<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended Commission file number
September 30, 1995 0-17111
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PHOENIX TECHNOLOGIES LTD.
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(Exact name of registrant as specified in its charter)
Delaware 04-2685985
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2770 De La Cruz Boulevard, Santa Clara, California 95050-2624
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 654-9000
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Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
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(Title of Class)
Preferred Stock Purchase Rights
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 15, 1995, was $163,430,556 based upon the last
reported sales price of the Common Stock in the National Market System, as
reported by NASDAQ.
The number of shares of the registrant's Common Stock outstanding as of December
15, 1995 was 14,021,227.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the registrant's definitive proxy statement to be filed pursuant to
Regulation 14A in connection with the 1996 annual meeting of its stockholders
are incorporated by reference into Part III of this Form 10-K.
<PAGE>
PART I
Item 1. BUSINESS
GENERAL
Phoenix Technologies Ltd. was incorporated in the Commonwealth of
Massachusetts on September 17, 1979, and was reincorporated in the State of
Delaware on December 24, 1986. Unless the context indicates otherwise, the
"Company" or "Phoenix" refers to Phoenix Technologies Ltd. and its subsidiaries.
Phoenix designs, develops and markets essential software to manufacturers
of personal computer products ("PCs"). This software presently consists of
system software and related applications software products for PCs. The Company
provides these products to PC manufacturers, PC peripheral equipment
manufacturers, and system board manufacturers ("OEMs"). Phoenix's products
permit OEMs to enter new markets quickly while enabling product differentiation
and increasing system value. Phoenix system software products can reduce an
OEM's product time to market, development risks, and support costs.
The Company markets and licenses its products and services worldwide,
primarily to OEMs. The Company's system software customers range from large PC
manufacturers to small system integrators. The Company's revenue consists of
license and engineering fees. Phoenix markets its products and services through
a direct sales force, regional distributors, and sales representatives. Phoenix
also promotes its products through Company newsletters and technical bulletins,
coverage in trade and business press articles, advertising, and participation in
industry trade shows and conferences.
Rapid technological change and the frequent introduction of new products
incorporating new technologies characterize the personal computer industry. The
introduction of products embodying new technologies often results in the
emergence of new industry standards, rendering existing products obsolete. To
remain competitive, manufacturers must respond quickly to such technological
changes. This rapid pace of PC industry change can benefit Phoenix as it
provides a continuous flow of opportunities for the Company to provide high
value technology and support to its customers. However, if the Company or its
customers are unable, for technological or other reasons, to develop products in
a timely manner in response to changes in the PC industry, the Company's
business would be materially and adversely affected.
The Company develops, and licenses (or purchases) from others, software
products to market to PC OEMs. Because the PC industry is subject to rapid
technological changes, the Company expects to continue to dedicate significant
resources to the development and acquisition of new products and enhancements to
existing products. However, there can be no assurance that the Company's
product development efforts will be successful or, even if they are successful,
that any resulting products will achieve market acceptance.
Research and development costs from continuing operations, before the
capitalization of internally developed software costs, were 25% of total revenue
in fiscal 1995, and 11% in fiscal 1994 and 1993. On an actual dollar basis,
these costs grew to $12,374,000 in fiscal 1995, a 35% increase from fiscal 1994.
Fiscal 1994 research and development costs rose 30% from $7,045,000 in fiscal
1993. With respect to continuing operations, the Company capitalized
approximately $1,336,000, $2,246,000, and $961,000, of internally developed
software in fiscal 1995, 1994, and 1993, respectively. The Company believes
continued investment in new and evolving technologies is essential to meet
rapidly changing industry requirements. As a result, the Company purchased or
licensed additional technology related assets for use in its continuing
operations in the amount of $338,000 in fiscal 1995, $405,000 in fiscal 1994,
$7,145,000 in 1993 (a substantial portion of the 1993 amount was written off in
fiscal 1994). These assets consist primarily of prepaid royalties under licenses
from third parties for PC compatibility, sub-notebook and fax modem products.
In fiscal 1995, none of the Company's customers accounted for more than 10%
of total revenue. Packard Bell Corporation ("Packard Bell") and Compaq Computer
Corporation ("Compaq") did, however, account for more than 10% of the Company's
total revenue during fiscal years 1994 and 1993. Revenue from Packard Bell and
its subsidiaries was $16,211,000 or 18.8% and $9,474,000 or 14.3% of revenue
from continuing operations for fiscal years 1994 and 1993, respectively. Revenue
from Compaq and its subsidiaries was $11,630,000 or 13.5% in fiscal 1994 and
$15,455,000 or 23.3% of revenue from continuing operations in fiscal 1993. In
fiscal 1995, 1994, and 1993, approximately 47%, 44%, and 45%, respectively, of
the Company's revenue from continuing operations was attributable to customers
outside the United States. For purposes of this report, revenue from
continuing operations includes all revenue from the Publishing Division and
excludes revenue from the Printer Software Division.
<PAGE>
In December 1995, the Company announced that it had entered into a long-
term technology licensing agreement with Intel Corporation ("Intel") under which
Phoenix licensed key Phoenix desktop and server products to Intel. The
agreement also provides for Phoenix and Intel to work closely to develop new
product features and technologies to enhance the performance, functionality and
ease-of-use of desktop and server systems. In addition to the technology
agreement, Intel will invest approximately $10.9 million to purchase Phoenix
stock representing 6% of the outstanding shares and a warrant to purchase an
additional 7.2% of the outstanding shares. Both the continuation of the
technology agreement and the sale of the stock and warrant are subject to
approval by Intel and the Company of a detailed plan relating to the transition
by Intel to Phoenix's systems software in 1996. While there are no assurances
that the plan will be completed, the Company believes that the plan will be
completed and approved on schedule by February 15, 1996.
DESCRIPTION OF BUSINESS
The Company is divided into two related product groups: the PC system-level
software group and the OEM consumer software group.
PC SYSTEM-LEVEL SOFTWARE: In the PC system-level software product area the
Company develops and markets software products that enable PC, peripheral, and
system board manufacturers to integrate existing and emerging industry standards
and new technologies into PC platforms. The Company offers a complete line of
system software, including BIOS (Basic Input/Output System) products, for
desktop, portable, and special purpose PC systems based on the family of x86
microprocessors. The system software products include system BIOS products and
configuration management software solutions for new x86 microprocessors, new
system core logic chipsets, new system busses, video subsystems, keyboard
controllers, power management chipsets, PCMCIA PC cards, flash read-only memory
("ROM") chips, and other emerging PC technologies.
The introduction of new hardware architectures, microprocessors, peripheral
equipment and operating systems within the PC industry have increased the
complexity, time, and cost to develop system-level, firmware-based,
configuration software products. The Company believes that OEM customers license
the Company's system software products, rather than develop these products
internally, in order to release products to market faster, diminish product
development risks, reduce product development and support costs, and
differentiate their system offerings with advanced features. A number of
computer manufacturers develop their own BIOS products to achieve compatibility
with other computers based on the IBM PC and to integrate new technologies.
Price competition and time to market pressures are causing manufacturers to re-
examine in-house development and deployment of their new systems. The Company
believes there is an increasing trend of OEMs to outsource system software
requirements to third parties.
The demand for the Company's PC system software products depends
principally on 1) PC manufacturers licensing rather than developing their own PC
system software, 2) the sales success of the Company's OEM customers, 3) the
emergence of new PC technologies requiring system-level software to achieve
increased system functionality, user value, and performance, and (4) the
functions and features offered in the Company's products compared to those of
its competitors. Sales in the personal computer industry fluctuate from time to
time based on numerous factors, including general economic conditions, capital
spending levels, new product introductions and shortages of key components. In
addition, the market for personal computers is intensely competitive, and the
Company's OEM customers compete among themselves and with others.
FISCAL 1995 DEVELOPMENTS: During fiscal 1995, Phoenix focused on expanding
the capabilities of its PC firmware through enhancements to its core PhoenixBIOS
4.0 product, playing a significant role in new PC industry initiatives with
Intel, Microsoft and IBM, developing and delivering Plug and Play firmware,
enhancing its PCMCIA software and creating the PhoenixPICO product line for the
emerging embedded "Special Purpose PC" system market.
PHOENIXBIOS 4.0: Phoenix introduced PhoenixBIOS 4.0 as its core desktop
systems firmware product at Fall Comdex `93. Since then, it has become the
Company's most successful system firmware product. The Company believes the
success of this product is attributable to its reliability and advanced
features, including its fourth generation architecture and Plug and Play
support. PhoenixBIOS 4.0 is designed to help PC manufacturers gain important
market advantages, by decreasing the time it takes those manufacturers to get
their products to market through increased reusability of firmware and
compatibility with evolving PC standards.
In fiscal 1995, Phoenix announced the PhoenixBIOS `95 extensions to
PhoenixBIOS 4.0. PhoenixBIOS `95 is firmware that further improves the
performance of desktop PCs and makes them easier for consumers to use. Advances
<PAGE>
include QuietBoot, MultiBoot, Optimal Configuration Technology, System
Essentials, CD-ROM Boot and advanced Plug and Play capabilities including
PCI/PCI bridge support.
NOTEBIOS 4.0 AND ADVANCED SYSTEMS SOFTWARE AND APPLICATIONS FOR PORTABLE
SYSTEMS: Phoenix offers its NoteBIOS system software for use with portable or
notebook computers. The product's capabilities include advanced power
management, SMI support, Save to Disk, Plug and Play, Portable Pentium CPU
support, and Smart Battery. The Company believes that a majority of notebook
PCs shipped worldwide in fiscal 1995 with commercial BIOS were delivered with
Phoenix's NoteBIOS. Phoenix worked with PC manufacturers to bring some of the
first Microsoft Windows 95-based and Intel Pentium-based notebook PCs to market.
During fiscal 1995, the Copmpany announced and began shipping NoteBIOS 4.0,
Power Panel and Smart Battery Manager products. NoteBIOS 4.0 provides a highly
modular, robust structure for the NoteBIOS product line based on the fourth
generation of PhoenixBIOS core software. Power Panel is a Windows-based
application that provides portable PC users with an advanced, intuitive, easy-
to-use way to manage power use and battery life. Smart Battery Manager
incorporates technology developed by Phoenix, DuraCell, Intel and Microsoft to
extend battery life in portable PCs.
PHOENIXCARD MANAGER PCMCIA SOFTWARE: Phoenix introduced PhoenixCard Manager
version 4.0 at Fall Comdex `95 in November 1995. PhoenixCard Manager is a
Phoenix's latest software for PCMCIA cards with an easy-to-use Windows-based
user interface, automatic de-install features to remove old software, support
for multifunciton cards, and event logging capabilities to reduce PCMCIA
technical support costs. A number of major PC suppliers -- including IBM,
Canon, Olivetti, Texas Instruments, and Toshiba -- licensed and shipped
Phoenix's PC Card PCMCIA software.
PHOENIXPICO: The PhoenixPICO product line provides system enabling and
system enhancing software for Industrial, Hand-held, and Home Appliances in the
emerging new Special Purpose PC market. Examples of these appliances are PDAs,
Smart Phones, Point-of-Sale Terminals, Factory Automation Devices, Car
Navigation Units, or Smart Home Entertainment (TV, stereo) units. Key alliances
in fiscal 1995 include Intel, AMD, Geoworks (hand held operating systems), and
Microsoft. PhoenixPICO BIOS provides leading edge PC software technology for
these appliances, while PhoenixPICO Embedded Extensions provide unique and
innovative software technologies to enhance these appliances. PhoenixPICO OAK
(OEM Adaptation Kit) was launched in fiscal 1995, providing Special Purpose PC
OEMs a self-contained kit that provides key system enabling and system enhancing
software, plus educational tools on x86 architecture design, in a single
package.
LEADERSHIP IN MAJOR INDUSTRY INITIATIVES: Phoenix has entered into a
number of major initiatives with industry leaders and standards-setting
organizations to develop next generation, firmware-level software products.
These initiatives include: (1) developing the Plug and Play system enumerator
which was licensed to Microsoft Corporation ("Microsoft") for its Windows 95
operating system; (2) developing specifications and firmware for the new
SmartBattery program with Duracell and Intel; (3) developing a CD Boot
specification with IBM to allow direct PC system booting from CD-ROMs; and (4)
developing the "CardBus" (PCMCIA 3.0) specifications as an executive member of
the Personal Computer Memory Card International Association (PCMCIA).
Phoenix's relationships with Intel, Microsoft, IBM, Compaq, and other
industry leaders give the Company early access to new technology requirements,
which the Company believes facilitates the development of its products. By
building upon its core technology base, the Company is able to tailor its system
software products to conform to the specific requirements of its OEM customers,
allowing its customers to integrate new technologies and introduce their
products to market more effectively.
WORLDWIDE DEPLOYMENT SERVICES AND SUPPORT: To support its worldwide
customer base, Phoenix employs over 200 BIOS engineers and has offices in Japan,
Taiwan, England, California and Massachusetts. The Company's support services
are provided by means of telephone and on-site service.
COMPETITION: In marketing its PC system software products, the Company
encounters competition from a number of domestic and foreign companies. These
competitors range from small independent engineering businesses to in-house
development organizations of companies with financial and engineering resources
much larger than Phoenix. In addition, American Megatrends Inc. is Phoenix's
primary competitor in the motherboard market and Systemsoft is the primary
competitor of the Company in the PCMCIA and embedded PC system markets. The
bases for competition for the PC system-level software business's products are
primarily product performance and availability, engineering experience and
expertise, product support, and price. Phoenix believes it competes favorably
on these bases.
<PAGE>
REVENUE: Revenue attributable to the Company's PC system-level software
products accounted for 91%, 41%, and 43% of the Company's revenue from
continuing operations in fiscal 1995, 1994, and 1993, respectively.
PC APPLICATION SOFTWARE: In the PC application software product area, the
Company develops, acquires and markets essential application software designed
to bring new functionality to the consumer and small office/home office (SOHO)
PC environment. The application software products are marketed through the OEM
channel, which focuses on products that will be bundled by PC and peripheral
card manufacturers addressing the consumer and SOHO markets.
The OEM Consumer Software Group was established during fiscal 1994 to
assist OEMs in integrating consumer applications with their products for sale to
end-users. OEM Consumer Software Products are designed to let the OEM to
differentiate its particular implementation of these products. Phoenix makes
available to OEMs various marketing, development, deployment and customization
services to enable OEM-specific characteristics or functionality and to
otherwise accomplish OEM brand identification through differentiation. For
example, Compaq contracted with Phoenix develop and deploy certain core OEM
Consumer Software products for Compaq's MediaPilot user interface for several
applications including telephone answering machine, fax and multimedia software.
The OEM Consumer Software Group product line is focused on three primary
product offerings:
PHOENIX MUSE is a Windows 95 user interface development product that can be
used as an alternative user interface to Windows 95 or to develop other
applications, such as a software-based "welcome center". The product is
designed to provide end users with the ability to instantly use their PCs
and enhance the value of Windows 95 to novice users. Phoenix MUSE was also
designed to give OEMs an economic multimedia based graphical interface
which allows for branding their products through graphical and visual
differentiation.
PHOENIX TELEPHONY SUITE is a product which integrates fax, voicemail,
speakerphone and address book capabilities in software for Windows 3.1 and
Windows 95-based PC products. This product is designed to provide users
with instant use of the communications capabilities of their PCs. This
product is presently bundled with the IBM Aptiva and Acer Aspire systems.
REVENUE: Revenue from the OEM Consumer Software Group's products
represented 9% of Phoenix's total fiscal 1995 revenues from continuing
operations, compared to 6% for fiscal 1994. In fiscal year 1993, revenue from
these products was not material as a percentage of the Company's total revenue.
During fiscal 1995, the Company discontinued the retail channel for application
products, revenue from which was not material during any of the last three
fiscal years.
SALE OF PUBLISHING AND PRINTER SOFTWARE DIVISIONS:
During fiscal 1994, Phoenix disposed of majority interests in its
Publishing and Printer Software Divisions as part of its strategy to refocus on
essential enabling software for OEMs.
PUBLISHING DIVISION: Throughout fiscal 1994, the Company operated its
Publishing Division (formerly named the Packaged Products Division), which
provided technical publishing software, documentation and services for OEM
licensees of Microsoft and IBM operating systems and other software. The
division supplied the documentation and disk duplication services required for
bundling software with OEM system offerings.
In September 1994, the Company sold 80% of its Publishing Division to
Softbank Corporation of Japan ("Softbank") for total cash consideration of
$30,000,000. Also in September 1994, Softbank and the Company established a new
entity, Phoenix Publishing Systems, Inc. ("PPSI"), and each contributed their
respective interests in the Publishing Division to PPSI in exchange for 80% and
20%, respectively, of the equity of PPSI. PPSI assumed substantially all of the
liabilities of the Division's business. The Company has certain rights to
designate nominees to PPSI's board of directors and to require PPSI
<PAGE>
to purchase the PPSI shares owned by the Company at a price equal to the greater
of $7.5 million or a performance-based price.
By maintaining an ownership interest in the entity which acquired the
Division, Phoenix can participate in any future growth of PPSI and continue to
leverage the technologies now owned by PPSI to support the Company's customers,
while freeing up new resources for advancing the Company's PC firmware and end
user application software products.
REVENUE: Phoenix's revenue attributable to the Company's Publishing
Division accounted for 53% and 55% of the Company's total revenue from
continuing operations in fiscal 1994 and 1993, respectively.
PRINTER SOFTWARE DIVISION Throughout 1994, the Company operated its Printer
Software Division (formerly named the Peripherals Division) which designed,
developed and supplied printer emulation software, page description languages,
and controller hardware designs for the printer industry. In the printer
market, where multiple standards exist, OEMs and software developers have been
required to adapt their products to accommodate diverse page description
languages, different font libraries and other printer standards. The business
developed the PhoenixPage imaging software architecture to enable OEMs to design
and manufacture printers that can support multiple page description languages
(such as the PostScript language and the HP-PCL language), printer emulations,
and font technologies. More than 40 printer manufactures have used PhoenixPage
in their printer product lines.
In November 1994, the Company sold all the assets of its Printer
Software Division. The Company received a promissory note in the principal
amount of $4,849,000, collateralized by the assets sold and payable in twenty
quarterly installments commencing January 15, 1997. Interest at 8% per year
is payable quarterly. The Company also received a minority equity interest
in the purchaser and the right to a future contingent payment based on
operating performance. In fiscal 1995, the Company provided an additional loan
of $350,000 to the purchaser. Subsequently, the Company participated in a
stock offering to new and existing investors by exchanging $1,900,000 of
principal under these two notes for additional shares. The Company has the
right to convert up to $340,000 of additional principal into shares of stock
on or before June 30, 1998. Because of the risk of collection, the Company
will recognize proceeds from the note and contingent payment as cash
payments are received. The current estimated fair market value of the
shares, which has a book value of zero, is not significant.
As was the case in the sale of the Publishing Division business, the
maintenance of a minority ownership position in Xionics will let Phoenix
participate in that business's future growth, while making new resources
available for its remaining businesses.
REVENUE: The consolidated financial statements were restated to reflect
the Printer Software Division as a discontinued operation. Revenues from
discontinued operations were $9,439,000 and $9,947,000 for fiscal 1994 and
1993, respectively. The net liabilities of discontinued operations of
$724,000 and $5,203,000 at September 30, 1995 and 1994, respectively, consist
primarily of accrued costs to be incurred in conneciton with the sale of the
division, offset by accounts receivable. Payments were $4,479,000 and
$223,000 in fiscal 1995 and 1994, respectively.
EMPLOYEES
As of September 30, 1995, the Company employed 362 persons worldwide, of
whom 231 are in research and development, 90 are in sales and marketing, and 41
are in finance and administration.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies primarily on trade secret, trademark and copyright laws
and contractual agreements to protect its proprietary rights. The Company
protects the source code of its products as trade secrets and as unpublished
copyrighted works. The Company from time to time makes the source code for its
products available to its customers for limited uses. The Company licenses its
software products to its customers. Wide dissemination of the Company's software
products makes protection of the Company's proprietary rights difficult,
particularly outside the United States. Although it is possible for competitors
or users to make illegal copies of the Company's products, the Company believes
the rate of technology change and the continual addition of new product features
lessen the impact of illegal copying. At September 30, 1995, the Company had
been issued one patent and had four patent applications pending.
Although the Company believes that its 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. The Company has no assurance that third
parties will not obtain, or do not have, patents covering features of the
Company's products, in which event the Company or its customers might be
required to obtain licenses to use such features. If a patent holder refuses to
grant a license on reasonable terms or at all, the Company may be required to
alter certain products or stop marketing them. In recent years, there has been
a marked increase in the number of patents applied for and issued with respect
to software products.
<PAGE>
The Company makes certain of its application software products available
pursuant to shrink-wrap licenses that are not signed by customers and,
therefore, may be unenforceable under the laws of certain jurisdictions.
Item 2. PROPERTIES
The Company's principal offices are located in a 29,108 square foot
building in Santa Clara, California which the Company leases pursuant to a lease
expiring in December 1999. The Company has an option to extend the term of the
lease for an additional 5 years. Minimum annual lease payments for the Santa
Clara facility are approximately $237,521 plus certain additional costs.
The Company also leases smaller office facilities in other locations
including: Irvine, California; San Jose, California; Norwood, Massachusetts,
Houston, Texas; Taipei, Taiwan; Tokyo, Japan; Guildford, England; and Archamps,
France.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the Nasdaq National Market under the
symbol PTEC. The following table presents the high and low selling prices for
the Company's Common Stock, as reported by Nasdaq, for the periods shown.
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
Year ended September 30, 1995:
First quarter $ 8.13 $ 5.38
Second quarter 8.50 6.13
Third quarter 10.75 6.75
Fourth quarter 14.38 10.25
Year ended September 30, 1994:
First quarter $ 5.00 $ 3.50
Second quarter 6.25 4.00
Third quarter 5.63 4.38
Fourth quarter 6.00 4.38
</TABLE>
The number of record holders of the Company's common stock as of September 30,
1995, was approximately 324. The Company has never paid cash dividends on its
common stock. The Company currently intends to retain all earnings for use in
its business and does not anticipate paying any cash dividends in the
foreseeable future. In addition, the Company's line of credit agreement
restricts the payment of cash dividends.
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993 1992 1991
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PRO FORMA* ACTUAL
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<S> <C> <C> <C> <C> <C> <C>
Revenue:
Software $49,941 $40,589 $40,589 $29,651 $27,125 $25,117
Publishing -- -- 45,584 36,662 33,237 22,100
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Total revenue 49,941 40,589 86,173 66,313 60,362 47,217
Income (loss) from continuing operations 8,815** 5,595 19,230 3,565 2,641 (2,088)
Net income (loss) 8,815** 5,595 6,794 2,599 2,186 (1,316)
Income (loss) per common share:
Income (loss) from continuing operations $0.58** $0.40 $1.37 $0.26 $0.19 $(0.18)
Net income (loss) 0.58** 0.40 0.48 0.19 0.16 (0.11)
Cash and short-term investments $32,944 $33,889 $33,889 $8,122 $12,787 $19,055
Working capital 36,796 28,586 28,586 15,301 18,663 17,496
Total assets 62,390 63,235 63,235 51,616 42,296 41,855
Stockholders' equity 50,418 39,446 39,446 31,481 27,644 23,930
</TABLE>
* EXCLUDING CHARGE FOR OTHER OPERATING EXPENSES, GAIN ON SALE OF PUBLISHING
DIVISION, AND LOSS FROM DISCONTINUED OPERATIONS.
** INCLUDES $1,300,000 OR $0.08 PER SHARE FOR NON-RECURRING TAX BENEFITS.
-7-
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to revenue of certain cost, expense and income items.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1994
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1995 PRO FORMA ACTUAL 1993
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<S> <C> <C> <C> <C>
Revenue:
License fees 87.0% 86.0% 93.4% 94.6%
Services 13.0 14.0 6.6 5.4
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Total revenue 100.0 100.0 100.0 100.0
Cost of revenue:
License fees 7.3 10.0 43.8 41.4
Services 11.9 13.0 6.1 5.1
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Total cost of revenue 19.2 23.0 49.9 46.5
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Gross margin 80.8 77.0 50.1 53.5
Operating expenses:
Research and development 22.1 16.6 8.0 9.2
Sales and marketing 28.7 27.0 19.2 21.5
General and administrative 13.4 15.8 9.8 11.6
Other operating expenses -- -- 10.6 2.2
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Total operating expenses 64.2 59.4 47.6 44.5
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Income from operations 16.6 17.7 2.5 9.0
Gain on sale of Publishing Division -- -- 27.3 --
Other income, net 4.1 3.5 0.0 0.0
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Income before income taxes 20.7 21.2 29.8 9.0
Provision for income taxes 3.0 7.4 7.5 3.6
----- ----- ----- -----
Income from continuing operations 17.7 13.8 22.3 5.4
Loss from discontinued operations -- -- 14.4 1.5
----- ----- ----- -----
Net income 17.7% 13.8% 7.9% 3.9%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto, which are included
elsewhere in this report.
PRO FORMA RESULTS FOR FISCAL 1994 In fiscal 1994, the Company sold its
Publishing and Printer Software Divisions. The Publishing Division accounted
for 53% of fiscal 1994 revenue. The Printer Software Division was classified as
discontinued operations. The pro forma results for fiscal 1994 exclude the
charge for other operating expenses, reflect the elimination of the revenue and
direct expenses for the Publishing Division, treat the sale of the Publishing
Division as if it had occurred at the beginning of fiscal 1994, and exclude the
loss from discontinued operations.
RESULTS OF CONTINUING OPERATIONS
REVENUE The Company's revenue is comprised of licenses of PC system-level and
application software and engineering services to manufacturers and integrators
of personal computers ("PC OEMs") and other special purpose computers or
terminals using Intel X86 microprocessors. Prior to the sale of its Publishing
and Printer Software Divisions, the Company sold technical publishing software
and documentation to PC OEMs and system software for laser printers. In fiscal
1993 the Company acquired Eclipse Systems, Inc. ("Eclipse"), which marketed its
software products through the retail channel. Eclipse was acquired for its
technology, and the retail operations were discontinued in fiscal 1995.
Revenue decreased 42% to $49,941,000 in fiscal 1995 from $86,173,000 in
fiscal 1994 and increased 30% in fiscal 1994 from $66,313,000 in fiscal 1993.
Revenue from the Company's core PC software products increased 24% and 34% in
fiscal 1995 over fiscal 1994 and in fiscal 1994 over fiscal 1993, respectively.
These increases were primarily due to adding new customers and increased
revenues from existing customers. Prices have been relatively stable during the
periods reported.
-8-
<PAGE>
GROSS MARGIN Gross margin decreased 6% to $40,359,000 in fiscal 1995 from
$43,152,000 in fiscal 1994 and increased 22% in fiscal 1994 from $35,497,000 for
fiscal 1993. The decrease in 1995 reflects the sale of the Publishing Division,
partially offset by the growth in the higher margin PC software business. As a
percentage of revenue, gross margin increased to 81% in fiscal 1995 from 50% in
fiscal 1994 and 54% in fiscal 1993. The increase in fiscal 1995 resulted from
the sale of the lower margin Publishing Division in fiscal 1994. The decrease
in fiscal 1994 is primarily the result of a reduction in per unit revenue in the
Publishing Division.
On a pro forma basis, gross margin as a percentage of revenue for the PC
software business was 81% and 77% for fiscal 1995 and 1994, respectively. The
increase in fiscal 1995 gross margin resulted from lower revenue from the retail
channel, which has a lower gross margin caused in part by higher packaging and
shipping costs. The retail business was discontinued in fiscal 1995.
RESEARCH AND DEVELOPMENT Research and development costs ("R&D"), before the
capitalization of internally developed software, were 25% of total revenue in
fiscal 1995 and 11% in fiscal 1994 and fiscal 1993. R&D as defined above grew
to $12,374,000 in fiscal 1995, a 35% increase from $9,133,000 in fiscal 1994.
Fiscal 1994 costs increased 30% from $7,045,000 in fiscal 1993. The growth in
R&D in fiscal 1995 and fiscal 1994 is primarily the result of increased
investment, primarily additional employees, in the development of system-level
software.
The Company capitalized approximately $1,336,000, $2,246,000 and $961,000
of internally developed software costs in fiscal 1995, 1994 and 1993,
respectively. The higher capitalization of internally developed software in
fiscal 1994 versus fiscal 1995 and 1993 is primarily due to the development of
several next generation system-level software and application software products
designed to make it easier for OEMs to deploy new models of PCs and to make
those PCs easier to use. The Company believes that continued investment in new
and evolving technologies is essential to meet rapidly changing industry
requirements.
SALES AND MARKETING EXPENSES Costs related to sales and marketing decreased 14%
in fiscal 1995 to $14,355,000 from $16,585,000 in fiscal 1994. Fiscal 1994
expenses increased 17% from $14,232,000 in fiscal 1993. The decrease in fiscal
1995 resulted from the sale of the Publishing Division. The growth in fiscal
1994 over fiscal 1993 is primarily attributable to increased advertising costs
related to retail distribution of PC application software products. The growth
is also the result of higher commission expense associated with higher revenue.
The pro forma increase in fiscal 1995 is primarily due to additional sales
and marketing personnel, increased commission expense on higher revenue volume,
and increased promotion and trade show activity, particularly outside the United
States.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses ("G&A")
decreased 21% to $6,696,000 in fiscal 1995 from $8,460,000 in fiscal 1994.
