial statements in 1997. Representatives of Price
Waterhouse LLP are expected to be present at the Award Annual Meeting, will have
an opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
Shareholder ratification of the selection of Price Waterhouse LLP as Award's
independent accountants is not required by Award's Bylaws or otherwise. However,
the Award Board is submitting the selection of Price Waterhouse LLP to the
shareholders for ratification as a matter of good corporate practice. If the
shareholders fail to ratify the selection, the Audit Committee and the Award
Board will reconsider whether or not to retain that firm. Even if the selection
is ratified, the Audit Committee and the Award Board in their discretion may
direct the appointment of different independent accountants at any time during
the year if they determine that such a change would be in the best interests of
Award and its shareholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and voting at the Award Annual Meeting will be
required to ratify the selection of Price Waterhouse LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 5.
OTHER MATTERS
The Award Board knows of no other matters that will be presented for
consideration at the Award Annual Meeting. If any other matters are properly
brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
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<PAGE>
LEGAL MATTERS
The validity of the shares of Phoenix Common Stock to be issued in
connection with the Merger and the federal income tax consequences of the Merger
will be passed upon for Phoenix by Wilson Sonsini Goodrich & Rosati Professional
Corporation, Palo Alto, California. Certain federal income tax consequences of
the Merger will be passed upon for Award by Cooley Godward LLP, Palo Alto,
California.
EXPERTS
The consolidated financial statements of Phoenix Technologies Ltd. appearing
in Phoenix Technologies' Annual Report (Form 10-K) for the year ended September
30, 1997, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Award Software International, Inc.
as of December 31, 1996 and 1997 and for each of the three years in the period
ended December 31, 1997 included in this Joint Proxy Statement/Prospectus have
been so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
REPRESENTATIVES OF INDEPENDENT ACCOUNTANTS
Representatives of Ernst & Young LLP are expected to be present at the
Phoenix Special Meeting and will have the opportunity to make a statement and
are expected to be available to respond to appropriate questions.
Representatives of Price Waterhouse LLP are expected to be present at the
Award Annual Meeting and said representatives will have the opportunity to make
a statement if they should desire to do so and they are expected to be available
to respond to appropriate questions.
STOCKHOLDERS' AND SHAREHOLDERS' PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, Phoenix stockholders may
present proper proposals for inclusion in Phoenix's proxy statement and for
consideration at the next annual meeting of its stockholders by submitting such
proposals to Phoenix in a timely manner. As noted in Phoenix's proxy statement
relating to its 1998 Annual Meeting of Stockholders, in order to be so included
for the 1999 annual meeting, stockholder proposals must be received by Phoenix
no later than September 1, 1998, and must otherwise comply with the requirements
of Rule 14a-8.
Pursuant to Rule 14a-8 under the Exchange Act, Award shareholders may
present proper proposals for inclusion in Award's proxy statement and for
consideration at the next annual meeting of its shareholders by submitting such
proposals to Award in a timely manner. As noted in Award's proxy statement
relating to its 1998 Annual Meeting of Shareholders, in order to be so included
for the 1999 annual meeting, in the event that the Merger has not been
consummated prior thereto, shareholder proposals must have been received by
Award no later than January 31, 1999, and must otherwise have complied with the
requirements of Rule 14a-8.
122
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Price Waterhouse LLP, Independent Accountants.................................................... F-2
Consolidated Balance Sheet as of December 31, 1996, December 31, 1997, March 31, 1998 (unaudited).......... F-3
Consolidated Statement of Income for the Years Ended December 31, 1995, 1996 and 1997 and for the three
months ended March 31, 1997 and 1998 (unaudited)......................................................... F-4
Consolidated Statement of Shareholders' Equity for the Years Ended December 31, 1995, 1996 and 1997 and for
the three months ended March 31, 1997 and 1998 (unaudited)............................................... F-5
Consolidated Statement of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997 and for the three
months ended March 31, 1997 and 1998 (unaudited)......................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Award Software International, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Award Software
International, Inc., and its subsidiaries at December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
[LOGO]
PRICE WATERHOUSE LLP
San Jose, California
January 29, 1998
F-2
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 23,248 $ 24,631 $ 25,604
Accounts receivable, net..................................................... 2,068 4,256 4,671
Accounts receivable from related parties..................................... 1,197 747 770
Deferred income taxes........................................................ 131 483 483
Other current assets......................................................... 467 1,698 1,718
--------- --------- -----------
Total current assets....................................................... 27,111 31,815 33,246
Property and equipment, net.................................................... 683 1,367 1,370
Other assets................................................................... 616 1,199 1,493
--------- --------- -----------
$ 28,410 $ 34,381 $ 36,109
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 215 $ 449 $ 358
Accrued liabilities.......................................................... 3,104 3,950 4,381
--------- --------- -----------
Total current liabilities.................................................. 3,319 4,399 4,739
Minority interest.............................................................. -- 170 191
--------- --------- -----------
3,319 4,569 4,930
--------- --------- -----------
Commitments (Note 10)
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized; no par value; no shares issued
or outstanding............................................................. -- -- --
Common stock, 40,000,000 shares authorized; no par value; 6,538,951,
6,941,846 and 7,130,487 shares issued and outstanding...................... 21,269 22,571 22,643
Deferred stock compensation.................................................... (180) (106) (88)
Retained earnings.............................................................. 4,130 8,320 9,468
Accumulated other comprehensive income:
Cumulative translation adjustment............................................ (128) (973) (844)
--------- --------- -----------
Total shareholders' equity............................................... 25,091 29,812 31,179
--------- --------- -----------
$ 28,410 $ 34,381 $ 36,109
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees...................................... $ 6,989 $ 11,721 $ 19,502 $ 4,036 $ 5,261
Engineering services....................................... 239 472 2,366 347 679
Related parties............................................ 1,902 1,878 1,499 645 466
--------- --------- --------- --------- ---------
Total revenues........................................... 9,130 14,071 23,367 5,028 6,406
--------- --------- --------- --------- ---------
Cost of revenues:
Software license fees...................................... 387 521 1,828 229 371
Engineering services....................................... 43 131 686 85 212
Related parties............................................ 206 328 76 26 17
--------- --------- --------- --------- ---------
Total cost of revenues................................... 636 980 2,590 340 600
--------- --------- --------- --------- ---------
Gross profit................................................. 8,494 13,091 20,777 4,688 5,806
--------- --------- --------- --------- ---------
Operating expenses:
Research and development................................... 2,751 4,198 6,571 1,661 1,635
Sales and marketing........................................ 2,282 2,855 4,963 1,041 1,772
General and administrative................................. 1,600 2,077 3,602 888 1,072
--------- --------- --------- --------- ---------
Total operating expenses................................. 6,633 9,130 15,136 3,590 4,479
--------- --------- --------- --------- ---------
Income from operations....................................... 1,861 3,961 5,641 1,098 1,327
Interest expense............................................. (9) (6) (33) -- --
Interest and other income.................................... 105 552 1,167 261 339
Minority interest............................................ -- -- 7 -- (26)
--------- --------- --------- --------- ---------
Income before income taxes................................... 1,957 4,507 6,782 1,359 1,640
Provision for income taxes................................... 792 1,622 2,102 467 492
--------- --------- --------- --------- ---------
Net income................................................... $ 1,165 $ 2,885 $ 4,680 $ 892 $ 1,148
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic net income per share................................... $ 0.28 $ 0.54 $ 0.68 $ 0.13 $ 0.16
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares............................... 4,136 5,335 6,867 6,792 6,963
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted net income per share................................. $ 0.25 $ 0.47 $ 0.61 $ 0.12 $ 0.15
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common and common equivalent shares......... 4,650 6,095 7,705 7,701 7,670
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK DEFERRED CUMULATIVE
------------------- STOCK RETAINED TRANSLATION COMPREHENSIVE
SHARES AMOUNT COMPENSATION EARNINGS ADJUSTMENT INCOME TOTAL
--------- -------- ------------ -------- ---------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994................. 3,841,801 $ 1,627 -- $ 80 $ (12) $ 1,695
Issuance of Common Stock and warrants, net of
issuance costs of $165..................... 1,166,669 6,837 -- -- -- 6,837
Repurchase of Common Stock................... (499,687) (2,998) -- -- -- (2,998)
Exercise of Common Stock warrants............ 70,000 70 -- -- -- 70
Exercise of Common Stock options............. 7,500 8 -- -- -- 8
Warrants issued for services................. -- 374 -- -- -- 374
Deferred stock compensation.................. -- 297 (297) -- -- --
Amortization of deferred stock compensation.. -- -- 42 -- -- 42
Comprehensive Income:
Net Income................................. -- -- -- 1,165 -- $1,165 1,165
Currency Translation Adjustment............ -- -- -- -- (24) (24) (24)
------
Comprehensive Income......................... -- -- -- -- -- $1,141 --
--------- -------- ------ -------- ---------- ------ -------
------
Balance at December 31, 1995................. 4,586,283 6,215 (255) 1,245 (36) 7,169
Issuance of Common Stock and warrants, net of
issuance costs of $79...................... 801,180 9,573 -- -- -- 9,573
Repurchase of Common Stock................... (250,000) (2,500) -- -- -- (2,500)
Exercise of Common Stock warrants............ 107,500 108 -- -- -- 108
Initial public offering, net of issuance
costs of $2,172............................ 1,250,000 7,828 -- -- -- 7,828
Exercise of Common Stock options............. 43,988 45 -- -- -- 45
Amortization of deferred stock compensation.. -- -- 75 -- -- 75
Comprehensive Income:
Net Income................................. -- -- -- 2,885 -- $2,885 2,885
Currency Translation Adjustment............ -- -- -- -- (92) (92) (92)
------
Comprehensive Income......................... -- -- -- -- -- $2,793 --
--------- -------- ------ -------- ---------- ------ -------
------
Balance at December 31, 1996................. 6,538,951 21,269 (180) 4,130 (128) 25,091
Issuance of Common Stock, net................ 72,391 482 -- -- -- 482
Tax benefits related to disqualifying
dispositions of stock options.............. -- 622 -- -- -- 622
Pooling of interests with Unicore............ 218,571 35 -- (490) -- (455)
Exercises of Common Stock options............ 111,933 163 -- -- -- 163
Amortization of deferred stock compensation.. -- -- 74 -- -- 74
Comprehensive Income:
Net Income................................. -- -- -- 4,680 -- $4,680 4,680
Currency Translation Adjustment............ -- -- -- -- (845) (845) (845)
------
Comprehensive Income......................... -- -- -- -- -- $3,835 --
--------- -------- ------ -------- ---------- ------ -------
------
Balance at December 31, 1997................. 6,941,846 22,571 (106) 8,320 (973) 29,812
Exercises of Common Stock warrants
(unaudited)................................ 122,500 -- -- -- -- --
Exercises of Common Stock options
(unaudited)................................ 66,141 72 -- -- -- 72
Amortization of deferred stock compensation
(unaudited)................................ -- -- 18 -- -- 18
Comprehensive Income:
Net Income (unaudited)..................... -- -- -- 1,148 -- $1,148 1,148
Currency Translation Adjustment
(unaudited).............................. -- -- -- -- 129 129 129
------
Comprehensive Income (unaudited)............. -- -- -- -- -- $1,277 --
--------- -------- ------ -------- ---------- ------ -------
------
Balance at March 31, 1998 (unaudited)........ 7,130,487 $22,643 $ (88) $9,468 $ (844) $31,179
--------- -------- ------ -------- ---------- -------
--------- -------- ------ -------- ---------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 1,165 $ 2,885 $ 4,680 $ 892 $ 1,148
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................ 132 223 706 129 284
Deferred income taxes.................................... (143) 130 (352) -- --
Warrants issued for services............................. 374 -- -- -- --
Deferred stock compensation.............................. 42 75 74 19 18
Minority interest........................................ -- -- 170 -- 21
Changes in assets and liabilities, net of acquisition:
Accounts receivable, net............................... (40) (1,057) (2,396) (157) (441)
Accounts receivable from related parties............... (1,205) (347) 449 270 (22)
Other current assets................................... 138 (539) (1,221) (40) (21)
Other assets........................................... 24 (211) (53) (76) (184)
Accounts payable....................................... 49 24 160 167 (103)
Accrued liabilities.................................... 899 1,372 821 (1,087) 482
--------- --------- --------- --------- ---------
Net cash provided by operating activities............ 1,435 2,555 3,038 117 1,182
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment......................... (147) (579) (1,170) (192) (178)
Capitalized software development costs..................... -- (209) (613) (141) (230)
--------- --------- --------- --------- ---------
Net cash used in investing activities................ (147) (788) (1,783) (333) (408)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from Common Stock issuances................... 6,837 17,401 482 35 72
Proceeds from exercise of options and warrants............. 78 153 163 -- --
Repurchases of Common Stock................................ (2,998) (2,500) -- -- --
Repayments under note obligations.......................... (73) -- (390) -- --
--------- --------- --------- --------- ---------
Net cash provided by financing activities............ 3,844 15,054 255 35 72
--------- --------- --------- --------- ---------
Effect of exchange rate changes on cash.................... (8) (71) (585) (53) 127
--------- --------- --------- --------- ---------
Net increase in cash and cash equivalents.................. 5,124 16,750 925 (234) 973
Cash and cash equivalents at beginning of period........... 1,374 6,498 23,706 23,706 24,631
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period................. $ 6,498 $ 23,248 $ 24,631 $ 23,472 $ 25,604
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest..................................... $ 10 $ 6 $ 33 $ 11 $ --
Cash paid for income taxes................................. $ 282 $ 996 $ 2,300 $ 785 $ 112
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION AND BUSINESS
THE COMPANY
Award Software International, Inc. ("Award" or the "Company") designs,
develops and markets system management software for the global computing market.
System management software is one of the fundamental layers in personal computer
("PC") architecture and provides an essential interface between a PC's operating
system software and its hardware.
The Company's principal system management software products include a suite
of Basic Input/Output System software ("BIOS"). Award's customers include
designers and manufacturers of motherboards, PC systems and other
microprocessor-based (or "embedded") devices. The Company was incorporated in
California, in 1983, and operates in one business segment through its
headquarters facility in Mountain View, California, a branch office in Irvine,
California, a wholly owned subsidiary in North Andover, Massachusetts, a branch
office in Munich, Germany, a joint venture in Yokohama, Japan and a wholly owned
subsidiary in Hong Kong with a branch office in Taipei, Taiwan. On October 25,
1996, the Company completed its initial public offering of Common Stock.
MERGER AND ACQUISITION
On February 21, 1997, the Company acquired certain assets of Willows
software ("Willows acquisition") for $400 cash, direct acquisition costs of $40
and the assumption of liabilities totaling $44. The purchase price was allocated
based upon the estimated fair market value of identifiable tangible and
intangible assets and liabilities assumed, including $289 to in-process research
and development. The amount allocated to in-process research and development
relates to acquired development projects that had not reached technological
feasibility at the acquisition date and had no alternative future use.
In May 1997, the Company merged with Unicore Software, Inc. ("Unicore"), a
privately held company providing basic input/output software upgrades for
personal computers and embedded systems. Under the terms of the Agreement and
Plan of Merger and Reorganization, the Company issued 218,571 shares of Common
Stock for all of the outstanding stock of Unicore in a transaction accounted for
as a pooling of interests. The historical operations of Unicore were not
material and, as a result, the business combination has been reported by
restating the Company's consolidated financial statements to include the
consolidated financial statements of Unicore effective January 1, 1997.
FORMATION OF JOINT VENTURE
In April 1997, the Company entered into an agreement with Sun Corporation
("Sun"), a shareholder, and Axis Corporation ("Axis") to establish a
majority-owned subsidiary, Award Software Japan KK ("Award Japan"). The
objective of Award Japan is to market and distribute the Company's products in
Japan. The Company, Sun and Axis contributed approximately $310, $95 and $95 for
62%, 19% and 19% ownership of Award Japan, respectively.
GCH ACQUISITION
On July 2, 1993, GCH Systems, Inc. ("GCH"), an independent developer of
microcomputers and application-specific integrated circuits, acquired 100
percent of Award's outstanding Common Stock for $1,905, consisting of $725 in
cash and the assumption of $1,180 in liabilities. From the acquisition date
F-7
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
1. ORGANIZATION AND BUSINESS (CONTINUED)
through December 30, 1994, Award operated as a wholly owned subsidiary of GCH.
On December 31, 1994, Award and GCH became separate companies through a spinoff
of 100 percent of Award's Common Stock on a pro rata basis to GCH shareholders.
Award and GCH have certain common members on their Boards of Directors. Award
and GCH, from time to time have made non-interest-bearing cash advances to each
other for working capital purposes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
Award Software International, Inc., its wholly owned subsidiaries and the
Company's 62% ownership of Award Japan. All inter-company accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company's revenues are derived primarily from software license fees and
non-recurring engineering services. Software license fees are recognized upon
delivery of the product, fulfillment of acceptance terms, if any, and
satisfaction of any significant support obligations. The Company's normal sales
terms are net 30 days and return privileges are not offered or provided to any
customers. Payments received in advance of revenue recognition are recorded as
deferred revenue. Engineering services revenue primarily consist of amounts
charged for customization of the software and are generally recognized as the
services are performed. Amounts received under engineering contracts that
require software delivery are deferred until delivery and customer acceptance
occur. Related parties revenues include software licenses and non-recurring
engineering services to holders of the Company's Common Stock and Common Stock
warrants.
The Company does not offer separate post-contract customer support
contracts, and due to the nature of the Company's product offerings, has not
incurred any significant post-sale warranty or support obligations. The costs of
insignificant support obligations are accrued at the time of revenue
recognition. Allowances for uncollectible amounts and warranties are recorded in
the same period as the related revenues based upon the Company's historical
experience.
In October 1997, the AICPA issued Statement of Position 97-2 ("SOP 97-2"),
"Software Revenue Recognition," which the Company has adopted for transactions
entered during the year beginning January 1, 1998. SOP 97-2 provides guidance
for recognizing revenue on software transactions and supersedes SOP 97-1,
"Software Revenue Recognition." In March 1998, the AICPA issued Statement of
Position No. 98-4 ("SOP 98-4"), "Deferral of the Effective Date of a Provision
of SOP 97-2, Software Revenue Recognition." SOP 98-4 defers, for one year, the
application of certain passages in SOP 97-2 which limit what is considered
vendor-specific objective evidence ("VSOE") necessary to recognize
F-8
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
revenue for software licenses in multiple-element arrangements when undelivered
elements exist. Additional guidance is expected to be provided prior to adoption
of the deferred provision SOP 97-2. The Company will determine the impact, if
any, the additional guidance will have on current revenue recognition practices
when issued. Adoption of the remaining provisions of SOP 97-2 did not have a
material impact on revenue recognition during the first quarter of 1998.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist principally of time deposits and money-market deposit accounts that are
stated at cost, which approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets, which range from three to five years.
SOFTWARE DEVELOPMENT COSTS
Costs incurred in the research and development of new products and
enhancements to existing products are charged to expense as incurred until the
technological feasibility of the product or enhancement has been established.
After establishing technological feasibility through the development of a
working model, any additional costs incurred through the date the product is
available for general release, if any, are capitalized and amortized over the
estimated life, generally three years, using the greater of the amounts
determined using the straight-line method or the ratio of current period product
revenues over total estimated product revenues. Capitalized software development
costs are included in other assets in the accompanying financial statements.
Amortization of capitalized software development costs totaled $18, $22, $207,
$48 and $129 for the three years ended December 31, 1995, 1996, 1997 and for the
three month periods ended March 31, 1997 and 1998, respectively.
GOODWILL
Goodwill resulting from the acquisition of Award Common Stock by GCH is
included in other assets at December 31, 1997 and 1996, and is being amortized
using the straight line method over five years.
INCOME TAXES
Income taxes are accounted for using an asset and liability approach in
accordance with SFAS No. 109, "Accounting for Income Taxes." The asset and
liability approach requires the recognition of taxes payable or refundable for
the current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. The measurement of current and deferred tax
liabilities and assets are based on provisions of the enacted tax law; the
effects of future changes in tax laws or rates are not anticipated. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.
F-9
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The Company's operations in Taiwan, Hong Kong, Japan and Germany use the
local currencies as their functional currencies. Accordingly, all assets and
liabilities of these entities are translated at the current exchange rate in
effect at the balance sheet date and revenues and expenses are translated at the
average exchange rates in effect during the reporting period. Gains and losses
resulting from foreign currency translation are recorded directly into a
separate component of shareholders' equity. Foreign currency transaction gains
and losses were immaterial for all periods presented.
NET INCOME PER SHARE
Basic net income per share is computed by dividing net income available to
Common Shareholders by the weighted average number of common shares outstanding
during the period. Diluted net income per share is calculated using the weighted
average number of outstanding shares of Common Stock plus dilutive Common Stock
equivalents. Common Stock equivalents consist of common stock options and
warrants, using the treasury stock method based on the average stock price for
the period.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
Comprehensive income is defined as the change in equity of a company from
transactions, other events and circumstances excluding transactions resulting
from investments by owners and distributions to owners. The primary difference
between net income and comprehensive income, for the Company, is from foreign
currency translation adjustments.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of APB No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, compensation cost
is recognized based on the difference, if any, between the quoted market price
of the Company's stock on the date of grant and the amount an employee must pay
to acquire the stock.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures About
Segments of an Enterprise and Related Information." SFAS No. 131 supersedes SFAS
No. 14 and requires segment information to be reported on the basis that is used
entirely for evaluating segment performance and deciding how to allocate
resources to segments in quarterly and annual reports. SFAS No. 131 is effective
for annual reports for fiscal years beginning after December 15, 1997, and is
applicable to interim financial statements beginning with the second year of
application. The Company believes that the effect of adopting the new standards
will not be material to its consolidated financial statements.
F-10
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The accompanying consolidated balance sheet as of March 31, 1997 and 1998
and the consolidated statements of operations and of cash flows for the three
months ended March 31, 1997 and 1998 and the consolidated statement of
shareholders' equity for the three months ended March 31, 1998, are unaudited.
In the opinion of management, these statements have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of the results of the interim periods. The financial and other
data disclosed in these notes to the consolidated financial statements for these
periods are also unaudited.
Comprehensive income for the three months ended March 31, 1997 and 1998 is
$832 and $1,277, respectively.
3. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of bank deposits and accounts
receivable. The Company places its cash and cash equivalents in checking and
market rate accounts with two major financial institutions and has not incurred
any losses related to these investments.
The Company markets its products to OEMs in the personal computer market,
designers of motherboards and other microprocessor-embedded system manufacturers
and, as a result, maintains individually significant receivable balances from
major customers located throughout the world. The Company performs ongoing
credit evaluations of its customers' financial condition and maintains an
allowance for uncollectible accounts receivable based on the expected
collectability of all accounts receivable.
The following table summarizes the net accounts receivable from customers
located in the following geographic areas:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
United States................................................ $ 327 $ 2,074 $ 2,335
Asia Pacific................................................. 1,669 2,100 2,147
Europe....................................................... 72 82 189
--------- --------- -----------
$ 2,068 $ 4,256 $ 4,671
--------- --------- -----------
--------- --------- -----------
</TABLE>
All related party receivables are from United States customers. One customer
accounted for 26.1% of accounts receivable at December 31, 1996. No customer
accounted for over 10.0% of accounts receivable at December 31, 1997 and March
31, 1998.
F-11
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
4. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE:
Accounts receivable.......................................... $ 2,183 $ 4,345 $ 4,760
Less: allowance for doubtful accounts........................ (115) (89) (89)
--------- --------- -----------
$ 2,068 $ 4,256 $ 4,671
--------- --------- -----------
--------- --------- -----------
PROPERTY AND EQUIPMENT:
Computer equipment........................................... $ 796 $ 1,453 1,550
Office equipment............................................. 124 334 341
Furniture and fixtures....................................... 102 381 445
--------- --------- -----------
1,022 2,168 2,336
Less accumulated depreciation................................ (339) (801) (966)
--------- --------- -----------
$ 683 $ 1,367 $ 1,370
--------- --------- -----------
--------- --------- -----------
OTHER ASSETS:
Goodwill..................................................... $ 265 $ 265 $ 265
Capitalized software......................................... 344 1,346 1,576
Other........................................................ 263 104 310
--------- --------- -----------
872 1,715 2,151
Less accumulated amortization:
Goodwill................................................... (186) (239) (252)
Capitalized software....................................... (70) (277) (406)
--------- --------- -----------
$ 616 $ 1,199 $ 1,493
--------- --------- -----------
--------- --------- -----------
ACCRUED LIABILITIES:
Salaries and benefits........................................ $ 584 $ 1,195 $ 1,280
Royalties.................................................... 90 543 --
Income taxes payable......................................... 1,160 1,686 1,794
Deferred revenue............................................. 615 195 429
Other........................................................ 655 331 878
--------- --------- -----------
$ 3,104 $ 3,950 $ 4,381
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-12
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
5. NET INCOME PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted net income per share calculations for 1995, 1996, 1997 and for
the three months ended March 31, 1997 and 1998 :
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1996 1997 1997 1998
- ---------------------------------------- --------- ------------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BASIC NET INCOME PER SHARE
Net income available to Common
Shareholders.......................... $ 1,165 $ 2,885 $ 4,680 $ 892 $ 1,148
--------- ------ --------- --------- ---------
--------- ------ --------- --------- ---------
Weighted average common shares.......... 4,136 5,335 6,867 6,792 6,963
--------- ------ --------- --------- ---------
--------- ------ --------- --------- ---------
Basic net income per share.............. $ 0.28 $ 0.54 $ 0.68 $ 0.13 $ 0.16
--------- ------ --------- --------- ---------
--------- ------ --------- --------- ---------
DILUTED NET INCOME PER SHARE
Net income available to Common
Shareholders.......................... $ 1,165 $ 2,885 $ 4,680 $ 892 $ 1,148
--------- ------ --------- --------- ---------
--------- ------ --------- --------- ---------
Weighted average common shares.......... 4,136 5,335 6,867 6,792 6,963
Dilutive common stock equivalents....... 514 760 838 909 707
--------- ------ --------- --------- ---------
Weighted average common shares and
equivalents........................... 4,650 6,095 7,705 7,701 7,670
--------- ------ --------- --------- ---------
--------- ------ --------- --------- ---------
Diluted net income per share............ $ 0.25 $ 0.47 $ 0.61 $ 0.12 $ 0.15
--------- ------ --------- --------- ---------
--------- ------ --------- --------- ---------
</TABLE>
During 1995, 1996, 1997 and for the three months ended March 31, 1997 and
1998, options to purchase 0, 180,062, 32,699, 0 and 848,585 shares of Common
Stock, respectively, were antidilutive and excluded from the dilutive net income
per share calculations because the options' exercise price was greater than the
average market price of the common shares.
6. SHAREHOLDERS' EQUITY
In December 1994, in exchange for marketing services, the Company granted
80,000 Common Stock warrants with an exercise price of $1.00 per share to
holders of approximately 16.1% of the Company's Common Stock at December 31,
1995. The warrants had a nominal value when granted and were exercised in
November 1995.
In October 1994, the Company granted 200,000 Common Stock warrants to a
customer under a software licensing agreement. The warrants were deemed to have
a nominal value on the date of grant. The warrants have an exercise price of
$1.00 per share and are exercisable at any time through March 31, 1998. During
the period from October 1994 through June 1995, the customer earned 45,500 of
the Common Stock warrants based on purchasing volumes. In July 1995, to solidify
the Company's long-term relationship with the customer, the Company issued the
remaining 154,500 warrants to the customer and recorded the difference between
the estimated fair market value and the exercise price of the warrants of
approximately $283 as sales and marketing expense. In July 1996, 77,500 of these
warrants were exercised,
F-13
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
resulting in proceeds totaling $78. In March 1998, 122,500 shares of Common
Stock were issued for the remaining warrants outstanding.
In June 1995, the Company granted 20,000 Common Stock warrants with an
exercise price of $1.00 per share to a holder of approximately 0.4% of the
Company's Common Stock at the time of grant in exchange for marketing services.
The warrants are exercisable at any time up to the later of (i) June 15, 1998 or
(ii) the six month anniversary of the closing of an initial public offering. The
Company recorded the difference between the estimated fair market value and the
exercise price of the warrants of approximately $36 as sales and marketing
expense. The warrants were exercised in December 1995.
In connection with the issuance of shares of Common Stock in 1995, the
Company issued 123,333 Common Stock warrants with an exercise price of $1.00 per
share for $0.02 per warrant. The warrants are exercisable at any time up to
September 30, 2000. No proceeds were separately allocated to the warrants.
During January and February 1996, the Company repurchased 250,000 shares of
Common Stock from existing shareholders at a price of $10.00 per share.
In connection with the issuance and sale of 570,033 shares of Common Stock
in January 1996, the Company issued 272,394 Common Stock warrants with an
exercise price of $12.28 per share for $0.02 per warrant. The warrants are
exercisable at any time up to September 30, 2000. No proceeds were separately
allocated to the warrants.
In June 1996, the Company entered into a joint technology development and
support agreement with Advanced Micro Devices, Inc. ("AMD"), to support the
design and development of products related to AMD's K6 microprocessor. As part
of this relationship, in July 1996, the Company sold to AMD 160,000 shares of
Common Stock at a price of $12.50 per share for approximately $2,000 in cash.
