<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INSILICON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3674 77-0526155
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
411 EAST PLUMERIA DRIVE
SAN JOSE, CA 95134
(408) 894-1900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------------
WAYNE C. CANTWELL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
411 EAST PLUMERIA DRIVE
SAN JOSE, CA 95134
(408) 894-1900
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
ALAN TALKINGTON, ESQ. PETER T. HEALY, ESQ.
BARBARA M. LANGE, ESQ. C. BROPHY CHRISTENSEN, JR., ESQ.
PAUL L. RUBIN, ESQ. O'MELVENY & MYERS LLP
ORRICK HERRINGTON & SUTCLIFFE LLP 275 BATTERY STREET
400 SANSOME STREET SAN FRANCISCO, CA 94111
SAN FRANCISCO, CA 94111
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ____________
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / / ____________
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF
SECURITIES TO BE REGISTERED MAXIMUM AGGREGATE OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
COMMON STOCK, PAR VALUE $.001............... $44,273,000 $11,688.20
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) under the Securities Act.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT
SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 13, 2000
[LOGO]
[NO. OF SHARES] SHARES
COMMON STOCK
inSilicon is offering shares of its common stock. This is our initial
public offering and no public market currently exists for our shares. We have
applied to have our shares approved for quotation on the Nasdaq National Market
under the symbol "INSN." We anticipate that the initial public offering price
will be between $ and $ per share.
Phoenix Technologies Ltd. currently owns all of inSilicon's common stock.
After this offering, Phoenix will own approximately % of inSilicon's common
stock (approximately % if the underwriters exercise their overallotment option
in full). Phoenix is not selling any of its inSilicon common stock in this
offering.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to inSilicon....................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
inSilicon has granted the underwriters a 30-day option to purchase up to an
additional shares of its common stock to cover over-allotments. FleetBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 2000.
------------------------
ROBERTSON STEPHENS
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
NEEDHAM & COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE>
[INSIDE FRONT COVER]
Title: "DESIGN TESTED AND PROVEN CORES FOR TOMORROW'S PRODUCTS"
Four separate blocks of text underneath title:
"CONNECTING THE WORLD. The internet is creating the demand for all digital
devices to be connected--inSilicon is providing solutions."
"WIDE ARRAY OF CHOICES. inSilicon brings semiconductor and systems companies a
broad selection of highly flexible and efficient communications and connectivity
cores."
"PROVEN SOLUTIONS. More than 400 companies have implemented inSilicon cores and
firmware in millions of systems from network routers to digital cameras."
"IMPROVING TIME-TO-MARKET. inSilicon's customer-proven cores and firmware speed
system-on-a-chip development and reduce engineering risks and costs."
Color Artwork: Representation of the evolution of advanced system-on-a-chip
semiconductor devices. Images of inSilicon intellectual property "virtual
components" labeled "Ethernet," "USB," "1394," "PCI" and "IrDA" sweeping left to
right to a semiconductor device in a package that sweeps into a semiconductor
wafer. inSilicon logo.
[INSIDE GATEFOLD]
Right column: Title: "CONNECTING THE FUTURE -- INSILICON"
Text underneath title: "The internet is creating the demand for all digital
devices to be connected. The resulting proliferation of communications standards
and connectivity requirements are creating a high demand for complex
semiconductors. inSilicon is a leading provider of communications semiconductor
intellectual property (SIP) used by semiconductor and systems companies to
design complex "systems-on-a-chip" that are critical components of digital
devices. By integrating inSilicon's SIP into their designs, semiconductor
designers can create highly differentiated products, reduce development costs,
increase system functionality and improve time to market." inSilicon logo.
Just left of the right column, vertically, from top to bottom, in separate
colored boxes, the words: "Our Markets," "Communications," "Consumer,"
"Computers" and "Peripherals."
Color Artwork: Picture of a system board sweeping left to right via a
directional arrow to a semiconductor package sweeping to a semiconductor
system-on-chip die with a graphic labeled "System-On-Chip" and a two-by-four
grid underneath with the following labels: CPU, USB, Control, IEEE 1394, Custom,
PCI, Memory and Ethernet. The arrow then continues to sweep right to the
inSilicon logo. Graphic continues to sweep right to left via a directional arrow
from the inSilicon logo to a "cloud-like" representation of the internet labeled
"INTERNET." Surrounding the cloud are 10 representative photographs of
end-markets, accompanied by the following titles (counter-clockwise) "Digital
Cameras," "Set-Top Boxes," "Smart Phones," "Office Automation," "Embedded
Computers," "Laptop Computers," "Central Office Switching," "Routers," "DSL
Modems" and "Satellite Receivers."
2
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF OUR COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO
"INSILICON," "WE," "OUR" AND "US" REFER TO THE HISTORICAL OPERATING RESULTS AND
ACTIVITIES OF AND THE ASSETS AND LIABILITIES ASSIGNED TO THE BUSINESS AND
OPERATIONS OF INSILICON BY PHOENIX, AND NOT THE UNDERWRITERS OR PHOENIX.
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE IN OUR SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN
ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 7
Forward-Looking Statements.................................. 16
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Dilution.................................................... 18
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 29
Management.................................................. 38
Arrangements Between inSilicon Corporation and Phoenix
Technologies Ltd.......................................... 48
Related Party Transactions.................................. 54
Principal Stockholder....................................... 56
Description of Capital Stock................................ 56
Shares Eligible for Future Sale............................. 59
Underwriting................................................ 60
Legal Matters............................................... 63
Experts..................................................... 63
Where You Can Find Additional Information................... 64
Index to Financial Statements............................... F-1
</TABLE>
------------------------
USBAccess-Registered Trademark- is a registered trademark of inSilicon.
TymeWare-TM-, SmartBridge-TM- and Rapidscript-TM- are trademarks of inSilicon.
We have filed for registration in the U.S. Patent and Trademark Office for
inSilicon-TM-, TymeWare-TM- and SmartBridge-TM-. All other brand names or
trademarks appearing in this prospectus are the property of their respective
holders.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE INFORMATION
THAT YOU SHOULD CONSIDER BEFORE BUYING OUR SHARES. YOU SHOULD READ THE FOLLOWING
SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS, AND THE NOTES TO THOSE CONSOLIDATED FINANCIAL STATEMENTS, APPEARING
ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE RESULTS ANTICIPATED IN THOSE FORWARD-LOOKING STATEMENTS AS A
RESULT OF THE FACTORS DESCRIBED UNDER THE HEADING "RISK FACTORS" AND ELSEWHERE
IN THIS PROSPECTUS.
OUR BUSINESS
inSilicon is a leading provider of communications semiconductor intellectual
property, or SIP, that is used by semiconductor and systems companies to design
complex semiconductors called systems-on-a-chip, or SOCs, that are critical
components of digital devices. We provide SIP cores, related silicon subsystems
and firmware to over 400 customers that use our technologies in hundreds of
different digital devices ranging from network routers to cellular phones. Our
modular approach emphasizes customer-proven reusable SIP cores that focus on
communications and connectivity, and are compatible with a wide range of
microprocessor designs. Semiconductor and systems companies integrate our SIP
cores into their overall semiconductor designs, saving time and money and
allowing them to focus on their core competencies that differentiate their
products. By integrating our SIP into their complex designs, our customers are
better able to solve the widening "design gap" caused by the difficulty of
designing complex SOCs in the time necessary to get to market with their
products.
The internet is creating the demand for all digital devices to be connected.
This demand is generating a proliferation of communications standards, including
Ethernet, USB, IEEE 1394, PCI, HPNA, DSL and Bluetooth. The proliferation of
these standards and products based on them is driving the demand for complex
semiconductors. Improvements in semiconductor design and manufacturing processes
have enabled the integration of entire systems on a single chip, thus creating
an SOC solution. Due to the complexity of designing SOCs, the multiplicity of
communications standards and time-to-market requirements, the design
capabilities of semiconductor and systems companies have not kept pace with the
increase in the number of transistors that can be placed on single chip.
Consequently, a significant "design gap" has developed. To address this gap,
semiconductor and systems companies are increasingly licensing proven and
reusable intellectual property cores from merchant SIP suppliers. Integrated
Circuit Engineering, an independent research firm, estimates that the merchant
SIP market will grow from approximately $732 million in 2000 to approximately
$1.9 billion in 2003, which represents a compounded annual growth rate of
approximately 37%.
We provide communications and connectivity solutions that allow
semiconductor and systems companies to focus their development resources on
their core competencies that differentiate their products. This reduces
development costs and improves time to market in the design of complex SOCs,
thus narrowing the design gap with reusable cores. We offer:
- proven solutions;
- a broad portfolio of communications cores for a wide range of standards;
- integrated silicon subsystems;
- an integrated firmware and drivers solution;
- extensive test and verification tools;
- portability and flexibility; and
- standards leadership.
4
<PAGE>
Our goal is to be a leading provider of SIP for communications and
connectivity. Key elements of our strategy include:
- targeting high growth communications applications;
- expanding our portfolio of SIP cores;
- expanding distribution channels and brand awareness; and
- developing e-commerce channels.
CORPORATE INFORMATION
inSilicon was incorporated in Delaware on November 1, 1999 as a wholly owned
subsidiary of Phoenix. Before November 1999, we were operated as a division of
Phoenix. Our principal executive offices are located at 411 East Plumeria Drive,
San Jose, CA 95134 and our telephone number is (408) 894-1900. We expect to move
to new executive offices in the Silicon Valley area. Our web site address is
http://www.insilicon.com. Information on our web site and on web sites linked to
it is not part of this prospectus.
BENEFITS OF OUR SEPARATION FROM PHOENIX
We believe that we will realize benefits from our separation from Phoenix,
including:
- GREATER STRATEGIC FOCUS. As a result of having our own board of directors
and separate management team, we expect to have a sharper focus on the
inSilicon business and strategic opportunities.
- INCREASED SPEED AND RESPONSIVENESS. As a significantly smaller company, we
expect to be able to make decisions more quickly, deploy resources more
rapidly and efficiently and operate with more agility than when we were a
part of Phoenix.
- BETTER INCENTIVES FOR EMPLOYEES AND GREATER ACCOUNTABILITY. We will seek
to motivate our employees and strengthen the focus of our management
through the implementation of incentive compensation programs tied to the
market performance of our common stock.
- DIRECT ACCESS TO CAPITAL MARKETS. As an independent company, we will have
direct access to the capital markets to issue debt or equity securities.
OUR RELATIONSHIP WITH PHOENIX
Phoenix currently owns all of our common stock. Immediately after this
offering, Phoenix will own approximately % of our common stock (approximately
% if the underwriters exercise their overallotment option in full). Phoenix is
not offering any of its shares of our common stock in this offering. So long as
Phoenix owns a substantial amount of our common stock, Phoenix can exercise a
controlling influence over our business. Phoenix has advised us that it intends
to hold its inSilicon's shares after this offering. However, Phoenix has no
contractual or other obligation to hold any or all of our shares of common
stock, except that it has agreed that it will not dispose of any inSilicon
shares for 365 days after the date of this prospectus without the prior written
consent of FleetBoston Robertson Stephens Inc. See "Underwriting--Future Sales."
Therefore, you cannot be sure how long Phoenix will continue to own our common
stock after this offering. Phoenix may dispose of our common stock in one or
more transactions, in one or more ways, including a public offering, a
distribution to Phoenix stockholders, an exchange offer involving Phoenix common
stock or other transactions. We granted Phoenix registration rights for our
common stock that it will own after this offering, which will make it easier for
Phoenix to dispose of its inSilicon common stock.
inSilicon and Phoenix have executed agreements addressing interim and
ongoing relationships between them. See "Arrangements between inSilicon
Corporation and Phoenix Technologies Ltd."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... shares
Common stock to be outstanding after the
offering................................... shares
Use of proceeds.............................. Working capital and general corporate
purposes
Proposed Nasdaq National Market symbol....... INSN
</TABLE>
The above information assumes the automatic conversion of our Series A
Preferred Stock into common stock and that the underwriters do not exercise
their option to purchase additional shares in the offering. The information
excludes the following:
- 2,348,844 shares of common stock issuable as of December 31, 1999, upon
exercise of options under our 1999 employee stock option plan;
- 50,000 shares of common stock issuable upon exercise of a warrant held by
Phoenix;
- 1,651,156 shares of common stock available for future issuance as of
December 31, 1999, upon exercise of options not yet granted or for future
issuance under our 1999 employee stock option plan and 2000 stock plan;
and
- 250,000 shares of common stock available for future issuance under our
2000 employee stock purchase plan.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The historical financial information may not be indicative of our future
performance and does not reflect what our financial position and results of
operations would have been had we operated as a separate, stand-alone entity
during the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenue......................................... $ 2,106 $ 3,330 $ 5,111 $ 8,792 $18,955
Gross margin.......................................... 1,702 2,666 3,501 6,835 14,994
Merger and restructuring charges...................... -- 318 -- 5,778 6,050
Net income (loss)..................................... 48 (1,232) (1,986) (7,101) (12,082)
Pro forma net loss.................................... (8,566)
Pro forma net loss per share.......................... $ (0.82)
Shares used in computing pro forma net loss per
share............................................... 10,400
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- ------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ -- $
Working capital (deficit)................................... (393)
Total assets................................................ 24,481
Long-term obligations, less current portion................. 45
Total stockholder's net investment/stockholders' equity..... 18,804
</TABLE>
See Note 2 of Notes to Consolidated Financial Statements of inSilicon for an
explanation of the determination of the number of shares used in computing per
share data.
"As adjusted" amounts reflect the application of the net proceeds from the
sale of shares of common stock by inSilicon at an assumed initial public
offering price of $ per share, after deducting the underwriting discounts,
commissions and the estimated offering expenses. See "Use of Proceeds" and
"Capitalization."
6
<PAGE>
RISK FACTORS
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO
THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE
RISKS DESCRIBED BELOW BEFORE PURCHASING OUR COMMON STOCK. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULD BE MATERIALLY HARMED, AND OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY
AFFECTED. AS A RESULT, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND
YOU MIGHT LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND OUR STOCK PRICE
MAY DECLINE IF WE DO NOT MEET EXPECTATIONS OF INVESTORS AND ANALYSTS.
We expect our quarterly operating results to fluctuate significantly due to
a variety of factors, many of which are outside of our control. Our revenue is
difficult to predict and may fluctuate significantly from period to period.
Because our expenses are largely independent of our revenue in any particular
period, it is difficult to accurately forecast our operating results. Our
operating expenses are based, in part, on anticipated future revenue and a high
percentage of our expenses are fixed in the short term. As a result, if our
revenue is below expectations in any quarter, the negative effect may be
magnified by our inability to adjust spending in a timely manner to compensate
for the revenue shortfall.
Factors that could cause our revenue and operating results to vary from
quarter to quarter include:
- the demand for and average selling prices of semiconductors that
incorporate our technology;
- dependence on large orders or regional spending patterns unevenly spaced
over time;
- our ability to develop, introduce and market new SIP cores and related
silicon subsystems;
- the financial terms of our contractual arrangements with our licensees and
partners that may provide for significant up-front payments or payments
based on the achievement of certain milestones;
- the relative mix of license revenues, royalties and services;
- competitive pressures resulting in lower license revenue or royalty rates;
- establishment or loss of strategic relationships with semiconductor or
systems companies;
- timing of new products and product enhancements by us and our competitors;
- our ability to control costs, particularly as we transition to a separate,
stand-alone entity;
- seasonality of demand;
- accounting rules regarding timing of revenue recognition;
- changes in development schedules, research and development expenditure
levels and product support by us and semiconductor and systems companies;
and
- general economic and market conditions.
As a result, we believe that period-to-period comparisons of our results of
operations are not necessarily meaningful and, accordingly, that these
comparisons should not be relied upon as indications of future performance. Due
to these and other factors, it is likely that our operating results will be
below market analysts' expectations in some future quarters, which would cause
the market price of our stock to decline.
7
<PAGE>
WE HAVE INCURRED NET LOSSES SINCE OUR INCEPTION, AND WE MAY NOT ACHIEVE OR
SUSTAIN ANNUAL PROFITABILITY.
We incurred net losses of $2.0 million for fiscal year 1997, $7.1 million
for fiscal year 1998 and $12.1 million for fiscal year 1999 and had an
accumulated deficit of $22.8 million as of September 30, 1999. We expect to
continue to incur additional operating losses for at least the next 12 months.
Although we have experienced revenue growth in recent periods, this growth is
not necessarily indicative of future operating results, and we cannot assure you
that we will be able to sustain the growth in our revenue. If we do achieve
profitability, we cannot be certain that we can sustain or increase
profitability on a quarterly or annual basis in the future or at all. This may
in turn cause our stock price to decline. In addition, if we do not achieve or
sustain profitability in the future, we may be unable to continue our
operations.
WE DEPEND ON SEMICONDUCTOR AND SYSTEMS COMPANIES TO ADOPT OUR SEMICONDUCTOR
INTELLECTUAL PROPERTY AND USE IT IN THE PRODUCTS THEY SELL.
The adoption and continued use of our SIP by semiconductor and systems
companies and an increasing demand for products requiring complex SOC
semiconductors, such as portable computing devices and cellular phones, is
important to our continued success. The market for merchant SIP has only
recently begun to emerge. Our ability to achieve sustained revenue growth and
profitability in the future will depend on the continued development of this
market and, to a large extent, on the demand for SOC semiconductors. There can
be no assurance that the merchant SIP and SOC markets will continue to develop
or grow at a rate sufficient to support our business. If either of these markets
fails to grow or develops slower than expected, our business, operating results
and financial condition would be seriously harmed.
We face numerous risks in obtaining agreements with semiconductor and
systems companies on terms beneficial to our business, including:
- the lengthy and expensive process of building a relationship with a
potential licensee or prospective partner;
- the fact that we may compete with the internal development groups of
semiconductor and systems companies;
- the potential difficulties in persuading semiconductor and systems
companies to rely on us for critical technology;
- the potential difficulties in persuading potential licensees and partners
to bear development costs associated with our SIP; and
- the risk that even after our customers select our SIP, they may not
produce semiconductors using our SIP.
We cannot assure you that we will be able to maintain our current
relationships or establish new relationships with additional licensees or
partners, and any failure by us to do so could seriously harm our business.
Moreover, we are subject to risks beyond our control that influence the
success or failure of a particular semiconductor or systems company:
- the competition it faces and the market acceptance of its products;
- its engineering, marketing and management capabilities and the technical
challenges unrelated to our technology that it faces in developing its
products; and
- its financial and other resources.
8
<PAGE>
None of our current licensees or partners is obligated to license new or
future generations of our SIP cores.
OUR BUSINESS WILL SUFFER IF WE ARE NOT ABLE TO PROTECT OUR INTELLECTUAL PROPERTY
ADEQUATELY.
Our patents, copyrights, trademarks, trade secrets and similar intellectual
property are critical to our success. We rely on a combination of patent,
trademark, copyright, mask work and trade secret laws to protect our proprietary
rights. After this offering, inSilicon will own two U.S. patents on various
aspects of its technology and have five pending U.S. patent applications. We
cannot be sure that patents will be issued from any patent applications
submitted, that any patents we hold will not be challenged, invalidated or
circumvented or that any claims allowed from our patents will be of sufficient
scope or strength to provide meaningful protection or any commercial advantage
to us. In addition, the laws of foreign countries may not adequately protect our
intellectual property as well as the laws of the United States.
We use licensing agreements and employee and third-party nondisclosure and
assignment agreements to limit access to and distribution of our proprietary
information and to obtain ownership of technology prepared on a work-for-hire
basis. Even though we have taken all customary industry precautions, we cannot
be sure that the steps we take to protect our intellectual property rights will
be adequate to deter misappropriation of the rights or that we will be able to
detect unauthorized uses and take immediate or effective steps to enforce our
rights. We also cannot be sure that the steps we may take to obtain ownership of
any contributed intellectual property will be sufficient to assure our ownership
of all proprietary rights. We also rely on unpatented trade secrets to protect
our proprietary technology, however, we cannot be certain that others will not
independently develop or otherwise acquire the same or substantially equivalent
technologies or otherwise gain access to our proprietary technology or disclose
that technology. We also cannot be sure that we can ultimately protect our
rights to our unpatented proprietary technology. In addition, third parties
might obtain patent rights to such unpatented trade secrets, which could be used
to assert infringement claims against us.
THIRD PARTIES MAY CLAIM WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY RIGHTS,
AND WE COULD SUFFER SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR BE PREVENTED
FROM SELLING PRODUCTS.
Third parties may claim that we are infringing their intellectual property
rights, and we may be found to infringe those intellectual property rights.
While we do not believe that any of our products infringe the valid intellectual
property rights of third parties, we may be unaware of intellectual property
rights of others that may cover some of our technology, products and services.
Any litigation regarding patents or other intellectual property could be
costly and time-consuming, and divert our management and key personnel from our
business operations. The complexity of the technology involved and the
uncertainty of the outcome of intellectual property litigation increase these
risks. Claims of intellectual property infringement also might require us to
enter into costly royalty or license agreements. However, we may not be able to
obtain royalty or license agreements on terms acceptable to us, or at all. We
also may be subject to significant damages or injunctions against development
and licensing of certain of our products.
WE WILL NOT SUCCEED UNLESS WE CAN CONTINUOUSLY DISTINGUISH OURSELVES FROM OUR
MANY COMPETITORS.
The SIP industry is very competitive. We will face competition from both
existing SIP suppliers and new SIP suppliers that we anticipate will enter the
market. We also compete with the internal development groups of large,
vertically integrated semiconductor and systems companies. We also may face
competition from suppliers of products based on new or emerging technologies. We
believe that important competitive factors in our market include:
- performance;
9
<PAGE>
- functionality;
- customizability;
- length of development cycle;
- price;
- compatibility with prevailing design methodologies;
- interoperability with other devices or subsystems;
- product ease of use;
- reputation for successful designs and installed base;
- technical service and support;
- technical training;
- configurability of products for specific designs; and
- regional sales and technical support.
We must also differentiate our SIP cores, related silicon subsystems and
firmware from those available or under development by other SIP suppliers or the
internal development groups of semiconductor and systems companies, including
some of our current and prospective licensees. Many of these internal
development groups have substantial programming and design resources and are
part of larger organizations with substantial financial and marketing resources.
These internal development groups may develop products that compete directly
with ours or may actively seek to license their own technology to third parties.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater brand recognition and
larger customer bases, as well as greater financial and marketing resources,
than we do. This may allow them to respond more quickly than we can to new or
emerging technologies and changes in customer requirements. It may also allow
them to devote greater resources than we can to the development and promotion of
their technologies and products.
IF WE ARE UNABLE TO DEVELOP ENHANCEMENTS AND NEW GENERATIONS OF OUR INTELLECTUAL
PROPERTY, OUR ABILITY TO ACHIEVE DESIGN WINS MAY BE SERIOUSLY HARMED.
Our future success will depend on our ability to develop enhancements and
new generations of our SIP cores, related silicon subsystems and firmware that
satisfy the requirements of new and evolving standards and introduce these new
technologies to the marketplace in a timely manner. If our development efforts
are not successful or are significantly delayed, or if the characteristics of
our SIP are not compatible with the requirements of specific product
applications, our ability to achieve design wins may be limited. Our failure to
achieve a sufficient number of design wins could seriously harm our business.
Technical innovations of the type critical to our success are inherently
complex and involve several risks, including:
- our ability to anticipate and respond in a timely manner to changes in the
requirements of semiconductor and systems companies;
- the emergence of new standards by semiconductor and systems companies;
- the significant research and development investment that is often required
before market acceptance, if any, of a particular standard;
10
<PAGE>
- the possibility that even after a significant investment of our resources,
the standard will not become accepted by the industry; and
- the introduction of products by our competitors embodying new technologies
or features.
Our failure to adequately address these risks could render our existing or
future SIP cores, related silicon subsystems and firmware obsolete and could
seriously harm our business. In addition, we cannot assure you that we will have
the financial and other resources necessary to develop SIP cores, related
silicon subsystems and firmware in the future, or that any enhancements or new
generations of the technology that we develop or procure will generate revenue
in excess of the costs of development or procurement.
RAPID PRODUCT TRANSITIONS OR INTRODUCTIONS OF NEW STANDARDS MAY CAUSE CUSTOMERS
TO DEFER OR STOP PURCHASING OUR PRODUCTS.
From time to time, we or our competitors may announce new products,
capabilities or technologies that may replace or shorten the life cycles of our
existing products. Announcements of currently planned or other new products may
cause customers to defer or stop purchasing our products until those new
products become available. In addition, announcements of a new standard may
cause customers to defer or stop purchasing our products until that standard
becomes available or accepted.
WE MAY BE UNABLE TO SUCCESSFULLY MANAGE OUR GROWTH IF WE FAIL TO COMPETE
EFFECTIVELY WITH OTHERS TO ATTRACT AND RETAIN KEY PERSONNEL.
Our ability to continue to grow successfully requires an effective planning
and management process. Since October 31, 1998, we have increased our headcount
substantially, from 51 employees at that date to 71 employees at November 30,
1999.
Our growth has placed, and the recruitment and integration of additional
employees will continue to place, a strain on our resources. Semiconductor and
systems company licensees typically require significant engineering support in
the design, testing and manufacture of products incorporating our technology.
Accordingly, increases in the adoption of our technology can be expected to
increase the strain on our personnel, particularly our engineers.
We believe our future success will depend upon our ability to successfully
manage our growth, including attracting and retaining engineers, other highly
skilled personnel and senior managers. Our employees are "at will" and are not
hired for a specified term. Hiring qualified sales and technical personnel will
be difficult due to the limited number of qualified professionals. Competition
for these types of employees is intense. We have in the past experienced
difficulty in recruiting and retaining qualified sales and technical personnel.
Our employees are recruited aggressively by our competitors and by start-up
companies. We believe our salaries are competitive, but under certain
circumstances, start-up companies can offer more attractive stock option
packages. As a result, we have experienced, and may continue to experience,
significant employee turnover. Failure to attract and retain personnel,
particularly sales and technical personnel, would materially harm our business.
As we seek to expand our operations, we may also significantly strain our
financial and management systems and other resources. We cannot be certain that
our systems, procedures, controls and facilities will be adequate to support our
operations.
CHANGES TO ACCOUNTING STANDARDS AND RULES COULD ADVERSELY AFFECT THE AMOUNT AND
TIMING OF RECOGNITION OF REVENUE.
We adopted the American Institute of Certified Public Accountants' Statement
of Position, or SOP, 97-2, "Software Revenue Recognition," and SOP 98-4,
"Deferral of the Effective Date of the Provision of SOP 97-2, Software Revenue
Recognition," as of October 1, 1998. In December 1998, the American
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<PAGE>
Institute of Certified Public Accountants issued SOP 98-9, "Modification of SOP
97-2, Software Revenue Recognition, with Respect to Certain Transactions." SOP
98-9 amends SOP 98-4 to extend the deferral of the application of certain
passages of SOP 97-2 through fiscal years beginning after March 31, 1999.
Although the adoption of SOP 97-2, SOP 98-4 and SOP 98-9 has not had and is not
expected to have a material impact on our consolidated financial statements or
results of operations, full implementation guidelines for SOP 97-2, SOP 98-4 and
SOP 98-9 have not been issued. Once these guidelines are issued, our current
revenue recognition accounting practices may need to change and such changes
could affect the timing of our future revenue recognition.
RISKS RELATED TO THE SEMICONDUCTOR INDUSTRY
A DOWNTURN IN THE SEMICONDUCTOR OR ELECTRONICS BUSINESSES WOULD REDUCE OUR
SALES.
Our business has benefited from the rapid worldwide growth of the
semiconductor industry, which in turn has been fueled by growth in
telecommunications, computers and consumer electronics. Continued purchases of
our products are largely dependent upon the commencement of new design projects
by semiconductor and systems companies. However, the semiconductor industry is
highly cyclical and subject to rapid technological change. It also has been
subject to significant economic downturns at various times, characterized by
diminished product demand, accelerated erosion of average selling prices and
production overcapacity. In addition, the semiconductor industry also
periodically experiences increased demand and production capacity constraints.
As a result, we may experience substantial period-to-period fluctuations in
future operating results due to general semiconductor industry conditions,
overall economic conditions or other factors. A number of semiconductor and
systems companies have announced layoffs of their employees or the suspension of
investment plans, and although we have not seen a significant drop-off in demand
from these customers, their budgets could be reduced, alone or as part of
overall expense control efforts. In addition, there have been a number of
mergers in the electronics industry, which may reduce the aggregate level of
purchases of our products and services by the merged companies. Potential slower
growth in the electronics industry, a reduced number of design starts,
tightening of customers' operating budgets or continued consolidation among our
customers may seriously harm our business.
RISKS RELATED TO OUR RECENT SEPARATION FROM PHOENIX TECHNOLOGIES LTD.
OUR HISTORICAL FINANCIAL INFORMATION DOES NOT REFLECT THE MANY SIGNIFICANT
CHANGES IN OUR COST STRUCTURE THAT WILL OCCUR AS A RESULT OF OUR STATUS AS A
SEPARATE, STAND-ALONE ENTITY.
The historical financial information included in this prospectus does not
reflect the many significant changes in our cost structure that will occur as a
result of our separation from Phoenix or changes in our funding and operations
that will result from our transition to a separate, stand-alone entity. Although
we will continue to be a majority-owned subsidiary of Phoenix immediately after
this offering, Phoenix will have no obligation to assist us except as described
below and in the Services and Cost-Sharing Agreement. Before the Services and
Cost-Sharing Agreement expires, we will need to develop and implement
operational, administrative and other systems and infrastructure, such as the
new networks, accounting systems and facilities necessary to support our current
and future business. Our general and administrative expenses and a portion of
our research and development and sales and marketing expenses represent
allocations of Phoenix's total expenses. Once Phoenix no longer provides these
services for us, our expenses may be greater than these allocations.
WE WILL DEPEND ON AGREEMENTS WITH PHOENIX FOR MANY IMPORTANT SERVICES THAT MAY
BE HARD TO REPLACE IF PHOENIX TERMINATES THE AGREEMENTS.
We have entered into agreements with Phoenix that will define our
relationship after this offering. Because we entered these agreements while a
wholly owned subsidiary of Phoenix, they are not the
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<PAGE>
result of arm's-length negotiations. These agreements include a Services and
Cost-Sharing Agreement, under which Phoenix will provide various, primarily
administrative, services to us, including accounting, treasury, tax and
information services, and we will share with Phoenix certain costs, including
facilities and insurance. The Services and Cost-Sharing Agreement has an initial
term that extends to June 30, 2000 for all services other than accounting and an
initial term that extends to September 30, 2000 with respect to accounting
services, although we can terminate any one or more of the services at any time
on 30 days' written notice. The Services and Cost-Sharing Agreement will be
renewed on a month-to-month basis. Phoenix can terminate after those dates on 30
days' written notice. Consequently, we cannot be sure how long Phoenix will
continue to provide us services under the Services and Cost-Sharing Agreement
and, if it does not, whether, or on what terms we could obtain these services.
If we cannot perform these services ourselves or obtain them on acceptable
terms, this could materially harm our business. In addition, we have entered
into representation and distribution agreements under which Phoenix will act as
a sales representative for inSilicon in certain Asian countries and,
additionally, in Japan be licensed to perform nonrecurring engineering services
on behalf of inSilicon.
PHOENIX CAN ELECT ALL OUR DIRECTORS AND INFLUENCE OUR BUSINESS FOR ITS BENEFIT
AT LEAST AS LONG AS IT OWNS 50% OR MORE OF OUR SHARES.
Phoenix currently owns all of our common stock. Immediately after this
offering, Phoenix will own approximately % of our common stock (approximately
% if the underwriters exercise their overallotment option in full). For at
least as long as Phoenix continues to own more than 50% of our common stock,
Phoenix can direct the election of all our directors and exercise a controlling
influence over our business, including any mergers or other business
combinations, acquisitions or dispositions of assets, future issuances of our
common stock or other equity securities, the incurrence of debt and the payment
of dividends. Phoenix also can determine matters submitted to a vote of our
stockholders without the consent of our other stockholders, prevent or cause a
change in who controls us and take other actions that might be favorable to
Phoenix.
WE MAY HAVE CONFLICTS OF INTEREST WITH PHOENIX THAT ARE NOT RESOLVED IN OUR
FAVOR.
We may have conflicts of interest with Phoenix in areas relating to our past
and ongoing relationships, including potential competitive business activities,
indemnity arrangements, tax and intellectual property matters, registration
rights, potential acquisitions or financing transactions, sales or other
dispositions by Phoenix of the shares of inSilicon common stock it will hold
after this offering and the exercise by Phoenix of its ability to control our
management and affairs. We also cannot be sure that any conflicts that may arise
between us and Phoenix will be resolved in a manner that does not seriously harm
us, even if Phoenix does not intend that result. In addition, the agreements
between us and Phoenix contain specific procedures for resolving disputes
between the two companies. We might obtain more favorable results under
different procedures.
In addition, the ownership interests of our directors or officers in Phoenix
common stock or service as both a director of inSilicon and an officer or
director of Phoenix could create or appear to create potential conflicts of
interest when directors and officers are faced with decisions that could have
different implications for us and Phoenix. One of our current directors is a
director and officer of Phoenix.
AS A SEPARATE, STAND-ALONE COMPANY FROM PHOENIX, WE MAY EXPERIENCE INCREASED
COSTS RESULTING FROM DECREASED PURCHASING OR NEGOTIATING POWER WHICH COULD
DECREASE OUR PROFITABILITY.
Before our separation from Phoenix, we were able to take advantage of
Phoenix's size and purchasing power in procuring goods, services and technology,
such as computer software licenses and employee benefits, and in negotiating
relatively favorable leases for facilities and other agreements. As
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<PAGE>
a separate, stand-alone entity, we may be unable to obtain goods, services,
technology, facilities and other items at prices and on terms as favorable as
those we obtained before the separation.
OUR SEPARATION FROM PHOENIX MAY DAMAGE OUR RELATIONSHIPS WITH EXISTING LICENSEES
OR PARTNERS OR THEIR PERCEPTIONS OF US.
Various licensees of our SIP or our strategic partners may have chosen our
products because of the positive reputation of Phoenix or their economic ties to
Phoenix. For example, Phoenix may also be a customer for their products. As a
separate, stand-alone entity, we may not enjoy these advantages with those
customers and partners and it may be harder for us to compete for their
continued business. For example, our new name is not yet recognized as a brand
in the marketplace, and as a result our product sales could suffer. The loss of
the "Phoenix" brand name may hinder our ability to establish new relationships
with potential customers and partners, particularly in Asia. In addition, our
current customers, suppliers and partners may react negatively to the
separation. Although we believe we have all necessary rights to use the brand
name "inSilicon," our rights to use it may be challenged by others.
WITHOUT FINANCIAL BACKING FROM PHOENIX, WE MAY HAVE INSUFFICIENT FUNDS TO
RAPIDLY EXPAND OUR BUSINESS.
We expect our future liquidity and capital requirements to vary greatly from
quarter to quarter, depending on:
- the cost, timing and success of product development efforts;
- the cost and timing of sales and marketing activities;
- the number and complexity of new communications standards;
- the extent to which our existing and new technologies gain market
acceptance;
- the level and timing of revenue;
- competing technological and market developments; and
- the costs of maintaining and enforcing patents and other intellectual
property rights.
Phoenix has satisfied our capital requirements in the past, but it will not
be obligated to do so, nor do we expect it to do so, after this offering.
RISKS RELATED TO THE OFFERING
THE MARKET PRICE OF OUR COMMON STOCK MAY DROP IF PHOENIX SELLS ITS SHARES.
Phoenix, our only stockholder before this offering, will derive certain
benefits as a result of this offering, including the creation of a public market
for our common stock. Phoenix's unrealized gain on our shares after this
offering is expected to be approximately $ million (about $ million if the
underwriters exercise their over-allotment option in full). After this offering,
Phoenix may sell any and all of its inSilicon common stock or distribute any or
all of our common stock to its stockholders. Phoenix has advised us that it
intends to continue to hold our common stock after this offering, but it is not
obligated to do so (although it cannot sell or otherwise dispose of any shares
for 365 days after the date of this prospectus without the prior written consent
of FleetBoston Robertson Stephens Inc.). The market price of our common stock
may decline if Phoenix sells or distributes large amounts of our common stock in
the public market or to its stockholders, or if investors think that Phoenix
might do so. If Phoenix transfers controlling interest in inSilicon, the other
holders of our common stock may not participate in the transaction or realize
any premium on their common stock. Phoenix has registration rights for its
inSilicon common stock that will make future dispositions easier for it.
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<PAGE>
OUR RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS WILL CONTAIN PROVISIONS
WHICH COULD DELAY OR PREVENT A CHANGE IN CONTROL AND COULD ALSO LIMIT THE MARKET
PRICE OF OUR COMMON STOCK.
Our Restated Certificate of Incorporation and by-laws will contain
provisions that could delay or prevent a change of control. These provisions
could limit the price that investors might be willing to pay in the future for
shares of our common stock. Some of these provisions:
- divide our board of directors into three classes;
- authorize the issuance of preferred stock which can be created and issued
by the board of directors without prior stockholder approval, commonly
referred to as "blank check" preferred stock, with rights senior to those
of common stock;
- prohibit stockholder action by written consent; and
- establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting.
However, for at least as long as Phoenix continues to own more than 50% of our
common stock, these provisions should not have any practical significance to
investors.
YOU WILL EXPERIENCE IMMEDIATE DILUTION WITH RESPECT TO YOUR SHARES.
You will incur immediate and substantial dilution of $ per share in the
net tangible book value of your shares as a result of this offering.
OUR ABILITY TO RAISE CAPITAL IN THE FUTURE MAY BE LIMITED.
We believe that the net proceeds from this offering, together with cash
generated by our operations, will be sufficient to meet our operating and
capital requirements for at least the next twelve months. However, we may in the
future be required to raise additional funds through public or private
financing, strategic relationships or other arrangements. We cannot be certain
that any such financing will be available on acceptable terms, or at all, and
our failure to raise capital when needed could seriously harm our business.
Additional equity financing may be dilutive to the holders of our common stock,
and debt financing, if available, may involve restrictive covenants. In
addition, pursuant to the Registration Rights Agreement, a substantial portion
of the proceeds raised in any subsequent offerings of our common stock may be
payable to Phoenix for the sale of any of its shares of inSilicon common stock.
Moreover, strategic relationships, if necessary to raise additional funds, may
require us to relinquish some technology rights or modify our allocation of
resources.
OUR COMMON STOCK HAS NOT BEEN PUBLICLY TRADED BEFORE THIS OFFERING AND ITS PRICE
MAY BE VOLATILE.
Our common stock has not been publicly traded, and an active trading market
may not develop or be sustained after this offering. We and the representatives
of the underwriters will determine the initial public offering price. The price
at which our common stock will trade after this offering is likely to be highly
volatile and may fluctuate substantially due to factors such as:
- actual or anticipated fluctuations in our results of operations;
- changes in or failure by us to meet securities analysts' expectations;
- announcements of technological innovations;
- competitive trends, including timely adoption and market acceptance of,
competing standards;
- introduction of new services by us or our competitors;
- developments with respect to intellectual property rights;
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<PAGE>
- conditions and trends in the semiconductor industry;
- general market conditions; and
- market perception of our growth prospects.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
common stock of technology companies. These broad market fluctuations may result
in a material decline in the market price of our common stock. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
that company. We may become involved in this type of litigation in the future.
Litigation is often expensive and diverts management's attention and resources
that are needed to successfully run our business.
OUR MANAGEMENT WILL RETAIN BROAD DISCRETION IN THE USE OF PROCEEDS FROM THIS
OFFERING AND MAY FAIL TO USE SUCH FUNDS EFFECTIVELY TO ACHIEVE OUR OTHER
BUSINESS GOALS.
We currently have no specific plans for using the net proceeds of this
offering. As a consequence, our management will have broad discretion to
allocate a large percentage of the net proceeds to uses which the stockholders
may not deem desirable or to uses that fail to achieve our business goals
effectively.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements based largely on our
current expectations and projections about future events and financial trends
affecting the financial condition or financial results of our business. The
words "believe," "may," "will," "estimate," "continue," "anticipate," "intend,"
"expect" and similar expressions identify these forward-looking statements.
These forward-looking statements are subject to a number of risks, uncertainties
and assumptions, including those described above under the caption "Risk
Factors" that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements. We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
USE OF PROCEEDS
We expect that the net proceeds from this offering will be approximately
$ , based on an assumed initial public offering price of $ per share,
after paying underwriting discounts, commissions and offering expenses. Except
to the extent that any portion of the net proceeds is used to repay a bridge
loan, if any, from Phoenix under the Contribution Agreement, we expect to add
the net proceeds to working capital and use the net proceeds for general
corporate purposes. In addition, we may use a portion of the net proceeds to
acquire complementary products, technologies or companies. From time to time, we
may acquire complementary products, technologies or companies. We currently have
no commitments or agreements and are not involved in any negotiations for the
acquisition of companies. Our management will have broad discretion in the
allocation of net proceeds. Pending use, the net proceeds will be invested in
short-term securities. We are not under any contractual or other obligation, nor
do we expect, to pay any dividends or distribute any of the net proceeds from
this offering to Phoenix other than for the provision of administrative services
included in the Services and Cost-Sharing Agreement.
DIVIDEND POLICY
We have never paid any dividends. We currently intend to retain any earnings
to fund the development and growth of our business and do not anticipate
declaring or paying any cash dividends for the foreseeable future. We executed a
commitment letter for a revolving credit facility, which we expect will include
limitations and restrictions on our ability to pay dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the capitalization of inSilicon;
and
- on a pro forma as adjusted basis to give effect to the conversion of all
shares of Series A Preferred Stock into shares of common stock and our
sale of shares of common stock at an assumed initial public offering
price of $ per share, less underwriting discounts, commissions and
estimated offering expenses payable by us.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, less current portion................. $ 45 $ 45 $
Stockholder's net investment/stockholders' equity...........
Preferred stock, par value $0.001; 15,000,000 shares
authorized; no shares issued and outstanding actual and
pro forma as adjusted; 10,400,000 Series A shares issued
and outstanding pro forma............................... -- 10 --
Common stock, par value $0.001; 100,000,000 shares
authorized; no shares issued and outstanding actual; 10
shares issued and outstanding pro forma; and shares
issued and outstanding pro forma as adjusted............ -- --
Additional paid-in capital................................ -- 41,622
Net contribution from stockholder......................... 41,632 --
Accumulated deficit....................................... (22,828) (22,828)
-------- -------- -------
Total stockholder's net investment/stockholders' equity... 18,804 18,804
-------- -------- -------
Total capitalization.................................... $ 18,849 $ 18,849 $
======== ======== =======
</TABLE>
You should read this capitalization table together with the sections of this
prospectus entitled "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and related notes included in this
prospectus.
This table excludes the following shares:
- 2,348,844 shares of common stock issuable as of December 31, 1999, upon
exercise of options under our 1999 employee stock option plan;
- 50,000 shares of common stock issuable upon exercise of a warrant held by
Phoenix;
- 1,651,156 shares of common stock available for future issuance as of
December 31, 1999, upon exercise of options not yet granted or for future
issuance under our 1999 employee stock option plan and 2000 stock plan;
and
- 250,000 shares of common stock available for future issuance under our
2000 employee stock purchase plan.
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DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. The pro forma net tangible book value of
our common stock as of September 30, 1999 was $18,804,000, or $1.81 per share.
Pro forma net tangible book value per share represents the amount of our total
tangible assets reduced by the amount of our total liabilities and divided by
the total pro forma number of shares of common stock outstanding assuming the
automatic conversion of our Series A Preferred Stock into common stock. Dilution
in net tangible book value per share represents the difference between the
amount per share paid by purchasers of shares of our common stock in this
offering and the pro forma as adjusted net tangible book value per share of our
common stock immediately afterwards. After giving effect to our sale of
shares of common stock offered by this prospectus at an assumed public offering
price of $ and after deducting the underwriting discounts, commissions and
estimated offering expenses payable by us, our pro forma as adjusted net
tangible book value as of September 30, 1999 was $ , or approximately $
per share. This represents an immediate increase in net tangible book value of
$ per share to Phoenix, our sole current stockholder, and an immediate and
substantial dilution in net tangible book value of $ per share to new
investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
September 30, 1999........................................ $1.81
Increase in net tangible book value per share attributable
to new investors..........................................
-----
Pro forma as adjusted net tangible book value per share
after the offering........................................
-----
Dilution per share to new investors......................... $
=====
</TABLE>
The table below sets forth, as of September 30, 1999, the following
information about our existing stockholder and the new investors:
- the total number of shares of common stock purchased from us;
- the total price paid; and
- the average price paid per share.
The dollar amounts in the table were calculated before deducting the
estimated underwriting discounts, commissions and estimated offering expenses
payable, assuming an initial public offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED
ASSUMING NO
EXERCISE OF
UNDERWRITERS' TOTAL
OVERALLOTMENT OPTION CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- -----------------------
<S> <C> <C> <C> <C> <C>
Phoenix.................................. 10,400,010 % $41,632,000 % $ 4.00
New investors............................
---------- ----- ----------- -----
Total.................................... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
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If the underwriters' over-allotment option is exercised in full, the
following will occur:
- the percentage of the total number of shares of common stock held by
Phoenix will decrease to % immediately after the offering; and
- the number of shares held by new public investors will increase to ,
or approximately %, of the total number of shares of our common stock
outstanding immediately after the offering.
As of December 31, 1999, there were options outstanding to purchase a total
of 2,348,844 shares of our common stock at a weighted average exercise price of
$6.14 per share, of which 364,360 were exercisable as of that date. In addition,
Phoenix holds a warrant to purchase 50,000 shares of common stock at $0.01 per
share. If these options or the warrant are exercised in the future, it will be
further dilutive to investors who purchase shares at the initial public offering
price.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with the consolidated financial statements, the notes thereto and
the other information contained in this prospectus. The selected consolidated
balance sheet data as of September 30, 1998 and 1999 and the selected
consolidated statement of operations data for the years ended September 30,
1997, 1998 and 1999 have been derived from the audited consolidated financial
statements of inSilicon appearing elsewhere in this prospectus. The selected
consolidated balance sheet data as of September 30, 1995, 1996 and 1997, the
selected consolidated statement of operations data for the years ended
September 30, 1995 and 1996, and the pro forma net loss and pro forma net loss
per share data for the year ended September 30, 1999 have been derived from
unaudited consolidated financial statements of inSilicon not included in this
prospectus, and include all adjustments, consisting only of normal recurring
accruals, that we consider necessary for a fair presentation of our financial
position and results of operations for these periods.
The historical financial information may not be indicative of our future
performance and does not necessarily reflect what our financial position and
results of operations would have been had we been a separate, stand-alone entity
during the periods covered. The historical financial information does not
reflect many significant changes that will occur in our operations and capital
structure as a result of our separation from Phoenix.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
License fees.............................................. $ 2,106 $ 2,832 $ 4,272 $ 7,304 $ 14,973
Services.................................................. -- 498 839 1,488 3,982
------- ------- ------- ------- --------
Total revenue........................................... 2,106 3,330 5,111 8,792 18,955
Cost of revenue:
License fees.............................................. 404 567 972 1,223 1,003
Services.................................................. -- 97 638 734 826
Amortization of purchased technology...................... -- -- -- -- 2,132
------- ------- ------- ------- --------
Total cost of revenue................................... 404 664 1,610 1,957 3,961
------- ------- ------- ------- --------
Gross margin................................................ 1,702 2,666 3,501 6,835 14,994
Operating expenses:
Research and development.................................. 798 1,808 2,310 2,947 9,092
Sales and marketing....................................... 575 1,223 2,128 3,843 6,350
General and administrative................................ 281 549 1,049 1,368 3,364
Amortization of intangible assets......................... -- -- -- -- 2,220
Merger and restructuring charges.......................... -- 318 -- 5,778 6,050
------- ------- ------- ------- --------
Total operating expenses................................ 1,654 3,898 5,487 13,936 27,076
------- ------- ------- ------- --------
Net income (loss)........................................... $ 48 $(1,232) $(1,986) $(7,101) $(12,082)
======= ======= ======= ======= ========
Pro forma net loss (1)...................................... $ (8,566)
========
Pro forma net loss per share (2)(3)......................... $ (0.82)
========
Shares used in computing pro forma net loss per share
(2)(3).................................................... 10,400
========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ -- $ -- $ -- $ -- $ --
Working capital (deficit)................................... (103) (405) 974 (3,340) (393)
Total assets................................................ 1,767 1,807 4,505 31,331 24,481
Long-term obligations, less current portion................. 610 35 15 16 45
Stockholder's net investment................................ 13 491 3,554 25,412 18,804
</TABLE>
- -------------
(1) Pro forma net loss gives effect to pro forma income tax credits related to
the reversal of deferred income tax liabilities in connection with the
acquisition of Sand. See Note 8 of Notes to Consolidated Financial
Statements of inSilicon.
(2) See Note 2 of Notes to Consolidated Financial Statements of inSilicon for an
explanation of the method used to determine the number of shares used to
compute pro forma net loss per share.
(3) Assumes the conversion of all shares of Series A Preferred Stock and
excludes a warrant to purchase 50,000 shares of
common stock and all outstanding options.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS TOGETHER WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND
THE NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS FOR MANY REASONS, INCLUDING THE RISKS DESCRIBED IN
THE "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. SEE "FORWARD-LOOKING
STATEMENTS."
OVERVIEW
We provide communications and connectivity solutions that allow
semiconductor and systems companies to focus their development resources on
their core competencies that differentiate their products. This reduces
development costs and improves time to market in complex system-on-a-chip, or
SOC, designs. By integrating our semiconductor intellectual property into their
complex designs, our customers are better able to narrow the design gap caused
by the difficulty of designing complex SOCs in the time necessary to get to
market with their products. We are currently a wholly owned subsidiary of
Phoenix and were incorporated in November 1999. Before November 1999, we were
operated as a division of Phoenix. The discussion below refers to the historical
operating results and activities and the assets and liabilities assigned to
inSilicon by Phoenix included in our consolidated financial statements.
Phoenix has provided a number of administrative services to us on which we
continue to rely. Our consolidated financial statements were derived from the
historical books and records of Phoenix. The consolidated balance sheets include
all assets and liabilities directly attributable to us. The consolidated
statements of operations include all revenues and expenses attributable to us,
including direct charges and allocated costs for shared facilities, functions
and services used by us and provided by Phoenix. A significant amount of
expenses have been allocated to us based on Phoenix management's estimate of the
proportional benefit of services provided by it. These allocations were
generally based on pro rata personnel, revenue generated or costs incurred. See
Note 5 of Notes to Consolidated Financial Statements of inSilicon. You should
not consider our historical financial statements to be representative of our
operating results, financial position or cash flows to be expected in future
periods or what our results of operations, financial position or cash flows
would have been had inSilicon been a separate, stand-alone entity during the
periods presented.