Fiscal 1994 expenses increased 10% over 1993. The decrease in fiscal 1995 was
primarily due to the sale of the Publishing Division, offset partially by
increases in the cost of salaries and fringe benefits. The increase in fiscal
1994 over 1993 is primarily attributable to increased provisions for bad debts
and increased management consulting expenses relating to the Company's expansion
into the PC application software business. As a percent of revenue, G&A
decreased to 13% in fiscal 1995 from 16% in the pro forma results for fiscal
1994. Actual G&A was 10% of fiscal 1994 revenue, as compared to the 12% rate
for fiscal 1993. The reductions were due to the employment of fewer people and
less use of outside services, resulting from improved operating efficiency.
OTHER OPERATING EXPENSES Other operating expenses in fiscal 1994 consist of a
write-off of $6,777,000 of prepaid royalties and provision of $2,318,000 for the
planned relocation of the Company's administrative and support functions, which
occurred in fiscal 1995. Other operating expenses in fiscal 1993 consist of
acquisition related charges.
INCOME TAXES The Company recorded an income tax provision of $1,483,000 in
fiscal 1995 as compared to $6,420,000 in fiscal 1994 and $2,376,000 in fiscal
1993. The provision for fiscal 1995 includes an income tax benefit in the
fourth quarter of $1,300,000 resulting from a decision to reduce the Company's
valuation allowance related to its deferred tax assets in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" Statement No. 109 requires recognition of deferred tax assets when the
probability of recovery is more likely than not. During fiscal 1995, the
Company achieved a consistent level of pretax profits, thus improving the
predictability of continued achievement of this level of profitability. This
also allowed the Company to deduct a significant portion of the accruals
provided in fiscal 1994 for restructuring and relocation.
-9-
<PAGE>
Taxable income from continuing operations in fiscal 1994 included the gain
on the sale of the Publishing Division, which was partially offset by the
accrual for other operating expenses. The provision for 1994 reflects the
utilization of certain tax credits and the remaining net operating loss
carryforwards. Prior to 1994, the provision primarily represented foreign
withholding taxes, based on license fee revenues in certain foreign countries,
for which tax credit utilization is subject to certain limitations.
FINANCIAL CONDITION
CHANGES IN FINANCIAL CONDITION The ratio of current assets to current
liabilities increased 4.1-to-1 in fiscal 1995 from 2.2-to-1 in fiscal 1994,
primarily as a result of reducing current liabilities by one-half in fiscal
1995. The cash used for these payments was generated primarily from operations.
The Company also improved its days of sales outstanding in accounts receivable
to 82 days as of September 30, 1995 from 108 days at the end of fiscal 1994 and
received payment on the amount due from a related party. The reduction in
inventory resulted primarily from the discontinuance of the Company's retail
software business.
The increases in other current assets and other assets are both due
primarily to the reduction in the valuation allowance for deferred tax assets.
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" in fiscal
1995. It did not have a material impact on the Company's financial condition or
operating results.
LIQUIDITY AND CAPITAL RESOURCES The Company's cash and short-term investments
decreased by 3% to $32,944,000 at September 30, 1995 from $33,889,000 at
September 30, 1994. Cash provided by operating activities was $3,229,000 in
fiscal 1995. Investing activities used $6,047,000 for short-term investments,
purchases of property and equipment, and additions to computer software costs.
Financing activities used $904,000 for repurchases of the Company's common stock
and payment of notes payable, which was partially offset by proceeds from stock
issuances under employee stock plans.
The Company expects funding requirements for fiscal 1996 and the
foreseeable future to be met from its current cash position and future
operations. In fiscal 1994, the Company initiated a plan to repurchase up to
1,000,000 shares of its common stock for use in the Company's stock option plans
and for general corporate purposes. During fiscal 1995, the Company repurchased
369,300 shares and retired 399,313 shares.
The Company has a $10,000,000 unsecured line of credit agreement with a
domestic commercial bank. There were no borrowings under the line as of
September 30, 1995.
-10-
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements which are filed as a part of Item 14 of
this report are incorporated herein by this reference:
Consolidated Balance Sheets as of September 30, 1995 and 1994.
Consolidated Statements of Operations for the years ended September
30, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the years ended September
30, 1995, 1994 and 1993.
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
Selected Quarterly Financial Data.
Item 9. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item with respect to directors of the
Company will be contained in the Company's definitive proxy statement to be
filed pursuant to Regulation 14A in connection with the 1996 annual meeting of
its stockholders (the "Proxy Statement") and is incorporated herein by this
reference.
The executive officers of the Company, each of whom serve at the discretion
of the Board of Directors, as of the date of this Form 10-K are as follows:
Name Age Position
- ---- --- --------
Jack Kay 49 President and Chief Executive Officer
Robert J. Riopel 53 Vice President, Finance, Chief Financial
Officer and Treasurer
Gayn B. Winters 52 Vice President, Engineering and
Chief Technology Officer
David A. Everett 52 Vice President, Worldwide Field Operations
Mr. Kay joined the Company as Vice President of Worldwide Sales in May
1990. In January, 1992, he was appointed Senior Vice President and Chief
Operating Officer. In June, 1994, he was promoted to President and Chief
Operating Officer. Effective October 1, 1995, Mr. Kay was promoted to President
and Chief Executive Officer.
Mr. Riopel joined the Company as Vice President, Finance, Chief Financial
Officer, and Treasurer in February 1995. For two years before joining the
Company, Mr. Riopel was Senior Vice President, Finance and Administration and
Chief Financial Officer for OpenVision Technologies, Inc., a developer of system
management software for client-server systems. From 1989 to 1993, Mr. Riopel
served as vice president, finance for the international division of Silicon
Graphics, Inc.
-11-
<PAGE>
Dr. Winters joined the Company as Vice President, Engineering and Chief
Technology Officer in August 1995. For more than five years before joining the
Company, Dr. Winters worked for Digital Equipment Corporation, a leading
supplier of computer systems, most recently as Group Engineering Manager and
Corporate Consulting Engineer.
Mr. Everett joined the Company as Vice President, Worldwide Field
Operations, in December 1995. From 1993 until joining the Company, Mr. Everett
was Executive Vice President, Sales and Marketing, for Syquest Technology, a
manufacturer of Winchester removable cartridge disk drives. From 1984 to 1993,
Mr. Everett was employed by Wyse Technology, a worldwide supplier of video
display and computer products, in sales and marketing positions, most recently
as its Senior Vice President, Sales and Corporate Marketing.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during, and with respect to, its most recent
fiscal year and written representations that no other reports were required, if
any, the filing requirements of Section 16(a) applicable to its officers,
directors and 10% Stockholders were satisfied, except that the Form 3 for Dr.
Winters was filed 21 days late.
Item 11. EXECUTIVE COMPENSATION
The information required by this section is incorporated by reference
from the Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this section is incorporated by reference
from the Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this section is incorporated by reference
from the Proxy Statement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September
30, 1995 and 1994.
Consolidated Statements of Operations for the
years ended September 30, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the
years ended September 30, 1995, 1994 and 1993.
Consolidated Statements of Stockholders'
Equity for the years ended September 30, 1995,
1994 and 1993.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
Selected Quarterly Financial Data.
2. FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying
Accounts
-12-
<PAGE>
Report of Independent Accountants
All other schedules are omitted because they are not required, are not
applicable or the information is included in the financial statements or notes
thereto.
3. EXHIBITS
2.1 Agreement and Plan of Reorganization dated January 31, 1992,
as amended February 27, 1992, by and among the Registrant,
Phoenix Merger Corporation and Quadtel Corporation, and
related documents - filed as Exhibit 2.01 to the Company's
Form 8-K filed on March 16, 1992 and incorporated herein by
this reference.
3.1 Certificate of Incorporation of the Company, as amended -
filed as Exhibit 3.1 to the Company's Registration Statement
on Form S-1, Registration No. 33-21793 (the "S-1"), and
incorporated herein by this reference.
3.2 By-laws of the Company, as amended - filed as Exhibit 3.2 to
the S-1 and incorporated herein by this reference.
3.3 Certificate of Correction to the Company's Certificate of
Incorporation - filed as Exhibit 3.3 to Amendment No. 2 to
the S-1 ("Amendment No. 2") and incorporated herein by this
reference.
3.4 Certificate of Amendment to the Company's Certificate of
Incorporation - filed as Exhibit 3.4 to Amendment No. 2 and
incorporated herein by this reference.
3.5 Certificate of Correction to the Company's Certificate of
Incorporation - filed as Exhibit 3.5 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30,
1988 (the "1988 Form 10-K") and incorporated herein by this
reference.
3.6 Certificate of Correction to the Company's Certificate of
Incorporation - filed as Exhibit 3.7 to the 1988 Form 10-K
and incorporated herein by this reference.
3.7 Certificate of Designation of the Company's Series A Junior
Participating Preferred Stock - filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K dated October 31, 1989
(the "October 31, 1989 Form 8-K"), and incorporated herein
by this reference.
4.1 Series A Convertible Preferred Stock and Warrant Purchase
Agreement dated March 18, 1988 among the Registrant, Neil J.
Colvin, Lance E. Hansche, Sigma Partners and Sigma
Associates, and the form of warrants issued thereunder -
filed as Exhibit 4.1 to the S-1 and incorporated herein by
this reference.
4.2 Registration Agreement dated March 18, 1988, among the
Registrant, Neil J. Colvin, Lance E. Hansche, Sigma Partners
and Sigma Associates, as amended - filed as Exhibit 4.2 to
the S-1 and incorporated herein by this reference.
4.3 Rights Agreement dated as of October 31, 1989 between the
Company and The First National Bank of Boston - filed as
Exhibit 4.1 to the October 31, 1989 Form 8-K, and
incorporated herein by this reference.
10.1 1986 Incentive Stock Option Plan, as amended - filed as
Exhibit 4.1 to the Company's Registration Statement on Form
S-8, Registration No. 33-30940, and incorporated herein by
this reference.
10.2 Senior Management Stock Option Plan, as amended - filed as
Exhibit 4.2 to the Company's Registration Statement on Form
S-8, Registration No. 33-26996 (the "February 1989 Form S-
8"), and incorporated herein by this reference.
10.3 Senior Management Nonqualified Stock Option Plan, as amended
- filed as Exhibit 4.3 to the February 1989 Form S-8 and
incorporated herein by this reference.
-13-
<PAGE>
10.4 Employment agreement dated June 9, 1994 between the
Registrant and Jack Kay - filed as Exhibit 10.9 to the
Company's Quarterly Report on Form 10-Q filed on August 15,
1994 and incorporated herein by this reference.
10.5 Line of Credit Agreement dated November 25, 1991 between the
Registrant and Silicon Valley Bank -- filed as Exhibit 10.17
to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1991 (the "1991 Form 10-K") and
incorporated herein by this reference.
10.6 1992 Equity Incentive Plan - filed with the Company's
preliminary proxy materials filed on December 17, 1992 (the
"1992 Equity Incentive Plan") and incorporated herein by
this reference.
10.7 Amendment dated April 15, 1993 to the Line of Credit
Agreement dated November 25, 1991 between the Registrant and
Silicon Valley Bank filed as exhibit 10.23 to the Company's
Form 10-Q filed on August 16, 1993 and incorporated herein
by this reference.
10.8 Amendment dated June 28, 1993 to the Line of Credit
Agreement dated November 25, 1991 between the Registrant and
Silicon Valley Bank filed as exhibit 10.24 to the Company's
Form 10-Q filed on August 16, 1993 and incorporated herein
by this reference.
10.9 Replication Agreement dated March 15, 1993 between the
Company and Microsoft Corporation and Amendments One, Two,
Three and Four thereto, filed as exhibit 10.16 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993 and incorporated herein by this
reference.
10.10 Letter Amendment dated as of December 30, 1993 to Line of
Credit Agreement dated November 25, 1991 between the
Registrant and Silicon Valley Bank filed as exhibit 10.17 to
the Company's Form 10-Q filed on February 14, 1994 and
incorporated herein by this reference.
10.11 Purchase Agreement dated March 15, 1994 between the Company
and Softbank Corporation filed as exhibit 10.18 to the
Company's Form 10-Q filed May 16, 1994 and incorporated
herein by this reference.
10.12 Amendment Number 1 to the 1992 Equity Incentive Plan filed
as exhibit 10.19 to the Company's Form 10-Q filed May 16,
1994 and incorporated herein by this reference.
10.13 Amendment Number 1 to the 1991 Employee Stock Purchase Plan
filed as exhibit 10.20 to the Company's Form 10-Q filed May
16, 1994 and incorporated herein by this reference.
10.14 Amendment No. 1 to Purchase Agreement by and between Phoenix
Technologies Ltd. and Softbank Corporation dated as of March
15, 1994 - filed as Exhibit 2.02 to the Company's Current
Report on Form 8-K dated September 30, 1994 and incorporated
herein by this reference.
10.15 Asset Purchase Agreement made as of September 30, 1994 by
and between the Registrant and Xionics International
Holdings, Inc. - filed as Exhibit 2.01 to the Company's
Current Report on Form 8-K dated November 8, 1994 and
incorporated herein by this reference.
10.16 Lease dated as of May 3, 1994 between the Company and the
Equitable life Assurance Society of the United States -
filed as Exhibit 10.24 to the Company's Report on Form 10-K
for the fiscal year ended September 30, 1994.
10.17 1994 Equity Incentive Plan, as amended by the Board of
Directors through September 28, 1995.
10.18 Amended and Restated Employee Stock Purchase Plan, as
amended by the Board of Directors through December 6, 1995.
10.19 Employment offer letter between the Company and Gayn B.
Winters.
10.20 Loan Modification Agreement dated January 25, 1995 to the
Line of Credit Agreement dated November 25, 1991 between
Silicon Valley Bank and the Company.
-14-
<PAGE>
10.21 Third Amendment dated as of June 8, 1995 to the Line of
Credit Agreement dated November 25, 1991 between Silicon
Valley Bank and the Company.
10.22 Amendment dated as of June 30, 1995 to the Line of Credit
Agreement dated November 25, 1991 between Silicon Valley
Bank and the Company.
10.23 Amended and Restated Lease Agreement dated March 15, 1995
between The Prudential Insurance Company of America and the
Company with respect to certain facilities located at 846
University Avenue, Norwood, MA.
11.1 Statement re computation of earnings per share (primary
earnings per share).
11.2 Statement re computation of earnings per share (fully
diluted earnings per share).
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Accountants.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the
fourth quarter of fiscal 1995.
(c) EXHIBITS FILED
See listing under Item 14(a)(3) above for a list of
Exhibits filed with this report.
(d) FINANCIAL STATEMENT SCHEDULES
See Schedule II - Valuation and Qualifying Accounts for
the Three Years Ended September 30, 1995.
-15-
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995 1994
- -------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and short-term investments $ 32,944,000 $ 33,889,000
Accounts receivable, net of allowances
of $430,000 in 1995 and $657,000 in 1994 12,064,000 12,316,000
Receivable from related party -- 3,768,000
Inventory 53,000 849,000
Other current assets 3,637,000 1,452,000
------------ ------------
Total current assets 48,698,000 52,274,000
Property and equipment, net 2,625,000 2,307,000
Computer software costs, net 3,823,000 3,392,000
Other assets 7,244,000 5,262,000
------------ ------------
Total assets $ 62,390,000 $ 63,235,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ -- $ 1,241,000
Accounts payable 1,645,000 3,443,000
Payroll related liabilities 2,536,000 2,462,000
Accrued license fees and royalties 889,000 1,214,000
Other accrued liabilities 2,296,000 4,209,000
Income taxes payable 2,765,000 3,993,000
Relocation accrual 1,047,000 1,923,000
Net liabilities of discontinued operations 724,000 5,203,000
------------ ------------
Total current liabilities 11,902,000 23,688,000
Other liabilities 70,000 101,000
------------ ------------
Total liabilities 11,972,000 23,789,000
------------ ------------
Commitments
Stockholders' equity:
Preferred stock, $.10 par value,
500,000 shares authorized,none issued -- --
Common stock, $.001 par value,
20,000,000 shares authorized, 13,927,801
and 13,435,077 shares issued at September
30, 1995 and 1994 14,000 13,000
Additional paid-in capital 53,710,000 49,839,000
Accumulated deficit (3,232,000) (9,843,000)
Treasury stock at cost, none and 30,013
shares at September 30, 1995 and 1994 -- (563,000)
Accumulated translation adjustment (74,000) --
------------ ------------
Total stockholders' equity 50,418,000 39,446,000
Total liabilities and stockholders' equity $ 62,390,000 $ 63,235,000
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
-16-
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
License fees $ 43,448,000 $ 34,913,000 $ 26,055,000
Services 6,493,000 5,676,000 3,596,000
Publishing -- 45,584,000 36,662,000
------------ ------------ ------------
Total revenue 49,941,000 86,173,000 66,313,000
Cost of revenue:
License fees 3,633,000 4,053,000 2,798,000
Services 5,949,000 5,270,000 3,387,000
Publishing -- 33,698,000 24,631,000
------------ ------------ ------------
Total cost of revenue 9,582,000 43,021,000 30,816,000
------------ ------------ ------------
Gross margin 40,359,000 43,152,000 35,497,000
Operating expenses:
Research and development 11,038,000 6,887,000 6,084,000
Sales and marketing 14,355,000 16,585,000 14,232,000
General and administrative 6,696,000 8,460,000 7,709,000
Other operating expenses -- 9,095,000 1,482,000
------------ ------------ ------------
Total operating expenses 32,089,000 41,027,000 29,507,000
------------ ------------ ------------
Income from operations 8,270,000 2,125,000 5,990,000
Gain on sale of Publishing Division -- 23,538,000 --
Interest income, net 1,725,000 213,000 253,000
Other income (expense), net 303,000 (226,000) (302,000)
------------ ------------ ------------
Income before income taxes 10,298,000 25,650,000 5,941,000
Provision for income taxes 1,483,000 6,420,000 2,376,000
------------ ------------ ------------
Income from continuing operations 8,815,000 19,230,000 3,565,000
Discontinued operations:
Loss from discontinued operations (after income tax
benefits of $1,199,000 and $644,000 respectively) -- (1,792,000) (966,000)
Loss on disposal (after income tax benefit of $425,000) -- (10,644,000) --
------------ ------------ ------------
Net Income $ 8,815,000 $ 6,794,000 $ 2,599,000
------------ ------------ ------------
------------ ------------ ------------
Income (loss) per common share:
Income from continuing operations $ 0.58 $ 1.37 $ 0.26
Loss from discontinued operations -- (0.89) (0.07)
------------ ------------ ------------
Net income per common share $ 0.58 $ 0.48 $ 0.19
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of common and common
equivalent shares outstanding 15,103,000 14,050,000 13,702,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
-17-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 8,815,000 $ 6,794,000 $ 2,599,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,050,000 5,401,000 5,586,000
Provision for doubtful accounts 60,000 351,000 --
Gain on sale and leaseback (152,000) (152,000) (152,000)
Equity interest in subsidiary (170,000) -- --
Deferred income taxes (1,300,000) -- --
Gain on sale of Publishing Division -- (23,538,000) --
Provision for loss on discontinued operations -- 10,006,000 --
Write-off of prepaid royalties and capitalized software -- 6,777,000 1,482,000
Change in operating assets and liabilities, net of effects
of acquisitions and divestitures:
Decrease (increase) in accounts receivable 192,000 (6,375,000) (4,492,000)
Decrease in related party receivable 3,768,000 -- --
Increase in inventory, other current assets
and other assets (351,000) (2,310,000) (1,333,000)
Increaes (decrease) in accounts payable, accrued
payroll and relocation, and other liabilities (4,869,000) 4,460,000 (814,000)
Increase (decrease) in income taxes payable (1,335,000) 2,991,000 68,000
Decrease in net liabilities of discontinued
operations (4,479,000) (223,000) --
------------ ------------ ------------
Total adjustments (5,586,000) (2,612,000) 345,000
------------ ------------ ------------
Net cash provided by operations 3,229,000 4,182,000 2,944,000
Cash flows from investing activities:
Proceeds from sale of Publishing Division -- 30,000,000 --
Maturity of short-term investments 23,086,000 1,000,000 --
Purchases of short-term investments (25,863,000) (4,370,000) (1,000,000)
Purchases of property and equipment (1,596,000) (1,787,000) (1,837,000)
Investments and acquisitions, net of cash acquired -- (1,467,000) (628,000)
Additions to computer software costs:
Internally developed software (1,336,000) (2,246,000) (2,566,000)
Purchased and licensed software (338,000) (3,060,000) (2,951,000)
Purchase of publishing rights -- (838,000) (758,000)
------------ ------------ ------------
Net cash provided (used) by investing activities (6,047,000) 17,232,000 (9,740,000)
Cash flows from financing activities:
Proceeds from stock purchases under stock option
and employee stock purchase plans 3,317,000 1,171,000 1,238,000
Repurchase of common stock (2,980,000) -- --
Repayment of short-term borrowings (1,241,000) (188,000) (107,000)
------------ ------------ ------------
Net cash provided by financing activities (904,000) 983,000 1,131,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (3,722,000) 22,397,000 (5,665,000)
Cash and cash equivalents at beginning of fiscal year 29,519,000 7,122,000 12,787,000
------------ ------------ ------------
Cash and cash equivalents at end of fiscal year $ 25,797,000 $ 29,519,000 $ 7,122,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
-18-
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
THREE YEARS ENDED SEPTEMBER 30, 1995
ADDITIONAL ACCUMULATED TOTAL
COMMON PAID-IN ACCUMULATED TREASURY TRANSLATION STOCKHOLDERS'
STOCK CAPITAL DEFICIT STOCK ADJUSTMENT EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1992 $12,000 $47,431,000 $(19,236,000) $(563,000) $ -- $27,644,000
Stock purchases under stock
option and stock purchase
plansN 566,452 shares 1,000 1,237,000 -- -- -- 1,238,000
Net income -- -- 2,599,000 -- -- 2,599,000
------- ----------- ------------ --------- --------- -----------
Balance, September 30, 1993 13,000 48,668,000 (16,637,000) (563,000) -- 31,481,000
Stock purchases under stock
option and stock purchase
plansN 424,389 shares -- 1,171,000 -- -- -- 1,171,000
Net income -- -- 6,794,000 -- -- 6,794,000
------- ----------- ------------ --------- --------- -----------
Balance, September 30, 1994 13,000 49,839,000 (9,843,000) (563,000) -- 39,446,000
Stock purchases under stock
option and stock purchase
plans--892,037 shares 1,000 3,317,000 -- -- -- 3,318,000
Cancellation of 30,013
treasury shares -- (213,000) (350,000) 563,000 -- 0
Repurchase and cancellation of
369,300 shares -- (1,126,000) (1,854,000) -- -- (2,980,000)
Tax benefit on employee
sales of stock -- 1,893,000 -- -- -- 1,893,000
Net income -- -- 8,815,000 -- -- 8,815,000
Translation adjustment -- -- -- -- (74,000) (74,000)
------- ----------- ------------ --------- --------- -----------
Balance, September 30, 1995 $14,000 $53,710,000 $ (3,232,000) $ 0 $ (74,000) $50,418,000
------- ----------- ------------ --------- --------- -----------
------- ----------- ------------ --------- --------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
-19-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF OPERATIONS
Phoenix Technologies Ltd. designs, develops and markets system-level and
application software products. Prior to the divestitures of the Publishing and
Printer Software Divisions in fiscal 1994, the Company also sold technical
publishing software and documentation, and printer software.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION. The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in the financial
statements. Certain amounts in the prior years' financial statements have been
reclassified to conform to the fiscal 1995 presentation.
REVENUE RECOGNITION. The Company's revenue is derived from license and
engineering fees and packaged software sales, primarily to original equipment
manufacturers (OEMs). License fees for system software are recorded as revenue
when the products have been delivered to the OEMs. The amount of revenue
recognized under minimum license fee arrangements with extended payment terms is
restricted to payments due within 90 days. Certain license agreements for new
and customized products provide for customer acceptance periods that typically
run for 30 days. Revenues on such products are recognized when accepted by the
OEMs as determined by the Company.
Additional per copy license fees are recognized when the OEM ships products
incorporating the Company's software in excess of the quantity covered by the
initial license fee. Customers entering into license agreements with the
Company for customized products are typically charged engineering fees that vary
according to the amount of engineering work performed. Engineering fees are
recognized as revenue when contractual milestones are met or on a time and
materials basis. Revenue from sales of packaged products are recognized and the
related royalty expenses are accrued when the products are shipped. Maintenance
revenues are recognizable ratably over the contract period. Revenue generated
by independent representatives in certain international markets is recorded net
of the related commissions.
Allowances for uncollectable amounts, returns and credits are recorded in
the same period as the related revenues. At the time the Company recognizes
revenues from the license or sale of software products, no significant vendor
obligations remain, and the costs of insignificant support obligations are
accrued.
INVESTMENTS. Investments in certain highly liquid securities with maturities of
less than three months are considered cash equivalents. Investment securities
consist of U.S. Treasury and agency notes and municipal bonds with original
maturities generally ranging from three months to one year. The Company adopted
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," on December
31, 1994. The adoption of Statement No. 115 had no effect on the Company's
financial position and results of operations. The Company classifies its
investment securities as held-to-maturity because, as provided in Statement No.
115, it has the ability and intent to hold them until maturity. Such securities
are reported at amortized cost.
CREDIT RISK. Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments with
high credit qualified financial institutions. The Company does not require
collateral for trade receivables, but related credit risk is limited due to the
Company's large number of customers and their geographic dispersion. As of
September 30, 1995 and 1994, no customer accounted for 10% or more of accounts
receivable.
INVENTORIES. Inventories, primarily finished goods, are stated at the lower of
cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT. Property and equipment are carried at cost and
depreciated using the straight-line method over their estimated useful lives,
typically three to five years. Leasehold improvements are amortized over the
lesser of their useful lives or the remaining term of the related lease. When
assets are sold or retired, the cost and accumulated depreciation are removed
from the accounts and any gain or loss is included in income.
COMPUTER SOFTWARE COSTS. Computer software costs consist of internally
developed and purchased or licensed software. Development costs incurred in the
research and development of new software products and enhancements to existing
products are expensed in the period incurred unless they qualify for
capitalization. Capitalized computer software costs are amortized over the
economic life of the product, generally three years, using the straight-line
method or a ratio of current revenues to total anticipated revenues.
-20-
<PAGE>
The Company evaluates the net realizable value of computer software costs
on an ongoing basis relying on a number of factors including operating results,
business plans, budgets and economic projections. In addition, the Company'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 Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under the
asset and liability method of Statement No. 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 expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement No. 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period of enactment. This accounting method was adopted in fiscal 1994, and it
is similar to the Company's prior method, Statement No. 96, except that under
the prior method, no recognition is given to future events other than the
recovery of assets and settlements of liabilities.
NET INCOME (LOSS) PER COMMON SHARE. Net income per common and common equivalent
share is computed using the weighted average number of common and dilutive
common equivalent shares outstanding during each year. Dilutive common
equivalent shares consist of stock options and are calculated using the treasury
stock method. In loss periods, common stock equivalents are not used in the
calculation. Fully diluted earnings per share are not materially different from
reported primary earnings per share.
STOCK OPTIONS. Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" was issued in October 1995 and applies to fiscal
years beginning after December 15, 1995. While the Company is studying the
impact of the pronouncement, it continues to account for employee stock options
under APB Opinion No. 25, "Accounting for Stock Issued to Employees."
NOTE 3. CASH AND INVENTORIES
Cash and short-term investments were comprised as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995 1994
-----------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 25,797,000 $ 29,519,000
Short-term investments 7,147,000 4,370,000
------------ ------------
$ 32,944,000 $ 33,889,000
------------ ------------
------------ ------------
</TABLE>
The carrying and market values of investments as of September 30, 1995 were as
follows:
<TABLE>
<CAPTION>
HELD-TO-MATURITY
--------------------------------------------
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and Agency obligations $ 5,156,000 $ 7,000 $ 2,000 $ 5,161,000
Bankers' acceptances 998,000 -- -- 998,000
Commercial paper 993,000 -- -- 993,000
----------- ------- ------- -----------
$ 7,147,000 $ 7,000 $ 2,000 $ 7,152,000
----------- ------- ------- -----------
----------- ------- ------- -----------
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995 1994
--------------------------------------------------------------------------
<S> <C> <C>
Equipment $ 7,833,000 $ 7,808,000
Furniture and fixtures 2,808,000 2,600,000
Leasehold improvements 1,258,000 1,079,000
----------- -----------
11,899,000 11,487,000
Less accumulated depreciation and amortization 9,274,000 9,180,000
----------- -----------
$ 2,625,000 $ 2,307,000
----------- -----------
----------- -----------
</TABLE>
-21-
<PAGE>
Depreciation and amortization expenses totaled $1,278,000, $1,860,000 and
$1,944,000 for fiscal 1995, 1994 and 1993, respectively.
NOTE 5. COMPUTER SOFTWARE COSTS
Computer software costs in the amounts of $1,674,000, $2,933,000 and $9,771,000
were capitalized during the years ended September 30, 1995, 1994 and 1993,
respectively. These costs consist of $1,336,000, $2,478,000 and $2,566,000 of
internally developed software and $338,000, $455,000 and $7,205,000 of purchased
or licensed software costs for fiscal 1995, 1994 and 1993, respectively.