On October 25, 1996, the Company completed an initial public offering (the
"Offering") of 1,250,000 shares of its Common Stock at $8.00 per share. Proceeds
to the Company totaled $7,828, net of underwriting discounts and issuance costs
of $2,172. Prior to the Offering, in May 1996, the Board of Directors approved
an increase in the number of common shares authorized to 40,000,000, authorized
5,000,000 shares of Preferred Stock and approved a 1-for-2 reverse stock split
of the Company's Common Stock. The reverse stock split was effected on August
21, 1996. All references to the number of common shares and per share amounts
have been retroactively restated in the accompanying consolidated financial
statements to reflect the reverse stock split.
7. EMPLOYEE BENEFIT PLANS
EQUITY INCENTIVE AND STOCK OPTION PLAN
During 1994, the Company adopted the 1995 Stock Option Plan, under which
1,250,000 shares of common stock are reserved for issuance to eligible
employees, directors and consultants upon exercise of the stock options. Stock
options are granted at prices determined by Board of Directors and generally may
not be less than 100% and 85%, for incentive and nonstatutory options,
respectively, of the estimated fair value of the related shares on the date of
grant. Options granted under the Plan are for periods not to exceed ten years,
are exercisable generally one year after date of grant and vest ratably over a
maximum period of five years following the date of grant. For options expired or
canceled, the stock not purchased under such options shall revert to and again
become available for re-issuance under the plan. The Plan
F-14
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
provides for an unvested share repurchase option on behalf of the Company. In
the event an optionee ceases to be eligible under the Plan for any reason,
shares acquired on the exercise of an option which have not yet vested may be
repurchased by the Company at the optionee's original cost per share. At
December 31, 1997, no shares were subject to repurchase.
On June 30, 1997, the Company registered an additional 268,446 shares of
Common Stock under the 1995 Stock Option Plan for issuance to new hires and
existing employees of the Company, excluding directors and executive officers of
the Company.
During 1995, the Company recorded $297 of deferred stock compensation for
the excess of the deemed fair market value over the exercise price at the date
of grant related to certain options granted in 1995. The compensation expense is
being recognized over the option vesting period of four years. Compensation
expense recognized in 1995, 1996, 1997 and for the three months ended March 31,
1997 and 1998 aggregated $42, $75, $74, $19 and $18, respectively.
During 1997, the Company adopted the 1997 Equity Incentive Plan, under which
700,000 shares of common stock are reserved for issuance to eligible employees,
directors and consultants upon exercise of the stock options. Stock options are
granted at prices determined by the Board of Directors and generally may not be
less than 110% and 85%, for incentive and nonstatutory options, respectively, of
the estimated fair value of the related shares on the date of grant. Options
granted under the Plan are for periods not to exceed ten years, are exercisable
generally one year after date of grant and vest ratably over a maximum period of
five years following the date of grant. For options expired or canceled, the
stock not purchased under such options shall revert to and again become
available for re-issuance under the plan. The Plan provides for an unvested
share repurchase option on behalf of the Company. In the event an optionee
ceases to be eligible under the Plan for any reason, shares acquired on the
exercise of an option which have not yet vested may be repurchased by the
Company at the optionee's original cost per share. At December 31, 1997, no
shares were subject to repurchase.
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method prescribed by
F-15
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
SFAS No. 123, the Company's net income and earnings per share would have been
further reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income
As reported.................................................... $ 1,165 $ 2,885 $ 4,680
--------- --------- ---------
--------- --------- ---------
Pro forma...................................................... $ 1,155 $ 2,717 $ 3,475
--------- --------- ---------
--------- --------- ---------
Net income per share
As reported:
Basic........................................................ $ 0.28 $ 0.54 $ 0.68
--------- --------- ---------
--------- --------- ---------
Diluted...................................................... $ 0.25 $ 0.47 $ 0.61
Pro forma:
Basic........................................................ $ 0.28 $ 0.51 $ 0.51
--------- --------- ---------
--------- --------- ---------
Diluted...................................................... $ 0.25 $ 0.45 $ 0.48
</TABLE>
Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1995, 1996 and 1997,
respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
STOCK OPTION ASSUMPTIONS: 1995 1996 1997
- --------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Stock Option Plan
Expected dividend yield............................................ 0.00% 0.00% 0.00%
Expected stock price volatility.................................... 55.00% 55.00% 60.75%
Risk-free interest rate 5.50% 6.05% 6.19%
Expected life (years).............................................. 5 5 5
Stock Purchase Plan
Expected dividend yield............................................ -- -- 0.00%
Expected stock price volatility.................................... -- -- 60.75%
Risk-free interest rate............................................ -- -- 5.37%
Expected life (years).............................................. -- -- 0.5
</TABLE>
F-16
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
A summary of the status of the Company's stock option plan as of December
31, 1995, 1996, 1997 and March 31, 1998, and changes during the periods ended on
those dates is presented below:
<TABLE>
<CAPTION>
SHARES SUBJECT TO OUTSTANDING OPTIONS
--------------------------------------
OPTIONS WEIGHTED-
AVAILABLE AVERAGE
FOR NUMBER OF PRICE PER EXERCISE
GRANT SHARES SHARE PRICE
------------ ---------- ------------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994............. 685,950 564,050 $ 1.00 $ 1.00
Granted................................ (191,105) 191,105 1.00-6.00 2.01
Exercised.............................. -- (7,500) 1.00 1.00
Canceled............................... 1,500 (1,500) 1.00 1.00
------------ ---------- ------------- -----
Balance at December 31, 1995............. 496,345 746,155 1.00-6.00 1.26
Granted................................ (329,000) 329,000 6.75-11.00 9.97
Exercised.............................. -- (43,988) 1.00 1.00
Canceled............................... 61,709 (61,709) 1.00-10.00 2.24
------------ ---------- ------------- -----
Balance at December 31, 1996............. 229,054 969,458 1.00-11.00 4.16
Authorized............................. 968,446 -- -- --
Granted................................ (904,400) 904,400 9.25-11.25 10.37
Exercised.............................. -- (111,933) 1.00-10.00 1.46
Canceled............................... 41,551 (41,551) 1.00-10.63 9.79
------------ ---------- ------------- -----
Balance at December 31, 1997............. 334,651 1,720,374 1.00-11.25 7.46
Authorized (unaudited).................
Granted (unaudited).................... (378,700) 378,700 7.63-10.50 7.93
Exercised (unaudited).................. (66,141) 1.00-10.00 1.09
Canceled (unaudited)................... 44,049 (44,049) 1.00-10.63 9.06
------------ ---------- ------------- -----
Balance at March 31, 1998 (unaudited).... -- 1,988,884 $ 1.00-11.25 $ 7.57
------------ ---------- ------------- -----
------------ ---------- ------------- -----
</TABLE>
Options for 106,500, 345,685, 577,516 and 656,608 shares of Common Stock
were exercisable at December 31, 1995, 1996, 1997 and March 31, 1998,
respectively. Weighted average fair value of options granted during the year
were $2.13, $2.59 and $5.98 for 1995, 1996 and 1997, respectively.
F-17
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ------------------------
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/97 LIFE PRICE AT 12/31/97 PRICE
- ------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 1.000-5.000.................. 535,411 7.11 years $ 1.24 372,310 $ 1.18
6.000-10.250................. 581,213 9.09 years 9.60 99,317 9.45
10.625-13.125................. 603,750 9.21 years 10.91 105,889 10.69
----------- ----------- ----------- -----------
1,720,374 8.52 years $ 7.46 577,516 $ 4.35
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In May 1996, the Board of Directors adopted the Employee Stock Purchase Plan
(the "Purchase Plan"), which provides for the issuance of a maximum of 150,000
shares of Common Stock. Eligible employees may have up to 15% of their earnings
withheld, to be used to purchase shares of the Common Stock on specified dates
determined by the Board of Directors. The price of Common Stock purchased under
the Purchase Plan will be equal to 85% of the lower of the fair market value of
the Common Stock on the commencement date of each offering period or the
specified purchase date. During 1997, the Company issued 72,391 shares of its
Common Stock under the Purchase Plan.
401(K) PLAN
In January 1995, the Board of Directors adopted an employee savings and
retirement plan (the "401(k) Plan") covering substantially all of the Company's
employees. Under the 401(k) Plan, eligible employees may elect to reduce their
current compensation by up to the statutory prescribed limit and have the amount
of such reduction contributed to the 401(k) Plan. The Company may make
contributions to the 401(k) Plan on behalf of eligible employees. The Company
made no contributions to the 401(k) Plan in 1995, 1996, 1997 and for the three
months ended March 31, 1997 and 1998.
8. INCOME TAXES
Income before income taxes was subject to tax in the following
jurisdictions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
United States.................................................... $ 464 $ 2,108 $ 1,438
Foreign.......................................................... 1,493 2,399 5,344
--------- --------- ---------
$ 1,957 $ 4,507 $ 6,782
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-18
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
8. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes is composed of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal........................................................ $ 484 $ 709 $ 1,000
State.......................................................... 46 59 98
Foreign........................................................ 405 724 1,356
--------- --------- ---------
Total current................................................ 935 1,492 2,454
--------- --------- ---------
Deferred:
Federal........................................................ (133) 95 (382)
State.......................................................... (10) 35 30
Foreign........................................................ -- -- --
--------- --------- ---------
Total deferred............................................... (143) 130 (352)
--------- --------- ---------
$ 792 $ 1,622 $ 2,102
--------- --------- ---------
--------- --------- ---------
</TABLE>
Significant components of the Company's deferred tax assets (liabilities)
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Capitalized software........................................................ $ (90) $ (320)
--------- ---------
Deferred tax assets:
Accrued liabilities......................................................... 79 67
Depreciation................................................................ 18 77
Allowance for doubtful accounts............................................. 34 34
State tax deduction......................................................... 6 2
Tax credits................................................................. 0 478
Other....................................................................... 84 145
--------- ---------
221 803
--------- ---------
Net deferred tax assets....................................................... $ 131 $ 483
--------- ---------
--------- ---------
</TABLE>
F-19
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
8. INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
income before income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Tax provision at the U.S. federal statutory rate of 34%.......... $ 666 $ 1,532 $ 2,306
Foreign income taxed at different rates.......................... (77) (80) (486)
State and local taxes, net of federal benefit.................... 117 221 69
Release of valuation allowance................................... (117) -- --
Nondeductible charges and accruals............................... 166 -- 207
Other............................................................ 37 (51) 6
--------- --------- ---------
Provision for income taxes....................................... $ 792 $ 1,622 $ 2,102
--------- --------- ---------
--------- --------- ---------
Effective tax rates.............................................. 40% 36% 31%
--------- --------- ---------
--------- --------- ---------
</TABLE>
9. REVENUES, GEOGRAPHIC INFORMATION AND EXPORT SALES
Revenues from customers representing 10% or more of consolidated revenues
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer A................................... 13.9% -- -- -- --
Customer B--Related party.................... 13.4% 11.0% 5.4% 8.0% 7.3%
</TABLE>
The components of related parties revenues and costs of revenues are:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees...................... $ 1,084 $ 1,148 $ 1,479 $ 630 $ 466
Engineering services....................... 818 730 20 15 --
--------- --------- --------- --------- ---------
Total related party revenues............. $ 1,902 $ 1,878 $ 1,499 $ 645 $ 466
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cost of revenues:
Software license fees...................... $ 60 $ 58 $ 74 $ 25 $ 17
Engineering services....................... 146 270 2 1 --
--------- --------- --------- --------- ---------
Total related party cost of revenues..... $ 206 $ 328 $ 76 $ 26 $ 17
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-20
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
9. REVENUES, GEOGRAPHIC INFORMATION AND EXPORT SALES (CONTINUED)
The following is a summary of the Company's geographic operations:
<TABLE>
<CAPTION>
UNITED ASIA
STATES EUROPE PACIFIC ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Revenues from unaffiliated customers................ $ 1,017 $ 2,216 $ 3,995 $ -- $ 7,228
Revenue from related parties........................ 1,902 -- -- -- 1,902
Income from operations.............................. 393 59 1,409 -- 1,861
Identifiable assets................................. 6,907 976 2,764 (1,564) 9,083
Year ended December 31, 1996:
Revenues from unaffiliated customers................ $ 2,176 $ 1,195 $ 8,822 $ -- $ 12,193
Revenue from related parties........................ 1,878 -- -- -- 1,878
Income (loss) from operations....................... 1,651 (482) 2,792 -- 3,961
Identifiable assets................................. 23,642 728 6,498 (2,458) 28,410
Year ended December 31, 1997:
Revenues from unaffiliated customers................ $ 9,016 $ 640 $ 12,212 $ -- $ 21,868
Revenue from related parties........................ 1,499 -- -- -- 1,499
Income (loss) from operations....................... 1,161 (604) 5,084 -- 5,641
Identifiable assets................................. 27,088 465 11,082 (4,254) 34,381
</TABLE>
Substantially all of the financial information for the Europe and Asia
Pacific geographic areas results from the Company's operations in Germany and
Taiwan, respectively.
Export sales from the United States to international customers were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Europe, principally Germany.................. $ 1,315 $ 2,003 $ 2,164 $ 192 $ 238
Asia Pacific, principally Japan.............. 95 164 850 51 461
--------- --------- --------- --------- ---------
$ 1,410 $ 2,167 $ 3,014 $ 243 $ 699
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
10. COMMITMENTS
OPERATING LEASES
The Company leases its office facilities in the U.S., Taiwan, Hong Kong,
Japan and Germany. Future minimum payments under non-cancelable operating
leases, as of December 31, 1997, were $651 and $148 for 1998 and 1999,
respectively.
Under an agreement that extends through 1998, the Company subleases office
facilities in Mountain View, California with GCH and was charged rent totaling
$84, $161, $362, $72 and $111 for 1995, 1996, 1997 and for the three months
ended March 31, 1997 and 1998, respectively. The Company also leases office
facilities in Taipei, Taiwan from GCH-Sun Systems Company Ltd., a subsidiary of
GCH, and a shareholder on a month-to-month basis and was charged rent totaling
$101, $225, $269, $56 and $47 for
F-21
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
10. COMMITMENTS (CONTINUED)
1995, 1996, 1997 and for the three months ended March 31, 1997 and 1998,
respectively. In addition, the Company leases office facilities in North
Andover, Massachusetts from a realty company owned by an executive officer of
the Company and was charged rent totaling $69 and $24 in 1997 and for the three
months ended March 31, 1998. Management believes the terms of these transactions
are no less favorable than could be obtained from unaffiliated third parties.
Total rent expense, including amounts to related parties above, was $273,
$470, $799, $165 and $233 for the years ended December 31, 1995, 1996, 1997 and
for the three months ended March 31, 1997 and 1998, respectively.
11. SUBSEQUENT EVENTS (UNAUDITED)
On April 15, 1998, the Company and Phoenix Technologies Ltd. ("Phoenix")
executed a definitive merger agreement. Under the terms of the proposed
transaction, all of the Company's outstanding stock will be acquired through the
merger of a wholly owned subsidiary of Phoenix with and into the Company (the
"Merger") pursuant to an Agreement and Plan of Reorganization (the
"Reorganization Agreement") by and among Phoenix, its wholly owned subsidiary
and the Company. Pursuant to the terms of the Reorganization Agreement,
shareholders of Award will receive 1.225 shares of Phoenix common stock for each
share of Award common stock. The completion of the Merger is subject to
customary conditions to closing, including shareholder approval of both
companies and regulatory approval, including expiration or termination of all
waiting periods under the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
as amended. The transaction is intended to be treated as a tax-free
reorganization pursuant to the provisions of Section 368 of the Internal Revenue
Code of 1986 and a pooling of interests for financial reporting and accounting
purposes. In connection with the proposed transaction, the Company, Sun and Axis
entered into an agreement on April 13, 1998, whereby the Company purchased Sun's
19% interest and Axis's 19% interest in Award Japan for an aggregate of
approximately 20,000 shares of the Company's Common Stock.
F-22
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PHOENIX TECHNOLOGIES LTD.
PORTLAND ACQUISITION CORPORATION
AND
AWARD SOFTWARE INTERNATIONAL, INC.
DATED AS OF APRIL 15, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I THE MERGER....................................................................................... A-1
1.1 The Merger...................................................................................... A-1
1.2 Effective Time; Closing......................................................................... A-2
1.3 Effect of the Merger............................................................................ A-2
1.4 Articles of Incorporation; Bylaws............................................................... A-2
1.5 Directors and Officers.......................................................................... A-2
1.6 Effect on Capital Stock......................................................................... A-2
1.7 Dissenting Shares............................................................................... A-3
1.8 Surrender of Certificates....................................................................... A-4
1.9 No Further Ownership Rights in Award Common Stock............................................... A-5
1.10 Lost, Stolen or Destroyed Certificates.......................................................... A-5
1.11 Tax and Accounting Consequences................................................................. A-5
1.12 Taking of Necessary Action; Further Action...................................................... A-5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF AWARD......................................................... A-6
2.1 Organization of Award........................................................................... A-6
2.2 Award Capital Structure......................................................................... A-6
2.3 Obligations With Respect to Common Stock........................................................ A-6
2.4 Authority....................................................................................... A-7
2.5 SEC Filings; Award Financial Statements......................................................... A-8
2.6 Absence of Certain Changes or Events............................................................ A-8
2.7 Tax............................................................................................. A-8
2.8 Intellectual Property........................................................................... A-9
2.9 Compliance; Permits; Restrictions............................................................... A-10
2.10 Litigation...................................................................................... A-10
2.11 Brokers' and Finders' Fees...................................................................... A-10
2.12 Employee Matters and Benefit Plans.............................................................. A-11
2.13 Absence of Liens and Encumbrances; Condition of Equipment....................................... A-13
2.14 Environmental Matters........................................................................... A-13
2.15 Labor Matters................................................................................... A-14
2.16 Agreements, Contracts and Commitments........................................................... A-14
2.17 Pooling of Interests............................................................................ A-15
2.18 Change of Control Payments...................................................................... A-15
2.19 Statements; Proxy Statement/Prospectus.......................................................... A-15
2.20 Board Approval.................................................................................. A-16
2.21 Fairness Opinion................................................................................ A-16
2.22 Minute Books.................................................................................... A-16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PHOENIX AND MERGER SUB....................................... A-16
3.1 Organization of Phoenix......................................................................... A-16
3.2 Phoenix and Merger Sub Capital Structure........................................................ A-16
3.3 Obligations With Respect to Common Stock........................................................ A-17
3.4 Authority....................................................................................... A-17
3.5 SEC Filings; Phoenix Financial Statements....................................................... A-18
3.6 Absence of Certain Changes or Events............................................................ A-19
3.7 Tax Returns and Audits.......................................................................... A-19
3.8 Intellectual Property........................................................................... A-20
3.9 Compliance; Permits; Restrictions............................................................... A-20
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
3.10 Litigation...................................................................................... A-21
3.11 Brokers' and Finders' Fees...................................................................... A-21
3.12 Employee Matters and Benefit Plans.............................................................. A-21
3.13 Absence of Liens and Encumbrances; Condition of Equipment....................................... A-23
3.14 Environmental Matters........................................................................... A-23
3.15 Labor Matters................................................................................... A-24
3.16 Agreements, Contracts and Commitments........................................................... A-24
3.17 Pooling of Interests............................................................................ A-25
3.18 Change of Control Payments...................................................................... A-25
3.19 Statements; Proxy Statement/Prospectus.......................................................... A-25
3.20 Board Approval.................................................................................. A-26
3.21 Fairness Opinion................................................................................ A-26
3.22 Minute Books.................................................................................... A-26
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................................................. A-26
4.1 Conduct of Business............................................................................. A-26
ARTICLE V ADDITIONAL AGREEMENTS............................................................................ A-28
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings............................... A-28
5.2 Meetings of Shareholders and Stockholders....................................................... A-29
5.3 Access to Information; Confidentiality.......................................................... A-29
5.4 No Solicitation................................................................................. A-29
5.5 Public Disclosure............................................................................... A-32
5.6 Legal Requirements.............................................................................. A-32
5.7 Third Party Consents............................................................................ A-32
5.8 FIRPTA.......................................................................................... A-32
5.9 Notification of Certain Matters................................................................. A-32
5.10 Commercially Reasonable Efforts and Further Assurances.......................................... A-33
5.11 Stock Options; Employee Stock Purchase Plan..................................................... A-33
5.12 Award Warrants.................................................................................. A-34
5.13 Form S-8........................................................................................ A-34
5.14 Indemnification and Insurance................................................................... A-34
5.15 Tax-Free Reorganization......................................................................... A-35
5.16 NMS Listing..................................................................................... A-35
5.17 Phoenix Affiliate Agreement..................................................................... A-35
5.18 Award Affiliate Agreement....................................................................... A-35
5.19 Regulatory Filings; Reasonable Efforts.......................................................... A-36
5.20 Board of Directors of the Combined Company...................................................... A-36
ARTICLE VI CONDITIONS TO THE MERGER........................................................................ A-36
6.1 Conditions to Obligations of Each Party to Effect the Merger.................................... A-36
6.2 Additional Conditions to Obligations of Award................................................... A-37
6.3 Additional Conditions to the Obligations of Phoenix and Merger Sub.............................. A-38
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.............................................................. A-38
7.1 Termination..................................................................................... A-38
7.2 Notice of Termination; Effect of Termination.................................................... A-40
7.3 Fees and Expenses............................................................................... A-41
7.4 Amendment....................................................................................... A-41
7.5 Extension; Waiver............................................................................... A-41
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE VIII GENERAL PROVISIONS............................................................................ A-41
8.1 Non-Survival of Representations and Warranties.................................................. A-41
8.2 Notices......................................................................................... A-42
8.3 Interpretation; Knowledge....................................................................... A-42
8.4 Counterparts.................................................................................... A-43
8.5 Entire Agreement................................................................................ A-43
8.6 Severability.................................................................................... A-43
8.7 Other Remedies; Specific Performance............................................................ A-43
8.8 Governing Law................................................................................... A-43
8.9 Rules of Construction........................................................................... A-43
8.10 Assignment...................................................................................... A-43
</TABLE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit AA-1 Phoenix Technologies Ltd. Voting Agreement
Exhibit AB-1 Award Software International, Inc. Voting Agreement
Exhibit AC-1 Agreement of Merger
Exhibit AD-1 Phoenix Technologies Ltd. Affiliate Agreement
Exhibit AE-1 Award Software International, Inc. Affiliate Agreement
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and
entered into as of April 15, 1998 among Phoenix Technologies Ltd., a Delaware
corporation ("PHOENIX"), Portland Acquisition Corporation, a California
corporation and a wholly owned subsidiary of Phoenix ("MERGER SUB"), and Award
Software International, Inc., a California corporation ("AWARD").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the California General Corporation Law ("CALIFORNIA LAW"),
Phoenix and Award will enter into a business combination transaction pursuant to
which Merger Sub will merge with and into Award (the "MERGER").
B. The Board of Directors of Phoenix (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Phoenix
and fair to, and in the best interests of, Phoenix and its stockholders, (ii)
has approved this Agreement, the Merger and the other transactions contemplated
by this Agreement and (iii) has determined to recommend that the stockholders of
Phoenix vote to approve the issuance of shares of Phoenix Common Stock (as
defined below) to the shareholders of Award pursuant to the terms of the Merger.
C. The Board of Directors of Award (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Award
and fair to, and in the best interests of, Award and its shareholders, (ii) has
approved this Agreement, the Merger and the other transactions contemplated by
this Agreement and (iii) has determined to recommend that the shareholders of
Award approve this Agreement and approve the Merger.
D. Concurrently with the execution of this Agreement, and as a condition and
inducement to Phoenix's and Award's willingness to enter into this Agreement,
the Chief Executive Officer of Phoenix and certain other affiliates of Phoenix
shall enter into a Voting Agreement in substantially the form attached hereto as
Exhibit A (the "PHOENIX VOTING AGREEMENTS"), and the Chief Executive Officer of
Award and certain other affiliates of Award shall enter into a Voting Agreement
in substantially the form attached hereto as Exhibit B (the "AWARD VOTING
AGREEMENTS" and, collectively with the Phoenix Voting Agreements, the "VOTING
AGREEMENTS").
E. Phoenix, Award and Merger Sub desire to make certain representations and
warranties and other agreements in connection with the Merger.
F. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").
G. It is also intended by the parties hereto that the Merger shall qualify
for accounting treatment as a pooling of interests.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of California Law, Merger Sub shall be merged with and
into Award, the separate corporate existence of Merger Sub shall cease and Award
shall continue as the surviving corporation. Award as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "SURVIVING
CORPORATION."
A-1
<PAGE>
1.2 EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing an
Agreement of Merger, substantially in the form of EXHIBIT C hereto (the
"AGREEMENT OF MERGER"), with the Secretary of State of the State of California
in accordance with the relevant provisions of California Law (the time of such
filing (or such later time as may be agreed in writing by the parties and
specified in the Agreement of Merger) being the "EFFECTIVE TIME") as soon as
practicable on or after the Closing Date (as herein defined). Unless the context
otherwise requires, the term "AGREEMENT" as used herein refers collectively to
this Agreement and the Agreement of Merger. The closing of the Merger (the
"CLOSING") shall take place at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation at a time and date to be specified by the parties,
which shall be no later than the second business day after the satisfaction or
waiver of the conditions set forth in Article VI, or at such other time, date
and location as the parties hereto agree in writing (the "CLOSING DATE").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of
California Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of Award and Merger Sub shall vest in the Surviving Corporation, and
all debts, liabilities and duties of Award and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Articles of Incorporation of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Articles of Incorporation; PROVIDED, HOWEVER, that at the
Effective Time the Articles of Incorporation of the Surviving Corporation shall
be amended so that the name of the Surviving Corporation shall be "Award."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS. The directors of Merger Sub immediately prior
to the Effective Time shall be the initial directors of the Surviving
Corporation, until their respective successors are duly elected or appointed and
qualified. The officers of Merger Sub immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation, until their
successors are duly elected or appointed or qualified.
1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, Award or the holders of
any of the following securities:
(a) CONVERSION OF AWARD COMMON STOCK. Each share of Common Stock, no
par value, of Award (the "AWARD COMMON STOCK") issued and outstanding
immediately prior to the Effective Time (other than any shares of Award
Common Stock to be canceled pursuant to Section 1.6(b) and any Dissenting
Shares (as defined in and to the extent provided in Section 1.7(a))) will be
canceled and extinguished and automatically converted (subject to Sections
1.6(e) and (f)) into the right to receive 1.225 (the "EXCHANGE RATIO")
shares of Common Stock, par value $.001 per share, of Phoenix (the "PHOENIX
COMMON STOCK") upon surrender of the certificate representing such share of
Award Common Stock in the manner provided in Section 1.8 (or in the case of
a lost, stolen or destroyed certificate, upon delivery of an affidavit (and
bond, if required) in the manner provided in Section 1.10), including with
respect to each whole share of Phoenix Common Stock to be received, the
associated Rights (as defined in that certain Rights Agreement (the "PHOENIX
RIGHTS PLAN") dated October 31, 1989 between Phoenix and the First National
Bank of Boston, as Rights Agent).
(b) CANCELLATION OF PHOENIX-OWNED STOCK. Each share of Award Common
Stock held in the treasury of Award or owned by Merger Sub, Phoenix or any
direct or indirect wholly owned subsidiary
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of Award or of Phoenix immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(c) STOCK OPTIONS; EMPLOYEE STOCK PURCHASE PLAN. At the Effective Time
all options to purchase Award Common Stock then outstanding under Award's
1997 Equity Incentive Plan, 1995 Stock Option Plan and Employee Stock
Purchase Plan (collectively, the "AWARD STOCK OPTION PLANS") shall be
assumed by Phoenix in accordance with Section 5.11 hereof. At the Effective
Time, in accordance with the terms of Award's Employee Stock Purchase Plan
(the "AWARD EMPLOYEE STOCK PURCHASE PLAN"), all rights to purchase shares of
Award Common Stock under the Award Employee Stock Purchase Plan shall be
converted into rights to purchase a number of shares of Phoenix Common Stock
as provided in the Award Employee Stock Purchase Plan (based on the Exchange
Ratio), all such rights shall be assumed by Phoenix and the offering period
in effect under the Award Employee Stock Purchase Plan immediately prior to
the Effective Time shall not be terminated early.
(d) WARRANTS. At the Effective Time all warrants to purchase Award
Common Stock then outstanding (collectively, the "AWARD WARRANTS") shall be
assumed by Phoenix in accordance with Section 5.12 hereof.
(e) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock, no par
value, of Merger Sub (the "MERGER SUB COMMON STOCK") issued and outstanding
immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of
Common Stock, no par value, of the Surviving Corporation. Each certificate
of shares of Merger Sub Common Stock shall continue to evidence ownership of
such share of common stock of the Surviving Corporation.
(f) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into Phoenix Common Stock or Award Common Stock),
reorganization, recapitalization or other like change with respect to
Phoenix Common Stock or Award Common Stock, including, without limitation,
issuance of shares of Phoenix Preferred Stock pursuant to the Phoenix Rights
Plan, occurring on or after the date hereof and prior to the Effective Time.
(g) FRACTIONAL SHARES. No fraction of a share of Phoenix Common Stock
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Award Common Stock who would otherwise be entitled to a fraction
of a share of Phoenix Common Stock (after aggregating all fractional shares
of Phoenix Common Stock to be received by such holder) shall receive from
Phoenix an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the closing price of a
share of Phoenix Common Stock on the trading day immediately prior to the
Effective Time, as reported on the Nasdaq National Market.
1.7 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary, the
shares of any holder of Award Common Stock who has demanded and perfected
appraisal rights for such shares in accordance with California Law and who, as
of the Effective Time, has not effectively withdrawn or lost such appraisal
rights ("DISSENTING SHARES") shall not be converted into or represent a right to
receive Phoenix Common Stock pursuant to Section 1.6, but the holder thereof
shall only be entitled to such rights as are granted by California Law.