We have entered into a Services and Cost-Sharing Agreement with Phoenix
effective as of November 30, 1999. This agreement covers various services that
Phoenix provides us and the method by which we and Phoenix share certain costs.
The services include data processing, telecommunications, information technology
support, accounting, financial management, tax preparation, payroll, stockholder
and public relations, legal, human resources administration, procurement, real
estate management and other administrative functions. The shared costs include
the costs of the office space we occupy at Phoenix's headquarters and insurance
premiums. The amount we will pay will be equal to the aggregate cost to Phoenix
and inSilicon of the services and costs multiplied by a percentage representing
the number of our employees to the total number of Phoenix and inSilicon
employees. The Services and Cost-Sharing Agreement has an initial term that
extends to June 30, 2000 for all services other than accounting and an initial
term that extends to September 30, 2000 with respect to accounting services,
although we can terminate any one or more of the services at any time on 30
days' written notice. The Services and Cost-Sharing Agreement will be renewed on
a month-to-month basis. Phoenix can terminate after those dates on 30 days'
written notice.
Many Phoenix employees who were seconded to inSilicon in December 1999
exchanged their unexercised options to purchase Phoenix common stock for new
options to acquire inSilicon common stock. On the date of the exchange, the
inSilicon options had the same intrinsic value and ratio of
21
<PAGE>
exercise price to market value of the underlying shares as the Phoenix options
exchanged. They also have equivalent vesting schedules to the Phoenix options
exchanged. Also in December 1999, we granted options to purchase 1,012,579
additional shares of our common stock at at a weighted average exercise price of
$7.33 per share. Because we granted these options at an exercise price less than
the fair market value of our common stock on the grant date, we will record
deferred stock compensation of approximately $2.0 million. This stock
compensation will be amortized by charges to operations over the vesting period
of the options, generally four years.
In September 1998, Phoenix acquired Sand Microelectronics, Inc., a leading
supplier of standards-based SIP. The purchase price consisted of approximately
$18.6 million in cash, 464,000 shares of Phoenix common stock, approximately
264,000 stock options to purchase Phoenix common stock issued in exchange for
Sand stock options, and up to $3.7 million in performance incentives through
fiscal year 2001 that inSilicon may be required to pay. This transaction was
accounted for using the purchase method of accounting and therefore Sand's
results of operations are not included within ours before the date of
acquisition. Our consolidated balance sheets include the financial position of
Sand as of September 30, 1998, and our consolidated operating results include
the operating results of Sand after the date of acquisition.
In connection with the acquisition of Sand, we recorded $12.8 million of
capitalized software development costs, $9.6 million of goodwill and $2.8
million of other intangible assets. Amortization of these assets is being
recognized on a straight-line basis over three- to six-year periods. See Note 6
of Notes to Consolidated Financial Statements of inSilicon.
Also in September 1998, Phoenix completed a merger with Award Software
International, Inc. In connection with the Award merger, we acquired the
operations of Award associated with the development and marketing of
standards-based firmware. The Award transaction was accounted for as a
pooling-of-interests, and the firmware operations of Award are therefore
included in our results of operations for all periods presented. These
operations accounted for less than 10% of our revenue and operating costs for
all periods prior to the merger.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth operating data as a percentage of total
revenue:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
License fees............................................ 83.6% 83.1% 79.0%
Services................................................ 16.4 16.9 21.0
----- ----- -----
Total revenue......................................... 100.0 100.0 100.0
Cost of revenue:
License fees............................................ 19.0 13.9 5.3
Services................................................ 12.5 8.4 4.4
Amortization of purchased technology.................... -- -- 11.2
----- ----- -----
Total cost of revenue................................. 31.5 22.3 20.9
----- ----- -----
Gross margin.............................................. 68.5 77.7 79.1
Operating expenses:
Research and development................................ 45.2 33.5 48.0
Sales and marketing..................................... 41.7 43.7 33.5
General and administrative.............................. 20.5 15.6 17.7
Amortization of intangible assets....................... -- -- 11.7
Merger and restructuring charges........................ -- 65.7 31.9
----- ----- -----
Total operating expenses.............................. 107.4 158.5 142.8
----- ----- -----
Net loss.................................................. (38.9)% (80.8)% (63.7)%
===== ===== =====
</TABLE>
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999
REVENUE. We license software under non-cancelable license agreements and
provide related services, including training, non-recurring engineering and
product maintenance. License fee revenues are generally recognized when a
non-cancelable license agreement has been signed, the software product has been
shipped, there are no uncertainties surrounding product acceptance, the fees are
fixed and determinable, and collection is considered probable. For customer
license agreements which meet these recognition criteria, the portion of the
fees related to software licenses are generally recognized in the current
period, while the portion of the fees related to services is recognized as the
services are performed. When we enter into a license agreement with a customer
requiring significant customization of the software products, we recognize
revenue related to the license agreement using contract accounting. Revenue from
engineering services is generally recognized on a time-and-material basis or
when contractual milestones are met. Product maintenance consists of product
support services and periodic updates. Revenue from maintenance agreements is
recognized ratably over the maintenance period, which is usually one year.
We adopted the American Institute of Certified Public Accountants' Statement
of Position, or SOP, 97-2, "Software Revenue Recognition," and SOP 98-4,
"Deferral of the Effective Date of the Provision of SOP 97-2, Software Revenue
Recognition," as of October 1, 1998. The adoption of SOP 97-2 and SOP 98-4 did
not have a material impact or our consolidated financial statements and results
of operations. In December 1998, the American Institute of Certified Public
Accountants issued SOP 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions." SOP 98-9 amends SOP 98-4 to
extend the deferral of the application of certain passages of SOP 97-2
23
<PAGE>
through fiscal years beginning after March 31, 1999. The adoption of SOP 98-9 as
of October 1, 1999, is not expected to have a material impact on our
consolidated financial statements and results of operations. However, full
implementation guidelines for SOP 97-2, SOP 98-4 and SOP 98-9 have not been
issued. Once available, the current revenue recognition accounting practices may
need to change and such changes could affect the timing of our future revenue
recognition.
Our revenue for fiscal years 1997, 1998 and 1999 was $5.1 million, $8.8
million and $19.0 million, respectively, increases of 72.0% from fiscal year
1997 to fiscal year 1998 and 115.6% from fiscal year 1998 to fiscal year 1999.
These increases reflect the growing market acceptance of SIP and higher
maintenance fees generated from our growing installed base of customers, with
fiscal year 1999 revenues substantially impacted by the increased license and
service fees resulting from the acquisition of Sand in September 1998. On a pro
forma basis including Sand in fiscal year 1998, revenue increased 25.3% from
$15.1 million in fiscal year 1998 to $19.0 million in fiscal year 1999.
GROSS MARGIN. Gross margin is revenue less cost of revenue. License fee
cost of revenue consists primarily of amortization of capitalized software
development costs and costs of licensing certain technologies from third-party
developers and publishers. Services cost of revenue includes internal payroll
costs and third-party consulting costs associated with providing non-recurring
engineering services to customers.
Gross margin was $3.5 million, $6.8 million and $15.0 million in fiscal
years 1997, 1998 and 1999, respectively, increases of 95.2% from fiscal year
1997 to fiscal year 1998 and 119.4% from fiscal year 1998 to fiscal year 1999.
The increases were the result of higher license and service revenue. Included in
fiscal year 1999 costs of revenue was $2.1 million of amortization of purchased
technology from the acquisition of Sand. Gross margin as a percentage of
revenues, before the amortization of this purchased technology, increased from
68.5% in fiscal year 1997 to 77.7% in fiscal year 1998 and to 90.4% in fiscal
year 1999 primarily due to lower amortization of capitalized software
development costs and a higher proportion of maintenance revenue.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist principally of payroll and related costs associated with the development
of our SIP cores, related silicon subsystems and firmware, net of amounts
capitalized.
Research and development expenses were $2.3 million, $2.9 million and $9.1
million in fiscal years 1997, 1998 and 1999, respectively, increases of 27.6%
from fiscal year 1997 to fiscal year 1998 and 208.5% from fiscal year 1998 to
fiscal year 1999. The increases in both years were due to more research and
development personnel, with the fiscal year 1999 increase primarily reflecting
the acquisition of Sand. Development costs associated with firmware and related
products also increased in fiscal year 1999. In addition, fewer research and
development costs were capitalized in fiscal year 1999, as a higher proportion
of development costs were incurred on non-capitalizable projects. As a
percentage of revenue, research and development expenses amounted to 45.2% in
fiscal year 1997, 33.5% in fiscal year 1998 and 48.0% in fiscal year 1999. The
reduced relative research and development expenses in fiscal year 1998 were due
to higher revenues. Because we completed a significant outsourced design
contract and have also reduced the use of software consultants, we expect that
overall research and development expenditures will decrease in fiscal year 2000.
We believe that they will increase thereafter.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist of costs
related to advertising, public relations, and other marketing, selling and
distribution activities. These costs include direct out-of-pocket and payroll
expenses, and an allocation from Phoenix of costs associated with corporate
marketing programs and field selling activities.
Sales and marketing expenses were $2.1 million, $3.8 million and $6.4
million in fiscal years 1997, 1998 and 1999, respectively, increases of 80.6%
from fiscal year 1997 to fiscal year 1998 and 65.2%
24
<PAGE>
from fiscal year 1998 to fiscal year 1999. The fiscal year 1999 increase
reflects the addition of the Sand sales and marketing staff, increased
promotional activities and higher selling costs due to increased revenue. The
fiscal year 1998 increase reflects increased personnel and higher selling costs
due to increased revenue. As a percentage of revenue, sales and marketing
expenses amounted to 41.6% in fiscal year 1997, 43.7% in fiscal year 1998 and
33.5% in fiscal year 1999. The decrease in sales and marketing expenses as a
percentage of revenue in fiscal year 1999 is attributable to revenue growth.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist of expenditures for executive, accounting, legal, personnel, recruiting
and other administrative functions. These costs were incurred and allocated by
Phoenix for all historical periods.
General and administrative expenses were $1.0 million, $1.4 million and $3.4
million in fiscal years 1997, 1998 and 1999, respectively, increases of 30.5%
from fiscal year 1997 to fiscal year 1998 and 145.9% from fiscal year 1998 to
fiscal year 1999. The increases reflect the headcount-based increased
allocations from Phoenix, which in 1999 were substantially impacted by the
acquisition of Sand. As a percentage of revenue, general and administrative
expenses amounted to 20.5% in fiscal year 1997, 15.6% in fiscal year 1998 and
17.7% in fiscal year 1999.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
represents the straight-line amortization of goodwill and other intangible
assets associated with the purchase of Sand in September 1998. Goodwill is being
amortized over a six-year period, while other intangible assets are being
amortized over three- to six-year periods.
MERGER AND RESTRUCTURING CHARGES. Merger and restructuring charges
represent out-of-pocket costs and asset write-offs related to merger or
restructuring activities.
In fiscal year 1998, we recorded merger and restructuring charges of $5.8
million related to the acquisition of Sand and the associated integration and
restructuring. In fiscal year 1999, we recorded restructuring charges of $6.1
million, related primarily to the write-off of intangible assets that were
redundant as a result of merger or restructuring activities.
INCOME TAXES. The net losses we incurred for all periods through
September 30, 1999 are attributable to our operations as a division of Phoenix
and were included in income tax returns filed by Phoenix. Because we will not
receive any benefit for our historical operating losses incurred through
September 30, 1999, no income tax benefit has been reflected for the periods
presented. Because our operating losses for tax purposes have been used by
Phoenix, we have no net operating losses to apply against future taxable income,
if any.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth inSilicon's consolidated statement of
operations data for each of the eight quarters ended September 30, 1999,
expressed in dollars and as a percentage of total revenue. This unaudited
quarterly information has been prepared on the same basis as inSilicon's audited
consolidated financial statements and, in the opinion of management, reflects
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the information
25
<PAGE>
for the periods presented. The operating results for any quarter are not
necessarily indicative of results to be anticipated for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue:
License fees....................... $1,544 $2,049 $1,511 $ 2,200 $ 3,677 $ 4,003 $ 3,270 $ 4,023
Services........................... 238 407 432 411 1,189 922 882 989
------ ------ ------ ------- ------- ------- ------- -------
Total revenue.................... 1,782 2,456 1,943 2,611 4,866 4,925 4,152 5,012
Cost of revenue:
License fees....................... 305 194 372 352 158 274 61 510
Services........................... 125 252 162 195 27 311 267 221
Amortization of purchased
technology....................... -- -- -- -- 533 533 533 533
------ ------ ------ ------- ------- ------- ------- -------
Total cost of revenue............ 430 446 534 547 718 1,118 861 1,264
------ ------ ------ ------- ------- ------- ------- -------
Gross margin......................... 1,352 2,010 1,409 2,064 4,148 3,807 3,291 3,748
Operating expenses:..................
Research and development........... 545 771 750 881 2,348 2,191 2,335 2,218
Sales and marketing................ 835 1,027 1,040 942 1,622 1,710 1,475 1,543
General and administrative......... 297 338 349 384 852 725 809 978
Amortization of intangible
assets........................... -- -- -- -- 555 555 555 555
Merger and restructuring charges... -- -- 50 5,728 86 -- 188 5,776
------ ------ ------ ------- ------- ------- ------- -------
Total operating expenses......... 1,677 2,136 2,189 7,935 5,463 5,181 5,362 11,070
------ ------ ------ ------- ------- ------- ------- -------
Net loss............................. $ (325) $ (126) $ (780) $(5,871) $(1,315) $(1,374) $(2,071) $(7,322)
====== ====== ====== ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF TOTAL REVENUE:
Revenue:
License fees....................... 86.6% 83.4% 77.8% 84.3% 75.6% 81.3% 78.8% 80.3%
Services........................... 13.4 16.6 22.2 15.7 24.4 18.7 21.2 19.7
------ ------ ------ ------- ------- ------- ------- -------
Total revenue.................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
License fees....................... 17.1 7.9 19.1 13.5 3.2 5.6 1.5 10.2
Services........................... 7.0 10.3 8.4 7.4 0.6 6.3 6.4 4.4
Amortization of purchased
technology....................... -- -- -- -- 11.0 10.8 12.8 10.6
------ ------ ------ ------- ------- ------- ------- -------
Total cost of revenue............ 24.1 18.2 27.5 20.9 14.8 22.7 20.7 25.2
------ ------ ------ ------- ------- ------- ------- -------
Gross margin......................... 75.9 81.8 72.5 79.1 85.2 77.3 79.3 74.8
Operating expenses:
Research and development........... 30.6 31.3 38.5 33.7 48.2 44.5 56.3 44.3
Sales and marketing................ 46.9 41.8 53.5 36.1 33.3 34.7 35.5 30.8
General and administrative......... 16.6 13.8 18.0 14.7 17.5 14.7 19.5 19.5
Amortization of intangible
assets........................... -- -- -- -- 11.4 11.3 13.4 11.1
Merger and restructuring charges... -- -- 2.6 219.4 1.8 -- 4.5 115.2
------ ------ ------ ------- ------- ------- ------- -------
Total operating expenses......... 94.1 86.9 112.6 303.9 112.2 105.2 129.2 220.9
------ ------ ------ ------- ------- ------- ------- -------
Net loss............................. (18.2)% (5.1)% (40.1)% (224.8)% (27.0)% (27.9)% (49.9)% (146.1)%
====== ====== ====== ======= ======= ======= ======= =======
</TABLE>
26
<PAGE>
Our revenue in each of the quarters of fiscal year 1999 has increased over
the comparable quarter of fiscal year 1998. Revenue substantially increased
between the fourth quarter of fiscal year 1998 and first quarter of fiscal year
1999, primarily due to the inclusion of Sand's results of operations. Typically,
in the second quarter of each fiscal year, we experience higher than normal
revenue due to a number of factors including seasonal buying patterns and an
increase in the number of design starts typically associated with the beginning
of the year. Over the eight fiscal quarters, gross margins have also fluctuated
due to the timing of customer-specific development projects and capitalized
software development cost amortization.
During fiscal year 1999, quarterly research and development increased in the
first quarter reflecting the research and development personnel added through
the acquisition of Sand and the initial outsourcing of a significant design
contract. General and administrative expenses have generally shown quarterly
increases, due to increased headcount-based allocations by Phoenix.
Quarterly results in fiscal year 1999 also have been affected by the
amortization of goodwill associated with the acquisition of Sand, which has
amounted to $555,000 on a quarterly basis. In addition, in the third and fourth
quarters of fiscal year 1998 and the first, third and fourth quarters in fiscal
year 1999, we have taken one-time charges for employee severance costs and asset
write-offs related to merger and restructuring activities. These charges
amounted to $5.8 million in fiscal year 1998 and $6.1 million in fiscal year
1999.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements are to fund working capital needs and
capital expenditures to support our revenue growth. Since Phoenix acquired or
introduced the various aspects of our business, Phoenix has performed cash
management services for us and provided the funds necessary to satisfy our
capital requirements. After this offering, Phoenix will no longer be obligated,
and does not intend, to provide us additional funds to finance our operations.
Cash used in operating activities was $2.2 million and $4.3 million for
fiscal years 1997 and 1999, respectively. Cash provided by operating activities
was $3.6 million for fiscal year 1998. Cash used in operating activities during
fiscal year 1997 was primarily attributable to a net loss and an increase in
accounts receivable, offset in part by depreciation and amortization. Cash
provided by operating activities during fiscal year 1998 was due to a net loss
and an increase in accounts receivable, offset by a write-off of in-process
research and development, an increase in other accrued liabilities, depreciation
and amortization, write-offs of capitalized software and increases in accounts
payable and accrued liabilities. Cash used in operating activities during fiscal
year 1999 was primarily due to a net loss and an increase in accounts
receivable, offset in part by depreciation and amortization and a write-off of
capitalized software.
Cash used in investing activities was $2.8 million, $18.9 million and
$1.1 million for fiscal years 1997, 1998 and 1999, respectively. Cash used in
fiscal year 1997 and 1999 was primarily attributable to additions to computer
software costs. Cash used in fiscal year 1998 was primarily attributable to
additions to computer software costs, purchases of property and equipment and a
$15.6 million investment in Sand.
Net cash provided by financing activities was $5.0 million for fiscal year
1997, $15.3 million for fiscal year 1998 and $5.5 million for fiscal year 1999.
Cash provided by financing activities in all three years related primarily to
capital contributions from Phoenix.
As a portion of the consideration for the acquisition of Sand, we entered
into an earn-out agreement with the selling stockholders. Under the terms of the
agreement, the selling stockholders may earn additional purchase price
consideration for each of the three years ending September 30, 2002, contingent
upon the financial performance of inSilicon. The maximum contingent
consideration is
27
<PAGE>
$3.7 million. Future payments in excess of amounts accrued, if any, will be
recorded as additional goodwill, and amortized over the remaining life of the
original goodwill recorded. Approximately $867,000 was earned in fiscal year
1999 and will be paid in early fiscal year 2000.
We expect our future liquidity and capital requirements to vary greatly from
quarter to quarter, depending on numerous factors, including the cost, timing
and success of product development efforts, the cost and timing of sales and
marketing activities, the extent to which our existing and new technologies gain
market acceptance, the number and complexity of communications standards, the
level and timing of revenues, competing technological and market developments
and the costs of maintaining and enforcing patent claims and other intellectual
property rights. We believe that the net proceeds from this offering, together
with cash generated by our operations, if any, will be sufficient to meet our
operating and capital requirements for at least the next 12 months. However, we
may in the future be required to raise additional funds through public or
private financings, strategic relationships or other arrangements. We cannot be
certain that any such financing will be available on acceptable terms, or at
all, and our failure to raise capital when needed could seriously harm our
business. Additional equity financing may be dilutive to the holders of our
common stock, and debt financing, if available, may involve restrictive
covenants. Moreover, strategic relationships, if necessary to raise additional
funds, may require that we relinquish our rights to certain technology.
Effective upon the closing of this offering, we expect to have a secured
bank line of credit, which will provide up to $5.0 million in working capital.
Borrowings, if any, will bear interest at prime plus 0.25%. We expect that this
line of credit will require us to comply with various financial covenants,
including a minimum quick ratio and a maximum on aggregate annual losses, and
expires in January 2001.
QUANTITATIVE AND QUALITATIVE DISCUSSION OF MARKET INTEREST RATE RISK
INTEREST RATE RISK. As a division of Phoenix, we have not maintained our
own cash investments and have not been subject to significant interest rate
risk.
FOREIGN CURRENCY. Substantially all of our revenues are earned in U.S.
dollars. Operating expenses incurred by our foreign subsidiaries are denominated
in local currencies. Accordingly, we are subject to exposure from movements in
foreign currency exchange rates. To date, the effect of changes in foreign
currency exchange rates on our operating results have not been material. We
currently do not use financial instruments to hedge foreign currency risks. We
intend to assess the use of financial instruments to hedge currency exposures on
an ongoing basis.
28
<PAGE>
BUSINESS
OVERVIEW
inSilicon is a leading provider of communications semiconductor intellectual
property, or SIP, that is used by semiconductor and systems companies to design
complex semiconductors called systems-on-a-chip, or SOCs, that are critical
components of digital devices. We provide SIP cores, related silicon subsystems
and firmware to over 400 customers that use our technologies in hundreds of
different digital devices ranging from network routers to cellular phones. Our
modular approach emphasizes customer-proven reusable SIP cores that focus on
communications and connectivity, and are compatible with a wide range of
microprocessor designs. Semiconductor and systems companies integrate our SIP
cores into their overall semiconductor designs, saving time and money and
allowing them to focus on their core competencies that differentiate their
products. By integrating our SIP into their complex designs, our customers are
better able to solve the widening "design gap" caused by the difficulty of
designing complex SOCs in the time necessary to get to market with their
products.
INDUSTRY BACKGROUND
The internet is creating the demand for all digital devices to be connected.
This demand is generating a proliferation of communications standards and
connectivity requirements. Examples of current and emerging standards include
Ethernet, USB, IEEE 1394, PCI, HPNA, DSL and Bluetooth. Products that use these
standards include corporate networks which use Ethernet; printers and scanners
which use USB; digital video cameras which use IEEE 1394; routers, personal
computers and notebooks which use PCI; home networks which use HPNA; high speed
internet modems which use DSL; and next-generation cellular phones which use
Bluetooth.
The proliferation of these products and their many communications standards
is driving the demand for complex semiconductors. Improvements in semiconductor
design and manufacturing processes have enabled the integration of entire
systems, including microprocessor, communications, logic and memory elements, on
a single chip, and creating a SOC solution. The following diagrams illustrate
sample SOCs and their major components:
<TABLE>
<S> <C>
SET-TOP BOX SOC xDSL SOC
</TABLE>
[DIAGRAM]
Due to the complexity of designing SOCs, the multiplicity of communications
standards and time-to-market requirements, the design capabilities of
semiconductor and systems companies have not kept pace with the increase in the
number of transistors that can be placed on a single chip. Consequently, a
significant "design gap" has developed.
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<PAGE>
To address the design gap, semiconductor and systems companies are
increasingly licensing proven and reusable intellectual property cores such as
microprocessor, communications, logic and memory blocks from merchant SIP
suppliers. The emergence of a merchant SIP market allows semiconductor and
systems companies to create differentiated products, reduce development costs,
increase functionality and improve time to market. For example, Integrated
Circuit Engineering, an independent research firm, estimates that the merchant
SIP market as a whole will grow from approximately $732 million in 2000 to
approximately $1.9 billion in 2003, which represents a compounded annual growth
rate of approximately 37%.
This developing merchant SIP market has three primary segments, as follows:
[DIAGRAM]
Microprocessors act as the central processing unit for the SOC. Communications
and connectivity cores are the primary vehicles that translate and transport
external data streams to and from the microprocessor. Foundation SIP consists of
commodity logic functions and foundry-specific technology principally for
embedded memory, standard cell, basic logic and I/O components.
While other merchant SIP suppliers have sought to fill the need for
microprocessor and foundation cores for SOCs, no company has focused primarily
on building a broad portfolio of SIP addressing the communications and
connectivity segment. Semiconductor and systems companies divert significant
time and resources from their core competencies to address these needs.
Moreover, the wide variety of communications standards that have emerged due to
the specific requirements of various devices makes it increasingly difficult for
these companies to successfully design these crucial communication cores for
their SOCs. Consequently, they are unable to develop new products in a cost- and
time-effective manner.
THE inSILICON SOLUTION
We provide communications and connectivity solutions that allow
semiconductor and systems companies to focus their development resources on
their core competencies that differentiate their products. This reduces
development costs and improves time to market in the design of complex SOCs,
thus narrowing the design gap with reusable cores. We offer:
- PROVEN SOLUTIONS. More than 400 companies have implemented our cores in
more than 500 integrated circuit designs. We estimate that tens of
millions of products include inSilicon intellectual property. Our cores
have been implemented in silicon in over 25 fabrication facilities and
down to 0.18 micron process geometry. The customer- and systems-proven
nature of our cores makes less likely the substantial interoperability
issues and costly development delays that our customers might experience
from in-house or other third-party designs.
30
<PAGE>
- A BROAD PORTFOLIO OF COMMUNICATIONS CORES FOR A WIDE RANGE OF
STANDARDS. We provide semiconductor and systems companies with a broad
portfolio of communication and connectivity cores. We believe our
available cores fulfill many of the communication SIP needs of those
companies.
- INTEGRATED SILICON SUBSYSTEMS. We recently introduced a modular Virtual
Component Interface, or VCI, architecture known as TymeWare-TM-. This
product integrates a number of our popular communications cores into a
single communication subsystem. TymeWare can also integrate customer and
third-party VCI-compliant SIP. Additionally, we have designed TymeWare so
that it interfaces successfully with the most popular microprocessors
using our proprietary SmartBridge-TM- technology.
- INTEGRATED FIRMWARE AND DRIVERS SOLUTION. For the USB and IEEE 1394
communications standards, we have the essential firmware and device
drivers that allow operating systems to communicate with our USB and IEEE
1394 cores. By using our firmware and drivers, semiconductor and systems
companies may integrate our cores into their designs in a cost-effective
and timely manner.
- EXTENSIVE TEST AND VERIFICATION TOOLS. We provide our customers with
extensive verification and test modules to ensure the functionality of our
cores within their designs. This allows our customers to implement our SIP
cores into their designs with a higher degree of first time success.
- PORTABILITY AND FLEXIBILITY. We design our cores to be foundry independent
and easy to use. We use popular hardware languages that fit readily into
our customers' design flows, which provides our customers significant
manufacturing flexibility. Our Rapidscript-TM- configuration tool and our
adoption of VCI for our cores facilitate customer integration of our cores
into their SOC designs.
- STANDARDS LEADERSHIP. We were the first to market with merchant SIP
solutions for many communications standards including PCI, AGP, USB, IrDA,
IEEE 1394 and VCI. We are members of numerous industry standards bodies,
including the IEEE 1394 trade association, USB Implementator Forum,
Infrared Data Association and PCI SIG Steering Committee. Our involvement
with these bodies helps us stay on the leading edge of evolving standards.
THE INSILICON STRATEGY
Our objective is to be a leading provider of SIP for communications and
connectivity that allow semiconductor and systems companies to create
differentiated products, reduce development costs, increase functionality and
improve time to market. Key elements of our strategy include:
- TARGET HIGH GROWTH COMMUNICATIONS APPLICATIONS. We target selected high
growth communications and connectivity protocols. Building upon our
established portfolio of cores, we plan to develop cores for evolving
wireless and wireline communications standards.
- EXPAND OUR PORTFOLIO OF SIP CORES. We intend to continue strengthening and
broadening our technical capabilities and core offerings to provide a wide
range of new SIP cores together with related analog components. We expect
to expand by developing products ourselves, acquiring technologies, and
partnering with and licensing from third parties. We also plan to expand
our firmware offerings.
- EXPAND DISTRIBUTION CHANNELS AND BRAND AWARENESS. We intend to expand our
traditional channels of distribution by increasing our direct sales force.
We also intend to increase the number of third-party partner programs with
design houses, ASIC manufacturers and
31
<PAGE>
semiconductor-related tool makers, among others. We intend to advertise
both in print and online to our target audiences worldwide.
- DEVELOP E-COMMERCE CHANNELS. We allow semiconductor designers to download
via the internet, and test, encrypted SIP cores before committing to a
commercial license. Using this method, semiconductor designers can
immediately begin developing their designs using our SIP cores.
MARKETS AND APPLICATIONS
We target high growth markets requiring high performance, quick time to
market, design flexibility and compliance with industry standards. Examples of
the markets and applications using our products include:
- TELECOMMUNICATIONS AND DATA COMMUNICATIONS. Telecommunications and data
communications equipment companies design and manufacture equipment that
must comply with many industry standards. For example, SIP cores such as
Ethernet, PCI and USB are used in network switches and routers, network
adapters, concentrators, public switched telephone network central office
equipment, cable set-top boxes and modems.
- CONSUMER ELECTRONICS. Consumer electronics devices are rapidly converting
to digital methods of signal transmission, processing and storage, and
they require standard connectivity interfaces such as IEEE 1394, IrDA,
USB, and PCI. For example, digital still cameras, digital video cameras,
video games, digital video cassette records and DVD players all use such
digital transmission technology. New application of this technology is
anticipated in digital audio equipment and emerging video devices such as
personal video recorders.
- COMPUTATION. Computation equipment such as personal computers,
workstations and servers require implementation of standard interfaces
such as PCI, USB, AGP, IrDA and Ethernet. Our SIP cores can be found in
standard products and application specific implementations for these types
of platforms.
- OFFICE AUTOMATION. Computer peripherals require a means of connection to
both their host computer and to larger networks. These connections are
generally made with standard interfaces, including USB, IEEE 1394 and
IrDA. These interface technologies are used in such devices as printers,
scanners, keyboards, display terminals, pointing devices, and mass storage
devices such as hard, floppy and removable media disk drives; and tape and
optical drives.
PRODUCTS
Our products include communications cores and related silicon subsystems,
together with firmware and drivers. Our communications core products include a
wide variety of standards-based cores. Our silicon subsystems vertically combine
many of these common cores into functional blocks tailored for ease of use and
faster integration into the customer's SOC designs. Our firmware and drivers
provide protocol translation technologies that allow the operating system to
communicate with the hardware. We offer simulation models, test environments,
documentation and training for many of these products.
We supply core products as Verilog or VHDL source code, which are the
primary semiconductor-design languages in use today. Semiconductor and systems
companies then integrate our SIP cores into their overall semiconductor designs
using semiconductor-related tools, such as those provided by Synopsys and
Cadence. We use a modular approach that emphasizes silicon-proven reusable,
licensable cores and software technology that are compatible with a wide range
of processor designs.
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<PAGE>
inSilicon's products are outlined in the following chart, organized
alphabetically by industry standard:
<TABLE>
INDUSTRY INSILICON PRODUCT DATE
STANDARD DESCRIPTION APPLICATION FAMILY INTRODUCED
<S> <C> <C> <C> <C>
AGP Accelerated Graphics Port is a bus standard AGP is widely used in high AGP Master Core March 1997
used to create a dedicated, high speed performance graphics cards for AGP Host Core December
connection between a system CPU and a graphics personal computers. 1997
processor. AGP Simulation March 1997
Models
Ethernet Ethernet is the most widely used local area Ethernet is used in devices 10/100 Ethernet April 1998
networking communications standard, such as DSL modems, cable Media Access
transferring data at either 10 or 100 million modems, home networking, Controller (MAC)
bits per second. routers and switches. and Simulation Model
IEEE 1394 Also known as FireWire-TM-, IEEE 1394 is a IEEE 1394 enables 1394 Simulation October
high- speed digital serial interface standard plug-and-play connectivity, Model 1997
which currently supports data transfers up to provides power to peripherals
400 million bits per second. and supports real time
transfers, such as video
transfers.
Used in digital cameras, 1394 Device March 1998
audio/ visual disk drives and Controller Link Core
scanners.
Provides digital logic for a 1394 Cable PHY October
1394 physical layer 1998
connection.
Converts the 1394 digital data 1394 Analog PHY Core March 1999
into analog signals.
IrDA IrDA is a wireless serial data specification Used in mobile phones, IrDA Core, which June 1998
defined by the Infrared Data Association that handheld and laptop computers supports all three
allows a wireless signal to be sent between and electronic games. standard data
appliances across short distances. transmission rates
IrDA Simulation June 1998
Model
PCI Peripheral Component Interconnect is an Used in many computers as well PCI Core Suite and May 1995
internal bus that connects various elements of as in embedded systems. PCI Simulation
computer systems to each other. Models
PCI-X PCI-X is the latest revision of the PCI Used in high performance PCI-X Core and PCI-X September
standard. It features twice the performance as computing applications, Simulation Model 1999
PCI and works with existing PCI applications as including multiprocessor
well. servers, communications
switches and routers, and
storage area networks.
USB Universal Serial Bus is a serial data standard USB is a master controller, USB OHCI Host January
designed to simplify personal computer which interfaces directly with Controller Core 1998
connections to peripheral devices. the CPU.
Connects multiple USB devices. USB Hub Core October
1997
Used for peripheral devices. USB Device April 1997
Controller Core
Software which adds USB USBAccess December
capability to computer -Registered Trademark- 1998
operating systems, such as System Software
Microsoft's NT, in addition to
other operation systems.
VCI Virtual Component Interface is a standard Speeds time to market for TymeWare-TM- VCI, December
interface designed to simplify the multiple communication cores. which consists of 1999
mix-and-match of SIP. VCI-compatible
cores, a PVCI-
compatible
peripheral bus and
arbiter, SIP
interface cores and
SmartBridge-TM-,
which includes
interfaces to
popular
microprocessors.
</TABLE>
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<PAGE>
RESEARCH AND DEVELOPMENT
We believe that our future success will depend in large part on our ability
to continue developing and acquiring new and enhanced SIP cores, related silicon
subsystems and system-enabling firmware and drivers in a timely and
cost-effective manner. To this end, we have assembled a team of highly skilled
engineers with significant experience in the design and development of SIP
cores, simulation and verification environments and firmware for connectivity
standards. We participate in the development of new and existing industry
standards.
Our research and development costs were $2.3 million in fiscal year 1997,
$2.9 million in fiscal year 1998 and $9.1 million in fiscal year 1999. In order
to maintain a leading position as a merchant SIP provider in emerging
communications and connectivity standards, we expect that these costs will
increase in the future. However, because of the conclusion of a significant
outsource design contract and the reduced use of software consultants, we expect
that overall research and development expenditures will decrease in fiscal year
2000. As of November 30, 1999, there were 37 employees engaged in research and
development. We expect to identify and hire additional highly-skilled technical
personnel in fiscal year 2000 to staff our anticipated research and development
activities.
SALES AND MARKETING
We focus our sales efforts in the following areas: direct sales; indirect
sales through application specific integrated circuit, or ASIC, manufacturers,
software resellers and design house programs; and internet distribution.
DIRECT SALES. We maintain a direct worldwide sales network consisting of
our own employees and a limited number of sales representatives and field
applications engineers. The sales force's primary responsibility is to secure
and maintain direct account relationships with the semiconductor and systems
companies of the world. We have over 400 customers for which the sales force
maintains the relationship. We document these relationships with a technology
license agreement for the first purchase. For subsequent purchases from existing
customers, we generally obtain a customer purchase order for the desired
technology under the terms of the license agreement or an amendment to the
license agreement. The sales force is distributed in key geographic areas around
the world with employees in the following locations: Austin; Boston; Irvine; San
Jose; Geneva, Switzerland; London, England; Munich, Germany; and Tokyo, Japan.
In addition, we have representation and distribution agreements with Phoenix
Technologies Ltd. covering Hong Kong, Japan, Korea, Singapore and Taiwan.
INDIRECT SALES. In addition to the direct sales force, we also use the
following indirect sales channels:
- ASIC MANUFACTURERS. ASIC manufacturers have access to our technology, and
when designing an ASIC for a direct customer are able to implement our SIP
cores into their complex semiconductors and directly license our products
to the customer.
- SOFTWARE RESELLERS. We also have a group of software resellers whose
primary function is the development and resale of firmware and drivers.
These companies perform both licensing and servicing of firmware customers
for us.
- DESIGN HOUSE PARTNERS. Our design house program provides access to our SIP
cores and training to enable design houses to develop an expertise with
our products. This encourages design houses to incorporate our products
when they design custom semiconductors for third parties.
INTERNET DISTRIBUTION. In addition, we allow semiconductor designers to
download and test, via the internet, encrypted SIP cores before committing to
any economic arrangement.
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<PAGE>
CUSTOMERS
We have developed a strong customer base among semiconductor and systems
companies that use our SIP cores to design complex semiconductors. The following
chart provides a representative list of our major customers and some of the
applications in each industry in which customers use our products:
<TABLE>
INDUSTRY EXAMPLE APPLICATION SELECTED CUSTOMERS
<S> <C> <C>
Communications ATM Traffic Processor, Backbone Alcatel
Router, Cable Modem, DSL Modem, Avici Systems
Encryption Processor, Gigabit Broadcom
Servicer Adapter, Gigabit Cisco
Switch, Multilayer hi/fn
Communications Switch, Network Juniper Systems
Adapter, Satellite Receiver and Maker Communications
Terabit Router
Consumer AutoPC, Cell Phone, Digital Fujitsu
Still Camera, Digital Video Microsoft
Camera, Internet Audio, Personal Motorola
Digital Assistant, Set-top Box Qualcomm
and Smart Card Reader Sharp
Sony
ST Microelectronics
Computer Embedded Microprocessor, Laptop AMD
Computer, RISC Processor, Server Fujitsu
Processor Interconnect, Super SMSC
I/O Chip, Microprocessor and USB Intel
Controller Lucent
Sun Microsystems
Office Automation 3-D Digital Audio, Floppy Disk Siemens AG
Drive, Inkjet Printer, Laser Creative Labs
Printer, Page Scanner, PC Audio Hewlett-Packard
Card, PC Video Camera and iomega
Removable Disk Drive Logitech
Yamaha
</TABLE>
PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY
We rely primarily on a combination of nondisclosure agreements and other
contractual provisions, as well as patent, trademark, trade secret, and
copyright law to protect our proprietary rights. Our general policy has been to
seek patent protection for those inventions and improvements likely to be
incorporated in our products or otherwise expected to be of value. We have an
active program to protect our proprietary technology through the filing of
patents.
As of November 30, 1999, we had applications for five U.S. patents on file
with the United States Patent and Trademark Office, or USPTO, and three draft
applications in the various stages of review in preparation for filing with the
USPTO. To date, the USPTO has issued two patents related to our design
simulation techniques and issued a notice of allowance for a patent application
for our proprietary asynchronous PCI design. We expect that the USPTO will issue
the asynchronous PCI design patent within the next three months. As of
November 30, 1999, we had filed two foreign applications under the Patent
Cooperation Treaty and had national filings in place for those countries
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<PAGE>
which are not members. We intend to continue to file patent applications as
appropriate in the future. We cannot be sure, however, that our pending patent
applications will be approved, that any issued patents will protect our
intellectual property or will not be challenged by third parties, or that the
patents of others will not seriously harm our ability to do business. In
addition, others may independently develop similar or competing technology or
design around any of our patents.
We protect the source code of our products as both trade secrets and
unpublished copyrighted works. We license the source code to our customers for
limited uses and maintain contractual controls over the use of our software
products. Wide dissemination of our software products makes protection of our
proprietary rights difficult, particularly outside the United States.
We protect our trade secrets and other proprietary information through
nondisclosure agreements with our employees and customers and other security
measures, although others may still gain access to our trade secrets or discover
them independently.
From time to time, third parties, including our competitors, may assert
patent, copyright and other intellectual property rights to technologies that
are important to us. Although we believe that our products do not infringe on
any copyright or other proprietary rights of third parties, there are currently
significant legal uncertainties relating to the application of copyright and
patent law in the field of software.
COMPETITION
The SIP industry is very competitive and is characterized by constant
technological change, rapid rates of product obsolescence, and frequently
emerging new suppliers. Our existing competitors include other merchant SIP
suppliers, such as the Mentor Graphics' Inventra Division, Synopsys, Enthink and
VAutomation; and suppliers of ASIC semiconductors, such as LSI Logic, and the
ASIC divisions of IBM, Lucent, Toshiba and NEC. We also compete with the
internal development groups of large, vertically integrated semiconductor and
systems companies, such as Intel, Motorola, Cisco and Hewlett-Packard. In these
companies, SIP developed for an individual project sometimes is subject to
efforts by the company to re-use the SIP in multiple projects. Companies whose
principal business is providing design services as work-for-hire, such as
Intrinsix, Sican and the service division of Cadence, also provide competition.
These companies generally build a portfolio of internally developed SIP over
time and then re-use that SIP as applicable in new service projects in order to
gain productivity leverage. For firmware products, our primary competitors are
in-house research and development departments of system companies and small
privately-held companies. As we introduce new SIP technologies, we will face
competition from both existing SIP suppliers and new SIP suppliers that we
anticipate will enter the market. We also may face competition from new
suppliers of products based on new or emerging technologies.
We believe that important competitive factors in our market include:
performance; functionality; customizability; length of development cycle; price;
compatibility with prevailing design methodologies; interoperability with other
devices or subsystems; product ease of use; reputation for successful designs
and installed base; technical service and support; technical training;
configurability of products for specific designs; and regional sales and
technical support.
EMPLOYEES
As of November 30, 1999, we had 71 employees, including 14 in sales, eight
in marketing, eight in engineering services and support, 37 in research and
development and four in general and administrative functions. We believe that
our future success will depend in part on our continued ability to attract, hire
and retain qualified personnel. None of our employees is represented by a labor
union and we believe our employee relations are good.
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<PAGE>
LEGAL PROCEEDINGS
inSilicon is not a party to any pending litigation.
FACILITIES
Our executive, administrative and technical offices currently occupy
approximately 22,000 square feet in a building leased by Phoenix in San Jose,
California. We expect in the future to move to separate offices in the Silicon
Valley area. We believe that our current and planned facilities will be
adequate.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names and ages of our existing executive officers and directors as of
January 10, 2000 are set forth below. Those marked with an asterisk are expected
to become directors after the date hereof:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- -------- -----------
<S> <C> <C>
Wayne C. Cantwell............................... 35 President, Chief Executive Officer and Director
Barry A. Hoberman............................... 41 Executive Vice President and Chief Technical Officer
William E. Meyer................................ 37 Executive Vice President, Chief Financial Officer and
Director
Anand C. Naidu.................................. 46 Vice President of Internet Products
Robert G. Nalesnik.............................. 41 Vice President of Marketing
David J. Power.................................. 42 Vice President and General Counsel
Linda V. Moore.................................. 53 Secretary
Albert E. Sisto(1).............................. 50 Chairman of the Board of Directors
Raymond J. Farnham(1)(2)*....................... 52 Director
E. Thomas Hart(1)(2)*........................... 58 Director
</TABLE>
- ------------------------------
(1) Expected member of compensation committee
(2) Expected member of audit committee
WAYNE C. CANTWELL has served as our President and Chief Executive Officer
since our incorporation in November 1999 and as a Director of inSilicon since
November 1999. Mr. Cantwell also has served as Senior Vice President and General
Manager of Phoenix's Semiconductor IP Division since July 1999, a position from
which he will resign before the closing of this offering. He was Vice President
and General Manager, Worldwide Field Operations, for Phoenix from November 1998
to July 1999; Vice President and General Manager, North American Operations,
from March 1998 to October 1998; Vice President, Asia/America Operations, from
September 1997 to March 1998; and General Manager, Asia Operations, from
January 1996 to August 1997. Prior to that, Mr. Cantwell held various sales,
sales management and general management roles with Phoenix since joining in
March 1991. Prior to that, Mr. Cantwell held various roles in sales and
engineering at Intel and NEC Technologies. He received a B.S. in Electrical
Engineering from DeVry Institute of Technology.
BARRY A. HOBERMAN has served as our Executive Vice President and Chief
Technical Officer since November 1999. Prior to November 1999, Mr. Hoberman was
Vice President of Phoenix's Semiconductor IP Division from April 1999 to
November 1999, and the Senior Director of the same division from May 1996 to
March 1999. Prior to that, he was Product Line Director at Advanced Micro
Devices, a semiconductor manufacturer, from October 1987 to May 1996. He held
various roles in product management and development at Advanced Micro Devices
and Monolithic Memories. Mr. Hoberman has been issued 13 U.S. patents. He
received a B.S. in Electrical Engineering and a B.S. in Biology from the
Massachusetts Institute of Technology, and has done graduate work in Electrical
Engineering at Stanford University.
WILLIAM E. MEYER has served as a Director of inSilicon since our
incorporation in November 1999 and as our Executive Vice President and Chief
Financial Officer since December 1999. He was Phoenix's Chief Financial Officer
from June 1999 to December 1999. He served as Phoenix's Vice President of
Finance and Controller from February 1998 to June 1999. Mr. Meyer was Vice
President and Corporate Controller for Microprose, a developer of entertainment
software, from November 1995 to February 1998. He served as Vice President of
Finance and Chief Financial Officer for SBT Accounting Systems, a developer of
accounting software applications, from 1992 to 1995. Mr. Meyer also held various
positions with Arthur Andersen. He is a Certified Public Accountant and received
a B.S. in Accounting from California State University at Sacramento.
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<PAGE>
ANAND C. NAIDU has served as our Vice President of Internet Products since
November 1999. He has been the Vice President of Internet Products of Phoenix's
Semiconductor IP Division since October 1999, was the Senior Director of
Worldwide Sales in Phoenix's Semiconductor IP Division from July 1999 to
October 1999; and Director of Business Development from September 1998 to
July 1999. Mr. Naidu was a co-founder of Sand in 1991 and served as Sand's
President and Chief Executive Officer until Phoenix acquired Sand in
September 1998. Prior to founding Sand, he was President of Silicon Platforms,
which was acquired by S3. Mr. Naidu also held key marketing and development
management positions at Western Digital, STC, Intersil, and Rolm. He holds a
B.S. and an M.S. in Electrical Engineering from the University of California at
Berkeley and an M.B.A from the University of Santa Clara.
ROBERT G. NALESNIK has served as our Vice President of Marketing since
November 1999 and had held the same position at Phoenix's Semiconductor IP
Division since October 1999. Prior to that, he was Director of Marketing of the
Semiconductor IP Division since joining Phoenix in September 1998. He was Vice
President of Marketing at Sand from March 1998 until Phoenix acquired it in
September 1998. Prior to joining Sand, he was Director of Product Marketing at
Actel, a semiconductor manufacturer, from October 1995 to March 1998. Prior to
that, he spent five years at VLSI Technology, a semiconductor manufacturer, in
various marketing and engineering management roles. He has also held management
positions at Compass Design Automation and Fairchild Semiconductor.
Mr. Nalesnik holds a B.S. in Electrical Engineering from the Georgia Institute
of Technology.
DAVID J. POWER has served as Vice President and General Counsel of inSilicon
since November 1999. He was previously the Associate General Counsel for
Phoenix, overseeing the legal functions of the Semiconductor IP Division since
October 1997. Prior to coming to Phoenix, Mr. Power held corporate counsel
positions with CIDCO from July 1996 to October 1997, with Cymer Laser
Technologies from August 1995 through July 1996 and with Varian Associates from
January 1994 through August 1995. Mr. Power specializes in intellectual property
and technology licensing law. He received a B.S. in Engineering from Arizona
State University and a J.D. from the John Marshall Law School.
LINDA V. MOORE has been Secretary of inSilicon since November 1999. She has
served as Phoenix's Secretary and General Counsel since November 1999. Prior to
joining us, she was Vice President and General Counsel of Nhancement
Technologies, a distributor of computer-telephony products, from September 1998
to August 1999. She served as General Counsel and Secretary of Jabil Circuit, an
electronics contract manufacturer, from 1989 to 1998. She has also served as a
consultant to internet start-ups and has six years experience in equipment
leasing. Ms. Moore received a B.A. from the University of Michigan, an M.A. from
Eastern Michigan University and a J.D. from the Detroit College of Law. We
expect that Ms. Moore will resign as our Secretary immediately before the
closing of this offering.
ALBERT E. SISTO has served as a Director of inSilicon since our
incorporation in November 1999 and as the Chairman of our Board of Directors
since December 1999. Since June 1999, he has served as Phoenix's Chief Executive
Officer. Mr. Sisto served as the Chief Operating Officer of RSA Data Security, a
subsidiary of Security Dynamics Technologies, providing encryption technology,
from October 1997 to February 1999. He was Chairman, President and Chief
Executive Officer of Documagix, a software developer of document imaging
software, from September 1994 through October 1997. Mr. Sisto is a Director of
hi/fn, efax.com, Insignia Solutions and Tekgraf, all publicly traded technology
companies, and nCipher and Trintech Group. Mr. Sisto holds a B.E. in Engineering
from the Stevens Institute of Technology.
E. THOMAS HART has served as a Director of inSilicon since January 2000.
Since June 1994, Mr. Hart has served as QuickLogic's President and Chief
Executive Officer. Prior to joining
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<PAGE>
QuickLogic, Mr. Hart was Vice President and General Manager of the Advanced
Networks Division at National Semiconductor, a semiconductor manufacturing
company, from September 1992 to June 1994. Prior to joining National
Semiconductor, he was a private consultant with Hart Weston International, a
technology-based management consulting firm, from February 1986 to
September 1992. Mr. Hart holds a B.S. in Electrical Engineering from the
University of Washington.
RAYMOND J. FARNHAM has served as a Director of inSilicon since
January 2000. Since October 1998, he has served as Chairman of the Board of
Directors, President and Chief Executive Officer of hi/fn, a designer and
developer of semiconductor devices and software. He served as Executive Vice
President of Integrated Device Technology, a supplier of microprocessor, logic
and memory integrated circuits, from July 1996 through July 1998. He worked as
an independent consultant from February 1995 through August 1996. Mr. Farnham
was President and Chief Executive Officer of OPTi, a fabless semiconductor
company, from February 1994 through February 1995. From 1972 through 1993, he
had numerous management responsibilities at National Semiconductor Corp., with
his final position being President of the Communication and Computing Group from
1991 through 1993. He received a B.S. in Electrical Engineering from
Pennsylvania State University.
There are no family relationships among any of our directors or executive
officers.
BOARD COMPOSITION
We currently have three directors, one of whom is an officer of Phoenix, and
two of whom are officers of inSilicon.