Included in the above amounts are $232,000 and $1,605,000 of internally
developed software costs and $50,000 and $60,000 of purchased or licensed
software costs related to the discontinued printer software operation for fiscal
1994 and 1993, respectively.
Amortization charged to costs of revenue in fiscal 1995, 1994 and 1993
totaled $1,244,000, $825,000 and $1,225,000, respectively. Amortization charged
to discontinued operations for 1994 and 1993 was $1,604,000 and $1,321,000,
respectively. In addition, the Company wrote off computer software costs of
$6,777,000 in fiscal 1994 and $1,482,000 in fiscal 1993 in connection with a
terminated distribution agreement and reclassified net computer software costs
of $1,584,000 related to the discontinued printer software operation.
Accumulated amortization at September 30, 1995 and 1994 totaled $1,128,000 and
$4,733,000, respectively.
NOTE 6. UNSECURED LINE OF CREDIT
At September 30, 1995, there were no outstanding borrowings on the Company's
$10,000,000 unsecured bank line of credit. Borrowings on the line bear interest
at the bank's prime rate of interest plus 1%. The agreement contains various
covenants which require the Company to operate at a profit and meet certain
financial ratios, and it restricts the payment of cash dividends. A commitment
fee of $25,000 was paid in fiscal 1995 and 1994.
The Company made interest payments of $69,000, $79,000 and $35,000 for
fiscal 1995, 1994 and 1993, respectively.
NOTE 7. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" in fiscal 1994, and there was no cumulative effect
adjustment recorded as a result of the change. The components of the provision
for income taxes from continuing operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994 1993
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal, net of tax benefit on NOL
carryforward of $16,742,000 in 1994 $ 294,000 $ 2,958,000 $ 593,000
State 96,000 1,486,000 304,000
Foreign 2,393,000 2,081,000 1,479,000
Deferred:
Federal -- (87,000) --
State -- (18,000) --
Change in valuation allowance (1,300,000) -- --
----------- ----------- ----------
$ 1,483,000 $ 6,420,000 $ 2,376,000
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
The loss from discontinued operations provided a current federal and state
income tax benefit which was utilized against the current tax provision from
continuing operations. The benefit provided in fiscal 1994 and 1993 was
$1,199,000 and $644,000, respectively. The Company made income tax payments of
$1,125,000, $181,000 and $188,000 in fiscal 1995, 1994 and 1993, respectively.
-22-
<PAGE>
Reconciliation of the United States federal statutory rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate $ 3,501,000 $ 8,721,000 $ 2,020,000
State taxes, net of federal tax benefit 66,000 969,000 201,000
Foreign withholding taxes 1,959,000 1,411,000 1,000,000
Temporary deductible items recognized currently (2,784,000) -- --
Tax benefit of net operating loss carryforwards -- (3,639,000) (868,000)
R&D tax credit utilized -- (1,116,000) --
Other nondeductible expenses 41,000 74,000 23,000
Change in valuation allowance (1,300,000) -- --
----------- ----------- -----------
Provision for income taxes $ 1,483,000 $ 6,420,000 $ 2,376,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The components of net deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
September 30,
1995 1994
<S> <C> <C>
-------------------------------------------------------------------------
Deferred tax assets:
Foreign tax credits $ 2,735,000 $ 585,000
R&D tax credits 1,009,000 884,000
Minimum tax carryforward 566,000 566,000
Reserves and accruals 1,617,000 5,243,000
Depreciation 1,223,000 952,000
Net operating loss carryforward 814,000 --
Revenue recognition -- 751,000
Total 7,964,000 8,981,000
Less valuation allowance 3,185,000 7,715,000
Net deferred tax assets 4,779,000 1,266,000
Deferred tax liabilities:
Capitalized software, net 1,479,000 1,266,000
Other -- 104,000
Total deferred tax liability 1,479,000 1,370,000
Net deferred tax assets (liabilities) $3,300,000 $(104,000)
</TABLE>
Due to the uncertainty surrounding the timing of the realization of the
benefit of its favorable tax attributes in future tax returns, the Company has
placed a valuation allowance against otherwise recognizable net deferred tax
assets.
Prior to fiscal 1994, the Company took foreign tax withholding as a
deduction because of limitations on taking them as a credit. In previous years,
the Company has shown a deferred tax asset equal to the potential additional
benefit of amending previous returns to use the withholding amounts as credits,
creating a tax credit carryforward and offsetting it against current taxes. The
potential credits are beginning to expire, and the Company has significant other
unused tax credits, and, therefore, reduced deferred tax assets and the
valuation allowance by the amount thereof.
At September 30, 1995, the Company had available for federal income tax
purposes tax credit carryforwards, some of which expire on various dates. The
foreign tax credits expire in 1999 and 2000, the R&D tax credits expire in the
years 2001 through 2010, and the net operating loss carryforward expires in
2010.
NOTE 8. COMMITMENTS
The Company leases office facilities under operating leases. Total rent expense
was $1,673,000, $2,672,000 and $2,149,000 in fiscal 1995, 1994 and 1993,
respectively.
-23-
<PAGE>
At September 30, 1995, future minimum operating lease payments are required
as follows:
------------------------------------------------
1996 $ 1,970,000
1997 1,362,000
1998 667,000
1999 238,000
2000 59,000
-----------
Total minimum lease payments $ 4,296,000
-----------
-----------
NOTE 9. STOCKHOLDERS' EQUITY
PREFERRED STOCK. As of September 30, 1995 and 1994, no preferred stock was
issued and outstanding.
SHAREHOLDER RIGHTS PLAN. The Company has a stockholder rights plan which
provides existing stockholders with the right to purchase one one-hundredth
(0.01) preferred share for each share of common stock held in the event of
certain changes in the Company's ownership. These rights may serve as a
deterrent to certain abusive takeover tactics which are not in the best
interests of stockholders.
STOCK OPTION PLANS. Under the 1994 Equity Incentive Plan (the "1994 Plan"), as
amended and approved by stockholders at the February 7, 1995 annual meeting,
1,000,000 shares were reserved for issuance. In September 1995, the Board of
Directors further amended the 1994 Plan to increase the share reserve by an
additional 500,000 shares; shareholder approval of such increase will be sought
at the 1996 annual meeting of shareholders. Except to the extent that options
remain outstanding under prior plans, the 1994 Plan replaced all prior option
plans and all shares which were or become available for grant under any prior
option plan are added to the 1994 Plan. The 1994 Plan provides for the grant of
nonqualified and incentive stock options, as well as restricted stock and stock
bonus awards, to employees, officers, consultants and independent contractors;
nonemployee members of the Board of Directors are eligible for grants of
nonqualified stock options only. Incentive stock options 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 market value of the shares on the date of grant. To
date all grants 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 10 years.
Activity in the Company's stock option plans was as follows:
PRICE RANGE OF
SHARES STOCK OPTIONS
--------------------------------------------------------------------------
Shares under option, September 30, 1992 3,103,290 $0.450-$ 9.375
Options granted 405,350 $4.000-$ 5.250
Options exercised (463,296) $1.350-$ 4.250
Options canceled (220,560) $1.500-$ 9.375
---------
Shares under option, September 30, 1993 2,824,784 $0.450-$ 9.375
Options granted 1,421,800 $3.875-$ 7.875
Options exercised (282,588) $0.450-$ 4.500
Options canceled (359,680) $2.380-$ 9.375
---------
Shares under option, September 30, 1994 3,604,316 $0.450-$ 9.375
Options granted 477,000 $6.750-$ 12.875
Options exercised (821,721) $0.450-$ 9.375
Options canceled (292,674) $2.380-$ 9.375
---------
Shares under option, September 30, 1995 2,966,921 $0.450-$ 12.875
---------
---------
At September 30, 1995, the number of shares exercisable under stock option
plans was 1,769,985, and 467,025 shares were available for grant.
STOCK PURCHASE PLAN. The Phoenix Technologies Ltd. 1991 Employee Stock Purchase
Plan (the "ESPP") allows eligible employees to purchase shares at six month
intervals, through payroll deductions, at 85% of the fair market value of the
-24-
<PAGE>
Company's common stock at the beginning or end of the six-month period,
whichever is less. The maximum amount each employee may contribute during an
offering period is 10% of gross base pay. As of September 30, 1995, 352,715
shares had been issued under the ESPP and 147,285 shares remained reserved for
future issuance.
NOTE 10. ACQUISITIONS AND INVESTMENTS
On June 30, 1994, the Company purchased certain assets of two related United
Kingdom companies. The acquisition was recorded using the purchase method of
accounting; accordingly, the purchase price, which was insignificant, was
allocated to the assets based on their estimated fair market values at the date
of acquisition.
In fiscal 1993, the Company acquired substantially all of the assets, and
assumed certain liabilities, of its Japanese distributor. Also in fiscal 1993,
the Company acquired substantially all the assets and assumed certain
liabilities of a company that supplied fax/modem software through the retail and
direct channels. Both acquisitions were recorded using the purchase method of
accounting. Goodwill associated with the acquisitions was approximately
$1,558,000 and is being amortized on a straight-line basis over seven years.
Amortization expense was $236,000, $226,000 and $56,000 in fiscal 1995, 1994 and
1993, respectively. In fiscal 1993, $1,482,000 of capitalized software costs
made redundant by these acquisitions was written off.
The operating results of these acquisitions have been included in the
consolidated financial statements from the date of acquisition and are not
material in relation to the Company's consolidated financial statements. Pro
forma statements of operations prior to the acquisition dates would not differ
significantly from reported results.
NOTE 11. DISCONTINUED OPERATIONS AND DIVESTITURES
PRINTER SOFTWARE DIVISION. In November 1994, the Company sold all the assets of
its Printer Software Division. The Company received a promissory note in the
principal amount of $4,849,000, collateralized by the assets sold and payable in
twenty quarterly installments commencing January 15, 1997. Interest at 8% per
year is payable quarterly. The Company also received a minority equity interest
in the purchaser and the right to a future contingent payment based on operating
performance. In fiscal 1995, the Company provided an additional loan of
$350,000 to the purchaser. Subsequently, the Company participated in a stock
offering to new and existing investors by exchanging $1,900,000 of principal
under these two notes for additional shares. The Company has the right to
convert up to $340,000 of additional principal into shares of stock on or before
June 30, 1998. Because of the risk of collection, the Company will recognize
proceeds from the note and contingent payment as cash payments are received.
The current estimated fair market value of the shares, which has a book value of
zero, is not significant.
The consolidated financial statements were restated to reflect the Printer
Software Division as a discontinued operation. Revenues from discontinued
operations were $9,439,000 and $9,947,000 for fiscal 1994 and 1993,
respectively. The net liabilities of discontinued operations of $724,000 and
$5,203,000 at September 30, 1995 and 1994, respectively, consist primarily of
accrued costs to be incurred in connection with the sale of the division, offset
by accounts receivable. Payments were $4,479,000 and $223,000 in fiscal 1995
and 1994, respectively.
PUBLISHING DIVISION. In fiscal 1994, the Company also sold 80% of its
Publishing Division for cash payments of $30,000,000 to Softbank Corporation of
Japan ("Softbank"). The Company recognized a pre-tax gain of $23,538,000 on the
transaction. Softbank and the Company each contributed their respective
interests in the net assets of the Publishing Division to Phoenix Publishing
Systems, Inc. ("PPSI"); and the Company received 20% of the capital stock of
PPSI. There is a put and call on the 20% interest, exercisable from September
30, 1997 to September 30, 1999, for the greater of $7,500,000 or an amount based
on PPSI's operating performance. The Company accounts for its interest in PPSI
under the equity method of accounting. The resulting related party receivable
of $3,768,000 at September 30, 1994 was collected from PPSI in fiscal 1995.
The following unaudited pro forma information for fiscal 1994 reflects how
the disposition might have affected the statement of operations if the
divestiture had taken place as of the beginning of the fiscal year.
AS REPORTED PRO FORMA
--------------------------------------------------------------------------
Revenue $86,173,000 $40,589,000
Gross margin 43,152,000 31,266,000
Operating income 2,125,000 7,176,000
Income from continuing operations 19,230,000 5,595,000
Income from continuing operations per share $ 1.37 $ 0.40
-25-
<PAGE>
The pro forma results exclude the gain on the sale of the Publishing
Division and the non-recurring other operating expenses of $9,095,000 described
in Note 12 and include interest income on the proceeds of the sale and income
from the Company's equity interest in PPSI. Revenue attributable to the
Publishing Division for fiscal years 1994 and 1993 was $45,584,000 and
$36,662,000, respectively.
OTHER INVESTMENTS. Included in other assets at September 30, 1995 and 1994 is
$2,388,000 of equity and other investments in Softbank, Inc., a joint venture
company formed to distribute software products on compact disks. In fiscal
1995, the Company exchanged its investment in Softbank, Inc. for the right to
put the investment to its joint venture partner for $2,310,000, plus 7% annual
interest, or for an amount based upon the valuation of a subsidiary of another
jointly owned company in an initial public stock offering should that offering
occur. The investment is recorded at cost, and any gain will be recorded upon
realization.
NOTE 12. OTHER OPERATING EXPENSES
Other operating expenses in fiscal 1994 include the write-off of $6,777,000 of
non-refundable advance royalties in connection with its termination of an
agreement to distribute a BIOS and other software for IBM. Also included in
other operating expenses in fiscal 1994 is a provision of $2,318,000 related to
the relocation of the Company's headquarters from Massachusetts to California
which occurred in fiscal 1995. In fiscal 1995, $876,000 of the accrual was
paid. The remaining liability at September 30, 1995 relates primarily to
termination benefits and lease payments. Other operating expenses in fiscal
1993 consist of acquisition related charges.
NOTE 13. INTERNATIONAL INFORMATION
The Company licenses its products worldwide. Export revenues were made
principally to the following geographic areas:
YEAR ENDED SEPTEMBER 30,
1995 1994 1993
--------------------------------------------------------
Asia/Pacific $16,246,000 $12,884,000 $10,042,000
Europe 3,258,000 9,962,000 12,695,000
----------- ----------- -----------
$19,504,000 $22,846,000 $22,737,000
----------- ----------- -----------
----------- ----------- -----------
A summary of foreign operations, principally represented by locations in the
Asia/Pacific region, is presented below.
YEAR ENDED SEPTEMBER 30,
1995 1994 1993
--------------------------------------------------------
Revenue $4,108,000 $16,366,000 $8,143,000
Operating income 1,136,000 2,751,000 768,000
Income before taxes 1,304,000 2,754,000 778,000
Identifiable assets 6,777,000 3,430,000 5,334,000
In fiscal 1995, no customer accounted for 10% or more of revenue. In
fiscal 1994, revenue from Packard Bell and its subsidiaries was $16,211,000 or
19% of revenue, and revenue from Compaq Computer Corporation and its
subsidiaries was $11,630,000 or 14% of revenue. In fiscal 1993, revenue from
Compaq Computer and its subsidiaries was $15,455,000 or 23% of revenue, and
revenue from Packard Bell and its subsidiaries was $9,474,000 or 14% of revenue.
NOTE 14. RETIREMENT PLAN
The Company has a retirement plan which is qualified under Section 401(k) of the
Internal Revenue Code. This plan covers substantially all 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 plan may be made at the discretion of the Board of
Directors. Company contributions to date have not been material. The Company
does not offer post-retirement benefits.
-26-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Phoenix Technologies Ltd.:
We have audited the accompanying consolidated balance sheets of Phoenix
Technologies Ltd. as of September 30, 1995 and 1994, and the related
consolidated statements of operations, cash flows, and stockholders' equity for
each of the three fiscal years in the period ended September 30, 1995. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Phoenix
Technologies Ltd. as of September 30, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three fiscal years
in the period ending September 30, 1995, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
San Jose, California
October 27, 1995
-27-
<PAGE>
PHOENIX TECHNOLOGIES LTD.
SUPPLEMENTAL FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA) YEAR ENDED SEPTEMBER 30, 1995
QUARTER ENDED DEC. 31 MAR. 31 JUNE 30 SEPT. 30
-------------------------------------------------------------------------
Revenue $11,119 $12,204 $13,320 $13,297
Gross margin 9,040 9,844 10,879 10,596
Income from operations 1,730 1,992 2,390 2,154
Net income 1,569 1,738 2,030 3,474
Net income per share 0.11 0.12 0.13 0.22
YEAR ENDED SEPTEMBER 30, 1994
QUARTER ENDED DEC. 31 MAR. 31 JUNE 30 SEPT. 30
-------------------------------------------------------------------------
Revenue $20,115 $22,855 $20,872 $22,331
Gross margin 9,120 9,806 9,803 10,370
Income (loss) from continuing
operations 1,548 (398) 2,199 15,881
Net income (loss) 1,220 (1,046) 1,383 5,237
Income (loss) per share from
continuing operations 0.11 (0.03) 0.16 1.11
Net income (loss) per share 0.09 (0.08) 0.10 0.37
Quarterly information related to the Company's statements of operations prior to
the fourth quarter of fiscal 1994 has been reclassified for discontinued
operations.
-28-
<PAGE>
PHOENIX TECHNOLOGIES LTD.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
Allowance for Beginning Costs and to other at end of
Doubtful Accounts of Year Expenses Accounts Deductions(1) Recoveries Year
- ----------------- ---------- ---------- -------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Year Ended $ 657,000 $ 60,000 $329,000 $ 785,000 $169,000 $430,000
September 30, 1995
Year Ended 1,548,000 351,000 320,000 1,623,000 61,000 657,000
September 30, 1994
Year Ended 1,858,000 -- 71,000 391,000 10,000 1,548,000
September 30, 1993
</TABLE>
- ------------------------
(1) Deductions primarily represent the write-off of uncollectable accounts
receivable.
-29-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Phoenix
Technologies Ltd. is included in this Form 10-K. In connection with our audits
of such financial statements, we have also audited the related financial
statement schedule listed in the index of this Form 10-K.
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 required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
San Jose, California
October 27, 1995
-30-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PHOENIX TECHNOLOGIES LTD.
By: /s/ Jack Kay
--------------------------------------
Jack Kay
President and Chief Executive Officer
Date: December 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Jack Kay /s/ Robert J. Riopel
- ---------------------------------------- ------------------------------
Jack Kay Robert J. Riopel
Director and Principal Executive Officer Principal Finance and
Accounting Officer
Date: December 28, 1995 Date: December 28, 1995
/s/ Lawrence G. Finch
- ---------------------------------------- ------------------------------
Charles Federman Lawrence G. Finch
Director Director
Date: December __, 1995 Date: December 28, 1995
/s/ Ronald D. Fisher /s/ Lance E. Hansche
- ---------------------------------------- ------------------------------
Ronald D. Fisher Lance E. Hansche
Director Director
Date: December 28, 1995 Date: December 28, 1995
/s/ Anthony P. Morris
- ----------------------------------------
Anthony P. Morris
Director
Date: December 28, 1995
-31-
<PAGE>
EXHIBIT 10.17
PHOENIX TECHNOLOGIES LTD.
1994 EQUITY INCENTIVE PLAN
As Amended Through September 28, 1995
1. PURPOSE
The purpose of the Plan is to provide incentives to attract, retain and
motivate eligible persons whose present and potential contributions are
important to the success of the Company and its Parent, Subsidiaries and
Affiliates, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in
Section 24.
2. SHARES SUBJECT TO THE PLAN
2.1 NUMBER OF SHARES AVAILABLE. Subject to Sections 2.2 and 18, the total
number of Shares reserved and available for grant and issuance pursuant to
the Plan shall be 1,500,000 shares, plus the total number of shares
authorized for issuance, but not issued or subject to outstanding options,
under the Company's existing option plans as of November 30, 1994;
provided, however, that the maximum number of Shares that may be issued
under the Plan to members of the Board of Directors of the Company who are
not also employees of the Company is 200,000 Shares. Subject to Sections
2.2 and 18, Shares shall again be available for grant and issuance in
connection with future Awards under the Plan that: (a) are subject to
issuance upon exercise of an Option but cease to be subject to such Option
for any reason other than exercise of such Option, (b) are subject to an
Award that otherwise terminates without such Shares being issued and for
which the participant did not receive any benefits of ownership (other than
voting rights), or (c) become available for issuance under any other equity
plans of the Company pursuant to the terms of such plans.
2.2 ADJUSTMENT OF SHARES. In the event that the number of outstanding shares
of the Company's Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision,
combination, reclassification or similar change in the capital structure of
the Company without consideration, then (a) the number of Shares reserved
for issuance under the Plan, (b) the Exercise Prices of and number of
Shares subject to outstanding Options, and (c) the number of Shares subject
to other outstanding Awards shall be proportionately adjusted, subject to
any required action by the Board or the stockholders of the Company and
compliance with applicable securities laws; provided, however, that
fractions of a Share shall not be issued but shall either be paid in cash
at Fair Market Value or shall be rounded up to the nearest Share, as
determined by the Committee; and provided, further, that the Exercise Price
of any Option may not be decreased to below the par value of the Shares.
- 1 -
<PAGE>
3. ELIGIBILITY
3.1 ELIGIBILITY OF EMPLOYEES, CONSULTANTS AND INDEPENDENT CONTRACTORS. ISOs
(as defined in Section 5 below) may be granted only to employees (including
officers and directors who are also employees) of the Company or of a
Parent or Subsidiary of the Company. All other Awards may be granted to
employees, officers, consultants, independent contractors and advisers of
the Company or any Parent, Subsidiary or Affiliate of the Company;
provided, however, that such consultants, contractors and advisers render
bona fide services not in connection with the offer and sale of securities
in a capital-raising transaction. A person may be granted more than one
Award under the Plan. Each person is eligible to receive up to an
aggregate maximum of 400,000 Shares over the term of the Plan.
3.2 ELIGIBILITY OF DIRECTORS. Each director who is not an employee shall be
granted an Option to purchase 10,000 Shares upon such director's initial
election to the Board of Directors. Upon the anniversary of such initial
election, each director shall receive an Option to purchase an additional
7,000 Shares of stock. Options granted to directors who are not employees
shall be NQSOs. Notwithstanding the foregoing, directors who are not
employees are eligible to receive only Options under the Plan. This
Section 3.2 and Sections 5.3 and 5.4 (concerning director options) may not
be amended more than once every six months, other than to conform with
changes required by law.
4. ADMINISTRATION
4.1 COMMITTEE AUTHORITY. The Plan shall be administered by the Committee or
the Board acting as the Committee. Subject to the general purposes, terms
and conditions of the Plan, and to the direction of the Board, the
Committee shall have full power to implement and carry out the Plan.
Except as otherwise provided pursuant to Sections 3.2 or 5, the Committee
shall have the authority to:
(a) construe and interpret the Plan, any Award Agreement and any other
agreement or document executed pursuant to the Plan;
(b) prescribe, amend and rescind rules and regulations relating to the
Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination or in
tandem with, in replacement of, or as alternatives to, other Awards
under the Plan or any other incentive or compensation plan of the
Company or any Parent, Subsidiary or Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in the Plan, any Award or any Award Agreement;
- 2 -
<PAGE>
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of the Plan.
4.2 COMMITTEE DISCRETION. Any determination made by the Committee with respect
to any Award shall be made in its sole discretion at the time of grant of
the Award or, unless in contravention of any express term of the Plan or
Award, at any later time, and such determination shall be final and binding
on the Company and all persons having an interest in any Award under the
Plan. The Committee may delegate to one or more officers of the Company
the authority to grant Awards under the Plan to Participants who are not
Insiders of the Company.
4.3 EXCHANGE ACT REQUIREMENTS. If two or more members of the Board are Outside
Directors, the Committee shall be comprised of at least two members of the
Board, all of whom are Outside Directors and Disinterested Persons. The
Company will take appropriate steps to comply with the disinterested
director requirements of Section 16(b) of the Exchange Act, including but
not limited to, the appointment by the Board of a Committee consisting of
not less than two persons (who are members of the Board), each of whom is a
Disinterested Person. It is the intent of the Company that the Plan and
Awards hereunder satisfy and be interpreted in a manner, that, in the case
of Participants who are or may be Insiders, satisfies the applicable
requirements of Rule 16b-3 (or its successor) of the Exchange Act. If any
provision of the Plan or of any Award would otherwise conflict with the
intent expressed in this Section 4.3, that provision to the extent possible
shall be interpreted and deemed amended so as to avoid such conflict.
5. OPTIONS
Except as otherwise provided in this Section 5, the Committee may grant
Options to eligible persons and shall determine whether such Options shall
be Incentive Stock Options within the meaning of the Code ("ISOs") or
Nonqualified Stock Options ("NQSOs"), the number of Shares subject to the
Option, the Exercise Price of the Option, the period during which the
Option may be exercised, and all other terms and conditions of the Option,
subject to the following:
5.1 FORM OF OPTION GRANT. Each Option granted under the Plan shall be
evidenced by an Award Agreement which shall expressly identify the Option
as an ISO or NQSO ("Stock Option Agreement"), and be in such form and
contain such provisions (which need not be the same for each Participant
receiving an Award pursuant to Section 3.1) as the Committee shall from
time to time approve, and which shall comply with and be subject to the
terms and conditions of the Plan.
5.2 DATE OF GRANT. The date of grant of an Option shall be the date on which
the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee; provided, however, that Options
granted to directors who are not employees shall be granted on the date
specified in Section 3.2. The Stock Option Agreement and a
- 3 -
<PAGE>
copy of the Plan will be delivered to the Participant within a reasonable
time after the granting of the Option.
5.3 EXERCISE PERIOD. Options shall be exercisable within the times or upon the
events determined by the Committee as set forth in the Stock Option
Agreement; provided, however, that no Option shall be exercisable after the
expiration of ten (10) years from the date the Option is granted; and
provided further that no ISO granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary of
the Company ("Ten Percent Stockholder") shall be exercisable after the
expiration of five (5) years from the date the Option is granted; and
provided further that Options held by directors who are not employees will
be exercisable as follows: (i) with respect to the first Option granted, it
will become exercisable on a cumulative basis as to one-quarter of the
Shares subject to the Option on the first anniversary of the grant date and
as to the balance of the Shares subject to the Option in 12 equal quarterly
installments every three months after such first anniversary; and (ii) with
respect to any Option subsequently granted, it will become exercisable on a
cumulative basis as to one-sixteenth of the Shares subject to the Option,
on a quarterly basis, commencing three months after the date of grant of
such Option. Except as otherwise specifically set forth in the preceding
sentence with respect to directors who are not employees, the Committee may
provide for Options to become exercisable at any time or from time to time,
periodically or otherwise, in such number or percentage as the Committee
determines.
5.4 EXERCISE PRICE. The Exercise Price shall be determined by the Committee
when the Option is granted and may be not less than 85% of the Fair Market
Value of the Shares on the date of grant; provided, however, that (i) the
Exercise Price of an ISO shall be not less than 100% of the Fair Market
Value of the Shares on the date of grant and (ii) the Exercise Price of any
ISO granted to a Ten Percent Stockholder shall not be less than 110% of the
Fair Market Value of the Shares on the date of grant; and provided further,
that the Exercise Price of Options granted to directors who are not
employees shall be 100% of the Fair Market Value of the Shares on the date
of grant. Payment for the Shares purchased may be made in accordance with
Section 8 of the Plan.
5.5 METHOD OF EXERCISE. Options may be exercised only by delivery to the
Company of a written stock option exercise agreement (the "Exercise
Agreement") in a form approved by the Committee (which need not be the same
for each Participant receiving an Award pursuant to the Plan), stating the
number of Shares being purchased, the restrictions imposed on the Shares,
if any, and such representations and agreements regarding Participant's
investment intent, access to information and other matters, if any, as may
be required or desirable by the Company to comply with applicable
securities laws, together with payment in full of the Exercise Price for
the number of Shares being purchased.
5.6 TERMINATION. Notwithstanding the exercise periods set forth in the Stock
Option Agreement, exercise of an Option shall always be subject to the
following:
- 4 -
<PAGE>
(a) If the Participant is Terminated for any reason except death or
Disability, then Participant may exercise such Participant's Options,
only to the extent that such Options would have been exercisable upon
the Termination Date, no later than ninety (90) days after the
Termination Date, but in any event, no later than the expiration date
of the Options.
(b) If the Participant is terminated because of death or Disability, then
Participant's Options may be exercised, only to the extent that such
Options would have been exercisable by Participant on the Termination
Date, and must be exercised by Participant (or Participant's legal
representative or authorized assignee) no later than one hundred
eighty (180) days after the Termination Date, but in any event no
later than the expiration date of the Options.
5.7 LIMITATIONS ON EXERCISE. The Committee may specify a reasonable minimum
number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 LIMITATIONS ON ISOS. The aggregate Fair Market Value (determined as of the
date of grant) of Shares with respect to which ISOs are exercisable for the
first time by a Participant during any calendar year (under the Plan or
under any other incentive stock option plan of the Company or any
Affiliate, Parent or Subsidiary of the Company) shall not exceed $100,000.
If the Fair Market Value of Shares on the date of grant with respect to
which ISOs are exercisable for the first time by a Participant during any
calendar year exceeds $100,000, the Options for the first $100,000 worth of
Shares to become exercisable in such calendar year shall be ISOs and the
Options for the amount in excess of $100,000 that become exercisable in
that calendar year shall be NQSOs. In the event that the Code or the
regulations promulgated thereunder are amended after the Effective Date of
the Plan to provide for a different limit on the Fair Market Value of
Shares permitted to be subject to ISOs, such different limit shall be
automatically incorporated herein and shall apply to any Options granted
after the effective date of such amendment.