(b) Notwithstanding the foregoing, if any holder of shares of Award Common
Stock who demands appraisal of such shares under California Law shall
effectively withdraw or lose (for failure to perfect or otherwise) the right to
appraisal, then, as of the later of the Effective Time or the occurrence of such
event, such holder's shares shall automatically be converted into and represent
only the right to receive Phoenix Common Stock, in accordance with Section 1.6
hereof, without interest thereon, upon surrender of the certificate representing
such shares of Award Common Stock in the manner provided in Section 1.8 hereof
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(or, in the case of a lost, stolen or destroyed certificate, upon delivery of an
affidavit (and bond, if required) in the manner provided in Section 1.10
hereof), including, with respect to each whole share of Phoenix Common Stock to
be received, the associated Right under the Phoenix Rights Plan.
(c) Award shall give Phoenix (i) prompt notice of any written demands for
appraisal of any shares of Award Common Stock, withdrawals of such demands, and
any other instruments served pursuant to California Law and received by Award
which relate to any such demand for appraisal and (ii) the opportunity to
participate in all negotiations and proceedings which take place prior to the
Effective Time with respect to demands for appraisal under California Law. Award
shall not, except with the prior written consent of Phoenix or as may be
required by applicable law, voluntarily make any payment with respect to any
demands for appraisal of Award Common Stock or offer to settle or settle any
such demands. Any payments made in respect of Dissenting Shares shall be made by
Award or the Surviving Corporation, as the case may be.
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Phoenix shall select the transfer agent for the
Phoenix Common Stock or another institution reasonably satisfactory to Award, to
act as the exchange agent (the "EXCHANGE AGENT") in the Merger.
(b) PHOENIX TO PROVIDE COMMON STOCK. Promptly after the Effective Time,
Phoenix shall make available to the Exchange Agent for exchange in accordance
with this Article I, the shares of Phoenix Common Stock issuable pursuant to
Section 1.6, cash in an amount sufficient for payment in lieu of fractional
shares pursuant to Section 1.6(f), and any dividends or distributions to which
holders of shares of Award Common Stock may be entitled pursuant to Section
1.8(d).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, Phoenix shall
cause the Exchange Agent to mail to each holder of record (as of the Effective
Time) of a certificate or certificates (the "CERTIFICATES") which immediately
prior to the Effective Time represented outstanding shares of Award Common Stock
whose shares were converted into the right to receive shares of Phoenix Common
Stock pursuant to Section 1.6, cash in lieu of any fractional shares pursuant to
Section 1.6(f) and any dividends or other distributions pursuant to Section
1.8(d), (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form and
have such other provisions as Phoenix may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Phoenix Common Stock, cash in lieu of
any fractional shares pursuant to Section 1.6(f), and any dividends or other
distributions pursuant to Section 1.8(d). Upon surrender of Certificates for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Phoenix, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holders of
such Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of Phoenix Common Stock, payment in lieu
of fractional shares which such holders have the right to receive pursuant to
Section 1.6(f), and any dividends or distributions payable pursuant to Section
1.8(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, each outstanding Certificate will be deemed from and after the
Effective Time, for all corporate purposes, subject to Section 1.8(d) as to the
payment of dividends, to evidence the ownership of the number of full shares of
Phoenix Common Stock into which such shares of Award Common Stock shall have
been so converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.6(f) and any
dividends or distributions payable pursuant to Section 1.8(d).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the date of this Agreement with
respect to Phoenix Common Stock with a record date after the Effective Time will
be paid to the holder of any unsurrendered Certificates with respect to the
shares of Phoenix Common Stock represented thereby until the holders of record
of such Certificates shall
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surrender such Certificates. Subject to applicable law, following surrender of
any such Certificate, the Exchange Agent shall deliver to the record holders
thereof, certificates representing whole shares of Phoenix Common Stock issued
in exchange therefor, along with payment in lieu of fractional shares pursuant
to Section 1.6(f) hereof and the amount of any such dividends or other
distributions with a record date after the Effective Time payable with respect
to such whole shares of Phoenix Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificates for shares of Phoenix
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Phoenix or any agent designated by it
any transfer or other taxes required by reason of the issuance of certificates
for shares of Phoenix Common Stock in any name other than that of the registered
holder of the Certificates surrendered, or established to the satisfaction of
Phoenix or any agent designated by it that such tax has been paid or is not
payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this Section
1.8, neither the Exchange Agent, Phoenix, the Surviving Corporation nor any
party hereto shall be liable to a holder of shares of Phoenix Common Stock or
Award Common Stock for any amount properly paid to a public official pursuant to
any applicable abandoned property, escheat or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN AWARD COMMON STOCK. All shares of
Phoenix Common Stock issued upon the surrender for exchange of shares of Award
Common Stock in accordance with the terms hereof (including any cash paid in
respect thereof pursuant to Sections 1.6(f) and 1.8(d)) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Award Common Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Award Common Stock which
were outstanding immediately prior to the Effective Time. If after the Effective
Time Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Phoenix Common
Stock, cash for fractional shares, if any, as may be required pursuant to
Section 1.6(f) and any dividends or distributions payable pursuant to Section
1.8(d); PROVIDED, HOWEVER, that Phoenix may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Phoenix, Award or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
1.11 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties hereto
that the Merger shall constitute a reorganization within the meaning of Section
368 of the Code. The parties hereto adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Income Tax Regulations. It is also intended by the parties hereto
that the Merger shall qualify for accounting treatment as a pooling of
interests.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Award and Merger Sub, the officers and directors of Award and
Merger Sub are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action, so long
as such action is consistent with this Agreement.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF AWARD
Award represents and warrants to Phoenix and Merger Sub, except as set forth
in the disclosure letter supplied by Award to Phoenix dated on or before the
date hereof and certified by a duly authorized officer of Award (the "AWARD
SCHEDULES"), as follows:
2.1 ORGANIZATION OF AWARD. Award and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has the corporate power to own, lease
and operate its property and to carry on its business as now being conducted,
and is duly qualified to do business and in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
have a Material Adverse Effect (as defined below) on Award. Award has delivered
to Phoenix a true and complete list of all of Award's subsidiaries, together
with the jurisdiction of incorporation of each subsidiary and Award's equity
interest therein. Award has delivered or made available a true and correct copy
of the Articles of Incorporation and Bylaws of Award and similar governing
instruments of its subsidiaries, each as amended to date, to counsel for
Phoenix. When used in connection with Award, the term "MATERIAL ADVERSE EFFECT"
means, for purposes of this Agreement, any change, event or effect that is
materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of Award and its subsidiaries taken
as a whole.
2.2 AWARD CAPITAL STRUCTURE. The authorized capital stock of Award
consists of 40,000,000 shares of Common Stock, no par value, of which there were
6,963,862 shares issued and outstanding as of March 17, 1998 and 5,000,000
shares of Preferred Stock, no par value, of which no shares are issued or
outstanding. All outstanding shares of Award Common Stock are duly authorized,
validly issued, fully paid and non-assessable and are not subject to preemptive
rights created by statute, the Articles of Incorporation or Bylaws of Award or
any agreement or document to which Award is a party or by which it is bound. As
of March 31, 1998, Award had reserved an aggregate of 1,988,884 shares of Common
Stock, net of exercises, for issuance to employees, consultants and non-employee
directors pursuant to the Award Stock Option Plans, under which options are
outstanding for an aggregate of 1,984,233 shares. As of March 17, 1998, Award
had reserved an aggregate of 518,228 shares of Common Stock for issuance
pursuant to the Award Warrants. All shares of Award Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable. Award has delivered to Phoenix a
list of each outstanding option to acquire shares of the Common Stock of Award
at March 31, 1998, the name of the holder of such option, the number of shares
subject to such option, the exercise price of such option, the number of shares
as to which such option will have vested at such date and whether the
exercisability of such option will be accelerated in any way by the transactions
contemplated by this Agreement or for any other reason, and indicate the extent
of acceleration, if any, and such list is true, correct and complete in all
material respects. As of March 31, 1998, there were 74 participants in the Award
Employee Stock Purchase Plan.
2.3 OBLIGATIONS WITH RESPECT TO COMMON STOCK. Except as set forth in
Section 2.2, there are no equity securities, partnership interests or similar
ownership interests of any class of Award, or any securities exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests issued, reserved for issuance or
outstanding. Except for securities Award owns, directly or indirectly through
one or more subsidiaries, there are no equity securities, partnership interests
or similar ownership interests of any class of any subsidiary of Award, or any
security exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests issued,
reserved for issuance or outstanding. Except as set forth in Section 2.2, there
are no options, warrants, equity securities, partnership interests or similar
ownership interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which Award or any of its subsidiaries is a party
or by which Award or any of its subsidiaries is bound obligating Award or any of
its
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subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition, of any shares of capital stock, partnership interests
or similar ownership interests of Award or any of its subsidiaries or obligating
Award or any of its subsidiaries to grant, extend, accelerate the vesting of or
enter into any such option, warrant, equity security, partnership interests or
similar ownership interests, call, right, commitment or agreement. There are no
registration rights, and to the knowledge of Award there are no voting trusts,
proxies or other agreements or understandings, with respect to any equity
security, partnership interests or similar ownership interests of any class of
Award or with respect to any equity security, partnership interests or similar
ownership interests of any class of any of its subsidiaries.
2.4 AUTHORITY.
(a) Award has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Award, subject only to the approval of this Agreement by Award's
shareholders and the filing and recordation of the Agreement of Merger pursuant
to California Law. A vote of the holders of at least a majority of the
outstanding shares of the Award Common Stock is required for Award's
shareholders to approve and adopt this Agreement and to approve the Merger. This
Agreement has been duly executed and delivered by Award and, assuming the due
authorization, execution and delivery by Phoenix and Merger Sub, constitutes the
valid and binding obligations of Award, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy and other similar
laws and general principles of equity. The execution and delivery of this
Agreement by Award do not, and the performance of this Agreement by Award will
not, (i) conflict with or violate the Articles of Incorporation or Bylaws of
Award or the equivalent organizational documents of any of its subsidiaries,
(ii) subject to compliance with the requirements set forth in Section 2.4(b)
below, conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Award or any of its subsidiaries or by which its or any of
their respective properties is bound or affected, or (iii) result in any breach
of or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or impair Award's rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Award or
any of its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Award or any of its subsidiaries is a party or by which
Award or any of its subsidiaries or its or any of their respective properties
are bound or affected, except, with respect to clauses (ii) and (iii), for any
such conflicts, violations, defaults or other occurrences that would not have a
Material Adverse Effect on Award. The Award Schedules list all consents, waivers
and approvals under any of Award's or any of its subsidiaries' agreements,
contracts, licenses or leases required to be obtained in connection with the
consummation of the transactions contemplated hereby, which, if not obtained,
would have a Material Adverse Effect on Award or Phoenix or have a material
adverse effect on the ability of the parties to consummate the Merger.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental authority or instrumentality ("GOVERNMENTAL ENTITY") is
required by or with respect to Award in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the Agreement of Merger with the Secretary
of State of the State of California, (ii) the filing of the Proxy Statement (as
defined in Section 2.19) with the Securities and Exchange Commission ("SEC") in
accordance with the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), (iii) the filing of a Current Report on Form 8-K with the SEC, (iv) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities laws
and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR ACT") and the
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securities or antitrust laws of any foreign country and (v) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Award or Phoenix or have a
material adverse effect on the ability of the parties to consummate the Merger.
2.5 SEC FILINGS; AWARD FINANCIAL STATEMENTS.
(a) Award has filed all forms, reports and documents required to be filed by
it with the SEC since October 25, 1996. All such required forms, reports and
documents (including those that Award may file subsequent to the date hereof but
excluding any exhibits to such forms, reports and schedules) are referred to
herein as the "AWARD SEC REPORTS." As of their respective dates, the Award SEC
Reports (i) were prepared in accordance with the requirements of the Securities
Act of 1933, as amended (the "SECURITIES ACT") or the Exchange Act, as the case
may be, and the rules and regulations of the SEC thereunder applicable to such
Award SEC Reports, and (ii) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then, as so
amended or superseded, on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. None of Award's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Award SEC Reports (the "AWARD
FINANCIALS"), including any Award SEC Reports filed after the date hereof until
the Closing, (x) complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, (y) was prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited interim financial statements, as
may be permitted by the SEC on Form 10-Q under the Exchange Act) and (z) fairly
presented the consolidated financial position of Award and its subsidiaries as
at the respective dates thereof and the consolidated results of its operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not, or are not expected to be, material in amount. The
balance sheet of Award contained in the Award SEC Reports as of December 31,
1997 is hereinafter referred to as the "AWARD BALANCE SHEET." Except as
disclosed in the Award Financials, neither Award nor any of its subsidiaries has
any liabilities (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Award and its subsidiaries taken as a
whole, except liabilities (i) provided for in the Award Balance Sheet, or (ii)
incurred since the date of the Award Balance Sheet in the ordinary course of
business consistent with past practices.
(c) Award has heretofore furnished to Phoenix a complete and correct copy of
any amendments or modifications, which have not yet been filed with the SEC but
which are required to be filed, to agreements, documents or other instruments
which previously had been filed by Award with the SEC pursuant to the Securities
Act or the Exchange Act.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Award
Balance Sheet through the date of this Agreement, there has not been: (i) any
Material Adverse Effect on Award, or (ii) any material change by Award in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP.
2.7 TAXES.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "TAX" or
"TAXES" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales,
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use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes, together
with all interest, penalties and additions imposed with respect to such amounts
and any obligations under any agreements or arrangements with any other person
with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) All federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") relating to Taxes required to be filed with
any tax authority by or on behalf of the Award and each of its subsidiaries with
respect to any taxable period ending on or before the Closing Date if due on or
before the Closing Date (i) have been or will be filed on or before the
applicable due date (including any extensions of such due date if properly
obtained), and (ii) have been, or will be when filed, prepared in all material
respects in compliance with all applicable legal requirements. All amounts shown
on the Tax Returns to be due on or before the Closing Date have been or will be
paid on or before the Closing Date.
(c) Award's financial statements fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through the dates thereof in
accordance with GAAP. Award and each of Award's subsidiaries will establish, in
the ordinary course of business and consistent with its past practices, reserves
adequate for the payment of all Taxes for the period from the date of this
Agreement through the Closing Date.
(d) Since January 1, 1995, no Tax Return of Award or any of its subsidiaries
has been examined or audited by any applicable tax authority. No extension or
waiver (other than the normal extension occurring by reason of an extension of
time to file a Return) of the limitation period applicable to any such Returns
has been granted (by Award or any other person), and no such extension or waiver
has been requested from Award or any of its subsidiaries.
(e) No claim or legal proceeding is pending or, to the best of the knowledge
of the Company, has been threatened against or with respect to Award or any of
its subsidiaries in respect of any material Tax. There are no unsatisfied
liabilities for material Taxes (including liabilities for interest, additions to
tax and penalties thereon and related expenses) with respect to any notice of
deficiency or similar document received by Award or any of its subsidiaries with
respect to any material Tax (other than liabilities for Taxes asserted under any
such notice of deficiency or similar document which are being contested in good
faith by Award or any of its subsidiaries and with respect to which adequate
reserves for payment have been established). There are no liens for material
Taxes upon any of the assets of Award or any of its subsidiaries except liens
for current Taxes not yet due and payable. None of Award or any of its
subsidiaries has entered into or become bound by any agreement or consent
pursuant to Section 341(f) of the Code. None of Award or any of its subsidiaries
has been, and none of Award or any of its subsidiaries will be, required to
include any adjustment in taxable income for any tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions or events occurring, or
accounting methods employed, prior to the Closing.
(f) There is no agreement, plan, arrangement or other Contract covering any
employee or independent contractor or former employee or independent contractor
of any Award or any of its subsidiaries that, considered individually or
considered collectively with any other such agreement, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the
Code. None of Award or any of its subsidiaries is, or has ever been, a party to
or bound by any tax indemnity agreement, tax sharing agreement, tax allocation
agreement or similar agreement.
2.8 INTELLECTUAL PROPERTY.
(a) Award and its subsidiaries own, or have the right to use, sell or
license all intellectual property necessary or required for the conduct of their
respective businesses as currently conducted (such intellectual property and the
rights thereto are collectively referred to herein as the "AWARD IP RIGHTS").
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(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
material breach of any instrument or agreement governing any Award IP Rights
(the "AWARD IP RIGHTS AGREEMENTS"), will not cause the forfeiture or termination
or give rise to a right of forfeiture or termination of any Award IP Rights or
impair the right of Award and its subsidiaries, the Surviving Corporation or
Phoenix to use, sell or license any Award IP Rights or portion thereof, except
for the occurrence of any such breach, forfeiture, termination or impairment
that would not result in a Material Adverse Effect on Award.
(c) (i) Neither the manufacture, marketing, license, sale or intended use of
any product or technology currently licensed or sold or under development by
Award or any of its subsidiaries violates any license or agreement between Award
or any of its subsidiaries and any third party or infringes any intellectual
property right of any other party; and (ii) there is no pending or, to the
knowledge of Award, threatened claim or litigation contesting the validity,
ownership or right to use, sell, license or dispose of any Award IP Rights, nor
has Award received any written notice asserting that any Award IP Rights or the
proposed use, sale, license or disposition thereof conflicts or will conflict
with the rights of any other party; except, with respect to either clause (i) or
(ii), for any violations, infringements, claims or litigation that would not
have a Material Adverse Effect on Award.
(d) Award has taken reasonable and practicable steps designed to safeguard
and maintain the secrecy and confidentiality of, and its proprietary rights in,
all Award IP Rights.
2.9 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Neither Award nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to Award or any of its subsidiaries or by which Award or any
of its subsidiaries or any of their respective properties is bound or affected,
or (ii) any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Award or
any of its subsidiaries is a party or by which Award or any of its subsidiaries
or any of their respective properties is bound or affected, except for any
conflicts, defaults or violations which would not have a Material Adverse Effect
on Award. To the knowledge of Award, no investigation or review by any
governmental or regulatory body or authority is pending or threatened against
Award or its subsidiaries, nor has any governmental or regulatory body or
authority indicated an intention to conduct the same, other than, in each such
case, those the outcome of which would not have a Material Adverse Effect on
Award.
(b) Award and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to the operation of the business of Award and its subsidiaries taken as
a whole (collectively, the "AWARD PERMITS"). Award and its subsidiaries are in
compliance with the terms of Award Permits, except where the failure to so
comply would not have a Material Adverse Effect on Award.
2.10 LITIGATION. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which Award or any of its subsidiaries has
received any notice of assertion, nor, to Award's knowledge, is there a
threatened action, suit, proceeding, claim, arbitration or investigation against
Award or any of its subsidiaries which would have a Material Adverse Effect on
Award, or which in any manner challenges or seeks to prevent, enjoin, alter or
delay any of the transactions contemplated by this Agreement.
2.11 BROKERS' AND FINDERS' FEES. Except for fees payable to BancAmerica
Robertson Stephens pursuant to an engagement letter dated February 18, 1998, a
copy of which has been provided to Phoenix, Award has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
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2.12 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of "Affiliate" set
forth in Section 2.12(a)(i) below (which definition shall apply only to this
Section 2.12), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity under common
control with Award within the meaning of Section 414(b), (c), (m) or (o) of
the Code and the regulations issued thereunder;
(ii) "AWARD EMPLOYEE PLAN" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written or unwritten or
otherwise, funded or unfunded, including without limitation, each "employee
benefit plan," within the meaning of Section 3(3) of ERISA which is or has
been maintained, contributed to, or required to be contributed to, by Award
or any Affiliate for the benefit of any Award Employee, or with respect to
which Award or any Affiliate has or may have any liability or obligation;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
(v) "AWARD EMPLOYEE" shall mean any current or former employee,
consultant or director of Award or any Affiliate;
(vi) "AWARD EMPLOYEE AGREEMENT" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas, work
permit or other agreement or contract or arrangement between Award or any
Affiliate and any Award Employee;
(vii) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as amended;
(ix) "AWARD INTERNATIONAL EMPLOYEE PLAN" shall mean each Award Employee
Plan that has been adopted or maintained by Award or any Affiliate, whether
informally or formally, or with respect to which Award or any Affiliate will
or may have any liability, for the benefit of Award Employees who perform
services outside the United States;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "AWARD MULTIEMPLOYER PLAN" shall mean any "Award Pension Plan" (as
defined below) which is a "multiemployer plan," as defined in Section 3(37)
of ERISA;
(xii) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and
(xiii) "AWARD PENSION PLAN" shall mean each Award Employee Plan which is
an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
(b) SCHEDULE. Schedule 2.12(b) contains an accurate and complete list of
each Award Employee Plan and each Award Employee Agreement under each Award
Employee Plan. Award does not have any plan or commitment to establish any new
Award Employee Plan or Award Employee Agreement, to modify any Award Employee
Plan or Award Employee Agreement (except to the extent required by law or to
conform any such Award Employee Plan or Award Employee Agreement to the
requirements of any applicable law, in each case as previously disclosed to
Phoenix in writing, or as required by this Agreement), or to enter into any
Award Employee Plan or Award Employee Agreement.
(c) DOCUMENTS. Award has made available to Phoenix: (i) correct and
complete copies of all documents embodying each Award Employee Plan and each
Award Employee Agreement including
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(without limitation) all amendments thereto and all related trust documents;
(ii) the most recent annual actuarial valuations, if any, prepared for each
Award Employee Plan; (iii) the three (3) most recent annual reports (Form Series
5500 and all schedules and financial statements attached thereto), if any,
required under ERISA or the Code in connection with each Award Employee Plan;
(iv) if the Award Employee Plan is funded, the most recent annual and periodic
accounting of Award Employee Plan assets; (v) the most recent summary plan
description together with the summary(ies) of material modifications thereto, if
any, required under ERISA with respect to each Award Employee Plan; (vi) all IRS
determination, opinion, notification and advisory letters, and all applications
and correspondence to or from the IRS or the DOL with respect to any such
application or letter; (vii) all material written agreements and contracts
relating to each Award Employee Plan, including, but not limited to,
administrative service agreements, group annuity contracts and group insurance
contracts; (viii) all written communications material to any Award Employee or
Award Employees relating to any Award Employee Plan and any proposed Award
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
to Award; (ix) all correspondence to or from any governmental agency relating to
any Award Employee Plan; (x) all COBRA forms and related notices; (xi) all
policies pertaining to fiduciary liability insurance covering the fiduciaries
for each Award Employee Plan; (xii) all discrimination tests for each Award
Employee Plan for the most recent plan year; and (xiii) all registration
statements, annual reports (Form 11-K and all attachments thereto) and
prospectuses prepared in connection with each Award Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Schedule 2.12(d), (i)
Award has performed in all material respects all obligations required to be
performed by it under, is not in default or violation of, and has no knowledge
of any default or violation by any other party to each Award Employee Plan, and
each Award Employee Plan has been established and maintained in all material
respects in accordance with its terms and in compliance in all material respects
with all applicable laws, statutes, orders, rules and regulations, including but
not limited to ERISA or the Code; (ii) each Award Employee Plan intended to
qualify under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code has either received a favorable determination,
opinion, notification or advisory letter from the IRS with respect to each such
Plan as to its qualified status under the Code, including all amendments to the
Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has
remaining a period of time under applicable Treasury regulations or IRS
pronouncements in which to apply for such a letter and make any amendments
necessary to obtain a favorable determination as to the qualified status of each
such Award Employee Plan; (iii) to Award's knowledge, no "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred
with respect to any Award Employee Plan; (iv) there are no actions, suits or
claims pending, or, to the knowledge of Award, threatened or reasonably
anticipated (other than routine claims for benefits) against any Award Employee
Plan or against the assets of any Award Employee Plan; (v) each Award Employee
Plan can be amended, terminated or otherwise discontinued after the Effective
Time in accordance with its terms, without liability to the Phoenix, Merger Sub,
the Surviving Corporation, Award or any of its Affiliates (other than ordinary
administration expenses); (vi) there are no audits, inquiries or proceedings
pending or, to the knowledge of Award or any Affiliates, threatened by the IRS
or DOL with respect to any Award Employee Plan; and (vii) neither Award nor any
Affiliate is subject to any penalty or tax with respect to any Award Employee
Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the Code.
(e) AWARD PENSION PLAN. Neither Award nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any
Award Pension Plan which is subject to Title IV of ERISA or Section 412 of the
Code.
(f) AWARD MULTIEMPLOYER PLANS. At no time has Award or any Affiliate
contributed to or been required to contribute to any Award Multiemployer Plan.
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(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in Schedule
2.12(g), no Award Employee Plan provides, or reflects or represents any
liability to provide, retiree life insurance, retiree health or other retiree
employee welfare benefits to any person for any reason, except as may be
required by COBRA or other applicable statute, and Award has never represented,
promised or contracted (whether in oral or written form) to any Award Employee
(either individually or to Award Employees as a group) or any other person that
such Award Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.
(h) COBRA. Neither Award nor any Affiliate has, prior to the Effective
Time and in any material respect, violated any of the health care continuation
requirements of COBRA, the requirements of FMLA or any similar provisions of
state law applicable to its Award Employees.
(i) EFFECT OF TRANSACTION.
(i) Except as set forth on Schedule 2.12(i), the execution of this
Agreement and the consummation of the transactions contemplated hereby will
not (either alone or upon the occurrence of any additional or subsequent
events) constitute an event under any Award Employee Plan, Award Employee
Agreement, trust or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund benefits
with respect to any Award Employee.
(ii) Except as set forth on Schedule 2.12(i), no payment or benefit
which will or may be made by Award or its Affiliates with respect to any
Award Employee as a result of the transactions contemplated by this
Agreement will be characterized as a "parachute payment," within the meaning
of Section 280G(b)(2) of the Code (but without regard to clause (ii)
thereof).
(j) AWARD INTERNATIONAL EMPLOYEE PLAN. Neither Award nor any Affiliate has
ever maintained, established, sponsored, participated in, or contributed to, any
Award International Employee Plan.
2.13 ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF EQUIPMENT. Award and
each of its subsidiaries has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its material
tangible properties and assets, real, personal and mixed, used in its business,
free and clear of any liens or encumbrances except as reflected in the Award
Financials and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which would not have a Material
Adverse Effect on Award.
2.14 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. Except as would not have a Material Adverse Effect
on Award, no underground storage tanks and no amount of any substance that has
been designated by any Governmental Entity or by applicable federal, state or
local law to be radioactive, toxic, hazardous or otherwise a danger to health or
the environment, including, without limitation, PCBs, asbestos, petroleum, urea-
formaldehyde and all substances listed as hazardous substances pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws (a "HAZARDOUS MATERIAL"), but excluding office
and janitorial supplies, are present, as a result of the actions of Award or any
of its subsidiaries, or, to Award's knowledge, as a result of any actions of any
third party or otherwise, in, on or under any property, including the land and
the improvements, ground water and surface water thereof, that Award or any of
its subsidiaries has at any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. Neither Award nor any of its
subsidiaries has transported, stored, used, manufactured, disposed of, released
or exposed its employees or others to Hazardous Materials in violation of any
law in effect on or before the Closing Date, nor has Award or any of its
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subsidiaries disposed of, transported, sold, used, released, exposed its
employees or others to, or manufactured any product containing a Hazardous
Material (collectively "HAZARDOUS MATERIALS ACTIVITIES") in violation of any
rule, regulation, treaty or statute promulgated by any Governmental Entity in
effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) PERMITS. Award and its subsidiaries currently hold all environmental
approvals, permits, licenses, clearances and consents (the "AWARD ENVIRONMENTAL
PERMITS") material to the conduct of Award's and its subsidiaries' Hazardous
Material Activities and other businesses of Award and its subsidiaries as such
activities and businesses are currently being conducted.
(d) ENVIRONMENTAL LIABILITIES. Award has not received notice of any
material action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim, nor, to Award's knowledge, is any material action,
proceeding, revocation proceeding, amendment procedure, writ, injunction or
claim threatened concerning any Award Environmental Permit, Hazardous Material
or any Hazardous Materials Activity of Award or any of its subsidiaries. Award
is not aware of any fact or circumstance which could involve Award or any of its
subsidiaries in any environmental litigation or impose upon Award or any of its
subsidiaries any environmental liability that would have a Material Adverse
Effect on Award.
2.15 LABOR MATTERS. To Award's knowledge, there are no activities or
proceedings of any labor union to organize any employees of Award or any of its
subsidiaries and there are no strikes, or material slowdowns, work stoppages or
lockouts, or threats thereof by or with respect to any employees of Award or any
of its subsidiaries. Award and its subsidiaries are and have been in compliance
with all applicable laws regarding employment practices, terms and conditions of
employment, and wages and hours (including, without limitation, ERISA, WARN or
any similar state or local law), except for any noncompliance that would not
have a Material Adverse Effect on Award.