Immediately before the closing of this offering, we expect that the size of
our board of directors will be increased by two, and that Mr. Meyer will resign
as a director. At that time, Phoenix, as our only stockholder, is expected to
elect Mr. Farnham, Mr. Hart and one additional director, who is not associated
with us or Phoenix, to our board of directors.
After this offering, our board of directors will be divided into three
classes of directors serving staggered three-year terms. As a result, we will
elect only one class of directors at each annual meeting of our stockholders. We
expect the terms of office of the directors will expire as follows: Mr. Hart at
the annual meeting of stockholders in 2001, Mr. Farnham and Mr. Cantwell at the
annual meeting of stockholders in 2002 and Mr. Sisto and the additional director
at the annual meeting of stockholders in 2003. For at least as long as Phoenix
continues to own more than 50% of our common stock, Phoenix will have the
ability to change the size and composition of our board of directors.
BOARD COMMITTEES
Our board of directors expects to establish two committees: an audit
committee and a compensation committee. The responsibilities of the audit
committee are expected to include recommending to the board of directors the
independent public accountants to conduct the annual audit of our accounts;
reviewing the proposed scope of the audit and approving the audit fees to be
paid; and reviewing the adequacy and effectiveness of our internal auditing,
accounting and financial controls with the independent public accountants and
our financial and accounting staff. The audit committee will be comprised of the
three independent directors. The responsibilities of the compensation committee
are expected to include determining the compensation and benefits of inSilicon
officers, establishing and reviewing general policies relating to the
compensation and benefits of inSilicon officers and employees and administering
the stock option plans. We expect that the compensation committee will be
comprised of Mr. Sisto, Mr. Hart and Mr. Farnham.
The Board may, from time to time, establish other committees.
40
<PAGE>
DIRECTOR COMPENSATION
We will pay to directors who are not officers or employees of inSilicon or
any of its affiliates $1,000 per board meeting and $500 for committee meetings.
We have also granted to each non-employee director options to purchase 20,000
shares of our common stock. Each person who becomes a non-employee director
after the completion of this offering will receive an initial grant of options
to purchase 20,000 shares of our common stock upon appointment or election under
the 2000 stock plan. The 2000 stock plan also provides for annual grants of
7,500 shares of our common stock to each non-employee director. Members of the
audit and compensation committees will also receive an additional 5,000 shares
upon appointment to that committee. We will also reimburse our directors for
reasonable expenses incurred in attending board of directors or committee
meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee of our board of directors are
expected to be Mr. Sisto, Mr. Hart and Mr. Farnham, none of whom is or was an
officer or employee of inSilicon. None of our executive officers serves as a
member of the board of directors or compensation committee of any other public
company. See "Related Party Transactions" for a description of transactions
between us and entities affiliated with prospective members of the compensation
committee.
BENEFIT PLANS
1999 STOCK OPTION PLAN. Our 1999 stock option plan was adopted by our board
of directors and approved by our stockholder in December 1999. Our 1999 stock
option plan provides for the granting to employees of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code and for the
granting to employees, directors and consultants of nonstatutory stock options.
A total of 2,700,000 shares has been reserved for issuance under the 1999 stock
option plan. As of December 31, 1999, options to purchase an aggregate of
2,348,844 shares of our common stock were outstanding under our 1999 stock
option plan. Our board of directors has determined that no further options will
be granted under the 1999 stock option plan after this offering. The 1999 stock
option plan provides that in the event of our acquisition by another
corporation, each outstanding option may be assumed or substituted for by the
successor corporation. If outstanding options are not assumed or substituted for
in certain acquisitions, they will vest prior to the consummation of the
transaction.
2000 STOCK PLAN. Our 2000 stock plan was adopted by our board of directors
and approved by our stockholder in January 2000. The 2000 stock plan will become
effective when the underwriting agreement for this offering is signed. At that
time, all outstanding options under our 1999 stock option plan will be
administered under the 2000 stock plan but will continue to be governed by their
existing terms.
The 2000 stock plan provides for the discretionary grant of incentive stock
options to employees, including officers and employee directors, and for the
discretionary grant of nonstatutory stock options and stock purchase rights to
employees, directors and consultants. The 2000 stock plan also provides for the
periodic automatic grant to non-employee directors of nonstatutory stock
options.
The total shares of common stock currently reserved for issuance under the
2000 stock plan equals 1,300,000 shares of common stock plus the number of
shares that remain reserved for issuance under the 1999 stock option plan as of
the date the 2000 option plan became effective.
In addition, commencing on the first day of our next fiscal year, shares
will be added to the 2000 stock plan annually equal to the lesser of (a) 5% of
the outstanding shares on the last day of the prior fiscal year and
(b) 2,000,000 shares.
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<PAGE>
Unless terminated sooner, the 2000 stock plan will terminate automatically
10 years from its effective date.
The administrator of our 2000 stock plan generally has the power to
determine:
- the terms of the options or stock purchase rights granted, including the
exercise price of the option or restricted stock grant;
- the number of shares subject to each option or restricted stock grant;
- the exercisability of each option or stock purchase right; and
- the form of consideration payable upon the exercise of each option or
stock purchase right.
The board is the administrator of the 2000 stock plan's automatic
non-employee director grant program. Under that program, non-employee directors
who first join our board after the date of this prospectus will receive a grant
of an option to purchase 20,000 shares when they become non-employee directors.
In addition, all non-employee directors will receive a grant of an option to
purchase 7,500 shares at each subsequent annual meeting, provided they continue
to serve after such annual meeting. Directors also receive an additional
one-time, automatic grant of an option to purchase 5,000 shares upon appointment
to the audit and compensation committees. These options vest quarterly at a rate
of 6.25% per quarter from the date of grant, provided the director continues to
serve as a director on the vesting date. These options also provide for
accelerated vesting in the event of certain changes of control.
In addition, the board has the authority to amend, suspend or terminate the
2000 stock plan, so long as no such action affects any shares of common stock
previously issued and sold or any option previously granted under the plan. The
maximum number of option shares each optionee may be granted during a fiscal
year is 1,000,000 shares. However, in connection with an optionee's initial
service with us, such optionee may be granted up to a total of 2,000,000 shares
during the initial fiscal year of service. Restricted stock grants are limited
to 200,000 shares in any fiscal year.
Options and restricted stock granted under our 2000 stock plan are generally
not transferable by the optionee, and each option and stock purchase right is
exercisable during the lifetime of the optionee and only by such optionee.
Options granted under the 2000 stock plan must generally be exercised within
three months after the end of optionee's status as an employee, director or
consultant of inSilicon, or within twelve months after such optionee's
termination by death or disability, but in no event later than the expiration of
the option's term. However, the compensation committee will have the power under
the 2000 stock plan to vary these terms, except for grants under the
non-employee director grant program.
In the case of restricted stock, unless the administrator determines
otherwise, the restricted stock purchase agreement shall grant inSilicon a
repurchase option exercisable after the purchaser's employment or consulting
relationship with inSilicon has ended for any reason, including death or
disability. The purchase price for shares repurchased pursuant to the restricted
stock purchase agreement shall be the original price paid by the purchaser and
may be paid by cancellation of any indebtedness of the purchaser to inSilicon.
The repurchase option shall lapse at a rate determined by the administrator.
The exercise price of all incentive stock options and nonstatutory stock
options granted automatically to non-employee directors must be at least equal
to the fair market value of the common stock on the date of grant. The exercise
price of other nonstatutory stock options and stock purchase rights granted
under the 2000 stock plan is determined by the administrator, but with respect
to nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue Code,
the exercise price must be at least equal to the fair market value of our common
stock on the date of grant. With respect to any participant who
42
<PAGE>
owns stock possessing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of any incentive stock option
granted must at least equal 110% of the fair market value on the grant date and
the term of such incentive stock option must not exceed five years. The term of
all other options granted under the 2000 stock plan may not exceed ten years.
The 2000 stock plan provides that in the event that we are acquired by
another corporation, or sell substantially all of our assets, each option and
stock purchase right may be assumed or an equivalent option substituted for by
the successor corporation. If the outstanding options and stock purchase rights
are not assumed or substituted for by the successor corporation, the option
holder will fully vest in and have the right to exercise the option or stock
purchase right as to all of the optioned stock, including shares as to which the
holder would not otherwise be entitled to exercise.
2000 EMPLOYEE STOCK PURCHASE PLAN. Our 2000 employee stock purchase plan
was adopted by our board of directors and approved by our stockholder in
January 2000. A total of 250,000 shares of our common stock has been reserved
for issuance under the 2000 purchase plan, plus annual increases equal to the
lesser of (a) 0.3125% of the outstanding shares on the last day of the prior
fiscal year and (b) 100,000 shares.
The 2000 purchase plan, which is intended to qualify under Section 423 of
the Internal Revenue Code, contains consecutive, overlapping, twenty-four month
offering periods. Each offering period includes four six-month purchase periods.
The offering periods generally start on the first trading day on or after
June 1 and December 1 of each year, except for the first such offering period
which commences on the first trading day on or after the effective date of this
offering and ends on the last trading day on or before May 31, 2000. The board
has the power to change the duration of the offering periods.
Employees of inSilicon or of any participating subsidiaries are eligible to
participate. However, employees may not be granted an option to purchase stock
under the 2000 purchase plan if they either:
- immediately after grant, own stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock; or
- hold rights to purchase stock under our employee stock purchase plan which
accrue at a rate which exceeds $25,000 worth of stock for each calendar
year.
The 2000 purchase plan permits participants to purchase our common stock
through payroll deductions of up to 10% of their total compensation, including
bonuses and commissions. The maximum number of shares a participant may purchase
during a single purchase period is 10,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 2000 purchase plan is generally 85% of the lower of the fair
market value of the common stock either at the beginning of the offering period
or at the end of the purchase period.
In the event the fair market value at the end of a purchase period is less
than the fair market value at the beginning of the offering period, the
participants will be withdrawn from the current offering period following
exercise and automatically re-enrolled in a new offering period. Participants
may end their participation at any time during an offering period, and they will
be paid their payroll deductions to date. Participation ends automatically upon
termination of employment with inSilicon.
Rights granted under the 2000 purchase plan are not transferable by a
participant other than upon death or by a special determination by the plan
administrator. Each outstanding option under the 2000 purchase plan will be
subject to the acquisition agreement in the event we merge with or into another
corporation or sell substantially all of our assets.
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<PAGE>
Our board of directors has the authority to amend or terminate the 2000
purchase plan, except that no such action may adversely affect any outstanding
rights to purchase stock under the 2000 purchase plan, provided that the board
of directors may terminate an offering period on any exercise date if the board
determines that the termination of the 2000 purchase plan is in the best
interests of inSilicon and its stockholders. Notwithstanding anything to the
contrary, the board of directors may in its sole discretion amend the 2000
purchase plan to the extent necessary and desirable to avoid unfavorable
financial accounting consequences by altering the purchase price for any
offering period, shortening any offering period or allocating remaining shares
among the participants. Unless earlier terminated by our board of directors, the
2000 purchase plan will terminate automatically ten years from its effective
date.
EXECUTIVE COMPENSATION
The following table summarizes the compensation of inSilicon's Chief
Executive Officer and the other four most highly compensated executive officers
based on employment with Phoenix whose aggregate compensation exceeded $100,000
during the year ended September 30, 1999. We refer to these individuals as the
"named executive officers" elsewhere in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
----------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY(1) BONUS(1) OPTIONS COMPENSATION(2)
- ------------------------------ ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Wayne C. Cantwell, President and Chief Executive $199,166 $94,262 66,000 $ 1,000
Officer.........................................
Barry A. Hoberman, Executive Vice President and 169,125 32,918 25,996 1,000
Chief Technical Officer.........................
William E. Meyer, Executive Vice President and 141,667 34,859 75,000 1,000
Chief Financial Officer.........................
Anand C. Naidu, Vice President.................... 132,275 17,272 40,000 1,000
Robert G. Nalesnik, Vice President................ 140,400 19,658 40,000 59,000(3)
</TABLE>
- ------------------
(1) Represents salary and bonus paid by Phoenix to the named executive officers
for their services to Phoenix while employed at Phoenix and options to
purchase Phoenix common stock granted by Phoenix.
(2) Consists of Phoenix's contribution to the individual's 401(k) savings
account while employed at Phoenix.
(3) Includes $58,000 paid in October 1999 that is the first of three annual
installments of a $174,000 retention bonus.
FUTURE COMPENSATION
After January 1, 2000, our officers and other employees of inSilicon will be
compensated by inSilicon. However, until February 2000, they will continue to
participate in Phoenix's 401(k) savings plan, and at least until January 1,
2002, they will continue to participate in Phoenix's welfare benefit plans at
inSilicon's expense. Phoenix employees who were seconded to inSilicon in
December 1999 had the opportunity to exchange their unexercised options to
purchase Phoenix common stock for new options to acquire inSilicon common stock.
On the date of the exchange, the inSilicon options had the same intrinsic value
and ratio of exercise price to market value of the underlying shares as the
Phoenix options exchanged. They also have equivalent vesting schedules to the
Phoenix options exchanged. For information with respect to the exchange of
options by the named executive officers, see "Related Party Transactions."
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<PAGE>
OPTION GRANTS
The following table provides summary information regarding options to
purchase Phoenix common stock that were granted by Phoenix to the named
executive officers during the fiscal year ended September 30, 1999.
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------------ ANNUAL RATES OF
NUMBER OF PERCENT OF MARKET STOCK PRICE
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR ON DATE OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE OF GRANT EXPIRATION --------------------------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE) ($/SHARE) DATE 0%($) 5%($) 10%($)
- ---- ----------- ------------- ----------- --------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wayne C. Cantwell......... 35,000(3) 1.1% $ 9.3000 $17.1880 07/01/09 $276,080 $654,410 $1,234,844
Wayne C. Cantwell......... 31,000 1.0 8.5000 8.5000 03/31/09 NA 165,714 419,951
Barry A. Hoberman......... 25,996 0.8 8.5000 8.5000 04/16/09 NA 138,964 352,163
William E. Meyer.......... 45,000 1.4 11.1250 11.1250 06/17/09 NA 91,976 233,085
William E. Meyer.......... 10,000 0.3 10.8130 10.8130 05/28/09 NA 68,002 172,331
William E. Meyer.......... 20,000 0.6 7.1325 7.1325 02/26/09 NA 314,840 797,867
Anand C. Naidu............ 40,000 1.3 11.1875 11.1875 09/30/09 NA 281,430 713,200
Robert G. Nalesnik........ 40,000 1.3 11.1875 11.1875 09/30/09 NA 281,430 713,200
</TABLE>
- ------------------
(1) In the fiscal year 1999, Phoenix granted options to purchase an aggregate of
3,279,370 shares of Phoenix common stock. Unless otherwise stated, options
to purchase shares vest quarterly at the rate of 6.25% per quarter. Options
have a term of ten years but may terminate before their expiration dates if
the optionee's status as an employee is terminated or upon the optionee's
death or disability.
(2) 0%, 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our or Phoenix's future common stock
prices. The potential realizable values are calculated by assuming the
Exercise or Base Price shown on the table, that the common stock appreciates
at the indicated rate for the entire term of the option and that the option
is exercised at the exercise price and sold on the last day of the option
term at the appreciated price.
(3) 22,500 of these shares are subject to an accelerated vesting schedule, based
upon Mr. Cantwell's achievement of certain quarterly management-related
goals, of which options to purchase 15,000 shares had vested as of
December 31, 1999.
OPTION EXERCISES AND HOLDINGS
The following table provides summary information regarding options to
purchase Phoenix common stock that were exercised by the named executive
officers during the fiscal year ended September 30, 1999 and the number and
value of unexercised in the money Phoenix options held by the named executive
officers at September 30, 1999.
45
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END(1)(2) AT FISCAL YEAR-END(3)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Wayne C. Cantwell.................. -- -- 58,362 86,638 $141,857 $213,442
Barry A. Hoberman.................. -- -- 50,064 38,432 16,360 100,233
William E. Meyer................... -- -- 11,813 79,188 11,489 78,133
Anand C. Naidu..................... -- -- -- 40,000 -- --
Robert G. Nalesnik................. -- -- 20,926 60,924 212,347 212,326
</TABLE>
- --------------
(1) These options were granted on various dates during fiscal years 1991 through
1999 and generally vest quarterly at the rate of 6.25% per quarter.
(2) Stock option exercise prices ranged from $1.0400 per share to $19.8750 per
share.
(3) The amounts in this column reflect the difference between the closing market
price of Phoenix's common stock on September 30, 1999, which was $11.1875,
and the option exercise price.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
No officer or director currently owns any outstanding shares of inSilicon
common stock. The following table sets forth the number of shares of Phoenix
common stock beneficially owned on September 30, 1999, by each of our directors,
the named executive officers and all of our directors and executive officers as
a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
NAME OWNED(1)(2)
- ---- ----------------
<S> <C>
Wayne C. Cantwell........................................... 90,101
Barry A. Hoberman........................................... 57,218
William E. Meyer............................................ 20,628
Anand C. Naidu.............................................. 156,197(3)
Robert G. Nalesnik.......................................... 22,807
Albert E. Sisto............................................. --
Directors and executive officers as a group (8 persons)..... 351,573
</TABLE>
- ------------------------
(1) No individual named executive officer or director beneficially owns 1% or
more of Phoenix's common stock, nor do the named executive officers and
directors as a group.
(2) Except as noted, the persons named have sole voting and investment power
over the shares shown as beneficially owned by them, subject to community
property laws, where applicable. The table includes the following shares
issuable upon the exercise of stock options exercisable within 60 days of
December 14, 1999: Mr. Cantwell, 74,563 shares; Mr. Hoberman, 57,218 shares;
Mr. Meyer, 17,500 shares; Mr. Naidu, 2,500 shares; and Mr. Nalesnik, 20,809
shares.
(3) 151,892 of these shares were received in connection with the Sand
acquisition in September 1998 and are held in the name of the Naidu Family
Living Trust over which Mr. Naidu and his spouse share voting and investment
power.
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<PAGE>
RELATED TRANSACTIONS WITH PHOENIX
SAND ACQUISITION. On September 24, 1998, Phoenix acquired Sand for
approximately $18.5 million in cash and 464,000 shares of Phoenix common stock.
The Agreement and Plan of Reorganization which governed the acquisition also
provided for contingent payments of up to $3.7 million, based on a formula tied
to the actual net revenues and operating earnings of the Semiconductor IP
Division unit of which Sand became a part. Mr. Naidu was one of the three
majority stockholders of Sand, and as a result of the acquisition, he received
32.73% of the initial consideration. He will also receive the same percentage of
any future contingent payments. Phoenix also assumed Sand's stock options,
including Mr. Nalesnik's Sand stock options which were converted to the right to
purchase 38,960 shares of Phoenix common stock.
Also in connection with the acquisition, Sand assigned to Phoenix an
Independent Contractor Agreement, dated March 15, 1996, between Sand and Sand
Microelectronics Pvt. Ltd., India, or Sand India, which allows Phoenix to obtain
consulting services for hardware and software development and related fields of
technical computer expertise from Sand India from time to time. Mr. Naidu owns
approximately one-third of the shares of Sand India. During fiscal year 1999,
Phoenix paid or accrued payments to Sand India of $365,000 for services under
the Independent Contractor Agreement.
The Agreement and Plan of Reorganization also required Mr. Naidu and the
other majority stockholders of Sand to enter into worldwide non-compete
agreements which are effective for three years after the acquisition regardless
of the status of their employment with Phoenix. Each non-compete agreement
provides that these individuals will not compete with Phoenix in the business
area in which Sand was engaged, including semiconductor intellectual property
cores and models and test environments based on interconnect standards.
In addition, as an incentive to encourage long-term service from certain
Sand personnel who remained in Phoenix's employ after the acquisition, Phoenix
established a retention bonus program. Under this program, Mr. Nalesnik is
entitled to receive up to $174,000 in three equal annual installments commencing
in fiscal year 1999 if he remains an employee of Phoenix. Phoenix paid
Mr. Nalesnik $58,000 as a retention bonus under this program related to fiscal
year 1999.
Phoenix has assigned the Agreement and Plan of Reorganization, the
Independent Contractor Agreement with Sand India, the non-compete agreements and
the retention bonus program agreements to inSilicon.
TECHNOLOGY LICENSE AGREEMENTS WITH HI/FN. Mr. Farnham, who is expected to
become a director of inSilicon, is chairman of the board of directors, president
and chief executive officer of hi/fn. Mr. Sisto, president and the chairman of
the board of directors of Phoenix and a director of inSilicon, is a director of
hi/fn. During fiscal years 1998 and 1999, Phoenix licensed to hi/fn PCI cores
for $59,250 and $89,250, respectively. This license agreement has been assigned
to inSilicon.
INCENTIVE AND SEVERANCE AGREEMENT WITH MR. CANTWELL. In July 1999, Phoenix
entered into an Incentive and Severance Agreement with Mr. Cantwell. This
agreement provided an initial base compensation of $200,000 plus bonus and
benefits. In addition, the agreement provided that as a retention and
performance incentive, Phoenix grant to Mr. Cantwell a non-qualified option to
purchase 22,500 shares of Phoenix common stock at an exercise price of $9.30 per
share, vesting in three quarterly installments upon the fulfillment of various
objectives of which options to purchase 15,000 shares of Phoenix common stock
have vested. It also granted him options to purchase 12,500 shares of Phoenix
common stock at $9.30 per share that will immediately vest if Phoenix's
Semiconductor IP Division is no longer majority owned by Phoenix. If
Mr. Cantwell's employment is terminated other than for cause or in a
constructive termination, the agreement also provides severance payments,
including continued salary for 12 months with continued option vesting during
such period. Benefits
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<PAGE>
include participation in executive compensation programs and company paid
post-termination health insurance. This agreement has been replaced with an
agreement between Mr. Cantwell and inSilicon. See "Related Party
Transactions--Severance Agreements with inSilicon Named Executive Officers."
ARRANGEMENTS BETWEEN INSILICON CORPORATION AND PHOENIX TECHNOLOGIES LTD.
We also have entered into various agreements with Phoenix including:
- a Contribution Agreement;
- an Initial Public Offering Agreement;
- a Services and Cost-Sharing Agreement;
- an Employee Matters Agreement;
- a Tax-Sharing Agreement;
- a Registration Rights Agreement; and
- Asian Representation and Distribution Agreements.
This description summarizes the material terms of these agreements. You
should read the full text of these agreements, which have been filed with the
Securities and Exchange Commission as exhibits to the registration statement of
which this prospectus is a part.
After this offering, any amendments to these agreements must be approved by
a majority of our independent directors.
CONTRIBUTION AGREEMENT
The separation was completed effective as of November 30, 1999. The
Contribution Agreement governs the terms of the transfer to us of assets and
liabilities from Phoenix. Some aspects of the contribution are also clarified in
the other agreements mentioned above. To the extent that the terms of any other
agreements conflict with the Contribution Agreement, the terms of the other
agreements govern.
Pursuant to the Contribution Agreement, Phoenix transferred to us ownership
of specified intellectual property and technology related to and necessary for
inSilicon to conduct its business, as well as customer and supplier contracts
related primarily to the SIP business.
The Contribution Agreement generally identifies the assets Phoenix
transferred to us and the liabilities we assumed from Phoenix in the separation.
The agreement also describes when and how these transfers and assumptions will
occur.
ASSET TRANSFER. Effective on the separation date, Phoenix transferred
ownership of the following assets to us, subject to any exceptions expressly set
forth in an ancillary agreement:
- all assets reflected on our balance sheet as of September 30, 1999;
- all written-off, expensed or fully depreciated assets that would have
appeared on our balance sheet as of September 30, 1999 if we had not
written-off, expensed or fully depreciated them;
- all assets that Phoenix acquired after September 30, 1999 that would have
appeared in our financial statements as of the separation date if we
prepared these financial statements using the same principles we used in
preparing our balance sheet dated September 30, 1999;
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<PAGE>
- all assets used primarily by our business as of the separation date, but
are not reflected in our balance sheet as of September 30, 1999 due to
mistake or omission;
- intangible assets, including but not limited to, the following: (i) all
intellectual property assets such as copyrights, patents, patent
applications pending and in draft, trademarks, domain names, invention
disclosures, developed and developing technology, including ideas,
inventions, concepts currently in progress related to the SIP business;
and (ii) technology, software and know-how related to the current SIP
business and business plans;
- all supply, vendor, capital, equipment lease, software or technology
licenses, memberships in industry associations, or other contracts that
relate primarily to our business, including contracts representing
obligations reflected on our balance sheet as of September 30, 1999, and
all similar contracts obtained by Phoenix after that date;
- all computer-related assets used primarily by employees of Phoenix who
will become our employees due to the separation;
- copies of, and the right to use, all corporate license agreement forms and
templates used in the in the licensing and evaluation of the SIP products;
and
- administrative services and allocated costs valued at $550,000 for the
month of December 1999.
ASSUMPTION OF LIABILITIES. Effective on the separation date, we assumed the
following liabilities from Phoenix, except as provided in an ancillary agreement
or other agreement:
- all liabilities reflected as liabilities on our balance sheet as of
September 30, 1999, less any liabilities that were discharged after the
date of the balance sheet;
- all liabilities of Phoenix arising after September 30, 1999, that would
have appeared in our financial statements as of the separation date if we
prepared these financial statements using the same principles we used in
preparing our balance sheet as of September 30, 1999;
- all liabilities that are primarily related to or primarily arise out of
our business but are not reflected in our balance sheet as of
September 30, 1999 due to mistake or omission; and
- all liabilities, other than income taxes, primarily resulting from the
operation of our business or resulting from any asset that Phoenix
transferred to us, including the contingent payment and other obligations
of Phoenix related to the acquisition of Sand.
EQUITY TO PHOENIX. For its contribution, we issued to Phoenix 10,400,000
shares of our Series A Preferred Stock, which converts to an equal number of
shares of our common stock at the completion of this offering. We also issued to
Phoenix a warrant to purchase 50,000 shares of our common stock at $.01 per
share, exercisable at any time until May 31, 2002.
BRIDGE LOAN FACILITY. Upon our written request, Phoenix will loan us any
funds necessary to fund our operations until the completion of this offering.
Such loan shall bear interest at a rate of 8.0% per annum and shall be repaid
from the proceeds of this offering.
OBTAINING APPROVALS AND CONSENTS. The parties agree to use all reasonable
efforts domestically and their best efforts internationally to obtain any
required consents, substitutions or amendments required to novate or assign all
rights and obligations under any contracts transferred in the separation.
DELAYED TRANSFERS. If it is not practicable to transfer specified assets
and liabilities on the separation date, the agreement provides that these assets
and liabilities will be transferred as promptly as possible after the separation
date. Pending receipt of any required consent or other action necessary to make
a transfer, Phoenix will hold the asset for the use and benefit of inSilicon or
the liability for
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the account of inSilicon and take all commercially reasonable actions that
inSilicon requests to place inSilicon in the same position as if the transfer
had occurred.
NO REPRESENTATIONS AND WARRANTIES. In general, Phoenix has provided no
representations or warranties with respect to the assets transferred, except
with respect to certain intellectual property developed by Phoenix outside of
the SIP division.
EXPENSES. We will reimburse Phoenix for its reasonable and actual third
party expenses incurred in connection with the separation.
TERMS OF OTHER AGREEMENTS GOVERN. To the extent that another agreement
expressly provides for the transfer of an asset or an assumption of a liability,
the terms of that other agreement will determine the manner of the transfer and
assumption.
THE INITIAL PUBLIC OFFERING AGREEMENT
The Initial Public Offering Agreement governs the relationship between us
and Phoenix following this offering in a number of respects including without
limitation, the following:
INFORMATION EXCHANGE. Both Phoenix and we have agreed to share information
with each other, at no cost to the requesting party, for the following purposes,
unless the information is confidential and the sharing would be commercially
detrimental to us or contrary to any contract term:
- Each party has agreed to maintain adequate internal accounting to allow
the other party to satisfy its own reporting obligations and prepare its
own financial statements.
- Each party will retain records that may be beneficial to the other party
for a specified period of time. If the records are going to be destroyed,
the destroying party will give the other party an opportunity to retrieve
all relevant information from the records.
- Each party will do its best to provide the other party with personnel,
directors, officers or agents who may be used as witnesses in legal
proceedings.
AUDITING PRACTICES. So long as Phoenix is required to consolidate our
results of operations and financial position, we have agreed to:
- not change independent accounting firms without Phoenix's consent, which
shall not unreasonably be withheld;
- use reasonable commercial efforts to generate quarterly financial
statements that have been reviewed by our independent accountants on a
timely basis following such fiscal quarter-end;
- use reasonable commercial efforts to cause our independent accountants to
date their opinion on our audited annual financial statements on the same
date as Phoenix's auditors date their opinion on Phoenix's financial
statements;
- provide Phoenix all relevant information to enable Phoenix to prepare
their financial statements (and Phoenix has agreed to provide us all
relevant information to enable us to prepare our financial statements);
- grant each other's internal accountants access to our relevant records;
and
- notify each other of any change in our accounting principles.
DISPUTE RESOLUTION. If problems arise between us and Phoenix, we have
agreed to the following procedures:
- The parties will make a good faith effort to first resolve the dispute
through negotiation.
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- If negotiations fail, the parties agree to attempt to resolve the dispute
through non-binding mediation. The selection of the mediator shall be
mutually agreed upon.
- If mediation fails, the parties can resort to litigation. In addition,
nothing prevents either party acting in good faith from initiating
litigation at any time if failure to do so would substantially
disadvantage the party.
NO SOLICITATION. Both parties have agreed not to directly recruit employees
of the other party for a period of one year after the separation date if the
recruiting would be damaging to the other party. However, general advertising
and employee-initiated solicitations are permissible.
NONCOMPETITION. Each of Phoenix and inSilicon has agreed not to engage in
any business conducted by the other as of the separation date for a period
ending at the earliest of (a) five years from the separation date, (b) the date
Phoenix no longer owns at least 10% of our outstanding voting securities and
(c) the date the other ceases to engage in that business. Should either we or
Phoenix experience a change of control, the other agrees it will not
unreasonably withhold its waiver of this agreement not to compete upon the
request of the party undergoing the change of control. Refusal to waive the
agreement not to compete is deemed to be reasonable if the person acquiring
control competes with the party from which waiver is sought.
STANDSTILL. So long as it retains ownership of at least 50% of our
outstanding voting securities, Phoenix has agreed not to purchase more than 2%
of our then-outstanding shares of common stock on the open market during any
12-month period.
COSTS AND EXPENSES. The Initial Public Offering Agreement provides that we
will pay all of the third-party expenses related to the offering of our common
stock other than as provided in the Services and Cost-Sharing Agreement. After
the completion of the offering, any costs and expenses that are not allocated in
the Services and Cost-Sharing Agreement or any other agreement between Phoenix
and us shall be the responsibility of the party that incurs the costs and
expenses.
CONFIDENTIALITY. Both parties agree not to disclose confidential
information of the other party except in specific circumstances. Phoenix and we
also agree not to use this information in violation of any use restrictions in
one of the other written agreements between us.
GENERAL RELEASE OF PRE-SEPARATION CLAIMS. Effective as of the separation
date, we have released Phoenix and its affiliates, agents, successors and
assigns, and Phoenix has released us, and our affiliates, agents, successors and
assigns, from any liabilities arising from events occurring on or before the
separation date, including events occurring in connection with the activities to
implement the separation and the initial public offering. This provision will
not impair a party from enforcing the Contribution Agreement, any other
agreement between Phoenix and inSilicon, or any arrangement specified in any of
these other agreements.
INDEMNIFICATION. In general, we have agreed to indemnify Phoenix and its
affiliates, agents, successors and assigns from all liabilities arising from:
- our business, any of our liabilities or any of our contracts; and
- any breach by us of the Contribution Agreement or any other agreement
between the parties.
Phoenix has agreed to indemnify us and our affiliates, agents, successors
and assigns from all liabilities arising from:
- Phoenix's business other than the businesses transferred to us pursuant to
the separation; and
- any breach by Phoenix of the Contribution Agreement or any other agreement
between the parties.
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The indemnifying party will make all indemnification payments net of
insurance proceeds that the indemnified party receives. The agreement also
contains provisions governing notice and indemnification procedures.
DISCLOSURE LIABILITIES. We have agreed to bear any liability arising from
any untrue statement of a material fact or any omission of a material fact in
this prospectus, other than matters pertaining solely to Phoenix, which shall be
borne solely by Phoenix.
INSURANCE MATTERS. The agreement also contains provisions governing our
insurance coverage from the separation date. Phoenix will generally act as
insurance administrator and claims administrator for Phoenix insurance policies
under which we are or have been insured; provided, however, no settlements
involving us shall be made without our consent and all awards regarding us shall
be promptly paid to us. We will fund a pro rata portion of the Phoenix insurance
costs under the Services and Cost-Sharing Agreement and will be entitled to
receive the proceeds, if any, from insured claims under these policies and
applicable prior policies, after the applicable deductible or retention.
ASSIGNMENT. The Initial Public Offering Agreement is not assignable by
either party without the prior written consent of the other, except in
connection with a merger or a sale of significant assets, in which event the
agreement must be assumed by the surviving party.
SERVICES AND COST-SHARING AGREEMENT
We have also entered into a Services and Cost-Sharing Agreement with
Phoenix. This agreement covers various services that Phoenix provides and the
method by which certain costs will be shared by the companies. The services
include data processing, telecommunications and information technology support
services, accounting, financial management, tax preparation, payroll,
stockholder and public relations, legal, human resources administration,
procurement, real estate management and other administrative functions. The
shared costs include the costs of the office space we occupy at Phoenix's
headquarters and insurance premiums.
The amount we will pay for services and shared costs will generally be equal
to the aggregate cost to Phoenix and inSilicon of the services and costs
multiplied by a percentage representing the number of our employees to the total
number of Phoenix and inSilicon employees. The Services and Cost-Sharing
Agreement will have an initial term that extends to June 30, 2000 for all
services other than accounting and an initial term that extends to
September 30, 2000 with respect to accounting services. The Services and
Cost-Sharing Agreement will be renewed on a month-to-month basis. Phoenix can
terminate after those dates on 30 days' written notice. We can terminate any one
or more of the services at any time on 30 days' written notice.
EMPLOYEE MATTERS AGREEMENT
We have entered into an Employee Matters Agreement with Phoenix to allocate
assets, liabilities, and responsibilities relating to current and former United
States employees of inSilicon Corporation and their participation in the benefit
plans, including stock plans, that Phoenix currently sponsors and maintains.
In general, separate agreements will address similar issues relating to
foreign employment and benefit matters.
Until the separation date, United States employees provided services to
inSilicon as employees of Phoenix. After the separation date, such employees
remained on the Phoenix payroll and provided services to inSilicon on a seconded
basis through December 31, 1999. Certain employees with pending visa
applications are being seconded for a longer period.
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All eligible United States inSilicon employees will continue to participate
in the Phoenix benefit plans on comparable terms and conditions to those for
Phoenix employees until we establish comparable benefit plans for our current
and former employees. Once we establish our own corresponding benefit plan, we
may modify or terminate that plan in accordance with the terms of that plan and
our policies. inSilicon benefit plans generally will not provide benefits that
overlap benefits under the corresponding Phoenix benefit plan at the time of the
offering. Each inSilicon benefit plan will provide that all service,
compensation and other benefit determinations that, as of the offering, were
recognized under the corresponding Phoenix benefit plan will be taken into
account under that inSilicon benefit plan.
Each inSilicon benefit plan will assume any liabilities under the
corresponding Phoenix benefit plan for inSilicon employees. Assets relating to
the employee liabilities will also be transferred to inSilicon or the related
inSilicon plans and trusts from trusts and other funding vehicles associated
with Phoenix's benefit plans. However, with respect to the 401(k) retirement
plans, the companies may agree that assets and liabilities will be transferred
by way of employer-mandated transfer, employee voluntary transfer, employee
elective rollover or a combination thereof.
OPTIONS. Persons providing us services on December 21, 1999 had the ability
to have their Phoenix options exchanged for inSilicon stock options with the
same intrinsic value. The number of shares and the exercise price of Phoenix
options that were exchanged for inSilicon options were adjusted using a formula
based upon the relative fair market values of the two companies' stock on the
date of exchange. Each of the resulting inSilicon options maintains the original
vesting provisions and option period.
STOCK PURCHASE PLAN. We anticipate that inSilicon employees will continue
to participate in the Phoenix stock purchase plan through the end of May 2000.
Immediately following the completion of this offering, inSilicon employees may
begin participating in our 2000 stock purchase plan.
TAX-SHARING AGREEMENT
We have entered into a Tax-Sharing Agreement with Phoenix concerning each
party's obligations for various tax liabilities. The Tax-Sharing Agreement
provides that Phoenix generally will pay all federal, state, local and foreign
taxes relating to our business for any taxable period in which we are included
in a Phoenix consolidated or combined tax return. For all such periods, the
agreement provides that we will make payments to Phoenix based upon the amount
of U.S. federal and state income taxes that would have been paid by us had we
and each of our subsidiaries filed our own federal and state income tax returns,
subject to specific adjustments. Further, if we incur losses on either a federal
or state basis that reduce Phoenix's consolidated or combined tax liability,
Phoenix will pay us an amount equal to the tax savings generated by our losses.
The net losses we incurred for all periods through September 30, 1999 are
attributable to our operations as a division of Phoenix and were included in
income tax returns filed by Phoenix. Because we will not receive any benefit for
our historical operating losses incurred through September 30, 1999, no income
tax benefit has been reflected for the periods presented.
Each member of a consolidated group for U.S. federal income tax purposes is
severally liable for the federal income tax liability of each other member of
the consolidated group. Accordingly, although the Tax-Sharing Agreement
allocates tax liabilities between Phoenix and us for any period in which we were
included in Phoenix's consolidated group, we could be liable in the event that
any federal tax liability was incurred, but not discharged, by any other member
of the group. Phoenix has agreed to indemnify us for any tax liability allocated
to Phoenix under the Tax-Sharing Agreement, and we have provided a similar
indemnity to Phoenix.
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The Tax-Sharing Agreement further provides for cooperation with respect to
tax matters, the exchange of information and the retention of records which may
affect the income tax liability of either party.
REGISTRATION RIGHTS AGREEMENT
The Registration Rights Agreement provides that, at Phoenix's request, we
will use our best efforts to register for sale under federal and state
securities laws any shares of inSilicon common stock (or any other securities
Phoenix receives in exchange for inSilicon common stock) that Phoenix owns,
subject to specified limitations. Phoenix also will have the right to include
its inSilicon shares in other registrations of our common stock initiated by us.
In the first registration in which Phoenix participates after this offering,
following waiver or expiration of the lockup, we will be entitled to sell at
least 40% of the shares of the total offering if we so desire and in all
registrations thereafter, 50% of the shares; provided that if the first
following registration involves a total of $50 million or less, we shall be
entitled to sell at least 50% of the shares of the total offering.
So long as Phoenix owns 50% or more of our common stock, Phoenix may request
or participate in an unlimited number of registrations. Once it owns less than
50%, Phoenix will be limited to a total of four demand and an unlimited number
of "piggyback" registrations, provided that it is not entitled to more than two
demand registrations in any 12-month period. Phoenix must request registration
of a minimum of $25 million of shares in any demand registration. Subject to
specified limitations, Phoenix may assign these registration rights. The
Registration Rights Agreement also will require us to indemnify Phoenix, the
underwriters and others in connection with these registrations.
Phoenix will pay its pro rata share (according to the percentage of shares
sold for its account) of any registration in which it participates, and Phoenix
will pay all of the underwriting discounts and commissions attributable to the
shares Phoenix sells.
ASIAN REPRESENTATION AND DISTRIBUTION AGREEMENTS
We have entered into arrangements with Phoenix to act as our sales
representative and distributor of our firmware products in Japan and our full
line of products in the rest of Asia. Phoenix will promote the licensing of
inSilicon's firmware or other products, as applicable, identify prospective
customers, and solicit orders from prospective, as well as current, customers on
behalf of inSilicon. The agreement also provides Phoenix a nonexclusive license
for our firmware products that will allow it to perform customization, or
non-recurring engineering work, to the firmware in accordance with customer
specified requirements. Phoenix will provide all the customer support
obligations in Japan for the firmware and the firmware customization it
develops. We will pay Phoenix a commission of 20% of the net licensing and/or
royalty revenue specified under each license; and 80% of the net revenues for
customization and non-recurring engineering work.
RELATED PARTY TRANSACTIONS
Other than the transactions described in "Arrangements Between inSilicon
Corporation and Phoenix Technologies Ltd.," there has not been any transaction
or series of similar transactions since our inception to which we were or are a
party in which the amount involved exceeded or exceeds $60,000 and in which any
director, executive officer, holder of more than 5% of any class of our voting
securities or any member of the immediate family of any of the foregoing persons
had or will have a direct or indirect material interest, other than the
transactions described below.
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OPTIONS TO NAMED EXECUTIVE OFFICERS OF INSILICON. On December 21, 1999, the
named executive officers exchanged all or a portion of their Phoenix options for
options to purchase the following amounts of inSilicon common stock:
Mr. Cantwell, 269,991 shares; Mr. Hoberman, 164,780 shares; Mr. Meyer,
169,443 shares; Mr. Naidu, 69,825 shares; and Mr. Nalesnik, 108,786 shares. On
the date of the exchange, the inSilicon options had the same intrinsic value and
ratio of exercise price to market value of the underlying shares as the Phoenix
options exchanged. They also have equivalent vesting schedules to the Phoenix
options exchanged. In addition, we granted the named executive officers options
to purchase additional inSilicon shares at a purchase price of $7.36 per share,
in the following amounts: Mr. Cantwell, 205,009 shares; Mr. Hoberman, 30,220
shares; Mr. Meyer, 60,000 shares; Mr. Naidu, 50,520 shares; and Mr. Nalesnik,
10,000 shares.
OPTIONS TO CONSULTANTS WHO ARE EMPLOYEES OF PHOENIX. On December 21, 1999,
we also granted options to purchase 50,000 shares of inSilicon common stock at
an exercise price of $7.36 per share to certain consultants of inSilicon, some
of whom are also employees of Phoenix.
SEVERANCE AGREEMENTS WITH INSILICON NAMED EXECUTIVE OFFICERS. We have
entered into severance agreements with certain of our officers, including all of
our named executive officers other than Mr. Naidu. The severance agreements
provide for initial levels of base compensation, bonus, and benefits. The
initial base levels of compensation are as follows: Mr. Cantwell, $200,000;
Mr. Hoberman, $173,250; Mr. Meyer, $173,250; and Mr. Nalesnik, $160,000. The
agreements also provide for the continued payment of salary for 12 months (in
the case of Mr. Cantwell, Mr. Hoberman and Mr. Meyer) and six months (in the
case of the other officers) with continued option vesting during such period,
and a prorated portion of the executive's target bonus if the executive's
employment is terminated for reasons other than for cause or constructive
termination. Mr. Cantwell's and Mr. Meyer's agreements also provide for the full
vesting of all unvested options within 90 days of a change in control. Benefits
provided under the severance agreements include participation in an executive
bonus plan and company-paid post-termination health insurance.
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PRINCIPAL STOCKHOLDER
Until this offering, Phoenix will own all of our outstanding shares of
common stock. Immediately after the completion of this offering, Phoenix will
own approximately % of the common stock then outstanding (approximately %
if the underwriters exercise their overallotment option in full). Phoenix has
previously conducted inSilicon's business through Phoenix. As a division of
Phoenix, inSilicon has historically utilized Phoenix's cash management and
certain other services. See Note 2 of Notes to Consolidated Financial Statements
of inSilicon. For a description of certain agreements we entered into with
Phoenix in connection with our separation from Phoenix and this offering, see
"Arrangements Between inSilicon Corporation and Phoenix Technologies Ltd."
Phoenix Technologies Ltd. is a global leader in system-enabling software
solutions for PCs and connected devices. In addition to inSilicon, Phoenix has
two other operating divisions. One division focuses on platform-enabling
software providing critical functionality that links the hardware and operating
systems of tens of millions of PCs, embedded systems and information appliances
sold annually. The other is a recently launched Internet business to deliver new
value propositions to original equipment manufacturers, channel partners and end
users of connected PCs and other devices. The principal executive offices of
Phoenix are located at 411 East Plumeria Drive, San Jose, California 95134.
Other than as described above, we are not aware of any person or group that
will beneficially own more than 5% of our outstanding shares of common stock
after this offering.
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
100,000,000 shares of common stock, $.001 par value per share, and 15,000,000
shares of undesignated preferred stock, $.001 par value per share.
COMMON STOCK
Assuming the conversion of our Series A Preferred Stock to common stock, as
of December 31, 1999, there were 10,400,010 shares of common stock outstanding.
Options to purchase 2,348,844 shares of common stock were also outstanding.
There will be shares of common stock outstanding (assuming no exercise of
the underwriters' overallotment option or exercise of outstanding options),
after giving effect to the sale of the shares offered by this prospectus.
The holders of our common stock will be entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders, including
elections of directors. Subject to preferences that may be applicable to any
outstanding preferred stock, holders of common stock are entitled to receive
ratably any dividends declared by our board of directors out of funds legally
available for that purpose. See "Dividend Policy." In the event of our
liquidation, dissolution or winding up, the holders of our common stock will be
entitled to share ratably in all assets remaining after payment of liabilities,
subject to the prior distribution rights of any outstanding preferred stock. Our
common stock has no preemptive or conversion rights or other subscription
rights. The outstanding shares of our common stock are, and the shares of common
stock to be issued upon completion of this offering will be, fully paid and
non-assessable.
PREFERRED STOCK
Upon the completion of this offering, our board of directors will have the
authority, without further action by our stockholders, to issue up to 15,000,000
shares of preferred stock, $.001 par value, in one or more series. Our board of
directors also will have the authority to designate the rights, preferences,
privileges and restrictions of each series, including dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series.
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Issuances of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and for other corporate purposes, may have
the effect of delaying, deferring or preventing a change in control of inSilicon
without further action by the stockholders. The issuance of preferred stock with
voting and conversion rights may also adversely affect the voting power of the
holders of common stock. In certain circumstances, an issuance of preferred
stock could have the effect of decreasing the market price of our common stock.
All outstanding shares of preferred stock will be converted to common stock upon
the completion of this offering and we currently have no plans to issue any
other shares of preferred stock.
COMMON STOCK WARRANT
We have issued to Phoenix a warrant to purchase 50,000 shares of our common
stock for $0.01 per share, immediately exercisable in whole or in part at any
time until May 31, 2002. The exercise price and number of shares of common stock
issuable upon the exercise of the warrant may be adjusted upon the occurrence of
certain events, including stock splits, stock dividends, reorganization,
recapitalization, merger, or sale of all or substantially all of our assets.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER AND BYLAW PROVISIONS
Provisions of Delaware law and our charter documents could have an
anti-takeover effort and may delay, discourage or prevent a tender offer or
takeover attempt that a stockholder might consider to be in its best interests,
including attempts that might result in a premium being paid over the market
price of our common stock.
SECTION 203. inSilicon is subject to the provisions of Section 203 of the
Delaware law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless, subject to exceptions, the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years prior, did own, 15% or more of the corporation's voting
stock. These provisions may have the effect of delaying, deferring or preventing
a change in control of inSilicon without further action by the stockholders.
BOARD OF DIRECTORS. Our Restated Certificate of Incorporation will provide
that, subject to any rights of holders of preferred stock to elect additional
directors under specified circumstances, the number of directors will be fixed
from time to time exclusively by resolution of the board of directors. The
directors, other than those who may be elected by the holders of preferred
stock, will be divided into three classes, as nearly equal in number as
possible. Each director will hold office until such person's successor is duly
elected and qualified. In addition, subject to any rights of holders of
preferred stock, newly created directorships resulting from any increase in the
number of directors and any vacancies on the board of directors resulting from
death, resignation, disqualification, removal or other cause will be filled by
the affirmative vote of a majority of the remaining directors then in office,
even if less than a quorum, and not by the stockholders. No decrease in the
number of directors constituting the board of directors will shorten the term of
any incumbent director. Subject to the rights of holders of preferred stock,
generally any director may be removed from office only for cause by the
affirmative vote of the holders of at least a majority of our outstanding common
stock. Until Phoenix and its affiliates no longer own at least a majority of our
outstanding common stock, however, the holders of at least a majority of our
common stock may remove any director, with or without cause.
These provisions would preclude a third-party from removing incumbent
directors and simultaneously gaining control of our board of directors by
filling the vacancies created by removal with its own nominees. Under the
classified board provision described above, it would take at least two
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elections of directors for any individual or group to gain control of our board
of directors. Accordingly, these provisions could discourage a third party from
initiating a proxy contest, making a tender offer or otherwise attempting to
gain control of inSilicon.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS. Our Restated
Certificate of Incorporation will provide that once Phoenix and its affiliates
no longer own at least a majority of our outstanding common stock, stockholders
may only elect directors at a duly called annual or special meeting and not by
written consent. At the same time, stockholders will no longer be able to call
special meetings; special meetings of stockholders may be called only by certain
specified officers or by any officer at the request in writing of a majority of
the board of directors. In addition, so long as Phoenix and its affiliates own
at least a majority of our outstanding common stock, we will call a special
meeting promptly at its request. These provisions may delay consideration of a
stockholder proposal until the next annual meeting unless a special meeting is
called by our board of directors or certain specified officers.
ADVANCE NOTICE PROCEDURES. Our By-laws will provide for an advance notice
procedure for the nomination, other than by or at the direction of our board of
directors, of candidates for election as directors as well as for other
stockholder proposals to be considered at annual meetings of stockholders. The
advance notice procedures will not apply to Phoenix and its affiliates so long
as they own at least a majority of our outstanding common stock.
CHARTER AMENDMENTS. Our Restated Certificate of Incorporation will provide
that the affirmative vote of the holders of at least 80% of our outstanding
common stock is required to amend, repeal or adopt any provision inconsistent
with the foregoing provisions of the Restated Certificate of Incorporation. The
Restated Certificate of Incorporation will also provide that the By-laws may be
altered, amended or repealed by the affirmative vote of directors constituting
not less than a majority of the entire board of directors (if effected by action
of the board of directors) or by the affirmative vote of the holders of at least
80% of the voting power of all classes of outstanding capital stock, voting
together as a single class (if effected by action of the stockholders).
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, we have included a
provision in our Restated Certificate of Incorporation to eliminate the personal
liability of our officers and directors for monetary damages for breach or
alleged breach of their fiduciary duties as officers or directors, other than in
cases of fraud or other willful misconduct. In addition, our By-laws provide
that we are required to indemnify our officers and directors even when
indemnification would otherwise be discretionary, and we are required to advance
expenses to our officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. We have entered into
indemnification agreements with our officers and directors containing provisions
that are in some respects broader than the specific indemnification provisions
contained in the Delaware General Corporation Law. The indemnification
agreements require us to indemnify our officers and directors against
liabilities that may arise by reason of their status or service as officers and
directors and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.