5.9 MODIFICATION, EXTENSION OR RENEWAL. The Committee may modify, extend or
renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered shall be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a
written notice to them; provided, however, that the Exercise Price may not
be reduced below the minimum Exercise Price that would be permitted under
Section 5.4 of the Plan for Options granted on the date the action is taken
to reduce the Exercise Price; provided, further, that the Exercise Price
shall not be reduced below the par value of the Shares.
- 5 -
<PAGE>
5.10 NO DISQUALIFICATION. Notwithstanding any other provision in the Plan, no
term of the Plan relating to ISOs shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be exercised,
so as to disqualify the Plan under Section 422 of the Code or, without the
consent of the Participant affected, to disqualify any ISO under Section
422 of the Code.
6. RESTRICTED STOCK
A Restricted Stock Award is an offer by the Company to sell to an eligible
person Shares that are subject to restrictions. The Committee shall
determine to whom an offer will be made, the number of Shares the person
may purchase, the price to be paid (the "Purchase Price"), the restrictions
to which the Shares shall be subject, and all other terms and conditions of
the Restricted Stock Award, subject to the following:
6.1 FORM OF RESTRICTED STOCK AWARD. All purchases under a Restricted Stock
Award made pursuant to the Plan shall be evidenced by an Award Agreement
("Restricted Stock Purchase Agreement") that shall be in such form (which
need not be the same for each Participant) as the Committee shall from time
to time approve, and shall comply with and be subject to the terms and
conditions of the Plan. The offer of Restricted Stock shall be accepted by
the Participant's execution and delivery of the Restricted Stock Purchase
Agreement and full payment for the Shares to the Company within thirty (30)
days from the date the Restricted Stock Purchase Agreement is delivered to
the Participant. If such Participant does not execute and deliver the
Restricted Stock Purchase Agreement along with full payment for the Shares
to the Company within thirty (30) days, then the offer shall terminate,
unless otherwise determined by the Committee.
6.2 PURCHASE PRICE. The Purchase Price of Shares sold pursuant to a Restricted
Stock Award shall be determined by the Committee and shall be at least 85%
of the Fair Market Value of the Shares on the date the Restricted Stock
Award is granted. Payment of the Purchase Price may be made in accordance
with Section 8 of the Plan.
6.3 TERMS OF RESTRICTED STOCK AWARDS. Restricted Stock Awards shall be subject
to such restrictions as the Committee may impose. These restrictions may
be based upon completion of a specified number of years of service with the
Company or upon completion of the performance goals as set out in advance
in the Participant's Restricted Stock Purchase Agreement. Restricted Stock
Awards may vary from Participant to Participant and between groups of
Participants. Prior to the grant of a Restricted Stock Award, the
Committee shall: (a) determine the nature, length and starting date of any
Performance Period for the Restricted Stock Award; (b) select from among
the Performance Factors to be used to measure performance goals, if any;
and (c) determine the number of Shares that may be awarded to the
Participant. Prior to the payment of any Restricted Stock Award, the
Committee shall determine the extent to which such Restricted Stock Award
has been earned. Performance Periods may overlap and Participants may
participate simultaneously with respect to Restricted Stock Awards that are
subject to different Performance Periods and having different performance
goals and
- 6 -
<PAGE>
other criteria; PROVIDED, HOWEVER that the maximum Restricted Stock Award
for each Participant with respect to any Performance Period shall be thirty
percent (30%) of the Shares reserved for issuance under this Plan.
7. STOCK BONUSES
7.1 AWARDS OF STOCK BONUSES. A Stock Bonus is an award of Shares (which may
consist of Restricted Stock) in consideration for services rendered by the
Participant to the Company or any Parent, Subsidiary or Affiliate of the
Company. A Stock Bonus may be awarded for past services already rendered
to the Company, or any Parent, Subsidiary or Affiliate of the Company
pursuant to an Award Agreement (the "Stock Bonus Agreement") that shall be
in such form (which need not be the same for each Participant) as the
Committee shall from time to time approve, and shall comply with and be
subject to the terms and conditions of the Plan. A Stock Bonus may be
awarded upon satisfaction of such performance goals as are set out in
advance in each Participant's individual Award Agreement (the "Performance
Stock Bonus Agreement") and shall be in such form (which need not be the
same for each Participant) as the Committee shall from time to time
approve, and shall comply with and be subject to the terms and conditions
of the Plan. Stock Bonuses may vary from Participant to Participant and
between groups of Participants, and may be based upon the achievement of
Company, Parent, Subsidiary, Affiliate and/or individual performance
factors or upon such other criteria as the Committee may determine.
7.2 TERMS OF STOCK BONUSES. Stock Bonus Awards shall be subject to such
restrictions as the Committee shall impose. These restrictions may be
based upon completion of a specified number of years of service with the
Company or upon completion of the performance goals as set out in advance
in the Participant's individual Stock Bonus Agreement. Stock Bonuses may
vary from Participant to Participant and between groups of Participants.
Prior to the grant of a Stock Bonus, the Committee shall: (a) determine the
nature, length and starting date of any Performance Period for the Stock
Bonus; (b) select from among the Performance Factors to be used to measure
performance goals; and (c) determine the number of Shares that may be
awarded to the Participant. Prior to the payment of any Stock Bonus, the
Committee shall determine the extent to which such Stock Bonus has been
earned. Performance Periods may overlap and Participants may participate
simultaneously with respect to Stock Bonuses that are subject to different
Performance Periods and having different performance goals and other
criteria; PROVIDED, HOWEVER that the maximum Stock Bonus for each
Participant with respect to any Performance Period shall be thirty percent
(30%) of the Shares reserved for issuance under this Plan.
7.3 FORM OF PAYMENT. The earned portion of a Stock Bonus shall be paid by the
Company currently. Payment may be made in the form of cash, whole Shares,
including Restricted Stock, or a combination thereof, either in a lump sum
payment or in installments, all as the Committee shall determine, and to
the extent applicable, shall be subject to such
- 7 -
<PAGE>
conditions or restrictions as may be required to qualify for the maximum
exemption from Section 16 of the Exchange Act.
7.4 TERMINATION DURING PERFORMANCE PERIOD. If a Participant is Terminated
during a Performance Period for any reason, then such Participant shall be
entitled to payment (whether in Shares, cash or otherwise) with respect to
the Stock Bonus only to the extent earned as of the date of Termination in
accordance with the Performance Stock Bonus Agreement, unless the Committee
shall determine otherwise.
8. PAYMENT FOR SHARE PURCHASES
8.1 PAYMENT. Payment for Shares purchased pursuant to the Plan may be made in
cash (by check) or, where expressly approved by the Committee and permitted
by law by:
(a) cancellation of indebtedness of the Company to the Participant;
(b) by surrender of shares of the Company's Common Stock that either: (1)
have been owned by Participant for more than six (6) months and have
been paid for within the meaning of SEC Rule 144 (and, if such shares
were purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares); or (2) were obtained
by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms as may
be approved by the Committee bearing interest at a rate sufficient to
avoid imputation of income under Sections 483 and 1274 of the Code,
provided, however, that Participants who are not employees of the
Company shall not be entitled to purchase Shares with a promissory
note unless the note is adequately secured by collateral other than
the Shares; and provided, further, that the portion of the Purchase
Price equal to the par value of the shares must be paid in cash.
(d) by waiver of compensation due or accrued to Participant for services
rendered;
(e) by tender of property;
(f) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the Participant and a
broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD Dealer") whereby the Participant
irrevocably elects to exercise the Option and to sell a portion
of the Shares so purchased in order to pay the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the
Company; or
(2) through a "margin" commitment from the Participant and an NASD
Dealer whereby the Participant irrevocably elects to exercise the
Option and to pledge the Shares so purchased to the NASD Dealer
in a margin account as security for a loan from the NASD Dealer
in the amount of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the
Exercise Price directly to the Company; or
(g) by any combination of the foregoing.
- 8 -
<PAGE>
Notwithstanding the foregoing, the Exercise Price of an Option held by a
director who is not an employee shall be paid in cash or pursuant to
subsection (f) of this Section 8.1.
9. WITHHOLDING TAXES
9.1 WITHHOLDING GENERALLY. Whenever Shares are to be issued in satisfaction of
Awards granted under the Plan, the Company may require the Participant to
remit to the Company an amount sufficient to satisfy federal, state and
local withholding tax requirements prior to the delivery of any certificate
or certificates for such Shares. Whenever, under the Plan, payments in
satisfaction of Awards are to be made in cash, such payment shall be net of
an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 STOCK WITHHOLDING. When, under applicable tax laws, a Participant incurs
tax liability in connection with the exercise or vesting of any Award that
is subject to tax withholding and the Participant is obligated to pay the
Company the amount required to be withheld, the Participant (other than a
Participant receiving an Award under Section 3.2) may satisfy the minimum
withholding tax obligation by electing to have the Company withhold from
the Shares to be issued that number of Shares having a Fair Market Value
equal to the minimum amount required to be withheld, determined on the date
that the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by a Participant to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Committee and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares as to which the election is made, except as provided in
paragraph (d) below;
(c) all elections shall be subject to the consent or disapproval of the
Committee;
(d) if the Participant is an Insider and if the Company is subject to
Section 16(b) of the Exchange Act: (1) the election may not be made
within six (6) months of the date of grant of the Award, except as
otherwise permitted by SEC Rule 16b-3(e) under the Exchange Act, and
(2) either (A) the election to use stock withholding must be
irrevocably made at least six (6) months prior to the Tax Date
(although such election may be revoked at any time at least six (6)
months prior to the Tax Date) or (B) the exercise of the Option or
election to use stock withholding must be made in the ten (10) day
period beginning on the third day following the release of the
Company's quarterly or annual summary statement of sales or earnings;
and
(e) in the event that the Tax Date is deferred until six (6) months after
the delivery of Shares under Section 83(b) of the Code, the
Participant shall receive the full number of Shares with respect to
which the exercise occurs, but such Participant shall be
unconditionally obligated to tender back to the Company the proper
number of Shares on the Tax Date.
- 9 -
<PAGE>
10. PRIVILEGES OF STOCK OWNERSHIP
10.1 VOTING AND DIVIDENDS. No Participant shall have any of the rights of a
stockholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant
shall be a stockholder and have all the rights of a stockholder with
respect to such Shares, including the right to vote and receive all
dividends or other distributions made or paid with respect to such Shares;
provided, however, that if such Shares are Restricted Stock, then any new,
additional or different securities that the Participant may become entitled
to receive with respect to such Shares by virtue of a stock dividend, stock
split or any other change in the corporate or capital structure of the
Company shall be subject to the same restrictions as the Restricted Stock;
provided further, that the Participant shall have no right to retain such
dividends or distributions with respect to Shares that are repurchased
pursuant to Section 12.
10.2 FINANCIAL STATEMENTS. The Company shall provide financial statements to
each Participant annually during the period such Participant has Awards
outstanding; provided, however, that the Company shall not be required to
provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY
Awards granted under the Plan, and any interest therein, shall not be
transferable or assignable by Participant, and may not be made subject to
execution, attachment or similar process, otherwise than by will or by the
laws of descent and distribution or as consistent with the specific Plan
and Award Agreement provisions relating thereto. During the lifetime of
the Participant an Award shall be exercisable only by the Participant, and
any elections with respect to an Award, may be made only by the
Participant.
12. RESTRICTIONS ON SHARES
At the discretion of the Committee, the Company may reserve to itself
and/or its assignee(s) in the Award Agreement a right to repurchase a
portion of or all Shares held by a Participant following such Participant's
Termination at any time within ninety (90) days after the later of
Participant's Termination Date and the date Participant purchases Shares
under the Plan, for cash or cancellation of purchase money indebtedness,
with respect to Shares that are not "Vested" (as defined in the Award
Agreement), at the Participant's original Purchase Price.
13. CERTIFICATES
All certificates for Shares or other securities delivered under the Plan
shall be subject to such stock transfer orders, legends and other
restrictions as the Committee may deem necessary or advisable, including
restrictions under any applicable federal, state or
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foreign securities law, or any rules, regulations and other requirements of
the SEC or any stock exchange or automated quotation system upon which the
Shares may be listed.
14. ESCROW; PLEDGE OF SHARES
To enforce any restrictions on a Participant's Shares, the Committee may
require the Participant to deposit all certificates representing Shares,
together with stock powers or other instruments of transfer approved by the
Committee, appropriately endorsed in blank, with the Company or an agent
designated by the Company to hold in escrow until such restrictions have
lapsed or terminated, and the Committee may cause a legend or legends
referencing such restrictions to be placed on the certificates. Any
Participant who is permitted to execute a promissory note as partial or
full consideration for the purchase of Shares under the Plan shall be
required to pledge and deposit with the Company all or part of the Shares
so purchased as collateral to secure the payment of Participant's
obligation to the Company under the promissory note; provided, however,
that the Committee may require or accept other or additional forms of
collateral to secure the payment of such obligation and, in any event, the
Company shall have full recourse against the Participant under the
promissory note notwithstanding any pledge of the Participant's Shares or
other collateral. In connection with any pledge of the Shares, Participant
shall be required to execute and deliver a written pledge agreement in such
form as the Committee shall from time to time approve. The Shares
purchased with the promissory note may be released from the pledge on a
prorata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS
The Committee may, at any time or from time to time, authorize the Company,
with the consent of the respective Participants, to issue new Awards in
exchange for the surrender and cancellation of any or all outstanding
Awards (other than Awards granted to directors pursuant to Section 3.2).
The Committee may at any time buy from a Participant an Award previously
granted with payment in cash, Shares (including Restricted Stock) or other
consideration, based on such terms and conditions as the Committee and the
Participant shall agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE
An Award shall not be effective unless such Award is in compliance with all
applicable federal and state securities laws, rules and regulations of any
governmental body, and the requirements of any stock exchange or automated
quotation system upon which the Shares may then be listed, as they are in
effect on the date of grant of the Award and also on the date of exercise
or other issuance. Notwithstanding any other provision in the Plan, the
Company shall have no obligation to issue or deliver certificates for
Shares under the Plan prior to (a) obtaining any approvals from
governmental agencies that the Company determines are necessary or
advisable, and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental
body that the Company determines to be necessary or advisable. The
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<PAGE>
Company shall be under no obligation to register the Shares with the SEC or
to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated
quotation system, and the Company shall have no liability for any inability
or failure to do so.
17. NO OBLIGATION TO EMPLOY
Nothing in the Plan or any Award granted under the Plan shall confer or be
deemed to confer on any Participant any right to continue in the employ of,
or to continue any other relationship with, the Company or any Parent,
Subsidiary or Affiliate of the Company or limit in any way the right of the
Company or any Parent, Subsidiary or Affiliate of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE
18.1 PROVISIONS APPLICABLE TO ALL AWARDS. The existence of outstanding
Awards shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's
capital structure or its business, or any merger or consolidation of the
Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any other corporate act or
proceeding, whether of a similar character or otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of its Common Stock
outstanding, without receiving compensation therefor in money, services or
property, then (i) the number, class, and per share price of Shares subject
to outstanding Awards hereunder shall be appropriately adjusted in such a
manner as to entitle a Participant to receive upon exercise thereof (and,
if relevant, for the same aggregate cash consideration), the same total
number and class of shares as such Participant would have received had such
Participant exercised such Award in full immediately prior to such event;
and (ii) the number and class of shares with respect to which Awards may be
granted under the Plan shall be adjusted by substituting for the total
number of shares of Common Stock then reserved that number and class of
shares of stock that would have been received by the owner of an equal
number of outstanding shares of Common Stock as the result of the event
requiring the adjustment (a similar adjustment shall be made to the numbers
of Shares specified in Section 3.2 of the Plan). For purposes of this
Section 18, the "exercise" of an Award shall mean: (a) with respect to an
Option, the exercise of such Option; (b) with respect to a Restricted Stock
Award, payment for the Shares by the Participant; and (c) with respect to a
Stock Bonus Award the occurrence of events entitling the Participant to
receive Shares under such Award.
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<PAGE>
After a merger of one or more corporations into the Company, or after a
consolidation of the Company and one or more corporations in which the
Company shall be the surviving corporation, each holder of an outstanding
Award shall, at no additional cost, be entitled to receive upon exercise of
such Award (subject to any required action by stockholders of the Company)
in lieu of the number of Shares as to which such Award shall then be so
exercisable, the number and class of shares of stock or other securities to
which such holder would have been entitled pursuant to the terms of the
agreement of merger or consolidation if, immediately prior to such merger
or consolidation, such holder had been the holder of record of a number of
shares of Common Stock equal to the number of shares as to which such Award
shall be so exercised.
If the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving corporation, or
if the Company is liquidated, or sells or otherwise disposes of
substantially all its assets to another corporation while unexercised
Awards remain outstanding under the Plan, (i) subject to the provisions of
clause (ii) below, after the effective date of such merger, consolidation
or sale, as the case may be, each holder of an outstanding Award shall be
entitled to receive upon exercise of such Award, in lieu of shares of
Common Stock, shares of such stock or other securities, cash or property as
the holders of shares of Common Stock received pursuant to the terms of the
merger, consolidation or sale; or (ii) all outstanding Awards may be
canceled by the Board as of the effective date of any such merger,
consolidation, liquidation or sale provided that (x) notice of such
cancellation shall be given to each holder of an Award and (y) each holder
of an Award shall have the right to exercise such Award to the extent that
the same is then exercisable or, if the Board shall have accelerated the
time for exercise of all unexercised and unexpired Awards, in full during
the 30-day period preceding the effective date of such merger,
consolidation, liquidation or sale.
Except as expressly provided above, the issue by the Company of shares of
stock of any class, securities convertible into shares of stock of any
class, for cash, property or services, either upon direct sale or upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of Shares then subject to
outstanding Awards.
18.2 PROVISIONS APPLICABLE TO DIRECTOR OPTIONS. Notwithstanding any other
provision to the contrary in Section 18.1 or any other section of this
Plan, in the event of a Change of Control (as defined below), all Options
granted to directors who are not employees pursuant to Section 3.2 and
outstanding as of the date such Change in Control occurs shall become
exercisable in full, whether or not exercisable in accordance with their
terms. A "Change in Control" shall occur or be deemed to have occurred
only if any of the following events occur: (i) any "person." as such term
is used in Section 13(d) and 14(d) of the Exchange Act (other than the
Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation
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<PAGE>
owned directly or indirectly by stockholders of the Company in
substantially the same proportion as their ownership of stock of the
Company) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power of the
Company's then outstanding securities; (ii) individuals who, as of June 1,
1994, constitute the Board of Directors of the Company (as of the date
thereof, the "Incumbent Board") cease for any reason to constitute at least
a majority of the Board, provided that any person becoming a director
subsequent to the date thereof whose election, or nomination for election
by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than
an election or nomination of an individual whose" initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of the directors of the Company, as such terms are
used in Rule 14a-11 of Regulation 14A under the Exchange Act) shall be, for
purposes of this Agreement, considered as though such person were a member
of the Incumbent Board; (iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other
than (A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 80% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or (B) a
merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no "person" (as hereinabove
defined) acquires more than 30% of the combined voting power of the
Company's then outstanding securities; or (iv) the stockholders of the
Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
19. ADOPTION AND STOCKHOLDER APPROVAL
The Plan shall become effective on the date that it is adopted by the Board
(the "Effective Date"). The Company may submit the Plan for approval by
the stockholders of the Company at the next annual meeting of stockholders
of the Company to obtain the advantages under NASD, IRS, Securities and
Exchange Commission and other regulations that approval of stockholders may
bestow; however, options granted under the Plan shall not be affected if
stockholders do not approve the Plan.
20. TERM OF PLAN
The Plan will terminate ten (l0) years from the Effective Date.
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<PAGE>
21. AMENDMENT OR TERMINATION OF PLAN
The Board may at any time terminate or amend the Plan in any respect,
including without limitation amendment of any form of Award Agreement or
instrument to be executed pursuant to the Plan; provided, however, that the
Board shall not, without the approval of the stockholders of the Company,
amend the Plan in any manner that requires such stockholder approval
pursuant to the Code or the regulations promulgated thereunder as such
provisions apply to ISO plans or pursuant to the Exchange Act or Rule 16b-3
(or its successor), as amended, thereunder.
22. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board, the submission of the Plan
to the stockholders of the Company for approval, nor any provision of the
Plan shall be construed as creating any limitations on the power of the
Board to adopt such additional compensation arrangements as it may deem
desirable, including, without limitation, the granting of stock options and
bonuses otherwise than under the Plan, and such arrangements may be either
generally applicable or applicable only in specific cases.
23. GOVERNING LAW
The Plan and all agreements, documents and instruments entered into
pursuant to the Plan shall be governed by and construed in accordance with
the internal laws of the Commonwealth of Massachusetts, excluding that body
of law pertaining to conflict of laws.
24. DEFINITIONS
As used in the Plan, the following terms shall have the following meanings:
"AFFILIATE" means any corporation that directly, or indirectly through one
or more intermediaries, controls or is controlled by, or is under common
control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with" means the possession,
direct or indirect, of the power to cause the direction of the management
and policies of the corporation, whether through the ownership of voting
securities, by contract or otherwise.
"AWARD" means any award under the Plan, including any Option, Restricted
Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms
and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
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<PAGE>
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to administer the
Plan, or if no committee is appointed, the Board.
"COMPANY" means Phoenix Technologies Ltd., a corporation organized under
the laws of the State of Delaware, or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent, partial or
total, within the meaning of Section 22(e)(3) of the Code, as determined by
the Committee.
"DISINTERESTED PERSON" means a director who has not, during the period that
person is a member of the Committee and for one year prior to service as a
member of the Committee, been granted or awarded equity securities pursuant
to the Plan or any other plan of the Company or any Parent, Subsidiary or
Affiliate of the Company, except in accordance with the requirements set
forth in Rule 16b-3(c)(2)(i) (and any successor regulation thereto) as
promulgated by the SEC under Section 16(b) of the Exchange Act, as such
rule is amended from time to time and as interpreted by the SEC.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National Market
System, its last reported sale price on the Nasdaq National Market or, if
no such reported sale takes place on such date, the average of the closing
bid and asked prices;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, the last reported sale price or, if no such
reported sale takes place on such date, the average of the closing bid and
asked prices on the principal national securities exchange on which the
Common Stock is listed or admitted to trading;
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on
such date, as reported by The Wall Street Journal, for the over-the-counter
market; or
(d) if none of the foregoing is applicable, by the Board of Directors of
the Company in good faith.
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<PAGE>
"INSIDER" means an officer or director of the Company or any other person
whose transactions in the Company's Common Stock are subject to Section l6
of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant to Section
5.
"OUTSIDE DIRECTOR" means any outside director as defined in Section 162(m)
of the Code and the regulations issued thereunder.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if at the time of the
granting of an Award under the Plan, each of such corporations other than
the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
"PARTICIPANT" means a person who receives an Award under the Plan.
"PERFORMANCE FACTORS" means the factors selected by the Committee from
among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or earnings before
income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total shareholder return and/or total shareholder return growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
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<PAGE>
"PERFORMANCE PERIOD" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"PLAN" means this Phoenix Technologies Ltd. 1994 Equity Incentive Plan, as
amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock, $0.001 par value,
reserved for issuance under the Plan, as adjusted pursuant to Sections 2
and 18, and any security issued in respect thereto or in replacement
therefor.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares, pursuant
to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if, at the time of
granting of the Award, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of the Plan with respect
to a Participant, that the Participant has ceased to provide services as an
employee, director, consultant, independent contractor or adviser, to the
Company or a Parent, Subsidiary or Affiliate of the Company, except in the
case of sick leave, military leave, or any other leave of absence approved
by the Committee, provided, that such leave is for a period of not more
than ninety (90) days, or reinstatement upon the expiration of such leave
is guaranteed by contract or statute. The Committee shall have sole
discretion to determine whether a Participant has ceased to provide
services and the effective date on which the Participant ceased to provide
services (the "Termination Date").
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<PAGE>
EXHIBIT 10.18
PHOENIX TECHNOLOGIES LTD.
1991 EMPLOYEE STOCK PURCHASE PLAN
Amended and Restated through December 6, 1995
1. ESTABLISHMENT OF PLAN. Phoenix Technologies Ltd., a Delaware
corporation (the "COMPANY"), proposes to grant options for purchase of the
Company's Common Stock to eligible employees of the Company and its
Subsidiaries (as hereinafter defined) pursuant to this 1991 Employee Stock
Purchase Plan (this "PLAN"). For purposes of this Plan, "PARENT CORPORATION"
and "SUBSIDIARY" (collectively, "SUBSIDIARIES") shall have the same meanings
as "parent corporation" and "subsidiary corporation" in Sections 424(e) and
424(f), respectively, of the Internal Revenue Code of 1986, as amended (the
"CODE"). The Company intends this Plan to qualify as an "employee stock
purchase plan" under Section 423 of the Code (including any amendments to or
replacements of such Section), and this Plan shall be so construed. Any term
not expressly defined in this Plan but defined for purposes of Section 423 of
the Code shall have the same definition herein. A total of 650,000 shares of
the Company's Common Stock is reserved for issuance under this Plan. Such
number shall be subject to adjustments effected in accordance with Section 14
of this Plan.
2. PURPOSE. The purpose of this Plan is to provide employees of the
Company and Subsidiaries designated by the Board of Directors of the Company
(the "BOARD") as eligible to participate in this Plan with a convenient means of
acquiring an equity interest in the Company through payroll deductions, to
enhance such employees' sense of participation in the affairs of the Company and
Subsidiaries, and to provide an incentive for continued employment.
3. ADMINISTRATION. This Plan shall be administered by a committee
appointed by the Board (the "COMMITTEE") consisting of at least two (2) members
of the Board, each of whom is a Disinterested Person as defined in Rule 16b-3(d)
of the Securities Exchange Act of 1934 (the "EXCHANGE ACT"). As used in this
Plan, references to the "Committee" shall mean either such committee or the
Board if no committee has been established. Board members who are not
Disinterested Persons may not vote on any matters affecting the administration
of this Plan, but any such member may be counted for determining the existence
of a quorum at any meeting of the Board. Subject to the provisions of this Plan
and the limitations of Section 423 of the Code or any successor provision in the
Code, all questions of interpretation or application of this Plan shall be
determined by the Board and its decisions shall be final and binding upon all
participants. Members of the Board shall receive no compensation for their
services in connection with the administration of this Plan, other than standard
fees as established from time to time by the Board for services rendered by
Board members serving on Board committees. All expenses incurred in connection
with the administration of this Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Subsidiaries is
eligible to participate in an Offering Period (as hereinafter defined) under
this Plan except the following:
(a) employees who are not employed by the Company or Subsidiaries
before the beginning of such Offering Period;
(b) employees who are customarily employed for less than twenty (20)
hours per week;
(c) employees who are customarily employed for less than five (5)
months in a calendar year;
(d) employees who, together with any other person whose stock would
be attributed to such employee pursuant to Section 424(d) of the Code, own stock
or hold options to purchase stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company or
any of its Subsidiaries or who, as a result of being granted an option under
this Plan with respect to such Offering Period, would own stock or hold options
to purchase stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or any of its
Subsidiaries.
5. OFFERING DATES. The offering periods of this Plan (each, an "Offering
Period") shall be of periods not to exceed the maximum period permitted by
Section 423 of the Code. Until determined otherwise by the Committee, (a)
<PAGE>
Offering Periods shall commence each June 1 and December 1 of each calendar
year, with the first Offering Period beginning December 1, 1991 and (b) each
Offering Period shall consist of one (1) six-month purchase period
(individually, a "Purchase Period") during which payroll deductions of the
participants are accumulated under this Plan. The first business day of each
Offering Period is referred to as the "OFFERING DATE". The last business day of
each Purchase Period is referred to as the "PURCHASE DATE". The Board shall
have the power to change the duration of Offering Periods or Purchase Periods
with respect to future offerings without stockholder approval if such change is
announced at least fifteen (15) days prior to the scheduled beginning of the
first Offering Period or Purchase Period to be affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become participants
in an Offering Period under this Plan on the first Offering Date after
satisfying the eligibility requirements by delivering a subscription agreement
to the Company's Stock Administration Department or any other department
designated by the Stock Administration Department or an officer of the Company
("STOCK ADMINISTRATION") not later than the last day of the month before such
Offering Date unless a later time for filing the subscription agreement
authorizing payroll deductions is set by the Board for all eligible employees
with respect to a given Offering Period. An eligible employee who does not
deliver a subscription agreement to Stock Administration by such date after
becoming eligible to participate in such Offering Period shall not participate
in that Offering Period or any subsequent Offering Period unless such employee
enrolls in this Plan by filing a subscription agreement with Stock
Administration not later than the last day of the month preceding a subsequent
Offering Date. Once an employee becomes a participant in an Offering Period,
such employee will automatically participate in the Offering Period commencing
immediately following the last day of the prior Offering Period unless the
employee withdraws or is deemed to withdraw from this Plan or terminates further
participation in the Offering Period as set forth in Section 11 below. Such
participant is not required to file any additional subscription agreement in
order to continue participation in this Plan, unless such participant withdraws
from this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i) eighty-
five percent (85%) of the fair market value of a share of the Company's Common
Stock on the Offering Date (but in no event less than the par value of a share
of the Company's Common Stock), or (ii) eighty-five percent (85%) of the fair
market value of a share of the Company's Common Stock on the Purchase Date (but
in no event less than the par value of a share of the Company's Common Stock);
PROVIDED, HOWEVER, that the number of shares of the Company's Common Stock
subject to any option granted pursuant to this Plan shall not exceed the lesser
of (a) the maximum number of shares set by the Board pursuant to Section 10(c)
below with respect to the applicable Offering Period, or (b) the maximum number
of shares which may be purchased pursuant to Section 10(b) below with respect to
the applicable Offering Period. The fair market value of a share of the
Company's Common Stock shall be determined as provided in Section 8 hereof.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date;
PROVIDED, HOWEVER, that in no event may the purchase price per share of the
Company's Common Stock be below the par value per share of the Company's Common
Stock.