2.16 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth in the
Award Schedules, neither Award nor any of its subsidiaries is a party to or is
bound by:
(a) any collective bargaining agreements;
(b) any bonus, deferred compensation, incentive compensation, pension,
profit-sharing or retirement plans, or any other employee benefit plans or
arrangements;
(c) any employment or consulting agreement, contract or commitment with
any officer or director level employee, or member of Award's Board of
Directors, other than those that are terminable by Award or any of its
subsidiaries on no more than thirty days notice without liability or
financial obligation, except to the extent general principles of wrongful
termination law may limit Award's or any of its subsidiaries' ability to
terminate employees at will;
(d) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(e) any agreement of indemnification or guaranty not entered into in the
ordinary course of business other than indemnification agreements between
Award or any of its subsidiaries and any of its officers or directors;
(f) any agreement, contract or commitment containing any covenant
limiting the freedom of Award or any of its subsidiaries to engage in any
line of business or compete with any person;
(g) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $150,000 and not
cancelable without penalty;
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(h) any agreement, contract or commitment currently in force relating to
the disposition or acquisition of assets not in the ordinary course of
business or any ownership interest in any corporation, partnership, joint
venture or other business enterprise;
(i) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit;
(j) any joint marketing or development agreement (excluding agreements
with resellers, value added resellers or independent software vendors
entered into in the ordinary course of business that do not permit such
resellers or vendors to modify Award's or any of its subsidiaries' software
products);
(k) any distribution agreement (identifying any that contain exclusivity
provisions); or
(l) any other agreement, contract or commitment (excluding real and
personal property leases) which involves payment by Award or any of its
subsidiaries under any such agreement, contract or commitment of $150,000 or
more in the aggregate and is not cancelable without penalty within thirty
(30) days.
Neither Award nor any of its subsidiaries, nor to Award's knowledge any other
party to a Award Contract (as defined below), has breached, violated or
defaulted under, or received notice that it has breached, violated or defaulted
under, any of the material terms or conditions of any of the agreements,
contracts or commitments to which Award or any of its subsidiaries is a party or
by which Award or any of its subsidiaries is bound of the type described in
clauses (a) through (l) above (any such agreement, contract or commitment, an
"AWARD CONTRACT") in such a manner as would permit any other party to cancel or
terminate any such Award Contract, or would permit any other party to seek
damages, which would have a Material Adverse Effect on Award.
2.17 POOLING OF INTERESTS. To the knowledge of Award, based on
consultation with its independent accountants, neither Award nor any of its
directors, officers, affiliates or shareholders has taken any action which would
interfere with Phoenix's ability to account for the Merger as a pooling of
interests.
2.18 CHANGE OF CONTROL PAYMENTS. The Award Schedules set forth each plan
or agreement pursuant to which all material amounts may become payable (whether
currently or in the future) to current or former officers and directors of Award
as a result of or in connection with the Merger.
2.19 STATEMENTS; PROXY STATEMENT/PROSPECTUS. The information supplied by
Award for inclusion in the Registration Statement (as defined in Section 3.4(b))
shall not, at the time the Registration Statement is filed with the SEC and at
the time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. The information supplied by Award for inclusion in the proxy
statement/prospectus to be sent to the shareholders of Award and stockholders of
Phoenix in connection with the meeting of Award's shareholders to consider the
approval and adoption of this Agreement and the approval of the Merger (the
"AWARD SHAREHOLDERS' MEETING") and in connection with the meeting of Phoenix's
stockholders to consider the approval (i) of an amendment to Phoenix's
Certificate of Incorporation to increase its authorized share capital, and (ii)
of the issuance of shares of Phoenix Common Stock by virtue of the Merger (the
"PHOENIX STOCKHOLDERS' MEETING") (such proxy statement/prospectus as amended or
supplemented is referred to herein as the "PROXY STATEMENT") shall not, on the
date the Proxy Statement is first mailed to Award's shareholders and Phoenix's
stockholders, at the times of the Award Shareholders' Meeting and the Phoenix
Stockholders' Meeting and at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Award
Shareholders' Meeting or the Phoenix Stockholders' Meeting which has become
false or misleading. The Proxy
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Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder. If, at any time prior
to the Effective Time, any event relating to Award or any of its affiliates,
officers or directors should be discovered by Award which should be set forth in
an amendment to the Registration Statement or a supplement to the Proxy
Statement, Award shall promptly inform Phoenix. Notwithstanding the foregoing,
Award makes no representation or warranty with respect to any information
supplied by Phoenix or Merger Sub which is contained in any of the foregoing
documents.
2.20 BOARD APPROVAL. The Board of Directors of Award has, as of the date
of this Agreement, determined (i) that the Merger is fair to, and in the best
interests of Award and its shareholders, and (ii) to recommend that the
shareholders of Award approve and adopt this Agreement and approve the Merger.
2.21 FAIRNESS OPINION. Award has received a written opinion from
BancAmerica Robertson Stephens, dated as of the date hereof, to the effect that
as of the date hereof the Exchange Ratio is fair to Award's shareholders from a
financial point of view and has delivered to Phoenix a copy of such opinion for
informational purposes only.
2.22 MINUTE BOOKS. The minute books of Award made available to counsel for
Phoenix are the only minute books of Award and contain a reasonably accurate
summary, in all material respects, of all meetings of directors (or committees
thereof) and shareholders or actions by written consent since the time of
incorporation of Award.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PHOENIX AND MERGER SUB
Phoenix and Merger Sub represent and warrant to Award, except as set forth
in the disclosure letter supplied by Phoenix to Award on or before the date
hereof and certified by a duly authorized officer of Phoenix (the "PHOENIX
SCHEDULES"), as follows:
3.1 ORGANIZATION OF PHOENIX. Phoenix and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has the corporate power to own, lease
and operate its property and to carry on its business as now being conducted,
and is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
have a Material Adverse Effect (as defined below) on Phoenix. Phoenix has
delivered to Award a true and complete list of all of Phoenix's subsidiaries,
together with the jurisdiction of incorporation of each subsidiary and Phoenix's
equity interest therein. Phoenix has delivered or made available a true and
correct copy of the Certificate of Incorporation and Bylaws of Phoenix and
similar governing instruments of its subsidiaries, each as amended to date, to
counsel for Award. When used in connection with Phoenix, the term "MATERIAL
ADVERSE EFFECT" means, for purposes of this Agreement, any change, event or
effect that is materially adverse to the business, assets (including intangible
assets), financial condition or results of operations of Phoenix and its
subsidiaries taken as a whole.
3.2 PHOENIX AND MERGER SUB CAPITAL STRUCTURE. The authorized capital stock
of Phoenix consists of 40,000,000 shares of Common Stock, par value $0.001 per
share, of which there were 16,857,933 shares issued and outstanding as of March
31, 1998, and 500,000 shares of Preferred Stock, par value $0.10 per share, of
which no shares are issued or outstanding. The authorized capital stock of
Merger Sub consists of 1,000 shares of Common Stock, no par value, all of which,
as of the date hereof, are issued and outstanding and held by Phoenix. All
outstanding shares of Phoenix Common Stock are duly authorized, validly issued,
fully paid and non-assessable and are not subject to preemptive rights created
by statute, the Certificate of Incorporation or Bylaws of Phoenix or any
agreement or document to which Phoenix is a party or by which it is bound. As of
March 31, 1998, Phoenix had reserved an aggregate of 4,894,866 shares of Common
Stock, net of exercises, for issuance to employees, consultants and non-employee
directors pursuant to the
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1994 Equity Incentive Plan, 1996 Equity Incentive Plan, 1997 Nonstatutory Stock
Option Plan and 1998 Stock Plan (the "Phoenix Stock Option Plans"), under which
options are outstanding for an aggregate of 4,014,396 shares. All shares of
Phoenix Common Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, would be duly authorized, validly issued, fully paid and
nonassessable. Phoenix has delivered to Award a list of each outstanding option
to acquire shares of the Common Stock of Phoenix at March 31, 1998, the name of
the holder of such option, the number of shares subject to such option, the
exercise price of such option, the number of shares as to which such option will
have vested at such date and whether the exercisability of such option will be
accelerated in any way by the transactions contemplated by this Agreement or for
any other reason, and indicate the extent of acceleration, if any, and such list
is true, correct and complete in all material respects. As of March 31, 1998,
there were 301 participants in the Phoenix 1991 Employee Stock Purchase Plan, as
amended. All of the shares of Phoenix Common Stock to be issued in the Merger
will be, when issued in accordance with this Agreement, duly authorized, validly
issued, fully paid and nonassessable.
3.3 OBLIGATIONS WITH RESPECT TO COMMON STOCK. Except as set forth in
Section 3.2, and except pursuant to the Phoenix Rights Plan, there are no equity
securities, partnership interests or similar ownership interests of any class of
Phoenix, or any securities exchangeable or convertible into or exercisable for
such equity securities, partnership interests or similar ownership interests,
issued, reserved for issuance or outstanding. Except for securities Phoenix
owns, directly or indirectly through one or more subsidiaries, there are no
equity securities, partnership interests or similar ownership interests of any
class of any subsidiary of Phoenix, or any security exchangeable or convertible
into or exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except as set
forth in Section 3.2 and except pursuant to the Phoenix Rights Plan, there are
no options, warrants, equity securities, partnership interests or similar
ownership interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which Phoenix or any of its subsidiaries is a
party or by which it is bound obligating Phoenix or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or acquisition,
of any shares of capital stock, partnership interests or similar ownership
interests of Phoenix or any of its subsidiaries or obligating Phoenix or any of
its subsidiaries to grant, extend, accelerate the vesting of or enter into any
such option, warrant, equity security, partnership interests or similar
ownership interests, call, right, commitment or agreement. There are no
registration rights and, to the knowledge of Phoenix there are no voting trusts,
proxies or other agreements or understandings with respect to any equity
security, partnership interests or similar interests of any class of Phoenix or
with respect to any equity security, partnership interests or similar ownership
interests of any class of any of its subsidiaries.
3.4 AUTHORITY.
(a) Each of Phoenix and Merger Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, have been duly authorized
by all necessary corporate action on the part of Phoenix and, in the case of
this Agreement, Merger Sub, subject only to the filing and recordation of the
Agreement of Merger pursuant to California Law and the approval by Phoenix's
stockholders of the issuance of Phoenix Common Stock by virtue of the Merger. A
vote of the holders of at least a majority of the outstanding shares of Phoenix
Common Stock is required for Phoenix's stockholders to approve each of (i) the
amendment of Phoenix's Certificate of Incorporation to increase its authorized
share capital and (ii) the issuance of shares of Phoenix Common Stock by virtue
of the Merger. This Agreement has been duly executed and delivered by each of
Phoenix and Merger Sub, and, assuming the due authorization, execution and
delivery by Award, constitutes the valid and binding obligations of Phoenix and
Merger Sub, enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy and other similar laws and general principles of
equity. The execution and
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delivery of this Agreement by each of Phoenix and Merger Sub do not, and the
performance of this Agreement by each of Phoenix and Merger Sub will not, (i)
conflict with or violate the Certificate of Incorporation or Bylaws of Phoenix
or the Articles of Incorporation or Bylaws of Merger Sub or the equivalent
organizational documents of any of Phoenix's other subsidiaries, (ii) subject to
obtaining the approval of Phoenix's stockholders of the issuance of shares of
Phoenix Common Stock by virtue of the Merger as contemplated in Section 5.2 and
compliance with the requirements set forth in Section 3.4(b) below, conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to Phoenix or any of its subsidiaries (including Merger Sub) or by which its or
any of their respective properties is bound or affected, or (iii) result in any
breach of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or impair Phoenix's rights or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Phoenix
or any of its subsidiaries (including Merger Sub) pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Phoenix or any of its subsidiaries
(including Merger Sub) is a party or by which Phoenix or any of its subsidiaries
or its or any of their respective properties are bound or affected, except, with
respect to clauses (ii) and (iii), for any such conflicts, violations, defaults
or other occurrences that would not have a Material Adverse Effect on Phoenix.
The Phoenix Schedules list all consents, waivers and approvals under any of
Phoenix's or any of its subsidiaries' agreements, contracts, licenses or leases
required to be obtained in connection with the consummation of the transactions
contemplated hereby, which, if not obtained, would have a Material Adverse
Effect on Award or Phoenix or have a material adverse effect on the ability of
the parties to consummate the Merger.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to Phoenix or Merger Sub in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby,
except for (i) the filing of a Form S-4 Registration Statement (the
"REGISTRATION STATEMENT") with the SEC in accordance with the Securities Act,
(ii) the filing of the Agreement of Merger with the Secretary of State of the
State of California, (iii) the filing of the Proxy Statement with the SEC in
accordance with the Exchange Act, (iv) the filing of a Current Report on Form
8-K with the SEC, (v) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the HSR Act and the securities or
antitrust laws of any foreign country and (vi) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Phoenix or Award or have a
material adverse effect on the ability of the parties to consummate the Merger.
3.5 SEC FILINGS; PHOENIX FINANCIAL STATEMENTS.
(a) Phoenix has filed all forms, reports and documents required to be filed
by it with the SEC since January 1, 1995. All such required forms, reports and
documents (including those that Phoenix may file subsequent to the date hereof
but excluding any exhibits to such forms, reports and schedules) are referred to
herein as the "PHOENIX SEC REPORTS." As of their respective dates, the Phoenix
SEC Reports (i) were prepared in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Phoenix SEC Reports, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of Phoenix's subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in Phoenix SEC Reports (the "PHOENIX
FINANCIALS"), including any Phoenix SEC Reports filed after the date hereof
until the Closing, (x) complied as to form in all material respects with the
published
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rules and regulations of the SEC with respect thereto, (y) was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act) and (z) fairly presented the consolidated financial
position of Phoenix and its subsidiaries as at the respective dates thereof and
the consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not, or are not
expected to be, material in amount. The balance sheet of Phoenix contained in
Phoenix SEC Reports as of December 31, 1997 is hereinafter referred to as the
"PHOENIX BALANCE SHEET." Except as disclosed in the Phoenix Financials, neither
Phoenix nor any of its subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise) of a nature required to be disclosed on a balance sheet
or in the related notes to the consolidated financial statements prepared in
accordance with GAAP which are, individually or in the aggregate, material to
the business, results of operations or financial condition of Phoenix and its
subsidiaries taken as a whole, except liabilities (i) provided for in the
Phoenix Balance Sheet, or (ii) incurred since the date of the Phoenix Balance
Sheet in the ordinary course of business consistent with past practices.
(c) Phoenix has heretofore furnished to Award a complete and correct copy of
any amendments or modifications, which have not yet been filed with the SEC but
which are required to be filed, to agreements, documents or other instruments
which previously had been filed by Phoenix with the SEC pursuant to the
Securities Act or the Exchange Act.
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Phoenix
Balance Sheet through the date of this Agreement, there has not been: (i) any
Material Adverse Effect on Phoenix, or (ii) any material change by Phoenix in
its accounting methods, principles or practices, except as required by
concurrent changes in GAAP.
3.7 TAX RETURNS AND AUDITS.
(a) All Returns relating to Taxes required to be filed with any tax
authority by or on behalf of the Phoenix and each of its subsidiaries with
respect to any taxable period ending on or before the Closing Date if due on or
before the Closing Date (i) have been or will be filed on or before the
applicable due date (including any extensions of such due date if properly
obtained), and (ii) have been, or will be when filed, prepared in all material
respects in compliance with all applicable legal requirements. All amounts shown
on the Tax Returns to be due on or before the Closing Date have been or will be
paid on or before the Closing Date.
(b) Phoenix's financial statements fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through the dates thereof in
accordance with GAAP. Phoenix and each of Phoenix's subsidiaries will establish,
in the ordinary course of business and consistent with its past practices,
reserves adequate for the payment of all Taxes for the period from the date of
this Agreement through the Closing Date.
(c) Since January 1, 1995, no Tax Return of Phoenix or any of its
subsidiaries has been examined or audited by any applicable tax authority. No
extension or waiver (other than the normal extension occurring by reason of an
extension of time to file a Return) of the limitation period applicable to any
such Returns has been granted (by Phoenix or any other person), and no such
extension or waiver has been requested from Phoenix or any of its subsidiaries.
(d) No claim or legal proceeding is pending or, to the best of the knowledge
of the Company, has been threatened against or with respect to Phoenix or its
subsidiaries in respect of any material Tax. There are no unsatisfied
liabilities for material Taxes (including liabilities for interest, additions to
tax and penalties thereon and related expenses) with respect to any notice of
deficiency or similar document received by Phoenix or any of its subsidiaries
with respect to any material Tax (other than liabilities for Taxes asserted
under any such notice of deficiency or similar document which are being
contested in good
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faith by Phoenix or any of its subsidiaries and with respect to which adequate
reserves for payment have been established). There are no liens for material
Taxes upon any of the assets of Phoenix or any of its subsidiaries except liens
for current Taxes not yet due and payable. None of Phoenix or any of its
subsidiaries has entered into or become bound by any agreement or consent
pursuant to Section 341(f) of the Code. None of Phoenix or any of its
subsidiaries has been, and none of Phoenix or any of its subsidiaries will be,
required to include any adjustment in taxable income for any tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions or events
occurring, or accounting methods employed, prior to the Closing.
(e) There is no agreement, plan, arrangement or other contract covering any
employee or independent contractor or former employee or independent contractor
of Phoenix or any of its subsidiaries that, considered individually or
considered collectively with any other such agreement, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the
Code. None of Phoenix or any of its subsidiaries is, or has ever been, a party
to or bound by any tax indemnity agreement, tax sharing agreement, tax
allocation agreement or similar agreement.
3.8 INTELLECTUAL PROPERTY.
(a) Phoenix and its subsidiaries own, or have the right to use, sell or
license all intellectual property necessary or required for the conduct of their
respective businesses as presently conducted (such intellectual property and the
rights thereto are collectively referred to herein as the "PHOENIX IP RIGHTS").
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
material breach of any instrument or agreement governing any Phoenix IP Rights
(the "PHOENIX IP RIGHTS AGREEMENTS"), will not cause the forfeiture or
termination or give rise to a right of forfeiture or termination of any Phoenix
IP Rights or impair the right of Phoenix and its subsidiaries, the Surviving
Corporation or Phoenix to use, sell or license any Phoenix IP Rights or portion
thereof, except for the occurrence of any such breach, forfeiture, termination
or impairment that would not result in a Material Adverse Effect on Phoenix.
(c) (i) neither the manufacture, marketing, license, sale or intended use of
any product or technology currently licensed or sold or under development by
Phoenix or any of its subsidiaries violates any license or agreement between
Phoenix or any of its subsidiaries and any third party or infringes any
intellectual property right of any other party; and (ii) there is no pending or,
to the knowledge of Phoenix, threatened claim or litigation contesting the
validity, ownership or right to use, sell, license or dispose of any Phoenix IP
Rights, nor has Phoenix received any written notice asserting that any Phoenix
IP Rights or the proposed use, sale, license or disposition thereof conflicts or
will conflict with the rights of any other party, except, with respect to
clauses (i) and (ii), for any violations, infringements, claims or litigation
that would not have a Material Adverse Effect on Phoenix.
(d) Phoenix has taken reasonable and practicable steps designed to safeguard
and maintain the secrecy and confidentiality of, and its proprietary rights in,
all Phoenix IP Rights.
3.9 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Neither Phoenix nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to Phoenix or any of its subsidiaries or by which Phoenix or
any of its subsidiaries or any of their respective properties is bound or
affected, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Phoenix or any of its subsidiaries is a party or by which Phoenix or any of its
subsidiaries or Phoenix or any of its subsidiaries or any of their respective
properties is bound or affected, except for any conflicts, defaults or
violations which would not have a Material Adverse Effect on Phoenix. To the
knowledge of Phoenix, no investigation or review by any governmental or
regulatory body or
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authority is pending or threatened against Phoenix or its subsidiaries, nor has
any governmental or regulatory body or authority indicated an intention to
conduct the same, other than, in each such case, those the outcome of which
would not have a Material Adverse Effect on Phoenix.
(b) Phoenix and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to the operation of the business of Phoenix and its subsidiaries taken
as a whole (collectively, the "PHOENIX PERMITS"). Phoenix and its subsidiaries
are in compliance with the terms of Phoenix Permits, except where the failure to
so comply would not have a Material Adverse Effect on Phoenix.
3.10 LITIGATION. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which Phoenix or any of its subsidiaries has
received any notice of assertion nor, to Phoenix's knowledge, is there a
threatened action, suit, proceeding, claim, arbitration or investigation against
Phoenix or any of its subsidiaries which would have a Material Adverse Effect on
Phoenix, or which in any manner challenges or seeks to prevent, enjoin, alter or
delay any of the transactions contemplated by this Agreement.
3.11 BROKERS' AND FINDERS' FEES. Except for fees payable to Broadview
Associates, LLC pursuant to an engagement letter dated January 27, 1998, a copy
of which has been provided to Award, Phoenix has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.12 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of "Affiliate" set
forth in Section 3.12(a)(i) below (which definition shall apply only to this
Section 3.12), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity under common
control with Phoenix within the meaning of Section 414(b), (c), (m) or (o)
of the Code and the regulations issued thereunder;
(ii) "PHOENIX EMPLOYEE PLAN" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written or unwritten or
otherwise, funded or unfunded, including without limitation, each "employee
benefit plan," within the meaning of Section 3(3) of ERISA which is or has
been maintained, contributed to, or required to be contributed to, by
Phoenix or any Affiliate for the benefit of any Employee, or with respect to
which Phoenix or any Affiliate has or may have any liability or obligation;
(iii) "PHOENIX EMPLOYEE" shall mean any current or former employee,
consultant or director of Phoenix or any Affiliate;
(iv) "PHOENIX EMPLOYEE AGREEMENT" shall mean each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or other agreement or contract or arrangement between
Phoenix or any Affiliate and any Employee;
(v) "PHOENIX INTERNATIONAL EMPLOYEE PLAN" shall mean each Phoenix
Employee Plan that has been adopted or maintained by Phoenix or any
Affiliate, whether informally or formally, or with respect to which the
Phoenix or any Affiliate will or may have any liability, for the benefit of
Employees who perform services outside the United States;
(vi) "PHOENIX MULTIEMPLOYER PLAN" shall mean any "Phoenix Pension Plan"
(as defined below) which is a "multiemployer plan," as defined in Section
3(37) of ERISA;
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(vii) "PHOENIX PENSION PLAN" shall mean each Phoenix Employee Plan which
is an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
(b) SCHEDULE. Schedule 3.12(b) contains an accurate and complete list of
each Phoenix Employee Plan and each Phoenix Employee Agreement under each
Phoenix Employee Plan. Phoenix does not have any plan or commitment to establish
any new Phoenix Employee Plan or Phoenix Employee Agreement, to modify any
Phoenix Employee Plan or Phoenix Employee Agreement (except to the extent
required by law or to conform any such Phoenix Employee Plan or Phoenix Employee
Agreement to the requirements of any applicable law, in each case as previously
disclosed to Award in writing, or as required by this Agreement), or to enter
into any Phoenix Employee Plan or Phoenix Employee Agreement.
(c) DOCUMENTS. Phoenix has made available to Award: (i) correct and
complete copies of all documents embodying each Phoenix Employee Plan and each
Phoenix Employee Agreement including (without limitation) all amendments thereto
and all related trust documents; (ii) the most recent annual actuarial
valuations, if any, prepared for each Phoenix Employee Plan; (iii) the three (3)
most recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Phoenix Employee Plan; (iv) if the Phoenix Employee Plan is
funded, the most recent annual and periodic accounting of Phoenix Employee Plan
assets; (v) the most recent summary plan description together with the
summary(ies) of material modifications thereto, if any, required under ERISA
with respect to each Phoenix Employee Plan; (vi) all IRS determination, opinion,
notification and advisory letters, and all applications and correspondence to or
from the IRS or the DOL with respect to any such application or letter; (vii)
all material written agreements and contracts relating to each Phoenix Employee
Plan, including, but not limited to, administrative service agreements, group
annuity contracts and group insurance contracts; (viii) all written
communications material to any Phoenix Employee or Phoenix Employees relating to
any Phoenix Employee Plan and any proposed Phoenix Employee Plans, in each case,
relating to any amendments, terminations, establishments, increases or decreases
in benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to Phoenix; (ix) all correspondence to or
from any governmental agency relating to any Phoenix Employee Plan; (x) all
COBRA forms and related notices; (xi) all policies pertaining to fiduciary
liability insurance covering the fiduciaries for each Phoenix Employee Plan;
(xii) all discrimination tests for each Phoenix Employee Plan for the most
recent plan year; and (xiii) all registration statements, annual reports (Form
11-K and all attachments thereto) and prospectuses prepared in connection with
each Phoenix Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Schedule 3.12(d), (i)
Phoenix has performed in all material respects all obligations required to be
performed by it under, is not in default or violation of, and has no knowledge
of any default or violation by any other party to each Phoenix Employee Plan,
and each Phoenix Employee Plan has been established and maintained in all
material respects in accordance with its terms and in compliance in all material
respects with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) each Phoenix Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either received a favorable
determination, opinion, notification or advisory letter from the IRS with
respect to each such Plan as to its qualified status under the Code, including
all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, or has remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such a letter and make
any amendments necessary to obtain a favorable determination as to the qualified
status of each such Phoenix Employee Plan; (iii) to Phoenix's knowledge, no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of
ERISA, has occurred with respect to any Phoenix Employee Plan; (iv) there are no
actions, suits or claims pending, or, to the knowledge of Phoenix, threatened or
reasonably anticipated (other than routine claims for benefits) against any
Phoenix Employee Plan or against the assets of any Phoenix Employee Plan; (v)
each Phoenix Employee Plan can be amended, terminated or otherwise discontinued
after the
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Effective Time in accordance with its terms, without liability to the Award, the
Surviving Corporation, Phoenix or any of its Affiliates (other than ordinary
administration expenses); (vi) there are no audits, inquiries or proceedings
pending or, to the knowledge of Phoenix or any Affiliates, threatened by the IRS
or DOL with respect to any Phoenix Employee Plan; and (vii) neither Phoenix nor
any Affiliate is subject to any penalty or tax with respect to any Phoenix
Employee Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the
Code.
(e) PHOENIX PENSION PLAN. Neither Phoenix nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any
Phoenix Pension Plan which is subject to Title IV of ERISA or Section 412 of the
Code.
(f) PHOENIX MULTIEMPLOYER PLANS. At no time has Phoenix or any Affiliate
contributed to or been required to contribute to any Phoenix Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in Schedule
3.12(g), no Phoenix Employee Plan provides, or reflects or represents any
liability to provide, retiree life insurance, retiree health or other retiree
employee welfare benefits to any person for any reason, except as may be
required by COBRA or other applicable statute, and Phoenix has never
represented, promised or contracted (whether in oral or written form) to any
Phoenix Employee (either individually or to Phoenix Employees as a group) or any
other person that such Phoenix Employee(s) or other person would be provided
with retiree life insurance, retiree health or other retiree employee welfare
benefit, except to the extent required by statute.
(h) COBRA. Neither Phoenix nor any Affiliate has, prior to the Effective
Time and in any material respect, violated any of the health care continuation
requirements of COBRA, the requirements of FMLA or any similar provisions of
state law applicable to its Phoenix Employees.
(i) EFFECT OF TRANSACTION.
(i) Except as set forth on Schedule 3.12(i), the execution of this
Agreement and the consummation of the transactions contemplated hereby will
not (either alone or upon the occurrence of any additional or subsequent
events) constitute an event under any Phoenix Employee Plan, Phoenix
Employee Agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any Phoenix Employee.
(ii) Except as set forth on Schedule 3.12(i), no payment or benefit
which will or may be made by Phoenix or its Affiliates with respect to any
Phoenix Employee as a result of the transactions contemplated by this
Agreement or otherwise will be characterized as a "parachute payment,"
within the meaning of Section 280G(b)(2) of the Code (but without regard to
clause (ii) thereof).
(j) PHOENIX INTERNATIONAL EMPLOYEE PLAN. Neither Phoenix nor any Affiliate
has ever maintained, established, sponsored, participated in, or contributed to,
any Phoenix International Employee Plan.
3.13 ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF EQUIPMENT. Phoenix
and each of its subsidiaries has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its material
tangible properties and assets, real, personal and mixed, used in its business,
free and clear of any liens or encumbrances, except as reflected in the Phoenix
Financials and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which would not have a Material
Adverse Effect on Phoenix.
3.14 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. Except as would not have a Material Adverse Effect
on Phoenix, no Hazardous Material, but excluding office and janitorial supplies,
are present, as a result of the actions of Phoenix or any of its subsidiaries,
or, to Phoenix's knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and
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surface water thereof, that Phoenix or any of its subsidiaries has at any time
owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. Except as would not have a Material
Adverse Effect on Phoenix, neither Phoenix nor any of its subsidiaries has
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has Phoenix or any of its subsidiaries engaged
in any Hazardous Materials Activity in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) PERMITS. Phoenix and its subsidiaries currently hold all environmental
approvals, permits, licenses, clearances and consents (the "PHOENIX
ENVIRONMENTAL PERMITS") material to the conduct of Phoenix's and its
subsidiaries' Hazardous Material Activities and other businesses of Phoenix and
its subsidiaries as such activities and businesses are currently being
conducted.
(d) ENVIRONMENTAL LIABILITIES. Phoenix has not received notice of any
material action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim, nor, to Phoenix's knowledge, is any material action,
proceeding, revocation proceeding, amendment procedure, writ, injunction or
claim threatened concerning any Phoenix Environmental Permit, Hazardous Material
or any Hazardous Materials Activity of Phoenix or any of its subsidiaries.
Phoenix is not aware of any fact or circumstance which could involve Phoenix or
any of its subsidiaries in any environmental litigation or impose upon Phoenix
or any of its subsidiaries any environmental liability that would have a
Material Adverse Effect on Phoenix.
3.15 LABOR MATTERS. To Phoenix's knowledge, there are no activities or
proceedings of any labor union to organize any employees of Phoenix or any of
its subsidiaries and there are no strikes, or material slowdowns, work stoppages
or lockouts, or threats thereof by or with respect to any employees of Phoenix
or any of its subsidiaries. Phoenix and its subsidiaries are and have been in
compliance with all applicable laws regarding employment practices, terms and
conditions of employment, and wages and hours (including, without limitation,
ERISA, WARN or any similar state or local law), except for any noncompliance
that would not have a Material Adverse Effect on Phoenix.