At present, we are is not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent of inSilicon in
which indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification. We believe that our charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is EquiServe Trust
Company. The Transfer Agent's address and telephone number is P.O. Box 2533,
Jersey City, N.J. 07303; (201) 222-5610.
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SHARES ELIGIBLE FOR FUTURE SALE
After completion of this offering, inSilicon will have outstanding
shares of common stock. Of these shares, the shares sold in this offering
(plus any shares issued upon exercise of the underwriters' over-allotment
option) will be freely tradable without restriction under the Securities Act,
unless purchased by "affiliates" of inSilicon.
All of the inSilicon shares owned by Phoenix after this offering will not
have been registered under the Securities Act of 1933 and may not be sold in the
absence of an effective registration statement under the Securities Act, other
than in accordance with Rule 144 or another exemption from registration. Phoenix
has certain rights to require inSilicon to register its inSilicon shares, which
rights may be assigned. See "Arrangements Between inSilicon Corporation and
Phoenix Technologies Ltd."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares of our common stock for at least one year is entitled to sell in any
three-month period a number of shares that does not exceed the greater of 1% of
the number of shares of our common stock then outstanding (which will equal
approximately shares immediately after this offering) or the average weekly
trading volume of our common stock during the four calendar weeks preceding the
sale. Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about inSilicon.
Before this offering, there has been no public market for our common stock,
and no prediction can be made as to the effect, if any, that market sales of
outstanding shares of inSilicon common stock owned by Phoenix, or the
availability of such shares for sale, will have on the market price of our
common stock prevailing from time to time. Nevertheless, sales of substantial
amounts of our common stock owned by Phoenix in the public market, or the
perception that such sales could occur, could reduce the prevailing market price
of our common stock. Although Phoenix may in the future effect or direct sales
or other dispositions of common stock that would reduce its ownership interest
in inSilicon, Phoenix has advised us that it currently intends to continue to
hold all of its inSilicon common stock following this offering. However, Phoenix
is not subject to any contractual obligation to retain its controlling interest,
except that it has agreed not to sell or otherwise dispose of any shares of
inSilicon common stock for a period of 365 days after the date of this
Prospectus without the prior written consent of FleetBoston Robertson Stephens
Inc. As a result, we cannot be sure how long Phoenix will maintain its ownership
of inSilicon common stock after this offering.
59
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Prudential Securities Incorporated and
Needham & Company, Inc. have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
shares of our common stock indicated opposite their names below. The
underwriters are committed to purchase and pay for all these shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
Prudential Securities Incorporated..........................
Needham & Company, Inc......................................
-------
Total.....................................................
=======
</TABLE>
We have been advised that the underwriters propose to offer the shares of
our common stock to the public at the initial public offering price located on
the cover page of this prospectus and to certain dealers at that price less a
concession of not in excess of $ per share, of which $ may be reallowed to
other dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
reduction will change the amount of proceeds to be received by us as indicated
on the cover page of this prospectus. Our common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. The underwriters
do not intend to confirm sales to any accounts over which they exercise
discretionary authority.
OVER-ALLOTMENT OPTION. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of our common stock at the same price per
share as we will receive for the shares that the underwriters have agreed to
purchase. To the extent that the underwriters exercise this option, each of the
underwriters will have a firm commitment to purchase approximately the same
percentage of additional shares that the number of shares of our common stock to
be purchased by it shown in the above table represents as a percentage of the
shares offered by this prospectus. If purchased, the additional shares will be
sold by the underwriters on the same terms as those on which the shares are
being sold. We will be obligated, under this option, to sell shares to the
extent the option is exercised. The underwriters may exercise such option only
to cover over-allotments made in connection with the sale of the shares of our
common stock offered by this prospectus.
The following table shows the per share and total underwriting discounts and
commissions to be paid by us to the underwriters. This information is presented
assuming either no exercise of full exercise by the underwriters of their
over-allotment option.
<TABLE>
<CAPTION>
PER WITHOUT WITH
SHARE OPTION OPTION
-------- -------- --------
<S> <C> <C> <C>
Public offering price............................ $ $ $
Underwriting discounts and commissions........... $ $ $
Expenses payable by us........................... $ $ $
Proceeds to us................................... $ $ $
</TABLE>
FleetBoston Robertson Stephens Inc. expects to deliver the shares of our
common stock to purchasers on .
INDEMNITY. The underwriting agreement contains covenants of indemnity among
the underwriters, Phoenix and us against certain civil liabilities, including
liabilities under the Securities Act of 1933 and
60
<PAGE>
liabilities arising from breaches of representations and warranties contained in
the underwriting agreement.
LOCK-UP AGREEMENT. Each of our executive officers and directors have agreed
with the representatives for a period of 180 days after the date of this
prospectus, subject to certain exceptions, not to offer to sell, contract to
sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any shares of common stock, any options or warrants to purchase any
shares of our common stock, or any securities convertible into or exchangeable
for shares of our common stock owned as of the date of this prospectus or
thereafter acquired directly from us by such holders or with respect to which
they have or hereafter acquire the power of disposition, without the prior
written consent of FleetBoston Robertson Stephens Inc. Phoenix has agreed with
the representatives for a period of 365 days after the date of this prospectus,
subject to certain exceptions, not to offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to any
shares of common stock, any options or warrants to purchase any shares of our
common stock, or any securities convertible into or exchangeable for shares of
our common stock owned as of the date of this prospectus or thereafter acquired
directly from us by such holders or with respect to which they have or hereafter
acquire the power of disposition, without the prior written consent of
FleetBoston Robertson Stephens Inc. However, FleetBoston Robertson Stephens Inc.
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to the lock-up agreements. There are no
agreements between the representatives and any of inSilicon's stockholders
providing consent by the representatives to the sale of shares prior to the
expiration of the lock-up period.
FUTURE SALES. In addition, we have agreed that during the 180-day lock-up
period, we will not, without the prior written consent of FleetBoston Robertson
Stephens Inc., subject to certain exceptions,
- consent to the disposition of any shares held by stockholders subject to
lock-up agreements prior to the expiration of the lock-up period; or
- issue, sell, contract to sell, or otherwise dispose of, any shares of our
common stock, any options or warrants to purchase any shares of our common
stock or any securities convertible into, exercisable for or exchangeable
for shares of our common stock other than our sale of shares in this
offering, our issuance of common stock upon the exercise of currently
outstanding options, and our issuance of incentive awards under our stock
incentive plans. See "Shares Eligible for Future Sale."
NO PRIOR PUBLIC MARKET. Before this offering, there has been no public
market for the common stock of inSilicon. Consequently, the initial public
offering price for our common stock offered by this prospectus will be
determined through negotiations between us and the representatives of the
underwriters. Among the factors to be considered in such negotiations are
prevailing market conditions, our financial information, market valuations of
other companies that we and the representatives believe to be comparable to us,
estimates of our business potential, the present state of our development and
other factors deemed relevant.
LISTING. We have applied to have our shares approved for quotation on the
Nasdaq National Market under the symbol "INSN."
STABILIZATION. The representatives have advised us that, under Regulation M
under the Securities Exchange Act, certain persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids that may have the effect
of stabilizing or maintaining the market price of our common stock at a level
above that which might otherwise prevail in the open market. A "stabilizing bid"
is a bid for or the purchase of the common stock on behalf of the underwriters
for the purpose of fixing or maintaining the price of the common stock. A
"syndicate covering transaction" is the bid for or the purchase of our common
stock
61
<PAGE>
on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with the offering
if the common stock originally sold by such underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The representatives have advised us that these transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
DIRECTED SHARE PROGRAM. At our request, the underwriters have reserved up
to shares of common stock to be issued by us and offered hereby for sale, at
the initial public offering price, to directors, officers, employees, other
business associates and related persons of inSilicon. The number of shares of
our common stock available for sale to the general public will be reduced to the
extent that these individuals purchase all or a portion of these reserved
shares. Any reserved shares which are not purchased will be offered by the
underwriters to the general public on the same basis as the shares of common
stock offered by this prospectus.
From time to time, the underwriters may perform investment banking or other
services for Phoenix and for inSilicon in the future.
62
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Orrick, Herrington & Sutcliffe LLP, San Francisco, California. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by O'Melveny & Myers LLP, San Francisco, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and financial statement schedule at September 30, 1998 and
1999 and for each of the three years in the period ended September 30, 1999, as
set forth in their report. We have included our consolidated financial
statements in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
The financial statements of Sand Microelectronics, Inc., as of December 31,
1997 and 1996 and for the years then ended included in this prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
63
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of our
common stock offered by this prospectus. This prospectus does not contain all of
the information set forth in the registration statement or the exhibits and
schedules to that registration statement. For further information with respect
to inSilicon and the common stock, we refer you to the registration statement,
including the exhibits and schedules. Statements made in this prospectus
concerning the contents of any contract or other document are not necessarily
complete. Please refer to the copy of the document filed as an exhibit to the
registration statement for a more complete description.
Each statement is qualified in all respects by reference to the exhibit. You
may inspect the registration statement without charge and obtain copies of all
or any part by paying certain fees at the SEC's public reference facilities at
450 Fifth Street, N.W., Washington, D.C. 20549, and its regional offices at
Seven World Trade Center, 13th Floor, New York, NY 10048, and the Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our Securities and
Exchange Commission filings, including the registration statement, are also
available to you on the SEC's web site at http://www.sec.gov.
As a result of this offering, we will become subject to the information and
reporting requirements of the Exchange Act, and, in accordance therewith, will
file periodic reports, proxy statements and other information with the SEC.
We intend to furnish our stockholders with annual reports containing audited
consolidated financial statements and with quarterly reports for the first three
quarters of each year containing unaudited interim consolidated financial
information.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF INSILICON CORPORATION
Report of Ernst & Young LLP, Independent Auditors....... F-2
Consolidated Balance Sheets............................. F-3
Consolidated Statements of Operations................... F-4
Consolidated Statements of Changes in Stockholder's Net
Investment............................................. F-5
Consolidated Statements of Cash Flows................... F-6
Notes to Consolidated Financial Statements.............. F-7
AUDITED FINANCIAL STATEMENTS OF SAND MICROELECTRONICS, INC.
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................ F-18
Balance Sheets.......................................... F-19
Statements of Operations................................ F-20
Statements of Shareholders' Equity...................... F-21
Statements of Cash Flows................................ F-22
Notes to Financial Statements........................... F-23
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholder
inSilicon Corporation
We have audited the accompanying consolidated balance sheets of inSilicon
Corporation as of September 30, 1998 and 1999 and the related consolidated
statements of operations, stockholder's net investment, and cash flows for each
of the three years in the period ended September 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
inSilicon Corporation at September 30, 1998 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended September 30, 1999, in conformity with generally accepted
accounting principles.
San Jose, California
December 17, 1999,
except for Note 10, as to which the date is /s/ ERNST & YOUNG LLP
January 11, 2000
F-2
<PAGE>
INSILICON CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ --
Accounts receivable, net of allowances of $198 and $364
at September 30, 1998 and 1999, respectively............ 2,416 5,104
Other current assets...................................... 147 135
-------- --------
Total current assets.................................... 2,563 5,239
Investments................................................. 838 838
Property and equipment, net................................. 1,477 1,174
Computer software costs, net................................ 13,958 6,974
Goodwill and other intangible assets, net................... 12,439 10,220
Other assets................................................ 56 36
-------- --------
Total assets.............................................. $ 31,331 $ 24,481
======== ========
LIABILITIES AND STOCKHOLDER'S NET INVESTMENT
Current liabilities:
Accounts payable.......................................... $ 830 $ 205
Payroll and related liabilities........................... 1,223 1,776
Deferred revenue.......................................... 1,211 1,589
Accrued merger costs...................................... 1,560 1,560
Accrued restructuring costs............................... 696 200
Other accrued liabilities................................. 383 302
-------- --------
Total current liabilities............................... 5,903 5,632
Long-term obligations, less current portion................. 16 45
Commitments
Stockholder's net investment:
Net contribution from stockholder......................... 36,158 41,632
Accumulated deficit....................................... (10,746) (22,828)
-------- --------
Total stockholder's net investment...................... 25,412 18,804
-------- --------
Total liabilities and stockholder's net investment.......... $ 31,331 $ 24,481
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
INSILICON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenue:
License fees.............................................. $ 4,272 $ 7,304 $ 14,973
Services.................................................. 839 1,488 3,982
------- ------- --------
Total revenue........................................... 5,111 8,792 18,955
Cost of revenue:
License fees.............................................. 972 1,223 1,003
Services.................................................. 638 734 826
Amortization of purchased technology...................... -- -- 2,132
------- ------- --------
Total cost of revenue................................... 1,610 1,957 3,961
------- ------- --------
Gross margin................................................ 3,501 6,835 14,994
Operating expenses:
Research and development.................................. 2,310 2,947 9,092
Sales and marketing....................................... 2,128 3,843 6,350
General and administrative................................ 1,049 1,368 3,364
Amortization of intangible assets......................... -- -- 2,220
Merger and restructuring charges.......................... -- 5,778 6,050
------- ------- --------
Total operating expenses................................ 5,487 13,936 27,076
------- ------- --------
Net loss.................................................... $(1,986) $(7,101) $(12,082)
======= ======= ========
Pro forma net loss (unaudited).............................. $ (8,566)
========
Pro forma net loss per share (unaudited).................... $ (0.82)
========
Shares used in computing pro forma net loss per share
(unaudited)............................................... 10,400
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INSILICON CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S NET INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
NET CONTRIBUTION ACCUMULATED STOCKHOLDER'S
FROM STOCKHOLDER DEFICIT NET INVESTMENT
---------------- ----------- --------------
<S> <C> <C> <C>
Balance, September 30, 1996......................... $ 2,150 $ (1,659) $ 491
Net contribution from stockholder................. 5,049 -- 5,049
Net loss and comprehensive loss................... -- (1,986) (1,986)
------- -------- --------
Balance, September 30, 1997......................... 7,199 (3,645) 3,554
Net contribution from stockholder................. 28,959 -- 28,959
Net loss and comprehensive loss................... -- (7,101) (7,101)
------- -------- --------
Balance, September 30, 1998......................... 36,158 (10,746) 25,412
Net contribution from stockholder................. 5,474 -- 5,474
Net loss and comprehensive loss................... -- (12,082) (12,082)
------- -------- --------
Balance, September 30, 1999......................... $41,632 $(22,828) $ 18,804
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INSILICON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(1,986) $ (7,101) $(12,082)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization............................. 1,175 1,411 5,787
Write-off of in-process research and development.......... -- 4,250 --
Write-off of capitalized software......................... -- 1,478 4,855
Changes in operating assets and liabilities:
Accounts receivable..................................... (754) (402) (2,688)
Other assets............................................ (299) 546 33
Accounts payable........................................ (421) 675 (625)
Payroll and related liabilities......................... 68 328 553
Other accrued liabilities............................... (11) 2,438 (171)
------- -------- --------
Total adjustments..................................... (242) 10,724 7,745
------- -------- --------
Net cash provided by (used in) operating activities..... (2,228) 3,623 (4,337)
------- -------- --------
Cash flows from investing activities:
Purchases of short-term and long-term investments......... (500) (338) --
Additions to computer software costs...................... (1,774) (2,359) (712)
Purchases of property and equipment....................... (547) (625) (425)
Acquisition of Sand, net of cash acquired................. -- (15,573) --
------- -------- --------
Net cash used in investing activities................... (2,821) (18,895) (1,137)
------- -------- --------
Cash flows from financing activities:
Contributions from stockholder............................ 5,049 15,272 5,474
------- -------- --------
Net cash provided by financing activities............... 5,049 15,272 5,474
------- -------- --------
Change in cash and cash equivalents......................... -- -- --
Cash and cash equivalents at beginning of fiscal year....... -- -- --
------- -------- --------
Cash and cash equivalents at end of fiscal year............. $ -- $ -- $ --
======= ======== ========
Supplemental disclosure of cash flow information:
Non-cash portion of Sand acquisition contributed by
stockholder............................................. $ -- $ 13,687 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
INSILICON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF OPERATIONS
inSilicon Corporation ("inSilicon" or the "Company") provides communications
semiconductor intellectual property, or SIP, that is used by semiconductor and
systems companies to design the complex semiconductors called systems-on-a-chip,
or SOCs, which are critical components of digital devices. The Company provides
SIP cores, related silicon subsystems and firmware to over 400 customers that
use its technologies in hundreds of different digital devices ranging from
network routers to cellular phones.
The Company was incorporated on November 1, 1999. Prior to that date, the
Company was operated as a division of Phoenix Technologies Ltd. ("Phoenix"). As
of November 30, 1999, the assets, liabilities and operations of the Company were
contributed by Phoenix to inSilicon in exchange for 10.4 million shares of
inSilicon's Series A preferred stock.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION. The consolidated financial statements
include the accounts of inSilicon and its wholly owned subsidiaries after the
elimination of all significant intercompany balances.
The consolidated balance sheets as of September 30, 1998 and 1999, have been
prepared using the historical basis of accounting and include all of the assets
and liabilities specifically identifiable to the Company and certain liabilities
that are not specifically identifiable, for which estimates have been used to
allocate a portion of Phoenix's liabilities to the Company. Until
December 1999, cash management for the Company was performed by Phoenix on a
centralized basis and all cash provided by Phoenix was recorded as equity
contributions from Phoenix in these consolidated financial statements.
The consolidated statements of operations include all revenue and costs
attributable to the Company, including an allocation of the costs of facilities
and employee benefits. Additionally, corporate administration, finance and
management costs have been allocated by Phoenix to the Company based on certain
methodologies that management believes are reasonable under the circumstances
(see Note 5).
FOREIGN CURRENCY TRANSLATION. The Company has determined that the
functional currency of its foreign operations is the local currency. Therefore,
assets and liabilities are translated at year-end exchange rates and income
statement transactions are translated at average exchange rates prevailing
during each period. To date, gains and losses related to foreign currencies have
not been significant.
USE OF ESTIMATES. The presentation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
REVENUE RECOGNITION. The Company's revenue is derived from license fees and
maintenance and support services sold primarily to systems and semiconductor
companies. Revenue from software license fees is generally recognized when a
non-cancelable license agreement has been signed, the software product has been
shipped, there are no uncertainties surrounding product acceptance, the fees are
fixed and determinable, and collection of the receivable is considered probable.
Engineering services revenue is generally recognized on a time-and-materials
basis or when contractual milestones are met. Maintenance revenue is generally
recognized ratably over the contract period.
F-7
<PAGE>
INSILICON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company adopted the American Institute of Certified Public Accountants'
("AICPA") Statement of Position, or SOP, 97-2, "Software Revenue Recognition,"
and SOP 98-4, "Deferral of the Effective Date of the Provision of SOP 97-2,
Software Revenue Recognition," as of October 1, 1998. The adoption of SOP 97-2
and SOP 98-4 did not have a material impact on the Company's consolidated
financial statements or results of operations.
In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9
amends SOP 98-4 to extend the deferral of the application of certain provisions
of SOP 97-2 through fiscal years beginning after March 31, 1999. The adoption of
SOP 98-9 as of October 1, 1999, is not expected to have a material impact on the
Company's consolidated financial statements. However, full implementation
guidelines for SOP 97-2, SOP 98-4 and SOP 98-9 have not been issued. Once
available, the current revenue recognition accounting practices may need to
change and such changes could effect the timing of the Company's future revenue
recognition.
Allowances for estimated returns and customer credits are recorded in the
same period as the related revenue.
No customer accounted for more than 10% of revenue in fiscal 1997, 1998 or
1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying values of the Company's
financial instruments, including accounts receivable, accounts payable and
accrued liabilities, approximate their fair values due to their short
maturities. The estimated fair values may not be representative of actual values
of the financial instruments that could be realized as of the period end or that
will be realized in the future.
BUSINESS AND CREDIT RISK. The Company's product revenues are concentrated
in the computer industry, which is highly competitive and rapidly changing.
Significant changes in the industry, customer requirements, or customer buying
behavior or the emergence of competitive products with new capabilities or
technologies could adversely affect operating results.
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade receivables. The Company extends
credit on open accounts to its customers and generally does not require
collateral. It performs ongoing credit evaluations of all customers and
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
At September 30, 1998 and 1999, no customer accounted for 10% of accounts
receivable.
INVESTMENTS. Investments consist of non-controlling interests in private
company securities, which are recorded at cost. At September 30, 1998 and 1999,
the fair value of such securities approximated cost and unrealized holding gains
were not material.
PROPERTY AND EQUIPMENT. Property and equipment are carried at cost and
depreciated using the straight-line method over the estimated useful life of the
assets, typically three to five years. Leasehold improvements are recorded at
cost and amortized over the lesser of the useful life of the assets or the
remaining term of the related lease.
COMPUTER SOFTWARE COSTS. Computer software costs consist of internally
developed and purchased software under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 86, "COMPUTER SOFTWARE TO BE SOLD, LEASED OR
OTHERWISE MARKETED" ("SFAS 86"). Costs incurred in the
F-8
<PAGE>
INSILICON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
research and development of new software products and enhancements to existing
products are expensed as incurred until technological feasibility has been
established, at which time such costs are capitalized. Capitalized computer
software costs are amortized over the estimated economic life of the product,
generally three to six years, using the straight-line method or a ratio of
current revenue to total anticipated revenue.
inSilicon evaluates the net realizable value and amortization periods of
computer software costs on an ongoing basis and records charges to reduce
carrying value to net realizable value, as necessary. In assessing net
realizable value, inSilicon relies on a number of factors, including operating
results, business plans, budgets and economic projections. In addition,
inSilicon's evaluation considers non-financial data such as market trends and
customer relationships, buying patterns and product development cycles.
INCOME TAXES. Income taxes are accounted for in accordance with SFAS No.
109, "ACCOUNTING FOR INCOME TAXES" ("SFAS 109"). Under the asset and liability
method of SFAS 109, deferred tax assets and liabilities are recognized for
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities, and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates which apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period of enactment.
The net losses incurred for fiscal years 1997, 1998 and 1999 are
attributable to the operations of the Company as a division of Phoenix and were
included in the income tax returns filed by Phoenix. See Note 8.
STOCK-BASED COMPENSATION. The Company accounts for its stock option plans
and employee stock purchase plan in accordance with the provisions of the
Accounting Principles Board's Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES" ("APB 25"). The Company has adopted disclosure only criteria
described in SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" ("SFAS
123"). See Note 9 of Notes to Consolidated Financial Statements. As a result, no
expense has been recognized related to employee options to purchase common stock
granted with an exercise price equal to fair market value at the date of grant.
NET LOSS PER SHARE. As of September 30, 1999, the Company was not a
separate legal entity and, as a division of Phoenix, had no historical capital
structure. Therefore, historical net loss per share amounts have not been
presented in the consolidated financial statements.
Pro forma net loss per share for fiscal 1999 has been computed in accordance
with SFAS 128, "EARNINGS PER SHARE" to reflect the pro forma effect of the
Company's capitalization. Pro forma net loss per share has been computed by
dividing the pro forma net loss for fiscal 1999 by the pro forma number of
common shares outstanding, giving effect to the issuance of preferred shares
upon the capitalization of the Company and the conversion of those preferred
shares to common shares upon completion of the Company's initial public offering
of common stock.
COMPREHENSIVE INCOME. The Company adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130") which requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income (revenues, expenses, gains and losses) be reported in the
consolidated financial statements. The Company adopted SFAS 130 effective
October 1,
F-9
<PAGE>
INSILICON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1998. Comprehensive losses were not materially different from net losses
incurred for all periods presented.
SEGMENT INFORMATION. The Company has organized and managed its operations
in a single operating segment for all periods presented. Revenues from customers
outside of the United States were less than 10% of net revenues for all periods
presented in the accompanying consolidated statements of operations.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Equipment................................................. $ 2,345 $ 2,799
Leasehold improvements.................................... 7 --
Furniture and fixtures.................................... 187 165
------- -------
2,539 2,964
Less accumulated depreciation and amortization............ (1,062) (1,790)
------- -------
$ 1,477 $ 1,174
======= =======
</TABLE>
Depreciation and amortization expense related to property and equipment
totaled $277,000, $406,000 and $728,000 for fiscal years 1997, 1998 and 1999,
respectively.
NOTE 4. COMPUTER SOFTWARE COSTS
Costs associated with purchased and internally developed computer software
of $2.4 million and $711,000, were capitalized during fiscal years 1998 and
1999, respectively. In addition, inSilicon capitalized approximately $12.8
million of software costs in conjunction with its September 1998 acquisition of
Sand Microelectronics, Inc. ("Sand"). Amortization of computer software costs
charged to cost of revenue was $898,000, $1.0 million and $2.8 million in fiscal
years 1997, 1998 and 1999, respectively. Accumulated amortization of capitalized
computer software costs was $5.0 million and $3.2 million at September 30, 1998
and 1999, respectively.
NOTE 5. RELATED PARTY TRANSACTIONS
Prior to December 1999, the Company was operated as a division of Phoenix
and the Company's operations were funded entirely by Phoenix. Net financing
provided to the Company by Phoenix in fiscal years 1997, 1998 and 1999 was
approximately $5.0 million, $29.0 million and $5.5 million, respectively.
For all periods through September 30, 1999, Phoenix has allocated a portion
of its domestic corporate expenses to its divisions, including the Company, in
accordance with SEC Staff Accounting Bulletin No. 55, "Allocation of Expenses
and Related Disclosure in Financial Statements of Subsidiaries, Divisions or
Lesser Business Components of Another Entity." These expenses have included
corporate communications, management, compensation and benefits administration,
payroll,
F-10
<PAGE>
INSILICON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. RELATED PARTY TRANSACTIONS (CONTINUED)
accounts payable, income tax compliance, treasury and other administration and
finance overhead. Allocations and charges were based on either a direct cost
pass-through or a percentage allocation for such services provided based on
factors such as net revenue, headcount and relative expenditure levels. Such
allocations and corporate charges totaled $2.5 million, $3.3 million and
$8.3 million for fiscal years 1997, 1998 and 1999, respectively.
Management believes that the basis used for allocating corporate services is
reasonable. While the terms of these transactions may differ from those that
would result from transactions among unrelated parties, management does not
believe such differences would be material.
The Company has entered into an Independent Contractor Agreement with a
company in India of which an officer of the Company is a significant stockholder
for the provision of hardware and software development consulting services.
During fiscal year 1999, the Company paid or accrued $365,000 for services to
that company.
NOTE 6. BUSINESS COMBINATIONS
SAND MICROELECTRONICS, INC. In September 1998, Phoenix acquired Sand, a
leading supplier of standards-based system software and semiconductor
intellectual property for PCs and information appliances. The purchase price
consisted of approximately $18.6 million in cash, 464,000 shares of Phoenix's
common stock, options to purchase approximately 264,000 shares of Phoenix's
common stock in exchange for Sand stock options, and up to $3.7 million in
performance incentives to be paid through fiscal 2001. The acquisition was
accounted for using the purchase method of accounting. Accordingly, the assets
and liabilities of the acquired business are included in the consolidated
balance sheet as of September 30, 1998. The results of operations of Sand from
the date of acquisition through September 30, 1998 were included in the
accompanying consolidated statement of operations for the year ended
September 30, 1998.
The total purchase cost of approximately $33.7 million exceeded the assets
acquired as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Total consideration......................................... $ 24,494
Liabilities assumed......................................... 7,749
Acquisition costs........................................... 1,465
--------
Total purchase cost......................................... 33,708
Less: Assets acquired....................................... (19,831)
Less: Acquired in-process research and development.......... (4,250)
--------
Excess of purchase cost over assets acquired................ $ 9,627
========
</TABLE>
The assets acquired include $12.8 million of software development costs
(that are being amortized on a straight-line basis over six years) and $2.8
million of other intangible assets (that are being amortized on a straight-line
basis over three to six years). The $9.6 million of excess of purchase cost over
assets acquired was recorded as goodwill and is being amortized on a
straight-line basis over six years. The Company regularly reviews the carrying
value of these intangible assets for impairment in accordance with SFAS
No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
F-11
<PAGE>
INSILICON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. BUSINESS COMBINATIONS (CONTINUED)
ASSETS TO BE DISPOSED OF." Any impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds its fair market value.
The following pro forma, unaudited information includes the consolidated
results of operations for the years ended September 30, 1997 and 1998, as if the
Sand acquisition had occurred at the beginning of each period presented at the
purchase price established in September 1998. The results of operations are not
necessarily indicative of those which would have occurred had the acquisition
actually been made at the beginning of each of the respective periods presented
or of future operations of the combined companies. The pro forma results for
1997 combine inSilicon's results for the year ended September 30, 1997 with the
results of Sand for the year ended December 31, 1997. The pro forma results for
fiscal year 1998 combine inSilicon's results for the year ended September 30,
1998, with the results of Sand for the same period. Accordingly, the fiscal 1997
operating results included a three-month period (ended December 31, 1997) that
is also included in the fiscal 1998 operating results. Revenue and an operating
loss of $443,000 and $470,000 were recorded in this three-month period,
respectively. The following pro forma results for the years ended September 30,
1997 and 1998, include the straight-line amortization of acquired intangibles,
primarily over a period of six years; and the pro forma fiscal 1998 results
include a $4.3 million write-off of acquired in-process research and development
discussed above (in thousands):
<TABLE>
<CAPTION>
PRO FORMA,
UNAUDITED
-------------------
1997 1998
-------- --------
<S> <C> <C>
Revenue................................................... $10,135 $15,128
Net loss.................................................. (3,978) (9,761)
</TABLE>
AWARD SOFTWARE INTERNATIONAL, INC. Also in September 1998, Phoenix
completed a merger with Award Software International, Inc. ("Award"), a leading
provider of system enabling and management software for personal computers.
Phoenix exchanged approximately 8.8 million shares of its common stock for all
of the common stock of Award. Each share of Award was exchanged for 1.225 shares
of Phoenix common stock. In addition, outstanding Award employee stock options
were converted at the same exchange ratio into options to purchase approximately
2.3 million shares of Phoenix common stock. The merger was accounted for as a
pooling of interests. Certain of Award's operations were merged with inSilicon's
operations, and accordingly, inSilicon's consolidated financial statements
include the combined results of operations and financial position for all
periods and dates presented. The Award operations accounted for less than 10% of
the Company's revenue and operating costs for all periods prior to the merger.
F-12
<PAGE>
INSILICON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. MERGER AND RESTRUCTURING CHARGES
Merger and restructuring charges during the years ended September 30, 1998
and 1999, were as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Restructuring............................................... $ 50 $1,195
Asset write-offs............................................ 1,478 4,855
In-process research and development......................... 4,250 --
------ ------
$5,778 $6,050
====== ======
</TABLE>
These charges were mostly related to the integration of Sand into inSilicon
and severance costs allocated to inSilicon from Phoenix related to the
elimination of certain corporate management positions.
1998 CHARGES
Included in the fourth quarter of fiscal 1998 was a charge of $5.8 million
related to the acquisition of Sand. Included in this charge was a $1.5 million
write-off of development costs that were capitalized under SFAS 86.
The in-process research and development charge in fiscal 1998 was an
allocation of a portion of the purchase price for Sand for projects that were
not yet capitalizable under the provisions of SFAS 86. The allocation was based
upon an independent appraisal. The appraised value was determined by estimating
the future net cash flows from such projects and discounting the net cash flows
back to their present value. The discount rate applied includes a factor that
takes into account the uncertainty surrounding the successful development of the
purchased in-process technology.
1999 CHARGES
Included in fiscal 1999 was a restructuring charge of $6.1 million due to
the write-off of $4.9 million of capitalized software development costs and
approximately $1.2 million of severance and other costs allocated from Phoenix
related to the elimination of 12 corporate management positions.
None of the fiscal 1998 merger and restructuring charges and approximately
$200,000 of the fiscal 1999 restructuring charges were unpaid as of
September 30, 1999. The remaining unpaid charges will mostly be paid in early
fiscal 2000.
NOTE 8. INCOME TAXES
The net losses incurred for the years ended September 30, 1997, 1998 and
1999, are attributable to the operations of the Company as a division of Phoenix
and were included in the income tax returns filed by Phoenix. Because the
Company will not receive any benefit for its historical operating losses
incurred through September 30, 1999, no income tax benefit has been reflected
for the periods presented.
The unaudited pro forma net loss for fiscal 1999 gives effect to income tax
credits related to the reversal of deferred income tax liabilities in connection
with the Company's acquisition of Sand. These credits would have been recorded
had the Company operated as a separate, stand-alone entity.
F-13
<PAGE>
INSILICON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. INCOME TAXES (CONTINUED)
The Company and Phoenix intend to enter into a tax-sharing agreement. Under
the terms of this agreement, the Company will be responsible for federal and
state income taxes as of December 1, 1999. Payments will be due to or from
Phoenix based upon the tax impact of the Company's operations for any period
that the Company's operations are included in the Phoenix consolidated tax
return as if the Company were to file separate federal, state and local income
tax returns.
In general, the Company will be included in Phoenix's consolidated group for
federal income tax purposes for so long as Phoenix beneficially owns at least
80% of the total voting power and value of the Company's outstanding stock.
NOTE 9. EMPLOYEE BENEFIT PLANS
Employees of the Company participate in stock-based compensation and savings
plans that are administered through Phoenix and involve options to acquire
Phoenix's common stock.
EMPLOYEE STOCK PURCHASE PLAN. Phoenix has an employee stock purchase plan
for all eligible employees. Under the terms of the plan, shares of Phoenix's
common stock may be purchased at six-month intervals at 85% of the lower of the
fair market value on the first or the last day of each six-month period.
Employees may purchase shares having a value not exceeding 10% of their gross
compensation during an offering period. During 1997, 1998, and 1999, employees
of the Company purchased approximately 7,000, 20,000 and 61,000 shares at
average prices of $12.37, $9.96, and $5.92 per share, respectively.
401(K) SAVINGS PLAN. Phoenix has a retirement plan ("401(k) Plan") that is
intended to qualify under Section 401(k) of the Internal Revenue Code. This plan
covers U.S. employees who meet minimum age and service requirements and allows
participants to defer a portion of their annual compensation on a pre-tax basis.
In addition, Company contributions to the 401(k) Plan may be made at the
discretion of the board of directors. Phoenix has historically made matching
contributions of 25% of each participant's contribution, up to a match of $1,000
per year per participant. Matching contributions vest over a four-year period
which starts with the participant's employment start date with Phoenix.
Phoenix's matching contributions for employees of the Company were approximately
$17,000, $29,000 and $30,000 in fiscal 1997, 1998 and 1999, respectively.
STOCK OPTION PLANS. Phoenix has various stock option plans for employees,
officers, consultants and independent contractors. Incentive stock options under
these Phoenix plans may not be granted at a price less than 100% (110% in
certain cases) of the fair market value of the shares on the date of grant.
Nonqualified options may not be granted at a price less than 85% of the fair
value of the shares on the date of grant. To date, all grants under these
Phoenix plans have been made at fair market value or greater. Options vest over
a period determined by the board of directors, generally four years, and have a
term not exceeding ten years.
F-14
<PAGE>
INSILICON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the option activity under Phoenix's option
plans for all employees of the Company. These amounts have been restated to
equivalent inSilicon shares based upon the appropriate exchange ratio. See
further discussion of the exchange ratio below in Note 10.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Shares under option, September 30, 1996.............. 493,268 $3.60
Options granted...................................... 361,476 5.64
Options exercised.................................... (87,086) 0.17
Options canceled..................................... (31,885) 5.38
--------- -----
Shares under option, September 30, 1997.............. 735,773 4.94
Options granted...................................... 494,128 2.78
Options exercised.................................... (28,029) 0.17
Options canceled..................................... (57,798) 6.98
--------- -----
Shares under option, September 30, 1998.............. 1,144,074 4.02
Options granted...................................... 639,390 5.33
Options exercised.................................... (156,767) 0.80
Options canceled..................................... (154,749) 6.00
--------- -----
Shares under option, September 30, 1999.............. 1,471,948 $4.72
========= =====
</TABLE>
The following table summarizes information about Phoenix's stock options
outstanding at September 30, 1999, on an as-converted basis to the Company's
shares:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------- OPTIONS EXERCISABLE
WEIGHTED -----------------------------
NUMBER AVERAGE WEIGHTED NUMBER
OUTSTANDING REMAINING AVERAGE EXERCISABLE WEIGHTED
AT SEPT. 30, CONTRACTUAL EXERCISE AT SEPT. 30, AVERAGE
RANGE OF EXERCISE PRICES 1999 LIFE (YEARS) PRICE 1999 EXERCISE PRICE
- ------------------------ ------------ ------------ -------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$0.06 - $0.44........................ 76,789 6.89 $0.18 33,294 $0.19
$0.56 - $2.82........................ 254,815 6.45 0.72 90,410 1.02
$2.96 - $4.66........................ 394,565 8.72 4.12 100,328 4.00
$4.70 - $7.42........................ 513,076 9.50 5.91 52,620 6.37
$7.45 - $10.67....................... 232,703 7.33 8.99 167,176 9.29
--------- ---- ----- ------- -----
1,471,948 8.28 $4.72 443,828 $5.38
========= ==== ===== ======= =====
</TABLE>
FAIR VALUE DISCLOSURES. Pro forma information regarding net loss is
required by SFAS 123. This information is required to be determined as if
Phoenix had accounted for its employee stock options granted to inSilicon
employees under the fair value method of that statement. The fair value of
options
F-15
<PAGE>
INSILICON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. EMPLOYEE BENEFIT PLANS (CONTINUED)
granted in fiscal 1997, 1998 and 1999, reported below has been estimated as of
the date of the grant using a Black-Scholes multiple option pricing model with
the following assumptions:
<TABLE>
<CAPTION>
EMPLOYEE STOCK PURCHASE
EMPLOYEE STOCK OPTIONS PLAN
------------------------------ ------------------------------
1997 1998 1999 1997 1998 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Expected life from vest date (in years).......... 0.70 0.70 0.70 0.50 0.50 0.50
Risk-free interest rate.......................... 6-7% 6-7% 5-6% 6-7% 6-7% 5-6%
Volatility....................................... 0.63 0.57 0.56 0.63 0.57 0.56
Dividend yield................................... None None None None None None
</TABLE>
The weighted average estimated fair value of employee stock options granted
during fiscal 1997, 1998 and 1999, was $4.25, $4.03 and $2.35 per share,
respectively. The weighted average estimated fair value of shares granted under
the Purchase Plan during fiscal 1997, 1998 and 1999 was $2.21, $1.97 and $1.15,
respectively. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the vesting period of the options. Had
compensation costs for inSilicon's stock-based compensation plans been
determined based on the fair value at the grant date for awards under those
plans consistent with the method of SFAS 123, inSilicon's net loss for the years
ended September 1997, 1998 and 1999, would have been $2.4 million, $7.7 million,
and $12.2 million, respectively.
NOTE 10. SUBSEQUENT EVENTS
As of November 1999, the Company issued 10,400,000 shares of Series A
convertible preferred stock and a warrant to purchase 50,000 shares of common
stock to Phoenix in exchange for its accumulated net investment. The rights and
preferences of the Series A preferred shares are as follows:
- liquidation preference of $8.66 per share;
- voting rights equal to one vote for each share of common stock into which
such convertible preferred stock could be converted;
- convertible into one share of common stock, at the option of the holder;
and
- automatically converted into one share of common stock upon the sale of
common stock in a public offering pursuant to a registration statement
under the Securities Act of 1933, as amended, with proceeds of greater
than $10 million and a price to the public of at least $7.50 per share.
The warrant has an exercise price of $0.01 per share, is immediately
exercisable and expires May 31, 2002.
In December 1999, the Company's stockholder authorized the 1999 Stock Option
Plan for the issuance of up to 2,700,000 shares of common stock to employees,
officers, directors and independent contractors. Incentive stock options may be
granted under this plan at a price not less than 100% (110% in some cases) of
the fair market value of the shares on the date of grant. Non-qualified options
may be granted at a price not less than 85% of the fair value of the shares on
the date of the grant.
In December 1999, the Company implemented a program under which options to
purchase shares of Phoenix common stock held by inSilicon employees were
exchanged for options to purchase the
F-16
<PAGE>
INSILICON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. SUBSEQUENT EVENTS (CONTINUED)
Company's common stock under the 1999 Stock Option Plan using an exchange ratio
of 1.862 shares of inSilicon common stock for each share of Phoenix common
stock. Options to purchase 1,356,265 shares of inSilicon common stock with an
average exercise price of $5.25 were issued under this exchange program. The new
options have comparable terms and, vesting schedules and, at the date of the
exchange, had equivalent intrinsic value and ratio of exercise price to fair
value of common stock as the exchanged Phoenix options.
In December 1999, the Company issued options to employees, directors and
consultants to purchase 1,012,579 shares of common stock under the 1999 Stock
Option Plan. These options have exercises prices that were less than the per
share value of the Company's common stock on the date of grant, and therefore
the Company recorded deferred stock compensation associated with these grants of
approximately $2.0 million. This deferred stock compensation will generally be
amortized over the vesting period of the underlying options, generally four
years.
In January 2000, the Board of Directors of the Company approved the filing
of a registration statement by the Company under the Securities Act of 1933, as
amended, relating to an initial public offering of the Company's common stock.
Also in January 2000, the Company entered into a $5.0 million secured bank
line of credit agreement that will be effective upon the closing of an
underwritten public offering. Borrowings on the line bear interest at the bank's
prime rate plus 0.25%. The line of credit agreement contains various covenants
that require the Company to meet certain financial ratios. The line of credit is
secured by the assets of the Company and expires in January 2001.
F-17
<PAGE>
REPORT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Sand Microelectronics, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Sand Microelectronics, Inc. at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended 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 audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, 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.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
March 30, 1998
F-18
<PAGE>
SAND MICROELECTRONICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
-------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $601,000 $3,116,000
Accounts receivable....................................... 127,000 188,000
Prepaid expenses and other current assets................. 34,000 22,000
Deferred tax assets....................................... 35,000 158,000
-------- ----------
Total current assets.................................... 797,000 3,484,000
Property and equipment, net................................. 121,000 209,000
Deposits.................................................... 5,000 5,000
-------- ----------
$923,000 $3,698,000
======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 45,000 $ 71,000
Accrued liabilities....................................... 26,000 141,000
Income taxes payable...................................... 98,000 897,000
Sales taxes payable....................................... 18,000 24,000
Current portion of capital leases......................... 13,000 32,000
Current portion of notes payable to founders.............. 40,000 20,000
Deferred revenue.......................................... 300,000 730,000
-------- ----------
Total current liabilities............................... 540,000 1,915,000
Notes payable to founders, net of current portion........... 20,000 --
Capital lease obligations, long term........................ 12,000 12,000
-------- ----------
572,000 1,927,000
======== ==========
Commitments (Note 7)
Shareholders' equity:
Common stock, no par value; 50,000,000 shares authorized;
12,107,000 and 12,000,000 shares issued and
outstanding............................................. 5,000 9,000
Retained earnings......................................... 346,000 1,762,000
-------- ----------
Total shareholders' equity.............................. 351,000 1,771,000
-------- ----------
$923,000 $3,698,000
======== ==========
</TABLE>
F-19
<PAGE>
SAND MICROELECTRONICS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Revenues:
Licenses.................................................. $1,478,000 $4,330,000
Maintenance, engineering services and other services...... 344,000 694,000
---------- ----------
Net revenues............................................ 1,822,000 5,024,000
========== ==========
Cost of net revenue
Licenses.................................................. 8,000 8,000
Maintenance, engineering services and other services...... 140,000 93,000
---------- ----------
Cost of net revenues.................................... 148,000 101,000
---------- ----------
Gross profit................................................ 1,674,000 4,923,000
---------- ----------
Operating expenses:
Research and development.................................. 738,000 1,562,000
Sales and marketing....................................... 437,000 652,000
General and administrative................................ 177,000 416,000
---------- ----------
Total operating expenses................................ 1,352,000 2,630,000
---------- ----------
Income from operations...................................... 322,000 2,293,000
Interest income............................................. 8,000 75,000
Interest expense............................................ (6,000) (8,000)
---------- ----------
Income before provision for income taxes.................... 324,000 2,360,000
Provision for income taxes.................................. (121,000) (944,000)
---------- ----------
Net income.................................................. $ 203,000 $1,416,000
========== ==========
</TABLE>
F-20
<PAGE>
SAND MICROELECTRONICS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
---------- -------- ---------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995..................... 12,000,000 $5,000 $ 143,000 $ 148,000
Net income....................................... -- -- 203,000 203,000
---------- ------ ---------- ----------
Balance at December 31, 1996..................... 12,000,000 5,000 346,000 351,000
Issuance of Common Stock......................... 2,000 1,000 -- 1,000
Exercise of Common Stock options................. 105,000 3,000 -- 3,000
Net income....................................... -- -- 1,416,000 1,416,000
---------- ------ ---------- ----------
Balance at December 31, 1997..................... 12,107,000 $9,000 $1,762,000 $1,771,000
========== ====== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
SAND MICROELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $203,000 $1,416,000
Adjustments to reconcile net income to net cash provided
by
operating activities:
Depreciation.......................................... 37,000 81,000
Changes in assets and liabilities:
Accounts receivable................................. (58,000) (61,000)
Prepaid expenses and other current assets........... (38,000) 12,000
Accounts payable.................................... 56,000 26,000
Accrued liabilities................................. (36,000) 115,000
Taxes payable....................................... 75,000 682,000
Deferred revenue.................................... 278,000 430,000
-------- ----------
Net cash provided by operating activities......... 517,000 2,701,000
-------- ----------
Cash flows from investing activities:
Purchases of property and equipment..................... (119,000) (169,000)
-------- ----------
Net cash used in investing activities............. (119,000) (169,000)
-------- ----------
Cash flows from financing activities:
Proceeds from issuance of Common Stock.................. -- 4,000
Proceeds from (payments on) debt obligations, net....... 13,000 (21,000)
-------- ----------
Net cash (provided by) used in financing
activities...................................... 13,000 (17,000)
-------- ----------
Net increase in cash and cash equivalents................... 411,000 2,515,000
Cash and cash equivalents at beginning of year.............. 190,000 601,000
-------- ----------
Cash and cash equivalents at end of year.................... $601,000 $3,116,000
======== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes.............................. $ 43,000 $ 152,000
Cash paid for interest.................................. 6,000 8,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
SAND MICROELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Sand Microelectronics, Inc., (the "Company"), designs, develops and markets
semiconductor intellectual property ("IP") with a focus on connectivity
standards, such as IEEE 1394, USB and PCI. The Company licenses IP
(synthesizable cores and related tools) to systems and semiconductor companies
in the computer, communication and consumer markets. The Company was
incorporated in California in June 1991.
Following is a summary of the Company's significant accounting policies.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company's revenues are derived from product licenses, support and
engineering services. Annual maintenance services are charged separately from
product licenses.
Product license fees are recognized upon shipment if no significant vendor
obligations remain and if collection of the resulting receivable is considered
probable. In instances where significant vendor obligations exist, revenue
recognition is delayed until the obligation has been satisfied.
Annual support revenues consist of ongoing support and product updates and
are recognized ratably over the term of the related contract. Payments received
in advance of revenue recognition are recorded as deferred revenue. Engineering
and other services consist of contract consulting, training and development
services and the related revenue is recognized as the services are performed.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents consist primarily of certificates of deposit, money market accounts
and savings accounts, the fair value of which approximates cost.
SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash equivalents, short-term investments
and accounts receivable. The Company deposits cash and cash equivalents with
high credit quality financial institutions. The Company's accounts receivable
are derived from revenue earned primarily from customers located in the U.S.,
Japan and Germany. Export sales, principally to Japan and Europe, are generally
transacted in U.S. dollars and represented 4% and 2%, respectively, of net
revenues in 1996 and 14% and 12%, respectively, of net revenues in 1997. The
Company performs ongoing credit evaluations of its customers' financial
condition and, generally,
F-23
<PAGE>
SAND MICROELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
requires no collateral from its customers. The Company maintains an allowance
for doubtful accounts receivable based upon the expected collectibility of all
accounts receivable.
At December 31, 1996, approximately 78% of total accounts receivable
represented amounts due from three customers. At December 31, 1997,
approximately 81% of total accounts receivable represented amounts due from five
customers. Sales to two of the Company's customers accounted for 33% and 12% of
net revenues for the year ended December 31, 1996, and 14% and 12% of net
revenues for the year ended December 31, 1997.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to seven years.
SOFTWARE DEVELOPMENT COSTS
Software development costs are classified as research and development and
are expensed as incurred and capitalized once technological feasibility is
established. The capitalized costs are then amortized on a straight-line basis
over the estimated product life, or based on the ratio of current revenues to
total projected product revenues, whichever is greater. To date, no software
development costs have been capitalized.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred tax liabilities and assets are recognized
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of the Company's assets and liabilities.
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," ("APB No. 25") and related interpretations in
accounting for its stock-based compensation plans, as permitted by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS No. 123"). FAS 123 defines a "fair value" based method of
accounting for an employee stock option or similar equity instrument and
encourages, but does not require, entities to adopt that method of accounting
for their employee stock compensation plans. The Company has adopted, as
required, the disclosure provisions of FAS 123. The pro forma disclosures of the
difference between compensation cost included in net income under APB 25 and the
related cost measured by the fair value method of FAS 123 are presented in
Note 6.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position No. 97-2 ("SOP 97-2"), "Software Revenue
Recognition," which the Company is required to adopt for transactions entered
into in the fiscal year beginning January 1, 1998. SOP 97-2 provides guidance on
recognizing revenue on software transactions and supersedes SOP 91-1, "Software
F-24
<PAGE>
SAND MICROELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Revenue Recognition." The Company believes that the adoption of SOP 97-2 will
not have a significant impact on its current licensing or revenue recognition
practices.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including
accounts receivable, accounts payable and accrued liabilities, approximate fair
value due to their short maturities. The carrying value of the Company's
long-term debt approximates fair value as its interest rates approximate market
rates for borrowings with similar terms and maturities.