For purposes of this Plan, the term "fair market value" on a given date
shall mean the closing price of the Company's Common Stock as reported on a
stock exchange or on the Nasdaq National Market System on the applicalbe date
(or the average closing price over the number of consecutive trading days
preceding such date as the Board shall deem appropriate. If the Company's stock
is not reported on such exchange or such system or if there is no public market
for the Company's Common Stock, the fair market value of the Company's Common
Stock shall be as determined by the Board in its sole discretion, exercised in
good faith.
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<PAGE>
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made
either (i) as a specified dollar amount per pay period, but not less than $5.00
per pay period and not greater than an amount equal to ten percent of the
participant's Compensation as of the first day of such Offering Period or (ii) a
percentage of the participant's compensation in one percent (1%) increments not
less than one percent (2%) and not greater than ten percent (10%) or (iii) such
lower limit set by the Committee. As used herein, "COMPENSATION" shall mean all
base salary, wages, commissions, and overtime, and draws against commissions;
PROVIDED, HOWEVER, that for purposes of determining a participant's
compensation, any election by such participant to reduce his or her regular cash
remuneration under Sections 125 or 401(k) of the Code shall be treated as if the
participant did not make such election. Payroll deductions shall commence on
the first payday following the Offering Date and shall continue to the end of
the Offering Period unless sooner altered or terminated as provided in this
Plan.
(b) A participant may lower (but not increase) the rate of payroll
deductions during an Offering Period by filing with Stock Administration a new
authorization for payroll deductions, in which case the new rate shall become
effective for the next payroll period commencing more than fifteen (15) days
after Stock Administration's receipt of the authorization (or such earlier
payroll after such receipt as the Company's payroll department is able to
accommodate) and shall continue for the remainder of the Offering Period unless
changed as described below. Such change in the rate of payroll deductions may
be made at any time during an Offering Period, but not more than one (1) change
may be made effective during any Offering Period. A participant may lower the
rate of payroll deductions to zero for the remainder of the Offering Period. A
participant may increase or decrease the rate of payroll deductions for any
subsequent Offering Period by filing with Stock Administration a new
authorization for payroll deductions not later than the last day of the month
before the beginning of such Offering Period. A participant who has decreased
the rate of withholding to zero will be deemed to have withdrawn from the Plan
effective at the beginning of the Offering Period after the one in which the
rate of withholding was reduced to zero and must file a new authorization for
payroll deductions not later than the last day of the month before the beginning
of the next Offering Period in which the participant wishes to participate.
(c) All payroll deductions made for a participant are credited to his
or her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(d) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted to Stock Administration a signed
and completed withdrawal form before that date which notifies the Company that
the participant wishes to withdraw from that Offering Period under this Plan and
have all payroll deductions accumulated in the account maintained on behalf of
the participant as of that date returned to the participant, the Company shall
apply the funds then in the participant's account to the purchase of whole
shares of Common Stock reserved under the option granted to such participant
with respect to the Offering Period to the extent that such option is
exercisable on the Purchase Date. The purchase price per share shall be as
specified in Section 8 of this Plan. Any cash remaining in a participant's
account after such purchase of shares shall be refunded to such participant in
cash, without interest. In the event that this Plan has been oversubscribed,
all funds not used to purchase shares on the Purchase Date shall be returned to
the participant, without interest. No Common Stock shall be purchased on a
Purchase Date on behalf of any employee whose participation in this Plan has
terminated prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the Company
shall arrange the delivery to each participant of a certificate representing the
shares purchased upon exercise of his option.
(f) During a participant's lifetime, such participant's option to
purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until such option has been exercised. Shares to be delivered to a participant
under this Plan will be registered in the name of the participant or in the name
of the participant and his or her spouse or in the name of any stock brokerage
or other
-3-
<PAGE>
firm with whom the Company has established an account for the participant for
the automatical deposit of shares purchased under this Plan.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No employee shall be entitled to purchase stock under this Plan
at a rate which, when aggregated with his or her rights to purchase stock under
all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No employee shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Not less than
thirty (30) days prior to the commencement of any Offering Period, the Board
may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date, which until changed by
the Board shall be 500 Shares of Common Stock (hereinafter the "MAXIMUM SHARE
AMOUNT"). In no event shall the Maximum Share Amount exceed the amounts
permitted under Section 10(b) above. If a new Maximum Share Amount is set, then
all participants must be notified of such Maximum Share Amount not less than
fifteen (15) days prior to the commencement of the next Offering Period. Once
the Maximum Share Amount is set, it shall continue to apply with respect to all
succeeding Purchase Dates and Offering Periods unless revised by the Board as
set forth above.
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Board shall determine to be equitable. In such event,
the Company shall give written notice of such reduction of the number of shares
to be purchased under a participant's option to each participant affected
thereby.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to Stock Administration a written notice to that
effect on a form provided for such purpose. Such withdrawal may be elected at
any time at least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any subsequent Offering Period by filing a new authorization
for payroll deductions in the same manner as set forth above for initial
participation in this Plan.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee, immediately terminates his or her participation in
this Plan. In such event, the payroll deductions credited to the participant's
account will be returned to him or her or, in the case of his or her death, to
his or her legal representative, without interest. For purposes of this Section
12, an employee will not be deemed to have terminated employment or failed to
remain in the continuous employ of the Company in the case of sick leave,
military leave, or any other leave of absence approved by the Board; PROVIDED
that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
-4-
<PAGE>
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall promptly deliver to the participant all payroll deductions credited to
such participant's account. No interest shall accrue on the payroll deductions
of a participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "RESERVES"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; PROVIDED, HOWEVER, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration"; and PROVIDED FURTHER, that the price per
share of Common Stock shall not be reduced below its par value per share. Such
adjustment shall be made by the Board, whose determination shall be final,
binding and conclusive. Except as expressly provided herein, no issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that the options
under this Plan shall terminate as of a date fixed by the Board and give each
participant the right to exercise his or her option as to all of the optioned
stock, including shares which would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger or consolidation of the Company with or into another corporation,
each option under this Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the participant
shall have the right to exercise the option as to all of the optioned stock. If
the Board makes an option exercisable in lieu of assumption or substitution in
the event of a merger, consolidation or sale of assets, the Board shall notify
the participant that the option shall be fully exercisable for a period of
twenty (20) days from the date of such notice, and the option will terminate
upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, or
in the event of the Company being consolidated with or merged into any other
corporation; PROVIDED, that the price per share of Common Stock shall not be
reduced below its par value per share.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company if
the participant disposes of any of the shares purchased in any Offering Period
pursuant to this Plan if such disposition occurs within two (2) years from the
Offering Date or within one (1) year from the Purchase Date on which such shares
were purchased (the
-5-
<PAGE>
"NOTICE PERIOD"). The Company may require that, unless such participant is
disposing of any of such shares during the Notice Period, such participant shall
keep the certificates representing such shares in his or her name (and not in
the name of a nominee) during the Notice Period. The Company may, at any time
during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of
any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Subsidiary, or restrict the right of the Company or
any Subsidiary to terminate such employee's employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company or the Board, be
reformed to comply with the requirements of Section 423. This Section 19 shall
take precedence over all other provisions in this Plan.
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. This Amended and Restated Plan has been
approved and adopted by the Board. Any changes to the 1991 Employee Stock
Purchase Plan made as a result of this amendment and restatement, which
materially increase the benefits hereunder (including, without limitation, the
150,000 share increase in the Reserve adopted by the Board in November 1995,
will not be effective until approved by the stockholders of the Company, in any
manner permitted by applicable corporate law (including Rule 16b-3 of the rules
promulgated by the Securities and Exchange Commission pursuant to Section 16 of
the Exchange Act. This Plan shall continue until the earlier to occur of (a)
termination of this Plan by the Board (which termination may be effected by the
Board at any time), (b) issuance of all of the shares of Common Stock reserved
for issuance under this Plan, or (c) ten (10) years from the adoption of this
Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
this Plan in the event of such participant's death subsequent to the end of an
Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under this Plan who is living
at the time of such participant's death, the Company shall deliver such shares
or cash to the executor or administrator of the estate of the participant, or if
no such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange or automated quotation system upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance.
-6-
<PAGE>
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or the extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 hereof within twelve (12) months of the adoption of such amendment
(or earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan;
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan; or
(c) constitute an amendment for which stockholder approval is
required in order to comply with Rule 16b-3 (or any successor rule) of the
Exchange Act.
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<PAGE>
EXHIBIT 10.19
July 6, 1995
Dr. Gayn B. Winters
57 Madison Road
Wellesley, Massachusetts 02181
Dear Gayn,
I am very pleased to offer you the position of Vice President, Engineering and
Chief Technical Officer, reporting to me. Your office will be in our Southern
California development center in Irvine. Your employment with Phoenix should
commence as soon as possible; our current understanding is that your start date
will be August 7, 1995. This letter will confirm the employment terms that we
have discussed over the last several days.
1. CASH COMPENSATION
Your base salary will be $160,000 per annum. You will be eligible to receive an
incentive bonus of $35,000 per annum, upon achievement of goals. These goals
will be in part set by you and me, but will also include Phoenix performance
factors, all in conformance with guidelines established for executive management
by Phoenix's Board of Directors and its Compensation Committee. However, for
the first twelve months of your employment, Phoenix will guarantee the full
incentive compensation on a quarterly basis.
In addition, you will be given a special bonus on each of the first through
fifth anniversaries of the date of the relocation loan referred to in item 3.B
below. The amount of each bonus will be the same as the principal payment due
from you on that anniversary date under the relocation loan. Each such bonus
will be payable only if you are an employee of Phoenix on the applicable
anniversary date. Phoenix will have the right to apply such bonus against any
amounts due under the relocation loan.
2. STOCK OPTIONS
You will be recommended to the Compensation Committee of the Board for a grant
of options to purchase 75,000 shares of Phoenix common stock. The exercise
price will be the price of Phoenix stock on the date you first become an
employee of the Company. The options will vest as follows:
A. Options covering 50,000 shares will vest 25% on the first anniversary of
your employment with the Company and the balance will vest in 12 equal
installments each three months thereafter;
<PAGE>
B. Options covering the other 25,000 shares will vest on the seventh
anniversary of your employment with the Company, but may vest earlier as
follows:
i. If certain performance criteria to be agreed upon for your first year
of employment are achieved, options covering 10,000 shares will vest in 16 equal
installments every three months, with the first installment vesting three months
after the first anniversary of your employment;
ii. If certain performance criteria to be agreed upon for your second year
of employment are achieved, options covering 10,000 shares will vest in 16 equal
installments every three months, with the first installment vesting three months
after the second anniversary of your employment;
iii. If certain performance criteria to be agreed upon for your third year
of employment are achieved, options covering 5,000 shares will vest in 16 equal
installments every three months, with the first installment vesting three months
after the third anniversary of your employment.
If the performance criteria are either not agreed on or not met for any
particular year of employment, then the options covering the shares for that
year of employment will not vest until the seventh anniversary of your
employment start date.
3. RELOCATION ASSISTANCE
In an effort to ease the relocation costs and the cost of living differential
between Southern California and Massachusetts, Phoenix will provide the
following relocation assistance:
A. Phoenix will reimburse you for the reasonable cost of moving your household
goods, which includes one sailboat, to Southern California and for the
reasonable real estate commissions due upon the sale of your home in Wellesley,
provided such sale occurs while you are a Phoenix employee. Phoenix will pay
for the cost of up to two househunting trips to the Southern California area by
you and your companion. The Company will also provide a temporary living
allowance for a period not to exceed 120 days if your new residence in Southern
California is unavailable for immediate occupancy. All travel and moving
arrangements will be made through Phoenix; we have an arrangement with an
excellent nationwide moving company which will help control costs. You, of
course, will exercise great care to minimize the relocation costs for which
Phoenix has agreed to reimburse, which would include negotiating the real estate
commissions with your agent. Your relocation activity should be coordinated
with Kathy Newman.
<PAGE>
B. In addition, Phoenix will loan you $200,000 effective on your first day of
employment with the Company. The loan will be evidenced by a promissory note
acceptable to you and Phoenix. The loan will be secured by a mortgage on your
Wellesley home until it is sold and then on your California home and/or on such
other property as you and Phoenix may agree. Unless otherwise agreed to by you,
Phoenix will not record any mortgage with respect to your Wellesley home. The
mortgages will be subordinated to any mortgages to your primary mortgagors on
your Wellesley or California residences. Repayment to Phoenix will be made in
five equal annual installments of $40,000 on each of the first five
anniversaries of your employment start date. If you resign voluntarily from
Phoenix, or if your employment with Phoenix is terminated for cause, you will be
required to repay the then remaining principal balance in full within 30 days of
your employment termination.
4. TERMINATION
Your employment with Phoenix is "at-will". This letter is not intended to
create any promise of continued employment with Phoenix. If, however, your
employment with the Company is terminated other than for cause or other than
voluntarily, Phoenix will provide you with continuation of your then current
monthly base salary until the earlier to occur of the date you secure other
similar level full-time employment or the first anniversary of your employment
termination date. You agree that you will actively and vigorously seek new
employment in the event of any such termination of employment with Phoenix. For
purposes of this agreement termination which is for cause means termination for
reasons of (i) any violation of the Company's policies regarding creation of an
offensive workplace or sexual harassment, (ii) commission of a felony, (iii)
commission of an act of fraud or deceit in the performance of duties on behalf
of the Company or any affiliate of the Company, (iv) violation of federal or
state securities laws with respect to the Company's securities, (v) violation of
the Employee Invention Assignment and Proprietary Agreement signed as
contemplated below or (vi) the continuing failure to perform assigned duties
(other than failure due to mental or physical incapacity) after written notice
thereof.
5. MISCELLANEOUS
You will also be eligible to participate in our employee benefit programs
including medical, dental, life, and short and long term disability insurance.
You will be eligible to participate in our 401(k) program after six months of
employment and in our employee stock purchase plan.
Upon your employment, you will be asked to sign a standard Employee Invention
Assignment and Proprietary Agreement agreeing to hold in confidence any
proprietary information received as an employee of the Company and to assign to
the Company any inventions that you make while employed by the Company. We wish
to impress upon you that we do not wish to bring with you any confidential or
proprietary material of any former employer or to violate any other obligation
to your former employers. If you
<PAGE>
would like clarification regarding this policy, please contact Scott Neely, Vice
President and General Counsel at (408) 452-6571.
Gayn, I am truly looking forward to working with you. I think that we can make
Phoenix enormously successful and an exciting place to work. If I have captured
all of the points that we discussed and if you agree with the terms of this
letter, please sign and return a copy of it to me.
This offer will expire on July 16, 1995 at 6:00 p.m. (PDT) unless your written
acceptance is received by Phoenix by that time.
Best regards,
/s/ Jack Kay
Jack Kay
President and COO
Acknowledgment:
I accept this offer of employment stated in this letter and expect to commence
employment on or before August 7, 1995
By: /s/ Gayn B. Winters Date: July 7, 1995
------------------- ------------
Gayn B. Winters
<PAGE>
EXHIBIT 10.20
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of January 25, 1995
by and between Phoenix Technologies, Ltd. (the "Borrower") whose address is
846 University Avenue, Norwood, MA 02062 and Silicon Valley Bank, a
California-chartered bank ("Bank"), with its principal place of business at
3000 Lakeside Drive, Santa Clara, CA 95054 and with a loan production office
located at Wellesley Office Park, 45 William Street, Suite 170, Wellesley, MA
02181, doing business under the name "Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
be owing by borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Second Amended and Restated Promissory Note, dated
December 30, 1993, in the original principal amount of Ten Million and No/100
Dollars ($10,000,000.00) (the "Note"). The Note, together with other
promissory notes from Borrower to Bank, is governed by the terms of a
Commitment Letter dated November 29, 1991, as amended pursuant to Letters
Amendments dated April 15, 1993, June 28, 1993 and December 30, 1993, between
Borrower and Bank, as such agreement may be further amended from time to time
(together with all schedules and attachments thereto, the "Loan Agreement").
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to
as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES: Repayment of the Indebtedness
is secured by a Security Agreement, dated November 25, 1991 (the "Security
Agreement"). Additionally, repayment of the indebtedness is guaranteed by
the each of the guarantors named below pursuant to a Guaranty dated as of
June 28, 1993 (the "Guaranty").
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing payment of the Note (and other notes
executed by Borrower in favor of Bank) shall be referred to as the "Security
Documents." Hereinafter, the Security Documents, together with all other
documents evidencing or securing the Indebtedness shall be referred to as the
"Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO NOTE.
1. The Maturity Date (as defined in the Note) is hereby amended to
March 13, 1995. Accordingly, the total amount outstanding under
the Note, together with all accrued unpaid interest shall be
due and payable on March 13, 1995.
B. MODIFICATION(S) TO LOAN AGREEMENT.
1. Numbered paragraph 2 of the Loan Agreement is hereby amended in
full to read as follows: 2. Unless otherwise renewed in writing
by the Bank, the Commitment will expire on March 13, 1995 (the
"Expiry Date").
2. The Loan Agreement is hereby amended such that all accrued
unpaid interest under the Note shall be payable, in arrears, on
the 13th day of each month.
4. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor
signing below) agrees that, as of this date, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
1
<PAGE>
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness,
Bank is relying upon Borrower's representations, warranties, and agreements,
as set forth in the Existing Loan Documents. Except as expressly modified
pursuant to this Loan Modification Agreement, the terms of the Existing Loan
Documents remain unchanged and in full force and effect. Bank's agreement to
modifications to the existing indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Bank to make any future modifications to
the Indebtedness. Nothing in this Loan Modification Agreement shall constitute
a satisfaction of the Indebtedness. It is the intention of Bank and Borrower
to retain as liable parties all makers and endorsers of Existing Loan
Documents, unless the party is expressly released by Bank in writing. No
maker, endorser, or guarantor will be released by virtue of this Loan
Modification Agreement. The terms of this Paragraph apply not only to this
Loan Modification Agreement, but also to all subsequent loan modification
agreements.
7. JURISDICTION/VENUE. Borrower accepts for itself and in connection with
its properties, unconditionally, the non-exclusive jurisdiction of any state
or federal court of competent jurisdiction in the Commonwealth of
Massachusetts in any action, suit, or proceeding of any kind against it which
arises out of or by reason of this Loan Modification Agreement; provided,
however, that if for any reason Bank cannot avail itself of the courts of the
Commonwealth of Massachusetts, then venue shall lie in Santa Clara County,
California.
8. COUNTERSIGNATURE. This Loan Modification Agreement shall become
effective only when it shall have been executed by Borrower and Bank
(provided, however, in no event shall this Loan Modification Agreement become
effective until signed by an officer of Bank in California).
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
PHOENIX TECHNOLOGIES, LTD, SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ Rober R. Langer By: /s/ James A. Maynard
---------------------------- ----------------------------
Name: Robert R. Langer Name: James A. Maynard
-------------------------- --------------------------
VP FINANCE & C.F.O ASSISTANT VICE PRESIDENT
Title: ------------------------- Title: -------------------------
SILICON VALLY BANK
By: ----------------------------
Name: --------------------------
Title: -------------------------
(Signed at San Jose, California)
2
<PAGE>
Each of the undersigned consents to the modifications to the Indebtedness
pursuant to this Loan Modification Agreement, hereby ratifies the provisions
of the Guaranty and confirms that all provisions of that document are in
full force and effect.
GUARANTOR:
PHOENIX PERIPHERAL SYSTEMS, INC.,
a Delaware corporation
By: /s/ Robert R. Langer
----------------------------
ROBERT R. LANGER
Name: --------------------------
V.P. FINANCE & C.F.O.
Title: -------------------------
PHOENIX COMPUTER PRODUCTS, INC.,
a Washington corporation
By: /s/ Robert R. Langer
----------------------------
ROBERT R. LANGER
Name: --------------------------
V.P. FINANCE & C.F.O.
Title: -------------------------
PHOENIX SECURITIES CORPORATION,
a Massachusetts corporation
By: /s/ Robert R. Langer
----------------------------
ROBERT R. LANGER
Name: --------------------------
V.P. FINANCE & C.F.O.
Title: -------------------------
QUADTEL CORPORATION,
A California corporation
By: /s/ Robert R. Langer
----------------------------
ROBERT R. LANGER
Name: --------------------------
V.P. FINANCE & C.F.O.
Title: -------------------------
PHOENIX TECHNOLOGIES (TAIWAN), LTD.,
A Delaware corporation
By: /s/ Robert R. Langer
----------------------------
ROBERT R. LANGER
Name: --------------------------
V.P. FINANCE & C.F.O.
Title: -------------------------
3
<PAGE>
EXHIBIT 10.21
Dated as of June 8, 1995
Phoenix Technologies Ltd.
2770 De La Cruz Boulevard
Santa Clara, California 95050-2624
Attention: Robert J. Riopel
Chief Financial Officer
Re: Third Amendment to the Commitment Letter dated as of November 25, 1991
by Silicon Valley Bank to Phoenix Technologies Ltd., as previously
amended as of April 15, 1993, June 28, 1993 and December 30, 1993 and
as modified as of January 25, 1995 and March 9, 1995
Gentlemen:
Silicon Valley Bank (the "Bank") is pleased to inform you that it has, at
your request, approved the extension of the Expiry Date of its Commitment under
the captioned Commitment Letter (with attached schedules, collectively the
"Commitment Letter") from June 12, 1995 to January 26, 1996. Unless otherwise
defined herein, capitalized terms used herein shall have the same respective
meanings as set forth in the Commitment Letter.
The purpose of this letter is to evidence your agreement that, effective on
the Effective Date (as defined below), and notwithstanding anything to the
contrary in the Commitment Letter, (a) the "Expiry Date" of the Commitment is
January 26, 1996, and (b) the Commitment Letter is amended in the additional
respects set forth on Annex I hereto (which is incorporated in this letter
amendment by reference).
This letter amendment shall become effective as of June 8, 1995 (the
"Effective Date"), provided that the Bank shall have received the following on
or before June 12, 1995 and provided further that this amendment shall not
become effective until executed by an officer of the Bank in California:
(i) two copies of this letter, duly executed by you, with the
attached consent duly executed by an authorized officer of Phoenix
Technologies (Taiwan) Ltd.;
(ii) an amended and restated promissory note in the form enclosed
herewith (the "Amended Note"), duly executed by you;
<PAGE>
-2-
(iii) two copies of an amendment to the Subsidiary Guaranty dated as
of June 28, 1993 by the Subsidiary Guarantors in favor of the Bank, duly
executed by the Subsidiary Guarantors, in the form enclosed herewith;
(iv) two copies of an amendment to the Subsidiary Guarantor
Security Agreement dated as of June 28, 1993 between the Subsidiary
Guarantors and the Bank, duly executed by the Subsidiary Guarantors, in the
form enclosed herewith;
(v) updated Perfection Certificates with respect to the Borrower
and Phoenix Technologies (Taiwan) Ltd.;
(vi) any UCC search reports and UCC financing statements required
by the Bank as a result of the information set forth in the updated
Perfection Certificates;
(vii) evidence of the approval by your Board of Directors of this
letter amendment and the Amended Note and
(viii) the items required by the Bank as a condition to the
effectiveness of that certain Second Amendment to Loan Agreement dated as
of January 27, 1995 between the Bank and Phoenix Technologies, K.K.
By your signature below, you are hereby representing that your
representations set forth in the Loan Documents (including those contained in
the Commitment Letter, as amended by this letter amendment) are true and correct
as of the date hereof as if made on and as of the date hereof. In order to
induce the Bank to enter into this Letter Amendment, you are hereby further
representing by your signature below that Phoenix Technologies (Taiwan) Ltd. and
Phoenix Technologies, K.K. are your only active Subsidiaries and that all of
your inactive Subsidiaries will be dissolved or merged into you no later than
December 31, 1995. In addition, you confirm your prior authorization as to the
debiting of your account with the Bank in the amount of $25,000 in order to pay
the Bank's facility fee for the period up to and including the extended Expiry
Date. Finally, you (and the guarantor signing below) agrees that, as of this
date, it has no defenses against its obligations to pay any amounts under the
Commitment Letter and the other Loan Documents.
Upon the effectiveness hereof, each reference in each Security Instrument
or other Loan Document to "the Commitment Letter", "thereunder", "thereof",
"therein", or words of like import referring to the Commitment Letter, shall
mean and be a reference to the Commitment Letter, as amended hereby. Except as
specifically set forth above, the Commitment Letter shall remain in full force
and effect and is hereby ratified and confirmed. Each of the other Loan
Documents is in full force and effect and is hereby ratified and confirmed. The
amendments set forth above (a) do not constitute a waiver or modification of any
term,
<PAGE>
-3-
condition or covenant of the Commitment Letter or any other Loan Document, other
than as expressly set forth herein, and (b) shall not prejudice any rights which
the Bank may now or hereafter have under or in connection with the Commitment
Letter, as modified hereby, or the other Loan Documents.
You agree to pay on demand all reasonable costs and expenses of the Bank in
connection with the preparation, reproduction, execution and delivery of this
letter amendment and the other instruments and documents to be delivered
hereunder, including the reasonable fees and out-of-pocket expenses of Sullivan
& Worcester, special counsel for the Bank with respect thereto.
This letter amendment may be signed in one or more counterparts each of
which taken together shall constitute one and the same instrument.
THIS LETTER AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
We are delighted to renew our relationship with Phoenix Technologies Ltd.
If you are in agreement with the foregoing, please sign and return the enclosed
copy of this letter amendment no later than June 12, 1995.
Sincerely,
SILICON VALLEY EAST, a Division
of Silicon Valley Bank
By:
---------------------------
Name:
Title:
SILICON VALLEY BANK
By: /s/ Jim Bain
----------------------------
Name: Jim Bain
Title: Vice President
(Signed in Santa Clara,
California)
<PAGE>
-4-
The undersigned has reviewed and
accepts and agrees to the terms
of the foregoing (including the
attached Annex I):
PHOENIX TECHNOLOGIES LTD.
By: /s/ Robert J. Riopel
-------------------------
Name: Robert J. Riopel
-----------------------
Title: VP, Finance & CFO
----------------------
Date: 6-9-95
-----------------------
<PAGE>
ANNEX I TO LETTER AMENDMENT
The Commitment Letter is, effective as of the Effective Date, hereby
amended as follows:
(i) Numbered paragraph 2 of the Commitment Letter is hereby
amended in full to read as follows:
"2. Unless otherwise renewed in writing by the Bank, the
Commitment will expire on January 26, 1996 (the 'Expiry Date')."
(ii) Numbered Paragraph 8 of the Commitment Letter is hereby
restated in its entirety as follows:
"8. The Borrower may use up to the full amount of the
Commitment for Letters of Credit to be issued by the Bank, provided that in each
case (a) the Borrower executes and delivers a letter of credit application and
reimbursement agreement satisfactory to the Bank and complies with any
conditions to the issuance of such Letter of Credit (including payment of any
applicable fees); (b) the Bank has approved the form of such Letter of Credit
and the purpose of its issuance which approval shall not be unreasonably
withheld or delayed; (c) such Letter of Credit bears an expiration date not
later than 45 days prior to the Commitment Expiration Date; and (d) the
conditions set forth in Paragraph 9 shall have been satisfied as of the date of
the issuance of the Letter of Credit."
(iii) Paragraph 15 of Schedule I to the Commitment Letter is hereby
amended in full to read as follows:
"15. INTELLECTUAL PROPERTY. Except as set forth in Exhibit
A, the Borrower or a Subsidiary thereof is the absolute owner of all right,
title and interest in the copyrights, patents, trademarks and similar rights
("INTELLECTUAL PROPERTY") owned by the Borrower and its Subsidiaries, free and
clear of all Liens in favor of other Persons with full right to pledge, sell,
assign, transfer and grant a security interest therein. The Borrower and each
of its Subsidiaries owns or possesses such Intellectual Property and similar
rights necessary for the conduct of its business as now conducted, without any
known conflict with the rights of others, which would materially adversely
affect the operations, business, prospects, property or assets of, or the
condition (financial or otherwise) of the Borrower or any Subsidiary thereof."
(iv) The text of Paragraph 4(a) of Schedule II to the Commitment
Letter is hereby deleted and there is hereby
<PAGE>
-2-
inserted in place thereof the following: "Not Utilized."
(v) The words "at the time of the delivery of the monthly,
quarterly and yearly financial statements required by Paragraphs 4(a), (b)
and (c) above" appearing in the first three lines of Paragraph 4(d) of
Schedule II to the Commitment Letter are hereby deleted and there is hereby
inserted in place thereof the following: "within twenty-five days after
the end of each fiscal quarter of the Borrower and at the time of the
delivery of the yearly financial statements required by Paragraph 4(c)
above".