3.16 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth in the
Phoenix Schedules, neither Phoenix nor any of its subsidiaries is a party to or
is bound by:
(a) any collective bargaining agreements;
(b) any bonus, deferred compensation, incentive compensation, pension,
profit-sharing or retirement plans, or any other employee benefit plans or
arrangements;
(c) any employment or consulting agreement, contract or commitment with
any officer or director level employee, or member of Phoenix's Board of
Directors, other than those that are terminable by Phoenix or any of its
subsidiaries on no more than thirty days notice without liability or
financial obligation, except to the extent general principles of wrongful
termination law may limit Phoenix's or any of its subsidiaries' ability to
terminate employees at will;
(d) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(e) any agreement of indemnification or guaranty not entered into in the
ordinary course of business other than indemnification agreements between
Phoenix or any of its subsidiaries and any of its officers or directors;
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(f) any agreement, contract or commitment containing any covenant
limiting the freedom of Phoenix or any of its subsidiaries to engage in any
line of business or compete with any person;
(g) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $150,000 and not
cancelable without penalty;
(h) any agreement, contract or commitment currently in force relating to
the disposition or acquisition of assets not in the ordinary course of
business or any ownership interest in any corporation, partnership, joint
venture or other business enterprise;
(i) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit;
(j) any joint marketing or development agreement (excluding agreements
with resellers, value added resellers or independent software vendors
entered into in the ordinary course of business that do not permit such
resellers or vendors to modify Phoenix's or any of its subsidiaries'
software products);
(k) any distribution agreement (identifying any that contain exclusivity
provisions); or
(l) any other agreement, contract or commitment (excluding real and
personal property leases) which involve payment by Phoenix or any of its
subsidiaries under any such agreement, contract or commitment of $150,000 or
more in the aggregate and is not cancelable without penalty within thirty
(30) days.
Neither Phoenix nor any of its subsidiaries, nor to Phoenix's knowledge any
other party to a Phoenix Contract (as defined below), has breached, violated or
defaulted under, or received notice that it has breached violated or defaulted
under, any of the material terms or conditions of any of the agreements,
contracts or commitments to which Phoenix is a party or by which it is bound of
the type described in clauses (a) through (l) above (any such agreement,
contract or commitment, an "PHOENIX CONTRACT") in such a manner as would permit
any other party to cancel or terminate any such Phoenix Contract, or would
permit any other party to seek damages, which would have a Material Adverse
Effect on Phoenix.
3.17 POOLING OF INTERESTS. To the knowledge of Phoenix, based on
consultation with its independent accountants, neither Phoenix nor any of its
directors, officers or stockholders has taken any action which would interfere
with Phoenix's ability to account for the Merger as a pooling of interests.
3.18 CHANGE OF CONTROL PAYMENTS. The Phoenix Schedules set forth each plan
or agreement pursuant to which all material amounts may become payable (whether
currently or in the future) to current or former officers and directors of
Phoenix as a result of or in connection with the Merger.
3.19 STATEMENTS; PROXY STATEMENT/PROSPECTUS. The information supplied by
Phoenix for inclusion in the Registration Statement (as defined in Section
2.4(b)) shall not, at the time the Registration Statement is filed with the SEC
and at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading. The information supplied by Phoenix for inclusion in the Proxy
Statement shall not, on the date the Proxy Statement is first mailed to
Phoenix's stockholders and Award's shareholders, at the time of the Phoenix
Stockholders' Meeting or Award Shareholders' Meeting and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Phoenix Stockholders' Meeting or Award Shareholders' Meeting
which has become false or misleading. The Proxy Statement will comply as to form
in all material respects with the provisions of the Exchange Act and the rules
and regulations thereunder. If, at any time prior to the Effective Time, any
event relating to Phoenix or any of its affiliates, officers or directors should
be discovered by Phoenix which
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should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, Phoenix shall promptly inform Award.
Notwithstanding the foregoing, Phoenix makes no representation or warranty with
respect to any information supplied by Award which is contained in any of the
foregoing documents.
3.20 BOARD APPROVAL. The Board of Directors of Phoenix has, as of the date
of this Agreement, determined (i) that the Merger is fair to, and in the best
interests of Phoenix and its stockholders, and (ii) to recommend that the
stockholders of Phoenix approve the issuance of shares of Phoenix Common Stock
by virtue of the Merger.
3.21 FAIRNESS OPINION. Phoenix has received a written opinion from
Broadview Associates LLC, dated as of the date hereof, to the effect that as of
the date hereof, the Exchange Ratio is fair to Phoenix's stockholders from a
financial point of view and has delivered to Award a copy of such opinion for
informational purposes only.
3.22 MINUTE BOOKS. The minute books of Phoenix made available to counsel
for Award are the only minute books of Phoenix and contain a reasonably accurate
summary, in all material respects, of all meetings of directors (or committees
thereof) and stockholders or actions by written consent since the time of
incorporation of Phoenix.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant
to its terms or the Effective Time, Award (which for the purposes of this
Article 4 shall include Award and each of its subsidiaries) and Phoenix (which
for the purposes of this Article 4 shall include Phoenix and each of its
subsidiaries) agree, except (i) in the case of Award as provided in Article 4 of
the Award Schedules and in the case of Phoenix as provided in Article 4 of
Phoenix Schedules, or (ii) to the extent that the other party shall otherwise
consent in writing, to carry on its business diligently and in accordance with
good commercial practice and to carry on its business in the usual, regular and
ordinary course, in substantially the same manner as heretofore conducted and in
compliance with all applicable laws and regulations, to pay its debts and taxes
when due subject to good faith disputes over such debts or taxes, to pay or
perform other material obligations when due, and use its commercially reasonable
efforts consistent with past practices and policies to preserve intact its
present business organization, keep available the services of its present
officers and employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings. In furtherance of the foregoing and subject to applicable law, Award
and Phoenix agree to confer, as promptly as practicable, prior to taking any
material actions or making any material management decisions with respect to the
conduct of business subject to the terms and provisions of that certain
confidentiality agreement dated as of March 28, 1998 by and between Award and
Phoenix (the "Confidentiality Agreement"). In addition, each of Award and
Phoenix will promptly notify the other of any material event involving its
business or operations subject to the terms and provisions of the
Confidentiality Agreement. Furthermore, Award and Phoenix agree that, during the
period prior to the Effective Time, they will exchange monthly summary financial
data and that their respective senior management groups will participate in
informational meetings on a monthly basis, at such time and place as shall be
mutually agreeable subject to the terms and provisions of the Confidentiality
Agreement. No information or knowledge obtained in any investigation will affect
or be deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger.
In addition, except as permitted by the terms of this Agreement, and except
in the case of Award as provided in Article 4 of the Award Schedules and in the
case of Phoenix in connection with the Phoenix Rights Plan or as provided in
Article 4 of Phoenix Schedules, without the prior written consent of the
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other, neither Award nor Phoenix shall do any of the following, and neither
Award nor Phoenix shall permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights; accelerate, amend or change the
period of exercisability of options or restricted stock; or reprice options
granted under any employee, consultant or director stock plans; or authorize
cash payments in exchange for any options granted under any of such plans;
(b) Enter into any material partnership arrangements, joint development
agreements or strategic alliances, agreements to create standards or
agreements with "Standards" bodies;
(c) Grant any severance or termination pay to any officer or employee
except payments in amounts consistent with policies and past practices or
pursuant to written agreements outstanding, or policies existing, on the
date hereof and as previously disclosed in writing to the other, or adopt
any new severance plan;
(d) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Award IP Rights or
Phoenix IP Rights, as the case may be other than in the ordinary course of
business, or enter into grants to future patent rights, other than in the
ordinary course of business;
(e) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any capital stock, or
split, combine or reclassify any capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock, other than pursuant to the Phoenix
Rights Plan;
(f) Repurchase or otherwise acquire, directly or indirectly, any shares
of capital stock except pursuant to rights of repurchase of any such shares
under any employee, consultant or director stock plan or agreement existing
on the date hereof, and other than pursuant to the Phoenix Rights Plan;
(g) Issue, deliver, sell, authorize or propose the issuance, delivery or
sale of any shares of capital stock or any securities convertible into
shares of capital stock, or subscriptions, rights, warrants or options to
acquire and shares of capital stock or any securities convertible into
shares of capital stock, or enter into other agreements or commitments of
any character obligating it to issue any such shares or convertible
securities, other than (i) shares of Award Common Stock or Phoenix Common
Stock, as the case may be, issued pursuant to the exercise of stock options
or warrants therefor outstanding as of the date of this Agreement, (ii)
options to purchase shares of Award Common Stock or Phoenix Common Stock, as
the case may be, to be granted at fair market value in the ordinary course
of business, consistent with past practice and in accordance with stock
option plans existing on the date hereof, (iii) shares of Award Common Stock
or Phoenix Common Stock, as the case may be, issuable upon the exercise of
the options referred to in clause (ii), (iv) shares of Award Common Stock or
Phoenix Common Stock, as the case may be, issuable to participants in the
Phoenix 1991 Employee Stock Purchase Plan or the Award Employee Stock
Purchase Plan consistent with past practice and the terms thereof, and (v)
shares of Phoenix Preferred Stock pursuant to the Phoenix Rights Plan;
(h) Cause, permit or propose any amendments to any charter document or
bylaw (or similar governing instruments of any subsidiaries);
(i) Except as set forth on the Award Schedules or Phoenix Schedules, as
the case may be, acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity interest in or a material portion of the
assets of, or by any other manner, any business or any corporation,
partnership interest, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets which are
material, individually or in the aggregate, to the business of Award or
Phoenix, as the case may be, or enter into any joint ventures, strategic
partnerships or alliances;
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(j) Sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate,
to the business of Award or Phoenix, as the case may be, except in the
ordinary course of business consistent with past practice;
(k) Incur any indebtedness for borrowed money (other than ordinary
course trade payables or pursuant to existing credit facilities in the
ordinary course of business) or guarantee any such indebtedness or issue or
sell any debt securities or warrants or rights to acquire debt securities of
Award or Phoenix, as the case may be, or guarantee any debt securities of
others;
(l) Adopt or amend any employee benefit or employee stock purchase or
employee option plan, or enter into any employment contract, pay any special
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates of its officers or employees other than in the
ordinary course of business, consistent with past practice, or change in any
material respect any management policies or procedures;
(m) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business;
(n) Make any grant of exclusive rights to any third party;
(o) Take any action that would be reasonably likely to interfere with
Phoenix's ability to account for the Merger as a pooling of interests; or
(p) Agree in writing or otherwise to take any of the actions described
in Article 4 (a) through (o) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; OTHER FILINGS. As
promptly as practicable after the execution of this Agreement, Award and Phoenix
will prepare and file with the SEC the Proxy Statement, and Phoenix will prepare
and file with the SEC the Registration Statement in which the Proxy Statement
will be included as a prospectus. Each of Award and Phoenix will respond to any
comments of the SEC, will use its respective commercially reasonable efforts to
have the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing and will cause the Proxy Statement to
be mailed to its respective shareholders or stockholders, as the case may be, at
the earliest practicable time. As promptly as practicable after the date of this
Agreement, Award and Phoenix will prepare and file any other filings required
under the Exchange Act, the Securities Act or any other Federal, foreign or Blue
Sky laws relating to the Merger and the transactions contemplated by this
Agreement (the "Other Filings"). Each of Award and Phoenix will notify the other
promptly upon the receipt of any comments from the SEC or its staff and of any
request by the SEC or its staff or any other government officials for amendments
or supplements to the Registration Statement, the Proxy Statement or any Other
Filing or for additional information and will supply the other with copies of
all correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the other
hand, with respect to the Registration Statement, the Proxy Statement, the
Merger or any Other Filing. The Proxy Statement, the Registration Statement and
the Other Filings will comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Proxy Statement, the Registration Statement or any Other
Filing, Phoenix or Award, as the case may be, will promptly inform the other of
such occurrence and cooperate in filing with the SEC or any other government
entity, and/or mailing to the shareholders of Award and/or the stockholders of
Phoenix, such amendment or supplement. The Proxy Statement will include the
recommendation of the Board of Directors of Award in favor of adoption and
approval of this Agreement and
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approval of the Merger. In addition, the Proxy Statement will include the
recommendation of the Board of Directors of Phoenix in favor of the issuance of
shares of Phoenix Common Stock by virtue of the Merger.
5.2 MEETINGS OF SHAREHOLDERS AND STOCKHOLDERS. Promptly after the date
hereof, Award will take all action necessary in accordance with California Law
and its Articles of Incorporation and Bylaws to convene the Award Shareholders'
Meeting to be held as promptly as practicable for the purpose of voting upon
this Agreement. Award will consult with Phoenix and use its commercially
reasonable efforts to hold the Award Shareholders' Meeting on the same day as
the Phoenix Stockholders' Meeting. Promptly after the date hereof, Phoenix will
take all action necessary in accordance with the Delaware General Corporation
Law and its Certificate of Incorporation and Bylaws to convene the Phoenix
Stockholders' Meeting to be held as promptly as practicable for the purpose of
voting upon the issuance of shares of Phoenix Common Stock by virtue of the
Merger. Phoenix will consult with Award and will use its commercially reasonable
efforts to hold the Phoenix Stockholders' Meeting on the same day as the Award
Shareholders' Meeting. Award will use its best efforts to solicit from its
shareholders proxies in favor of the adoption and approval of this Agreement and
the Merger, and will take all other action necessary or advisable to secure the
vote or consent of its shareholders required by the rules of the National
Association of Securities Dealers, Inc. or California Law. Phoenix will use its
best efforts to solicit from its stockholders proxies in favor of the issuance
of shares of Phoenix Common Stock by virtue of the Merger, and will take all
other action necessary or advisable to secure the vote or consent of its
stockholders required by the Rules of the National Association of Securities
Dealers, Inc. or the Delaware General Corporation Law to obtain such approvals.
5.3 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Subject to the Confidentiality Agreement and that certain Joint Defense
Agreement, dated as of April 6, 1998, by and between counsel for Award and
counsel for Phoenix (the "Joint Defense Agreement"), each party will afford the
other party and its accountants, counsel and other representatives reasonable
access during normal business hours to the properties, books, records and
personnel of the other party during the period prior to the Effective Time to
obtain all information concerning the business, including the status of product
development efforts, properties, results of operations and personnel of such
party, as the other party may reasonably request. No information or knowledge
obtained in any investigation pursuant to this Section 5.3 will affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger.
(b) The parties acknowledge that Award and Phoenix have previously executed
the Confidentiality Agreement and Joint Defense Agreement, which Confidentiality
Agreement and Joint Defense Agreement will continue in full force and effect in
accordance with their terms.
5.4 NO SOLICITATION.
(a) RESTRICTIONS ON AWARD.
(i) From and after the date of this Agreement until the earlier of the
Effective Time or termination of this Agreement pursuant to its terms, Award
and its subsidiaries shall not, and will instruct their respective
directors, officers, employees, representatives, investment bankers, agents
and affiliates not to, directly or indirectly, (i) solicit or knowingly
encourage submission of any proposals or offers by any person, entity or
group (other than Phoenix and its affiliates, agents and representatives),
or (ii) participate in any discussions or negotiations with, or disclose any
non-public information concerning Award or any of its subsidiaries to, or
afford any access to the properties, books or records of Award or any of its
subsidiaries to, or otherwise assist or facilitate, or enter into any
agreement or understanding with, any person, entity or group (other than
Phoenix and its affiliates, agents and representatives), in connection with
any Acquisition Proposal with respect to Award. For the purposes of this
Agreement, an "ACQUISITION PROPOSAL" with respect to an entity means any
proposal or offer relating to (i) any merger, consolidation, sale of
substantial assets or similar transactions involving the
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entity or any subsidiaries of the entity (other than sales of assets or
inventory in the ordinary course of business or permitted under the terms of
this Agreement), (ii) sale of 10% or more of the outstanding shares of
capital stock of the entity (including without limitation by way of a tender
offer or an exchange offer), (iii) the acquisition by any person of
beneficial ownership or a right to acquire beneficial ownership of, or the
formation of any "group" (as defined under Section 13(d) of the Exchange Act
and the rules and regulations thereunder) which beneficially owns, or has
the right to acquire beneficial ownership of, 10% or more of the then
outstanding shares of capital stock of the entity (except for acquisitions
for passive investment purposes only in circumstances where the person or
group qualifies for and files a Schedule 13G with respect thereto); or (iv)
any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing. Award will
immediately cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of
the foregoing. Award will (i) notify Phoenix as promptly as practicable if
any inquiry or proposal is made or any information or access is requested in
writing in connection with an Acquisition Proposal or potential Acquisition
Proposal and (ii) as promptly as practicable provide Phoenix with a copy of
any such inquiry, proposal or Acquisition Proposal (or a detailed summary
thereof if such inquiry, proposal or Acquisition Proposal is not in
writing). In addition, subject to the other provisions of this Section
5.4(a), from and after the date of this Agreement until the earlier of the
Effective Time and termination of this Agreement pursuant to its terms,
Award and its subsidiaries will not, and will instruct their respective
directors, officers, employees, representatives, investment bankers, agents
and affiliates not to, directly or indirectly, make or authorize any public
statement, recommendation or solicitation in support of any Acquisition
Proposal made by any person, entity or group (other than Phoenix); PROVIDED,
HOWEVER, that nothing herein shall prohibit Award's Board of Directors from
taking and disclosing to Award's shareholders a position with respect to a
tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under the
Exchange Act.
(ii) Notwithstanding the provisions of paragraph (a)(i) above, prior to
the approval of this Agreement by the shareholders of Award at the Award
Shareholders' Meeting, Award may, to the extent the Board of Directors of
Award determines, in good faith, after consultation with outside legal
counsel, that failure to do so would create a substantial risk of liability
for breach of the Board's fiduciary duties under applicable law, participate
in discussions or negotiations with, and, subject to the requirements of
paragraph (a)(iii) below, furnish information to, any person, entity or
group after such person, entity or group has delivered to Award in writing
an unsolicited bona fide Acquisition Proposal which the Board of Directors
of Award in its good faith reasonable judgment determines, after
consultation with its independent financial advisors, would result in a
transaction more favorable to the shareholders of Award from a financial
point of view than the Merger and for which financing, to the extent
required, is then committed or which, in the good faith reasonable judgment
of the Board of Directors of Award (based upon the advice of independent
financial advisors), is reasonably capable of being financed by such person,
entity or group and which is likely to be consummated (an "AWARD SUPERIOR
PROPOSAL"). As promptly as practicable, Award will provide Phoenix with a
copy of any such Award Superior Proposal (or a description of the
significant terms and conditions thereof, if not in writing). In addition,
notwithstanding the provisions of paragraph (a)(i) above, in connection with
a possible Acquisition Proposal, Award may refer any third party to this
Section 5.4(a) or make a copy of this Section 5.4(a) available to a third
party. In the event Award receives a Award Superior Proposal, nothing
contained in this Agreement (but subject to the terms hereof) will prevent
the Board of Directors of Award from approving such Award Superior Proposal
or recommending such Award Superior Proposal to Award's shareholders, if the
Board determines, in good faith, after consultation with outside legal
counsel, that such action is required by its fiduciary duties under
applicable law; in such case, the Board of Directors of Award may withdraw,
modify or refrain from making its recommendations set forth in Section 5.1;
PROVIDED, HOWEVER, that Award shall not accept or recommend to its
shareholders, or enter into any agreement concerning, an Award Superior
Proposal
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for a period of not less than 48 hours after Phoenix's receipt of a copy of
such Award Superior Proposal (or a description of the significant terms and
conditions thereof, if not in writing), and provided further, that nothing
contained in this Section shall limit Award's obligation to hold and convene
the Award Shareholders' Meeting (regardless of whether the recommendations
of the Board of Directors of Award shall have been withdrawn, modified or
not yet made).
(iii) Notwithstanding anything to the contrary in this paragraph (a),
Award will not provide any non-public information to a third party unless:
(x) Award provides such non-public information pursuant to a nondisclosure
agreement with terms regarding the protection of confidential information at
least as restrictive as such terms in the Confidentiality Agreement; and (y)
such non-public information is substantially the same information previously
delivered to Phoenix.
(b) RESTRICTIONS ON PHOENIX.
(i) From and after the date of this Agreement until the earlier of the
Effective Time or termination of this Agreement pursuant to its terms,
Phoenix and its subsidiaries shall not, and will instruct their respective
directors, officers, employees, representatives, investment bankers, agents
and affiliates not to, directly or indirectly, (i) solicit or knowingly
encourage submission of, any proposals or offers by any person, entity or
group (other than Award and its affiliates, agents and representatives), or
(ii) participate in any discussions or negotiations with, or disclose any
non-public information concerning Phoenix or any of its subsidiaries to, or
afford any access to the properties, books or records of Phoenix or any of
its subsidiaries to, or otherwise assist or facilitate, or enter into any
agreement or understanding with, any person, entity or group (other than
Award and its affiliates, agents and representatives), in connection with
any Acquisition Proposal with respect to Phoenix. Phoenix will immediately
cease any and all existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. Phoenix
will (i) notify Award as promptly as practicable if any inquiry or proposal
is made or any information or access is requested in writing in connection
with an Acquisition Proposal or potential Acquisition Proposal and (ii) as
promptly as practicable provide Award with a copy of any such inquiry,
proposal or Acquisition Proposal. In addition, subject to the other
provisions of this Section 5.4(b), from and after the date of this Agreement
until the earlier of the Effective Time and termination of this Agreement
pursuant to its terms, Phoenix and its subsidiaries will not, and will
instruct their respective directors, officers, employees, representatives,
investment bankers, agents and affiliates not to, directly or indirectly,
make or authorize any public statement, recommendation or solicitation in
support of any Acquisition Proposal made by any person, entity or group
(other than Award); PROVIDED, HOWEVER, that nothing herein shall prohibit
Phoenix's Board of Directors from taking and disclosing to Phoenix's
shareholders a position with respect to a tender offer pursuant to Rules
14d-9 and 14e-2 promulgated under the Exchange Act.
(ii) Notwithstanding the provisions of paragraph (a)(i) above, prior to
the approval of this Agreement by the stockholders of Phoenix at the Phoenix
Stockholders' Meeting, Phoenix may, to the extent the Board of Directors of
Phoenix determines, in good faith, after consultation with outside legal
counsel, that the Board's fiduciary duties under applicable law require it
to do so, participate in discussions or negotiations with, and, subject to
the requirements of paragraph (a)(iii), below, furnish information to any
person, entity or group after such person, entity or group has delivered to
Phoenix in writing, an unsolicited bona fide Acquisition Proposal which the
Board of Directors of Phoenix in its good faith reasonable judgment
determines, after consultation with its independent financial advisors,
would result in a transaction more favorable to the stockholders of Phoenix
from a financial point of view than the Merger and for which financing, to
the extent required, is then committed or which, in the good faith
reasonable judgment of the Board of Directors of Phoenix (based upon the
advice of independent financial advisors), is reasonably capable of being
financed by such person, entity or group and which is likely to be
consummated (a "PHOENIX SUPERIOR PROPOSAL"). As promptly as practicable,
Phoenix will provide Award with a copy of any such Phoenix Superior
Proposal. In
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addition, notwithstanding the provisions of paragraph (b)(i) above, in
connection with a possible Acquisition Proposal, Phoenix may refer any third
party to this Section 5.4(b) or make a copy of this Section 5.4(b) available
to a third party. In the event Phoenix receives a Phoenix Superior Proposal,
nothing contained in this Agreement (but subject to the terms hereof) will
prevent the Board of Directors of Phoenix from approving such Phoenix
Superior Proposal or recommending such Phoenix Superior Proposal to
Phoenix's stockholders, if the Board determines, in good faith, after
consultation with outside legal counsel, that such action is required by its
fiduciary duties under applicable law; in such case, the Board of Directors
of Phoenix may withdraw, modify or refrain from making its recommendations
set forth in Section 5.1; PROVIDED, HOWEVER, that Phoenix shall not accept
or recommend to its shareholders, or enter into any agreement concerning, a
Phoenix Superior Proposal for a period of not less than 48 hours after
Award's receipt of a copy of such Phoenix Superior Proposal (or a
description of the significant terms and conditions thereof, if not in
writing), and provided further, that nothing contained in this Section shall
limit Phoenix's obligation to hold and convene the Phoenix Stockholders'
Meeting (regardless of whether the recommendations of the Board of Directors
of Phoenix shall have been withdrawn, modified or not yet made).
(iii) Notwithstanding anything to the contrary in paragraph (a), Phoenix
will not provide any non-public information to a third party unless: (x)
Phoenix provides such non-public information pursuant to a nondisclosure
agreement with terms regarding the protection of confidential information at
least as restrictive as such terms in the Confidentiality Agreement; and (y)
such non-public information is substantially the same information previously
delivered to Award.
5.5 PUBLIC DISCLOSURE. Phoenix and Award will consult with each other
before issuing any press release or otherwise making any public statement with
respect to the Merger, this Agreement or an Acquisition Proposal and will not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with a
national securities exchange or the Nasdaq Stock Market. The parties agree that
the initial press release to be issued with respect to the transactions
contemplated by this Agreement shall be in the form heretofore agreed to by the
parties.
5.6 LEGAL REQUIREMENTS. Each of Phoenix, Merger Sub and Award will take
all reasonable actions necessary or desirable to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement (including furnishing all
information required in connection with approvals of or filings with any
Governmental Entity, and prompt resolution of any litigation prompted hereby)
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon any of them or
their respective subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement. Phoenix will use its commercially
reasonable efforts to take such steps as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are applicable to the
issuance of Phoenix Common Stock pursuant hereto. Award will use its
commercially reasonable efforts to assist Phoenix as may be necessary to comply
with the securities and blue sky laws of all jurisdictions which are applicable
in connection with the issuance of Phoenix Common Stock pursuant hereto.
5.7 THIRD PARTY CONSENTS. As soon as practicable following the date
hereof, Phoenix and Award will each use its commercially reasonable efforts to
obtain all material consents, waivers and approvals under any of its or its
subsidiaries' agreements, contracts, licenses or leases required to be obtained
in connection with the consummation of the transactions contemplated hereby.
5.8 FIRPTA. At or prior to the Closing, Award, if requested by Phoenix,
shall deliver to the IRS a notice that the Award Capital Stock is not a "U.S.
Real Property Interest" as defined and in accordance with the requirements of
Treasury Regulation Section 1.897-2(h)(2).
5.9 NOTIFICATION OF CERTAIN MATTERS. Subject to the terms and provisions
of the Confidentiality Agreement, Phoenix and Merger Sub will give prompt notice
to Award, and Award will give prompt notice
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to Phoenix, of the occurrence, or failure to occur, of any event, which
occurrence or failure to occur would be reasonably likely to cause (a) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date of this Agreement
to the Effective Time, or (b) any material failure of Phoenix and Merger Sub or
Award, as the case may be, or of any officer, director, employee or agent
thereof, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement. Notwithstanding the
above, the delivery of any notice pursuant to this section will not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
5.10 COMMERCIALLY REASONABLE EFFORTS AND FURTHER ASSURANCES. Subject to
the respective rights and obligations of Phoenix and Award under this Agreement,
each of the parties to this Agreement will use its commercially reasonable
efforts to effectuate the Merger and the other transactions contemplated hereby
and to fulfill and cause to be fulfilled the conditions to closing under this
Agreement. Each party hereto, at the reasonable request of another party hereto,
will execute and deliver such other instruments and do and perform such other
acts and things as may be necessary or desirable for effecting completely the
consummation of the transactions contemplated hereby. Notwithstanding anything
to the contrary in this Agreement, the respective rights and obligations of
Phoenix and Award to obtain regulatory approval under the HSR Act shall be
governed exclusively by Section 5.18 below.
5.11 STOCK OPTIONS; EMPLOYEE STOCK PURCHASE PLAN.
(a) At the Effective Time, each outstanding option to purchase shares of
Award Common Stock (each a "AWARD STOCK OPTION") under the Award Stock Option
Plans, whether or not exercisable, will be assumed by Phoenix. Each Award Stock
Option so assumed by Phoenix under this Agreement will continue to have, and be
subject to, the same terms and conditions set forth in the applicable Award
Stock Option Plan immediately prior to the Effective Time (including, without
limitation, any repurchase rights), except that (i) each Award Stock Option will
be exercisable (or will become exercisable in accordance with its terms) for
that number of whole shares of Phoenix Common Stock equal to the product of the
number of shares of Award Common Stock that were issuable upon exercise of such
Award Stock Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, rounded down to the nearest whole number of shares of Phoenix
Common Stock, and (ii) the per share exercise price for the shares of Phoenix
Common Stock issuable upon exercise of such assumed Award Stock Option will be
equal to the quotient determined by dividing the exercise price per share of
Award Common Stock at which such Award Stock Option was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the nearest
whole cent. After the Effective Time, Phoenix will issue to each holder of an
outstanding Award Stock Option a notice describing the foregoing assumption of
such Award Stock Option by Phoenix.
(b) It is the intention of the parties that Award Stock Options assumed by
Phoenix qualify following the Effective Time as incentive stock options as
defined in Section 422 of the Code to the extent Award Stock Options qualified
as incentive stock options immediately prior to the Effective Time.