NOTE 2--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
PROPERTY AND EQUIPMENT
Computers, lab equipment and software..................... $198,000 $345,000
Furniture, fixtures and office equipment.................. 4,000 27,000
202,000 372,000
Less: Accumulated depreciation and amortization........... (81,000) (163,000)
-------- --------
$121,000 $209,000
======== ========
ACCRUED LIABILITIES
Vacation.................................................. $ 14,000 $ 31,000
Sales commission.......................................... -- 35,000
Other..................................................... 12,000 75,000
-------- --------
$ 26,000 $141,000
======== ========
</TABLE>
NOTE 3--RELATED PARTY TRANSACTIONS:
SAND MICROELECTRONICS PVT. LTD., INDIA
The Company obtains consulting services from Sand Microelectronics
Pvt. Ltd., India ("Sand India") which is 100% owned by the owners of Sand
Microelectronics, Inc.
Purchases from Sand India for the years ended December 31, 1996 and 1997 of
$61,000 and $178,000, respectively, are for consulting for design and
engineering services. There were no receivables or payables outstanding at
December 31, 1996 and 1997.
On January 22, 1998, the Company entered into a contract for $300,000 for
engineering services from Sand India. Payment terms are $30,000 per month,
commencing in January 1998.
ASPEN TECHNOLOGIES PVT. LTD. INDIA
From time to time the company obtains consulting services from Aspen
Technologies ("Aspen") which is partially owned by the owners of Sand
Microelectronics, Inc.
F-25
<PAGE>
SAND MICROELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--RELATED PARTY TRANSACTIONS: (CONTINUED)
There were no purchases from Aspen Technologies for the years ended
December 31, 1996 and 1997. There were no receivables/payables outstanding at
December 31, 1996 and 1997.
NOTES PAYABLE TO FOUNDERS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1996 1997
-------- --------
<S> <C> <C>
10% note; interest payable December 31, 1997; matures
January 1998.............................................. $60,000 $20,000
Less current portion........................................ (40,000) (20,000)
------- -------
Long-term portion of notes payable to founders $20,000 $ --
======= =======
</TABLE>
NOTE 4--INCOME TAXES:
The provisions for income taxes consist of the following, for the years
ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1997
-------- ---------
<S> <C> <C>
Current tax expense:
Federal................................................... $124,000 $ 840,000
State..................................................... 27,000 207,000
Foreign................................................... 5,000 20,000
-------- ---------
156,000 1,067,000
Deferred tax benefit:
Federal................................................... (30,000) (105,000)
State..................................................... (5,000) (18,000)
-------- ---------
(35,000) (123,000)
-------- ---------
Provision for income taxes.................................. $121,000 $ 944,000
======== =========
</TABLE>
Deferred income tax assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Deferred revenue.......................................... $30,000 $126,000
Nondeductible reserves and other.......................... 5,000 32,000
------- --------
Total................................................... $35,000 $158,000
======= ========
</TABLE>
F-26
<PAGE>
SAND MICROELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--INCOME TAXES: (CONTINUED)
Differences between the Company's effective tax rate and the federal
statutory rate were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
---- ----
<S> <C> <C>
Federal statutory rate...................................... 35% 35%
Research and development tax credit......................... (8%) (3%)
State taxes (net of federal benefit)........................ 8% 9%
Non deductible expenses..................................... 1% 1%
Other....................................................... 1% (2%)
------- -------
Effective tax rate.......................................... 37% 40%
======= =======
</TABLE>
NOTE 5--BORROWINGS:
LINE OF CREDIT
In December 1997, the Company entered into a line of credit agreement ("Line
of Credit") with a bank, which allows the Company to borrow up to $500,000
through December 14, 1998. At December 31, 1997, the Company has not drawn down
on the Line of Credit. The Line of Credit bears interest at the bank's prime
rate plus 0.5% (8.5% at December 31, 1997). Borrowings are secured by
substantially all of the Company's assets. The credit agreement requires the
Company to meet certain financial covenants including quick ratio, tangible net
worth and profitability requirements. At December 31, 1997, the Company met all
such requirements.
EQUIPMENT LEASE
At December 31, 1996, the Company had $25,000 outstanding and due under
various equipment lease financings. These financings expire in October 1998 and
accrue interest at a rate of 11.8% per annum. At December 31, 1997, the Company
had $44,000 outstanding and due under various equipment lease financings. These
financings expire between January 1998 and May 1999, and accrue interest at a
rate of 11.8% to 15.4% per annum.
NOTE 6--EMPLOYEE STOCK OPTION AND BENEFIT PLANS:
In 1995, the Company adopted a stock option plan (the "Plan"). The Plan
provides for the granting of nonqualified stock options to employees and
consultants of the Company. At December 31, 1997, the Company has reserved
2,000,000 shares of Common Stock for issuance under the Plan.
F-27
<PAGE>
SAND MICROELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--EMPLOYEE STOCK OPTION AND BENEFIT PLANS: (CONTINUED)
Plan activity was as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------
WEIGHTED
OPTIONS AVERAGE
AVAILABLE NUMBER OF EXERCISE
FOR GRANT OPTIONS PRICE
--------- --------- --------
<S> <C> <C> <C>
Outstanding at December 31, 1995............................ 1,930,000 70,000 $0.03
Options granted........................................... (625,000) 625,000 0.04
Options canceled.......................................... 15,000 (15,000) 0.10
--------- -------- -----
Outstanding at December 31, 1996............................ 1,320,000 680,000 0.04
Options granted........................................... (68,750) 68,750 0.14
Options canceled.......................................... 2,500 (2,500) 0.15
Options exercised......................................... -- (105,000) 0.03
--------- -------- -----
Balance at December 31, 1997................................ 1,253,750 641,250 $0.05
========= ======== =====
</TABLE>
At December 31, 1996 and 1997, options to purchase 17,500 and 191,250,
respectively, were exercisable.
The following table summarizes information about employee and consultant
stock options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED -----------------------
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICE PER SHARE 1997 LIFE PRICE 1997 PRICE
- --------------- -------------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$0.03 488,750 8.64 $0.03 165,000 $0.03
0.10 90,000 8.20 0.10 26,250 0.10
0.15 62,500 9.71 0.15 -- 0.15
------- ---- ----- ------- -----
641,250 8.68 0.05 191,250 0.04
======= ==== ===== ======= =====
</TABLE>
On February 6, 1998, the Company adopted the 1998 Incentive Stock Option
Plan and 1,253,750 shares remaining in the previous plan were reserved for under
this new plan.
F-28
<PAGE>
SAND MICROELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--EMPLOYEE STOCK OPTION AND BENEFIT PLANS: (CONTINUED)
PRO FORMA DISCLOSURES
Had compensation cost for the Plan been determined based on the fair value
of each stock option grant on its grant date, as prescribed in FAS 123, the
Company's net income would have been as follows:
<TABLE>
<CAPTION>
DECEMBER 31, YEAR ENDED
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Net income after taxes:
As reported............................................... $1,416,000 $ 203,000
Pro forma................................................. $1,414,000 $ 202,000
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions used for grants during
the respective years:
<TABLE>
<CAPTION>
DECEMBER 31, YEAR ENDED
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Expected life (in years).................................... 4 4
Risk-free interest rate..................................... 6.48% 6.23%
Volatility.................................................. 0% 0%
Dividend yield.............................................. 0% 0%
</TABLE>
The weighted average fair value of options granted was $0.01 per share for
the year ended December 31, 1996 and $0.03 for the year end December 31, 1997.
Because additional option grants are expected to be made each year, the
above pro forma disclosures are not representative of the pro forma effects on
option grants on reported net income for future years.
The Company offers its employees a 401(k) plan that qualifies as a deferred
salary arrangement under Section 401 of the Internal Revenue Code. Under the
401(k) plan, participating employees may defer a portion of their pretax
earnings not to exceed certain statutorily specified amounts ($9,500 for the
calendar year 1997). The Company, at its discretion, may make contributions for
the benefit of eligible employees. In fiscal 1997, the Company made
contributions of $26,000 under the 401(k) plan.
NOTE 7--COMMITMENTS:
LEASES
The Company leases equipment and office space under noncancelable operating
and capital leases. In January 1998, the Company entered into a sublease
agreement for a portion of its primary office facility with a third party. Rent
expense for the years ended December 31, 1996 and 1997 was $63,000 and $51,000,
respectively. The terms of the facility lease provide for rental payments on a
graduated scale. The Company recognizes rent expense on a straight-line basis
over the lease period, and has accrued for rent expense incurred but not paid.
F-29
<PAGE>
SAND MICROELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--COMMITMENTS: (CONTINUED)
Future minimum lease payments under noncancelable operating and capital
leases, including lease commitments entered into subsequent to December 31,
1997, and future minimum sub-lease rental receipts under noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING SUB-LEASE
YEAR ENDED DECEMBER 31, LEASES LEASES INCOME
- ----------------------- -------- --------- ---------
<S> <C> <C> <C>
1998........................................................ $ 38,000 $238,000 $ 97,000
1999........................................................ 9,000 189,000 15,000
2000........................................................ -- 168,000 --
2001........................................................ -- 7,000 --
-------- -------- --------
Total minimum lease payments and sublease income............ 47,000 $602,000 $112,000
======== ========
Less: amount representing interest.......................... 3,000
--------
Present value of capital lease obligations.................. 44,000
Less: current portion....................................... (32,000)
--------
Long-term portion of capital lease obligations.............. $ 12,000
========
</TABLE>
F-30
<PAGE>
[BACK PAGE]
Color artwork of a semiconductor wafer and the inSilicon logo.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by inSilicon in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
<S> <C> <C>
SEC registration fee........................................ $11,688.20
NASD filing fee............................................. 4,927.50
Nasdaq National Market listing fee.......................... 60,000.00
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky qualification fees and expenses.................... *
Transfer Agent and Registrar fees........................... *
Miscellaneous fees and expenses............................. *
Total................................................. *
</TABLE>
- ------------------------
* to be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VI of inSilicon's By-laws (Exhibits
3.3 and 3.4) provide for indemnification of inSilicon's directors and officers
to the maximum extent permitted by Delaware Law. In addition, inSilicon will
enter into Indemnification Agreements (Exhibit 10.3) with its officers and
directors. The Underwriting Agreement (Exhibit 1.1) also provides for
cross-indemnification among inSilicon, and the Underwriters with respect to
certain matters, including matters arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its incorporation, inSilicon has sold and issued the following
securities:
1. On November 15, 1999, inSilicon issued 10 shares of its common stock to
Phoenix for an aggregate cash consideration of $1,000.
2. As of November 30, 1999, inSilicon agreed to issue 10,400,000 shares of
Series A Preferred Stock and a warrant to purchase 50,000 shares of common stock
at $0.01 per share to Phoenix in consideration for Phoenix's contribution of
assets to inSilicon, which shares and warrant were subsequently issued.
3. As of December 21, 1999, inSilicon issued 2,348,844 options to purchase
common stock of inSilicon with a weighted average price of $6.14 per share to a
number of employees, directors and consultants of inSilicon.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES (CONTINUED)
any public offering. In addition, certain issuances described in Item 2 were
deemed exempt from registration under the Securities Act in reliance upon
Rule 701 promulgated under the Securities Act. The recipients of securities in
each such transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. All recipients had
adequate access, through their relationships with inSilicon, to information
about inSilicon.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of
inSilicon Corporation.
3.2 Amended and Restated Certificate of Incorporation of
inSilicon Corporation (proposed).*
3.3 By-laws of inSilicon Corporation.
3.4 Amended and Restated By-laws of inSilicon Corporation
(proposed).*
4.1 Specimen Stock Certificate.*
4.2 Common Stock Purchase Warrant.
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP regarding the
legality of the common stock being registered.*
10.1 Agreement and Plan of Reorganization dated as of
September 17, 1998 by and among Phoenix Technologies Ltd.,
Phoenix Sub Corporation, Sand Microelectronics, Inc. and
Babu Chilukuri, Anand C. Naidu and Ajit Deora.
10.2 Contribution Agreement dated as of November 30, 1999,
between inSilicon Corporation and Phoenix Technologies Ltd.*
10.3 Form of Indemnification Agreement between inSilicon
Corporation and each of its Officers and Directors.*
10.4 1999 Stock Option Plan.*
10.5 2000 Stock Plan.*
10.6 2000 Employee Stock Purchase Plan.*
10.7 Initial Public Offering Agreement dated as of November 30,
1999 by and between inSilicon Corporation and Phoenix
Technologies Ltd.*
10.8 Registrations Right Agreement dated as of November 30, 1999
by and between inSilicon Corporation and Phoenix
Technologies Ltd.*
10.9 Services and Cost-Sharing Agreement dated as of
November 30, 1999 by and between inSilicon Corporation and
Phoenix Technologies Ltd.*
10.10 Employee Matters Agreement dated as of November 30, 1999 by
and between inSilicon Corporation and Phoenix Technologies
Ltd.*
10.11 Tax-Sharing Agreement dated as of November 30, 1999 by and
between inSilicon Corporation and Phoenix Technologies Ltd.*
10.12 Asian Representation and Distribution Agreements dated as of
November 30, 1999 by and between inSilicon Corporation and
Phoenix Technologies Ltd.*
10.13 Key Executive Officer Severance Agreement with Chief
Executive Officer.*
10.14 Key Executive Officer Severance Agreement with Chief
Financial Officer.*
10.15 Key Executive Officer Severance Agreement with Chief
Technical Officer.*
10.16 Form of Key Executive Officer Severance Agreement with other
Officers.*
21.1 List of Subsidiaries.
</TABLE>
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
23.1 Consent of Ernst & Young LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Orrick, Herrington & Sutcliffe LLP.*
24.1 Power of Attorney (included on page II-4).
27.1 Financial Data Schedule.
99.1 Consent of Person About to Become Director for Raymond J.
Farnham.
99.2 Consent of Person About to Become Director for E. Thomas
Hart.
</TABLE>
- ------------------------
* To be supplied by amendment.
(b) Financial Statement Schedules
Schedule II--Valuations and Qualifying Account
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of San Jose, State of
California on January 12, 2000.
<TABLE>
<S> <C> <C>
INSILICON CORPORATION
By: /s/ WAYNE C. CANTWELL
----------------------------------------
Wayne C. Cantwell
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severally, Wayne C. Cantwell
and William E. Meyer, and each of them, as his attorney-in-fact, with full power
of substitution, for him in any and all capacities, to sign any and all
amendments to this registration statement (including post-effective amendments),
and any and all registration statements filed pursuant to Rule 462 under the
Securities Act of 1933, as amended, in connection with or related to the
offering contemplated by this registration statement and its amendments, if any,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by such attorney to any and all
amendments to such registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WAYNE C. CANTWELL President, Chief Executive Officer and January 12, 2000
- ---------------------------- Director (Principal Executive Officer)
Wayne C. Cantwell
/s/ WILLIAM E. MEYER Chief Financial Officer and Director January 12, 2000
- ---------------------------- (Principal Financial Officer and
William E. Meyer Principal Accounting Officer)
/s/ ALBERT E. SISTO Director January 12, 2000
- ----------------------------
Albert E. Sisto
</TABLE>
II-4
<PAGE>
INSILICON CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
DESCRIPTION BEGINNING OF YEAR PROVISIONS WRITE-OFFS END OF YEAR
- ----------- ----------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended September 30, 1999....... $198 224 $(58) $364
Year ended September 30, 1998....... 224 (21) (5) 198
Year ended September 30, 1997....... 25 199 -- 224
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
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<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of
inSilicon Corporation.
3.2 Amended and Restated Certificate of Incorporation of
inSilicon Corporation (proposed).*
3.3 By-laws of inSilicon Corporation.
3.4 Amended and Restated By-laws of inSilicon Corporation
(proposed).*
4.1 Specimen Stock Certificate.*
4.2 Common Stock Purchase Warrant.
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP regarding the
legality of the common stock being registered.*
10.1 Agreement and Plan of Reorganization dated as of
September 17, 1998 by and among Phoenix Technologies Ltd.,
Phoenix Sub Corporation, Sand Microelectronics, Inc. and
Babu Chilukuri, Anand C. Naidu and Ajit Deora.
10.2 Contribution Agreement dated as of November 30, 1999,
between inSilicon Corporation and Phoenix Technologies Ltd.*
10.3 Form of Indemnification Agreement between inSilicon
Corporation and each of its Officers and Directors.*
10.4 1999 Stock Option Plan.*
10.5 2000 Stock Plan.*
10.6 2000 Employee Stock Purchase Plan.*
10.7 Initial Public Offering Agreement dated as of November 30,
1999 by and between inSilicon Corporation and Phoenix
Technologies Ltd.*
10.8 Registrations Right Agreement dated as of November 30, 1999
by and between inSilicon Corporation and Phoenix
Technologies Ltd.*
10.9 Services and Cost-Sharing Agreement dated as of
November 30, 1999 by and between inSilicon Corporation and
Phoenix Technologies Ltd.*
10.10 Employee Matters Agreement dated as of November 30, 1999 by
and between inSilicon Corporation and Phoenix Technologies
Ltd.*
10.11 Tax-Sharing Agreement dated as of November 30, 1999 by and
between inSilicon Corporation and Phoenix Technologies Ltd.*
10.12 Asian Representation and Distribution Agreements dated as of
November 30, 1999 by and between inSilicon Corporation and
Phoenix Technologies Ltd.*
10.13 Key Executive Officer Severance Agreement with Chief
Executive Officer.*
10.14 Key Executive Officer Severance Agreement with Chief
Financial Officer.*
10.15 Key Executive Officer Severance Agreement with Chief
Technical Officer.*
10.16 Form of Key Executive Officer Severance Agreement with other
Officers.*
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Orrick, Herrington & Sutcliffe LLP.*
24.1 Power of Attorney (included on page II-4).
27.1 Financial Data Schedule.
99.1 Consent of Person About to Become Director for Raymond J.
Farnham.
99.2 Consent of Person About to Become Director for E. Thomas
Hart.
</TABLE>
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* To be supplied by amendment.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INSILICON CORPORATION
The undersigned, Wayne C. Cantwell and David J. Power, hereby certify
that:
1. They are the duly elected and acting President and Assistant
Secretary, respectively, of inSilicon Corporation, a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on November 1, 1999.
3. As of the date hereof, inSilicon Corporation has issued 10 shares
of Common Stock and has received payment therefor, and the directors of
inSilicon Corporation are Albert E. Sisto, William E. Meyer, Wayne C. Cantwell.
4. The Certificate of Incorporation of this corporation shall be
amended and restated to read in full as follows:
ARTICLE I
"The name of this corporation is inSilicon Corporation (the
"CORPORATION").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
(A) CLASSES OF STOCK. The Corporation is authorized to issue two classes of
stock to be designated, respectively, "COMMON STOCK" and "PREFERRED STOCK." The
total number of shares which the Corporation is authorized to issue is
115,000,000 shares, each with a par value of $0.001 per share. 100,000,000
shares shall be Common Stock and 15,000,000 shares shall be Preferred Stock.
<PAGE>
(B) RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The Preferred
Stock authorized by this Amended and Restated Certificate of Incorporation may
be issued from time to time in one or more series. The first series of Preferred
Stock shall be designated "SERIES A PREFERRED STOCK" and shall consist of
10,400,000 shares. The rights, preferences, privileges, and restrictions granted
to and imposed on the Series A Preferred Stock are as set forth below in this
Article IV(B).
1. DIVIDEND PROVISIONS. Subject to the rights of series of Preferred
Stock which may from time to time come into existence, the holders of shares of
Series A Preferred Stock shall be entitled to receive dividends, out of any
assets legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of the Corporation) on the
Common Stock of the Corporation, at the rate of 8% per share (as adjusted for
stock splits, stock dividends, reclassification and the like) per annum on each
outstanding share of Series A Preferred Stock, payable quarterly when, as and if
declared by the Board of Directors. Such dividends shall not be cumulative.
2. LIQUIDATION.
(a) PREFERENCE. In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, subject to the
rights of series of Preferred Stock that may from time to time come into
existence, the holders of the Series A Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of the
Corporation to the holders of Common Stock by reason of their ownership thereof,
an amount per share equal to $8.66 per share (as adjusted for stock splits,
stock dividends, reclassification and the like) for each share of Series A
Preferred Stock then held by them, plus declared but unpaid dividends. If, upon
the occurrence of such event, the assets and funds thus distributed among the
holders of the Series A Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then,
subject to the rights of series of Preferred Stock that may from time to time
come into existence, the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Stock in proportion to the preferential amount each such
holder is otherwise entitled to receive.
(b) REMAINING ASSETS. Upon the completion of the distribution
required by Section 2(a) above and any other distributions that may be required
with respect to series of Preferred Stock that may from time to time come into
existence, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among the holders of the Series A Preferred
Stock and the Common Stock pro rata based on the number of shares of Common
Stock held by each (assuming full conversion of all such Series A Preferred
Stock).
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<PAGE>
(c) CERTAIN ACQUISITIONS.
(i) DEEMED LIQUIDATION. For purposes of this Section 2, a
liquidation, dissolution or winding up of the Corporation shall be deemed to
occur if the Corporation shall sell, convey, or otherwise dispose of all or
substantially all of its assets or business or merge into or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) or
effect any other transaction or series of related transactions in which
stockholders of the Corporation immediately prior to such event do not own fifty
percent (50%) or more of the voting power of the surviving corporation; PROVIDED
that this Section 2(c)(i) shall not apply to a merger effected exclusively for
the purpose of changing the domicile of the Corporation.
(ii) VALUATION OF CONSIDERATION. In the event of a deemed
liquidation as described in Section 2(c)(i) above, if the consideration received
by the Corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or
other similar restrictions on free marketability:
(1) If traded on a securities exchange or The
Nasdaq Stock Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty-day period ending
three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
Corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in Section 2(c)(ii)(A) to reflect the approximate fair
market value thereof, as mutually determined by the Corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
Preferred Stock.
(iii) NOTICE OF TRANSACTION. The Corporation shall give each
holder of record of Series A Preferred Stock written notice of such impending
transaction not later than ten (10) days prior to the stockholders' meeting
called to approve such transaction, or ten (10) days prior to the closing of
such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this
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<PAGE>
Section 2, and the Corporation shall thereafter give such holders prompt notice
of any material changes. The transaction shall in no event take place sooner
than ten (10) days after the Corporation has given the first notice provided for
herein or sooner than ten (10) days after the Corporation has given notice of
any material changes provided for herein; provided, however, that such periods
may be shortened upon the written consent of the holders of Preferred Stock that
are entitled to such notice rights or similar notice rights and that represent
at least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
(iv) EFFECT OF NONCOMPLIANCE. In the event the requirements
of this Section 2(c) are not complied with, the Corporation shall forthwith
either cause the closing of the transaction to be postponed until such
requirements have been complied with, or cancel such transaction, in which event
the rights, preferences and privileges of the holders of the Series A Preferred
Stock shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
Section 2(c)(iii) hereof.
3. REDEMPTION. The Preferred Stock is not redeemable.
4. CONVERSION. The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "CONVERSION RIGHTS"):
(a) RIGHT TO CONVERT. Subject to Section 4(c), each share of
Series A Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
the Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing $8.66
by the Conversion Price applicable to such share, determined as hereafter
provided, in effect on the date the certificate is surrendered for conversion.
The initial Conversion Price per share of Series A Preferred Stock shall be
$8.66. Such initial Conversion Price shall be subject to adjustment as set forth
in Section 4(d).
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred Stock
shall automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for such share immediately upon the earlier of (i)
except as provided below in Section 4(c), the Corporation's sale of its Common
Stock in a firm commitment underwritten public offering pursuant to a
registration statement under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the public offering price of which is not less than $7.50 per
share (appropriately adjusted for any stock split, dividend, combination or
other recapitalization) and which results in aggregate gross cash proceeds to
the Corporation of $10 million or (ii) the date specified by written consent or
agreement of the holders of a majority of the then outstanding shares of Series
A Preferred Stock.
(c) MECHANICS OF CONVERSION. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for such
series of Preferred Stock, and shall give written notice to the Corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are
-4-
<PAGE>
to be issued. The Corporation shall, as soon as practicable thereafter, issue
and deliver at such office to such holder of Preferred Stock, or to the nominee
or nominees of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of such series of Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of such date.
If the conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act the conversion may, at the option of
any holder tendering such Preferred Stock for conversion, be conditioned upon
the closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive Common Stock upon
conversion of such Preferred Stock shall not be deemed to have converted such
Preferred Stock until immediately prior to the closing of such sale of
securities.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR CERTAIN
DILUTIVE ISSUANCES, SPLITS AND COMBINATIONS. The Conversion Price of the Series
A Preferred Stock shall be subject to adjustment from time to time as follows:
(i) ISSUANCE OF ADDITIONAL STOCK BELOW PURCHASE PRICE . If
the Corporation shall issue, after the date upon which any shares of Series A
Preferred Stock were first issued (the "PURCHASE DATE" with respect to such
series), any Additional Stock (as defined below) without consideration or for a
consideration per share less than the Conversion Price for such series in effect
immediately prior to the issuance of such Additional Stock, the Conversion Price
for such series in effect immediately prior to each such issuance shall
automatically be adjusted as set forth in this Section 4(d)(i), unless otherwise
provided in this Section 4(d)(i).
(A) ADJUSTMENT FORMULA. Whenever the Conversion Price
is adjusted pursuant to this Section (4)(d)(i), the new Conversion Price shall
be determined by multiplying the Conversion Price then in effect by a fraction,
(x) the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (the "OUTSTANDING COMMON") plus
the number of shares of Common Stock that the aggregate consideration received
by the Corporation for such issuance would purchase at such Conversion Price;
and (y) the denominator of which shall be the number of shares of Outstanding
Common plus the number of shares of such Additional Stock. For purposes of the
foregoing calculation, the term "Outstanding Common" shall include shares of
Common Stock deemed issued pursuant to Section 4(d)(i)(E) below.
(B) DEFINITION OF "ADDITIONAL STOCK". For purposes of
this Section 4(d)(i), "ADDITIONAL STOCK" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to Section 4(d)(i)(E)) by the
Corporation after the Purchase Date) other than
-5-
<PAGE>
(1) Common Stock issued pursuant to a
transaction described in Section 4(d)(ii) hereof,
(2) Shares of Common Stock issuable or issued
to employees, consultants or directors of the Corporation directly or pursuant
to a stock option plan or restricted stock plan approved by the Board of
Directors of the Corporation,
(3) Capital stock, or options or warrants to
purchase capital stock, issued to financial institutions or lessors in
connection with commercial credit arrangements, equipment financings or similar
transactions,
(4) Shares of Common Stock or Preferred Stock
issuable upon exercise of options, warrants, notes or other rights to acquire
securities of the Corporation outstanding as of the date of this Amended and
Restated Certificate of Incorporation,
(5) Capital stock or warrants or options to
purchase capital stock issued in connection with bona fide acquisitions, mergers
or similar transactions, the terms of which are approved by the Board of
Directors of the Corporation,
(6) Shares of Common Stock issued or issuable
upon conversion of the Series A Preferred Stock, and
(7) Shares of Common Stock issued or issuable
in a public offering prior to or in connection with which all outstanding shares
of Series A Preferred Stock will be converted to Common Stock.
(C) NO FRACTIONAL ADJUSTMENTS. No adjustment of the
Conversion Price for the Series A Preferred Stock shall be made in an amount
less than one cent per share, provided that any adjustments which are not
required to be made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment made prior to
three (3) years from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of three (3) years from the date of
the event giving rise to the adjustment being carried forward.
(D) DETERMINATION OF CONSIDERATION. In the case of the
issuance of Common Stock for cash, the consideration shall be deemed to be the
amount of cash paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
In the case of the issuance of the Common Stock for a consideration in whole or
in part other than cash, the consideration other than cash shall be deemed to be
the fair value thereof as determined by the Board of Directors irrespective of
any accounting treatment.
(E) DEEMED ISSUANCES OF COMMON STOCK. In the case of
the issuance (whether before, on or after the applicable Purchase Date) of
options to purchase or rights to subscribe for Common Stock, securities by their
terms convertible into or
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<PAGE>
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this Section 4(d)(i):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
Section 4(d)(i)(D)), if any, received by the Corporation upon the issuance of
such options or rights plus the minimum exercise price provided in such options
or rights (without taking into account potential antidilution adjustments) for
the Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the Corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in Section
4(d)(i)(D).
(3) In the event of any change in the number
of shares of Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of the Series A Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
securities.
(4) Upon the expiration of any such options
or rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A Preferred Stock, to the extent
in any way affected by or computed using such options, rights or securities or
options or rights related to such securities, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and convertible or
exchangeable securities which remain in effect) actually issued upon the
exercise of such options or rights,
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<PAGE>
upon the conversion or exchange of such securities or upon the exercise of the
options or rights related to such securities.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor pursuant to Sections
4(d)(i)(E)(1) and 4(d)(i)(E)(2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either Section
4(d)(i)(E)(3) or 4(d)(i)(E)(4).
(F) NO INCREASED CONVERSION PRICE. Notwithstanding any
other provisions of this Section (4)(d)(i), except to the limited extent
provided for in Sections 4(d)(i)(E)(3) and 4(d)(i)(E)(4), no adjustment of the
Conversion Price pursuant to this Section 4(d)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect immediately
prior to such adjustment.
(ii) STOCK SPLITS AND DIVIDENDS. In the event the
Corporation should at any time or from time to time after the Purchase Date fix
a record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "COMMON STOCK EQUIVALENTS") without payment of
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Conversion Price of the Series A Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be increased in proportion to such
increase of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents with the number of shares
issuable with respect to Common Stock Equivalents determined from time to time
in the manner provided for deemed issuances in Section 4 (d)(i)(E) as provided
in Section 4(d)(iii) below.
(iii) REVERSE STOCK SPLITS. If the number of shares of
Common Stock outstanding at any time after the Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for the Series A Preferred
Stock shall be appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of such series shall be decreased in
proportion to such decrease in outstanding shares.
(e) OTHER DISTRIBUTIONS. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 4(d)(i), then, in
each such case for the purpose of this Section 4(e), the holders of Series A
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the
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<PAGE>
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(f) RECAPITALIZATIONS. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of the
Series A Preferred Stock shall thereafter be entitled to receive upon conversion
of such Preferred Stock the number of shares of stock or other securities or
property of the Corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of such
Preferred Stock after the recapitalization to the end that the provisions of
this Section 4 (including adjustment of the Conversion Price then in effect and
the number of shares purchasable upon conversion of such Preferred Stock) shall
be applicable after that event and be as nearly equivalent as practicable.
(g) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Preferred Stock against impairment.
(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon the conversion
of any share or shares of the Series A Preferred Stock, and the number of shares
of Common Stock to be issued shall be rounded to the nearest whole share. The
number of shares issuable upon such conversion shall be determined on the basis
of the total number of shares of Series A Preferred Stock the holder is at the
time converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A Preferred Stock pursuant to this Section 4,
the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of such Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price for the Series A Preferred Stock at the
time in effect, and (C) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of a share of the Series A Preferred Stock.
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<PAGE>
(i) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series A Preferred Stock, at least ten (10) days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of such series of Preferred Stock; and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares of
such series of Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including, without limitation, engaging
in best efforts to obtain the requisite stockholder approval of any necessary
amendment to this Certificate of Incorporation.
(k) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series A Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
5. VOTING RIGHTS. The holder of each share of Series A Preferred Stock
shall have the right to one (1) vote for each share of Common Stock into which
such Preferred Stock could then be converted, and with respect to such vote,
such holder shall have full voting rights and powers equal to the voting rights
and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the By-Laws of the Corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an
as-converted basis (after aggregating all shares into which shares of Series A
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward). So long as 5,000,000
shares of Preferred Stock shall remain outstanding, the Preferred Stock, voting
together as a class, shall be entitled to elect one (1) member of the
Corporation's Board of Directors, and the remaining members shall be elected by
the holders of the Preferred Stock and the holders of Common Stock voting
together as a class.
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<PAGE>
6. PROTECTIVE PROVISIONS. Subject to the rights of series of Preferred
Stock which may from time to time come into existence, the Corporation shall not
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of at least a majority of Series A Preferred Stock then
outstanding:
(a) effect a transaction described in Section 2(c)(i) above;
(b) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock so as to affect adversely the shares of such
series;
(c) increase or decrease (other than by conversion) the total
number of authorized shares of Series A Preferred Stock;
(d) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security (i) having a preference over, or being on a parity with,
the Series A Preferred Stock with respect to voting, dividends, conversion or
upon liquidation or (ii) having rights similar to any of the rights of the
Series A Preferred Stock under this Section 6;
(e) redeem, purchase or otherwise acquire (or pay into or set
funds aside for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; PROVIDED, HOWEVER, that this restriction shall
not apply to the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for the Corporation
or any subsidiary pursuant to agreements under which the Corporation has the
option to repurchase such shares at cost upon the occurrence of certain events,
such as the termination of employment, or through the exercise of any right of
first refusal;
(g) change the authorized number of directors of the Corporation;
or
(f) amend the Corporation's Certificate of Incorporation or
By-Laws in a manner which materially adversely affects the holders of the Series
A Preferred Stock.
7. STATUS OF CONVERTED STOCK. In the event any shares of Preferred
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be cancelled and shall not be issuable by the Corporation. The Certificate
of Incorporation of the Corporation shall be appropriately amended to effect the
corresponding reduction in the Corporation's authorized capital stock.
(C) COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
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<PAGE>
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up
of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Article IV(B).
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holder of each share of Common Stock shall have
the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the By-Laws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
The Board of Directors of the Corporation is expressly authorized to
make, alter or repeal By-Laws of the Corporation.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by
applicable law, the Board of Directors shall have the power to adopt, amend or
repeal By-Laws, subject to the power of the stockholders of the Corporation
under the General Corporation Law of the State of Delaware to adopt, amend or
repeal any By-Law.
ARTICLE VII
(A) To the fullest extent permitted by the General Corporation Law of
the State of Delaware, as it exists on the date hereof or as it may hereafter be
amended, no director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director of the Corporation. Without limiting the effect of the
preceding sentence, if the General Corporation Law of the State of Delaware is
hereafter amended to authorize the further elimination or limitation of the
liability of a director, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended.
(B) Neither any amendment nor repeal of this Article VII, nor the
adoption of any provision of this Certificate of Incorporation inconsistent with
this Article VII, shall eliminate or reduce or otherwise adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such amendment, repeal or adoption of an inconsistent provision."
* * *
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<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has
been duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Sections 141, 228, 242 and 245 of
the General Corporation Law of the State of Delaware.
Executed at San Jose, California, on January 10, 2000.
/s/ WAYNE C. CANTWELL
---------------------
Wayne C. Cantwell, President
/s/ DAVID J. POWER
------------------
David J. Power, Assistant Secretary
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<PAGE>
EXHIBIT 3.3
BY-LAWS
OF
INSILICON CORPORATION
A DELAWARE CORPORATION
As adopted on November 4, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1. Registered Office. . . . . . . . . . . . . . . . .1
Section 2. General Office and Other Offices . . . . . . . . .1
ARTICLE II STOCKHOLDERS' MEETINGS. . . . . . . . . . . . . . . . .1
Section 3. Annual Meeting . . . . . . . . . . . . . . . . . .1
Section 4. Special Meetings . . . . . . . . . . . . . . . . .1
Section 5. Place of Meetings. . . . . . . . . . . . . . . . .1
Section 6. Notice of Meetings . . . . . . . . . . . . . . . .1
Section 7. List of Stockholders . . . . . . . . . . . . . . .2
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . .2
Section 9. Voting and Required Vote . . . . . . . . . . . . .2
Section 10. Proxies. . . . . . . . . . . . . . . . . . . . . .3
Section 11. Stockholder Action by Written Consent. . . . . . .3
ARTICLE III BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . .3
Section 12. General Powers, Number, Term of Office . . . . . .3
Section 13. Vacancies. . . . . . . . . . . . . . . . . . . . .3
Section 14. Chairman of the Board. . . . . . . . . . . . . . .3
Section 15. Regular Meetings . . . . . . . . . . . . . . . . .3
Section 16. Special Meetings . . . . . . . . . . . . . . . . .4
Section 17. Notices. . . . . . . . . . . . . . . . . . . . . .4
Section 18. Conference Telephone Meetings. . . . . . . . . . .4
Section 19. Quorum . . . . . . . . . . . . . . . . . . . . . .4
Section 20. Organization . . . . . . . . . . . . . . . . . . .4
Section 21. Resignations . . . . . . . . . . . . . . . . . . .4
Section 22. Removal. . . . . . . . . . . . . . . . . . . . . .5
Section 23. Action Without a Meeting . . . . . . . . . . . . .5
Section 24. Location of Books. . . . . . . . . . . . . . . . .5
Section 25. Dividends. . . . . . . . . . . . . . . . . . . . .5
Section 26. Compensation . . . . . . . . . . . . . . . . . . .5
Section 27. Additional Powers. . . . . . . . . . . . . . . . .5
ARTICLE IV OFFICERS. . . . . . . . . . . . . . . . . . . . . . . .5
Section 28. Designation. . . . . . . . . . . . . . . . . . . .5
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 29. Election and Term. . . . . . . . . . . . . . . . .6
Section 30. Removal. . . . . . . . . . . . . . . . . . . . . .6
Section 31. Resignations . . . . . . . . . . . . . . . . . . .6
Section 32. Vacancies. . . . . . . . . . . . . . . . . . . . .6
Section 33. President. . . . . . . . . . . . . . . . . . . . .6
Section 34. Vice Presidents. . . . . . . . . . . . . . . . . .6
Section 35. Secretary. . . . . . . . . . . . . . . . . . . . .6
Section 36. Assistant Secretaries. . . . . . . . . . . . . . .6
Section 37. Chief Financial Officer. . . . . . . . . . . . . .6
Section 38. Assistant Treasurers . . . . . . . . . . . . . . .7
Section 39. Controller . . . . . . . . . . . . . . . . . . . .7
Section 40. Assistant Controllers. . . . . . . . . . . . . . .7
ARTICLE V CONTRACTS, INSTRUMENTS AND PROXIES. . . . . . . . . . .7
Section 41. Contracts and Other Instruments. . . . . . . . . .7
Section 42. Proxies. . . . . . . . . . . . . . . . . . . . . .7
ARTICLE VI CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . .8
Section 43. Stock Certificates; Book-Entry Accounts. . . . . .8
Section 44. Record Ownership . . . . . . . . . . . . . . . . .8
Section 45. Record Dates . . . . . . . . . . . . . . . . . . .8
Section 46. Transfer of Stock. . . . . . . . . . . . . . . . .8
Section 47. Lost, Stolen or Destroyed Certificates . . . . . .8
ARTICLE VII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . .9
Section 48. Right of Indemnification Generally . . . . . . . .9
Section 49. Written Request; Determination of Entitlement. . .9
Section 50. Recovery of Unpaid Claim . . . . . . . . . . . . 10
Section 51. Exclusivity; Subsequent Modification . . . . . . 10
Section 52. Insurance. . . . . . . . . . . . . . . . . . . . 10
Section 53. Other Persons Granted Right of Indemnification . 11
Section 54. Illegality; Unenforceability . . . . . . . . . . 11
Section 55. Form and Delivery of Communications. . . . . . . 11
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 11
Section 56. Corporate Seal . . . . . . . . . . . . . . . . . 11
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
Section 57. Fiscal Year. . . . . . . . . . . . . . . . . . . 11
Section 58. Waiver of Notice . . . . . . . . . . . . . . . . 11
ARTICLE IX AMENDMENT TO BY-LAWS. . . . . . . . . . . . . . . . . 12
Section 59. Amendments . . . . . . . . . . . . . . . . . . . 12
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<PAGE>
BY-LAWS
OF
INSILICON CORPORATION
A DELAWARE CORPORATION
As adopted on November 4, 1999
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The name of the registered agent of
inSilicon Corporation (the "Corporation") is The Corporation Trust Company and
the registered office of the Corporation shall be located in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. GENERAL OFFICE AND OTHER OFFICES. The Corporation shall
have its General Offices in the City of San Jose, State of California (the
"General Offices"), and may also have offices at such other places in or outside
the State of Delaware as the Board of Directors of the Corporation (the "Board
of Directors") may from time to time designate or the business of the
Corporation may require.
ARTICLE II
STOCKHOLDERS' MEETINGS
Section 3. ANNUAL MEETING. An annual meeting of stockholders shall be
held (unless a stockholder written consent described below in lieu of such
meeting is obtained) on such day and at such time as may be designated by the
Board of Directors for the purpose of electing directors and for the transaction
of such other business as properly may come before such meeting.
Section 4. SPECIAL MEETINGS. Special meetings of stockholders for any
proper purpose or purposes may be called by any officer of the Corporation or by
the holder of a majority of outstanding shares of the Common Stock for the
purpose of transacting the business specified in the notice of such special
meeting and for the transaction of such other business as properly may come
before such special meeting.
Section 5. PLACE OF MEETINGS. All meetings of stockholders shall be
held at such place as may be determined by resolution of the Board of Directors.
Section 6. NOTICE OF MEETINGS. Except as otherwise required by
applicable law, notice of each meeting of the stockholders, whether annual or
special, shall be given to each stockholder of record entitled to vote at the
meeting, at least 10 days but not more than 60 days before the date of the
meeting, by mailing such notice in the U.S. mail, postage prepaid,
<PAGE>
addressed to such stockholder at such stockholder's address as the same
appears on the records of the Corporation. Such notice shall state the
place, date and hour of the meeting, and in the case of a special meeting,
shall also state the purpose or purposes thereof.
Section 7. LIST OF STOCKHOLDERS.
(a) The Secretary of the Corporation shall prepare, at least 10
days before each meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
(b) The stock ledger of the Corporation shall be the only
evidence as to the identity of the stockholders entitled (i) to vote in person
or by proxy at any meeting of stockholders, or (ii) to exercise the rights in
accordance with applicable law to examine the stock ledger, the list required by
this By-Law or the books and records of the Corporation.
Section 8. QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of any business at all
meetings of the stockholders, except as otherwise provided by applicable law, by
the Certificate of Incorporation or by these By-Laws. The stockholders present
at any duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of sufficient stockholders to render
the remaining stockholders less than a quorum. Whether or not a quorum is
present, either the Chairman of the meeting or a majority of the stockholders
entitled to vote thereat, present in person or by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting. At such adjourned meeting at which the requisite amount of
voting stock shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally noticed.
Section 9. VOTING AND REQUIRED VOTE. Subject to the provisions of the
Certificate of Incorporation, each stockholder shall, at every meeting of
stockholders, be entitled to one vote for each share of Common Stock held by
such stockholder. Subject to the provisions of the Certificate of Incorporation
and applicable law, directors shall be chosen by the vote of a plurality of the
shares present in person or represented by proxy at the meeting; and all other
questions shall be determined by the affirmative vote of the majority of shares
present in person or represented by proxy at the meeting.
2
<PAGE>
Section 10. PROXIES. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for such stockholder
by proxy, provided the instrument authorizing such proxy to act shall have been
executed in writing in the manner prescribed by applicable law. No proxy shall
be voted or acted upon after three years from its date, unless the proxy
provides for a longer period.
Section 11. STOCKHOLDER ACTION BY WRITTEN CONSENT. Any action required
or permitted to be taken by the stockholders of the Corporation may be effected
by a written consent of the holders of a majority of the outstanding shares of
the Common Stock entitled to vote thereon, in lieu of a meeting of such
stockholders.
ARTICLE III
BOARD OF DIRECTORS
Section 12. GENERAL POWERS, NUMBER, TERM OF OFFICE. The business of
the Corporation shall be managed under the direction of its Board of Directors.
The number of directors that shall constitute the initial Board of Directors
shall be three. Thereafter, the number of directors that shall constitute the
whole Board of Directors shall be fixed from time to time by resolution of the
Board of Directors.
Section 13. VACANCIES. Vacancies resulting from death, resignation,
retirement, disqualification, removal from office or other cause, and newly
created directorships resulting from any increase in the authorized number of
directors, may be filled by the affirmative vote of (i) the holders of a
majority of the outstanding shares of the Common Stock entitled to vote thereon,
(ii) a majority of the remaining directors, though less than a quorum of the
Board of Directors or (iii) by a sole remaining director. Directors so chosen
shall hold office for a term expiring at the next annual meeting of stockholders
and until such director's successor shall have been duly elected and qualified.
Section 14. CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors shall be chosen from among the directors. The Chairman of the
Board shall preside at all meetings of the stockholders and of the Board of
Directors, except as may be otherwise required under applicable law. The
Chairman shall act in an advisory capacity with respect to matters of policy
and other matters of importance pertaining to the affairs of the Corporation.
The Chairman shall also perform such other duties as may be assigned to the
Chairman by these By-Laws or the Board of Directors.
Section 15. REGULAR MEETINGS. The Board of Directors by resolution may
provide for the holding of regular meetings and may fix the times and places at
which such meetings shall be held. Notice of regular meetings shall not be
required; provided that whenever the time or place of regular meetings shall be
fixed or changed, notice of such action shall be given promptly to each
director, as provided in Section 17, who was not present at the meeting at which
such action was taken.
3
<PAGE>
Section 16. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board of
Directors, the President, or by the holders of a majority of the outstanding
shares of Common Stock of the Corporation.
Section 17. NOTICES. Notice of any special meeting of the Board of
Directors shall be addressed to each director at such director's residence or
business address and shall be sent to such director by mail, electronic mail,
telecopier, telegram or telex or telephoned or delivered to such Director
personally. If such notice is sent by mail, it shall be sent not later than
three days before the day on which the meeting is to be held. If such notice is
sent by electronic mail, telecopier, telegram or telex, it shall be sent not
later than 12 hours before the time at which the meeting is to be held. If such
notice is delivered personally, it shall be received not later than 12 hours
before the time at which the meeting is to be held. If such notice is
telephoned, it shall be to such telephone number or numbers of which the
director from time to time shall advise the Secretary for receiving such notice.
If given by telephone call, notice shall be deemed given to a director when a
message stating the time, place and purpose of the meeting is left with a person
answering the telephone at any such number with a request that the director be
so informed, or if no such telephone number is answered, then when at least two
attempts have been made to reach each telephone number designated by the
director for receiving telephonic notice, with an interval of not less than one
hour. A certification shall be prepared and filed with the minutes stating the
date, time and results of telephonic notice given to any director not present at
a meeting with respect to which his waiver of notice of meeting is not filed
with the minutes. In all cases, such notice shall state the time, place and
purpose or purposes of the meeting.
Section 18. CONFERENCE TELEPHONE MEETINGS. Members of the Board of
Directors or any committee thereof may participate in a meeting of the Board of
Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 19. QUORUM. One-half of the total number of directors
constituting the whole Board shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but if less than such
required number of directors for a quorum is present at a meeting, a majority of
the directors present may adjourn the meeting from time to time without further
notice. Except as otherwise specifically provided by applicable law, the
Certificate of Incorporation or these By-Laws, the act of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 20. ORGANIZATION. At each meeting of the Board of Directors,
the Chairman of the Board or, in the Chairman's absence, the President, if a
member of the Board of Directors, or, in the absence of each of them, a chairman
chosen by a majority of the directors present, shall act as chairman of the
meeting, and the Secretary or, in the Secretary's absence, an Assistant
Secretary or any individual appointed by the chairman of the meeting, shall act
as secretary of the meeting.
Section 21. RESIGNATIONS. Any director may resign at any time by
giving written notice to the Chairman of the Board, the President or the
Secretary of the Corporation. Such resignation shall take effect upon receipt
thereof or at any later time specified therein and, unless
4
<PAGE>
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 22. REMOVAL. Any director may be removed from office at any
time or from time to time for or without cause by the affirmative vote of the
holders of at least a majority of the voting power of the then outstanding
Voting Stock, voting together as a single class. For purposes of these By-Laws,
"Voting Stock" shall mean the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors.
Section 23. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or the
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 24. LOCATION OF BOOKS. Except as otherwise provided by
resolution of the Board of Directors and subject to applicable law, the books of
the Corporation may be kept at the General Offices and at such other places as
may be necessary or convenient for the business of the Corporation.
Section 25. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation and applicable law, dividends upon the capital stock of the
Corporation may be declared by the Board of Directors. Dividends may be paid in
cash, in property, or in shares of the Corporation's capital stock.
Section 26. COMPENSATION. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, the Board of Directors shall have
the authority to fix from time to time the compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and the performance of their responsibilities as
directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors and/or a stated salary as director. No such payment shall
preclude any director from serving the Corporation or its parent or subsidiary
corporations in any other capacity and receiving compensation therefor. The
Board of Directors may also allow compensation for members of special or
standing committees for service on such committees.
Section 27. ADDITIONAL POWERS. In addition to the powers and
authorities by these By-Laws expressly conferred upon it, the Board of Directors
may exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the stockholders.
ARTICLE IV
OFFICERS
Section 28. DESIGNATION. The officers of the Corporation shall be the
President and a Secretary. The Board of Directors may also elect a Chief
Financial Officer, one or more Vice Presidents, Assistant Secretaries, Assistant
Treasurers, a Controller, one or more Assistant
5
<PAGE>
Controllers and such other officers as it shall deem necessary. Any number of
offices may be held by the same person.
Section 29. ELECTION AND TERM. The Board of Directors shall from time
to time elect the officers of the Corporation, and each such officer shall hold
office until the officer's successor is elected and qualified or until the
officer's earlier death, resignation or removal.
Section 30. REMOVAL. Any officer shall be subject to removal or
suspension at any time, for or without cause, by the Board of Directors.
Section 31. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Chairman of the Board, the President or to the Secretary.
Such resignation shall take effect upon receipt thereof or at any later time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 32. VACANCIES. A vacancy in any office because of death,
resignation, removal or any other cause may be filled by the Board of Directors.
Section 33. PRESIDENT. Subject to such supervisory powers, if any, as
may be given to the Board of Directors to the Chairman of the Board, the
President shall be the chief executive officer of the Corporation and shall have
the general and active management and supervision of the business of the
Corporation. The President, if a member of the Board of Directors, shall, in
the absence of the Chairman of the Board, preside at all meetings of the
stockholders and of the Board of Directors. The President shall see that all
orders and resolutions of the Board of Directors are carried into effect. The
President shall also perform such other duties as may be assigned to the
President by these By-Laws or the Board of Directors. The President shall
designate who shall perform the duties of the chief executive officer in the
President's absence.
Section 34. VICE PRESIDENTS. Each Vice President shall perform the
duties and functions and exercise the powers assigned to such Vice President by
the Board of Directors or the President.
Section 35. SECRETARY. The Secretary shall attend the meetings of the
Board of Directors and of the stockholders and record all votes and the minutes
of all proceedings in a book to be kept for that purpose. The Secretary shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors and, when appropriate, shall cause
the corporate seal to be affixed to any instruments executed on behalf of the
Corporation. The Secretary shall also perform all duties incident to the office
of Secretary and such other duties as may be assigned to the Secretary by these
By-Laws, the Board of Directors, the Chairman of the Board or the President.