(vi) Paragraph 4 of Schedule II of the Commitment Letter is hereby
amended by amending subparagraph (e) thereof in full to read as follows:
"(e) within twenty-five (25) days after the end of each
fiscal month of the Borrower during which there are advances or
letters of credit outstanding under the Commitment or under the Loan
Agreement dated as of June 28, 1992 between Phoenix Technologies, K.K.
and the Bank, (i) a list of the accounts receivable aging for the
Borrower as of the end of such month in such form as the Bank may
prescribe, all in reasonable detail, and (ii) a Borrowing Base
Certificate in the form attached to this Schedule II as EXHIBIT B
setting forth the Borrowing Base, both of which shall be certified by
the chief financial officer or the president of the Borrower, subject
to usual and customary year-end audit adjustments;"
(vii) Paragraph 9 of Schedule II of the Commitment Letter is hereby
amended in full to read as follows:
"9. INSPECTION. The Borrower will, upon the request of the
Bank, permit a representative of the Bank (including, without
limitation, any field examiner or auditor retained by the Bank) to
inspect and make copies of the Borrower's books and records
(including, without limitation, its accounts receivable records) and
to discuss its affairs, finances and accounts with its officers and
accountants, all at such reasonable times and as often as the Bank may
reasonably request and, in each case, cause each of its Subsidiaries
to do so; provided, however, that so long as no Default has occurred
and is continuing the Bank shall not request such an inspection more
than twice in any fiscal year of the Borrower."
(viii) Paragraphs 22 through 25 of Schedule II to the Commitment
Letter are hereby restated in their entirety as follows:
"22. LEVERAGE. Commencing with the fiscal quarter ending
March 31, 1995, the Borrower will not
<PAGE>
-3-
permit the ratio of Total Senior Liabilities to Tangible Net Worth to
exceed .9 to 1 at the end of any fiscal quarter.
23. QUICK RATIO. Commencing with the fiscal quarter ending
March 31, 1995, the Borrower will not permit its Quick Ratio to exceed
1.75 to 1 at the end of any fiscal quarter.
24. MINIMUM TANGIBLE NET WORTH. Commencing with the fiscal
quarter ending March 31, 1995, the Borrower will not permit its
Tangible Net Worth to be less than $30,000,000 at the end of any
fiscal quarter.
25. MINIMUM PROFITABILITY. Commencing with the fiscal
quarter ending March 31, 1995, the Borrower will not permit Net Income
in any fiscal quarter to be less than $1, provided that the Borrower
may in any one fiscal quarter during a single fiscal year incur Net
Losses not in excess of $500,000, provided further that in no event
shall the Borrower incur Net Losses in more than one fiscal quarter in
any single fiscal year."
(ix) Schedule II to the Commitment Letter is further amended by
amending Exhibits A and B thereto in full to read as set forth in Exhibits
B and C hereto, respectively.
(x) Schedule III to the Commitment letter is hereby amended by
amending the definition of "Loan Documents" to read as follows:
"LOAN DOCUMENTS" means, collectively, the Commitment Letter,
the Note, the BBCs, the Security Agreement, the Financing Statements,
the Yen Loan Agreement (as each of such terms is defined in the
Commitment Letter), the Guaranty dated as of June 28, 1993 by the
Borrower to the Bank in respect of the Yen Loan, the Guaranty dated as
of June 28, 1993 and amended as of January 27, 1995 by the Subsidiary
Guarantor to the Bank, the Security Agreement dated June 28, 1993 and
amended as of January 27, 1995 by the Subsidiary Guarantor to the
Bank, and all other agreements and instruments that are from time to
time executed in connection with this Commitment Letter or the Yen
Loan, as the same may be amended, amended and restated, modified or
supplemented from time to time.
(xi) Schedule III to the Commitment Letter is hereby further
amended by deleting the definition of "Subsidiary Guarantors".
(xii) Schedule III to the Commitment Letter is hereby further
amended by adding to the list of definitions set forth therein the
following new definitions:
<PAGE>
-4-
"CURRENT LIABILITIES" means, at any time, all liabilities of
the Borrower and its Subsidiaries at such time, on a consolidated
basis, that would be classified as current liabilities in accordance
with GAAP, including, without limitation, all Indebtedness of the
Borrower and its Subsidiaries payable on demand or maturing within one
year of such time, or renewable at the option of the Borrower or such
Subsidiary for a period of not more than one year from such time, and
all serial maturity and periodic or installment payments on any
Indebtedness, to the extent such payments are required to be made
within one year from such time. Current Liabilities shall in any
event include all liabilities of the Borrower and its Subsidiaries in
respect of the Commitment.
"QUICK RATIO" means, at any time, all cash and accounts
receivable, less reserves for doubtful accounts, of the Borrower and
its Subsidiaries at such time, on a consolidated basis, determined in
accordance with GAAP, divided by the aggregate of all Current
Liabilities at such time.
"SUBSIDIARY GUARANTOR" means Phoenix Technologies (Taiwan)
Ltd., a Delaware Corporation.
<PAGE>
EXHIBIT A TO ANNEX I TO LETTER AMENDMENT
EXHIBIT A TO SCHEDULE I TO COMMITMENT LETTER
SUPPLEMENTAL DISCLOSURE
[Set forth any supplemental disclosure or qualifications to the disclosure set
forth in Exhibit A to Schedule I of the original Commitment Letter. If none,
state "None."
None.
<PAGE>
EXHIBIT B TO ANNEX I TO LETTER AMENDMENT
EXHIBIT A TO SCHEDULE II TO COMMITMENT LETTER
<PAGE>
Exhibit A to
Schedule II
------------
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3000 Lakeside Drive
Santa Clara, California 95054
The undersigned authorized officer of Phoenix Technologies, Ltd. (the
"Borrower"), hereby certifies, with respect to the Commitment Letter dated as
of November 25, 1991 from Silicon Valley Bank (the "Bank") to the Borrower,
as amended through the date hereof (the "Commitment Letter"), that (a) the
Borrower has been in complete compliance for the period from __/__/____ to
__/__/____ (the "Applicable Financial Statements Date") with the covenants of
the Borrower contained therein, as demonstrated below, and (b) no Default has
occurred and is continuing as of the date hereof, except, in either case, as
noted below. All capitalized terms used herein and not otherwise defined
shall have the meanings prescribed therefor in the Commitment Letter.
COVENANT REQUIRED ACTUAL AS
OF ____________
Financial Statements Quarterly w/in 45 days
Annually w/in 90 days
All documents filed Within 15 days after
with SEC filing
Minimum 1.75:1 at the end of any _._:1
Quick Ratio fiscal quarter ($___________to
($___________)
Minimum Profitability Minimum Net Income of
$1 for each fiscal quarter,
except that in one fiscal
quarter in any single $____________
fiscal year the Borrower
may have Net Losses (not
to exceed $500,000 in
such quarter)
<PAGE>
- 2 -
Minimum $30,000,000 $_____________
Tangible Net Worth
Maximum Ratio of 0.9:1 at the end of any _._:1
Total Senior fiscal quarter ($____________ to
Liabilities to ($____________)
Tangible Net Worth
A/R Advance Rate 80% of Eligible
Accounts Receivable $___________
Comments Regarding Exceptions:
Attached hereto are financial statements as of and for the fiscal
[quarter] [year] ended on the Applicable Financial Statements Date, which
have been certified by the [undersigned] [Accountants] as required by
Paragraph 4[(b)] [(c)] of Schedule II to the Commitment Letter.
Submitted by:
PHOENIX TECHNOLOGIES LTD.
By: ________________________
Name: ______________________
Title: _____________________
Date: ______________________
Copy to: SILICON VALLEY EAST
Wellesley Office Park
45 William Street, Suite 170
Wellesley, MA 02181
<PAGE>
Exhibit B to
Schedule II
------------
BORROWING BASE CERTIFICATE
The undersigned is an authorized officer of Phoenix Technologies, Ltd.
(the "Borrower"), and is delivering this certificate pursuant to the
requirements of the Commitment Letter dated as of November 15, 1991 from
Silicon Valley Bank (the "Bank") to the Borrower, as amended through the date
hereof (the "Commitment Letter").
The undersigned hereby certifies to the Bank that the following is a
fair, accurate and complete report of the Borrowing Base (as such term is
defined in the Commitment Letter) of the Borrower as of _______________, 199_
(the "Relevant Date"):
I. ACCOUNTS RECEIVABLE ACTIVITY
Eligible Accounts Receivable:
1. Balance as of the Relevant Date $_________
2. Minus: Ineligible Accounts
Foreign Accounts ______
Accounts over 90 days due ______
Balance of 50% over 90 days accounts ______
Excess 25% concentration ______
Contra Accounts ______
Intercompany/Employee Accounts ______
Government Accounts ______
Other Ineligible Accounts ______
Total Ineligible Accounts $_________
3. Total Eligible
Accounts Receivable (Line (1)
minus Line (2)) $_________
4. Funds Available (__% of Line (3)) $_________
II. LOAN ACTIVITY
A. Total Funds Available:
(Limited to the lesser of $10,000,000
<PAGE>
- 2 -
or the amount set
forth in I.4) $_______
B. Loan
Balance as of the Relevant Date $_________
C. Reserve Position (II.A minus II.B) $_________
Accompanying this certificate is a fair, accurate and complete report of
accounts receivable aging for the Borrower as of the Relevant Date, in
reasonable detail.
The above listed collateral is subject to a security interest in favor
of the Bank pursuant to the terms of a Security Agreement(s) executed by the
Borrower to the Bank.
Submitted By:
PHOENIX TECHNOLOGIES LTD.
By: ________________________
Name: ______________________
Title: _____________________
Date: ______________________
<PAGE>
EXHIBIT C TO ANNEX I TO LETTER AMENDMENT
EXHIBIT B TO SCHEDULE II TO COMMITMENT LETTER
<PAGE>
CONSENT
The undersigned, as a Guarantor under the Subsidiary Guarantee dated as
of November 25, 1991, as amended as of January 27, 1995 (as so amended, the
"Subsidiary Guaranty") in favor of Silicon Valley Bank, hereby consents to
the foregoing letter amendment, the Amended Note referred to therein and that
certain Second Amendment to Loan Agreement between the Bank and Phoenix
Technologies, K.K. dated as of January 27, 1995 (collectively, the
"Amendatory Documents") and hereby confirms and agrees that the Subsidiary
Guaranty is, and shall continue to be, in full force and effect and is hereby
ratified and confirmed in all respects, except that, upon the effectiveness
of, and on and after the date of, said letter amendment, each reference in
the Subsidiary Guaranty and in each other Loan Document (as defined in the
Commitment Letter) to which the undersigned is a party, including, without
limitation, the Subsidiary Guaranty Security Agreement dated as of June 28,
1993, as amended as of January 27, 1995, (a) to "the Commitment Letter",
"thereunder", "thereof", "therein", or words of like import referring to the
Commitment Letter, shall mean and be a reference to the Commitment Letter, as
amended by the Amendatory Documents; (b) each reference in the Subsidiary
Guaranty and in each such other Loan Document to "the Note", "thereof",
"therein", "thereunder", or words of like import referring to the Promissory
Note dated November 25, 1991, shall mean and be a reference to such
Promissory Note, as amended and restated by the Amended Note; and (c) each
reference to the Loan Agreement between Phoenix Technologies, K.K. and the
Bank dated as of June 28, 1993, "thereunder," "thereof," "therein,"
"thereunder," or words of like import shall mean and be a reference to such
Loan Agreement as amended by the Amendatory Documents.
PHOENIX TECHNOLOGIES (TAIWAN) LTD.
By: /s/ Scott C. Meely
-------------------------------
Name: Scott C. Meely
Title: Secretary
<PAGE>
EXHIBIT 10.22
Dated as of June 30, 1995
Phoenix Technologies Ltd.
Phoenix Technologies, K.K.
Phoenix Technologies (Taiwan) Ltd.
2770 De La Cruz Boulevard
Santa Clara, California 95050-2624
Attention: Robert J. Riopel
Chief Financial Officer
Re: Commitment Letter dated as of November 25, 1991 by Silicon Valley Bank to
Phoenix Technologies Ltd., as previously amended as of April 15, 1993,
June 28, 1993 and December 30, 1993 and as modified as of January 25,
1995 and March 9, 1995 and as further amended as of June 8, 1995
Gentlemen:
Silicon Valley Bank (the "Bank") is pleased to inform you that it has, at
your request, approved the change of the facility under the captioned
Commitment Letter (with attached schedules, collectively the "Commitment
Letter") from an accounts receivable formula line of credit to an unsecured
line of credit. Unless otherwise defined herein, capitalized terms used
herein shall have the same respective meanings as set forth in the Commitment
Letter.
The purpose of this letter is to evidence your agreement that, effective
on the Effective Date (as defined below), and notwithstanding anything to the
contrary in the Loan Documents, the Loan Documents are amended in the
respects set forth on Annex I hereto (which is incorporated in this letter
amendment by reference).
This letter amendment shall become effective as of June 30, 1995 (the
"Effective Date"), provided that the Bank shall have received the following
on or before September 15, 1995:
(i) two copies of this letter, duly executed by each of you; and
(ii) evidence of the approval by your respective Boards of Directors of
this letter amendment.
<PAGE>
-2-
By your signatures below, each of you is hereby representing that your
representations set forth in the Loan Documents are true and correct as of
the date hereof as if made on and as of the date hereof. In addition, each
of you agrees that, as of this date, you have no defenses against your
obligations to pay any amounts under the Loan Documents to which you are a
party.
Upon the effectiveness hereof, each reference in each Loan Document to the
Commitment Letter, the Note or the other Loan Documents, "thereunder",
"thereof", "therein", or words of like import referring to any of the Loan
Documents, shall mean and be a reference to such Loan Document as amended
hereby. Except as specifically set forth above, each of the Loan Documents
shall remain in full force and effect and is hereby ratified and confirmed.
The amendments set forth above (a) do not constitute a waiver or modification
of any term, condition or covenant of the Commitment Letter or any other Loan
Document, other than as expressly set forth herein, and (b) shall not
prejudice any rights which the Bank may now or hereafter have under or in
connection with the Commitment Letter, as modified hereby, or the other Loan
Documents, as modified hereby.
Without limiting the generality of the foregoing, by its signature below,
Phoenix Technologies (Taiwan) Ltd. hereby consents, as the Guarantor under
the Subsidiary Guarantee dated as of November 25, 1991, as amended as of
January 27, 1995 (as so amended, the "Subsidiary Guaranty") in favor of the
Bank, to this letter amendment and hereby confirms and agrees that, except as
specifically set forth above, the Subsidiary Guaranty is, and shall continue
to be, in full force and effect and is hereby ratified and confirmed.
Without limiting the generality of the foregoing, by its signature below,
Phoenix Technologies Ltd. hereby consents, in its capacity as the Guarantor
under the Parent Guarantee dated as of June 28, 1993 (the "Parent Guaranty")
in favor of the Bank, to this letter amendment and hereby confirms and agrees
that, except as specifically set forth above, the Parent Guaranty is, and
shall continue to be, in full force and effect and is hereby ratified and
confirmed.
You jointly and severally agree to pay on demand all reasonable costs and
expenses of the Bank in connection with the preparation, reproduction,
execution and delivery of this letter amendment and the other instruments and
documents to be delivered hereunder, including the reasonable fees and
out-of-pocket expenses of Sullivan & Worcester, special counsel for the Bank
with respect thereto.
As promptly as practicable after the effectiveness hereof, the Bank will
cause to be executed and filed termination statements on Form UCC-3 (or other
appropriate forms) evidencing the release of the Security Interests (as
defined in the Security Agreement and in the Security Agreement dated June
28, 1993 and amended as of January 27, 1995, between the Subsidiary Guarantor
and the Bank).
This letter amendment may be signed in one or more counterparts each of
which taken together shall constitute one and the same instrument.
THIS LETTER AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA.
<PAGE>
-3-
If you are in agreement with the foregoing, please sign and return the
enclosed copy of this letter amendment no later than September 15, 1995.
Sincerely,
SILICON VALLEY BANK
By: /s/ Jim Bain
-----------------------
Name: Jim Bain
Title: Vice President
Each of the undersigned has reviewed
and accepts and agrees to the terms
of the foregoing (including the
attached Annex I) this 12th day
of September, 1995:
PHOENIX TECHNOLOGIES LTD., as
Borrower under the Commitment Letter
and the Note and as Guarantor under
the Parent Guaranty
By: /s/ Robert J. Riopel
----------------------------
Name: Robert J. Riopel
Title: Vice President, Finance
Chief Financial Officer & Treasurer
PHOENIX TECHNOLOGIES, K.K., as
Borrower under the Yen Loan Agreement
By: /s/ Robert J. Riopel
-----------------------------
Name: Robert J. Riopel
Title: Director
PHOENIX TECHNOLOGIES (TAIWAN) LTD.,
as Guarantor under the Subsidiary Guaranty
By: /s/ Robert J. Riopel
------------------------------
Name: Robert J. Riopel
Title: CEO and CFO
<PAGE>
ANNEX I TO LETTER AMENDMENT
1. The Commitment Letter is, effective as of the Effective Date, hereby
amended as follows:
(a) Numbered paragraph 7 of the Commitment Letter is hereby amended in
full to read as follows:
7. The sum (the "AGGREGATE EXTENSIONS OF CREDIT") of (a) the
aggregate principal amount of all advances to the Borrower
outstanding on any Determination Date (as defined on Schedule III
attached hereto) under this line of credit, (b) one hundred twenty
percent (120%) of the Dollar Equivalent on such Determination Date
of the outstanding principal amount of the loan (the "YEN LOAN")
evidenced by the Term Loan Agreement dated as of June 28, 1993
between Phoenix Technologies, K.K., a Japanese corporation
("Phoenix Japan"), and the Bank, as the same may be amended,
amended and restated, modified or supplemented from time to time
(the "YEN LOAN AGREEMENT") and (c) Letter of Credit Usage (as
defined on Schedule III attached hereto) on such Determination
Date, shall not exceed the Commitment. If the Aggregate Extensions
of Credit exceed the Commitment on any Determination Date, the
Borrower shall, on the next Business Day,
FIRST, prepay such principal amount of the advances to the
Borrower hereunder (together with accrued interest thereon) as
shall be equal tosuch excess amount;
NEXT, if giving effect to the prepayment of all outstanding
advances to the Borrower hereunder Aggregate Extensions of
Credit still exceed the Commitment, the Borrower shall cause
to have Phoenix Japan prepay that portion of the principal
amount of the Yen Loan (together with accrued interest and
other amounts payable in connection with such prepayment
pursuant to Section 5.7(b) of the Yen Loan Agreement) as is
equal to the amount by which Aggregate Extensions of Credit
exceed the Commitment; and
FINALLY, if giving effect to the prepayments provided for
above, Aggregate Extensions of Credit still exceed the
Commitment, the borrower shall pledge to the Bank an amount in
cash equal to the amount by which the amount available to be
drawn under letters of credit issued for the account of the
Borrower pursuant to paragraph 8 hereof exceeds the
Commitment, which pledge shall be evidenced by a cash
collateral pledge agreement duly executed by the Borrower in
form and substance satisfactory to the Bank.
(b) Numbered paragraph 18 of the Commitment Letter is hereby amended in
full to read as follows:
<PAGE>
-2-
18. THIS COMMITMENT LETTER SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
(c) Schedule II to the Commitment Letter is hereby amended by deleting
Paragraph 4(e) thereof and inserting the following in its place:
(e) [Intentionally deleted.]
(d) Paragraph 26 of Schedule II to the Commitment Letter is hereby
amended in its entirety to read as follows:
26. ACCOUNTS AT THE BANK. The Borrower shall maintain its primary
operating accounts at the offices of the Bank, for so long as the
Borrower is reasonably satisfied with the level and quality of the
Bank's services with respect to such accounts. The Borrower expects
that such primary operating accounts (other than the payroll account)
will be established no later than September 30, 1995, it being
understood that the payroll account is subject to coordination with ADP.
(e) Schedule III to the Commitment Letter is hereby amended by amending
the definition of "Loan Documents" to read as follows:
"LOAN DOCUMENTS" means, collectively, the Commitment Letter, the
Note, the Yen Loan Agreement (as each of such terms is defined in the
Commitment Letter), the Guaranty dated as of June 28, 1993 by the
Borrower to the Bank in respect of the Yen Loan, the Guaranty dated as
of June 28, 1993 and amended as of January 27, 1995 by the Subsidiary
Guarantor to the Bank, and all other agreements and instruments that are
from time to time executed in connection with this Commitment Letter or
the Yen Loan, as the same may be amended, amended and restated, modified
or supplemented from time to time.
(f) Schedule III to the Commitment Letter is hereby further amended by
deleting the definition of "Eligible Accounts Receivable".
(g) Schedule III to the Commitment Letter is hereby further amended by
deleting paragraph (i) from the definition of "Event of Default".
2. Effective as of the Effective Date, the Parent Guaranty is hereby
amended as follows:
(a) The following new text is hereby added to the end of Paragraph 4 of
the Parent Guaranty:
The Guarantor waives any defense arising out of the absence, impairment or
loss of any right of reimbursement or subrogation or any other rights against
the
<PAGE>
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Borrower. The Guarantor acknowledges that, to the extent the Guarantor
has or may have certain rights of subrogation or reimbursement against the
Borrower, those rights may be impaired or destroyed if the Bank elects to
proceed against any real property security of the Borrower by non-judicial
foreclosure. That impairment or destruction could, under certain judicial
cases and based on equitable principles of estoppel, give rise to a
defense by the Guarantor against its obligations under this Guarantee.
The Guarantor waives that defense and any others arising from the Bank's
election to pursue non-judicial foreclosure. Without limiting the
generality of the foregoing, the Guarantor waives any and all benefits and
defenses under California Code of Civil Procedure sections 580a, 580b,
580d and 726, to the extent they are applicable.
(b) The following new text is hereby added to the end of Paragraph 6 of
the Parent Guaranty:
The Guarantor waives the benefits of California Civil Code sections
2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433.
(c) Clause (e) of Paragraph 9 of the Parent Guaranty is hereby amended in
full to read as follows:
(e) notice of any of the matters referred to in Paragraph 7 above;
3. Effective as of the Effective Date, the Subsidiary Guaranty is hereby
amended as follows:
(a) The following new text is hereby added to the end of PARAGRAPH 4 of
the Subsidiary Guaranty:
The Guarantor waives any defense arising out of the absence,
impairment or loss of any right of reimbursement or subrogation or any
other rights against the Borrower or Phoenix Japan. The Guarantor
acknowledges that, to the extent the Guarantor has or may have certain
rights of subrogation or reimbursement against the Borrower or Phoenix
Japan, those rights may be impaired or destroyed if the Bank elects to
proceed against any real property security of the Borrower or Phoenix
Japan by non-judicial foreclosure. That impairment or destruction
could, under certain judicial cases and based on equitable principles
of estoppel, give rise to a defense by the Guarantor against its
obligations under this Guarantee. The Guarantor waives that defense
and any others arising from the Bank's election to pursue non-judicial
foreclosure. Without limiting the generality of the foregoing, the
Guarantor waives any and all benefits and defenses under California
Code of Civil Procedure sections 580a, 580b, 580d and 726, to the
extent they are applicable.
(b) The following new text is hereby added to the end of Paragraph 6
of the Subsidiary Guaranty:
<PAGE>
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The Guarantor waives the benefits of California Civil Code sections 2809,
2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433.
4. Effective as of the Effective Date, the Security Agreement is hereby
terminated and deemed to be of no further force and effect, and the security
interest of the Bank thereunder is hereby released.
5. Effective as of the Effective Date, the Security Agreement dated June
28, 1993 and amended as of January 27, 1995 between the Subsidiary Guarantor
and the Bank (the "Subsidiary Guarantor Security Agreement") is hereby
terminated and deemed to be of no further force and effect, and the security
interest of the Bank thereunder is hereby released.
6. Effective as of the Effective Date, all references in the Loan
Documents to the Security Agreement, the Subsidiary Guarantor Security
Agreement or other terms relating to the Security Interests are hereby deemed
to be deleted.
7. Effective as of the Effective Date, each of the Loan Documents shall
be governed by and construed in accordance with the laws of the State of
California.
F:\RXC\SILI116\FOURAMEN.C3
<PAGE>
EXHIBIT 10.23
AMENDED AND RESTATED LEASE AGREEMENT
This Amended and Restated Lease Agreement made this 15th day of March, 1995,
by The Prudential Insurance Company of America, a New Jersey corporation,
authorized to do business in Massachusetts with an office at c/o Prudential
Real Estate Investors, Three Gateway Center, 13th Floor, 100 Mulberry Street,
Newark, New Jersey 07102-4077 (hereinafter called "Landlord") and Phoenix
Technologies Ltd., a Delaware corporation with an office at 846 University
Avenue, Norwood, Massachusetts 02081 (hereinafter called "Tenant").
WITNESSETH THAT
Landlord and Tenant previously entered into a lease dated June 29, 1989
(the "Original Lease") with respect to the Building commonly known as 846
University Avenue, Norwood, Massachusetts (the "Building"). Pursuant to a
letter agreement dated January 11, 1995 among Tenant, Maric, Inc. and others
(the "Preliminary Letter Agreement"), Tenant agreed to restructure the
Original Lease and to pay for the construction of tenant improvements in
those portions of the Building which Tenant was relinquishing. Landlord and
Tenant have agreed to amend and restate the Original Lease to effect the
restructuring contemplated by said letter agreement.
In consideration of the rent and covenants herein set forth and contained,
on the part of Tenant to be paid, performed and observed, Landlord does
hereby demise and lease unto Tenant approximately 17,638 rentable square feet
(RSF) on the first floor (hereinafter called the "Premises") per Exhibit "A"
in the Building containing 63,514 square feet located on a parcel of land
situated on University Avenue, containing approximately 4.612 acres of land
(the "Lot"), together with the right to use in common with Landlord and
others from time to time entitled thereto the common areas of the Building
(including without limitation lobbies, restrooms, elevators), all
appurtenances to the Building, the parking spaces and the Lot, including the
right to use in common the roads, driveways and utilities serving or adjacent
to the Building or the Lot (hereinafter collectively called the "Property").
The Premises are outlined on Exhibit "A" attached and made a part hereof. The
Building and Lot are outlined on Exhibit "A-1" attached and made a part hereof.
<PAGE>
ARTICLE I
TERM
1.1 To have and to hold the Premises for an original term beginning at
12:01 a.m. on the Term Commencement Date, and shall end at 12:00 midnight on
July 27, 1998.
1.2 The Term Commencement Date shall be the date hereof. The "Adjustment
Date" shall mean the Rent Commencement Date as such term is defined in the Lease
between Landlord and NYL of even date (the "NYL Lease"), but in no event later
than June 1, 1995. Landlord and Tenant shall, at the request of either, execute
an acknowledgment, specifying the Adjustment Date.
ARTICLE II
PAYMENT OF RENT
Tenant covenants and agrees with Landlord to pay as rent during the term
hereof and so long thereafter as Tenant or anyone claiming under Tenant occupies
the Premises:
2.l A fixed rental at the rates and in the amounts set forth in Exhibit 1
attached and made a part hereof on the first day of each month in advance
commencing on the Term Commencement Date. In the event there is any partial
month at the beginning or end of the term, the monthly rent for such partial
month will be adjusted proportionately and shall be paid on the Term
Commencement Date or the first of the month, as the case may be. Fixed rent
shall continue to be payable hereunder, as adjusted in accordance with
Exhibit 1, through July 27, 1998, notwithstanding that Tenant may cease to
occupy space in the Building.
2.2 Tenant shall pay to Landlord, as part of Operating Costs as specified
in Section 2.2.5, Tenant's proportionate share of the actual taxes levied
against the Property, including any adjustment for abatements of all real
estate and personal property taxes levied or assessed or becoming due on the
lot and the Building and other improvements located on the Lot for each tax
period included in the term and a proportionate amount for any partial period
at the beginning and end thereof.
2.2.1 Taxes shall include Tenant's proportionate share of each
installment of any public, special or betterment assessment levied or
assessed or becoming payable for or in respect of the Lot or Building, or
both for each installment period wholly included in the term, and, a
proportionate amount
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<PAGE>
for any fraction of an installment period included in the term at the
beginning or end thereof, provided only in the case of each respective
assessment that Landlord shall have elected to pay such assessment in
installments over the longest period permitted by law and not otherwise.
Landlord hereby represents to Tenant that to the best of its knowledge, no
such special assessments have been assessed against the Lot and Building in
the past nor are any pending or threatened at the date hereof.
Landlord shall, within thirty (30) days of receipt of Tenant's Request,
deliver to Tenant copies of tax bills and accounting as to how Tenant's share
of taxes was arrived at.
Landlord agrees to monitor the tax assessments of the Lot and Building in
relationship with other properties in the town and to the extent Landlord
deems appropriate to timely file applications for abatement of real estate
taxes and reductions of assessed valuation. In the event Landlord elects not
to seek an abatement after being requested to do so by Tenant, Landlord shall
authorize Tenant to pursue, at Tenant's expense, an abatement.