Notwithstanding anything contained in Section 1.6(c) or Section 5.11 hereof, or
any other provision of this Agreement, the exercise price, the number of shares
purchasable and the terms and conditions applicable to any adjustments to the
Award Employee Stock Purchase Plan and any employee stock purchase plan
maintained by Phoenix shall be determined so as to comply with Sections 423 and
424 of the Code and the regulations promulgated thereunder (specifically the
provisions of Code Section 424(a) and 424(h)(3)(A) and Treasury Regulation
Section 1.425-1) such that Phoenix's assumption of options granted under the
Award Employee Stock Purchase Plan by reason of the Merger shall not constitute
a "modification."
(c) Phoenix will reserve sufficient shares of Phoenix Common Stock for
issuance under Section 5.11(a) and under Section 1.6(c) hereof. Phoenix has
authorized and will keep reserved at all times,
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sufficient shares of Phoenix's Preferred Stock issuable pursuant to the Phoenix
Rights Plan for issuance under Sections 1.6(d) and (f) hereof.
5.12 AWARD WARRANTS.
(a) At the Effective Time, each outstanding Award Warrant, whether or not
exercisable, will be assumed by Phoenix. Each Award Warrant so assumed by
Phoenix under this Agreement will continue to have, and be subject to, the same
terms and conditions set forth in the applicable Award Warrant immediately prior
to the Effective Time, except that (i) each Award Warrant will be exercisable
(or will become exercisable in accordance with its terms) for that number of
whole shares of Phoenix Common Stock equal to the product of the number of
shares of Award Common Stock that were issuable upon exercise of such Award
Warrant immediately prior to the Effective Time multiplied by the Exchange
Ratio, rounded down to the nearest whole number of shares of Phoenix Common
Stock, and (ii) the per share exercise price for the shares of Phoenix Common
Stock issuable upon exercise of such assumed Award Warrant will be equal to the
quotient determined by dividing the exercise price per share of Award Common
Stock at which such Award Warrant was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
After the Effective Time, Phoenix will issue to each holder of an outstanding
Award Warrant a notice describing the foregoing assumption of such Award Warrant
by Phoenix.
(b) Phoenix will reserve sufficient shares of Phoenix Common Stock for
issuance under Section 5.12(a) and under Section 1.6(d) hereof.
5.13 FORM S-8. Phoenix agrees to file a registration statement on Form S-8
for the shares of Phoenix Common Stock issuable with respect to assumed Award
Stock Options and the Award Employee Stock Purchase Plan promptly after the
Closing Date.
5.14 INDEMNIFICATION AND INSURANCE.
(a) From and after the Effective Time, the Surviving Corporation will
fulfill and honor in all respects the obligations of Award pursuant to any
indemnification agreements between Award and its directors and officers existing
prior to the date hereof. The Articles of Incorporation and Bylaws of the
Surviving Corporation will contain the provisions with respect to
indemnification set forth in the Articles of Incorporation and Bylaws of Award,
which provisions will not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who, immediately prior to the
Effective Time, were directors, officers, employees or agents of Award, unless
such modification is required by law.
(b) After the Effective Time, the Surviving Corporation will, to the fullest
extent permitted under applicable law or under the Surviving Corporation's
Articles of Incorporation or Bylaws, indemnify and hold harmless, each present
director or officer of Award (collectively, the "INDEMNIFIED PARTIES") against
any costs or expenses (including attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement in connection with
any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, to the extent arising out of or pertaining to
any action or omission in his or her capacity as a director or officer of Award
arising out of or pertaining to the transactions contemplated by this Agreement
for a period of six years after the date hereof. In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), (i) any counsel retained by the Indemnified Parties for any
period after the Effective Time shall be reasonably satisfactory to the
Surviving Corporation and Phoenix, (ii) after the Effective Time, the Surviving
Corporation will pay the reasonable fees and expenses of such counsel, promptly
after statements therefor are received and (iii) the Surviving Corporation will
cooperate in the defense of any such matter; PROVIDED, HOWEVER, that neither
Phoenix, the Surviving Corporation nor any Indemnified Party will be liable for
any settlement effected without its written consent (which consent will not be
unreasonably withheld); and PROVIDED, FURTHER, that, in the event that any claim
or claims for indemnification are asserted or made
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within such six-year period, all rights to indemnification in respect of any
such claim or claims will continue until the disposition of any and all such
claims. The Indemnified Parties as a group may retain only one law firm (in
addition to local counsel) to represent them with respect to any single action
unless there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Indemnified
Parties.
(c) For a period of six years after the Effective Time, Phoenix will cause
the Surviving Corporation to use its commercially reasonable efforts to maintain
in effect, if available, directors' and officers' liability insurance covering
those persons who are currently covered by Award's directors' and officers'
liability insurance policy on terms comparable to those applicable to the then
current directors and officers of Phoenix; PROVIDED, HOWEVER, that in no event
will Phoenix or the Surviving Corporation be required to expend in excess of
200% of the annual premium currently paid by Award for such coverage or such
coverage as is available for such 200% of the annual premium.
(d) This Section 5.13 will survive the consummation of the Merger at the
Effective Time, is intended to benefit Award, the Surviving Corporation and the
Indemnified Parties, and will be binding on all successors and assigns of the
Surviving Corporation.
(e) Phoenix and the Surviving Corporation jointly and severally agree to pay
all expenses, including attorney's fees, that may be incurred by the Indemnified
Parties in enforcing the indemnity and other obligations provided for in this
Section 5.13.
5.15 TAX-FREE REORGANIZATION. At least two days prior to the effectiveness
of the Registration Statement, Phoenix and Award shall execute and deliver to
Cooley Godward LLP and to Wilson Sonsini Goodrich & Rosati, Professional
Corporation tax representation letters as requested by such counsel for the
purposes of rendering the opinions referred to in Section 6.1(d). Neither
Phoenix nor Award will take any action which would cause the Merger to fail to
be treated as a reorganization within the meaning of Section 368 of the Code.
5.16 NMS LISTING. Phoenix agrees to authorize for listing on the Nasdaq
National Market the shares of Phoenix Common Stock issuable, and those required
to be reserved for issuance, in connection with the Merger, upon official notice
of issuance.
5.17 PHOENIX AFFILIATE AGREEMENT. Set forth on Phoenix Schedules is a list
of those persons who may be deemed to be, in Phoenix's reasonable judgment,
affiliates of Phoenix within the meaning of Rule 145 promulgated under the
Securities Act (a "PHOENIX AFFILIATE"). Phoenix will provide Award with such
information and documents as Award reasonably requests for purposes of reviewing
such list. Phoenix will use its commercially reasonable efforts to deliver or
cause to be delivered to Award, as promptly as practicable on or following the
date hereof, from each Phoenix Affiliate an executed affiliate agreement in
substantially the form attached hereto as EXHIBIT D, each of which will be in
full force and effect as of the Effective Time.
5.18 AWARD AFFILIATE AGREEMENT. Set forth on the Award Schedules is a list
of those persons who may be deemed to be, in Award's reasonable judgment,
affiliates of Award within the meaning of Rule 145 promulgated under the
Securities Act (a "AWARD AFFILIATE"). Award will provide Phoenix with such
information and documents as Phoenix reasonably requests for purposes of
reviewing such list. Award will use its commercially reasonable efforts to
deliver or cause to be delivered to Phoenix, as promptly as practicable on or
following the date hereof, from each Award Affiliate an executed affiliate
agreement in substantially the form attached hereto as EXHIBIT E (the "AWARD
AFFILIATE AGREEMENT"), each of which will be in full force and effect as of the
Effective Time. Phoenix will be entitled to place appropriate legends on the
certificates evidencing any Phoenix Common Stock to be received by a Award
Affiliate pursuant to the terms of this Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for Phoenix Common Stock, consistent
with the terms of the Award Affiliates Agreement.
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5.19 REGULATORY FILINGS; REASONABLE EFFORTS. As soon as practicable after
the date of this Agreement, Award and Phoenix shall each file all requisite
documents and notifications in connection with the Merger required to be filed
pursuant to the HSR Act and comparable merger notification laws or regulations
of other jurisdictions, foreign or domestic. Thereafter, Phoenix and Award will
make or cause to be made all such other filings and submissions under the HSR
Act and the merger control laws and regulations applicable to Award and Phoenix
for the consummation of the Merger. Subject to agreed confidentiality
restrictions, Award and Phoenix will coordinate and cooperate with one another
in exchanging such information, promptly notifying one another upon the receipt
of any demand, request or other communication from an agency or jurisdiction
reviewing the Merger, and rendering such reasonable assistance as the other may
request in connection with the foregoing. Notwithstanding anything to the
contrary contained in this Section 5.19, the parties agree that, in response to
any action taken or threatened to be taken by any court or governmental,
administrative or regulatory authority or agency, domestic or foreign, neither
party shall be required to sell, license or otherwise dispose of, hold separate
or otherwise divest itself of any Shares or any material portion of the business
or assets of the respective companies or any of their affiliates or
subsidiaries.
5.20 BOARD OF DIRECTORS OF THE COMBINED COMPANY. The Board of Directors of
Phoenix will take all actions necessary to cause the Board of Directors of
Phoenix, immediately after the Effective Time, to consist of six (6) persons,
four (4) of whom shall have served on the Board of Directors of Phoenix
immediately prior to the Effective Time, and two of whom shall have served on
the Board of Directors of Award immediately prior to the Effective Time
(including George C. Huang). The two designees of Award shall be designated
Class I directors. If, prior to the Effective Time, any of the Award designees
shall decline or be unable to serve as a Phoenix director, Award shall designate
another person to serve in such person's stead, which person shall be reasonably
acceptable to Phoenix.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) STOCKHOLDER AND SHAREHOLDER APPROVAL. This Agreement shall have
been approved and adopted, and the Merger shall have been duly approved, by
the requisite vote under applicable law by the shareholders of Award; and
the issuance of shares of Phoenix Common Stock by virtue of the Merger shall
have been duly approved by the requisite vote under applicable law and the
rules of the National Association of Securities Dealers, Inc. by the
stockholders of Phoenix.
(b) REGISTRATION STATEMENT EFFECTIVE. The SEC shall have declared the
Registration Statement effective. No stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been issued,
and no proceeding for that purpose, and no similar proceeding in respect of
the Proxy Statement, shall have been initiated or threatened in writing by
the SEC.
(c) NO ORDER; HSR ACT. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger. All waiting periods under the HSR Act relating to the transactions
contemplated hereby shall have expired or terminated early.
(d) TAX OPINIONS. Phoenix and Award shall each have received
substantially identical written opinions from their counsel, Wilson Sonsini
Goodrich & Rosati, Professional Corporation and Cooley Godward LLP,
respectively, in form and substance reasonably satisfactory to them, to the
effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code;
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provided, however, that if such counsel does not render such opinion or
withdraws or modifies such opinion, this condition shall nonetheless be
deemed to be satisfied if counsel to Award or Phoenix, as the case may be,
renders such opinion. In rendering such opinions, counsel may rely on any
representations provided by Phoenix and Award pursuant to Section 5.15.
(e) NASDAQ LISTING. The shares of Phoenix Common Stock issuable to
stockholders of Award pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall
have been authorized for listing on the Nasdaq National Market upon official
notice of issuance.
(f) OPINION OF ACCOUNTANTS. Phoenix shall have received a letter from
Ernst & Young LLP dated within two (2) business days prior to the Effective
Time, regarding that firm's concurrence with Phoenix's management's
conclusion as to the appropriateness of pooling of interest accounting for
the Merger under Accounting Principles Board Opinion No. 16, if the Merger
is consummated in accordance with this Agreement.
(g) OPINION OF ACCOUNTANTS. Award shall have received a letter from
Price Waterhouse LLP, dated within two (2) business days prior to the
Effective Time, addressed to Award, reasonably satisfactory in form and
substance to Award, to the effect that, after reasonable investigation,
Price Waterhouse LLP is not aware of any fact concerning Award or any of
Award's shareholders or affiliates that could preclude Phoenix from
accounting for the Merger as a pooling of interests in accordance with
Accounting Principles Board Opinion No. 16; provided, however, that if Price
Waterhouse LLP does not render such opinion or withdraws or modifies such
opinion, this condition may, at Phoenix's option, nonetheless be deemed to
be satisfied if Ernst & Young LLP renders the opinion described in Section
6.1(f).
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF AWARD. The obligations of
Award to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Effective Time of each of the following conditions, any of
which may be waived, in writing, exclusively by Award:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Phoenix and Merger Sub contained in this Agreement shall be true and
correct on and as of the Effective Time (without regard to any updates to
the Phoenix Disclosure Schedules, unless otherwise agreed by Award), except
for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such particular date), with
the same force and effect as if made on and as of the Effective Time,
except, in all such cases where the failure to be so true and correct, (i)
primarily result from or relate to (x) the announcement or pendency of the
Merger, (y) conditions affecting the general global economy or regional
economy in which Phoenix operates its business, or (z) conditions affecting
the system level software industry as a whole, or (ii) would not have a
Material Adverse Effect on Phoenix (provided that any determination with
regard to a Material Adverse Effect on Phoenix shall be made without regard
to any materiality qualification or particular dollar threshold in any
particular representation); and Award shall have received a certificate to
such effect signed on behalf of Phoenix by the President and the Chief
Financial Officer of Phoenix.
(b) AGREEMENTS AND COVENANTS. Phoenix and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and Award shall have received a
certificate to such effect signed on behalf of Phoenix by the President and
the Chief Financial Officer of Phoenix.
(c) MATERIAL ADVERSE EFFECT. No Material Adverse Effect with respect
to Phoenix shall have occurred since the date of this Agreement (except for
those changes, events and effects that primarily result from or relate to
(i) the announcement or pendency of the Merger, (ii) conditions affecting
the
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general global economy or regional economy in which Phoenix operates its
business, or (iii) conditions affecting the system level software industry
as a whole).
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PHOENIX AND MERGER
SUB. The obligations of Phoenix and Merger Sub to consummate and effect the
Merger shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing,
exclusively by Phoenix:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Award contained in this Agreement shall be true and correct on and as of
the Effective Time (without regard to any updates to the Award Disclosure
Schedules, unless otherwise agreed by Phoenix), except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such particular date), with the same force and
effect as if made on and as of the Effective Time, except, in all such cases
where the failure to be so true and correct, (i) primarily result from or
relate to (x) the announcement or pendency of the Merger, (y) conditions
affecting the general global economy or regional economy in which Award
operates its business, or (z) conditions affecting the system level software
industry as a whole, or (ii) would not have a Material Adverse Effect on
Award (provided that any determination with regard to a Material Adverse
Effect on Award shall be made without regard to any materiality
qualification or particular dollar threshold in any particular
representation); and Phoenix shall have received a certificate to such
effect signed on behalf of Award by the President and the Chief Financial
Officer of Award.
(b) AGREEMENTS AND COVENANTS. Award shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the
Effective Time, and Phoenix shall have received a certificate to such effect
signed on behalf of Award by the President and the Chief Financial Officer
of Award.
(c) MATERIAL ADVERSE EFFECT. No Material Adverse Effect with respect
to Award shall have occurred since the date of this Agreement (except for
those changes, events and effects that primarily result from or relate to
(i) the announcement or pendency of the Merger, (ii) conditions affecting
the general global economy or regional economy in which Award operates its
business, or (iii) conditions affecting the system level software industry
as a whole.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time of the Merger, whether before or after approval of the Merger by
the shareholders of Award or the approval of the issuance of Phoenix Common
Stock in connection with the Merger by the stockholders of Phoenix:
(a) by mutual written consent duly authorized by the Boards of Directors
of Phoenix and Award;
(b) by either Award or Phoenix if the Merger shall not have been
consummated by September 30, 1998; PROVIDED, HOWEVER, that the right to
terminate this Agreement under this Section 7.1(b) shall not be available to
any party whose action or failure to act has been a principal cause of or
resulted in the failure of the Merger to occur on or before such date and
such action or failure to act constitutes a willful and material breach of
this Agreement;
(c) by either Award or Phoenix if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action (an "ORDER"),
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which Order is final and nonappealable;
(d) by either Award or Phoenix if (i) the Award Shareholders' Meeting
shall have been held (either on the date for which such meeting was
originally scheduled or pursuant to any permissible
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adjournment or postponement) and (ii) this Agreement and the Merger shall
not have been adopted and approved at such meeting by the required approvals
of the shareholders of Award (provided that the right to terminate this
Agreement under this Section 7.1(d) shall not be available to Award where
the failure to obtain Award shareholder approval shall have been caused by
the action or failure to act of Award and such action or failure to act
constitutes a material breach by Award of this Agreement);
(e) by either Award or Phoenix if (i) the Phoenix Stockholders' Meeting
shall have been held (either on the date for which such meeting was
originally scheduled or pursuant to any permissible adjournment or
postponement) and (ii) the issuance of the shares of Common Stock of Phoenix
by virtue of the Merger shall not have been approved at such meeting by the
required approvals of the stockholders of Phoenix (provided that the right
to terminate this Agreement under this Section 7.1(e) shall not be available
to Phoenix where the failure to obtain Phoenix stockholder approval shall
have been caused by the action or failure to act of Phoenix and such action
or failure to act constitutes a material breach by Phoenix of this
Agreement);
(f) by Phoenix or Award (at any time prior to the adoption and approval
of this Agreement and the Merger by required approvals of the shareholders
of Award) if: (i) the Board of Directors of Award shall for any reason have
withdrawn or shall have amended or modified in a manner adverse to Phoenix
its recommendation without dissenting vote in favor of, the adoption and
approval of the Agreement or the approval of the Merger; (ii) Award shall
have failed to include in the Proxy Statement the recommendation without
dissenting vote of the Board of Directors of Award in favor of the adoption
and approval of the Agreement and the approval of the Merger; (iii) the
Board of Directors of Award fails to reaffirm its recommendation without
dissenting vote in favor of the adoption and approval of the Agreement and
the approval of the Merger within ten (10) business days after Phoenix
requests in writing that such recommendation be reaffirmed at any time
following the public announcement of an Acquisition Proposal with respect to
Award; (iv) the Board of Directors of Award shall have approved or publicly
recommended any Acquisition Proposal with respect to Award; (v) Award shall
have entered into any letter of intent or similar document or any contract
accepting any Acquisition Proposal with respect to Award; or (vi) a tender
or exchange offer relating to securities of Award shall have been commenced
by a person unaffiliated with Phoenix, and Award shall not have sent to its
securityholders pursuant to Rule 14e-2 promulgated under the Securities Act,
within ten (10) business days after such tender or exchange offer is first
published sent or given, a statement disclosing that Award recommends
rejection of such tender or exchange offer;
(g) by Phoenix or Award (at any time prior to the adoption and approval
of this Agreement and the Merger by required approvals of the shareholders
of Award) if: (i) the Board of Directors of Phoenix shall for any reason
have withdrawn or shall have amended or modified in a manner adverse to
Award its recommendation without dissenting vote in favor of, the issuance
of the shares of Common Stock of Phoenix by virtue of the Merger; (ii)
Phoenix shall have failed to include in the Proxy Statement the
recommendation without dissenting vote of the Board of Directors of Award in
favor of the issuance of the shares of Common Stock of Phoenix by virtue of
the Merger; (iii) the Board of Directors of Phoenix fails to reaffirm its
recommendation without dissenting vote in favor of the issuance of the
shares of Common Stock of Phoenix by virtue of the Merger within ten (10)
business days after Award requests in writing that such recommendation be
reaffirmed at any time following the public announcement of an Acquisition
Proposal with respect to Phoenix; (iv) the Board of Directors of Phoenix
shall have approved or publicly recommended any Acquisition Proposal with
respect to Phoenix; (v) Phoenix shall have entered into any letter of intent
or similar document or any contract accepting any Acquisition Proposal with
respect to Phoenix; or (vi) a tender or exchange offer relating to
securities of Phoenix shall have been commenced by a person unaffiliated
with Award, and Phoenix shall not have sent to its securityholders pursuant
to Rule 14e-2 promulgated under the Securities Act, within ten (10) business
days after such tender or exchange
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offer is first published sent or given, a statement disclosing that Phoenix
recommends rejection of such tender or exchange offer;
(h) by Phoenix if any of Award's representations and warranties
contained in this Agreement shall be or shall have become materially
inaccurate, or if any of Award's covenants contained in this Agreement shall
have been breached, in either case such that the conditions set forth in
Section 6.3 would not be satisfied as of the time of such breach or as of
the time such representation or warranty shall have become untrue; provided,
however, that if an inaccuracy in Award's representations and warranties or
a breach of a covenant by Award is curable by Award prior to or during the
30-day period commencing upon delivery by Phoenix of written notice to Award
describing such breach or inaccuracy and Award is continuing to exercise all
reasonable efforts to cure such inaccuracy or breach, then Phoenix may not
terminate this Agreement under this Section 7.1(h) on account of such
inaccuracy or breach; or
(i) by Award if any of Phoenix's representations and warranties
contained in this Agreement shall be or shall have become materially
inaccurate, or if any of Phoenix's covenants contained in this Agreement
shall have been breached, in either case such that the conditions set forth
in Section 6.2 would not be satisfied as of the time of such breach or as of
the time such representation or warranty shall have become untrue; provided,
however, that if an inaccuracy in Phoenix's representations and warranties
or a breach of a covenant by Phoenix is curable by Phoenix prior to or
during the 30-day period commencing upon delivery by Award of written notice
to Phoenix describing such breach or inaccuracy and Phoenix is continuing to
exercise all reasonable efforts to cure such inaccuracy or breach, then
Award may not terminate this Agreement under this Section 7.1(i) on account
of such inaccuracy or breach.
(j) by either Phoenix or Award upon written notice to the other party,
if, at any time prior to the Registration Statement being declared
effective, Ernst & Young LLP shall have indicated in writing to Phoenix that
it is unable to render the opinion reasonably required by Section 6.1(f) and
that it cannot reasonably be anticipated that it will be able to render such
opinion within thirty (30) days of the date of such writing; provided,
however, that, in the event Ernst & Young LLP is unable to render such
opinion as a result of a breach by either Phoenix or Award of any
representation, warranty or covenant in this Agreement, such breaching party
may not terminate this Agreement pursuant to this Section 7.1(j).
7.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION.
(a) Subject to Sections 7.2(b) and (c), any termination of this Agreement
under Section 7.1 above will be effective immediately upon the delivery of
written notice of the terminating party to the other parties hereto. In the
event of the termination of this Agreement as provided in Section 7.1, this
Agreement shall be of no further force or effect, except (i) as set forth in
this Section 7.2, Section 7.3 and Article 8 (miscellaneous), each of which shall
survive the termination of this Agreement, and (ii) nothing herein shall relieve
any party from liability for any willful breach of this Agreement. No
termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
(b) Any termination of this Agreement by Award pursuant to Sections 7.1(d),
or 7.1(f) hereof shall be of no force or effect unless prior to such termination
Award shall have paid to Phoenix any amounts payable pursuant to Section 7.3(b)
or 7.3(d).
(c) Any termination of this Agreement by Phoenix pursuant to Sections 7.1(e)
or 7.1(g) hereof shall be of no force or effect unless prior to such termination
Phoenix shall have paid to Award any amounts payable pursuant to Section 7.3(c)
or 7.3(e).
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7.3 FEES AND EXPENSES.
(a) Except as set forth in this Section 7.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated; PROVIDED, HOWEVER, that Phoenix and Award shall share equally all
fees and expenses, other than attorneys' and accountants fees and expenses,
incurred in relation to the printing and filing of the Proxy Statement
(including any preliminary materials related thereto) and the Registration
Statement (including financial statements and exhibits) and any amendments or
supplements thereto and the filing of the premerger notification and report
forms relating to the Merger under the HSR Act.
(b) If this Agreement is terminated by Phoenix or Award pursuant to Section
7.1(f), then Award shall pay to Phoenix, in cash (by wire transfer or cashiers
check), a nonrefundable fee of $4,000,000 ("TERMINATION FEE") within three (3)
days of such termination.
(c) If this Agreement is terminated by Phoenix or Award pursuant to Section
7.1(g), then Phoenix shall pay to Award, in cash (by wire transfer or cashiers
check), the Termination Fee within three (3) days of such termination.
(d) If this Agreement is terminated by Award or Phoenix pursuant to Section
7.1(d) and (i) an Acquisition Proposal with respect to Award shall have been
consummated or (ii) Award shall enter into a definitive agreement with respect
to an Acquisition Proposal with respect to Award, in either case at any time
prior to six months after the date of this Agreement, Award shall pay to Phoenix
the Termination Fee contemporaneously with the earlier of (i) the consummation
of such Acquisition or (ii) the public announcement by Award of its entry into a
definitive agreement with respect to such Acquisition Proposal.
(e) If this Agreement is terminated by Award or Phoenix pursuant to Section
7.1(e) and (i) an Acquisition Proposal with respect to Phoenix shall have been
consummated or (ii) Phoenix shall enter into a definitive agreement with respect
to an Acquisition Proposal with respect to Phoenix, in either case at any time
prior to six months after the date of this Agreement, Phoenix shall pay to Award
the Termination Fee contemporaneously with the earlier of (i) the consummation
of such Acquisition or (ii) the public announcement by Phoenix of its entry into
a definitive agreement with respect to such Acquisition Proposal.
(f) Payment of the fees described in Section 7.3(b), (c), (d) and (e) above
shall not be in lieu of damages incurred in the event of breach of this
Agreement.
7.4 AMENDMENT. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of the parties hereto.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Award, Phoenix and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time.
A-41
<PAGE>
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Phoenix or Merger Sub, to:
Phoenix Technologies, Inc.
411 E. Plumeria Drive
San Jose, California 95134
Attention: President
Telephone No.: (408) 570-1000
Telecopy No.: (408) 570-1238
with a copy at the same address to the attention of the General Counsel,
and
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attn: Larry W. Sonsini, Esq.
Telephone No.: (650) 493-9300
Telecopy No.: (650) 493-6811
(b) if to Award, to:
Award Software International, Inc.
777 East Middlefield Road
Mountain View, California 94043
Attention: President
Telephone No.: (650) 968-4433
Telecopy No.: (650) 526-2395
with a copy to:
Cooley Godward LLP
5 Palo Alto Square, 4th Floor
Palo Alto, CA 94306
Attn: James C. Kitch, Esq.
Telephone No.: (650) 843-5000
Telecopy No.: (650) 857-0663
8.3 INTERPRETATION; KNOWLEDGE.
(a) When a reference is made in this Agreement to Exhibits, such reference
shall be to an Exhibit to this Agreement unless otherwise indicated. The words
"include," "includes" and "including" when used herein shall be deemed in each
case to be followed by the words "without limitation." The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. When
reference is made herein to "the business of" an entity, such reference shall be
deemed to include the business of all direct and indirect subsidiaries
A-42
<PAGE>
of such entity. Reference to the subsidiaries of an entity shall be deemed to
include all direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "knowledge" means, with respect
to any matter in question, that the executive officers of Award or Phoenix, as
the case may be, have actual knowledge of such matter.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 ENTIRE AGREEMENT. This Agreement and the documents and instruments and
other agreements among the parties hereto as contemplated by or referred to
herein, including Award Schedules and Phoenix Schedules (i) constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, it being understood that
the Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (ii) are not
intended to confer upon any other person any rights or remedies hereunder,
except as set forth herein.
8.6 SEVERABILITY. In the event that any provision of this Agreement or the
application thereof becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect, and the application of such provision to
other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of such void or unenforceable provision.
8.7 OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction of
any state or federal court within the State of California, in connection with
any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of California for such persons, and waives
and covenants not to assert or plead any objection which they might otherwise
have to such jurisdiction and such process.
8.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 ASSIGNMENT. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the of the parties.
A-43
<PAGE>
IN WITNESS WHEREOF, Phoenix, Merger Sub, and Award have caused this
Agreement to be signed by themselves or their duly authorized respective
officers, all as of the date first written above.
<TABLE>
<S> <C> <C>
PHOENIX TECHNOLOGIES LTD.
By: /s/ JACK KAY
-----------------------------------------
Name: Jack Kay
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
AWARD SOFTWARE INTERNATIONAL, INC.
By: /s/ GEORGE C. HUANG
-----------------------------------------
Name: George C. Huang
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PORTLAND ACQUISITION CORPORATION
By: /s/ JACK KAY
-----------------------------------------
Name: Jack Kay
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
**** REORGANIZATION AGREEMENT ****
A-44
<PAGE>
EXHIBIT A
PHOENIX TECHNOLOGIES LTD.
VOTING AGREEMENT
This Voting Agreement ("AGREEMENT") is made and entered into as of April ,
1998, between Award Software International, Inc., a California corporation (the
"COMPANY"), and the undersigned stockholder ("STOCKHOLDER") of Phoenix
Technologies Ltd., a Delaware corporation ("PARENT").
RECITALS
A. Concurrently with the execution of this Agreement, the Company, Parent
and Portland Acquisition Corporation, a California corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), are entering into an Agreement
and Plan of Reorganization (the "MERGER AGREEMENT") which provides for the
merger (the "MERGER") of Merger Sub with and into the Company. Pursuant to the
Merger, shares of capital stock of the Company will be converted into Common
Stock of Parent on the basis described in the Merger Agreement. Capitalized
terms used and not otherwise defined herein shall have the respective meanings
ascribed to them in the Merger Agreement.
B. The Stockholder is the record holder and beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT")) of such number of shares of the outstanding Common Stock of Parent as is
indicated on the final page of this Agreement (the "SHARES").