Section 36. ASSISTANT SECRETARIES. The Assistant Secretaries shall,
during the absence of the Secretary, perform the duties and functions and
exercise the powers of the Secretary. Each Assistant Secretary shall perform
such other duties as may be assigned to such Assistant Secretary by the Board of
Directors, the Chairman of the Board, the President or the Secretary.
Section 37. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall be the Treasurer and shall have the custody of the funds and securities
of the Corporation and shall
6
<PAGE>
deposit them in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors or by any officer
or officers authorized by the Board of Directors to designate such
depositories; disburse funds of the Corporation; and invest funds of the
Corporation when authorized by the Board of Directors or a committee thereof.
If no Controller is appointed, the Chief Financial Officer shall also perform
the duties of the Controller specified below. The Chief Financial Officer
shall render to the Board of Directors or the President, whenever requested,
an account of all transactions as Chief Financial Officer (and Controller as
applicable) and shall also perform all duties incident to the office of Chief
Financial Officer (and Controller as applicable) and such other duties as may
be assigned to the Chief Financial Officer by these By-Laws, the Board of
Directors or the President.
Section 38. ASSISTANT TREASURERS. The Assistant Treasurers shall,
during the absence of the Chief Financial Officer, perform the duties and
functions and exercise the powers of the Chief Financial Officer. Each
Assistant Treasurer shall perform such other duties as may be assigned to such
Assistant Treasurer by the Board of Directors, the President or the Chief
Financial Officer.
Section 39. CONTROLLER. The Controller shall serve as the principal
accounting officer of the Corporation and shall keep full and accurate account
of receipts and disbursements in books of the Corporation and render to the
Board of Directors, the President or the Chief Financial Officer, whenever
requested, an account of all transactions as Controller and of the financial
condition of the Corporation. The Controller shall also perform all duties
incident to the office of Controller and such other duties as may be assigned to
the Controller by these By-Laws, the Board of Directors, the President, or the
Chief Financial Officer.
Section 40. ASSISTANT CONTROLLERS. The Assistant Controllers shall,
during the absence of the Controller, perform the duties and functions and
exercise the powers of the Controller. Each Assistant Controller shall perform
such other duties as may be assigned to such Assistant Controller by the Board
of Directors, the President, the Chief Financial Officer or the Controller.
ARTICLE V
CONTRACTS, INSTRUMENTS AND PROXIES
Section 41. CONTRACTS AND OTHER INSTRUMENTS. Except as otherwise
required by applicable law, the Certificate of Incorporation or these By-Laws,
any contracts or other instruments may be signed by such person or persons as
from time to time may be designated by the Board of Directors or by any officer
or officers authorized by the Board of Directors to designate such signers; and
the Board of Directors or such officer or officers may determine that the
signature of any such authorized signer may be facsimile. Such authority may be
general or confined to specific instances as the Board of Directors or such
officer or officers may determine.
Section 42. PROXIES. Except as otherwise provided by resolution of the
Board of Directors, the Chairman of the Board, the President, any Vice
President, the Chief Financial Officer and any Assistant Treasurer, the
Controller and any Assistant Controller, the Secretary and any Assistant
Secretary of the Corporation, shall each have full power and authority, on
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behalf of the Corporation, to exercise any and all rights of the Corporation
with respect to any meeting of stockholders of any corporation in which the
Corporation holds stock, including the execution and delivery of proxies
therefor, and to consent in writing to action by such corporation without a
meeting.
ARTICLE VI
CAPITAL STOCK
Section 43. STOCK CERTIFICATES; BOOK-ENTRY ACCOUNTS. The interest of
each stockholder of the Corporation shall be evidenced by (1) certificates
signed by, or in the name of the Corporation by, the Chairman of the Board, the
President, or any Vice President, and by the Secretary or any Assistant
Secretary of the Corporation, certifying the number of shares owned by such
holder in the Corporation, or (2) registration in book-entry accounts without
certificates for shares of stock in such form as the appropriate officers of the
Corporation may from time to time prescribe. Any of or all the signatures on a
stock certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
Section 44. RECORD OWNERSHIP. The Corporation shall be entitled to
treat the person in whose name any share, right or option is registered as the
owner thereof, for all purposes, and shall not be bound to recognize any
equitable or other claim to or interest in such share, right or option on the
part of any other person, whether or not the Corporation shall have notice
thereof, except as otherwise provided by applicable law.
Section 45. RECORD DATES. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors and which shall not be more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other action.
Section 46. TRANSFER OF STOCK. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by the registered holder's attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or a transfer agent
of the Corporation, and on surrender of the certificate or certificates for such
shares properly endorsed and the payment of all taxes thereon, or by appropriate
book-entry procedures.
Section 47. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors may authorize a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Corporation alleged
to have been lost, stolen or destroyed, upon the making of an affidavit of the
fact by the person claiming the certificate of stock to be lost, stolen
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or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates, or the owner's legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against the Corporation on account of the
alleged loss, theft or destruction of such certificate or the issuance of
such new certificate.
ARTICLE VII
INDEMNIFICATION
Section 48. RIGHT OF INDEMNIFICATION GENERALLY.
(a) DIRECTORS AND OFFICERS. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit, or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she or a
person of whom he or she is the legal representative is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a legal representative, director, officer, employee or agent
of another corporation or of a limited liability company, partnership, joint
venture, trust or other enterprise, including service with respect to
employee benefit plans, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the General Corporation Law
of the State of Delaware, as the same exists or may hereafter be amended,
against all expense, liability and loss (including attorneys' fees,
judgments, fines, excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith; PROVIDED, HOWEVER, that except as provided in Section 50 below,
the Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of Directors.
(b) ADVANCE OF EXPENSES. Each person referred to in paragraph
(a) of this By-Law shall be paid by the Corporation the expenses incurred in
connection with any proceeding described in paragraph (a) of this By-Law in
advance of its final disposition upon receipt by the Corporation of an
undertaking by or on behalf of such person, to repay all amounts so advanced if
it shall ultimately be determined that such person is not entitled to be
indemnified under this Article VII or otherwise.
(c) CONTRACT RIGHT. The right to indemnification conferred in
this Article VII and the right to be paid by the Corporation the expenses
incurred in connection with any such proceeding in advance of its final
disposition conferred in this Article VII each shall be a contract right.
Section 49. WRITTEN REQUEST; DETERMINATION OF ENTITLEMENT. To
obtain indemnification under this Article VII, a claimant shall submit to the
Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and
is reasonably necessary to determine whether and to what extent the claimant
is entitled to indemnification. Any determination regarding whether
indemnification of any person is proper in the circumstances because such
person has met the applicable standard of
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conduct set forth in the General Corporation Law of the State of Delaware
shall be made at the option of the person seeking indemnification, by the
directors as set forth in the General Corporation Law of the State of
Delaware or by independent legal counsel selected by such person with the
consent of the Corporation (which consent shall not unreasonably be withheld).
Section 50. RECOVERY OF UNPAID CLAIM. If a claim under Section 48
above is not paid in full by the Corporation within 60 days after a written
claim pursuant to Section 49 above has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than actions brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law of the
State of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its directors, independent
legal counsel or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, nor an actual
determination by the Corporation (including its directors, independent legal
counsel or stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 51. EXCLUSIVITY; SUBSEQUENT MODIFICATION. The right to
indemnification and the payment of expenses incurred in connection with a
proceeding in advance of its final disposition conferred in this Article VII
shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Laws, agreement, vote of stockholders or directors or
otherwise. No repeal or modification of this Article VII shall in any way
diminish or adversely affect the rights hereunder of any director, officer or
employee or of any agent who has been expressly granted indemnification by
the Corporation pursuant to Section 53 below in respect of any occurrence or
matter arising prior to any such repeal or modification.
Section 52. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any legal representative, director, officer,
employee or agent of the Corporation or another corporation, limited liability
company, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
General Corporation Law of the State of Delaware. To the extent that the
Corporation maintains any policy or policies providing such insurance, each such
legal representative, director, officer or employee, and each such agent to
which rights to indemnification have been granted as provided in Section 53
below shall be covered by such policy or policies in accordance with its or
their terms to the maximum extent of the coverage thereunder for any such legal
representative, director, officer, employee or agent.
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Section 53. OTHER PERSONS GRANTED RIGHT OF INDEMNIFICATION. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and rights to be paid by the
Corporation the expenses incurred in defending any proceeding in advance of its
final disposition, to any agent of the Corporation to the fullest extent of the
provisions of this Article VII with respect to the indemnification and
advancement of expenses of directors, officers and employees of the Corporation.
Section 54. ILLEGALITY; UNENFORCEABILITY. If any provision or
provisions of this Article VII shall be held to be invalid, illegal or
unenforceable for any reason whatsoever: (1) the validity, legality and
enforceability of the remaining provisions of this Article VII (including,
without limitation, each portion of any Section or subsection of this Article
VII containing any such provision held to be invalid, illegal or unenforceable,
that is not itself held to be invalid, illegal or unenforceable) shall not in
any way be affected or impaired thereby; and (2) to the fullest extent possible,
the provisions of this Article VII (including, without limitation, each such
portion of any Section or subsection of this Article VII containing any such
provision held to be invalid, illegal or unenforceable) shall be construed so as
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
Section 55. FORM AND DELIVERY OF COMMUNICATIONS. Any notice, request
or other communication required or permitted to be given to the Corporation
under this Article VII shall be in writing and either delivered in person or
sent by telecopy, telex, telegram, overnight mail or courier service, or
certified or registered mail, postage prepaid, return receipt requested, to the
Secretary of the Corporation.
ARTICLE VIII
MISCELLANEOUS
Section 56. CORPORATE SEAL. The seal of the Corporation shall be
circular in form, containing the words "inSilicon Corporation" and the word
"Delaware" on the circumference surrounding the word "Seal." Said seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.
Section 57. FISCAL YEAR. The fiscal year of the Corporation shall end
on September 30 of each year.
Section 58. WAIVER OF NOTICE. Whenever notice is required to be given
pursuant to applicable law, the Certificate of Incorporation or these By-Laws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting of stockholders or the Board of Directors or
a committee thereof shall constitute a waiver of notice of such meeting, except
when the stockholder or director attends such meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders or the Board of Directors or committee thereof need be specified in
any written waiver of notice unless so required by the Certificate of
Incorporation or by these By-Laws.
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ARTICLE IX
AMENDMENT TO BY-LAWS
Section 59. AMENDMENTS. These By-Laws may be amended or repealed, or
new By-Laws may be adopted, at any meeting (or by written consent) of the Board
of Directors or of the stockholders.
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Exhibit 4.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
- --------------------------------------------------------------------------------
Warrant No. 1 Number of Shares: 50,000
Date of Issuance: January 12, 2000 (subject to adjustment)
INSILICON CORPORATION
COMMON STOCK PURCHASE WARRANT
inSilicon Corporation, a Delaware corporation (the "CORPORATION"), for
value received, hereby certifies that Phoenix Technologies Ltd. ("Phoenix"), or
its registered assigns (the "REGISTERED HOLDER"), is entitled, subject to the
terms set forth below, to purchase from the Corporation, at any time after the
date hereof and on or before the Expiration Date (as defined in Section 5
below), up to 50,000 shares (as adjusted from time to time pursuant to the
provisions of this Warrant) of Common Stock of the Corporation, at a purchase
price of $.01 per share. The shares purchasable upon exercise of this Warrant
and the purchase price per share, as adjusted from time to time pursuant to the
provisions of this Warrant, are sometimes hereinafter referred to as the
"WARRANT STOCK" and the "PURCHASE PRICE," respectively.
This Warrant is issued pursuant to a Contribution Agreement dated as of
November 30, 1999 between the Corporation and Phoenix (the "CONTRIBUTION
AGREEMENT") and is subject to the terms and conditions of the Contribution
Agreement.
1. EXERCISE.
(a) MANNER OF EXERCISE. This Warrant may be exercised by the Registered
Holder, in whole or in part, by surrendering this Warrant, with the purchase
form appended hereto as EXHIBIT A duly executed by such Registered Holder or by
such Registered Holder's duly authorized attorney, at the principal office of
the Corporation, or at such other office or agency as the Corporation may
designate, accompanied by payment in full of the Purchase Price payable in
respect of the number of shares of Warrant Stock purchased upon such exercise.
The Purchase Price may be paid by cash, check, wire transfer or by the surrender
of promissory notes or other instruments representing indebtedness of the
Corporation to the Registered Holder.
(b) EFFECTIVE TIME OF EXERCISE. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
day on which this Warrant shall have been surrendered to the Corporation as
provided in Section 1(a) above. At such time, the person or persons in whose
name or names any certificates for Warrant Stock shall
<PAGE>
be issuable upon such exercise as provided in Section 1(d) below shall be deemed
to have become the holder or holders of record of the Warrant Stock represented
by such certificates.
(c) NET ISSUE EXERCISE.
(i) In lieu of exercising this Warrant in the manner provided
above in Section 1(a), the Registered Holder may elect to receive shares equal
to the value of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Corporation together
with notice of such election in which event the Corporation shall issue to
holder a number of shares of Warrant Stock computed using the following formula:
X = Y (A - B)
-------
A
Where X = The number of shares of Warrant Stock to be issued to the
Registered Holder.
Y = The number of shares of Warrant Stock purchasable under this
Warrant, or if only a portion of the Warrant is being exercised,
the portion of the Warrant being canceled (at the date of such
calculation).
A = The fair market value of one share of Warrant Stock (at the date of
such calculation).
B = The Purchase Price (as adjusted to the date of such calculation).
(ii) For purposes of this Section 1(c), the fair market value of
one share of Warrant Stock on the date of calculation shall mean with respect to
each share of Warrant Stock:
(A) if the exercise is in connection with an initial public
offering of the Corporation's Common Stock, and if the Corporation's
Registration Statement relating to such public offering has been declared
effective by the Securities and Exchange Commission, then the fair market value
per share of Common Stock shall be the product of (x) initial "Price to Public"
specified in the final prospectus with respect to the offering and (y) the
number of shares of Common Stock into which each share of Warrant Sock is
convertible at the date of calculation;
(B) if this Warrant is exercised after, and not in connection
with, the Corporation's initial public offering, and if the Corporation's Common
Stock is traded on a securities exchange or The Nasdaq Stock Market or actively
traded over-the-counter:
(1) if the Corporation's Common Stock is traded on a
securities exchange or The Nasdaq Stock Market, the fair market value shall be
deemed to be the product of (x) the average of the closing prices over a thirty
(30) day period ending three days before date of calculation and (y) the number
of shares of Common Stock into which each share of Warrant Sock is convertible
at the date of calculation; or
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(2) if the Corporation's Common Stock is actively traded
over-the-counter, the fair market value shall be deemed to be the product of (x)
the average of the closing bid or sales price (whichever is applicable) over the
thirty (30) day period ending three days before the date of calculation and (y)
the number of shares of Common Stock into which each share of Warrant Sock is
convertible at the date of calculation; or
(C) if neither (A) nor (B) is applicable, the fair market
value shall be at the highest price per share which the Corporation could obtain
on the date of calculation from a willing buyer (not a current employee or
director) in an "arms-length" transaction for shares of Warrant Stock sold by
the Corporation, from authorized but unissued shares, as determined in good
faith by the Board of Directors, unless the Corporation is at such time subject
to a merger or acquisition as described in Section 5(b) below, in which case the
fair market value per share of Warrant Stock shall be deemed to be the value of
the consideration per share received by the holders of such stock pursuant to
such acquisition.
(d) DELIVERY TO HOLDER. As soon as practicable after the exercise
of this Warrant in whole or in part, and in any event within ten (10) days
thereafter, the Corporation at its expense will cause to be issued in the name
of, and delivered to, the Registered Holder, or as such Holder (upon payment by
such Holder of any applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of shares of
Warrant Stock to which such Registered Holder shall be entitled, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of shares of Warrant Stock equal (without
giving effect to any adjustment therein) to the number of such shares called for
on the face of this Warrant minus the number of such shares purchased by the
Registered Holder upon such exercise as provided in Section 1(a) above.
2. ADJUSTMENTS.
(a) STOCK SPLITS AND DIVIDENDS. If outstanding shares of the
Corporation's Common Stock shall be subdivided into a greater number of shares
or a dividend in Common Stock shall be paid in respect of Common Stock, the
Purchase Price in effect immediately prior to such subdivision or at the record
date of such dividend shall simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend be
proportionately reduced. If outstanding shares of Common Stock shall be combined
into a smaller number of shares, the Purchase Price in effect immediately prior
to such combination shall, simultaneously with the effectiveness of such
combination, be proportionately increased. When any adjustment is required to be
made in the Purchase Price pursuant to this Section 2(a), the number of shares
of Common Stock purchasable upon the exercise of this Warrant shall be changed
to the number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
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(b) RECLASSIFICATION, ETC. In case of any reclassification or change of
the outstanding securities of the Corporation or of any reorganization of the
Corporation (or any other corporation the stock or securities of which are at
the time receivable upon the exercise of this Warrant) or any similar corporate
reorganization on or after the date hereof, then and in each such case the
Registered Holder, upon the exercise hereof at any time after the consummation
of such reclassification, change, reorganization, merger or conveyance, shall be
entitled to receive, in lieu of the stock or other securities and property
receivable upon the exercise hereof prior to such consummation, the stock or
other securities or property to which such holder would have been entitled upon
such consummation if such holder had exercised this Warrant immediately prior
thereto, all subject to further adjustment as provided in this Section 2; and in
each such case, the terms of this Section 2 shall be applicable to the shares of
stock or other securities properly receivable upon the exercise of this Warrant
after such consummation.
(c) ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR
PROPERTIES. If the holders of the securities as to which purchase rights under
this Warrant exist at the time shall have received, or, on or after the record
date fixed for the determination of eligible stockholders, shall have become
entitled to receive, without payment therefor, other or additional stock or
other securities or property (other than cash) of the Corporation by way of
dividend, then and in each case, this Warrant shall represent the right to
acquire, in addition to the number of shares of the security receivable upon
exercise of this Warrant, and without payment of any additional consideration
therefor, the amount of such other or additional stock or other securities or
property (other than cash) of the Corporation that such holder would hold on the
date of such exercise had it been the holder of record of the security
receivable upon exercise of this Warrant on the date hereof and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and/or all other additional stock available by it
as aforesaid during such period, giving effect to all adjustments called for
during such period by the provisions of this Section 2.
(d) ADJUSTMENT CERTIFICATE. When any adjustment is required to be made
in the Warrant Stock or the Purchase Price pursuant to this Section 2, the
Corporation shall promptly mail to the Registered Holder a certificate setting
forth (i) a brief statement of the facts requiring such adjustment, (ii) the
Purchase Price after such adjustment and (iii) the kind and amount of stock or
other securities or property into which this Warrant shall be exercisable after
such adjustment.
3. TRANSFERS.
(a) UNREGISTERED SECURITY. Each holder of this Warrant acknowledges
that this Warrant, the Warrant Stock and the Common Stock of the Corporation
have not been registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and agrees not to sell, pledge, distribute, offer for sale,
transfer or otherwise dispose of this Warrant, any Warrant Stock issued upon its
exercise or any Common Stock issuable upon conversion of the Warrant in the
absence of (i) an effective registration statement under the Securities Act as
to this Warrant, such Warrant Stock or such Common Stock and registration or
qualification of this Warrant, such Warrant Stock or such Common Stock under any
applicable U.S. federal or state securities law then in effect or (ii) an
opinion of counsel, satisfactory to the Corporation, that such
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registration and qualification are not required. Each certificate or other
instrument for Warrant Stock issued upon the exercise of this Warrant shall bear
a legend substantially to the foregoing effect.
(b) TRANSFERABILITY. Subject to the provisions of Section 3(a) hereof
all rights hereunder are transferable, in whole or in part, upon surrender of
the Warrant with a properly executed assignment (in the form of EXHIBIT B
hereto) at the principal office of the Corporation; PROVIDED, HOWEVER, that this
Warrant may not be transferred in part unless the transferee acquires the right
to purchase at least 2,000 shares (as adjusted pursuant to Section 2) of Common
Stock hereunder.
(c) WARRANT REGISTER. The Corporation will maintain a register
containing the names and addresses of the Registered Holders of this Warrant.
Until any transfer of this Warrant is made in the warrant register, the
Corporation may treat the Registered Holder of this Warrant as the absolute
owner hereof for all purposes; PROVIDED, HOWEVER, that if this Warrant is
properly assigned in blank, the Corporation may (but shall not be required to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary. Any Registered Holder may change
such Registered Holder's address as shown on the warrant register by written
notice to the Corporation requesting such change.
4. NO IMPAIRMENT. The Corporation will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will (subject to Section 13 below) at
all times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Warrant against impairment.
5. TERMINATION. This Warrant (and the right to purchase securities upon
exercise hereof) shall terminate upon the earliest to occur of the following
(the "EXPIRATION DATE"): (a) May 31, 2002 and (b) the sale, conveyance or
disposal of, all or substantially all of the Corporation's property or business
or the Corporation's merger into or consolidation with any other corporation
(other than a wholly owned subsidiary corporation) or any other transaction or
series of related transactions in which stockholders of the Corporation
immediately prior to such event do not own fifty percent (50%) or more of the
voting power of the surviving corporation; PROVIDED that this Section 5(b) shall
not apply to a merger effected exclusively for the purpose of changing the
domicile of the Corporation.
6. NOTICES OF CERTAIN TRANSACTIONS. In case:
(a) the Corporation shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right, to subscribe for or purchase any shares of stock of any class
or any other securities, or to receive any other right, or
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<PAGE>
(b) of any capital reorganization of the Corporation, any
reclassification of the capital stock of the Corporation, any consolidation or
merger of the Corporation, any consolidation or merger of the Corporation with
or into another corporation (other than a consolidation or merger in which the
Corporation is the surviving entity), or any transfer of all or substantially
all of the assets of the Corporation, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation,
then, and in each such case, the Corporation will mail or cause to be mailed to
the Registered Holder of this Warrant a notice specifying, as the case may be,
(i) the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon such reorganization, reclassification, consolidation,
merger, transfer, dissolution, liquidation or winding-up) are to be determined.
Such notice shall be mailed at least ten (10) business days prior to the record
date or effective date for the event specified in such notice.
7. RESERVATION OF STOCK. The Corporation will at all times reserve and keep
available, solely for the issuance and delivery upon the exercise of this
Warrant, such shares of Warrant Stock and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
8. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of any
Warrant or Warrants, properly endorsed, to the Corporation at the principal
office of the Corporation, the Corporation will, subject to the provisions of
Section 3 hereof, issue and deliver to or upon the order of such Holder, at the
Corporation's expense, a new Warrant or Warrants of like tenor, in the name of
such Registered Holder or as such Registered Holder (upon payment by such
Registered Holder of any applicable transfer taxes) may direct, calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face or faces of the Warrant or Warrants so surrendered.
9. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Corporation, or (in the case of mutilation) upon surrender
and cancellation of this Warrant, the Corporation will issue, in lieu thereof, a
new Warrant of like tenor.
10. NOTICES. Any notice required or permitted by this Warrant shall be in
writing and shall be deemed sufficient upon receipt, when delivered personally
or by courier, overnight delivery service or confirmed facsimile, or forty-eight
(48) hours after being deposited in the regular mail as certified or registered
mail (airmail if sent internationally) with postage prepaid, addressed (a) if to
the Registered Holder, to the address of the Registered Holder most recently
6
<PAGE>
furnished in writing to the Corporation and (b) if to the Corporation, to the
address set forth below or subsequently modified by written notice to the
Registered Holder.
11. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Corporation.
12. NO FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Corporation shall pay cash equal
to the product of such fraction multiplied by the fair market value of one share
of Common Stock on the date of exercise, as determined in good faith by the
Corporation's Board of Directors.
13. AMENDMENT OR WAIVER. The terms of this Warrant may be amended or waived
only upon written consent of the Corporation and the Registered Holder thereof.
14. HEADINGS. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
7
<PAGE>
15. GOVERNING LAW. This Warrant shall be governed, construed and
interpreted in accordance with the laws of the State of California, without
giving effect to principles of conflicts of law.
INSILICON CORPORATION
By /s/ WAYNE C. CANTWELL
---------------------
Address: 411 East Plumeria Drive
San Jose, CA 95134
Fax Number: (408) 570-1000
<PAGE>
EXHIBIT A
PURCHASE FORM
To: INSILICON CORPORATION Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant No. _____, hereby irrevocably elects to purchase _______ shares of the
Common Stock covered by such Warrant and herewith makes payment of $_________,
representing the full purchase price for such shares at the price per share
provided for in such Warrant.
The undersigned acknowledges that it has reviewed the representations and
warranties contained in Section 3.2 of the Contribution Agreement (as defined in
the Warrant) and by its signature below hereby makes such representations and
warranties to the Corporation. Defined terms contained in such representations
and warranties shall have the meanings assigned to them in the Contribution
Agreement, PROVIDED that the term "Purchaser" shall refer to the undersigned and
the term "Securities" shall refer to the Warrant Stock.
Signature:
-----------------------------------
Name (print):
--------------------------------
Title (if applicable)
------------------------
Corporation (if applicable):
-----------------
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, _________________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant with respect to the number of shares of Common Stock covered thereby set
forth below, to:
NAME OF ASSIGNEE ADDRESS/FAX NUMBER NO. OF SHARES
Dated: Signature:
----------------- --------------------------------
--------------------------------
Witness:
--------------------------------
<PAGE>
Exhibit 10.1
AGREEMENT AND PLAN OF REORGANIZATION
Dated as of September 17, 1998
By and Among
PHOENIX TECHNOLOGIES LTD.
PHOENIX SUB CORPORATION
SAND MICROELECTRONICS, INC.
and
BABU CHILUKURI
ANAND NAIDU
AJIT DEORA
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Effective Time; Closing. . . . . . . . . . . . . . . . . . . . . . . . . .1
1.3 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.4 Articles of Incorporation; Bylaws. . . . . . . . . . . . . . . . . . . . .2
1.5 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.6 Effect on Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . .2
1.7 Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
1.8 Surrender of Certificates. . . . . . . . . . . . . . . . . . . . . . . . .9
1.9 No Further Ownership Rights in Sand Common Stock . . . . . . . . . . . . 10
1.10 Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . 10
1.11 Taking of Necessary Action; Further Action . . . . . . . . . . . . . . . 10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SAND. . . . . . . . . . . . . . . . . 10
2.1 Organization of Sand . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2 Sand Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 Obligations With Respect to Common Stock . . . . . . . . . . . . . . . . 11
2.4 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 Sand Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 13
2.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . 13
2.7 Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.8 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.9 Compliance; Permits; Restrictions. . . . . . . . . . . . . . . . . . . . 16
2.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.11 Brokers' and Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . 16
2.12 Employee Matters and Benefit Plans . . . . . . . . . . . . . . . . . . . 16
2.13 Absence of Liens and Encumbrances; Condition of Equipment. . . . . . . . 20
2.14 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.15 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.16 Agreements, Contracts and Commitments. . . . . . . . . . . . . . . . . . 21
2.17 Employees; Change of Control Payments. . . . . . . . . . . . . . . . . . 22
2.18 Restrictions on Business Activities. . . . . . . . . . . . . . . . . . . 22
2.19 Title to Properties; Absence of Liens and Encumbrances . . . . . . . . . 22
2.20 Proxy Statement/Information Statement. . . . . . . . . . . . . . . . . . 23
2.21 Board Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.22 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.23 Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.24 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.25 No Material Misrepresentations . . . . . . . . . . . . . . . . . . . . . 24
-i-
<PAGE>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PHOENIX AND MERGER SUB . . . . . . . 24
3.1 Organization of Phoenix. . . . . . . . . . . . . . . . . . . . . . . . . 24
3.2 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.3 No Material Misrepresentations . . . . . . . . . . . . . . . . . . . . . 25
3.4 Available Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.5 Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE IV ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.1 Securities Act Exemption . . . . . . . . . . . . . . . . . . . . . . . . 26
4.2 Stock Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.3 Sand Shareholders' Representations Regarding Securities Law Matters. . . 26
4.4 Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.5 Nasdaq National Market Listing . . . . . . . . . . . . . . . . . . . . . 27
4.6 Blue Sky Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.7 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.8 Proxy Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.9 Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.10 Access to Information; Confidentiality . . . . . . . . . . . . . . . . . 30
4.11 No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.12 Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.13 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.14 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . 31
4.15 Commercially Reasonable Efforts and Further Assurances . . . . . . . . . 31
4.16 Joint Business Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.17 Sand Employee Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.18 Tax Return Preparation and Review. . . . . . . . . . . . . . . . . . . . 32
ARTICLE V CONDITIONS TO OBLIGATIONS OF PHOENIX . . . . . . . . . . . . . . . . . . 32
5.1 Shareholder Approval.. . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.2 No Actions or Proceeding . . . . . . . . . . . . . . . . . . . . . . . . 32
5.3 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 32
5.4 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . 33
5.5 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.6 Non-Compete Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.7 Acquisition Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.8 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.9 Certificates and Documents . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VI CONDITIONS TO OBLIGATIONS OF SAND . . . . . . . . . . . . . . . . . . . 33
6.1 Shareholder Approval.. . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.2 No Actions or Proceeding.. . . . . . . . . . . . . . . . . . . . . . . . 34
6.3 Representations and Warranties.. . . . . . . . . . . . . . . . . . . . . 34
6.4 Non-Compete Agreements.. . . . . . . . . . . . . . . . . . . . . . . . . 34
6.5 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-ii-
<PAGE>
6.6 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 34
ARTICLE VIII INDEMNITY OF PHOENIX. . . . . . . . . . . . . . . . . . . . . . . . . 35
8.1 Indemnification of Phoenix.. . . . . . . . . . . . . . . . . . . . . . . 35
8.2 Indemnification for Dissenters' Shares.. . . . . . . . . . . . . . . . . 35
8.3 Notice.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.4 Survival of Indemnification Obligation.. . . . . . . . . . . . . . . . . 36
8.5 Notice of Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.6 Right of Offset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.7 No Limitation of Remedies. . . . . . . . . . . . . . . . . . . . . . . . 37
8.8 Determination of Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE IX COSTS INCIDENT TO AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE X TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.3 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.4 Extension; Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.4 Remedies.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.5 Waiver.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.6 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
Exhibit A Form of Voting Agreement
Exhibit B Form of Agreement of Merger
Exhibit C Form of Non-Compete Agreement
Exhibit D Declaration of Registration Rights
-iii-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and
entered into by and among PHOENIX TECHNOLOGIES LTD., a Delaware corporation
("PHOENIX"), PHOENIX SUB CORPORATION, a California corporation and a wholly
owned subsidiary of Phoenix ("MERGER SUB"), SAND MICROELECTRONICS, INC., a
California corporation ("SAND"), and Babu Chilukuri, Anand Naidu and Ajit Deora
(the "SAND FOUNDERS").
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 Sand will enter into a business combination transaction pursuant to
which Merger Sub will merge with and into Sand (the "MERGER").
B. The Board of Directors of Phoenix (i) has determined that the Merger
is in the best interests of its stockholders and (ii) has approved this
Agreement, the Merger and the other transactions contemplated by this Agreement;
C. The Board of Directors of Sand (i) has determined that the Merger is
in the best interests of Sand 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 Sand (the "SAND
SHAREHOLDERS") approve this Agreement and approve the Merger.
D. Concurrently with the execution of this Agreement, and as a condition
and inducement to Phoenix's willingness to enter into this Agreement, the Sand
Founders shall enter into Voting Agreements in substantially the form attached
hereto as EXHIBIT A (the "VOTING AGREEMENTS");
E. Phoenix, Merger Sub and Sand desire to make certain representations
and warranties and other agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto do hereby agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section l.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 Sand, the separate corporate existence of Merger Sub shall cease and Sand
shall continue as the surviving corporation. Sand as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "SURVIVING
CORPORATION."
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
<PAGE>
of EXHIBIT B 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 Articles V and 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 Sand and Merger Sub shall vest in the Surviving Corporation, and
all debts, liabilities and duties of Sand 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 Sand
Microelectronics, Inc.
(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 and officers of Merger Sub
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, until their successors are elected or
appointed and qualified.
1.6 EFFECT ON CAPITAL STOCK.
(a) DEFINITIONS.
(i) 1999 REVENUE PAYMENT shall mean a number calculated by
multiplying $800,000 by the 1999 Revenue Percentage; provided, however, that in
no event shall the 1999 Revenue Payment exceed $2,400,000;
(ii) 2000 REVENUE PAYMENT shall mean a number calculated by
multiplying $1,600,000 by the 2000 Revenue Percentage and subtracting the 1999
Revenue Payment; provided,
-2-
<PAGE>
however, that in no event shall the sum of the 1999 Revenue Payment and the
2000 Revenue Payment exceed $2,400,000;
(iii) 2001 REVENUE PAYMENT shall mean a number calculated by
multiplying $2,400,000 by the 2001 Revenue Percentage and subtracting the sum of
(A) the 1999 Revenue Payment and (B) the 2000 Revenue Payment; provided,
however, that in no event shall the sum of the 1999 Revenue Payment, the 2000
Revenue Payment and the 2001 Revenue Payment exceed $2,400,000;
(iv) 1999 REVENUE PERCENTAGE shall mean the quotient
calculated by dividing the 1999 Actual Revenues by the 1999 Projected Revenues;
(v) 2000 REVENUE PERCENTAGE shall mean the quotient
calculated by dividing the 2000 Cumulative Revenues by the 2000 Cumulative
Projected Revenues;
(vi) 2001 REVENUE PERCENTAGE shall mean the quotient
calculated by dividing the 2001 Cumulative Revenues by the 2001 Cumulative
Projected Revenues;
(vii) 1999 ACTUAL REVENUES shall mean the actual net revenues
of the Business Unit for the fiscal year ended September 30, 1999; provided,
however, that one-half of the actual net revenues of the Business Unit from the
Closing Date through September 30, 1998 shall be included in the 1999 Actual
Revenues, but in no event shall the 1999 Actual Revenues be less than zero;
(viii) 2000 CUMULATIVE REVENUES shall mean the sum of the
actual net revenues of the Business Unit for the fiscal years ended September
30, 1999 and September 30, 2000, but in no event shall the 2000 Cumulative
Revenues be less than zero;
(ix) 2001 CUMULATIVE REVENUES shall mean the sum of the
actual net revenues of the Business Unit for the fiscal years ended September
30, 1999, September 30, 2000 and September 30, 2001, but in no event shall the
2001 Cumulative Revenues be less than zero;
(x) 1999 PROJECTED REVENUES shall mean the net revenues of
the Business Unit for the fiscal year ended September 30, 1999 as set forth in
the Joint Business Plan;
(xi) 2000 CUMULATIVE PROJECTED REVENUES shall mean the sum
of the net revenues of the Business Unit for the fiscal years ended September
30, 1999 and September 30, 2000 as set forth in the Joint Business Plan;
(xii) 2001 CUMULATIVE PROJECTED REVENUES shall mean the sum
of the net revenues of the Business Unit for the fiscal years ended September
30, 1999, September 30, 2000 and September 30, 2001 as set forth in the Joint
Business Plan;
(xiii) 1999 OPERATING EARNINGS PAYMENT shall mean a number
calculated by multiplying $533,334 by the 1999 Operating Earnings Percentage;
provided, however, that in no event shall the 1999 Operating Earnings Payment
exceed $1,600,000;
-3-
<PAGE>
(xiv) 2000 OPERATING EARNINGS PAYMENT shall mean a number
calculated by multiplying $1,066,666 by the 2000 Operating Earnings Percentage
and subtracting the 1999 Operating Earnings Payment; provided, however, that in
no event shall the sum of the 1999 Operating Earnings Payment and the 2000
Operating Earnings Payment exceed $1,600,000;
(xv) 2001 OPERATING EARNINGS PAYMENT shall mean a number
calculated by multiplying $1,600,000 by the 2001 Operating Earnings Percentage
and subtracting the sum of the (A) 1999 Operating Earnings Payment and (B) the
2000 Operating Earnings Payment; provided, however, that in no event shall the
sum of the 1999 Operating Earnings Payment, the 2000 Operating Earnings Payment
and the 2001 Operating Earnings Payment exceed $1,600,000;
(xvi) 1999 OPERATING EARNINGS PERCENTAGE shall mean the
quotient calculated by dividing the 1999 Actual Operating Earnings by the 1999
Projected Operating Earnings;
(xvii) 2000 OPERATING EARNINGS PERCENTAGE shall mean the
quotient calculated by dividing the 2000 Cumulative Operating Earnings by the
2000 Cumulative Projected Operating Earnings;
(xviii) 2001 OPERATING EARNINGS PERCENTAGE shall mean the
quotient calculated by dividing the 2001 Cumulative Operating Earnings by the
2001 Cumulative Projected Operating Earnings;
(xix) 1999 ACTUAL OPERATING EARNINGS shall mean the
fully-allocated operating earnings from continuing operations of the Business
Unit before interest and taxes for the fiscal year ended September 30, 1999
determined on a basis consistent with the guidelines set forth in the Joint
Business Plan, but in no event shall the 1999 Actual Operating Earnings be
less than zero;
(xx) 2000 CUMULATIVE OPERATING EARNINGS shall mean the sum
of the fully-allocated operating earnings (loss) from continuing operations of
the Business Unit before interest and taxes for the fiscal years ended September
30, 1999 and September 30, 2000 determined on a basis consistent with the
guidelines set forth in the Joint Business Plan, but in no event shall the 2000
Cumulative Operating Earnings be less than zero;
(xxi) 2001 CUMULATIVE OPERATING EARNINGS shall mean the sum
of the fully-allocated operating earnings (loss) from continuing operations of
the Business Unit before interest and taxes for the fiscal years ended September
30, 1999, September 30, 2000 and September 30, 2001, determined on a basis
consistent with the guidelines set forth in the Joint Business Plan, but in no
event shall the 2001 Cumulative Operating Earnings be less than zero;
(xxii) 1999 PROJECTED OPERATING EARNINGS shall mean the
fully-allocated operating earnings (loss) of the Business Unit as set forth
in the Joint Business Plan for the fiscal year ended September 30, 1999;
-4-
<PAGE>
(xxiii) 2000 CUMULATIVE PROJECTED OPERATING EARNINGS shall mean
the sum of the fully-allocated operating earnings (loss) of the Business Unit
for the fiscal years ended September 30, 1999 and September 30, 2000 as set
forth in the Joint Business Plan;
(xxiv) 2001 CUMULATIVE PROJECTED OPERATING EARNINGS shall mean
the sum of the fully-allocated operating earnings (loss) of the Business Unit
for the fiscal years ended September 30, 1999, September 30, 2000 and September
30, 2001 as set forth in the Joint Business Plan;
(xxv) BUSINESS UNIT shall mean a portion of the business and
product lines of Phoenix as described in the Joint Business Plan;
(xxvi) JOINT BUSINESS PLAN shall mean the joint business plan
prepared by the parties hereto dated _________, 1998;
(xxvii) OPTION EXCHANGE RATIO shall mean (A) $26,076,800, the
estimated net present value of the Merger Consideration, plus the aggregate
exercise price of any vested Sand Stock Options exercised between the date
hereof and the Effective Time, minus the amount by which the costs and expenses
incurred by Sand in connection with the preparation, execution or delivery of
this Agreement or the performance of its obligations hereunder, including,
without limitation, the fees and disbursements of its attorneys, accountants,
investment bankers, consultants, brokers and persons providing other services
exceeds $400,000, divided by the Fully Diluted Number, and divided by (B) $7.10,
the average closing price of a share of Phoenix Common Stock for the ten most
recent days that Phoenix Common Stock has traded ending on the trading day
immediately prior to the date hereof, as reported on the Nasdaq Stock Market;
(xxviii) FULLY DILUTED NUMBER shall mean all shares of Sand
Common Stock outstanding at the Effective Time plus the number of shares of Sand
Common Stock underlying all vested and unvested Sand Stock Options (as defined
below) outstanding as of the Effective Time; and
(xxix) OUTSTANDING SHARES shall mean the number of shares of
Sand Common Stock outstanding at the Effective Time.
(b) CONVERSION OF SAND COMMON STOCK. At the Effective Time, by
virtue of the Merger and without any action on the part of Merger Sub, Sand or
the holders of any shares of the Common Stock of Sand, each share of the Common
Stock, no par value, of Sand (the "SAND COMMON STOCK") issued and outstanding
immediately prior to the Effective Time and all rights to accrued dividends in
respect thereof (other than any shares of Sand Common Stock to be canceled
pursuant to Section 1.6(c) 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 into the right to receive on the dates described below,
the following (the "MERGER CONSIDERATION"):
(i) at the Effective Time, an amount of cash equal to (A)
the total of $20,000,000 plus the aggregate exercise price of any vested Sand
Stock Options exercised between the date hereof and the Effective Time, minus
the amount by which the costs and expenses incurred by Sand
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in connection with the preparation, execution or delivery of this Agreement
or the performance of its obligations hereunder, including, without
limitation, the fees and disbursements of its attorneys, accountants,
investment bankers, consultants, brokers and persons providing other services
exceeds $400,000, divided by (B) the Fully Diluted Number (the "FIXED
AMOUNT");
(ii) at the Effective Time, the right to receive a number of
shares of Phoenix Common Stock (the "PHOENIX COMMON STOCK") equal to 500,000
divided by the Fully Diluted Number, together with a right to purchase (in
respect of each whole share of Phoenix Common Stock) 1/100 of a share of Series
A Junior Participating Preferred Stock of Phoenix pursuant to the Rights
Agreement dated October 31, 1989 between Phoenix and The First National Bank of
Boston;
(iii) (A) sixty (60) days following Phoenix's 1999 fiscal
year, an amount equal to the sum of the 1999 Revenue Payment and 1999 Operating
Earnings Payment divided by the Fully Diluted Number; (B) sixty (60) days
following Phoenix's 2000 fiscal year, an amount equal to the sum of the 2000
Revenue Payment and 2000 Operating Earnings Payment divided by the Fully Diluted
Number; and (C) sixty (60) days following Phoenix's 2001 fiscal year, an amount
equal to the sum of the 2001 Revenue Payment and 2001 Operating Earnings Payment
divided by the Fully Diluted Number Shares (the "CONTINGENT PAYMENTS").
For purposes of calculating the Contingent Payments, both
actual net revenues of the Business Unit and Actual Operating Earnings shall be
determined on a basis consistent with generally accepted accounting principles
("GAAP") applied as set forth in the Joint Business Plan. Notwithstanding the
foregoing, any net proceeds received by Phoenix or the Surviving Corporation
(after deduction of all expenses incurred by Phoenix or the Surviving
Corporation in connection therewith, including all attorneys' fees and expenses)
that arise out of or result from any claims that Sand may have against any third
party with respect to any Sand IP Rights (as defined below) shall be included in
the actual net revenues and fully-allocated operating earnings (loss) of the
Business Unit for the fiscal year in which such proceeds are received.
In the event that after the Effective Time and on or before
September 30, 2001, there has occurred (A) a merger or consolidation of Phoenix
with or into any other corporation or corporations in which the stockholders of
Phoenix own less than fifty percent (50%) of the voting securities of the
surviving corporation or a sale of all or substantially all of the assets of
Phoenix (an "Acquisition"), or (B) any merger, consolidation, reorganization,
sale of substantially all of the assets of the Business Unit or spin-off of the
securities of any entity conducting the business of the Business Unit (a "Spin
Off"), Phoenix shall cause the surviving corporation in any Acquisition or the
acquiring corporation or entity that is conducting the business of the Business
Unit in any Spin Off, to assume, by operation of law or otherwise, all of
Phoenix's remaining obligations under this Agreement, and if the operation of
the Business Unit is discontinued by such surviving or acquiring corporation or
entity for reasons unrelated to the Business Unit's performance against the
Joint Business Plan, the remaining Contingent Payments will be paid annually on
the dates set forth herein and shall be calculated as if the Revenue Percentage
and the Operating Earnings Percentage for each of the 1999, 2000 and 2001 fiscal
years is 1 provided, however, that in no event shall the aggregate of the
Contingent Payments exceed $4,000,000;.
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In the event that after the Effective Time and on or before
September 30, 2001, Phoenix (or any successor in interest, assignee or
transferee of Phoenix's obligations hereunder) materially modifies or alters the
business model on which the Business Unit operates as set forth in the Joint
Business Plan, such that the actual net revenue and Actual Operating Earnings
targets set forth in the Joint Business Plan reasonably could not be achieved
prior to September 30, 2001, Phoenix (or any successor in interest, assignee or
transferee of Phoenix's obligations hereunder) shall have the right, at its
option, to either (i) adjust and calculate actual net revenues and Actual
Operating Earnings of the Business Unit for purposes of calculating Contingent
Payments as if the Business Unit were continuing to operate under the business
model set forth in the Joint Business Plan or (ii) modify the Joint Business
Plan to reflect the change in the business model; provided, however, that
Phoenix (or any successor in interest, assignee or transferee of Phoenix's
obligations hereunder) may not make such adjustment or modification more than
once in any fiscal year; and, provided further, that in the event of such
material modification or alteration of the business model on which the Business
Unit operates as set forth in the Joint Business Plan, Phoenix (or any successor
in interest, assignee or transferee of Phoenix's obligations hereunder) shall,
within 60 days, give the Representative of the Sand Shareholders (defined below)
notice of such material modification or alteration to the business model (which
notice shall set forth such material modification or alteration in reasonable
detail) and what option (as set forth in subsections (i) or (ii) above) that
Phoenix has elected. The Representative of the Sand Shareholders shall have 60
days after receipt of the foregoing notice to either (i) dispute the foregoing
modification or alteration in which case the parties shall submit the dispute to
arbitration as set forth in Sections 8.5(c) and (d) or (ii) to elect, on behalf
of all the Sand Shareholders, to receive in lieu of any remaining Contingent
Payment (on the date each remaining Contingent Payment is due), an amount per
share of Sand Common Stock, equal to $866,667 payable on each Contingent Payment
due date subsequent to the event causing this adjustment divided by the Fully
Diluted Number. If no objections are raised within such sixty (60) day period,
the Representative, on behalf of all the Sand Shareholders shall be deemed to
have accepted such material modification or alteration and Phoenix's election
with respect thereto shall be final, binding and conclusive upon all of the
parties hereto.
Phoenix shall deliver to Anand Naidu, acting as
representative of the Sand Shareholders (the "REPRESENTATIVE") no later than
five days prior to the payment date of each year for a Contingent Payment, a
certificate signed by an officer of Phoenix containing a detailed summary of
all computations, including any adjustments, as described above, performed by
Phoenix in arriving at the Contingent Payment for such year (the
"CERTIFICATE"). The Representative shall have a period of sixty (60) days
after receipt of the Certificate to dispute any amounts reflected thereon;
provided, that the Representative shall notify Phoenix in writing of each
disputed item in reasonable detail and shall specify the amount thereof in
dispute within such sixty (60) day period. Phoenix agrees to cooperate with
any such confirmation request and make available to the Representative or his
designated accountant, at all reasonable times, for inspection and review,
the books and records of Phoenix relating to the Business Unit, including,
but not limited to, all worksheets for the period under review and the
aforementioned computations. If no objections are raised within such sixty
(60) day period, the Certificate and the Contingent Payment shall be final,
binding and conclusive upon all of the parties hereto. If, during his review
of the Certificate and accompanying worksheets and records, Representative or
his designated accountant disagrees with the computation prepared by Phoenix
and such disagreement cannot, with good faith effort, be promptly settled,
Phoenix and Representative shall appoint a mutually
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satisfactory independent certified public accountant (the "Resolution
Accountant") to review the computations of both Phoenix and Representative.
The determination of the Resolution Accountant shall be delivered within
ninety (90) days after the appointment of the Resolution Accountant and shall
be binding on Phoenix and the Sand Shareholders. The fees and costs of the
Resolution Accountant shall be borne one-half by Phoenix and one-half by the
Sand Shareholders. Within three (3) business days after the Resolution
Accountant makes his determination, Phoenix shall pay the Sand Shareholders
the aggregate amount by which the Contingent Payment is increased thereby or
the Sand Shareholders shall reimburse Phoenix the aggregate amount by which
the Contingent Payment is decreased thereby. Alternatively, Phoenix may
deduct any amounts payable to Phoenix under this Section 1.6(b)(iv) from the
Contingent Payments.
(c) CANCELLATION OF PHOENIX-OWNED STOCK. Any share of Sand Common
Stock held in the treasury of Sand or owned by Merger Sub, Phoenix or any direct
or indirect wholly owned subsidiary of Sand or of Phoenix immediately prior to
the Effective Time shall be canceled and extinguished without any conversion
thereof.
(d) STOCK OPTIONS. At the Effective Time, all options to purchase
Sand Common Stock ("SAND STOCK OPTIONS") then outstanding under Sand's
Non-Qualified Stock Option Plan and 1998 Stock Plan (together, the "SAND
STOCK OPTION PLANS") shall be assumed by Phoenix and shall continue to have,
and be subject to, the same terms and conditions as set forth in the Sand
Stock Option Plan and/or any agreements pursuant to which such Sand Stock
Options were granted as in effect immediately prior to the Effective Time,
except that (A) each Sand Stock Option shall be exercisable for that number
of whole shares of Phoenix Common Stock equal to the number of shares
underlying such Sand Stock Option immediately prior to the Effective Time,
multiplied by the Option Exchange Ratio and rounded down to the nearest whole
number of shares of Phoenix Common Stock and (B) the price at which each such
Sand Stock Option is exercisable shall be divided by the Option Exchange
Ratio and rounded up to the nearest cent. Phoenix will cause such assumed
Sand Stock Options to be registered on Form S-8 within 20 days of the
Effective Time and shall have reserved at the Effective Time a sufficient
number of its shares of Common Stock for issuance upon exercise of the
assumed Sand Stock Options.
(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 OPTION EXCHANGE RATIO. The Option 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 Sand Common Stock), reorganization,
recapitalization or other like change with respect to Phoenix Common Stock or
Sand Common Stock occurring on or after the date hereof and prior to the
Effective Time.
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1.7 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary,
the shares of any holder of Sand 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, the Merger Consideration 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 Sand
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 the Merger Consideration pursuant to Section 1.6
hereof, without interest thereon, upon surrender of the certificate representing
such shares of Sand Common Stock in the manner provided in Section 1.8 hereof
(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).
(c) Sand shall give Phoenix (i) prompt notice of any written demands
for appraisal of any shares of Sand Common Stock, withdrawals of such demands,
and any other instruments served pursuant to California Law and received by Sand
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. Sand
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 Sand Common Stock or offer to settle or settle any such
demands. Any payments made in respect of Dissenting Shares shall be made by
Sand or the Surviving Corporation, as the case may be.