2.2.2 All taxes levied on the personal property of Tenant shall be the
obligation of and be paid by Tenant whether the same is assessed to Tenant or
Landlord and whether the same shall be considered part of the realty or
personalty and further that Tenant agrees to indemnify, and hold harmless the
Landlord from any loss, damage, debt or claim resulting therefrom.
2.2.3 If, at any time during the term, under the law of the United States
or any state or political subdivision thereof in which the Premises are
situated, there shall be adopted some other method of taxation on real estate
as a substitute in whole or in part for taxes on real estate as now
constituted, such as tax on the fixed rent, additional rent or the other
charges payable by Tenant hereunder, by whatever name called which is levied,
assessed or imposed against Landlord or the rent or other charges payable
hereunder to Landlord, (which substitute tax on the fixed rent, additional
rent, or other charges or other substitute method of taxation are hereinafter
collectively referred to as "Substitute Taxes" and shall be applicable to all
owners of commercial real estate generally), Tenant shall pay its
proportionate share of Substitute Taxes, calculated as if the tax parcel on
which the Building is located was the only property of Landlord. Provided,
however, that the taxation of Landlord's income by the United States and the
Commonwealth of Massachusetts, presently referred to as the "Federal Income
Tax" and "State Income Tax" or similar methods of taxation, including any
local income taxes, are not intended to be herewith applicable and are
specifically excluded, and
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<PAGE>
Tenant shall not be required to pay any such income taxes, and further
provided that Tenant shall not be required to pay any franchise, corporate,
estate, inheritance, succession, capital gains, transfer, profits or revenue
or other similar taxes of Landlord. Furthermore, Tenant shall not be
required to pay any amounts with respect to any real estate taxes, personal
property taxes or betterment assessments (i) relating to or resulting from
the sale of the Building, (ii) for periods not within the term of this Lease,
(iii) fines or penalties incurred due to a failure of Landlord to make timely
payment of taxes. Tenant's obligations under this Section 2.2.3 shall
survive termination of this Lease.
2.2.4 Tenant shall provide Comprehensive Liability Insurance
indemnifying Landlord and Tenant against all claims and demands for any
injury to person or property (except for claims resulting from the negligence
of Landlord, its principals, partners, officers, representative, contractors,
agents and/or employees) which may be claimed to have occurred on the
Premises in amounts which shall, at the beginning of the term, be not less
than $l,000,000 for property damage, $l,000,000 for injury or death of one
person and $l,000,000 for injury or death of more than one person in any
single accident, and, from time to time during the term, shall be in such
higher amounts, if any, as are customarily carried in the suburban Boston
area on property similar to the Premises and used for similar purposes. Such
insurance shall be written by companies licensed to do business in
Massachusetts and be reasonably acceptable to Landlord and may be in the form
of a blanket and as an umbrella policy covering more than one location.
Landlord acknowledges that Tenant's current insurance company is acceptable.
Tenant may provide such protection through a self insurance program
reasonably acceptable to Landlord. Tenant shall provide Landlord with
evidence, reasonably acceptable to Landlord, of all insurance required in
connection with the Premises.
2.2.4.1 Tenant shall pay to Landlord, as a part of Operating Costs as
specified in Section 2.2.5, Tenant's proportionate share of the cost to
Landlord of taking out and maintaining throughout the term of this lease, and
Landlord shall maintain throughout the term of this Lease, the following
insurance protecting Landlord:
2.2.4.1.1 (a) Fire Insurance with extended coverage in an amount at least
equal to the full replacement cost of the Building at the time of loss, and
rent loss insurance protecting Landlord against abatement or loss of rent
(resulting from damage to the building) in an amount equal to at least all
rent and additional rent payable under this Article II for one year or such
other period as may be required
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<PAGE>
by Landlord's mortgagee; and (b) Landlord shall provide Comprehensive
Liability Insurance indemnifying Tenant and Landlord against all claims and
demands for any injury to person or property (except for claims resulting
from the negligence of Tenant, its principals, partners, officers,
representative, contractors, agents and/or employees) which may be claimed to
have occurred on the Property in amounts which shall, at the beginning of the
term, be not less than $l,000,000 for property damage, $l,000,000 for injury
or death of one person and $l,000,000 for injury or death of more than one
person in any single accident, and, from time to time during the term, shall
be in such higher amounts, if any, as are customarily carried in the suburban
Boston area on property similar to the Premises and used for similar purposes.
2.2.4.1.2 Insurance against loss or damage from sprinklers and from
leakage or explosion or cracking of boilers, pipes carrying steam or water,
or both, pressure vessels or similar apparatus, in the so-called "broad form"
and in such amounts as Landlord may reasonably require. Also, insurance
against other hazards as may from time to time be required by any bank,
insurance company or other lending institution holding a mortgage on the
Premises, provided that such insurance is customarily carried in the suburban
Boston area on property similar to the Premises and used for similar purposes.
2.2.4.1.3 Policies for insurance required under the provisions of
Subsections 2.2.4.1.1 and 2.2.4.1.2 shall, in the case of loss, be first
payable to the holders of any mortgages on the Premises and shall be
deposited with the holder of any mortgage on the Premises or with Landlord,
as Landlord may elect. Landlord reserves the right to provide the insurance
required under Sections 2.2.4.1.1 and 2.2.4.1.2 or insurance in substitution
acceptable to Landlord through a blanket policy and Tenant agrees to pay an
allocated portion of the costs of such blanket policy. The amount of
insurance carried by Landlord pursuant to Sections 2.2.4.1.1 and 2.2.4.1.2
shall be reasonably acceptable to Tenant to insure sufficient net proceeds to
restore the Premises pursuant to Article IV.
2.2.4.2 All insurance which is carried by either party with respect to
the Premises, whether or not required; if either party so requests it can be
so written, and if it does not result in additional premium, or if the
requesting party agrees to pay any additional premium, shall include
provisions which either designate the requesting party as one of the insured
or deny to the insurer acquisition by subrogation of rights of recovery
against the requesting party. The requesting party shall be entitled to have
certificates of any policies containing such provisions. Each party hereby
waives all rights of recovery against the other for loss or injury
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<PAGE>
against which the waiving party is protected by insurance containing said
provisions. Neither Landlord nor Tenant shall acquire as insured under any
insurance carried by the other party any right to participate in the
adjustment of loss or to receive insurance proceeds and agrees upon request
promptly to endorse and deliver to Landlord or Tenant as the case may be any
checks or other instrument in payment of loss in which the other is named
payee.
2.2.4.3 Landlord shall, at Tenant's expense, install a separate electric
meter for lighting, office machines and tenant equipment including any
special installation unique to Tenant's use in the Premises which meter may,
at Landlord's discretion, either be a meter which is read by the utility
providing such electrical service or a so-called check meter monitoring
Tenant's usage of electricity. Tenant agrees to reimburse Landlord monthly
throughout the term for, or pay directly to the applicable utility all costs
related to electricity consumed in the Premises for lighting, office
machines, tenant equipment including any special installations unique to
Tenant's use. If Tenant is to reimburse Landlord, Tenant's electrical
reimbursement charge will be calculated by multiplying Tenant's usage times
Landlord's per unit cost of electricity for the period to which the
reimbursement applies.
2.2.5 OPERATING COSTS
With reference to the Operating Costs described in this Section 2.2, it is
agreed as follows:
a) Commencing on the date hereof, Tenant shall pay to the Landlord, as
additional rent, monthly, in advance, during the first lease year,
one-twelfth (1/12) of Tenant's proportionate share, of Landlord's good faith
estimate of calendar year 1995 actual (adjusted to reflect a full year's
operations) Controlled Operating Costs for the Property, but in no event more
than $2.82 per rentable square foot for calendar year 1995. Commencing
January 1, 1996, Tenant shall pay to Landlord, as additional rent, monthly,
in advance, during the balance of the lease term, 1/12 of Tenant's
proportionate share of Landlord's good faith estimate of the Controlled
Operating Costs for the Property for such lease year. Tenant shall receive
by March 31 following each lease year a statement summarizing the actual
Controlled Operating Costs in reasonable detail for such lease year. If the
total amount of estimated Controlled Operating Costs actually received by the
Landlord from the Tenant for any lease year shall be less than Tenant's
proportionate share of the actual Controlled Operating Costs for such lease
year, then the amount of such difference shall be payable by the Tenant
within twenty (20) days of receipt of the annual statement summarizing
Operating Costs. If the total
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<PAGE>
amount of the estimated Controlled Operating Costs actually received by the
Landlord from the Tenant for any lease year shall be greater than Tenant's
proportionate share of the actual Controlled Operating Costs for such lease
year, then the Landlord shall pay to the Tenant within twenty (20) days
following receipt by Tenant of such statement the amount of such excess. The
obligations of Landlord and Tenant with respect to the adjustment of
Controlled Operating Costs shall survive the termination or expiration of the
term.
b) Commencing on the date hereof, Tenant shall pay to the Landlord as
additional rent, monthly, in advance, during the Lease term, installments of
Landlord's good faith estimate of Uncontrolled Operating Costs equal to
one-twelfth (1/12) of Tenant's proportionate share of such estimated
Uncontrolled Operating Costs for such year. Tenant shall receive by March 31
following each lease year a statement summarizing the actual Uncontrolled
Operating Costs in reasonable detail for such lease year. If the total
amount of estimated Uncontrolled Operating Costs actually received by the
Landlord from the Tenant for any lease year shall be less than Tenant's
proportionate share of the actual Uncontrolled Operating Costs for such lease
year, then the amount of such difference shall be payable by the Tenant
within twenty (20) days of receipt of the annual statement summarizing actual
Uncontrolled Operating Costs. If the total amount of the estimated
Uncontrolled Operating Costs actually received by the Landlord from the
Tenant for any lease year shall be greater than Tenant's proportionate share
of actual Uncontrolled Operating Costs for such lease year, then the Landlord
shall pay to the Tenant within twenty (20) days following receipt by Tenant
of such statement the amount of such excess. The obligations of Landlord and
Tenant with respect to the adjustment of Uncontrolled Operating Costs shall
survive the termination or expiration of the term.
c) As used herein, estimated Controlled Operating Costs and estimated
Uncontrolled Operating Costs shall be adjusted to reflect 100% occupancy for
twelve (12) months, for the immediately preceding lease year.
d) For the purposes of this Article,
(i) "lease year" shall mean any calendar year from January 1 to December 31.
The first lease year shall begin on the Term Commencement Date and end on
December 31, 1995, and the last lease year during the term of this Lease
shall end on the date this Lease terminates;
(ii) "Uncontrolled Operating Costs" shall mean and include all real estate
taxes and assessments, all costs for
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<PAGE>
insurance, all charges for electricity (excluding electricity furnished to
tenants for lighting, office machines and Tenant equipment including any
installation unique to Tenant's use) and all charges and for assessments
for gas, sewer and water services, sewer line maintenance, the cost of an
on-site management office and all net out-of-pocket costs incurred by
Landlord in connection with the operation of the cafeteria (excluding rent
for the space occupied by the cafeteria), provided, that Tenant may on 30
days notice to Landlord and NYL Benefit Services Company, Inc., discontinue
the use of the cafeteria and in such event no portion of the costs of the
cafeteria shall be included as an Operating Cost;
(iii) "Controlled Operating Costs" shall include any and all other costs
reasonably and actually incurred by Landlord in the operation and maintenance
of the Premises including but not limited to:
(1) All reasonable expense incurred by the Landlord or its agents which shall
be directly related to employment of day and night supervisors, janitors,
handymen, engineers, mechanics, electricians, plumbers, porters, cleaners
and other personnel (including amounts incurred for wages, salaries and
other compensation for services, payroll, social security, unemployment
and similar taxes, workmen's compensation insurance, disability benefits,
pensions, hospitalization, retirement plans and group insurance, uniforms
and working clothes and the cleaning thereof, and expenses imposed on the
Landlord or its agents pursuant to any collective bargaining agreement), for
services in connection with the operation, repair, maintenance, cleaning and
protection of the Building, the Building heating, ventilating,
air-conditioning, electrical, (exclusive of the charges for electricity)
plumbing, and elevator systems and the Lot and personnel engaged in
supervision of any of the persons mentioned above, all in a manner which is
customarily provided to first-class office space in suburban Boston
(collectively, "the Operation" of the Building). All costs related to
personnel who provide services to properties other than the Building shall
be allocated based on the time spent at each property;
(2) The cost of services, materials and supplies furnished or used in the
Operation of the Property;
(3) The cost of replacements for tools and equipment used in the Operation
of the Property;
(4) The amounts paid to managing agents and for reasonable legal and other
professional fees relating to the Operation of the Property but excluding
such fees paid in connection
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<PAGE>
with negotiations for leases; provided, however, management fees for the
Building shall not exceed $54,000 per year for the first three years of
the Lease or 5% of the gross rental income of the Building for any period of
time thereafter.
(5) Insurance Premiums in connection with the Property as set forth in
Section 2.2.4.1 above;
(6) The costs of plowing and snow removal, landscaping; maintaining
driveways, the shared roadway and walkways servicing the Building;
maintaining loading docks in good repair and reasonably free of snow and
ice;
(7) Amounts paid to independent contractors for services, materials and
supplies furnished for the Operation of the Property;
(8) All other expenses incurred in connection with the operations of the
Property.
(iv) "Operating Costs" shall mean Controlled Operating Costs and
Uncontrolled Operating Costs. Operating Costs shall be computed on an
accrual basis and shall be determined in accordance with generally accepted
accounting principles consistently applied. They may be incurred directly
or by way of reimbursement, and shall include taxes applicable thereto.
The Landlord shall use reasonable efforts to obtain competitive prices for
the goods and services provided in the operation of the Property. The
following shall be excluded from Operating Costs:
(1) Salaries and related benefits or any portion of officers and executives
of the Landlord who are not classified as property managers or as
reporting to property managers;
(2) Depreciation of the Building;
(3) Interest and amortization on indebtedness;
(4) Expenses for which the Landlord, by the terms of this Lease or any other
lease covering any portion of the Property, makes a separate charge;
(5) The cost of any electric current furnished by third party utilities
directly to and paid for by the Tenant or any other tenant of the
Property;
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<PAGE>
(6) Leasing fees or commissions except Landlord and Tenant shall pay
brokerage fees as set forth in the Preliminary Letter Agreement;
(7) Repairs or other work occasioned by the exercise of right of eminent
domain;
(8) Renovating or otherwise improving or decorating, painting or redecorating
leased space for tenants or other occupants or vacant tenant space, other
than ordinary maintenance provided to all tenants, except in all common
areas;
(9) Landlord's costs of utilities and other services sold separately to
tenants for which Landlord is entitled to be reimbursed by such tenants
as an additional charge over and above the base rent and operating
expense or other rental adjustments payable under the lease with such
tenant;
(10) Expenses in connection with services or other benefits of a type which
Tenant is not entitled to receive under the Lease but which are provided
to another tenant or occupant;
(11) Expenses, including rental, created under any ground or underlying
leases;
(12) Any particular items and services for which tenant(s) otherwise
reimburses Landlord by direct payment over and above fixed rent and
operating expense adjustments;
(13) Any expense for which Landlord is compensated through proceeds of
insurance, condemnation or otherwise;
(14) Expenses for periods of time not included within the term of this Lease;
(15) All other items which under generally accepted accounting principles as
consistently applied in the real estate industry for first-class office
buildings are properly classified as capital expenditures.
Notwithstanding the foregoing, if during the Term of this Lease,
Landlord shall make a capital expenditure which is necessary to meet the
requirements of applicable law, regulations or ordinances first
applicable after the date hereof, or which is designed to increase the
operating efficiency of the Building (which for purposes hereof, shall
mean that the aggregate cost savings related to such capital
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<PAGE>
improvement can reasonable be expected to equal the amount of such
capital expenditure (plus the interest factor hereinafter referred to)
within the generally accepted useful life of such improvement), the
total cost of which is not properly includable in Operating Costs for
the year in which it was made, there shall nevertheless be included in
such Operating Costs for each succeeding year the annual charge-off of
such capital expenditure. Annual charge-off shall be the amount which
will fully amortize the original capital expenditure over the number of
years of useful life of the improvement made with the capital
expenditure. Annual charge-off shall be the amount which will fully
amortize the original capital expenditure over the number of years of
useful life of the improvement made with the capital expenditure, on the
basis of level annual payments of combined principal and interest at the
rate then being charged by institutional lenders for loans to finance
the item over its useful life. The useful life shall be determined
reasonably by Landlord in accordance with generally accepted accounting
principles and practices in effect at the time of making such
expenditure;
(16) Cost of rebuilding after casualty or taking or in the removal, abatement
or remediation of hazardous substances or materials caused by Landlord
or persons other than Tenant;
(17) All Operating Costs shall be reduced by the amount (net of collection
costs) of any insurance reimbursement, discount or allowance received by
the Landlord in connection with such costs; and
(18) All costs, charges and expenses not properly included as operating costs
under the NYL Lease.
(v) Tenant's "proportionate share" as used in this Lease shall be 100% of
the total Operating Costs until the Adjustment Date and thereafter shall be
27.77% of the total Operating Costs unless subsequently adjusted pursuant to
Exhibit 1.
d) By March 31 following the completion of each lease year, Landlord shall
submit to Tenant a statement in reasonable detail showing the actual
Controlled and Uncontrolled Operating Costs for such lease year. Tenant
shall have thirty (30) days after receipt of such statement to notify
Landlord that Tenant intends to cause such statement to be reviewed. After
receipt of such notice, and so long as Tenant is not in default (after the
expiration of applicable grace periods) hereunder unless the default is
related to a dispute relating to Operating Expenses, Landlord shall make such
statement, and the supporting documentation therefore, available to Tenant or
Tenant's
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representative for inspection at the location Landlord maintains such records
during normal business hours and upon reasonable advance notice. Tenant
shall provide Landlord with a copy of the report issued in connection with
such inspection. In the event Tenant does not give Landlord notice within
such 30-day period, Landlord's statement shall be deemed to be accepted by
Tenant without dispute and Tenant's rights to inspect Landlord's records with
respect to such statement shall be waived. The right to inspect pursuant to
this Section 2.2.5(d) shall not extend to any assignees or subtenants of the
original Tenant hereunder.
ARTICLE III
COVENANTS OF TENANT AND LANDLORD
Tenant and Landlord covenant and agree:
3.l To pay when due all rent and other charges payable by Tenant hereunder.
3.2 To keep the Premises including, without limitation, both the inside
and outside of all doors therein, in the same order and repair as they are in
on the Rent Commencement Date, reasonable use and wear and damage by fire or
casualty and damage by Landlord, its principals, partners, officers, agents,
contractors, employees and other persons for whose conduct Landlord is
responsible only excepted. Subject to damage covered by manufacturer's
warranties or otherwise insured against and not the fault of Landlord, its
principals, partners, officers, agents, contractors, employees or other
persons for whose conduct Landlord is responsible, Tenant shall keep all
interior glass in good repair. Landlord shall also make, at Tenant's expense,
all repairs to the Building, (including, without limitation, the structure,
outer walls, exterior glass and roof thereon and common areas therein) and
the Lot, if the same are occasioned by Tenant's improper use thereof, or by
the intentional acts or negligence of Tenant, its agents, invitees or
employees and if such repairs are not reimbursable by Landlord's insurance
carriers. Maintenance and repair of equipment located within the Premises
such as kitchen fixtures, special air conditioning equipment, private
bathroom fixtures or any other type of special equipment together with
related plumbing or electrical services, whether installed by Tenant or by
Landlord on behalf of Tenant, shall be the sole responsibility of Tenant and
Landlord shall have no obligation in connection therewith, except for the
kitchen sink and associated plumbing which Landlord shall maintain and
repair. Tenant shall continuously occupy the Premises for its intended use
for the term of this Lease.
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3.3 The Tenant shall indemnify and save harmless the Landlord, its
partners, officers, agents and employees of the Landlord, from and against
all claims, expenses or liability of whatever nature resulting from any act,
omission or negligence of the Tenant, or the Tenant's contractors, licensees,
agents, servants or employees, or the failure of the Tenant or such persons
to comply with any rule, order, regulation or lawful direction now or
hereinafter in force of any public authority, to the extent the same are
related directly to the Premises or the Tenant's use thereof, or arising
directly or indirectly from any accident, injury or damage, however caused,
to any person or property on or about the Premises; provided, however, that
in no event shall the Tenant be obligated under this Section 3.2 to indemnify
the Landlord, its agents, principals, partners, officers, employees,
contractors, or representatives of the Landlord where such claim, expense or
liability arose from any default, act, omission, fault, negligence or other
misconduct of the Landlord, Landlord's contractors, agents, principals,
partners, officers, employees, or representatives on or about the Premises or
the Property.
This indemnity and hold harmless agreement shall include indemnity against
all reasonable expenses and liability incurred in or in connection with any
such claim or proceeding brought thereon and the defense thereof with counsel
reasonably acceptable to the Landlord or counsel selected by an insurance
company which has accepted liability for such claim.
3.3.1 The Tenant agrees to use and occupy the Premises and to use other
portions of the Lot as the Tenant is herein given the right to use at the
Tenant's own risk, and the Landlord shall have no responsibility or liability
for any loss of or damage to fixtures, equipment or other personal property
of the Tenant except for damage caused by the willful or negligent acts of
Landlord, its agents, principals, partners, officers, employees, or
representatives.
3.3.2 The Tenant agrees that the Landlord shall not be responsible or
liable to the Tenant, or to those claiming by, through or under the Tenant,
for any loss or damage resulting to the Tenant or those claiming by, through
or under the Tenant, or its or their property, for any loss or damage from
the breaking, bursting, crossing, stopping or leaking of electric cables and
wires, and water, gas, sewer or steam pipes or like matters, except for such
loss or damage resulting from the negligence of Landlord, its agents,
principals, partners, officers or employees or independent contractors
retained by or on behalf of Landlord.
3.3.3 All merchandise, furniture, fixtures, effects and property of every
kind, nature and description of Tenant and of
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all persons claiming through or under Tenant, except as herein otherwise
provided, which may be on the Premises during the continuance of this lease
or any occupancy by Tenant thereof, shall be at the sole risk and hazard of
Tenant, and if the whole or any part thereof shall be destroyed or damaged by
fire, water or otherwise, or by the leakage or bursting of water pipes, steam
pipes or other pipes, by theft or from any other cause, no part of said loss
or damage is to be charged to or be borne by Landlord; except to the extent
such loss or damage (i) results from the negligence or willful act of
Landlord, its agents, principals, partners, contractors, officers or
employees or (ii) is covered by Landlord's insurance.
3.4 So long as no default hereunder has occurred and is continuing,
Tenant remains directly liable under the terms of this Lease and the use of
the Premises by the proposed subtenant is consistent with the character and
quality of the Building, Tenant may assign and/or sublet this Lease with the
consent in writing of Landlord which consent will not be unreasonably
withheld or delayed. Tenant shall reimburse Landlord promptly for reasonable
legal or other expenses incurred by Landlord in connection with any request
by Tenant for such consent. In all cases, 50% of any amounts received by
Tenant in excess of its reasonable expenses in connection with such
assignment or sublet and any other amounts paid to Landlord hereunder shall
be paid to Landlord immediately on receipt. No assignment or subletting
shall in any way impair the continuing primary liability of Tenant and no
consent to any assigning or subletting in a particular instance shall be
deemed to be a waiver of the obligation to obtain the Landlord's approval in
the case of any other assignment or subletting.
3.5 Tenant shall conduct its business within the Premises in conformance
with all state and municipal laws and with all requirements of any public
body or officers having jurisdiction over the Premises and in conformance
with the requirements or regulations of any Board of Fire Underwriters or
insurance company insuring the Premises at the time, all at Tenant's own
expense without reimbursement from Landlord.
3.6 Tenant shall permit Landlord and its agents to enter and examine the
Premises after reasonable notice, at reasonable times and, to show the
Premises to prospective tenants during the one (1) year preceding expiration
of the term and to prospective purchasers and mortgagees at all reasonable
times, provided such access shall not interfere with Tenant's business
activities. Except in emergencies, Landlord shall enter the Premises on
business days only after reasonable notice to Tenant and only in the company
of an employee or agent of
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Tenant. In emergency situations, Landlord will attempt to give Tenant
telephone notice before entering the Premises. Tenant shall further permit
Landlord's agent entry into the Premises for the purposes of cleaning,
maintaining and repairing the Premises. All such work performed by Landlord
shall be performed in such manner and at such time to minimize interference
with Tenant's use and occupancy of the Premises and not reducing the size or
appearance of the Premises. Tenant may impose additional reasonable
restriction on Landlord's entry and work to protect Tenant's security and
equipment and avoid unreasonable disruption of Tenant's business. Landlord,
its officers, principals, partners, contractors, agents or employees shall
not enter into any part of the Premises which Tenant designates a
confidential area unless accompanied by a representative of Tenant. Tenant
agrees to provide such a representative promptly on request.
3.7 If Tenant shall at any time default in the performance of Tenant's
obligations (other than for payment of rent and additional rent) and fails
within thirty (30) days after written notice from Landlord to commence to
cure, or if commenced fails to diligently pursue such cure, Landlord shall
have the right, after first giving Tenant ten (10) days written notice of
such default (unless such default materially endangers the Premises or
Landlord's interest therein, in which case no such notice shall be required,
but Landlord shall make all reasonable efforts under the circumstances to
notify by telephone or otherwise), to perform such obligation notwithstanding
the fact that no provision for such substituted performance by Landlord is
made in this Lease with respect to such default. Tenant shall not be deemed
in default with respect to any default not requiring the payment of money
which Tenant timely commences to cure and pursues such cure diligently to
completion. In performing any Tenant obligation Landlord may make any
reasonable payment of money or perform any other reasonable act. All sums so
paid by Landlord and all necessary incidental costs and expenses in
connection with the performance of any such act by Landlord shall be deemed
to be additional rent under this Lease and shall be payable to Landlord
immediately on demand. Landlord may exercise the foregoing rights without
waiving or releasing Tenant from any of its obligations under this Lease.
3.8 If any installment of rent, additional rent or any other sum due from
Tenant shall not be received by Landlord or Landlord's designee within five
(5) days after said amount is due, then Tenant shall pay to Landlord a late
charge equal to five percent (5%) of the amount due. The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
costs Landlord will incur by reason of late payment by Tenant. Acceptance of
such late charge by Landlord shall not
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constitute a waiver of Tenant's default with respect to such overdue amount.
Any payment of money due hereunder which is not paid within thirty (30) days
of the due date and ten (10) days after written notice of such default from
Landlord to Tenant given any time after such payment is due shall bear
interest at the rate then designated by the First National Bank of Boston as
its prime rate of interest plus six percent (6%) per annum in addition to any
late charge.
3.9 Upon the expiration or other termination of the term of this Lease,
Tenant shall quit and surrender to Landlord the Premises, broom clean, in
good order and condition, ordinary wear and tear, casualties not the fault of
Tenant or covered by insurance or resulting from a taking or attributable to
Landlord excepted. Tenant shall remove all of its property, including at
Landlord's request, any alterations or additions made by Tenant after the
commencement of the term hereof (but not pursuant to Article VIII) as to
which Landlord advised Tenant that removal would be required at the time such
alterations or additions were made. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of
the term of this Lease. If the last day of the term of this Lease or any
renewal thereof falls on Sunday, this Lease shall expire on the business day
immediately preceding. If Landlord elects to treat Tenant as a holdover for
a further term, any concession of rent or agreement in respect of decorations
or the like in the initial term shall not apply to such holdover. Rent
during such holdover term shall be 1.5 times the rent paid, including fixed
rent and additional rent during the last preceding period.
3.10 Tenant further covenants and agrees:
a) Subject in each instance to applicable governmental law and
regulations, to use the Premises only for general office purposes.
b) Not to make any alterations or additions affecting basic building
systems or the structure of the Building without the prior written consent of
Landlord and not to make or permit any other alterations or additions without
the prior written consent of Landlord which consent shall not be unreasonably
withheld or delayed. In each instance, all work to be performed in
accordance with plans and specifications and by mechanics reasonably
acceptable to Landlord.
c) Not to permit or suffer any lien to be placed upon the Building or
lot as a consequence of any activity of Tenant, its agents, employees and/or
subcontractors and to promptly cause any such lien to be discharged or bonded
with or without the request of Landlord.
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d) Not to place on the Premises any placard or sign advertising that the
Premises or any part thereof may be sublet.
e) Not to place on the Premises any draperies, venetian blinds, curtains
or similar furnishings visible from the exterior of the Building without the
written consent of Landlord not to be unreasonably withheld or delayed.
f) Not to injure, overload, deface or permit to be injured, overloaded
or defaced, the Premises, and/or improvements and not to make any holes in
the outside stone or brickwork, or place any awnings on or suspended from the
Building except such and in such places as Landlord shall in writing first
approve; and not to make, allow or suffer any waste or any unlawful, improper
or offensive use of the Premises or any occupation or unoccupancy thereof
that shall be injurious to any person or property or invalidate any insurance
on the Building or increase the premium thereof.
g) Tenant shall follow reasonable rules and regulations, applicable to
all tenants in the Building, of which it has received a copy, established by
the Landlord from time to time with thirty (30) days written notice of
change, for the operation of the Building. Landlord reserves the right to
make reasonable modifications which shall be binding upon all Tenants upon
delivery of a copy of them to each tenant. Rules must be uniformly applied
and enforced. A copy of the current Rules and Regulations is attached as
Exhibit E. In the event of any inconsistency between this Lease and such
Rules and Regulations, this Lease shall govern.
h) To reimburse Landlord, as additional rent, promptly on demand for all
reasonable legal, engineering and other professional services expenses
incurred by Landlord in connection with all requests by Tenant for consent or
approval hereunder to assign this Lease or to make any alterations or
modifications to the Premises.