C. As a material inducement to enter into the Merger Agreement, the Company
desires the Stockholder to agree, and the Stockholder is willing to agree to
vote the Shares and any other such shares of capital stock of Parent so as to
facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties agree as follows:
1. AGREEMENT TO VOTE SHARES: ADDITIONAL PURCHASES.
1.1 AGREEMENT TO VOTE SHARES. At every meeting of the stockholders of
Parent called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the
stockholders of Parent with respect to any of the following, Stockholder
shall vote the Shares and any New Shares in favor of approval of (x) the
amendment of Parent's Certificate of Incorporation to increase its
authorized share capital to allow for the issuance of shares of its Common
Stock by virtue of the Merger, (y) the issuance of shares of such Common
Stock by virtue of the Merger and (z) any matter that could reasonably be
expected to facilitate the Merger.
1.2 ADDITIONAL PURCHASES. Stockholder agrees that any shares of
capital stock of Parent that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership after the execution of
this Agreement and prior to the Expiration Date ("NEW SHARES") shall be
subject to the terms and conditions of this Agreement to the same extent as
if they constituted Shares.
2. IRREVOCABLE PROXY. Concurrently with the execution of this
Agreement, Stockholder agrees to deliver to Parent a proxy in the form
attached hereto as EXHIBIT A (the "PROXY"), which shall be irrevocable to
the fullest extent permitted by law, with respect to the total number of
shares of capital stock of Parent beneficially owned (as such term is
defined in Rule 13d-3 under the Exchange Act) by Stockholder set forth
therein.
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. Stockholder
represents and warrants that he/she/it (i) is the beneficial owner of the
Shares, which at the date hereof are free and clear of any liens, claims,
options, charges or other encumbrances; (ii) does not beneficially own any
shares of capital stock of Parent other than the Shares (excluding shares as
to which Stockholder currently disclaims beneficial ownership in accordance
with applicable law); and (iii) has absolute and
AA-1
<PAGE>
unrestricted power, capacity and authority to make, enter into and perform
the obligations imposed pursuant to the terms of this Agreement.
4. CONSENT AND WAIVER. Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger
under the terms of any agreements to which Stockholder is a party or
pursuant to any rights Stockholder may have.
5. ADDITIONAL DOCUMENTS. Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of the Company to carry out the intent of this Agreement.
6. TERMINATION. This Agreement shall terminate and shall have no
further force or effect as of the earlier to occur of (i) such date and time
as the Merger shall become effective in accordance with the terms and
provisions of the Merger Agreement or (ii) such date and time as the Merger
Agreement shall have been terminated pursuant to Article VII thereof.
7. MISCELLANEOUS.
7.1 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
7.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor
any of the rights, interests or obligations of the parties hereto may be
assigned by either of the parties without prior written consent of the
other.
7.3 AMENDMENTS AND MODIFICATION. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
7.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that the Company will be irreparably harmed and that there will
be no adequate remedy at law for a violation of any of the covenants or
agreements of Stockholder set forth herein. Therefore, it is agreed that, in
addition to any other remedies that may be available to the Company upon any
such violation, the Company shall have the right to enforce such covenants
and agreements by specific performance, injunctive relief or by any other
means available to the Company at law or in equity.
7.5 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or telex, or sent by mail (registered or
certified mail, postage prepaid, return receipt requested) or overnight
courier (prepaid) to the respective parties as follows:
<TABLE>
<S> <C>
If to the Company: Award Software International, Inc.
777 East Middlefield Road
Mountain View, CA 94043
Attn: President
With a copy to: Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306-2155
Attn: Matthew P. Fisher, Esq.
If to the To the address for notice set forth on the last page
Stockholder: hereof.
</TABLE>
AA-2
<PAGE>
<TABLE>
<S> <C>
With a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Larry W. Sonsini, Esq.
Herbert P. Fockler, Esq.
</TABLE>
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall only be effective upon receipt.
7.6 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the internal laws of the State of
California (without regard to the principles of conflict of laws thereof).
7.7 ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties in respect of the subject matter hereof, and supersedes all
prior negotiations and understandings between the parties with respect to
such subject matter.
7.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
7.9 EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be duly
executed on the date and year first above written.
<TABLE>
<S> <C>
AWARD SOFTWARE INTERNATIONAL, INC.
By: ---------------------------------
Title: -------------------------------
STOCKHOLDER:
By:
--------------------------------------
Stockholder's Address for Notice:
--------------------------------------
--------------------------------------
--------------------------------------
------- Shares of Common Stock
Beneficially Owned
</TABLE>
***PHOENIX TECHNOLOGIES LTD. VOTING AGREEMENT***
AA-3
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned stockholder of Phoenix Technologies Ltd., a Delaware
corporation ("PARENT"), hereby irrevocably appoints the members of the Board of
Directors of Award Software International, Inc., a California corporation (the
"COMPANY"), and each of them, as the sole and exclusive attorneys and proxies of
the undersigned, with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the shares of capital stock
of Parent beneficially owned by the undersigned, which shares are listed on the
final page of this Proxy (the "SHARES"), and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof,
until such time as that certain Agreement and Plan of Reorganization dated as of
April , 1998 (the "MERGER AGREEMENT"), among Parent, Portland Acquisition
Corporation, a California corporation and a wholly-owned subsidiary of Parent
("MERGER SUB"), and the Company, shall be terminated in accordance with its
terms or the Merger (as defined in the Merger Agreement) is effective. Upon the
execution hereof, all prior proxies given by the undersigned with respect to the
Shares and any and all other shares or securities issued or issuable in respect
thereof on or after the date hereof are hereby revoked. The undersigned
stockholder hereby agrees that no subsequent proxies will be given.
This proxy is irrevocable, is granted pursuant to the Voting Agreement dated
as of April , 1998 between the Company and the undersigned stockholder (the
"VOTING AGREEMENT"), and is granted in consideration of the Company entering
into the Merger Agreement. The attorneys and proxies named above will be
empowered at any time prior to termination of the Merger Agreement to exercise
all voting and other rights (including, without limitation, the power to execute
and deliver written consents with respect to the Shares) of the undersigned at
every annual, special or adjourned meeting of the stockholders of Parent, and in
every written consent in lieu of such a meeting, or otherwise, in favor of
approval of (x) the amendment of Parent's Certificate of Incorporation to
increase its authorized share capital to allow for the issuance of shares of its
Common Stock by virtue of the Merger, (y) the issuance of shares of such Common
Stock by virtue of the Merger and (z) any other matter that could reasonably be
expected to facilitate the Merger.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto at any time prior to termination of the Merger
Agreement at every annual, special or adjourned meeting of the stockholders of
Parent and in every written consent in lieu of such a meeting, or otherwise, in
favor of approval of (x) the amendment of Parent's Certificate of Incorporation
to increase its authorized share capital to allow for the issuance of shares of
its Common Stock by virtue of the Merger, (y) the issuance of shares of such
Common Stock by virtue of the Merger and (z) any other matter that could
reasonably be expected to facilitate the Merger. The undersigned stockholder may
vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: April , 1998
<TABLE>
<S> <C>
Signature of Stockholder:
- -------------------------
Print Name of Stockholder:
- -----------------------
- ------- Shares of Common Stock
Beneficially Owned
</TABLE>
***PHOENIX TECHNOLOGIES LTD. PROXY***
AA-4
<PAGE>
EXHIBIT B
AWARD SOFTWARE INTERNATIONAL, INC.
VOTING AGREEMENT
This Voting Agreement ("AGREEMENT") is made and entered into as of April ,
1998, between Phoenix Technologies Ltd., a Delaware corporation ("PARENT"), and
the undersigned shareholder ("SHAREHOLDER") of Award Software International,
Inc., a California corporation (the "COMPANY").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, the Company
and Portland Acquisition Corporation, a California corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), are entering into an Agreement
and Plan of Reorganization (the "MERGER AGREEMENT") which provides for the
merger (the "MERGER") of Merger Sub with and into the Company. Pursuant to the
Merger, shares of capital stock of the Company will be converted into Common
Stock of Parent on the basis described in the Merger Agreement. Capitalized
terms used and not otherwise defined herein shall have the respective meanings
ascribed to them in the Merger Agreement.
B. The Shareholder is the record holder and beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT")) of such number of shares of the outstanding Common Stock of the Company
as is indicated on the final page of this Agreement (the "SHARES").
C. As a material inducement to enter into the Merger Agreement, Parent
desires the Shareholder to agree, and the Shareholder is willing to agree to
vote the Shares and any other such shares of capital stock of the Company so as
to facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties agree as follows:
1. AGREEMENT TO VOTE SHARES; ADDITIONAL PURCHASES.
1.1 AGREEMENT TO VOTE SHARES. At every meeting of the shareholders of
the Company called with respect to any of the following, and at every
adjournment thereof, and on every action or approval by written consent of
the shareholders of the Company with respect to any of the following,
Shareholder shall vote the Shares and any New Shares in favor of (x)
approval of the Merger Agreement and the Merger and (y) any matter that
could reasonably be expected to facilitate the Merger.
1.2 ADDITIONAL PURCHASES. Shareholder agrees that any shares of
capital stock of the Company that Shareholder purchases or with respect to
which Shareholder otherwise acquires beneficial ownership after the
execution of this Agreement and prior to the Expiration Date ("NEW SHARES")
shall be subject to the terms and conditions of this Agreement to the same
extent as if they constituted Shares.
2. IRREVOCABLE PROXY. Concurrently with the execution of this
Agreement, Shareholder agrees to deliver to Parent a proxy in the form
attached hereto as EXHIBIT A (the "PROXY"), which shall be irrevocable to
the fullest extent permitted by law, with respect to the total number of
shares of capital stock of the Company beneficially owned (as such term is
defined in Rule 13d-3 under the Exchange Act) by Shareholder set forth
therein.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. Shareholder
represents and warrants that he/she/it (i) is the beneficial owner of the
Shares, which at the date hereof are free and clear of any liens, claims,
options, charges or other encumbrances; (ii) does not beneficially own any
shares of capital stock of the Company other than the Shares (excluding
shares as to which Shareholder currently disclaims beneficial ownership in
accordance with applicable law); and (iii) has absolute and
AB-1
<PAGE>
unrestricted power, capacity and authority to make, enter into and perform
the obligations imposed pursuant to the terms of this Agreement.
4. CONSENT AND WAIVER. Shareholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger
under the terms of any agreements to which Shareholder is a party or
pursuant to any rights Shareholder may have.
5. ADDITIONAL DOCUMENTS. Shareholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Parent to carry out the intent of this Agreement.
6. TERMINATION. This Agreement shall terminate and shall have no
further force or effect as of the earlier to occur of (i) such date and time
as the Merger shall become effective in accordance with the terms and
provisions of the Merger Agreement or (ii) such date and time as the Merger
Agreement shall have been terminated pursuant to Article VII thereof.
7. MISCELLANEOUS.
7.1 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
7.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor
any of the rights, interests or obligations of the parties hereto may be
assigned by either of the parties without prior written consent of the
other.
7.3 AMENDMENTS AND MODIFICATION. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
7.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements
of Shareholder set forth herein. Therefore, it is agreed that, in addition
to any other remedies that may be available to Parent upon any such
violation, Parent shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to Parent at law or in equity.
7.5 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or telex, or sent by mail (registered or
certified mail, postage prepaid, return receipt requested) or overnight
courier (prepaid) to the respective parties as follows:
<TABLE>
<CAPTION>
If to Parent: Phoenix Technologies Ltd.
411 E. Plumeria Drive
San Jose, CA 95134
Attn: President
<S> <C>
With a copy to: Wilson Sonsini Goodrich & Rosati,
P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Larry W. Sonsini, Esq.
Herbert P. Fockler, Esq.
</TABLE>
AB-2
<PAGE>
<TABLE>
<S> <C>
If to the Shareholder: To the address for notice set forth
on the last page hereof.
With a copy to: Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306-2155
Attn: Matthew P. Fisher, Esq.
</TABLE>
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall only be effective upon receipt.
7.6 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the internal laws of the State of
California (without regard to the principles of conflict of laws thereof).
7.7 ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties in respect of the subject matter hereof, and supersedes all
prior negotiations and understandings between the parties with respect to
such subject matter.
7.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
7.9 EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be duly
executed on the date and year first above written.
<TABLE>
<S> <C>
PHOENIX TECHNOLOGIES LTD.
By: ---------------------------------
Title: -------------------------------
SHAREHOLDER:
By:
--------------------------------------
Shareholder's Address for Notice:
--------------------------------------
--------------------------------------
--------------------------------------
------- Shares of Common Stock
Beneficially Owned
</TABLE>
***AWARD SOFTWARE INTERNATIONAL, INC. VOTING AGREEMENT***
AB-3
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned shareholder of Award Software International, Inc., a
California corporation (the "COMPANY"), hereby irrevocably appoints the members
of the Board of Directors of Phoenix Technologies Ltd., a Delaware corporation
("PARENT"), and each of them, as the sole and exclusive attorneys and proxies of
the undersigned, with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the shares of capital stock
of the Company beneficially owned by the undersigned, which shares are listed on
the final page of this Proxy (the "SHARES"), and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof,
until such time as that certain Agreement and Plan of Reorganization dated as of
April , 1998 (the "MERGER AGREEMENT"), among Parent, Portland Acquisition
Corporation, a California corporation and a wholly-owned subsidiary of Parent
("MERGER SUB"), and the Company, shall be terminated in accordance with its
terms or the Merger (as defined in the Merger Agreement) is effective. Upon the
execution hereof, all prior proxies given by the undersigned with respect to the
Shares and any and all other shares or securities issued or issuable in respect
thereof on or after the date hereof are hereby revoked. The undersigned hereby
agrees that no subsequent proxies will be given.
This proxy is irrevocable, is granted pursuant to the Voting Agreement dated
as of April , 1998 between Parent and the undersigned shareholder (the "VOTING
AGREEMENT"), and is granted in consideration of Parent entering into the Merger
Agreement. The attorneys and proxies named above will be empowered at any time
prior to termination of the Merger Agreement to exercise all voting and other
rights (including, without limitation, the power to execute and deliver written
consents with respect to the Shares) of the undersigned at every annual, special
or adjourned meeting of the shareholders of the Company, and in every written
consent in lieu of such a meeting, or otherwise, in favor of approval of the
Merger and the Merger Agreement and any other matter that could reasonably be
expected to facilitate the Merger.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto at any time prior to termination of the Merger
Agreement at every annual, special or adjourned meeting of the shareholders of
the Company and in every written consent in lieu of such a meeting, or
otherwise, in favor of approval of the Merger and the Merger Agreement and any
other matter that could reasonably be expected to facilitate the Merger. The
undersigned shareholder may vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: April , 1998
<TABLE>
<S> <C>
Signature of Shareholder:
- -------------------------
Print Name of Shareholder:
- -----------------------
- ------- Shares of Common Stock
Beneficially Owned
</TABLE>
***AWARD SOFTWARE INTERNATIONAL, INC. PROXY***
AB-4
<PAGE>
EXHIBIT C
AGREEMENT OF MERGER
OF
PORTLAND ACQUISITION CORPORATION
AND
AWARD SOFTWARE INTERNATIONAL, INC.
This Agreement of Merger, dated as of the [ ] day of [ ], 1998
("MERGER AGREEMENT"), by and among Portland Acquisition Corporation ("MERGER
SUB"), a California corporation and a wholly owned subsidiary of Phoenix
Technologies, Ltd, a Delaware corporation ("PHOENIX"), and Award Software
International, Inc., a California corporation ("AWARD" or the "SURVIVING
CORPORATION").
RECITALS
A. Award was incorporated in the State of California on [ ], 1983, and
as of [ ], 1998 had [ ] shares of its Common Stock, no par value,
outstanding ("AWARD COMMON").
B. Merger Sub was incorporated in the State of California on April 3, 1998,
and on the date hereof has 1,000 shares of its Common Stock, no par value,
outstanding, all of which are owned by Phoenix.
C. Phoenix, Merger Sub and Award have entered into an Agreement and Plan of
Reorganization dated as of [ ], 1998 (the "REORGANIZATION AGREEMENT")
providing for certain representations, warranties, covenants and agreements in
connection with the transactions contemplated hereby. This Merger Agreement and
the Reorganization Agreement are intended to be construed together to effectuate
their purpose.
D. The shareholders of Award and Merger Sub and the Board of Directors of
Phoenix deem it advisable and in their mutual best interests and in the best
interests of the shareholders of Award and Merger Sub, respectively, that Merger
Sub be merged with and into Award (the "MERGER").
E. The Boards of Directors of Phoenix, Award and Merger Sub and the
shareholders of Merger Sub and Award have approved the Merger. The shareholders
of Phoenix have approved the issuance of shares of Common Stock, par value
$0.001 per share, of Phoenix ("PHOENIX COMMON") by virtue of the Merger.
AGREEMENTS
The parties hereto hereby agree as follows:
1. Merger Sub shall be merged with and into Award, and Award shall be
the Surviving Corporation.
2. The Merger shall become effective at 4:30 p.m. California time on
[ ], 1998 (the "EFFECTIVE TIME").
3. As of the Effective Time, each outstanding share of Common Stock, no
par value, of Merger Sub shall be converted into and exchanged for one (1)
share of Common Stock, no par value, of the Surviving Corporation.
4. Upon the Effective Time of the Merger, each outstanding share of
Award Common shall be converted automatically into and exchanged for the
right to receive 1.225 shares of Phoenix Common ("MERGER CONSIDERATION"),
except that all shares of Award Common that are owned directly or indirectly
by Award, Phoenix or any subsidiary of Award or Phoenix shall be canceled,
and no cash or securities of Phoenix or other consideration shall be
delivered in exchange therefor.
5. As of the Effective Time all certificates representing shares of
Award Common, issued and outstanding immediately prior to the Effective
Time, shall no longer be outstanding and shall
AC-1
<PAGE>
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares of Award Common shall
cease to have any rights with respect thereto except the right to receive
the appropriate portion of the Merger Consideration upon surrender of such
certificate.
6. Any shares ("DISSENTING SHARES") of any holder of Award Common who
has demanded and perfected appraisal rights for such shares in accordance
with the California General Corporation Law and who, as of the Effective
Time, has not effectively withdrawn or lost such appraisal rights, shall not
be converted into Merger Consideration but shall be converted into the right
to receive such consideration as may be determined to be due with respect to
such Dissenting Shares pursuant to the California General Corporation Law.
If, after the Effective Time, any Dissenting Shares shall lose their status
as Dissenting Shares, then as of the occurrence of the event which causes
the loss of such status, such shares shall be converted into Merger
Consideration in accordance with Section 4 hereof.
7. Notwithstanding any other term or provision hereof, no fraction of a
share of Phoenix Common will be issued by virtue of the Merger, but in lieu
thereof each holder of shares of Award Common who would otherwise be
entitled to a fraction of a share of Phoenix Common (after aggregating all
fractional shares of Phoenix Common to be received by such holder) shall
receive from Phoenix an amount of cash (rounded to the nearest whole cent)
equal to the product of (i) such fraction, multiplied by (ii) the closing
price of a share of Phoenix Common on the trading day immediately prior to
the Effective Time, as reported on the Nasdaq National Market.
8. The conversion of Award Common as provided by this Merger Agreement
shall occur automatically at the Effective Time of the Merger without action
by the holders thereof. Each holder of Award Common shall thereupon be
entitled to receive Merger Consideration in accordance with Section 4
hereof. Promptly after the Effective Time, such shareholder shall be
entitled to receive certificates that represent the number of shares of
Phoenix Common Stock issuable to such shareholder under this Merger
Agreement upon surrender as set forth in the Reorganization Agreement of
such shareholder's certificates which immediately prior to the Effective
Time represented outstanding shares of Award Common Stock.
No dividends or other distributions on Phoenix Common declared or made
after the Effective Time shall be paid to the holder of any unsurrendered
certificate until the holder of record of such certificate shall surrender
such certificate. Subject to the effect, if any, of applicable laws,
following surrender of any certificate, there shall be delivered to the
person entitled thereto, without interest, the amount of dividends
theretofore paid with respect to the Phoenix Common so withheld as of any
date subsequent to the Effective Time of the Merger and prior to such date
of delivery.
All Merger Consideration and cash paid in accordance with Section 7
hereof delivered upon the surrender for exchange of shares of Award Common
in accordance with the terms hereof shall be deemed to have been delivered
in full satisfaction of all rights pertaining to such Award Common. If,
after the Effective Time of the Merger, certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Section 8.
9. At the Effective Time of the Merger, the separate existence of
Merger Sub shall cease, and Award shall succeed, without other transfer, to
all of the rights and properties of Merger Sub and shall be subject to all
the debts and liabilities thereof in the same manner as if Award had itself
incurred them.
10. Upon the Merger becoming effective, the Articles of Incorporation of
the Surviving Corporation shall be amended in full to read as set forth in
EXHIBIT A attached hereto.
11. (a) Notwithstanding the approval of this Merger Agreement by the
shareholders of Award and Merger Sub, this Merger Agreement may be
terminated at any time prior to the Effective Time of
AC-2
<PAGE>
the Merger by mutual agreement of the Boards of Directors of Phoenix and
Award, and the shareholders of Award.
(b) Notwithstanding the approval of this Merger Agreement by the
shareholders of Award and Merger Sub, this Merger Agreement shall
terminate forthwith in the event that the Reorganization Agreement shall
be terminated as therein provided.
(c) In the event of the termination of this Merger Agreement as
provided above, this Merger Agreement shall forthwith become void and
there shall be no liability on the part of Award, Phoenix or Merger Sub
or their respective officers or directors, except as otherwise provided
in the Reorganization Agreement.
(d) This Merger Agreement may be signed in one or more counterparts,
each of which shall be deemed an original and all of which shall
constitute one agreement.
(e) This Merger Agreement may be amended by the parties hereto any
time before or after approval hereof by the shareholders of Award and
Merger Sub, but, after such approval, no amendments shall be made which
by law require the further approval of such shareholders without
obtaining such approval. This Merger Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties
hereto.
IN WITNESS WHEREOF, the parties have executed this Merger Agreement as of
the date first written above.
PORTLAND ACQUISITION CORPORATION
--------------------------------------
President
--------------------------------------
Secretary
AWARD SOFTWARE INTERNATIONAL, INC.
--------------------------------------
President
--------------------------------------
Secretary
AC-3
<PAGE>
EXHIBIT A
ARTICLES OF INCORPORATION
OF
PORTLAND ACQUISITION CORPORATION
Article I.
The name of this corporation is "Portland Acquisition Corporation."
Article II.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
Article III.
The name and address in the State of California of this corporation's
initial agent for service of process is:
Burke Norton
650 Page Mill Road
Palo Alto, California 94304-1050
Article V.
This corporation is authorized to issue one class of stock, designated
Common Stock. The total number of shares of Common Stock which this corporation
is authorized to issue is One Thousand (1,000).
Article VI.
(a) LIMITATION OF DIRECTOR'S LIABILITY. The liability of the directors of
this corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
(b) INDEMNIFICATION OF CORPORATE AGENTS. The corporation is authorized to
indemnify the directors and officers to the fullest extent permissible under
California law.
(c) REPEAL OR MODIFICATION. Any amendment, repeal or modification of the
foregoing provision of this Article V shall not adversely affect any right of
indemnification or limitation of liability of an agent of this corporation
relating to acts or omissions occurring prior to such amendment, repeal or
modification.
Dated: , 1998
--------------------------------------
Burke Norton, Incorporator
AC-4
<PAGE>
OFFICERS' CERTIFICATE
OF
AWARD SOFTWARE INTERNATIONAL, INC.
[ ], President, and [ ], Secretary, of Award Software
International, Inc., a corporation duly organized and existing under the laws of
the State of California (the "CORPORATION"), do hereby certify:
1. They are the duly elected, acting and qualified President and the
Secretary, respectively, of the Corporation.
2. The authorized capital stock of the Corporation consists of
40,000,000 shares of Common Stock, no par value, of which there are
[ ] shares outstanding and entitled to vote on the Agreement of
Merger in the form attached, and 5,000,000 shares of Preferred Stock, no par
value, of which no shares are issued or outstanding or entitled to vote on
the Agreement of Merger in the form attached.
3. The Agreement of Merger in the form attached was duly approved by
the board of directors and shareholders of the Corporation in accordance
with the General Corporation Law of the State of California.
4. The shareholder approval was by the holders of % of the
outstanding shares of the Corporation. The required vote was a majority of
the outstanding shares of Common Stock, no par value, of the Corporation.
Each of the undersigned declares under penalty of perjury that the
statements contained in the foregoing certificate are true of their own
knowledge. Executed in Mountain View, California, on [ ], 1998.
--------------------------------------
President
--------------------------------------
Secretary
AC-5
<PAGE>
OFFICERS' CERTIFICATE
OF
PORTLAND ACQUISITION CORPORATION
[ ], President and, [ ], Secretary, of Portland
Acquisition Corporation, a corporation duly organized and existing under the
laws of the State of California (the "CORPORATION"), do hereby certify that:
1. They are the duly elected, acting and qualified President and the
Secretary, respectively, of the Corporation.
2. There is only one authorized class of shares of the Corporation,
consisting of 1,000 shares of Common Stock, no par value, and the total
number of issued and outstanding shares is 1,000, all of which are held by
Phoenix Technologies, Ltd, a Delaware corporation ("PHOENIX").
3. The Agreement of Merger in the form attached was approved by the
board of directors and the shareholder of the Corporation in accordance with
the General Corporation Law of the State of California.
4. The shareholder approval was by the holder of 100% of the
outstanding shares of the Corporation. The required vote was a majority of
the outstanding shares of Common Stock, no par value, of the Corporation.
5. The stockholders of Phoenix have approved the issuance of shares of
Common Stock, par value $0.001 per share, of Phoenix by virtue of the Merger
in accordance with the Delaware General Corporation Law.
The undersigned declare under penalty of perjury that the statements
contained in the foregoing certificate are true of their own knowledge. Executed
in San Jose, California, on [ ], 1998.
--------------------------------------
President
--------------------------------------
Secretary
AC-6
<PAGE>
EXHIBIT D
PHOENIX TECHNOLOGIES LTD.
AFFILIATE AGREEMENT
This Affiliate Agreement ("AGREEMENT") is made and entered into as of April
, 1998, between Phoenix, a Delaware corporation ("PHOENIX"), Award
Software International, Inc., a California corporation ("AWARD"), and the
undersigned affiliate ("AFFILIATE") of Phoenix.
WHEREAS, Phoenix and Award have entered into an Agreement and Plan of
Reorganization ("MERGER AGREEMENT") pursuant to which Award and Phoenix intend
to enter into a business combination transaction to pursue their long term
business strategies (the "MERGER") (capitalized terms used and not otherwise
defined herein shall have the respective meanings ascribed to them in the Merger
Agreement);
WHEREAS, Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of Phoenix, as the term "affiliate" is used in Accounting Series
Releases 130 and 135, as amended, although nothing contained herein shall be
construed as an admission by Affiliate that Affiliate is in fact an affiliate of
Phoenix;
WHEREAS, it will be a condition to effectiveness of the Merger pursuant to
the Merger Agreement that the independent accounting firm that audits the annual
financial statements of Phoenix will have delivered its written concurrence with
the conclusion of management of Phoenix to the effect that the Merger will be
accounted for as a pooling of interests under Accounting Principles Board
Opinion No. 16;
WHEREAS, the execution and delivery of this Agreement by Affiliate is a
material inducement to Phoenix to enter into the Merger Agreement.
NOW, THEREFORE, intending to be legally bound, the parties hereby agree as
follows:
1. ACKNOWLEDGMENTS BY AFFILIATE. Affiliate beneficially owns that
number of shares of capital stock of Award set forth on the last page of
this Agreement and has good and valid title to all such shares free and
clear of all liens and encumbrances. Affiliate acknowledges and understands
that the representations, warranties and covenants by Affiliate set forth
herein will be relied upon by Phoenix, Award, and their respective
affiliates, counsel and accounting firms, and that substantial losses and
damages may be incurred by these persons if Affiliate's representations,
warranties or covenants are breached. Affiliate (i) has carefully read this
Agreement and the Merger Agreement, (ii) has discussed the requirements of
this Agreement with Affiliate's professional advisors, who are qualified to
advise Affiliate with regard to such matters and (iii) understands such
requirements.
2. COVENANTS RELATED TO POOLING OF INTERESTS. In accordance with SAB
65, until the second day after the day that Phoenix publicly announces
financial results covering at least 30 days of combined operations of
Phoenix and Award, Affiliate will not sell, exchange, transfer, pledge,
distribute, make any gift or otherwise dispose of or grant any option,
establish any "short" or put-equivalent position with respect to or enter
into any similar transaction (through derivatives or otherwise) intended to
reduce or having the effect, directly or indirectly, of reducing Affiliate's
interest or risk relative to any shares of capital stock of Phoenix
(including without limitation the shares set forth on the last page of this
Agreement and any shares hereafter acquired by stock option exercise or
otherwise). Phoenix may, at its discretion, provide a stock transfer notice
consistent with the foregoing to its transfer agent with respect to
Affiliate's shares. Notwithstanding the foregoing, Affiliate will not be
prohibited by the foregoing from selling or disposing of shares so long as
such sale or disposition is in accordance with the "de minimis" test set
forth in SEC Staff Accounting Bulletin No. 76.
3. BENEFICIAL OWNERSHIP OF STOCK. Except for the Phoenix Common Stock
and options to purchase Phoenix Common Stock set forth on the last page of
this Agreement, Affiliate does not
AD-1
<PAGE>
beneficially own any shares of Phoenix Common Stock or any other equity
securities of Phoenix or any options, warrants or other rights to acquire
any equity securities of Phoenix.
4. MISCELLANEOUS.
(a) For the convenience of the parties hereto, this Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
document.