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE PROCEDURES. Promptly after the Effective Time,
Phoenix shall 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 Sand Common Stock whose
shares were converted into the right to receive the Merger Consideration
pursuant to Section 1.6, (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 Phoenix
and shall be in such form and have such other provisions as Phoenix may
reasonably specify) ("LETTER OF TRANSMITTAL") and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for the Merger
Consideration pursuant to Section 1.6. Upon surrender of Certificates for
cancellation to Phoenix, together with the 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 the Merger Consideration pursuant to Section 1.6, 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, to evidence the right to receive
the Merger Consideration set forth in
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Section 1.6. Notwithstanding the foregoing, Phoenix shall cooperate with the
Sand Shareholders to cause the Letters of Transmittal to be made available
prior to the Effective Time so they may be completed by the Sand Shareholders
before the Effective Time and to cause the cash portion of the Merger
Consideration to be paid by wire transfer to the Sand Shareholders within two
business days following the Effective Time for those Sand Shareholders for
which the Letter of Transmittal and Certificates are provided to Phoenix at
or following the Effective Time.
(b) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.8, neither Phoenix, the Surviving Corporation nor any party hereto
shall be liable to a holder of shares of Sand 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 SAND COMMON STOCK. All Merger
Consideration paid upon the surrender for exchange of shares of Sand Common
Stock in accordance with the terms hereof shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of Sand Common Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Sand 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, Phoenix shall pay the Merger
Consideration in exchange for such lost, stolen or destroyed Certificates upon
the making of an affidavit of that fact by the holder thereof; 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, Sand or the
Surviving Corporation with respect to the Certificates alleged to have been
lost, stolen or destroyed.
1.11 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 Sand and Merger Sub, the officers and directors of Sand 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. This provision shall be a
continuing obligation of the Sand Founders and the officers and directors of
Sand and shall survive the Effective Time of the Merger.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SAND
Sand hereby makes the representations and warranties to Phoenix and
Merger Sub contained in this Article II, except as set forth in the
disclosure letter previously delivered by Sand to Phoenix dated on or before
the date hereof and certified by a duly authorized officer of Sand (the "SAND
DISCLOSURE LETTER"). As used herein, where a statement is made "to the
knowledge" of Sand or a statement is made
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that Sand "knows" a particular fact or circumstance, such knowledge shall
include the actual knowledge after reasonable inquiry of each of the persons
set forth in the Sand Disclosure Letter.
2.1 ORGANIZATION OF SAND. Sand 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 character of the properties owned or held under lease or license or
the nature of the business conducted by it requires such qualification, except
where the failure to be so qualified would not have a material adverse effect on
the business, assets (including intangible assets), financial condition or
results of operations (a "Material Adverse Effect") on Sand. Sand has never had
any subsidiaries. Sand has delivered true and correct copies of the Articles of
Incorporation and Bylaws of Sand, as amended to date, to counsel for Phoenix.
2.2 SAND CAPITAL STRUCTURE. The authorized capital stock of Sand consists
of 50,000,000 shares of Common Stock, no par value, of which there were
12,218,250 shares issued and outstanding as of the date that is one day prior to
the date hereof and no shares of Preferred Stock are authorized, issued or
outstanding. All outstanding shares of Sand 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 Sand or
any agreement or document to which Sand is a party or by which it is bound. As
of the date that is one day prior to the date hereof, Sand had reserved an
aggregate of 2,000,000 shares of Common Stock, net of exercises, for issuance to
employees, consultants and non-employee directors pursuant to the Sand Stock
Option Plans, under which options are outstanding for an aggregate of 949,000
shares. Through the date that is one day prior to the date hereof Sand has
issued employee offer letters agreeing to issue Sand Stock Options for an
additional 102,000 shares of Sand Common Stock. All shares of Sand 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. Section 2.2 of the
Sand Disclosure Letter is a list of each outstanding option to acquire shares of
the Common Stock of Sand as of the date that is one day prior to the date
hereof, 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.
2.3 OBLIGATIONS WITH RESPECT TO COMMON STOCK. Except as set forth in
Sections 2.2 or 2.3 of the Sand Disclosure Letter, there are no options,
warrants, equity securities, partnership interests or similar ownership
interests, calls, rights (including preemptive rights) of any class of Sand, 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 as set forth in Section 2.3 of the
Sand Disclosure Letter, there are no commitments or agreements of any character
to which Sand is a party or by which Sand is bound obligating Sand 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
options, warrants, equity securities, partnership interests or similar ownership
interests, calls, rights (including preemptive rights) of Sand or obligating
Sand to grant, extend, accelerate the vesting of or enter into any such option,
warrant, equity security, partnership interests or similar ownership
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interests, call, right, commitment or agreement. Except as set forth in
Section 2.3 of the Sand Disclosure Letter, there are no registration rights,
and to the knowledge of Sand, except as set forth herein, 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 Sand.
2.4 AUTHORITY.
(a) Sand has all requisite corporate power and authority to enter
into this Agreement and the Voting Agreements and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement,
the Voting Agreements and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Sand, subject only to the approval of this Agreement by Sand'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 Sand Common Stock is required for Sand's shareholders
to approve and adopt this Agreement, the Voting Agreements and to approve the
Merger. This Agreement and the Voting Agreements have been duly executed and
delivered by Sand and the Sand Founders and, assuming the due authorization,
execution and delivery by Phoenix and Merger Sub, constitute the valid and
binding obligations of Sand and the Sand Founders, enforceable in accordance
with their 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 and the Voting Agreements by Sand and the Sand Founders do
not, and the performance of this Agreement and the Voting Agreements by Sand and
the Sand Founders will not, (i) conflict with or violate the Articles of
Incorporation or Bylaws of Sand, (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 the Sand
Founders, Sand or by which the Sand Founders, Sand 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 Sand'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 Sand pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Sand is a party or by which
Sand or its 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 Sand. Section 2.4
of the Sand Disclosure Letter lists all consents, waivers and approvals under
any of Sand's agreements, contracts, licenses or leases required to be obtained
in connection with the consummation of the transactions contemplated hereby.
(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 Sand or the Sand Founders in
connection with the execution and delivery of this Agreement, the Voting
Agreements or the consummation of the transactions contemplated hereby and
thereby, except for (i) the filing of the
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Agreement of Merger with the Secretary of State of the State of California,
and (ii such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material
Adverse Effect on Sand or have a material adverse effect on the ability of
the parties to consummate the Merger.
2.5 SAND FINANCIAL STATEMENTS.
(a) Sand has delivered to Phoenix certain financial statements of
Sand as follows: (i) the audited balance sheets as of December 31, 1997 and
December 31, 1996 and the related audited statements of operations,
shareholders' equity and cash flows of Sand for the years then ended, and the
notes thereto; (ii) the unaudited quarterly financial data for the quarterly
periods ended as of March 31, 1998 and June 30, 1998, and (iii) the unaudited
balance sheet as of July 31, 1998 and the related statement of operations and
shareholders' equity of Sand for the one month period then ended (collectively,
the "SAND FINANCIALS"). Each of the Sand Financials (i) was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and (ii) fairly
presented the financial position of Sand as at the respective dates thereof and
the results of its operations and cash flows for the periods indicated, except
for the absence of notes for the unaudited interim financial statements and 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 Sand as of July 31, 1998 is
hereinafter referred to as the "SAND BALANCE SHEET." Except as disclosed in the
Sand Financials, Sand does not have any liabilities, debts or obligations of any
kind or description (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
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 Sand, except (i) as and to the extent reflected or reserved against
in the Sand Balance Sheet, or (ii) incurred since the date of the Sand Balance
Sheet in the ordinary course of business consistent with past practices.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Sand
Balance Sheet through the date of this Agreement, there has not been: (i) any
event that has had or would reasonably be expected to have a Material Adverse
Effect on Sand, or (ii) any material change by Sand in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP, nor
has Sand entered into any contracts, leases, orders, or other commitments other
than in the ordinary course of business.
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, 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
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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 Sand 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) Sand'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. Sand 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 Sand 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
Sand or any other person on behalf of Sand), and no such extension or waiver has
been requested from Sand.
(e) No claim or legal proceeding is pending or, to the best of the
knowledge of Sand, has been threatened against or with respect to Sand 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 Sand 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 Sand 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 Sand except liens for current Taxes
not yet due and payable. Sand has not entered into or become bound by any
agreement or consent pursuant to Section 341(f) of the Code. Sand has not been
and will not 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 Sand 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.
Sand is not, nor has ever been, a party to or bound by any tax indemnity
agreement, tax sharing agreement, tax allocation agreement or similar agreement.
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2.8 INTELLECTUAL PROPERTY.
(a) Set forth in Section 2.8(a) of the Sand Disclosure Letter is a
true and complete list of all patents, trademarks, trade names, service marks,
copyrights and registrations thereof and applications therefor used in the
business of Sand.
(b) Except as set forth in Section 2.8(b) of the Sand Disclosure
Letter, Sand owns, or has the right to use, sell or license all intellectual
property (including the patents, trademarks, trade names, service marks,
copyrights and registrations thereof and applications therefor described in
Section 2.8(a) of the Sand Disclosure Letter) necessary or required for the
conduct of its business as currently conducted (such intellectual property and
the rights thereto are collectively referred to herein as the "SAND IP RIGHTS"),
and Sand has delivered or will deliver to Phoenix prior to the Effective Time
certificates of originality with respect to the Sand IP Rights in form and
substance reasonably satisfactory to Phoenix.
(c) 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 concerning or governing any Sand
IP Rights (the "SAND IP RIGHTS AGREEMENTS"), will not cause the forfeiture or
termination or give rise to a right of forfeiture or termination of any Sand IP
Rights or impair the right of Sand, the Surviving Corporation or Phoenix to use,
sell or license any Sand IP Rights or portion thereof.
(d) (i) Neither the manufacture, marketing, license, sale or intended
use of any product or technology currently licensed or sold or under development
by Sand (excluding any modifications by Phoenix following the Effective Time)
violates any license or agreement between Sand 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 Sand, threatened claim or litigation contesting the
validity, ownership or right to use, sell, license or dispose of any Sand IP
Rights (nor is there any basis therefor). Except as set forth in Section 2.8(d)
of the Sand Disclosure Letter, Sand has not received any written notice
asserting that any Sand IP Rights or the proposed use, sale, license or
disposition thereof conflicts or will conflict with the rights of any other
party. To Sand's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Sand IP Rights by any third party, including any
employee or former employee of Sand. No Sand IP Rights or product of Sand is
subject to any outstanding decree, order, judgment or stipulation restricting in
any manner the licensing thereof by Sand.
(e) Sand has taken reasonable and practicable steps designed to
safeguard and maintain the secrecy and confidentiality of, and its proprietary
rights in, all Sand IP Rights. Each employee of and consultant to Sand has
executed a proprietary information and inventions agreement in Sand's standard
form.
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2.9 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Sand is not in conflict with, or in default or violation of, (i)
any law, rule, regulation, order, judgment or decree applicable to Sand or by
which Sand or any of its properties is bound or affected (except for such
conflicts, defaults and violations which are not, individually or in the
aggregate, material to the operation of the business of Sand), or (ii) any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Sand is a party or by which
Sand or any of its properties is bound or affected. To the knowledge of Sand,
no investigation or review by any governmental or regulatory body or authority
is pending or threatened against Sand, nor has any governmental or regulatory
body or authority indicated an intention to conduct the same.
(b) Sand holds all permits, licenses, variances, exemptions, orders
and approvals from governmental authorities which are material to the operation
of the business of Sand (collectively, the "SAND PERMITS"). Sand is in
compliance with the terms of Sand Permits.
2.10 LITIGATION. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which Sand has received any notice of
assertion, nor, to Sand's knowledge, is there a threatened action, suit,
proceeding, claim, arbitration or investigation against Sand, including any such
action, suit, proceeding, claim, arbitration or investigation that 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 Dain Rauscher
Wessels pursuant to an engagement letter dated January 22, 1998, a copy of which
has been provided to Phoenix, Sand has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
2.12 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 Sand within the meaning of Section 414(b), (c), (m) or (o)
of the Code and the regulations issued thereunder;
(ii) "SAND EMPLOYEE PLAN" shall mean any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
compensation, stock or stock-related compensation, 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,
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by Sand or any Affiliate for the benefit of any Sand Employee, or with
respect to which Sand 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) "SAND EMPLOYEE" shall mean any current or former
employee, consultant or director of Sand or any Affiliate;
(vi) "SAND EMPLOYEE AGREEMENT" shall mean each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or other agreement or contract or arrangement between Sand or
any Affiliate and any Sand 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) "SAND INTERNATIONAL EMPLOYEE PLAN" shall mean each Sand
Employee Plan that has been adopted or maintained by Sand or any Affiliate,
whether informally or formally, or with respect to which Sand or any Affiliate
will or may have any liability, for the benefit of Sand Employees who perform
services outside the United States;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "SAND MULTIEMPLOYER PLAN" shall mean any "Sand 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) "SAND PENSION PLAN" shall mean each Sand Employee Plan
which is an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
(b) SCHEDULE. Section 2.12(b) of the Sand Disclosure Letter contains
an accurate and complete list of each Sand Employee Plan and each Sand Employee
Agreement under each Sand Employee Plan. Sand does not have any plan or
commitment to establish any new Sand Employee Plan or Sand Employee Agreement,
to modify any Sand Employee Plan or Sand Employee Agreement (except to the
extent required by law or to conform any such Sand Employee Plan or Sand
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
in the ordinary course of business), or to enter into any Sand Employee Plan or
Sand Employee Agreement.
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(c) DOCUMENTS. Sand has made available to Phoenix: (i) correct and
complete copies of all documents embodying each Sand Employee Plan and each Sand
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 Sand 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 Sand Employee Plan; (iv) if the Sand Employee Plan is funded, the most
recently required and completed annual and periodic accounting of Sand 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 Sand 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 Sand Employee
Plan, including, but not limited to, administrative service agreements, group
annuity contracts and group insurance contracts; (viii) all written
communications material to any Sand Employee or Sand Employees relating to any
Sand Employee Plan and any proposed Sand 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 Sand; (ix) all correspondence to or
from any governmental agency relating to any Sand Employee Plan; (x) all COBRA
forms and related notices; (xi) all policies pertaining to fiduciary liability
insurance covering the fiduciaries for each Sand Employee Plan; (xii) all
discrimination tests for each Sand 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 Sand
Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth in Section 2.12 of
the Sand Disclosure Letter, (i) Sand 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
Sand Employee Plan, and each Sand 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
Sand 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 Sand Employee Plan; (iii) to Sand'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 Sand Employee Plan; (iv) there are no
actions, suits or claims pending, or, to the knowledge of Sand, threatened or
reasonably anticipated (other than routine claims for benefits) against any Sand
Employee Plan or against the assets of any Sand Employee Plan; (v) each Sand
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, Sand or any of its Affiliates (other than
ordinary administration expenses or full vesting of any employer contributions
to any Sand
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Employee Plan intended to qualify under Section 401(a) of the Code); (vi)
there are no audits, inquiries or proceedings pending or, to the knowledge of
Sand or any Affiliates, threatened by the IRS or DOL with respect to any Sand
Employee Plan; and (vii) neither Sand nor any Affiliate is subject to any
penalty or tax with respect to any Sand Employee Plan under Section 502(i) of
ERISA or Sections 4975 through 4980 of the Code.
(e) SAND PENSION PLAN. Neither Sand nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any Sand
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(f) SAND MULTIEMPLOYER PLANS. At no time has Sand or any Affiliate
contributed to or been required to contribute to any Sand Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in
Section 2.12(g) of the Sand Disclosure Letter, no Sand 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 Sand
has never represented, promised or contracted (whether in oral or written form)
to any Sand Employee (either individually or to Sand Employees as a group) or
any other person that such Sand 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 Sand 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 Sand Employees.
(i) EFFECT OF TRANSACTION.
(i) Except as set forth in the Disclosure Letter, 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 Sand Employee
Plan, Sand 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 Sand Employee.
(ii) Except as set forth in the Disclosure Letter, no payment
or benefit which will or may be made by Sand or its Affiliates with respect to
any Sand 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) SAND INTERNATIONAL EMPLOYEE PLAN. Neither Sand nor any Affiliate
has ever maintained, established, sponsored, participated in, or contributed to,
any Sand International Employee Plan.
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2.13 ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF EQUIPMENT. Set forth
in Section 2.13 of the Sand Disclosure Letter are a complete and correct list
and summary description of all fixed assets, machinery, equipment, vehicles and
other tangible assets owned or used by Sand at the date of this Agreement. Sand
has the exclusive right to use all such assets, subject, in the case of leased
property, to continuing obligations under leases therefor. Sand 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 Sand Financials and except for liens for taxes not
yet due and payable.
2.14 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. 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 Sand, or, to Sand'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 Sand has at any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. Sand has not 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 Sand 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. Sand currently holds all environmental approvals,
permits, licenses, clearances and consents (the "SAND ENVIRONMENTAL PERMITS")
material to the conduct of Sand's Hazardous Material Activities and other
businesses of Sand as such activities and businesses are currently being
conducted.
(d) ENVIRONMENTAL LIABILITIES. Sand has not received notice of any
material action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim, nor, to Sand's knowledge, is any material action,
proceeding, revocation proceeding, amendment procedure, writ, injunction or
claim threatened concerning any Sand Environmental Permit, Hazardous Material or
any Hazardous Materials Activity of Sand. Sand is not aware of any fact or
circumstance which could involve Sand in any environmental litigation or impose
upon Sand any environmental liability that would have a Material Adverse Effect
on Sand.
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2.15 LABOR MATTERS. To Sand's knowledge, there are no activities or
proceedings of any labor union to organize any employees of Sand and there are
no strikes, or material slowdowns, work stoppages or lockouts, or threats
thereof by or with respect to any employees of Sand. Sand is and has 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 Sand. Sand has not received
any notice from any of its employees that any employee is terminating his or her
employment with Sand, nor, to the best of Sand's knowledge, does any employee
intend to terminate his or her employment with Sand as a result of the
transactions contemplated hereby.
2.16 AGREEMENTS, CONTRACTS AND COMMITMENTS. Set forth in Section 2.16 of
the Sand Disclosure Letter are a complete and correct list and summary
description of all material contracts, agreements, orders, leases, licenses and
other commitments (each a "SAND CONTRACT") of Sand at the date of this
Agreement. Except as set forth in the Sand Disclosure Letter, Sand is not a
party to nor 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 Sand's Board of
Directors;
(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
Sand and any of its officers or directors;
(f) any agreement, contract or commitment containing any covenant
limiting the freedom of Sand 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 $50,000 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;
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(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 Sand's software products);
(k) any distribution agreement (identifying any that contain
exclusivity provisions); or
(l) any other agreement, contract or commitment which involves
payment by Sand under any such agreement, contract or commitment of $50,000 or
more individually and is not cancelable without penalty within thirty (30) days.
Neither Sand, nor to Sand's knowledge any other party to a Sand Contract, 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
such Sand Contracts in such a manner as would permit any other party to cancel
or terminate any such Sand Contract, or would permit any other party to seek
damages.
2.17 EMPLOYEES; CHANGE OF CONTROL PAYMENTS. Set forth in Section 2.17 of
the Sand Disclosure Letter is a complete list of the current employees of Sand,
including a complete and correct compensation schedule for all employees and a
complete and correct list and summary description of benefits for the key
employees of Sand. Except as set forth in Section 2.17 of the Sand Disclosure
Letter, there are no employment contracts with any personnel. Section 2.17 of
the Sand Disclosure Letter sets 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 Sand as a result of or in connection
with the Merger.
2.18 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), judgment, injunction, order or decree to which Sand
is a party or otherwise binding upon Sand which has or reasonably would be
expected to have the effect of prohibiting or impairing any business practice of
Sand, any acquisition of property (tangible or intangible) by Sand or the
conduct of business by Sand. Without limiting the foregoing, Sand has not
entered into any agreement under which Sand is restricted from selling,
licensing or otherwise distributing any of its products to any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
2.19 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) Sand owns no real property, nor have it ever owned any real
property. Section 2.19(a) of the Sand Disclosure Letter sets forth a list of
all real property currently leased by Sand, the name of the lessor and the date
of the lease and each amendment thereto. All such current leases are in full
force and effect, are valid and effective in accordance with their respective
terms, and there is not,
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under any of such leases, any material existing default or event of default
(or event which with notice or lapse of time, or both, would constitute a
material default).
(b) Sand has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any liens, pledges, charges, claims, security
interests or other encumbrances of any sort except as reflected in Sand's
Financials or in Section 2.19(b) of the Sand Disclosure Letter and except for
liens for Taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
2.20 PROXY STATEMENT/INFORMATION STATEMENT. The information included in
the proxy statement or information statement to be sent to the shareholders of
Sand in connection with the meeting of, or solicitation of written consents
from, Sand's shareholders to consider the approval and adoption of this
Agreement and the approval of the Merger (the "SAND SHAREHOLDERS' MEETING")(such
proxy statement as amended or supplemented is referred to herein as the "PROXY
STATEMENT") shall not, on the date the Proxy Statement is first mailed to Sand's
shareholders and at the time of the Sand Shareholders' Meeting, 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 Sand
Shareholders' Meeting which has become false or misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of
California Law and the rules and regulations thereunder. If, at any time prior
to the Sand Shareholders' Meeting, any event relating to Sand or any of its
affiliates, officers or directors should be discovered by Sand which should be
set forth in a supplement to the Proxy Statement, Sand shall promptly inform
Phoenix. Notwithstanding the foregoing, Sand 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.
2.21 BOARD APPROVAL. The Board of Directors of Sand has, as of the date of
this Agreement, determined (i) that the Merger is fair to, and in the best
interests of Sand and its shareholders, and (ii) to recommend that the
shareholders of Sand approve and adopt this Agreement and approve the Merger.
2.22 INSURANCE. Section 2.22 of the Sand Disclosure Letter sets forth all
insurance policies held by Sand for the two years prior to the Effective Time.
During the past five years Sand has not experienced any uninsured losses in
respect of public liability, product liability and worker compensation claims.
All insurance policies are duly in force as of the date of this Agreement. No
notice has been received by Sand regarding the cancellation, non-renewal or
increased premiums due with respect to any insurance policy.
2.23 WARRANTIES. Sand has heretofore furnished or made available to
Phoenix or its counsel for its review copies of all written warranties covering
the products of Sand currently in effect. During
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the past five years, Sand has not experienced any warranty claims which have
affected the consolidated net income of Sand by more than $50,000 in any one
fiscal year.
2.24 MINUTE BOOKS. The minute books of Sand made available to counsel for
Phoenix are the only minute books of Sand and contain a reasonably accurate
summary, in all material respects, of all meetings of directors (and committees
thereof) and shareholders or actions by written consent since the time of
incorporation of Sand.
2.25 NO MATERIAL MISREPRESENTATIONS. Neither this Agreement nor any
certificate, exhibit, schedule or other information furnished by or on behalf of
Sand pursuant to this Agreement contains any untrue statement of material fact
or, when this Agreement and such certificates, schedules and other information
are taken in their entirety, contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
therein not misleading as of the date hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PHOENIX AND MERGER SUB
Phoenix and Merger Sub represent and warrant to Sand, except as set forth
in the disclosure letter supplied by Phoenix to Sand on or before the date
hereof and certified by a duly authorized officer of Phoenix (the "PHOENIX
DISCLOSURE LETTER"), 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 on the business, assets (including intangible
assets), financial condition or results of operations of Phoenix and its
subsidiaries taken as a whole.
3.2 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. This Agreement has been duly
executed and delivered by each of Phoenix and Merger Sub, and, assuming the due
authorization, execution and delivery by Sand, 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 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)
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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 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 and its subsidiaries taken as a whole.
The Phoenix Disclosure Letter lists 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 Phoenix and its subsidiaries taken as a whole 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 the Agreement of Merger with the Secretary of State
of the State of California and (ii) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
have a Material Adverse Effect on Phoenix and its subsidiaries taken as a whole
or have a material adverse effect on the ability of the parties to consummate
the Merger.
(c) The shares of Phoenix Common Stock to be issued to the Sand
Shareholders pursuant to Section 1.6(b)(ii) of this Agreement will, upon
issuance, be duly authorized, validly issued, fully paid and non-assessable
and issued in compliance with all applicable state and federal securities
laws.
3.3 NO MATERIAL MISREPRESENTATIONS. Neither this Agreement nor the
Phoenix Disclosure Letter contains any untrue statement of material fact or,
when this Agreement and the Phoenix Disclosure Letter are taken in their
entirety, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained therein not misleading
as of the date hereof.
3.4 AVAILABLE FUNDS. Phoenix has sufficient capital available to
consummate the transactions contemplated by this Agreement and is not relying on
obtaining additional financing in connection with such transactions.
3.5 MERGER SUB. Merger Sub is a wholly-owned subsidiary of Phoenix that
was formed to effect the transactions contemplated by this Agreement. As of the
date of this Agreement, Merger Sub has no business, operations, assets or
liabilities other than those arising from its formation and pursuant to this
Agreement.
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ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 SECURITIES ACT EXEMPTION. The Phoenix Common Stock to be issued
pursuant to this Agreement initially will not be registered under the Securities
Act of 1933, as amended (the "Securities Act"), in reliance on the exemption set
forth in Section 4(2) thereof. In connection with the acquisition of Phoenix
Common Stock, each of the Sand Founders hereby represents, and each of the
remaining Sand Shareholders will represent prior to receipt of Phoenix Common
Stock, to the Company that (i) the Sand Shareholder is acquiring the Phoenix
Common Stock for investment purposes only and not with a view to, or for resale
in connection with any "distribution" thereof as that term is used for purposes
of the Securities Act; (ii) the Sand Shareholder is aware of Phoenix's business
affairs and financial condition and has acquired sufficient information about
Phoenix to reach an informed and knowledgeable decision to acquire the Phoenix
Common Stock; and (iii) the Sand Shareholder understands that the Phoenix Common
Stock has not been registered under the Securities Act in reliance upon a
specific exemption therefrom, which exemption depends upon, among other things,
the bona fide nature of the investment intent as expressed herein.
4.2 STOCK RESTRICTIONS. In addition to any legend imposed by applicable
state securities laws or by any contract which continues in effect after the
Effective Time, the certificates representing the shares of Phoenix Common Stock
issued pursuant to this Agreement shall bear a restrictive legend (and stop
transfer orders shall be placed against the transfer thereof with Phoenix's
transfer agent), stating substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR
AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT, OR A NO-ACTION LETTER
FROM THE SECURITIES AND EXCHANGE COMMISSION.
4.3 SAND SHAREHOLDERS' REPRESENTATIONS REGARDING SECURITIES LAW MATTERS.
Each Sand Shareholder, by virtue of the Merger and the conversion into Phoenix
Common Stock of Sand Common Stock held by such Sand Shareholder, shall be bound
by the following provisions:
(a) The Sand Shareholder will not offer, sell or otherwise dispose of
any shares of Phoenix Common Stock except in compliance with the Securities Act
and the rules and regulations thereunder.
(b) The Sand Shareholder will not sell, transfer or otherwise dispose
of any shares of Phoenix Common Stock unless (i) such sale, transfer or other
disposition is within the limitations of
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and in compliance with Rule 144 promulgated by the SEC under the Securities
Act and the Sand Shareholder furnishes Phoenix with reasonable proof of
compliance with such Rule, (ii) in the opinion of counsel, reasonably
satisfactory to Phoenix and its counsel, some other exemption from
registration under the Securities Act is available with respect to any such
proposed sale, transfer, or other disposition of Phoenix Common Stock, or
(iii) the offer and sale of Phoenix Common Stock is registered under the
Securities Act.
4.4 REGISTRATION RIGHTS. Phoenix shall use its reasonable best efforts to
include the Phoenix Common Stock issued to the Sand Shareholders in any
registration statement filed on behalf of Phoenix for a period of one year after
the Effective Time. Any such registration shall be subject to the terms and
conditions set forth in the Declaration of Registration Rights attached hereto
as EXHIBIT D.
4.5 NASDAQ NATIONAL MARKET LISTING. Phoenix shall authorize for listing
on the Nasdaq National Market the shares of Phoenix Common Stock issuable in
connection with the Merger, upon official notice of issuance.
4.6 BLUE SKY LAWS. Phoenix shall 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 the Phoenix Common Stock pursuant hereto. Sand
and the Sand Shareholders shall use their best 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.
4.7 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, Sand agrees, except as provided in
Section 4.7 of the Sand Disclosure Letter, or to the extent that Phoenix 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 addition, Sand will promptly notify Phoenix
of any material event involving its business or operations. 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
as provided in Section 4.7 of the Sand Disclosure Letter, without the prior
written consent of Phoenix, Sand shall not do any of the following:
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(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 Sand IP Rights, 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;
(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;
(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
Sand Common Stock issued pursuant to the exercise of stock options outstanding
as of the date of this Agreement, (ii) options to purchase shares of Sand Common
Stock, 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, and (iii) shares of Sand Common Stock issuable upon the
exercise of the options referred to in clause (ii);
(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 in Section 4.7 of the Sand Disclosure Letter,
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
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which are material, individually or in the aggregate, to the business of
Sand, 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 Sand;
(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 Sand, 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; or
(o) Agree in writing or otherwise to take any of the actions
described in Section 4.7 (a) through (n) above.
4.8 PROXY STATEMENT. Sand has prepared the Proxy Statement to be sent to
the Sand Shareholders to solicit votes of the Sand Shareholders in connection
with the transactions contemplated by this Agreement, including the Merger, and
has delivered a copy of such Proxy Statement to Phoenix. Insofar as the Proxy
Statement contains information pertaining to Sand, at the time of its mailing to
the Sand Shareholders and at the time of the Sand Shareholders' Meeting to vote
on the Merger, the Proxy Statement will contain no untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading, and Sand will advise Phoenix in writing if
prior to the meeting of Sand Shareholders to vote on the Merger it shall obtain
knowledge of any facts that would make it necessary to supplement or amend the
Proxy Statement or to comply with applicable laws. Phoenix will cooperate with
Sand in providing necessary information for preparation of the Proxy Statement.
Sand agrees to call a special meeting of the Sand Shareholders or to solicit
votes of the Sand Shareholders by written consent on or before the day that is
15 calendar days after the date hereof, or such later date as may be mutually
agreed upon in writing by Sand and Phoenix, for the purpose of submitting this
Agreement to the Sand Shareholders for approval and adoption and authorizing the
transactions contemplated hereby. The Board of Directors of Sand, subject to
their fiduciary duties, will recommend that the Shareholders approve and adopt
this Agreement.
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4.9 DUE DILIGENCE. During the period between the date of this Agreement
and the Effective Date of the Merger, Phoenix will have the right to conduct
such corporate investigation or investigations of Sand as Phoenix may deem
advisable for the purpose of determining the accuracy of Sand's representations
and warranties. Sand shall give Phoenix, its attorneys, accountants and other
representatives full access and cooperation in connection with such
investigations.
4.10 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Subject to the Confidentiality Agreement between the parties,
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 4.10 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 Sand and Phoenix have previously
executed the Confidentiality Agreement, which Confidentiality Agreement will
continue in full force and effect in accordance with their terms.
4.11 NO SOLICITATION. From and after the date of this Agreement until the
earlier of the Effective Time or termination of this Agreement pursuant to its
terms, Sand shall not, and 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 Phoenix and its
affiliates, agents and representatives), or (ii) participate in any discussions
or negotiations with, or disclose any non-public information concerning Sand to,
or afford any access to the properties, books or records of Sand 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 Sand. For the purposes of this Agreement, an "ACQUISITION PROPOSAL" with
respect to Sand means any proposal or offer relating to (i) any merger,
consolidation, sale of substantial assets or similar transactions involving Sand
(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 Sand (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 Sand; 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. Sand will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. Sand 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
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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 4.11, from and
after the date of this Agreement until the earlier of the Effective Time and
termination of this Agreement pursuant to its terms, Sand will not, and will
instruct its 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).
4.12 LEGAL REQUIREMENTS. Each of Phoenix, Merger Sub and Sand 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.
4.13 THIRD PARTY CONSENTS. As soon as practicable following the date
hereof, Sand will obtain all consents, waivers and approvals under any of its
agreements, contracts, licenses or leases required to be obtained in connection
with the consummation of the transactions contemplated hereby.
4.14 NOTIFICATION OF CERTAIN MATTERS. Subject to the terms and provisions
of the Confidentiality Agreement, each party will give prompt notice to the
other, 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 such party, 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.
4.15 COMMERCIALLY REASONABLE EFFORTS AND FURTHER ASSURANCES. Subject to
the respective rights and obligations of Phoenix and Sand 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.
4.16 JOINT BUSINESS PLAN. Sand and the Sand Founders have assisted Phoenix
with the preparation of the Joint Business Plan and hereby agree with the
contents thereof, including the definition of "Business Unit", the accounting
policies and guidelines, and the revenue and operating income targets. Sand and
the Sand Founders agree with the projections set forth in the Joint Business
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Plan and agree that such projections were prepared in good faith based on
conclusions and assumptions that were reasonable at the time such conclusions
and projections were made. Phoenix agrees with the projections set forth in the
Joint Business Plan and agrees that such projections were prepared in good faith
based on conclusions and assumptions that were reasonable at the time such
conclusions and projections were made.
4.17 SAND EMPLOYEE MATTERS. Phoenix agrees to continue the employment of
all Sand employees at the same salary as was in existence immediately prior to
the Effective Time; provided, however, that this provisions shall not be
interpreted to limit Phoenix's ability to terminate or change the nature of its
employment relationship with any such Sand employee after the Effective Time.
Phoenix agrees to permit such employees to participate in the Phoenix employee
benefit plans and to give them years of service credit for purposes of such
plans based on each employee's service with Sand prior to the Effective Time.
The parties agree that this Section 4.17 is not intended to create any third
party beneficiary right in any employee. Prior to the Effective Time, Phoenix
agrees to adopt the Retention Bonus Program in the form previously agreed to by
the parties.
4.18 TAX RETURN PREPARATION AND REVIEW. Phoenix shall be responsible for
preparing and filing (or causing the preparation and filing of) all Tax Returns
with respect to Sand due after the Closing Date. Such Tax Returns shall be
prepared in a manner consistent with prior periods, as determined in the good
faith judgment of Phoenix. Phoenix shall pay (or cause to be paid ) any Taxes
shown to be due on such Tax Returns, without prejudice to the right of Phoenix
to seek indemnification for such Taxes from the Sand Founders pursuant to
Section 8.1. From the Closing Date until one year thereafter, Phoenix shall
provide each Sand Founder a copy of all Tax Returns filed with respect to Sand
due after the Closing Date.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF PHOENIX
The obligations of Phoenix and Merger Sub hereunder are subject to the
satisfaction, or waiver thereof by Phoenix, of the following conditions:
5.1 SHAREHOLDER APPROVAL. This Agreement and the Merger shall have been
approved and adopted by the Sand Shareholders by the requisite vote under
applicable law and Sand's Articles of Incorporation.
5.2 NO ACTIONS OR PROCEEDING. No investigation, action or proceeding by
or before any court or other governmental body shall have been commenced or
threatened, and no inquiry shall have been received that in the opinion of
Phoenix's counsel may lead to an action or proceeding to restrain or otherwise
challenge the transactions contemplated hereby.
5.3 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Sand shall be true and correct in all material respects on the Effective Time of
the Merger, with the same effect as though such representations and warranties
had been made on and as of such date, and each and all of the
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agreements of Sand to be performed or complied with in all material respects
pursuant to the terms of this Agreement shall have been duly performed and
complied with.
5.4 NO MATERIAL ADVERSE EFFECT. No event shall have occurred since the
date of this Agreement that has had or would reasonably be expected to have a
Material Adverse Effect on Sand.
5.5 OPINION OF COUNSEL. There shall be delivered to Phoenix on the
Closing Date of the Merger an opinion or opinions of counsel to Sand, dated the
Closing Date of the Merger and satisfactory in form and substance to Phoenix and
its counsel, covering such matters as Phoenix or its counsel may reasonably
require.
5.6 NON-COMPETE AGREEMENTS. Sand, Phoenix and the Sand Founders hereto
shall have entered into covenants not-to-compete (the "Non-Compete Agreements")
substantially in the form of EXHIBIT C hereto.
5.7 ACQUISITION AGREEMENT. Phoenix and certain of the Sand Shareholders
shall have entered into an agreement pursuant to which such Shareholders agree
to sell Phoenix 100% of their shares of Sand Microelectronics Pvt. Ltd., India,
an Indian company.
5.8 COMPLIANCE CERTIFICATE. Sand shall have delivered to Phoenix a
certificate, executed by the President of Sand, dated as of the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 5.3 and
5.4.
5.9 CERTIFICATES AND DOCUMENTS. Sand shall have delivered to Phoenix:
(a) Certificates, as of the most recent practicable dates, as to the
corporate and tax good standing of Sand issued by the Secretary of State of the
State of California and the Secretary of the State of each other state in which
Sand is currently qualified to transact business; and
(b) Resolutions of the Board of Directors of Sand and the Sand
Shareholders, authorizing and approving all matters in connection with this
Agreement and the Merger, certified by the Secretary or Assistant Secretary of
Sand as of the Closing Date.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF SAND
The obligations of Sand hereunder are subject to the satisfaction, or
waiver thereof by Sand, of the following conditions:
6.1 SHAREHOLDER APPROVAL. This Agreement and the Merger shall have been
approved and adopted by the Sand Shareholders by the requisite vote under
applicable law and Sand's Articles of Incorporation.
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6.2 NO ACTIONS OR PROCEEDING. No investigation, action or proceeding by
or before any court or other governmental body shall have been commenced or
threatened, and no inquiry shall have been received that in the opinion of
Sand's counsel may lead to an action or proceeding to restrain or otherwise
challenge the transactions contemplated hereby.
6.3 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Phoenix shall be true and correct in all material respects on and as of the
Effective Time of the Merger with the same effect as though such representations
and warranties had been made on and as of such date, and each and all of the
agreements of Phoenix to be performed or complied with in all material respects
pursuant to the terms of this Agreement shall have been duly performed and
complied with.
6.4 NON-COMPETE AGREEMENTS. Sand, Phoenix and the Sand Founders shall
have entered into the Non-Compete Agreements.
6.5 CERTIFICATES. Phoenix shall have delivered to Sand (a) a certificate,
executed by a duly authorized officer of Phoenix, dated as of the Closing Date,
certifying to the fulfillment of the conditions specified in Section 6.3, and
(b) resolutions of the Board of Directors of Phoenix, authorizing and approving
all matters in connection with this Agreement and the Merger, certified by the
Secretary or Assistant Secretary of Phoenix as of the Closing Date, including
approval of the Retention Bonus Program.
6.6 OPINION OF COUNSEL. There shall be delivered to Sand on the Closing
Date of the Merger an opinion of counsel to Phoenix, dated the Closing Date of
the Merger to the effect that the shares of Phoenix Common Stock to be issued to
the Sand Shareholders in the Merger, when issued in accordance with this
Agreement will, upon issuance, be duly authorized, validly issued, fully paid
and non-assessable and will be issued in compliance with all applicable state
and federal securities laws.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Notwithstanding any investigation made by or on behalf of Phoenix, the
representations and warranties of Sand contained in this Agreement shall be
continuing representations and warranties and shall survive the Effective Time
of the Merger until the second anniversary thereof; provided, however, that the
representations and warranties with respect to intellectual property matters set
forth in Section 2.8 hereof shall be continuing representations and warranties
and shall survive the Effective Time of the Merger until the third anniversary
thereof, and that the representations and warranties with respect to taxes and
tax liabilities of Sand contained in Section 2.7 hereof shall be continuing
representations and warranties and shall survive until the expiration of the
third year following the date on which Sand shall have completed filing all
required tax returns for any partial tax period ending at the Effective Time of
the Merger or such longer period following the filing of any such return during
which the period of the statute of limitations applicable to such return shall
have been extended by action of Sand or any governmental authority.
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ARTICLE VIII
INDEMNITY OF PHOENIX
8.1 INDEMNIFICATION OF PHOENIX. Each of the Sand Founders shall severally
indemnify, defend and hold harmless Phoenix, Merger Sub and the Surviving
Corporation from and against any claims, damages, costs (including, without
limitation, interest on any loss from the date thereof to the date of payment)
or expenses (including, without limitation, attorneys' fees and disbursements)
(collectively, "Losses") arising out of any misrepresentation in or breach of
the representations, warranties or covenants of Sand contained herein or made to
Phoenix or Merger Sub in any exhibit, certificate or other instrument or
document furnished or to be furnished by Sand pursuant to this Agreement or in
connection with the transactions contemplated herein; provided, however, that
each Sand Founder's liability pursuant to this Section 8.1, including any
offsets pursuant to Section 8.6, shall not exceed one million three hundred
thirty-four thousand dollars ($1,334,000); and, provided further, that the
liability of all of the Sand Founders pursuant to this Section 8.1 shall not
exceed four million dollars ($4,000,000); and, provided further, that the amount
to be payable by a Sand Founder shall in no event exceed one-third of the total
amount to be paid with respect to any claim for indemnification hereunder.
Notwithstanding the foregoing, no payments shall be made pursuant to this
Section 8.1 unless and until the aggregate amount of such Losses exceeds
$175,000, in which case Phoenix shall be entitled to the full amount of the
Losses in excess of $75,000 after deducting any amounts otherwise to be paid
with respect to such Dissenters' Shares pursuant to Section 1.6(b) hereof.
8.2 INDEMNIFICATION FOR DISSENTERS' SHARES. Phoenix shall be indemnified
from and against any Losses as a result of claims asserted against Phoenix by
holders of Dissenters' Shares, and shall be entitled to recover the full amount
of such Losses, after deducting any amounts otherwise to be paid with respect to
such Dissenters' Shares pursuant to Section 1.6(b) hereof.
8.3 NOTICE. Promptly after service of notice of any claim or of process
on Phoenix or the Surviving Corporation by any third person in any matter in
respect of which indemnity may be sought pursuant to this Section 8, Phoenix
shall notify the Sand Founders at the Sand Founders' addresses set forth herein.
Phoenix may, at its option, assume the defense of any such claim or process or
settlement thereof. Regardless of whether any such third-party claim is
defended by Phoenix or the Sand Founders, the defending party shall (i) settle
or defend such claim or proceeding with reasonable diligence; (ii) cooperate
with the other party in the investigation and analysis of such claim or
proceeding; (iii) afford the other party reasonable access to such relevant
information as it may have in its possession; and (iv) keep the other party
reasonably informed regarding such claim or proceeding. The generality of the
foregoing notwithstanding, the Sand Founders shall not settle any such claim or
proceeding without the consent of Phoenix, which consent shall not be
unreasonably withheld; provided that if Phoenix shall withhold such consent, the
Sand Founders shall continue to defend such claim or proceeding and all defense
costs from the date of such refusal to consent onward shall be payable by the
Sand Founders, subject to the maximum limits of such indemnity under this
Section 8. If the Sand Founders shall become obligated to indemnify and hold
harmless Phoenix pursuant to this Section 8, such obligation will be the several
obligation of the Sand Founders only and in no event will the Sand Founders be
entitled to any contribution from the Surviving Corporation with respect to such
indemnity obligation of the Sand Founders, nor shall the Sand Founders assert
any claim against the Surviving
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<PAGE>
Corporation, whether for contribution or otherwise, with respect to any such
indemnity obligation of the Sand Founders.
8.4 SURVIVAL OF INDEMNIFICATION OBLIGATION. The indemnification provided
in this Section 8 shall survive the Effective Time of the Merger for the periods
specified in Section 7 and any additional period required to resolve any claim
under this Section 8.
8.5 NOTICE OF CLAIM.
(a) At any time prior to the end of the period specified in Section
7, Phoenix may give the Sand Founders a written notice which states the general
nature of a claim for indemnity ("Claim") pursuant to this Section 8 with
reasonable detail as to the alleged basis of the indemnity claim ("Notice of
Claim"), together with notice that Phoenix intends to apply all or part of the
Sand Founders' pro rata portion of the Contingent Payments to the payment of the
Losses specified in such Notice of Claim. In the event that a Loss has not been
liquidated or determined, Phoenix may, at any time prior to the end of the
period specified in Section 7, give the Sand Founders a Notice of Claim in which
Phoenix describes the general nature of the Claim and makes a good faith
estimate of the Loss.
(b) If a Sand Founder does not give written notice to Phoenix within
30 days after the receipt of such Notice of Claim that he protests the Claim set
forth in the Notice of Claim, then Phoenix shall be entitled to indemnification
for such Claim and all Losses hereunder, including the right of offset as set
forth in Section 8.6 below.
(c) If a Sand Founder does give written notice to Phoenix within 30
days after the receipt of such Notice of Claim that he protests the Claim, then
such Claim shall be referred by Phoenix to, and settled by, binding arbitration
in accordance with the then applicable Rules of Commercial Arbitration of the
American Arbitration Association. The arbitration panel or arbitrator (as
applicable) shall be selected as provided in Section 8.5(d) of this Agreement.
The arbitration panel or arbitrator (as applicable) shall determine the amount,
if any, of such Claim which is proper. The venue of the arbitral proceedings
shall be in Santa Clara County, California. In reaching a decision, the
arbitration panel or arbitrator (as applicable) shall apply the principles of
law that a California court, in applying California law, would use in the event
of litigation on the same issues. The decision rendered by the arbitration
panel or arbitrator (as applicable) shall be final and binding on Phoenix and
each Sand Founder. Judgment on the award rendered by the arbitration panel or
arbitrator (as applicable) may be entered in any court having jurisdiction
thereof. All attorneys' fees, fees for expert witnesses and all other costs
incurred by the Sand Founders in connection with the indemnity claim which is
the subject of the arbitration and any fees charged by the arbitrators or the
American Arbitration Association shall be paid by the Sand Founders.
(d) In the event that a Sand Founder protests a Claim as provided
in Section 8.5(c) and Phoenix and the Sand Founders cannot resolve such
disagreement within the 30-day period specified in Section 8.5(c), then
promptly thereafter Phoenix shall name an individual to serve as an
arbitrator on the arbitration panel to determine the validity of the Claim
and the amount of any Loss, and shall give
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<PAGE>
the Sand Founders notice thereof. Within 10 days after such notice, the Sand
Founders shall name a second individual to serve as an arbitrator on such
arbitration panel; and the two individuals so named shall agree upon and name
a third individual to serve as an arbitrator on such arbitration panel. In
the event that the Sand Founders do not name a second individual to serve on
the arbitration panel within such 10-day period, then the arbitrator named by
Phoenix shall serve as the sole arbitrator. In the event that the two
individuals named by Phoenix and the Sand Founders, respectively, cannot
agree on a third member within 10 days, then the selection of a third
individual to serve on the arbitration panel shall be made by the American
Arbitration Association or, if the American Arbitration Association fails to
choose an arbitrator within 15 days after request by Phoenix or the Sand
Founders by the presiding judge of Santa Clara County, California Superior
Court.
8.6 RIGHT OF OFFSET. Phoenix shall be entitled to offset any amounts due
and payable by the Sand Founders pursuant to the indemnity obligations under
this Agreement, including this Article VIII against the Sand Founders' pro rata
portion of the Contingent Payments; provided, however, that Phoenix shall apply
this right of offset against the Sand Founders equally.
8.7 NO LIMITATION OF REMEDIES. Notwithstanding anything contained in this
Agreement to the contrary, nothing shall preclude or limit Phoenix's or the
Surviving Corporation's rights to exercise any other remedy Phoenix or the
Surviving Corporation may have in law or equity regarding fraud or intentional
misrepresentation or any remedies available to Phoenix under the Non-Compete
Agreement with any Sand Founder.
8.8 DETERMINATION OF TAXES. For any taxable period of Sand beginning
before but ending after the Closing Date (a "STRADDLE PERIOD"):
(a) Sand and Phoenix will, to the extent permitted by applicable law,
elect with the relevant taxing authority to treat for all purposes the Closing
Date as the last day of a taxable period of Sand; or
(b) Where applicable law does not permit Sand to treat the Closing
Date as the last day of a taxable period, then for purposes of this Agreement,
the portion of any Tax for a Straddle Period that relates to the period ending
with the Closing Date shall be determined (i) in the case of Taxes based upon or
measured by income or gross receipts, by treating the Closing Date as if it were
the final day of a taxable period and (ii) in the case of other Taxes, by
ratably apportioning such Taxes to each day in the Straddle Period.
ARTICLE IX
COSTS INCIDENT TO AGREEMENT
Except as otherwise expressly provided herein, each of the parties hereto
will pay all the costs incurred by it incident to the preparation, execution or
delivery of this Agreement or the performance of its obligations hereunder,
including, without limitation, the fees and disbursements of its attorneys,
accountants, investment bankers, consultants, brokers and persons providing
other services; provided, however, that all such costs and expenses of Sand in
excess of $400,000, including expenses for fees
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payable to Dain Rauscher Wessels, shall reduce the Fixed Amount payable to
the Sand Shareholders as set forth in Section 1.6(b).
ARTICLE X
TERMINATION
10.1 TERMINATION. Except as provided in Section 10.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of Sand or Phoenix;
(b) by Phoenix if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Phoenix's or
Sand's ownership or operation of any portion of the business of Sand or
(ii) compel Phoenix or Sand to dispose of or hold separate, as a result of the
Merger, any portion of the business or assets of Sand or Phoenix; in either
case, the unavailability of which assets or business would have a Material
Adverse Effect on Phoenix or would reasonably be expected to have a Material
Adverse Effect on Phoenix's ability to realize the benefits expected from the
Merger.
(c) by Phoenix if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of Sand
and as a result of such breach the conditions set forth in Section 5.3(a) would
not then be satisfied; provided, however, that if such breach is curable by Sand
within thirty (30) days through the exercise of its reasonable best efforts,
then for so long as Sand continues to exercise such reasonable best efforts
Phoenix may not terminate this Agreement under this Section 10.1(c) unless such
breach is not cured within thirty (30) days (but no cure period shall be
required for a breach which by its nature cannot be cured);
(d) by Sand if it is not in material breach of its obligations under
this Agreement and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of Phoenix or
Merger Sub and as a result of such breach the conditions set forth in Section
6.3 would not then be satisfied; provided, however, that if such breach is
curable by Phoenix or Merger Sub within thirty (30) days through the exercise of
its reasonable best efforts, then for so long as Phoenix or Merger Sub continues
to exercise such reasonable best efforts Sand may not terminate this Agreement
under this Section 10.1(d) unless such breach is not cured within thirty (30)
days (but no cure period shall be required for a breach which by its nature
cannot be cured); or
(e) by either Sand 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 10.1(e) 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;
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Where action is taken to terminate this Agreement pursuant to Section 10.1,
it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
10.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 10.1, this Agreement shall forthwith become void and,
there shall be no liability or obligation on the part of Phoenix, Merger Sub or
Sand, or their respective officers, directors or shareholders, provided that the
provisions of this Article X shall remain in full force and effect and survive
any termination of this Agreement.
10.3 AMENDMENT. Except as is otherwise required by applicable law, prior
to the Closing, this Agreement may be amended by the parties hereto at any time
by execution of an instrument in writing signed by Phoenix, Sand and the Sand
Founders. Except as is otherwise required by applicable law, after the Closing,
this Agreement may be amended by the parties hereto at any time by execution of
an instrument in writing signed by Phoenix, Sand and the Sand Founders.
10.4 EXTENSION; WAIVER. At any time prior to the Effective Time, Phoenix
and Merger Sub, on the one hand, and Sand, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party 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 XI
MISCELLANEOUS
11.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
parties hereto, their legal representatives, successors in interest, assignees,
transferees, creditors (including judgment creditors), trustees (including
trustees in bankruptcy), receivers, and all holders or possessors of, or
purported holders or possessors of, any of the stock of Sand, including without
limitation, assignees, transferees, pledgees, holders of security interests in
and liens upon any of such stock and trustees, and all persons with notice or
knowledge, or chargeable with notice or knowledge, of the provisions hereof.
This Agreement cannot be amended or modified except by a written agreement
executed by the parties hereto; provided, however, that no such amendment or
modification may be made after the Sand Shareholders approve and adopt this
Agreement if such amendment or modification, in the judgment of the Board of
Directors of Sand, would materially and adversely affect the interest of the
Sand Shareholders. Except for the purposes or in the events set forth in
Section 1.6(b), this Agreement and the rights, duties and obligations hereunder
may not be assigned by any party without the prior written consent of the other
parties; provided, however, that this Agreement may be assigned by Phoenix to
any directly or indirectly wholly-owned subsidiary of Phoenix, provided that
Phoenix shall continue to be bound by this Agreement after such assignment.
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<PAGE>
11.2 NOTICES. Any notices or other communications required or permitted
hereunder will be in writing and will be deemed sufficiently given only if
delivered in person or sent by telegram, telecopy or telex or by first-class or
air mail or by recognized air courier service, postage or other charges prepaid,
addressed as follows:
If to Sand:
If before the Merger:
Sand Microelectronics, Inc.
2121 Ringwood Avenue
San Jose, CA 95131
ATTENTION: Anand Naidu, President
If after the Merger:
Sand Microelectronics, Inc.
2121 Ringwood Avenue
San Jose, CA 95131
ATTENTION: Anand Naidu
Copy to:
Stanley Pierson, Esq.
Pillsbury Madison & Sutro
2550 Hanover Street
Palo Alto, CA 94304
If to Phoenix:
Phoenix Technologies Ltd.
411 E. Plumeria Drive
San Jose, CA 95134
ATTENTION: Stuart J. Nichols, Vice President, General Counsel
and Secretary
Copy to:
Herbert P. Fockler, Esq.
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice or communication will be
deemed to have been given as of the date so delivered, telegraphed, telecopied,
telexed, mailed or sent by courier.
11.3 ENTIRE AGREEMENT. This Agreement, including the Exhibits attached
hereto, and the Disclosure Letter constitute the entire understanding of the
parties relating to the subject matter hereof and supersede all prior and
contemporaneous agreements and understandings, whether oral or written, relating
to the subject matter hereof.
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<PAGE>
11.4 REMEDIES. In the event of a breach, or a threatened or attempted
breach, of any provision of this Agreement by any party, any other party shall,
in addition to all other remedies, be entitled to (i) a temporary or permanent
injunction against such breach without the necessity of showing any actual
damages and (ii) a decree for the specific performance of the Agreement.
11.5 WAIVER. The waiver by any party of the breach of any of the terms and
conditions of, or any right under, this Agreement shall not be deemed to
constitute the waiver of any other breach of the same or any other term or
condition or of any similar right. No such waiver shall be binding or effective
unless expressed in writing and signed by the party giving such waiver.
11.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PHOENIX TECHNOLOGIES LTD.
By: /s/ Jack Kay
----------------------------------------
Jack Kay, President and Chief Executive
Officer
PHOENIX SUB CORPORATION
By: /s/ Jack Kay
----------------------------------------
Jack Kay, President and Chief Executive
Officer
SAND MICROELECTRONICS, INC.
By: /s/ Anand Naidu
----------------------------------------
Anand Naidu, President and Chief
Executive Officer
"SAND FOUNDERS"
/s/ Babu Chilukuri
----------------------
Babu Chilukuri
/s/ Anand Naidu
----------------------
Anand Naidu
/s/ Ajit Deora
----------------------
Ajit Deora
<PAGE>
EXHIBIT A
VOTING AGREEMENT
This Voting Agreement ("AGREEMENT") is made and entered into as of
September , 1998, between Phoenix Technologies Ltd., a Delaware
corporation ("PARENT"), and the undersigned shareholder ("SHAREHOLDER") of
Sand Microelectronics, Inc., a California corporation (the "COMPANY").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, the
Company and Phoenix 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 the right to receive cash payments 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
<PAGE>
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 (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 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 X 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 MODIFICATIONS. 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
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<PAGE>
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:
If to Parent: Phoenix Technologies Ltd.
411 E. Plumeria Drive
San Jose, CA 95134
Attn: President
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.
If to the Shareholder: To the address for notice set forth on the
last page hereof.
With a copy to: Pillsbury Madison & Sutro
Five Palo Alto Square
2550 Hanover Street
Palo Alto, CA 94304
Attn: Stanley Pierson, Esq.
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.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the date and year first above written.
PHOENIX TECHNOLOGIES LTD.
By:
---------------------------
Title:
------------------------
SHAREHOLDER:
By:
---------------------------
Shareholder's Address for Notice:
------------------------------
------------------------------
------------------------------
Shares of Common Stock
Beneficially Owned
***VOTING AGREEMENT***
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<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned shareholder of Sand Microelectronics, 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 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 , 1998 (the
"MERGER AGREEMENT"), among Parent, Phoenix 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 , 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 name 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.
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<PAGE>
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: , 1998
Signature of Shareholder:
------------------
Print Name of Shareholder:
-----------------
Shares of Common Stock Beneficially Owned
**Proxy***
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<PAGE>
EXHIBIT B
AGREEMENT OF MERGER
OF
PHOENIX SUB CORPORATION
AND
SAND MICROELECTRONICS, INC.
This Agreement of Merger, dated as of the day of , 1998
("Merger Agreement"), by and among Phoenix Sub Corporation ("Merger Sub"), a
California corporation and a wholly owned subsidiary of Phoenix Technologies,
Ltd, a Delaware corporation ("Phoenix"), and Sand Microelectronics, Inc., a
California corporation ("Sand" or the "Surviving Corporation").
RECITALS
A. Sand was incorporated in the State of California on ,
and as of , 1998 had shares of its Common Stock, no
par value, outstanding ("Sand Common").
B. Merger Sub was incorporated in the State of California on
, 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 Sand 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 Sand 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 Sand and Merger Sub, respectively, that
Merger Sub be merged with and into Sand (the "Merger").
E. The Boards of Directors of Phoenix, Sand and Merger Sub and the
shareholders of Merger Sub and Sand approved the Merger.
AGREEMENTS
The parties hereto hereby agree as follows:
1. Merger Sub shall be merged with and into Sand, and Sand shall be
the Surviving Corporation.
<PAGE>
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. At the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub, Sand or the holders of any shares of the
Common Stock of Sand, each share of the Common Stock, no par value, of Sand
(the "SAND COMMON STOCK") issued and outstanding immediately prior to the
Effective Time and all rights to accrued dividends in respect thereof (other
than any shares of Sand Common Stock to be canceled pursuant to Section 1.6(c)
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 into the right to receive on the dates described below, the
following:
(a) DEFINITIONS.
(i) 1999 REVENUE PAYMENT shall mean a number calculated
by multiplying $800,000 by the 1999 Revenue Percentage; provided, however,
that in no event shall the 1999 Revenue Payment exceed $2,400,000;
(ii) 2000 REVENUE PAYMENT shall mean a number calculated
by multiplying $1,600,000 by the 2000 Revenue Percentage and subtracting the
1999 Revenue Payment; provided, however, that in no event shall the sum of
the 1999 Revenue Payment and the 2000 Revenue Payment exceed $2,400,000;
(iii) 2001 REVENUE PAYMENT shall mean a number calculated
by multiplying $2,400,000 by the 2001 Revenue Percentage and subtracting the
sum of (A) the 1999 Revenue Payment and (B) the 2000 Revenue Payment;
provided, however, that in no event shall the sum of the 1999 Revenue Payment,
the 2000 Revenue Payment and the 2001 Revenue Payment exceed $2,400,000;
(iv) 1999 REVENUE PERCENTAGE shall mean the quotient
calculated by dividing the 1999 Actual Revenues by the 1999 Projected
Revenues;
(v) 2000 REVENUE PERCENTAGE shall mean the quotient
calculated by dividing the 2000 Cumulative Revenues by the 2000 Cumulative
Projected Revenues;
(vi) 2001 REVENUE PERCENTAGE shall mean the quotient
calculated by dividing the 2001 Cumulative Revenues by the 2001 Cumulative
Projected Revenues;
(vii) 1999 ACTUAL REVENUES shall mean the actual net
revenues of the Business Unit for the fiscal year ended September 30, 1999;
provided, however, that one-half of the
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actual net revenues of the Business Unit from the Closing Date through
September 30, 1998 shall be included in the 1999 Actual Revenues, but in no
event shall the 1999 Actual Revenues be less than zero;
(viii) 2000 CUMULATIVE REVENUES shall mean the sum of the
actual net revenues of the Business Unit for the fiscal years ended
September 30, 1999 and September 30, 2000, but in no event shall the 2000
Cumulative Revenues be less than zero;
(ix) 2001 CUMULATIVE REVENUES shall mean the sum of
the actual net revenues of the Business Unit for the fiscal years ended
September 30, 1999, September 30, 2000 and September 30, 2001, but in no event
shall the 2001 Cumulative Revenues by less than zero;
(x) 1999 PROJECTED REVENUES shall mean the net revenues
of the Business Unit for the fiscal years ended September 30, 1999 as set
forth in the Joint Business Plan;
(xi) 2000 CUMULATIVE PROJECTED REVENUES shall mean the
sum of the net revenues of the Business Unit for the fiscal years ended
September 30, 1999 and September 30, 2000 as set forth in the Joint Business
Plan;
(xii) 2001 CUMULATIVE PROJECTED REVENUES shall mean the
sum of the net revenues of the Business Unit for the fiscal years ended
September 30, 1999, September 30, 2000 and September 30, 2001 as set forth in
the Joint Business Plan;
(xiii) 1999 OPERATING EARNINGS PAYMENT shall mean a number
calculated by multiplying $533,334 by the 1999 Operating Earnings Percentage;
provided, however, that in no event shall the 1999 Operating Earnings Payment
exceed $1,600,000;
(xiv) 2000 OPERATING EARNINGS PAYMENT shall mean a number
calculated by multiplying $1,066,666 by the 2000 Operating Earnings
Percentage and subtracting the 1999 Operating Earnings Payment; provided,
however, that in no event shall the sum of the 1999 Operating Earnings
Payment exceed $1,600,000;
(xv) 2001 OPERATING EARNINGS PAYMENT shall mean a number
calculated by multiplying $1,600,000 by the 2001 Operating Earnings
Percentage and subtracting the sum of the (A) 1999 Operating Earnings Payment
and (B) the 2000 Operating Earnings Payment; provided, however, that in no
event shall the sum of the 1999 Operating Earnings Payment, the 2000
Operating Earnings Payment and the 2001 Operating Earnings Payment exceed
$1,600,000;
(xvi) 1999 OPERATING EARNINGS PERCENTAGE shall mean the
quotient calculated by dividing the 1999 Actual Operating Earnings by the
1999 Projected Operating Earnings;
(xvii) 2000 OPERATING EARNINGS PERCENTAGE shall mean the
quotient calculated by dividing the 2000 Cumulative Operating Earnings by the
2000 Cumulative Projected Operating Earnings;
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(xviii) 2001 OPERATING EARNINGS PERCENTAGE shall mean the
quotient calculated by dividing the 2001 Cumulative Operating Earnings by the
2001 Cumulative Projected Operating Earnings;
(xix) 1999 ACTUAL OPERATING EARNINGS shall mean the
fully-allocated operating earnings from continuing operations of the Business
Unit before interest and taxes for the fiscal year ended September 30, 1999
determined on a basis consistent with the guidelines set forth in the
Joint Business Plan, but in no event shall the 1999 Actual Operating
Earnings be less than zero;
(xx) 2000 CUMULATIVE OPERATING EARNINGS shall mean the
sum of the fully-allocated operating earnings (loss) from continuing
operations of the Business Unit before interest and taxes for the fiscal
years ended September 30, 1999 and September 30, 2000 determined on a
basis consistent with the guidelines set forth in the Joint Business Plan,
but in no event shall the 2000 Cumulative Operating Earnings be less than
zero;
(xxi) 2001 CUMULATIVE OPERATING EARNINGS shall mean the
sum of the fully-allocated operating earnings (loss) from continuing
operations of the Business Unit before interest and taxes for the fiscal
years ended September 30, 1999, September 30, 2000 and September 30, 2001,
determined on a basis consistent with the guidelines set forth in the
Joint Business Plan, but in no event shall the 2001 Cumulative Operating
Earnings be less than zero;
(xxii) 1999 PROJECTED OPERATING EARNINGS shall mean the
fully-allocated operating earnings (loss) of the Business Unit as set forth
in the Joint Business Plan for the fiscal year ended September 30, 1999;
(xxiii) 2000 CUMULATIVE PROJECTED OPERATING EARNINGS shall
mean the sum of the fully-allocated operating earnings (loss) of the Business
Unit for the fiscal years ended September 30, 1999 and September 30, 2000
as set forth in the Joint Business Plan;
(xxiv) 2001 CUMULATIVE PROJECTED OPERATING EARNINGS shall
mean the sum of the fully-allocated operating earnings (loss) of the Business
Unit for the fiscal years ended September 30, 1999, September 30, 2000
and September 30, 2001 as set forth in the Joint Business Plan;
(xxv) BUSINESS UNIT shall mean a portion of the business
and product lines of Phoenix as described in the Joint Business Plan;
(xxvi) JOINT BUSINESS PLAN shall mean the joint business
plan prepared by the parties hereto dated , 1998;
(xxvii) OPTION EXCHANGE RATIO shall mean (A) $26,076,800,
the estimated net present value of the Merger Consideration, plus the
aggregate exercise price of any vested Sand Stock Options exercised between
the date hereof and the Effective Time, minus the amount by which the costs
and expenses incurred by Sand in connection with the preparation, execution
or delivery of
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<PAGE>
this Agreement or the performance of its obligations hereunder, including,
without limitation, the fees and disbursements of its attorneys, accountants,
investment bankers, consultants, brokers and persons providing other services
exceeds $400,000, divided by the Fully Diluted Number, and divided by
(B) $7.10, the average closing price of a share of Phoenix Common Stock for the
ten most recent days that Phoenix Common Stock has traded ending on the
trading day immediately prior to the date hereof, as reported on the Nasdaq
Stock Market;
(xxviii) FULLY DILUTED NUMBER shall mean all shares of
Sand Common Stock outstanding at the Effective Time plus the number of shares
of Sand Common Stock underlying all vested and unvested Sand Stock Options
(as defined below) outstanding as of the Effective Time; and
(xxix) OUTSTANDING SHARES shall mean the number of
shares of Sand Common Stock outstanding at the Effective Time.
(b) CONVERSION OF SAND COMMON STOCK. At the Effective Time, by
virtue of the Merger and without any action on the part of Merger Sub, Sand
or the holders of any shares of the Common Stock of Sand, each share of the
Common Stock, no par value, of Sand (the "SAND COMMON STOCK") issued and
outstanding immediately prior to the Effective Time and all rights to accrued
dividends in respect thereof (other than any shares of Sand Common Stock to
be canceled pursuant to Section 1.6(c) 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 into the right to receive on the
dates described below, the following (the "MERGER CONSIDERATION"):
(i) at the Effective Time an amount of cash equal to
(A) the total of $20,000,000 plus the aggregate exercise price of any
vested Sand Stock Options exercised between the date hereof and the Effective
Time, minus the amount by which the costs and expenses incurred by Sand in
connection with the preparation, execution or delivery of this Agreement or
the performance of its obligations hereunder, including, without limitation,
the fees and disbursements of its attorneys, accountants, investment bankers,
consultants, brokers and persons providing other services exceeds $400,000,
divided by (B) the Fully Diluted Number (the "FIXED AMOUNT");
(ii) at the Effective Time, the right to receive a
number of shares of Phoenix Common Stock (the "PHOENIX COMMON STOCK") equal
to 500,000 divided by the Fully Diluted Number, together with a right to
purchase (in respect of each whole share of Phoenix Common Stock) 1/100 of a
share of Series A Junior Participating Preferred Stock of Phoenix pursuant to
the Rights Agreement dated October 31, 1989 between Phoenix and The First
National Bank of Boston;
(iii) (A) sixty (60) days following Phoenix's 1999
fiscal year, an amount equal to the sum of the 1999 Revenue Payment and
1999 Operating Earnings Payment divided by the Fully Diluted Number;
(B) sixty (60) days following Phoenix's 2000 fiscal year, an amount equal to
the sum of the 2000 Revenue Payment and 2000 Operating Earnings Payment divided
by the Fully Diluted Number; and (C) sixty (60) days following Phoenix's
2001 fiscal year, an amount equal to
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<PAGE>
the sum of the 2001 Revenue Payment and 2001 Operating Earnings Payment
divided by the Fully Diluted Number Shares (the "CONTINGENT PAYMENTS").
For purposes of calculating the Contingent
Payments, both actual net revenues of the Business Unit and Actual Operating
Earnings shall be determined on a basis consistent with generally accepted
accounting principles ("GAAP") applied as set forth in the Joint Business
Plan. Notwithstanding the foregoing, any net proceeds received by Phoenix or
the Surviving Corporation (after deduction of all expenses incurred by
Phoenix or the Surviving Corporation in connection therewith, including all
attorneys' fees and expenses) that arise out of or result from any claims
that Sand may have against any third party with respect to any Sand IP Rights
(as defined below) shall be included in the actual net revenues and
fully-allocated operating earnings (loss) of the Business Unit for the fiscal
year in which such proceeds are received.
In the event that after the Effective Time and on
or before September 30, 2001, there has occurred (A) a merger or
consolidation of Phoenix with or into any other corporation or corporations
in which the stockholders of Phoenix own less than fifty percent (50%) of the
voting securities of the surviving corporation or a sale of all or
substantially all of the assets of Phoenix (an "Acquisition"), or (B) any
merger, consolidation, reorganization, sale of substantially all of the
assets of the Business Unit or spin-off of the securities of any entity
conducting the business of the Business Unit (a "Spin Off"), Phoenix shall
cause the surviving corporation in any Acquisition or the acquiring
corporation or entity that is conducting the business of the Business Unit in
any Spin Off, to assume, by operation of law or otherwise, all of Phoenix's
remaining obligations under this Agreement, and if the operation of the
Business Unit is discontinued by such surviving or acquiring corporation or
entity for reasons unrelated to the Business Unit's performance against the
Joint Business Plan, the remaining Contingent Payments will be paid annually
on the dates set forth herein and shall be calculated as if the Revenue
Percentage and the Operating Earnings Percentage for each of the 1999, 2000
and 2001 fiscal years is 1 provided, however, that in no event shall the
aggregate of the Contingent Payments exceed $4,000,000;.
In the event that after the Effective Time and on
or before September 30, 2001, Phoenix (or any successor in interest, assignee
or transferee of Phoenix's obligations hereunder) materially modifies or
alters the business model on which the Business Unit operates as set forth in
the Joint Business Plan, such that the actual net revenue and Actual
Operating Earnings targets set forth in the Joint Business Plan reasonably
could not be achieved prior to September 30, 2001, Phoenix (or any successor
in interest, assignee or transferee of Phoenix's obligations hereunder) shall
have the right, at its option, to either (i) adjust and calculate actual net
revenues and Actual Operating Earnings of the Business Unit for purposes of
calculating Contingent Payments as if the Business Unit were continuing to
operate under the business model set forth in the Joint Business Plan or
(ii) modify the Joint Business Plan to reflect the change in the business
model; provided, however, that Phoenix (or any successor in interest, assignee
or transferee of Phoenix's obligations hereunder) may not make such adjustment
or modification more than once in any fiscal year; and, provided further,
that in the event of such material modification or alteration of the business
model on which the Business Unit operates as set forth in the Joint Business
Plan, Phoenix (or any successor in interest, assignee or transferee of
Phoenix's obligations hereunder) shall, within
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<PAGE>
60 days, give the Representative of the Sand Shareholders (defined below)
notice of such material modification or alteration to the business model
(which notice shall set forth such material modification or alteration in
reasonable detail) and what option (as set forth in subsections (i) or (ii)
above) that Phoenix has elected. The Representative of the Sand Shareholders
shall have 60 days after receipt of the foregoing notice to either
(i) dispute the foregoing modification or alteration in which case the parties
shall submit the dispute to arbitration as set forth in Sections 8.5(c) and
(d) or (ii) to elect, on behalf of all the Sand Shareholders, to receive
in lieu of any remaining Contingent Payment (on the date each remaining
Contingent Payment is due), an amount per share of Sand Common Stock, equal
to $866,667 payable on each Contingent Payment due date subsequent to the
event causing this adjustment divided by the Fully Diluted Number. If no
objections are raised within such sixty (60) day period, the Representative,
on behalf of all the Sand Shareholders shall be deemed to have accepted such
material modification or alteration and Phoenix's election with respect
thereto shall be final, binding and conclusive upon all of the parties hereto.
Phoenix shall deliver to Anand Naidu, acting as
representative of the Sand Shareholders (the "REPRESENTATIVE") no later than
five days prior to the payment date of each year for a Contingent Payment, a
certificate signed by an officer of Phoenix containing a detailed summary of
all computations, including any adjustments, as described above, performed by
Phoenix in arriving at the Contingent Payment for such year (the
"CERTIFICATE"). The Representative shall have a period of sixty (60) days
after receipt of the Certificate to dispute any amounts reflected thereon;
provided, that the Representative shall notify Phoenix in writing of each
disputed item in reasonable detail and shall specify the amount thereof in
dispute within such sixty (60) day period. Phoenix agrees to cooperate with
any such confirmation request and make available to the Representative or his
designated accountant, at all reasonable times, for inspection and review,
the books and records of Phoenix relating to the Business Unit, including,
but not limited to, all worksheets for the period under review and the
aforementioned computations. If no objections are raised within such sixty
(60) day period, the Certificate and the Contingent Payment shall be final,
binding and conclusive upon all of the parties hereto. If, during his review
of the Certificate and accompanying worksheets and records, Representative or
his designated accountant disagrees with the computation prepared by Phoenix
and such disagreement cannot, with good faith effort, be promptly settled,
Phoenix and Representative shall appoint a mutually satisfactory independent
certified public accountant (the "Resolution Accountant") to review the
computations of both Phoenix and Representative. The determination of the
Resolution Accountant shall be delivered within ninety (90) days after the
appointment of the Resolution Accountant and shall be binding on Phoenix and
the Sand Shareholders. The fees and costs of the Resolution Accountant shall
be borne one-half by Phoenix and one-half by the Sand Shareholders. Within
three (3) business days after the Resolution Accountant makes his
determination, Phoenix shall pay the Sand Shareholders the aggregate amount
by which the Contingent Payment is increased thereby or the Sand Shareholders
shall reimburse Phoenix the aggregate amount by which the Contingent Payment
is decreased thereby. Alternatively, Phoenix may deduct any amounts payable
to Phoenix under this Section 1.6(b)(iv) from the Contingent Payments.
(c) CANCELLATION OF PHOENIX-OWNED STOCK. Any share of Sand
Common Stock held in the treasury of Sand or owned by Merger Sub, Phoenix or
any direct or indirect wholly
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owned subsidiary of Sand or of Phoenix immediately prior to the Effective
Time shall be canceled and extinguished without any conversion thereof.
(d) STOCK OPTIONS. At the Effective Time, all options to
purchase Sand Common Stock ("SAND STOCK OPTIONS") then outstanding under
Sand's Non-Qualified Stock Option Plan and 1998 Stock Plan (together, the
"SAND STOCK OPTION PLANS") shall be assumed by Phoenix and shall continue to
have, and be subject to, the same terms and conditions as set forth in the
Sand Stock Option Plan and/or any agreements pursuant to which such Sand
Stock Options were granted as in effect immediately prior to the Effective
Time, except that (A) each Sand Stock Option shall be exercisable for that
number of whole shares of Phoenix Common Stock equal to the number of shares
underlying such Sand Stock Option immediately prior to the Effective Time,
multiplied by the Option Exchange Ratio and rounded down to the nearest whole
number of shares of Phoenix Common Stock and (B) the price at which each
such Sand Stock Option is exercisable shall be divided by the Option Exchange
Ratio and rounded up to the nearest cent. Phoenix will cause such assumed
Sand Stock Options to be registered on form S-8 within 20 days of the
Effective Time and shall have reserved at the Effective Time a sufficient
number of its shares of Common Stock for issuance upon exercise of the
assumed Sand Stock Options.
(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 OPTION EXCHANGE RATIO. The Option 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 Sand Common Stock),
reorganization, recapitalization or other like change with respect to Phoenix
Common Stock or Sand Common Stock occurring on or after the date hereof and
prior to the Effective Time.
5. As of the Effective Time all certificates representing shares of
Sand Common, issued and outstanding immediately prior to the Effective Time,
shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate
representing any such shares of Sand 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 Sand 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
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<PAGE>
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. The conversion of Sand 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 Sand 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 the Merger Consideration 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 Sand Common Stock.
All Merger Consideration paid in accordance with Section 7 hereof
delivered upon the surrender for exchange of shares of Sand Common in
accordance with the terms hereof shall be deemed to have been delivered in
full satisfaction of all rights pertaining to such Sand 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 7.
9. At the Effective Time of the Merger, the separate existence of
Merger Sub shall cease, and Sand 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 Sand 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 Sand and Merger Sub, this Merger Agreement may be
terminated at any time prior to the Effective Time of the Merger by mutual
agreement of the Boards of Directors of Phoenix and Sand.
(b) Notwithstanding the approval of this Merger Agreement by
the shareholders of Sand and Merger Sub, this Merger Agreement shall
terminate forthwith in the event that the Reorganization Agreement shall be
terminated as therein provided at any time prior to the Effective Time of the
Merger.
(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 Sand, 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.
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(e) This Merger Agreement may be amended by the parties hereto
any time before or after approval hereof by the shareholders of Sand 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.
PHOENIX ACQUISITION CORPORATION
- ----------------------------------
Jack Kay, President
- ----------------------------------
Stuart J. Nichols, Secretary
SAND MICROELECTRONICS, INC.
- ----------------------------------
Anand Naidu, President
- ----------------------------------
, Secretary
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EXHIBIT A
ARTICLES OF INCORPORATION
OF
PHOENIX ACQUISITION CORPORATION
ARTICLE I
The name of this corporation is "Phoenix 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 IV
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 V
(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.
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<PAGE>
OFFICERS' CERTIFICATE
OF
SAND MICROELECTRONICS, INC.
Anand Naidu, President, and , Secretary, of Sand
Microelectronics, 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
shares of Common Stock, no par value, of which there were
shares outstanding and entitled to vote on the Agreement of Merger in the
form attached, and 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 part 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 San Jose, California, on , 1998.
- -------------------------------------
Anand Naidu, President
- -------------------------------------
, Secretary
<PAGE>
OFFICERS' CERTIFICATE
OF
PHOENIX ACQUISITION CORPORATION
Jack Kay, President and Stuart J. Nichols, Secretary, of Phoenix
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 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 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.
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 San Jose, California, on , 1998.
- -------------------------------------
Jack Kay, President
- -------------------------------------
Stuart J. Nichols, Secretary
<PAGE>
EXHIBIT C
FORM OF NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") is made as of the
Effective Date (as defined below) by and among Phoenix Technologies Ltd., a
Delaware corporation ("Phoenix") and September 17, 1998the undersigned
shareholder (the "Shareholder") of Sand Microelectronics, Inc., a California
corporation ("Company").
WHEREAS, Phoenix, the Company and certain shareholders of the Company
have entered into an Agreement and Plan of Reorganization dated as of
, 1998 (the "Merger Agreement") which provides that the Phoenix will
pay cash at certain times and in certain amounts (the "Merger Consideration")
and shares of Phoenix Common Stock in exchange for shares of the Company's
capital stock (the "Shares") and that certain options to purchase capital
stock of the Company shall be assumed or replaced with options to purchase
shares of Common Stock of Phoenix (collectively, the "Merger"). The Company
is intended to become a part of the Virtual Chips business unit of Phoenix
(the "Business Unit"), upon consummation of the Merger. The closing date of
the Merger shall be the "Effective Date" of this Agreement.
WHEREAS, as a result of the Merger, the Shareholder shall receive from
Phoenix significant Merger Consideration in exchange for Shares held by the
Shareholder pursuant to the terms of the Merger Agreement and pursuant to the
terms of this Agreement.
WHEREAS, as a condition to the Merger, and to preserve the value of the
business being acquired by Phoenix after the Merger, the Merger Agreement
contemplates, among other things, that the Shareholder will enter into this
Agreement and that this Agreement will become effective on the Effective Date.
NOW THEREFORE, in consideration of the mutual promised made herein,
Phoenix and the Shareholder (collectively referred to as the "Parties")
hereby agree as follows:
1. COVENANT NOT TO COMPETE OR SOLICIT.
(a) Beginning on the Effective Date and ending on the third
anniversary of the Effective Date (the "Non-Competition Period"), Shareholder
shall not directly or indirectly (other than on behalf of Phoenix or the
Company), without the prior written consent of Phoenix, engage anywhere in
the "Restricted Territory" in (whether as an employee, agent, consultant,
advisor, independent contractor, proprietor, partner, officer, director or
otherwise), or have any ownership interest in (except for ownership of one
percent (1%) or less of any entity whose securities have been registered
under the Securities Act of 1933 or Section 12 of the Securities Exchange Act
of 1934), or participate in the financing, operation, management or control
of, any "Business" (other than Phoenix), that engages or participates in a
"Competing Business Purpose." For the purposes of this Section 1(a), the term
"Business" shall mean any firm, partnership, corporation, entity or any
division or business unit thereof,
<PAGE>
and the term "Competing Business Purpose" shall mean any Business whose
"Primary Source of Revenue" is from the license or sale of "Competing
Products." For purposes of this Section 1(a), "Primary Source of Revenue"
shall mean greater than 50% of the revenue of the Business, and "Competing
Products" shall mean products that are "Sufficiently Defined" ("Sufficiently
Defined" shall mean that there exists a general set of features and functions
describing the product in internal documents or business plans), designed or
developed by the Company or the Business Unit during the period of
Shareholder's employment with the COmpany or the Business Unit. Current
examples of Competing Products include semiconductor intellectual property
cores, models and test environments based on interconnect standards such as
PCI, USB and IEEE 1394. The term "Competing Business Purpose" does not
include Businesses whose Primary Source of Revenue is derived from the design,
manufacture, distribution or services related thereto of semiconductor
devices, systems or software other than Competing Products. By way of current
example, Competing Business Purpose would include the IP business units within
Mentor Graphics and Synopsys and would not include companies such as AMD,
Cirrus Logic, Cisco Systems, Fujitsu, Hewlett Packard, Hitachi, Intel
Corporation, LSI Logic, Lucent Technologies, Microsoft, Netscape, Sony and
Sun Microsystems. The term "Restricted Territory" shall mean each and every
country, province, state, city or other political subdivision of the world in
which the Company or Phoenix is currently engaged or during the term of this
Agreement engages in business or otherwise sells its products, including
India.
(b) During the Non-Competition Period, Shareholder shall not
directly or indirectly, solicit, encourage or take any other action which is
intended to induce or encourage, or has the effect of inducing of
encouraging any employee of Phoenix or the Company to terminate his or her
employment with Phoenix or the Company, excluding any general solicitation by
the Shareholder or his affiliates for employment publicized by newspaper or
other means of general dissemination which does not specifically target
Phoenix or the Company's employees.
(c) The covenants contained in paragraph (a) shall be construed
as a series of separate covenants, one for each country, province, state, city
or other political subdivision of the Restricted Territory. Except for
geographic coverage, each such separate covenant shall be deemed identical in
terms to the covenant contained in paragraph (a). If, in any judicial
proceeding, a court refuses to enforce any of such separate covenants (or
any part thereof), then such unenforceable covenant (or such part) shall be
eliminated from this Agreement to the extent necessary to permit the
remaining separate covenants (or portions thereof) to be enforced. In the
event that the provisions of this Section 1 are deemed to exceed the time,
geographic or scope limitations permitted by applicable law, then such
provisions shall be reformed to the maximum time, geographic or scope
limitations, as the case may be, permitted by applicable laws.
(d) Shareholder acknowledges that (i) the goodwill associated with
the existing business, customers and assets of the Company prior to the
Merger is an integral component of the value of the Company to Phoenix and is
reflected in the value of the Merger Consideration and (ii) Shareholder's
agreement as set forth herein is necessary to preserve the value of the Company
for Phoenix following the Merger. Shareholder also acknowledges that the
limitations of time, geography and scope of activity agreed to in this
Agreement are reasonable because, among other things, (i) the Company and
Phoenix are engaged in a highly competitive industry, (ii) Shareholder has
had unique
-2-
<PAGE>
access to, and will continue to have access to, the trade secrets and
know-how of the Company, including without limitation the plans and strategy
(and, in particular, the competitive strategy) of the Company, (iii)
Shareholder is receiving significant consideration for the Shareholder's
Shares in connection with the Merger and (iv) in the event Shareholder's
employment with Phoenix or the Company ended, the Shareholder believes he
would be able to obtain suitable and satisfactory employment without
violation of this Agreement.
(e) Shareholder's obligations under this Agreement shall remain in
effect if Shareholder's employment with Phoenix or the Company is terminated.
(f) In the event Phoenix believes that Shareholder is in violation
of Sections 1(a) or 1(b) of this Agreement, Phoenix will give Shareholder
written notice of the violation so that Shareholder shall have an opportunity
to cure the alleged breach by taking action promptly that is reasonably
acceptable to Phoenix, such as ceasing the objectionable activity or reaching
an agreement with Phoenix concerning the scope of the activity. If
Shareholder takes such reasonably acceptable action within thirty days of
receiving notice from Phoenix, then no breach of this Agreement shall be
deemed to have occurred; provided, however, that Phoenix shall not be
required to give the foregoing notice to Shareholder if the violation by its
nature cannot be cured.
2. ARBITRATION
(a) The parties agree that any dispute or controversy arising out
of, relating to, or in connection with this Agreement, or the interpretation,
validity, construction, performance, breach, or termination thereof, shall be
settled by binding arbitration to be held in Santa Clara County, California
in accordance with the American Arbitration Association Commercial
Arbitration Rules, and Supplemental Procedures for Large Complex Disputes
(together the "Rules"). The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.
(b) At the request of either party, the arbitrator will enter an
appropriate protective order to maintain the confidentiality of information
produced or exchanged in the course of the arbitration proceedings.
(c) The arbitrator(s) shall apply California law to the merits of
any dispute or claim, without reference to rules of conflicts of law.
(d) The parties agree that it would be impossible or inadequate to
measure and calculate the other party's damages from any breach of the
covenants set forth in this Agreement. Accordingly, each party agrees that if
it breaches any provision of this Agreement, the other party will have
available, in addition to any other right or remedy otherwise available, the
right to injunctive relief restraining such breach or threatened breach and
to specific performance of any such provision of this Agreement.
-3-
<PAGE>
(e) Either party may apply to any court of competent jurisdiction
for a temporary restraining order, preliminary injunction or other interim or
conservatory relief, as necessary, without breach of this arbitration
agreement without any abridgment of the powers of the arbitrator(s).
(f) SHAREHOLDER HAS READ AND UNDERSTANDS THIS SECTION 2, WHICH
DISCUSSES ARBITRATION. THE SHAREHOLDER UNDERSTANDS THAT BY SIGNING THIS
AGREEMENT, SHAREHOLDER AGREES, EXCEPT AS SET FORTH IN SECTION 2(d) AND 2(e)
ABOVE, TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION
WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION,
PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT
THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF SHAREHOLDER'S RIGHT TO A JURY
TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES ARISING OUT OF, RELATING
TO OR IN CONNECTION WITH THIS AGREEMENT.
3. MISCELLANEOUS
(a) GOVERNING LAW; CONSENT TO PERSONAL JURISDICTION. This
Agreement shall be governed by the laws of the State of California without
reference to rules of conflicts of law. Shareholder hereby consents to the
personal jurisdiction of the state and federal courts located in California
for any action or proceeding arising from or relating to this Agreement or
relating to any arbitration in which the parties are participants.
(b) SEVERABILITY. If any portion of this Agreement is held by an
arbitrator or a court of competent jurisdiction to conflict with any
federal, state or local law, or to be otherwise invalid or unenforceable,
such portion of this Agreement shall be of no force or effect and this
Agreement shall otherwise remain in full force and effect and be construed as
if such portion had not been included in this Agreement.
(c) NO ASSIGNMENT. Because the nature of the Agreement is specific
to the actions of the Shareholder, the Shareholder may not assign this
Agreement. This Agreement shall inure to the benefit of Phoenix and its
successors and assigns.
(d) NOTICE. All notices or communication required or permitted
under this Agreement shall be made in writing and delivered personally to the
other party or sent by certified or registered mail, return receipt requested
and postage prepaid or express courier with confirmation of delivery to the
following addresses (or such other address for a party as shall have been
specified by like notice):
(i) if to Phoenix or the Company, to:
Phoenix Technologies Ltd.
411 E. Plumeria Drive
San Jose, CA 95134
Attention: Stuart J. Nichols, Vice President and
General Counsel
Telephone: (408) 570-1000
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<PAGE>
(ii) if to Shareholder, to:
Anand Naidu
1220 Valley Quail Circle
San Jose, CA 95120
(e) ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding of the Parties and supersedes all prior
discussions, agreements and understandings relating to the subject matter
hereof. This Agreement may not be changed or modified, except by an agreement
in writing executed by Phoenix and Shareholder.
(f) WAIVER OF BREACH. The waiver of a breach of any term or
provision of this Agreement, which must be in writing, shall not operate as
or be construed to be a waiver of any other previous or subsequent breach of
this Agreement.
(g) HEADINGS. All captions and section headings used in this
Agreement are for convenience only and do not form a part of this Agreement.
(h) COUNTERPARTS. This Agreement may be executed in
counterparts, and each counterpart shall have the same force and effect as an
original and shall constitute an effective, binding agreement on the part of
each of the undersigned.
(i) TERM. The term of this Agreement is three (3) years from the
Effective Date or such shorter period as may be applicable under Section 1(c)
of this Agreement.
(j) LEGAL REPRESENTATION. Shareholder acknowledges that: (A) he
has read this Agreement; (B) he understands that Phoenix has been represented
in the preparation, negotiation, and execution of this Agreement by Wilson
Sonsini Goodrich & Rosati, counsel to Phoenix; (C) he has been represented in
the preparation, negotiation, and execution of this Agreement by legal
counsel of his own choice or has voluntarily declined to seek such counsel;
(D) he understands the terms and consequences of this Agreement and is fully
aware of the legal and binding effect of this Agreement.
-5-
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
Effective Date.
PHOENIX TECHNOLOGIES LTD. SHAREHOLDER
By:
-------------------------- -------------------------------
Name: Name:
Title:
[NON-COMPETIITON AGREEMENT]
-6-
<PAGE>
EXHIBIT D
PHOENIX TECHNOLOGIES LTD.
DECLARATION OF REGISTRATION RIGHTS
This Declaration of Registration Rights ("Declaration") is made as of
, 1998, by Phoenix Technologies Ltd., a Delaware corporation
("Phoenix"), for the benefit of shareholders of Sand Microelectronics, Inc.,
a California corporation ("Sand"), acquiring shares of Phoenix Common Stock
pursuant to that Agreement and Plan of Reorganization, dated as of
September 18, 1998 (the "Reorganization Agreement"), among Phoenix, Sand and
Phoenix Sub Corporation, a California corporation and wholly-owned subsidiary
of Phoenix ("Merger Sub"), and pursuant to the related Agreement of Merger (the
"Agreement of Merger") between Sand and Merger Sub and in consideration of
such shareholders approving the Reorganization Agreement and the transactions
contemplated thereby.
1. DEFINITIONS. As used in this Declaration:
a. "Effective Time" means the time of acceptance by the
California Secretary of State of the Agreement of Merger.
b. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
c. "Holder" means: a shareholder of Sand to whom shares of
Common Stock of Phoenix are issued pursuant to the Reorganization Agreement
and the Agreement of Merger, and any transferee by inheritance or gift.
d. "Registrable Securities" means for each Holder the number of
shares of Phoenix Common Stock issued to such Holder pursuant to the
Reorganization Agreement rounded to the nearest integral amount, and for all
Holders the sum of the Registrable Securities held by them.
e. "Securities Act" means the Securities Act of 1933, as amended.
f. "SEC" means the Securities and Exchange Commission.
Terms not otherwise defined herein have the meanings given to them in
the Reorganization Agreement.
2. PHOENIX REGISTRATION.
a. If Phoenix shall determine to register any of its securities
either for its own account or for the account of a security holder or holders
exercising any registration rights, other than a registration relating solely
to employee benefit plans or a registration relating solely to an SEC
<PAGE>
Rule 145 transaction or a registration on any registration form which does
not permit secondary sales or does not include substantially the same
information as would be required to be included in a registration statement
convering the sale of Registrable Securities, Phoenix will:
(1) promptly give to each Holder written notice thereof
(which, to the extent then known and applicable, shall include a list of the
jurisdictions in which Phoenix intends to attempt to qualify such securities
under the applicable blue sky or other state securities laws); and
(2) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all of the Registrable Securities specified in
a written request or requests made by any Holder within fifteen (15) days
after receipt of the written notice from Phoenix described in clause (a)
above, except as set forth in Section 2(b) below. Such written request may
specify all or a part of a Holder's Registrable Securities.
b. If the registration of which Phoenix gives notice is for a
registered public offering involving an underwriting, Phoenix shall so advise
the Holders as a part of the written notice given pursuant to Section 2a(1).
In such event the right of any Holder to registration pursuant to Section 2a
shall be conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with
Phoenix) enter into an underwriting agreement in customary form with the
Underwriter selected for underwriting by Phoenix. Notwithstanding any other
provision of this Section 2b, if the Underwriter determines that marketing
factors require a limitation on the number of shares to be underwritten, the
Underwriter may limit the number of securities of the Holders to be included
in the secondary portion of the registration and underwriting to not less
than twenty percent (20%) of the Registrable Securities which Holders have
requested be included therein. Phoenix shall so advise all such Holders
requesting registration, and the number of shares of securities that are
entitled to be included in the registration and underwriting shall be
allocated among all such Holders on a pro rata basis on the basis of the
number of their shares of Phoenix Common Stock. If any Holder disapproves of
the terms of any such underwriting, he may elect to withdraw therefrom by
written notice to Phoenix and the Underwriter. Any Registrable Securities, or
other securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
c. In the event that for any reason the Registrable Securities
are not freely tradable by the Holders under the Securities Act one year
following the date hereof (except for any volume or manner of sale
restrictions under Rule 144 under the Securities Act imposed on any Holder by
virtue of any affiliate status with Phoenix follwoing the date hereof), then
Phoenix agrees to cause to be filed and be declared effective by the first
year anniversary of the date hereof a Registration Statement on Form S-3
covering the sale of the Registrable Securities, and to keep such
Registration Statement effective until the earlier of the second anniversary
of the date hereof or until termination of Registration Rights pursuant to
Section 7 of this Declaration.
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<PAGE>
d. All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to this Declaration shall
be borne by Phoenix, and all Selling Expenses shall be borne by the holders
of the securities to be registered pro rata on the basis of the number of
their shares so registered.
3. EXPENSES. Phoenix shall pay all of the out-of-pocket expenses
incurred, other than underwriting discounts and commissions, in connection
with any registration of Registrable Securities pursuant to this Declaration,
including, without limitation, all SEC, Nasdaq National Market and blue sky
registration and filing fees, printing expenses, transfer agents' and
registrars' fees, and the reasonable fees and disbursements of Phoenix's
outside counsel and independent accountants and a single counsel for all of
the Holders.
4. INDEMNIFICATION. In the event of any offering registered pursuant
to this Declaration:
a. Phoenix will indemnify each Holder, each of its officers,
directors and partners and such Holder's legal counsel and independent
accountants, and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Declaration,
and each underwriter, if any, and each person who controls any underwriter
within the meaning of Section 15 of the Securities Act, against all expenses,
claims, losses, damages and liabilities (or actions in respect thereof),
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any amendment
or supplement thereto, incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they are made, not
misleading, or any violation by Phoenix of any rule or regulation promulgated
under the Securities Act, or state securites laws, or common law, applicable
to Phoenix in connection with any such registration, qualification or
compliance, and will reimburse each such Holder, each of its officers,
directors and partners and such Holder's legal counsel and independent
accountants, and each person controlling such Holder, each such underwriter
and each person who controls any such underwriter, for any legal and any
other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
provided that Phoenix will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based
in any untrue statement or omission or alleged untrue statement or omission,
made in reliance upon and in conformity with written information furnished to
Phoenix in an instrument duly executed by such Holder or underwriter and
stated to be specifically for use therein.
b. Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify Phoenix, each of its
directors and officers and its legal counsel and independent accountants,
each underwriter, if any, of Phoenix's securities covered by such a
registration statement, each person who controls Phoenix or such underwriter
within the meaning of Section 15 of the Securities Act, and each other such
Holder, each of its officers and directors and each person controlling such
Holder within the
-3-
<PAGE>
meaning of Section 15 of the Securities Act, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse Phoenix, such
Holders, such directors, officers, legal counsel, independent accountants,
underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to Phoenix by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the obligations of such Holders hereunder shall be
limited to an amount equal to the gross proceeds before expenses and
commissions to each such Holder of Registrable Securities sold as
contemplated herein.
c. Each party entitled to indemnification under this Section 4
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has written notice of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Declaration, except to
the extent, but only to the extent, that the Indemnifying Party's ability to
defend against such claim or litigation is impaired as a result of such
failure to give notice. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to the Indemnified Party of a release from all liability in respect
to such claim or litigation.
d. The obligations of Phoenix and each Holder under this Section 4
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Declaration and otherwise.
5. REPORTS UNDER EXCHANGE ACT. Phoenix agrees to:
a. use its commercially reasonable efforts to file with the SEC
in a timely manner all reports and other documents required of Phoenix under
the Securities Act and the Exchange Act; and
b. furnish to each Holder, forthwith upon request (i) a written
statement by Phoenix that it has complied with the reporting requirements of
the Securities Act and the Exchange Act, (ii) a copy of the most recent
annual or quarterly report of Phoenix and (iii) such other information as may
be
-4-
<PAGE>
reasonably requested in availing each Holder of any rule or regulation of the
SEC which permits the selling of any such securities pursuant to Rule 144.
6. AMENDMENT OF REGISTRATION RIGHTS. Holders of a majority of the
Registrable Securities from time to time outstanding may, with the consent of
Phoenix, amend the registration rights granted hereunder.
7. TERMINATION. The registration rights set forth in this Declaration
shall terminate with respect to a Holder at such time as all of the
Registrable Securities then held by such Holder can be sold by such Holder in
a three-month period in accordance with Rule 144 under the Securities Act.
8. THIRD PARTY BENEFICIARIES. It is intended that the shareholders of
Phoenix be third party beneficiaries to this Declaration.
-5-
<PAGE>
Exhibit 21.1
List of Subsidiaries
<TABLE>
<CAPTION>
Jurisdiction of
Name Organization
----- ---------------
<S> <C>
inSilicon International Inc. Delaware
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to
the use of our report dated December 17, 1999, except for Note 10 as to which
the date is January 11, 2000, in the Registration Statement (Form S-1) and
related Prospectus of inSilicon Corporation for the registration of shares of
its common stock.
Our audits also included the financial statement schedule listed in
Item 16(b) of this Registration Statement. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
San Jose, California
January 11, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 30, 1998, relating to the financial statements of Sand
Microelectronics, Inc., which appears in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/S/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
January 11, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1998 SEP-30-1999
<PERIOD-START> OCT-01-1996 OCT-01-1997 OCT-01-1998
<PERIOD-END> SEP-30-1997 SEP-30-1998 SEP-30-1999
<CASH> 0 0 0
<SECURITIES> 0 0 0
<RECEIVABLES> 0 2,614 5,468
<ALLOWANCES> 0 198 364
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 2,563 5,239
<PP&E> 0 2,539 2,964
<DEPRECIATION> 0 1,062 1,790
<TOTAL-ASSETS> 0 31,331 24,481
<CURRENT-LIABILITIES> 0 5,903 5,632
<BONDS> 0 16 45
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 0 25,412 18,804
<TOTAL-LIABILITY-AND-EQUITY> 0 31,331 24,481
<SALES> 0 0 0
<TOTAL-REVENUES> 5,111 8,792 18,955
<CGS> 0 0 0
<TOTAL-COSTS> 1,610 1,957 3,961
<OTHER-EXPENSES> 5,487 13,931 27,018
<LOSS-PROVISION> 0 5 58
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> (1,986) (7,101) (12,082)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (1,986) (7,101) (12,082)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (1,986) (7,101) (12,082)
<EPS-BASIC> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
<PAGE>
Exhibit 99.1
Consent of Person About to Become Director for Raymond J. Farnham
Pursuant to Rule 438 of the Securities Act of 1933, I hereby consent to
being named in the Form S-1 registration statement of inSilicon Corporation
as a person who is about to become a director of such company.
Dated: January 12, 2000 /s/ Raymond J. Farnham
------------------------
Raymond J. Farnham
<PAGE>
Exhibit 99.2
Consent of Person About to Become Director for E. Thomas Hart
Pursuant to Rule 438 of the Securities Act of 1933, I hereby consent to
being named in the Form S-1 registration statement of inSilicon Corporation
as a person who is about to become a director of such company.
Dated: January 12, 2000 /s/ E. Thomas Hart
---------------------
E. Thomas Hart