(b) This Agreement shall be enforceable by, and shall inure to the
benefit of and be binding upon, the parties hereto and their respective
successors and assigns. As used herein, the term "successors and assigns"
shall mean, where the context so permits, heirs, executors, administrators,
trustees and successor trustees, and personal and other representatives.
(c) This Agreement shall be governed by and construed, interpreted and
enforced in accordance with the internal laws of the State of California
(without regard to the principles of conflict of laws thereof).
(d) If a court of competent jurisdiction determines that any provision
of this Agreement is not enforceable or enforceable only if limited in time
and/or scope, this Agreement shall continue in full force and effect with
such provision stricken or so limited.
(e) Counsel to and accountants for the parties to the Agreement shall be
entitled to rely upon this Agreement as needed.
(f) This Agreement shall not be modified or amended, or any right
hereunder waived or any obligation excused, except by a written agreement
signed by both parties.
AD-2
<PAGE>
Executed as of the date shown on the first page of this Agreement.
<TABLE>
<CAPTION>
<S> <C> <C>
PHOENIX TECHNOLOGIES LTD.
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
AWARD SOFTWARE INTERNATIONAL, INC.
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
AFFILIATE
By:
----------------------------------------
Name of Affiliate: ------------------------------
Name of Signatory (if different from
name of Affiliate): ------------------------------
Title of Signatory
(if applicable): ---------------------------------
</TABLE>
Number of shares of Phoenix Common Stock beneficially owned by Affiliate:
- -------------------------------------------
Number of shares of Phoenix Common Stock subject to options beneficially owned
by Affiliate:
- -------------------------------------------
***PHOENIX TECHNOLOGIES LTD. AFFILIATE AGREEMENT***
AD-3
<PAGE>
EXHIBIT E
AWARD SOFTWARE INTERNATIONAL, INC.
AFFILIATE AGREEMENT
This Affiliate Agreement ("AGREEMENT") is made and entered into as of
, 1998, between Phoenix Technologies Ltd., a Delaware corporation
("PHOENIX"), Award Software International, Inc., a California corporation
("AWARD") and the undersigned affiliate ("AFFILIATE") of Award.
WHEREAS, Award and Phoenix have entered into an Agreement and Plan of
Reorganization ("MERGER AGREEMENT") pursuant to which Award and Phoenix intend
to enter into a business combination transaction to pursue their long term
business strategies (the "MERGER") (capitalized terms used and not otherwise
defined herein shall have the respective meanings ascribed to them in the Merger
Agreement);
WHEREAS, pursuant to the Merger, at the Effective Time outstanding shares of
Award Capital Stock, including any shares owned by Affiliate, will be converted
into the right to receive shares of Phoenix Common Stock as set forth in the
Merger Agreement;
WHEREAS, Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of Award, as the term "affiliate" is used (i) for purposes of
paragraphs (c) and (d) of Rule 145 of the Rules and Regulations of the
Securities and Exchange Commission (the "SEC") and (ii) in the SEC's Accounting
Series Releases 130 and 135, as amended, although nothing contained herein shall
be construed as an admission by Affiliate that Affiliate is in fact an affiliate
of Award;
WHEREAS, it will be a condition to consummation of the Merger pursuant to
the Merger Agreement that (i) the attorneys for each of Phoenix and Award will
have delivered written opinions that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE"), and (ii) the independent accounting firm that audits the
annual financial statements of Phoenix will have delivered its written
concurrence with the conclusion of management of Phoenix to the effect that the
Merger will be accounted for as a pooling of interests under Accounting
Principles Board Opinion No. 16;
WHEREAS, the execution and delivery of this Agreement by Affiliate is a
material inducement to Phoenix to enter into the Merger Agreement.
NOW, THEREFORE, intending to be legally bound, the parties hereby agree as
follows:
1. ACKNOWLEDGMENTS BY AFFILIATE. Affiliate beneficially owns that
number of shares of capital stock of Award set forth on the last page of
this Agreement and has good and valid title to all such shares free and
clear of all liens and encumbrances. Affiliate acknowledges and understands
that the representations, warranties and covenants by Affiliate set forth
herein will be relied upon by Phoenix, Award, and their respective
affiliates, counsel and accounting firms, and that substantial losses and
damages may be incurred by these persons if Affiliate's representations,
warranties or covenants are breached. Affiliate (i) has carefully read this
Agreement and the Merger Agreement, (ii) has discussed the requirements of
this Agreement with Affiliate's professional advisors, who are qualified to
advise Affiliate with regard to such matters and (iii) understands such
requirements.
2. COMPLIANCE WITH RULE 145 AND THE ACT.
(a) Affiliate has been advised that (i) the issuance of shares of
Phoenix Common Stock in connection with the Merger is expected to be
effected pursuant to a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "ACT"), and as such will not be
deemed "restricted securities" within the meaning of Rule 144 promulgated
thereunder and resale of such shares will not be subject to any restrictions
other than as set forth in Rule 145 of the Act (unless otherwise transferred
pursuant to an effective registration statement under the Act or an
appropriate exemption from registration), (ii) Affiliate may be deemed to be
an affiliate of Award, and (iii) no sale, transfer or other disposition by
Affiliate of any Phoenix Common Stock received by Affiliate will be
registered under the Act. Affiliate accordingly agrees not to sell, transfer
or otherwise dispose of any Phoenix Common Stock issued to Affiliate in the
Merger unless (x) such sale, transfer or other
AE-1
<PAGE>
disposition is made in conformity with the requirements of Rule 145(d)
promulgated under the Act, or (y) Affiliate delivers to Phoenix a written
opinion of counsel, reasonably acceptable to Phoenix in form and substance,
that such sale, transfer or other disposition is otherwise exempt from
registration under the Act.
(b) Phoenix will give stop transfer instructions to its transfer agent
with respect to any Phoenix Common Stock received by Affiliate pursuant to
the Merger, and there will be placed on the certificates representing such
Phoenix Common Stock, or any substitutions therefor, a legend stating in
substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, APPLIES AND MAY ONLY BE TRANSFERRED IN
CONFORMITY WITH RULE 145(d) UNDER SUCH ACT OR IN ACCORDANCE WITH A
WRITTEN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER IN
FORM AND SUBSTANCE, THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend), and Phoenix shall so instruct its transfer
agent, if Affiliate delivers to Phoenix (i) satisfactory written evidence
that the shares have been sold in compliance with Rule 145 (in which case,
the substitute certificate will be issued in the name of the transferee), or
(ii) an opinion of counsel, in form and substance reasonably satisfactory to
Phoenix to the effect that public sale of the shares by the holder thereof
is no longer subject to Rule 145.
(c) To the extent required by applicable securities laws, Phoenix agrees
to use reasonable commercial efforts, for a period of two years from the
date of this Agreement, to file with the SEC in a timely manner all reports
and other documents required of Phoenix under the Act and the Securities
Exchange Act of 1934, as amended.
3. COVENANTS RELATED TO POOLING OF INTERESTS. In accordance with SAB
65, until the second day after the day that Phoenix publicly announces
financial results covering at least 30 days of combined operations of
Phoenix and Award, Affiliate will not sell, exchange, transfer, pledge,
distribute, or otherwise dispose of or grant any option, establish any
"short" or put-equivalent position with respect to or enter into any similar
transaction (through derivatives or otherwise) intended to reduce or having
the effect, directly or indirectly, of reducing Affiliate's interest or risk
relative to (i) any shares of capital stock of Award (including without
limitation the shares set forth on the last page of this Agreement and any
shares hereafter acquired by stock option exercise or otherwise) or (ii) any
shares of capital stock of Phoenix received by Affiliate in connection with
the Merger or any shares of capital stock of Phoenix received by Affiliate
upon exercise of options to purchase capital stock assumed by Phoenix in
connection with the Merger. Phoenix may, at its discretion, cause a
restrictive legend to the foregoing effect to be placed on Phoenix Common
Stock certificates issued to Affiliate in the Merger and provide a stock
transfer notice consistent with the foregoing to its transfer agent with
respect to the certificates, provided that such restrictive legend shall be
removed and/or such notice shall be countermanded promptly upon expiration
of the necessity therefor at the request of Affiliate. Notwithstanding the
foregoing, Affiliate will not be prohibited by the foregoing from selling or
disposing of shares, so long as such sale or disposition is in accordance
with the "DE MINIMIS" test set forth in SEC Staff Accounting Bulletin No. 76
and so long as Affiliate has obtained Phoenix's prior written approval of
such sale or disposition.
4. MISCELLANEOUS.
(a) For the convenience of the parties hereto, this Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
document.
AE-2
<PAGE>
(b) This Agreement shall be enforceable by, and shall inure to the
benefit of and be binding upon, the parties hereto and their respective
successors and assigns. As used herein, the term "successors and assigns"
shall mean, where the context so permits, heirs, executors, administrators,
trustees and successor trustees, and personal and other representatives.
(c) This Agreement shall be governed by and construed, interpreted and
enforced in accordance with the internal laws of the State of California
(without regard to the principles of conflict of laws thereof.
(d) If a court of competent jurisdiction determines that any provision
of this Agreement is not enforceable or enforceable only if limited in time
and/or scope, this Agreement shall continue in full force and effect with
such provision stricken or so limited.
(e) Counsel to and accountants for the parties to the Agreement shall be
entitled to rely upon this Agreement as needed.
(f) This Agreement shall not be modified or amended, or any right
hereunder waived or any obligation excused, except by a written agreement
signed by both parties.
Executed as of the date shown on the first page of this Agreement.
<TABLE>
<CAPTION>
<S> <C> <C>
PHOENIX TECHNOLOGIES LTD.
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
AWARD SOFTWARE INTERNATIONAL, INC.
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
AFFILIATE
By:
----------------------------------------
Name of Affiliate: ------------------------------
Name of Signatory (if different from
name of Affiliate): -----------------------------
Title of Signatory
(if applicable): ---------------------------------
</TABLE>
Number of shares of Award Common Stock beneficially owned by Affiliate:
- -------------------------------------------
Number of shares of Award Common Stock subject to options beneficially owned by
Affiliate:
- -------------------------------------------
***AWARD SOFTWARE INTERNATIONAL, INC. AFFILIATE AGREEMENT***
AE-3
<PAGE>
ANNEX B
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13 DISSENTERS' RIGHTS
SEC. 1300. CORPORATE PURCHASE OF DISSENTING SHARES.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter,
require the corporation in which the shareholder holds shares to purchase
for cash at their fair market value the shares owned by the shareholder
which are dissenting shares as defined in subdivision (b). The fair market
value shall be determined as of the day before the first announcement of the
terms of the proposed reorganization or short-form merger, excluding any
appreciation or depreciation in consequence of the proposed action, but
adjusted for any stock split, reverse stock split, or share dividend which
becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified
by the Commissioner of Corporations under subdivision (o) of Section
25100 or (B) listed on the list of OTC margin stocks issued by the Board
of Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this
provision does not apply to any shares with respect to which there
exists any restriction on transfer imposed by the corporation or by any
law or regulation; and provided, further, that this provision does not
apply to any class of shares described in subparagraph (A) or (B) if
demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not
voted in favor of the reorganization or, (B) if described in
subparagraph (A) or (B) of paragraph (1) (without regard to the provisos
in that paragraph), were voted against the reorganization, or which were
held of record on the effective date of a short-form merger; provided,
however, that subparagraph (A) rather than subparagraph (B) of this
paragraph applies in any case where the approval required by Section
1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for enforcement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the record
holder of dissenting shares and includes a transferee of record.
SEC. 1301. NOTICE TO DISSENTING SHAREHOLDERS; DEMAND FOR PURCHASE OF SHARES.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3)
and (4) of subdivision (b) thereof, to require the corporation to purchase
their shares for cash, such corporation shall mail to each such shareholder
a
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notice of the approval of the reorganization by its outstanding shares
(Section 152) within 10 days after the date of such approval, accompanied by
a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value
of the dissenting shares, and a brief description of the procedure to be
followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined
in subdivision (b) of Section 1300, unless they lose their status as
dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any
purpose unless it is received by the corporation or any transfer agent
thereof (1) in the case of shares described in clause (i) or (ii) of
paragraph (1) of subdivision (b) of Section 1300 (without regard to the
provisos in that paragraph), not later than the date of the shareholders'
meeting to vote upon the reorganization, or (2) in any other case within 30
days after the date on which the notice of the approval by the outstanding
shares pursuant to subdivision (a) or the notice pursuant to subdivision (i)
of Section 1110 was mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be
the fair market value of those shares as of the day before the announcement
of the proposed reorganization or short-form merger. The statement of fair
market value constitutes an offer by the shareholder to sell the shares at
such price.
SEC. 1302. SHAREHOLDER CERTIFICATES OR NOTICE; TIME LIMIT FOR SUBMISSION.
Within 30 days after the date on which notice of the approval by the outstanding
shares or the notice pursuant to subdivision (i) of Section 1110 was mailed to
the shareholder, the shareholder shall submit to the corporation at its
principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SEC. 1303. AGREED PRICE; INTEREST; FILING OF AGREEMENTS; TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the
legal rate on judgments from the date of the agreement. Any agreements
fixing the fair market value of any dissenting shares as between the
corporation and the holders thereof shall be filed with the secretary of the
corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in
the case of certificated securities, subject to surrender of the
certificates therefor, unless provided otherwise by agreement.
B-2
<PAGE>
SEC. 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING OR TO
DETERMINE FAIR MARKET VALUE.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152)
or notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court
of the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both
or may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is
in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SEC. 1305. APPRAISER'S REPORT.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and
file a report in the office of the clerk of the court. Thereupon, on the
motion of any party, the report shall be submitted to the court and
considered on such evidence as the court considers relevant. If the court
finds the report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the
court, the court shall determine the fair market value of the dissenting
shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market
value of each dissenting share multiplied by the number of dissenting shares
which any dissenting shareholder who is a party, or who has intervened, is
entitled to require the corporation to purchase, with interest thereon at
the legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the
judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered
by the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and
interest at the legal rate on judgments from the date of compliance with
Sections 1300, 1301 and 1302 if the value awarded by the court for the
shares is more than 125 percent of the price offered by the corporation
under subdivision (a) of Section 1301).
SEC. 1306. HOLDERS OF DISSENTING SHARES AS CREDITORS.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together
B-3
<PAGE>
with interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt to
be payable when permissible under the provisions of Chapter 5.
SEC. 1307. DIVIDENDS ON DISSENTING SHARES AFTER APPROVAL DATE.
Cash dividends declared and paid by the corporation upon the dissenting shares
after the date of approval of the reorganization by the outstanding shares
(Section 152) and prior to payment for the shares by the corporation shall be
credited against the total amount to be paid by the corporation therefor.
SEC. 1308. RIGHTS IN DISSENTING SHARES PRIOR TO DETERMINATION OF FAIR MARKET
VALUE.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SEC. 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders thereof
cease to be dissenting shareholders and cease to be entitled to require the
corporation to purchase their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares
of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice
of the approval by the outstanding shares or notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SEC. 1310. LITIGATION; SUSPENSION OF PROCEEDINGS.
If litigation is instituted to test the sufficiency or regularity of the votes
of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SEC. 1311. SHARES SPECIFYING AMOUNT IN EVENT OF MERGER OR REORGANIZATION.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
B-4
<PAGE>
SEC. 1312. ATTACK ON VALIDITY OF MERGER OR REORGANIZATION.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted
in favor thereof; but any holder of shares of a class whose terms and
provisions specifically set forth the amount to be paid in respect to them
in the event of a reorganization or short-form merger is entitled to payment
in accordance with those terms and provisions or, if the principal terms of
the reorganization are approved pursuant to subdivision (b) of Section 1202,
is entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash
for such shareholder's shares pursuant to this chapter; but if the
shareholder institutes any action to attack the validity of the
reorganization or short-form merger or to have the reorganization or
short-form merger set aside or rescinded, the shareholder shall not
thereafter have any right to demand payment of cash for the shareholder's
shares pursuant to this chapter. The court in any action attacking the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder
or the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack
the validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that
the transaction is just and reasonable as to the shareholders of the
controlled party, and (2) a person who controls two or more parties to a
reorganization shall have the burden of proving that the transaction is just
and reasonable as to the shareholders of any party so controlled.
B-5
<PAGE>
ANNEX C
[LETTERHEAD]
April 13, 1998
CONFIDENTIAL
Board of Directors
Phoenix Technologies Ltd.
411 East Plumeria Drive
San Jose, CA 95134
Dear Members of the Board:
We understand that Phoenix Technologies Ltd. ("Phoenix"), Phoenix
Acquisition Corporation, a wholly owned subsidiary of Phoenix (the "Merger
Sub"), and Award Software International, Inc. ("Award") propose to enter into an
Agreement and Plan of Reorganization (the "Agreement") pursuant to which,
through the merger of the Merger Sub with and into Award (the "Merger"), each
share of Award common stock, no par value per share ("Award Common Stock"),
shall be converted into the right to receive 1.225 (the "Exchange Ratio") shares
of Phoenix common stock, $0.001 par value per share ("Phoenix Common Stock").
The Merger is intended to be a tax-free reorganization within the meaning of
Section 368 of the United States Internal Revenue Code of 1986, as amended, and
to be accounted for as a pooling of interests pursuant to Opinion No. 16 of the
Accounting Principles Board. The terms and conditions of the above described
Merger are more fully detailed in the Agreement.
You have requested our opinion as to whether the Exchange Ratio is fair,
from a financial point of view, to Phoenix shareholders.
Broadview Associates focuses on providing merger and acquisition advisory
services to information technology ("IT") companies. In this capacity, we are
continually engaged in valuing such businesses, and we maintain an extensive
database of IT mergers and acquisitions for comparative purposes. We are
currently acting as financial advisor to Phoenix's Board of Directors and will
receive a fee from Phoenix upon the successful conclusion of the Merger.
Broadview Associates also has an immaterial equity interest in Phoenix as a
result of the fact that a former Managing Director of Broadview Associates
serves on Phoenix's Board of Directors.
In rendering our opinion, we have, among other things:
1.) reviewed the terms of the Agreement and the associated exhibits
thereto in the form of the draft dated April 3, 1998 furnished to us by
Wilson Sonsini Goodrich & Rosati on April 6, 1998 (which, for the purposes
of this opinion, we have assumed, with your permission, to be identical in
all material respects to the agreement to be executed);
C-1
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[LOGO]
2.) reviewed Award's annual report and Form 10-K for the fiscal year
ended December 31, 1997 which included results for the fiscal years ended
December 31, 1996 and 1997, including the audited financial statements
included therein;
3.) reviewed certain internal financial and operating information,
including projections, relating to Award prepared by Award management;
4.) participated in discussions with Award management concerning the
operations, business strategy, current financial performance and prospects
for Award;
5.) reviewed the recent reported closing prices and trading activity for
Award Common Stock;
6.) compared certain aspects of the financial performance of Award with
public companies we deemed comparable;
7.) analyzed available information, both public and private, concerning
other mergers and acquisitions we believe to be comparable in whole or in
part to the Merger;
8.) reviewed Phoenix's annual report and Form 10-K for the fiscal year
ended September 30, 1997 which included results for the fiscal years ended
September 30, 1996 and 1997, including the audited financial statements
included therein, and Phoenix's Form 10-Q for the three months ended
December 31, 1997, including the unaudited financial statements included
therein;
9.) participated in discussions with Phoenix management concerning the
operations, business strategy, financial performance and prospects for
Phoenix;
10.) reviewed the recent reported closing prices and trading activity for
Phoenix Common Stock;
11.) discussed with Phoenix management its view of the strategic
rationale for the Merger;
12.) compared certain aspects of the financial performance of Phoenix
with public companies we deemed comparable;
13.) considered the total number of shares of Phoenix Common Stock
outstanding and the average weekly trading volume of Phoenix Common Stock;
14.) reviewed recent equity analyst reports covering Phoenix and Award;
15.) analyzed the anticipated effect of the Merger on the future
financial performance of the consolidated entity;
16.) assisted in negotiations and discussions related to the Merger among
Phoenix, Award and their financial and legal advisors; and
17.) conducted other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification,
on the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Agreement) that was publicly available or furnished to us by Phoenix, Award
or Award's financial advisor. With respect to the financial projections examined
by us, we have assumed that they were reasonably prepared and reflected the best
available estimates and good faith
C-2
<PAGE>
[LOGO]
judgments of the management of Award as to the future performance of Award. We
have neither made nor obtained an independent appraisal or valuation of any of
Award's assets.
Based upon and subject to the foregoing, we are of the opinion that the
Exchange Ratio is fair, from a financial point of view, to Phoenix shareholders.
For purposes of this opinion, we have assumed that neither Phoenix nor Award
is currently involved in any material transaction other than the Merger, other
transactions of which we are aware and those activities undertaken in the
ordinary course of conducting their respective businesses. Our opinion is
necessarily based upon market, economic, financial and other conditions as they
exist and can be evaluated as of the date of this opinion, and any change in
such conditions may impact this opinion. We express no opinion as to the price
at which Phoenix Common Stock will trade at any time.
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of Phoenix in
connection with its consideration of the Merger and does not constitute a
recommendation to any Phoenix shareholder as to how such shareholder should vote
on the Merger. This opinion may not be published or referred to, in whole or
part, without our prior written permission, which shall not be unreasonably
withheld. Broadview Associates hereby consents to references to and the
inclusion of this opinion in its entirety in the Proxy Statement/Prospectus to
be distributed to Phoenix shareholders in connection with the Merger.
Sincerely,
Broadview Associates LLC
C-3
<PAGE>
ANNEX D
[LOGO]
April 13, 1998
Board of Directors
Award Software International, Inc.
777 East Middlefield Road
Mountain View, California 94043
Members of the Board:
You have asked our opinion with respect to the fairness to Holders of Award
common stock (as defined below), from a financial point of view and as of the
date hereof, of the Exchange Ratio (as defined below) in the Merger (as defined
below) pursuant to the April 13, 1998 draft of the Agreement and Plan of
Reorganization, dated as of April , 1998 (the "Agreement"), by and among Award
Software International, Inc. ("Award"), Phoenix Technologies Ltd. ("Phoenix")
and Phoenix Technologies Acquisition Corporation ("Merger Sub"). Pursuant to the
Agreement, Merger Sub will be merged with and into Award and Award will become a
wholly-owned subsidiary of Phoenix (the "Merger"). Each outstanding share of
common stock of Award will be converted into the right to receive 1.225 shares
of common stock of Phoenix (the "Exchange Ratio"). The "Holders of Award common
stock" includes all holders of Award common stock except for Phoenix or any
affiliate of Phoenix. The Agreement states that the parties intend, and we have
assumed, that the Merger will qualify as a tax-free reorganization and be
accounted for as a pooling of interests in accordance with U.S. generally
accepted accounting principles. The terms and conditions of the Merger are set
out more fully in the Agreement.
For purposes of this opinion we have: (i) reviewed financial information on
Award furnished to us by Award, including certain internal financial analyses
and forecasts prepared by the management of Award; (ii) reviewed certain
publicly available information relating to Award and Phoenix, including their
respective stock price and trading histories; (iii) held discussions with the
management of Award concerning the businesses, past and current business
operations, financial condition and results of operations and future prospects
of Award; (iv) reviewed the financial terms and conditions of the Agreement; (v)
reviewed the valuations of publicly traded companies that we deemed comparable
to Award; (vi) prepared discounted cash flow analyses of Award; (vii) compared
the financial terms of the Merger set forth in the Agreement with other
transactions that we deemed relevant; (viii) prepared pro-forma merger analyses
of the Merger; (ix) prepared a relative contribution analysis for Award and
Phoenix; and (x) made such other studies and inquiries, and reviewed such other
data, as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all publicly available information that we have reviewed and all
other information furnished (or made available) to us by or on behalf of Award
or otherwise used by us in connection with our engagement by Award with respect
to the Merger, and we have not undertaken any independent verification of such
information. We have relied upon the assurances of management of Award that it
is not aware of any facts that would make such information inaccurate or
misleading.
Furthermore, we did not obtain or make, or assume responsibility for
obtaining or making, any independent appraisal of the properties, assets or
liabilities (contingent or otherwise) of Award or Phoenix, nor were we furnished
with any such evaluations or appraisals. With respect to the financial and
operating forecasts (and the assumptions and bases therefor) of Award that we
have reviewed, we have assumed that such forecasts have been reasonably prepared
in good faith on the basis of reasonable assumptions and reflect the best
currently available estimates and judgments of Award's management, and we have
further
D-1
<PAGE>
Board of Directors
Award Software International, Inc.
April 13, 1998
Page 2
assumed that such projections and forecasts will be realized in the amounts and
in the time periods currently estimated by the management of Award. We have
assumed that the Merger will be consummated upon the terms set forth in the
Agreement without material alteration thereof. We have relied as to all legal
matters relevant to rendering our opinion on the advice of counsel.
This opinion is necessarily based upon market, economic and other conditions
as in effect on, and information made available to us as of, the date hereof. It
should be understood that subsequent developments may effect this opinion and
that we disclaim any undertaking or obligation to advise any person of any
change in any fact or matter affecting this opinion which may come or be brought
to our attention after the date of this opinion. Our opinion is limited to the
fairness from a financial point of view to the Holders of Award common stock of
the Exchange Ratio and does not address the underlying business decision of the
Board of Directors of Award to engage in the Merger. We do not express any
opinion as to the value of any employee agreements or arrangements entered into
in connection with the Agreement or the Merger. We further express no opinion as
to the future value of the shares of Phoenix common stock.
In the ordinary course of business, we may actively trade the securities of
Award and Phoenix for our own account or for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have acted as financial advisor to Award in connection with the Merger, for
which a portion of our fee is due and payable contingent upon the closing of the
Merger.
Our opinion is directed to the Board of Directors of Award and is not
intended to be and does not constitute a recommendation to any shareholder of
Award as to how such shareholder should vote upon or take any other action with
respect to the Merger. This opinion may be included in a proxy or registration
statement of Award distributed in connection with the Merger; PROVIDED that this
opinion is reproduced therein in full and any description of, or reference to,
this opinion therein is in a form and substance acceptable to us and our legal
counsel. Except as provided in the previous sentence, this opinion shall not be
reproduced, summarized, described or referred to, or furnished to any party,
without our prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion,
that, as of the date hereof, the Exchange Ratio is fair to the Holders of Award
common stock from a financial point of view.
Very truly yours,
BANCAMERICA ROBERTSON STEPHENS
By /s/ EDWIN DAVID HETZ
-------------------------------------
Authorized Signatory
D-2
<PAGE>
AWARD SOFTWARE INTERNATIONAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
JUNE 1, 1998
The undersigned shareholders of Award Software International, Inc. (the
"Company"), hereby appoints George C. Huang and Kevin J. Berry and each of
them with power of substitution to each, true and lawful attorneys, agents
and proxyholders of the undersigned, and hereby authorizes them to represent
and vote, as specified herein, all the shares of Common Stock of the Company
held of record by the undersigned on May 22, 1998, at the Annual
Meeting of Shareholders of the Company to be held on June 29, 1998 (the
"Annual Meeting"), at 9:30 a.m., local time, at the Sunnyvale Hilton Inn,
1250 Lakeside Drive, Sunnyvale, California 94086 and any adjournments or
postponements thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
[X] Please mark
votes as in
this example.
The shares represented by this proxy will be voted in the manner directed.
In the absence of any direction, the shares will be voted FOR the Proposals.
The undersigned acknowledges receipt of the Notice of Annual Meeting and
Joint Proxy Statement/Prospectus relating to the Annual Meeting.
For Against Abstain
(1) To approve and adopt the Agreement and [ ] [ ] [ ]
Plan of Reorganization (the "Reorganization
Agreement") dated as of April 15, 1998, among
the Company, Phoenix Technologies Ltd., a
Delaware corporation ("Phoenix") and Portland
Acquisition Corporation, a wholly owned subsidiary
of Phoenix ("Merger Sub"), and related Agreement
of Merger pursuant to which, among other matters,
(i) Merger Sub will merger with and into the
Company and the Company will become a wholly owned
subsidiary of Phoenix (the "Merger") and (ii) each
share of Common Stock, no par value, of the Company
will be converted into the right to receive 1.225
shares of common stock of Phoenix.
<PAGE>
(2) To elect directors to serve until the earlier to occur of the
consummation of the Merger (if approved by the shareholders and
consummated) or for the ensuing year until their successors are duly
elected and qualified.
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY to
(except such nominee(s) whose name(s) vote for all nominees listed below.
have been crossed out below).
NOMINEES: George C. Huang, Cheng Ming Lee, David S. Lee, Masami Maeda,
Anthony Sun, William P. Tai and Willy Weck.
For Against Abstain
(3) To amend the Company's 1997 Equity Incentive [ ] [ ] [ ]
Plan to increase the number of shares reserved
for issuance thereunder by 700,000.
For Against Abstain
(4) To amend the Company's Employee Stock Purchase [ ] [ ] [ ]
Plan to increase the number of shares reserved
for issuance thereunder by 200,000.
For Against Abstain
(5) To ratify the appointment of Price Waterhouse, [ ] [ ] [ ]
LLP as independent accountants of the Company
for the year ending December 31, 1998.
Mark here for
Address [ ]
change and
note at left
Please sign exactly as name appears hereon. Joint owners
should each sign. Trustees and others acting in a
representative capacity should indicate the capacity in
which they sign and give their full title. If a
corporation, please sign in full corporate name by an
authorized officer. If a partnership, please sign in
partnership name by an authorized person.
Please mark, sign and date this proxy and return it
promptly whether you plan to attend the meeting or not.
If you do attend, you may vote in person if you desire.
Signature: _______________ Date: ______ Signature:________________ Date: ______