3.11 Landlord and Tenant agree from time to time, upon not less than ten
(10) days prior written request by the requesting party, to execute,
acknowledge and deliver to the other party a statement in writing certifying
that this Lease is unmodified and in full force and effect and that
certifying party knows of no defenses, offsets or counterclaims against its
obligations to pay the fixed and additional rent and any other charges and to
perform its other covenants under this Lease (or, if there have been any
modifications that the same is in full force and effect as modified and
stating the modifications and, if they know of any defenses, offsets, or
counterclaims, setting them forth in reasonable detail), and the dates to
which the fixed and additional rent and other charges have been paid.
Any such
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statement delivered pursuant to this Section 3.9 may be relied upon by any
prospective purchaser or mortgagee of the Premises, Building and Lot or one
or more of them, or any prospective assignee of any such mortgage or any
subtenant or assignee of this Lease. From time to time, but not more than
once in each calendar year, Tenant shall supply Landlord with financial
statements reflecting the balance sheet and then current operating results
for the Tenant.
3.12 Tenant shall not cause or permit any Hazardous Substances to be used,
stored, generated or disposed of on or in the Premises by Tenant, Tenant's
agents, employees or contractors, without first obtaining in each instance
Landlord's written consent. Tenant may, without Landlord's consent, store
and use in accordance with all applicable law Hazardous Substances normally
used in general office operations conducted on the Premises, in quantities
normally associated with office use, as long as (a) such operations are
within the scope of the uses permitted under this lease and (b) in doing so,
Tenant complies with all provisions of this Section 3.12. Landlord agrees
that in the event it consents to the use, storage or generation of Hazardous
Substances beyond the minimal quantities referred to above by any tenant of
the Property, it will advise Tenant of such consent. Landlord has not, as of
the date hereof, issued any such consents to anyone and, agrees to advise
Tenant in the event such consent is granted in the future. Any such use,
storage, generation or disposal of Hazardous Substances shall comply with all
applicable federal, state and local laws and regulations. If Tenant or
Tenant's agents, employees or contractors use, store, generate or dispose of
Hazardous Substances on or in the Premises, or if the Premises become
contaminated in any manner for which Tenant is legally liable, Tenant shall
indemnify and hold harmless the Landlord from any and all claims, damages,
fines, judgments, penalties, costs, liabilities or losses arising during or
after the term and arising as a result of such contamination by Tenant. This
indemnification includes, without limitation, any and all costs incurred due
to any investigation of the site or any cleanup, removal or restoration
mandated by a federal, state or local agency or political subdivision.
Without limitation of the foregoing, if Tenant causes or permits the presence
of any Hazardous Substance on the Premises and such results in contamination,
Tenant shall promptly, at its sole expense, take any and all necessary
actions to return the Premises to the condition existing prior to the
presence of any such Hazardous Substance on the Premises. Except in the case
of an emergency, Tenant shall first obtain Landlord's approval for any such
remedial action, which approval shall not be unreasonably withheld or delayed
and which in any event shall be granted if the regulatory authorities with
jurisdiction have approved the
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proposed remedial action. Tenant shall not have any responsibility or
liability for any Hazardous Substance brought upon, generated or disposed of
on or from the Premises, Building or Property after the date hereof by any
party, other than Tenant or Tenant's agents, employees or contractors.
Landlord recognizes that the motor vehicles of Tenant and Tenant's
employees, guests and agents which will be parked on the lot from time to
time contain Hazardous Substance. The parking and operations of such
vehicles in a manner customary in a suburban office building parking lot
shall not require Landlord assent. No servicing of motor vehicles shall be
allowed on the Property. Tenant shall require its employees, agents and
guests to refrain from servicing vehicles or causing vehicles to be serviced
on the Property.
As used herein, "Hazardous Substance" means any substance which is toxic,
ignitable, reactive, or corrosive and which is regulated by an local
government, the Commonwealth of Massachusetts, or the United States
government. "Hazardous Substances" includes any and all material or
substances which are defined as "hazardous waste", "extremely hazardous waste
or a "hazardous substance" pursuant to state, federal or local governmental
law. "Hazardous Substance" includes but is not restricted to asbestos,
polchlorobiphenyls ("PCB's") and petroleum.
To the best of Landlord's knowledge and belief, Landlord represents and
warrants to Tenant that (i) no investigative order, settlement, agreement,
enforcement order or litigation with respect to Hazardous Materials or
Substances is proposed, threatened, anticipated or in existence with respect
to the Premises or the Building or Lot; and (ii) no notice, demand, claim,
citation, complaint, request for information or similar communication has
been received by Landlord with respect to Hazardous Materials or Substances
in, on, under or at the Building, the Premises or the Lot.
3.13 At Landlord's request, in consideration of entering into this Lease,
Tenant shall execute and deliver to Landlord a Bill of Sale transferring to
Landlord all Tenant's right, title and interest in and to any equipment,
furniture and fixtures used in connection with the operation of the cafeteria
in the Building.
ARTICLE IV
DAMAGE OR DESTRUCTION BY EMINENT DOMAIN, FIRE OR CASUALTY
4.l In the event that the Premises, or any material part thereof,
including access to the Premises, shall be taken by
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any public authority or for any public use, or shall be destroyed or damaged
by fire or unavoidable casualty, or by the action of any public authority,
then this Lease may be terminated at the election of Landlord. In the event
such taking, fire or casualty results in a condition that the Premises cannot
be restored to a condition rentable for Tenant's use and occupancy within
three months of such taking, fire or casualty this Lease may be terminated at
the election of Tenant. Landlord or Tenant's election shall be made by the
giving of written notice to the other party within thirty (30) days after the
event causing the damage or the date of taking. If Landlord or Tenant
exercises such election, this Lease shall terminate, in the case of a taking,
when the Tenant is required to vacate such portion of the Premises, and in
the case of such damage or destruction, on that date designated in its notice
of termination, which shall be not more than thirty (30) days after the date
of such damage or destruction. In the event Tenant's access or egress is
materially reduced or parking is reduced and reasonably equivalent substitute
access egress and/or parking as the case may be are not furnished within the
applicable time period, Tenant may terminate this Lease on sixty (60) days
notice to Landlord.
4.2 If this Lease is not terminated pursuant to the provisions of Section
4.l, this Lease shall continue in force and a just proportion of the rent
reserved, according to the nature and extent of the damages sustained by the
Premises building services and common areas, shall be suspended or abated
from the date of such loss or taking, until the Premises, or what may remain
thereof, shall be put by Landlord in proper condition acceptable to Tenant
for use, which Landlord covenants to do with reasonable diligence subject to
zoning and building laws then in existence. In the case of a taking which
permanently reduces the floor area of the Premises, the rent shall be abated
for the remainder of the term in proportion to the amount by which the floor
area has been reduced.
4.3 Irrespective of the form in which recovery may be had by law, all
rights to damages or compensation shall belong to Landlord in all cases,
except for damage to Tenant's fixtures, property or equipment, and for
damages, if any, awarded for relocation expenses and business interruption
for which Tenant shall be entitled to bring a separate action, provided that
the same shall not reduce the damages or compensation which Landlord would
otherwise recover. Tenant hereby grants to Landlord all of Tenant's rights
to such damages and covenants to deliver such further assignments thereof as
Landlord may from time to time request.
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ARTICLE V
DEFAULT
5.l(a) If Tenant shall default in the performance of any of its
obligations set forth in Article II hereof, and if such default shall
continue for ten (10) days after written notice from Landlord, or if for a
period of thirty (30) days after written notice from Landlord to Tenant
specifying any other default which Tenant does not, within such thirty (30)
day period, commence the correction of, and thereafter diligently pursue such
correction of to completion, or (b) if any assignment shall be made by Tenant
for the benefit of creditors, or (c) if the Tenant's leasehold interest shall
be taken on execution or (d) a petition is filed by Tenant for adjudication
as a bankrupt or for an Order for Relief or for reorganization of an
arrangement under any provision of the Bankruptcy Act as then in force and
effect, or (e) any involuntary petition under any of the provisions of the
said Bankruptcy Act is filed against Tenant and such involuntary petition is
not dismissed within sixty (60) days thereafter, then and in any of such
cases Landlord may lawfully, immediately or at any time thereafter, and
without further notice or demand, and without prejudice to any other remedies
either enter into and upon the Premises or any part thereof, or mail a notice
of termination addressed to Tenant at the Premises, and upon such entry or
mailing this Lease shall terminate, cease and be at an end. Without
mitigating any default of Tenant respecting Article II, Landlord agrees to
give Tenant written notice of such default in a timely fashion. In the event
that this Lease is terminated under any of the foregoing provisions contained
in this Article V, or otherwise for breach of Tenant's obligations hereunder,
Tenant covenants and agrees after any such termination to pay punctually to
Landlord all the sums and perform all the obligations which Tenant covenants
in this Lease to pay and to perform in the same manner and to the same extent
and at the same times as if this Lease had not been terminated through to
cancellation. In calculating the amounts to be paid by Tenant under the
foregoing covenant, Tenant shall be credited with any rent and additional
rent actually obtained by Landlord by reletting the Premises, after deducting
the reasonable expenses of collecting the same. Tenant further covenants as
an additional and cumulative obligation upon Tenant's failure to meet any of
its obligations under the foregoing covenant to pay forthwith to Landlord as
compensation the total rent due for the residue of the term subject to
amounts recovered by reletting. This covenant shall run with the land.
Nothing herein contained shall, however, limit or prejudice the right of
Landlord to prove for and obtain in proceedings for bankruptcy or insolvency
or arrangement with creditors as liquidated damages by reason of such
determination an amount equal to the maximum
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allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, such damages are to be proved, whether or
not such amount be greater, equal to, or less than the amounts referred to
above.
(b) TERMINATION
It is understood and agreed that at the time of the termination or at any
time thereafter, Landlord may re-let the leased premises, and for the balance
of the term hereof and thereafter, Landlord may rent the Premises, and for a
term which may expire after the expiration of the term of this Lease, without
releasing Tenant from any liability whatsoever except as otherwise provided
herein, that Tenant shall be liable for any expenses reasonably incurred by
Landlord in connection with obtaining possession of the Premises, with
removing with reasonable care from the Premises property of Tenant and
persons claiming under it (including warehouse charges), with putting the
leased premises into good condition for reletting, and with any reletting
costs. Rent from any reletting shall be applied first to amortize the
foregoing expenses and then to the payment of rent and all other payments due
from Tenant to Landlord. Landlord agrees to amortize the costs of releasing
the premises over the term of any new lease. Landlord agrees to use
reasonable diligence to re-let the leased premises and to mitigate damages
hereunder. In no event shall Tenant's obligations with respect to the Lease
extend beyond the term existing at the time of termination.
5.2 If the Landlord shall default in the performance of any of its
obligations under this Lease for more than thirty (30) days after receipt of
written notice from Tenant specifying such default, unless the default is of
such a nature that it cannot be cured in such thirty (30) day period provided
Landlord commences to cure such default within thirty (30) days of receipt of
Tenant's notice, and thereafter diligently pursues such cure to completion,
Tenant may, after the expiration of such thirty (30) day period, cure the
default of Landlord, provided, however, that if as the result of Landlord's
default a condition exists which, if not cured, would be dangerous or would
prevent Tenant from occupying the Premises for the intended purposes, Tenant
may upon such notice as is reasonable under the circumstances, cause such
default to be cured. Landlord shall pay to Tenant all reasonable costs and
expenses incurred by Tenant in curing such defaults within thirty (30) days
of receipt of Tenant's invoice therefore in reasonable detail.
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ARTICLE VI
COVENANTS OF LANDLORD
6.1 OPERATIONS AND CLEANING SERVICES
Landlord shall operate the Building in accordance with standards
equivalent to comparable first class buildings in the suburban Boston,
Massachusetts, area. The Landlord shall cause cleaning services to be
provided to the Premises as described in Exhibit B and charged to Tenant as
part of Operating Costs.
6.2 OTHER SERVICES
The Landlord shall cause other services as set forth in Exhibit C to be
furnished to the Tenant and they shall be included as part of Operating Costs.
6.3 ADDITIONAL SERVICES
At Tenant's request and upon reasonable notice, Landlord will provide
Heating, Ventilating and Air Conditioning earlier or later than the hours
provided in Exhibit C (hereinafter called "Overtime HVAC").
Tenant shall reimburse Landlord as additional rent for the charges of
Overtime HVAC as reasonably set by Landlord from time to time. The charges
for Overtime HVAC at the commencement of the term is $25 per hour.
Upon reasonable advance notice from Tenant, Landlord will furnish other
services to the Premises on days and at times other than as provided in
Exhibits B and C, and Tenant shall on demand and as additional rent pay to
Landlord, on account thereof, the actual costs for such additional services
as determined in good faith by the Landlord's accountants. Landlord shall
provide Tenant a statement in reasonable detail of the costs for such
additional services. The cost of all additional services pursuant to this
Section 6.3 shall be billed directly to Tenant and shall not be deemed to be
an Operating Cost.
Tenant shall designate in writing to Landlord the name of Tenant's
authorized representative to request additional services. Tenant shall not
be responsible for the cost and expense of additional services not requested
in writing by Tenant's authorized representative. Under no circumstances
Landlord shall be obligated to provide additional service not requested by
Tenant's authorized representative. To the extent possible Landlord agrees
to pro-rate charges for additional services to other Tenants in the Building
requesting similar services to those requested by Tenant if both requests are
for
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the same time period. Charges for additional services shall not exceed
Landlord's actual cost for such services. In no case, shall Tenant be
charged for additional services used solely by Landlord in connection with
Landlord's obligations under this Lease.
6.4 REPAIRS AND MAINTENANCE
At Landlord's expense except to the extent provided in Section 2.2.5,
Landlord shall maintain the exterior of the Building, together with all
landscaping and parking area adjacent to the Building, and all common areas
of the Property in good order (including snow removal) and repair; make all
structural repairs (including all subsurface repairs) to the Building,
including but not limited to, all repairs to the foundation, roof, leaks in
the balconies, structural components, exterior walls, and common area doors
and windows; make all repairs (including all subsurface repairs) and
maintenance to electric wiring, risers, plumbing, heating, air-conditioning
(HVAC) and all other building system serving the Premises to the extent such
repair and maintenance is not the result of or caused by (i) misuse of the
Premises by the Tenant, or (ii) any leasehold improvements constructed by
Tenant; and shall take such action as may be required, and in the absence of
a specific governmental directive as Landlord deems appropriate, to comply
with applicable state and municipal laws or requirements of any public body
or authority having jurisdiction over the Premises, to the extent such
violations are not caused by (i) misuses of the Premises by the Tenant, or
(ii) the leasehold improvements constructed by Tenant. Landlord shall
replace, repair and maintain the HVAC System and the various components of
the HVAC system serving the Premises and Building. Provided that the Tenant
improvements constructed by Tenant are designed and built to meet the
performance specifications in Exhibit F, Landlord shall operate the HVAC
system so as to provide comfortable temperature and humidity for normal
office usage in the Premises and building at a level consistent with first
class suburban office buildings in the suburban Boston area. Landlord shall
have no liability to Tenant for damage caused by leaks existing on the date
hereof unless and until such leaks reappear after the same have been repaired.
Tenant shall promptly notify Landlord of the necessity of any repairs to
the Premises which Tenant may have knowledge and for which Landlord may be
responsible under the provisions of this paragraph. Tenant shall reasonably
endeavor to notify Landlord of any conditions in the Building (outside the
Premises) and Lot of which it has knowledge requiring Landlord attention.
Tenant shall be responsible for the operation, maintenance and repair of
any special or supplemental HVAC system or special
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or supplemental electrical, plumbing or heating system, or portion thereof,
installed by or for Tenant which serves the Premises exclusively.
6.5 INTERRUPTION OF SERVICES
Landlord does not warrant that any of the services provided by Landlord
under the terms of this Lease will be free from interruptions caused by
repairs, renewals, improvements, alterations, strikes, lockouts, accidents,
inability of Landlord to obtain fuel or supplies or other cause or causes
beyond the reasonable control of Landlord.
Landlord shall promptly remedy any failure to provide services diligently,
expeditiously and in a good and workmanlike manner without undue interference
with Tenant's use of the Premises.
Landlord shall notify Tenant reasonably in advance of any scheduled
interruption or cessation of a particular service.
6.6 LANDLORD'S INDEMNITY
The Landlord shall indemnify and save harmless the Tenant, its partners,
officers, agents and employees of the Tenant, from and against all claims,
expenses or liability of whatever nature resulting from any act, omission or
negligence of the Landlord, or the Landlord's contractors, licensees, agents,
servants or employees, or the failure of the Landlord or such persons to
comply with any rule, order, regulation or lawful direction now or
hereinafter in force of any public authority, to the extent the same are
related directly to the Property or the Landlord's use or management thereof,
or arising directly or indirectly from any accident, injury or damage,
however caused, to any person or property on or about the Premises; provided,
however, that in no event shall the Landlord be obligated under this Section
3.2 to indemnify the Tenant, its agents, principals, partners, officers,
employees, or representatives of the Tenant where such claim, expense or
liability arose from any default, act, omission, fault, negligence or other
misconduct of the Tenant, Tenant's agents, principals, partners, officers,
employees, or representatives on or about the Premises or the Building.
This indemnity and hold harmless agreement shall include indemnity against
all reasonable expenses and liability incurred in or in connection with any
such claim or proceeding brought thereon and the defense thereof with counsel
reasonably acceptable to the Tenant or counsel selected by an insurance
company which has accepted liability for such claim.
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6.7 In every instance where Landlord is performing an obligation or
exercising a right under the Lease, Landlord shall endeavor to do so in a
manner which does not unreasonably disrupt the operation of Tenant's business.
ARTICLE VII
MISCELLANEOUS
7.l Any consent or permission by Landlord or Tenant to any act or
omission which otherwise would be a breach of any covenant or condition
herein, or any waiver by Landlord or Tenant, as the case may be, of the
breach of any covenant or condition herein, shall not in any way be held or
construed (unless expressly so declared) to operate so as to impair the
continuing obligation of any covenant or conditions herein, or otherwise,
except as to the specific instance, operate to permit similar acts or
omissions.
7.2 This Lease shall be subject and subordinate to any first mortgage
that may hereafter be placed upon the Property granted to a bank, insurance
company, or institutional lender of like character, provided that such
mortgagee enters into a subordination non-disturbance and attornment
agreement with Tenant or other agreements which have the affect of
recognizing and protecting Tenant's rights hereunder with no material adverse
change to the Premises or economics (i.e. rent, hours of operation, size and
condition of Premises, length of term and lease rights) of this Lease (such
agreements shall be deemed in compliance herewith if the same are on forms
customarily used for such by the mortgagee in question and are otherwise
reasonable to Tenant and Landlord and give effect to this paragraph). This
Section shall be self-operative, but in confirmation thereof, Tenant shall
execute and deliver whatever instruments may be required to acknowledge such
subordination in recordable form.
7.3 It is agreed that the agreements and conditions in this Lease
contained on the part of Tenant to be performed and observed shall be binding
upon Tenant and its successors and assigns and shall inure to the benefit of
Landlord and its successors and assigns, and the agreements and conditions
in this Lease contained on the part of Landlord to be performed and observed
shall be binding upon Landlord and its successors and assigns and shall inure
to the benefit of Tenant and its successors and assigns. If at any time or
times during the term Landlord shall be the trustee of a trust or a
partnership, Tenant agrees that only the trust estate of Landlord or the
partnership (and not the individual partners), as the case may be, shall be
liable for the performance of Landlord's obligations hereunder, and that in
no event shall any trustee
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or beneficiary of such trust or any partner of such partnership be
individually liable hereunder, and Tenant further agrees that the Landlord
named herein and any subsequent Landlord shall be liable hereunder only for
obligations accruing while owner of the Premises and only to the extent of
Landlord's interest in the Property. No holder of a mortgage of the
Landlord's interest shall be deemed bound by the provisions of this Lease and
the obligations of the Landlord hereunder until such holder shall have taken
possession of the Premises or acquired indefeasible title to the Premises.
7.4 BROKERAGE
Landlord and Tenant warrant to each other that they have had no dealings
with any broker or agent in connection with this Lease or the NYL Lease
except NYL has been represented by Cushman & Wakefield of Massachusetts,
Inc., Landlord has been represented by Palladins, Inc., and Tenant has been
represented by Fallon, Hines & O'Connor, Inc. and Palladins, Inc. Each
covenant to defend with counsel reasonably acceptable to the other and hold
harmless and indemnify each other from and against any and all costs, expense
or liability for any compensation, commission and charges claimed by any
other broker or agent with respect to any other dealings in connection with
this Lease or the negotiation thereof. Landlord and Tenant shall pay all
commissions due to Cushman & Wakefield of Massachusetts, Inc. and Palladins,
Inc. and Fallon, Hines & O'Connor, Inc. as provided in the Preliminary Letter
Agreement.
7.5 LEASE NOT TO BE RECORDED
Tenant agrees that it will not record this Lease. Both parties shall
simultaneously herewith execute and deliver a notice or short form of this
Lease in such form, if any, as may be permitted by applicable statute. If
this Lease is terminated before the term expires, the parties shall execute,
deliver and record an instrument acknowledging such fact and the actual date
of termination of this Lease.
7.6 SEVERABILITY
It is agreed that if any provision of this Lease shall be determined to be
void by any court of competent jurisdiction, then such determination shall
not affect any other provision of this Lease, all of which other provisions
shall remain in full force and effect; and it is the intention of the parties
hereto that if any provision of this Lease is capable of two constructions,
one of which would render the provision void and the other of which would
render the provision valid, then the provision shall have the meaning which
would render it valid.
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<PAGE>
7.7 SUBMISSION NOT AN OPTION
The submission of this Lease or a summary of some or all of its provisions
for examination does not constitute a reservation of or option for the
Premises, or an offer to lease, it being understood and agreed that this
Lease shall not bind Landlord or Tenant in any manner whatsoever until it has
been approved and executed by Landlord and Tenant and delivered to Tenant.
7.8 TIME
In any instance herein where a reference is made to days, it shall mean
calendar days. Any period ending on a Saturday, Sunday or holiday will be
extended to the next business day.
7.9 QUIET ENJOYMENT
Landlord warrants it has the right to enter into this Lease. Landlord
covenants that Tenant on paying the rent and performing the Tenant
obligations in this Lease, shall peacefully and quietly have, hold and enjoy
the Premises without interference from Landlord or any other entity acting at
Landlord's direction or with Landlord's authority, subject to all of the
terms and provisions hereof. Tenant shall have access and the right to
utilize the Premises twenty-four hours each and every day during the term
hereof.
7.10 REDUCTION OF SPACE
Tenant acknowledges that NYL has the option under the NYL Lease to expand
and occupy either the portion of the Premises on the first floor of the
Building described in Exhibit A-2 attached hereto and made a part hereof or
the entire balance of the Building subject to the following terms and
conditions:
(i) Upon NYL becoming obligated to pay rent on such space, the fixed
rent shall be adjusted as provided in Exhibit 1 and Tenant's
proportionate share of Operating Costs shall be adjusted
appropriately;
(ii) Upon exercise of such option, Landlord and Tenant shall pay when
due all brokerage commissions under the Preliminary Letter
Agreement;
(iii) NYL may exercise the option to expand only between May 1, 1997 and
August 31, 1997;
(iv) Tenant shall receive at least seven (7) months prior notice of
NYL's option to expand; and
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(v) In the event NYL occupies the entire Building or Phoenix sublets
or assigns all of its rights under this Lease, Tenant shall deposit
in escrow an amount equal to the balance of the fixed rent due
hereunder with irrevocable instructions that the fixed rent be
disbursed monthly to Landlord from such escrow or make other
arrangements satisfactory to Landlord and Tenant for the payment
of such rent.
7.11 OTHER OBLIGATIONS
The Tenant acknowledges that it has no right to extend the term of this
Lease, and that any negotiation of an extension of this Lease will be subject
to a right of first refusal on the part of NYL.
7.12 Tenant agrees to pay to Landlord, immediately on demand as
additional rent under this Lease, the amount of all reasonable costs and
expenses, including reasonable fees and the expenses of legal counsel,
incurred by Landlord in enforcing any of Landlord's rights or Tenant's
obligations; provided Landlord prevails. Landlord shall pay to Tenant,
immediately on demand, the amount of all reasonable costs and expenses,
including reasonable fees and expenses of legal counsel, incurred by Tenant
in enforcing any of Tenant's rights or Landlord's obligations hereunder,
provided Tenant prevails.
7.13 Tenant shall have the right to use the first floor lobby as a
reception area subject to the reasonable approval of Landlord as to the
appearances of, and the activities conducted within, such reception area by
Tenant.
ARTICLE VIII
NYL LEASEHOLD IMPROVEMENTS
8.1 Tenant shall be responsible for reimbursing NYL up to $642,264 with
respect to the tenant improvements in the space to be occupied by NYL. On
the date hereof, Tenant shall deposit $642,264 into an escrow account to be
maintained and disbursed in accordance with the terms of the Tenant
Improvement Escrow Agreement attached hereto as Exhibit G.
ARTICLE IX
NOTICES
9.l All notices for Landlord shall be addressed to Landlord c/o
Prudential Real Estate Investors, Attention Vice President, Newark Realty
Group Office, Gateway Three, 13th Floor, 100 Mulberry Street, Newark, New
Jersey 07102, with a copy to Regional Counsel, RGO, (same address), and to
Mark Rubin, Maric, Inc. 160 Commonwealth Avenue, Suite U9, Boston, MA
02116-2734. or to such other place as may be designated by
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<PAGE>
written notice to Tenant; and all notices for Tenant shall be addressed to
Tenant at 846 University Avenue, Norwood, MA 02081, Attn: Chairman and CEO,
with a copy to Phoenix Technologies Ltd., 2770 De La Cruz Boulevard, Santa
Clara, CA, Attn: General Counsel or to such other places as may be
designated by written notice to Landlord. Any notice shall be deemed duly
served when received or refused by the respective party by telecopy, federal
express or messenger service or mailed postage prepaid registered or
certified mail return receipt requested. Unless otherwise directed in
writing, all rents shall be payable to Landlord its address indicated above.
ARTICLE X
MUTUAL REPRESENTATION OF AUTHORITY
10.1 Landlord and Tenant represent and warrant to each other that they
have full right, power and authority to enter into this Lease without the
consent or approval of any other entity or person and make these
representations knowing that the other party will rely thereon.
10.2 The signatory on behalf of Landlord and Tenant further represent and
warrant that they have full right, power and authority to act for and on
behalf of Landlord and Tenant in entering into this Lease. Landlord further
represents that if the Landlord is a trustee under a trust, that the trusts
do not terminate or provide for forfeiture either under the trust agreement
or by operation of law during the period of this Lease.
ARTICLE XI
PARKING AND SIGNAGE
11.1 During the term hereof, Tenant shall have the right to utilize
parking in the Building main parking lot in common with the other tenant(s)
of the Building on a first-come first-served basis.
11.2 Landlord will, at its own expense, provide appropriate identification
for Tenant in the lobby directories, consistent with that provided for other
tenants of the Building.
11.3 Tenant shall, at its cost and expense, remove its sign from the
outside of the Building and from all common areas in the Building, including
the main lobby, and in so doing will repair any damage caused thereby and
restore the Building to its condition prior to the installation of such signs.
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<PAGE>
11.4 Tenant shall have the right to maintain the existing sign bordering
University Avenue during the entire term of the Lease and such sign shall not
be obstructed by Landlord or any other entity.
ARTICLE XII
RULES AND REGULATIONS
Tenant agrees to abide by all rules and regulations of the Building and
Project ("Rules and Regulations") imposed by Landlord as set forth in Exhibit
E attached hereto, and as the same may be changed from time to time upon
reasonable notice to Tenant. These Rules and Regulations are imposed for the
cleanliness, good appearance, proper maintenance, good order and reasonable
use of the Premises and the Property by all tenants and their employees and
invitees. Landlord shall enforce these Rules and Regulations uniformly among
tenants. Landlord shall not be liable for the failure of any tenant, its
agents or employees to conform to the Rules and Regulations. The building is
a non-smoking building and Tenant agrees to enforce a non-smoking policy
within the Premises. Landlord shall enforce such a policy in the common
areas and require other tenants to enforce such policy in their Premises.
The Premises shall be available to Tenant 24 hours per day every day of the
year. In the event of conflict between any rule or regulation and this
Lease, this Lease shall prevail.
ARTICLE XIII
13.1 This instrument contains the entire and complete agreement between
the parties hereto and supercedes the Original Lease and, except as otherwise
provided herein, the Preliminary Letter Agreement. This Lease may not be
amended or modified except by a writing executed by Landlord and Tenant.
Whenever the consent of either party is requested pursuant to this Lease,
such consent shall not be unreasonably withheld or delayed. Landlord
acknowledges that Tenant has satisfied all obligations under the Original
Lease and Tenant shall have no further obligation or liability under the
Original Lease, except for acts occurring prior to the Term Commencement Date
of which Landlord is not aware.
13.2 This Lease shall be governed by Massachusetts Law.
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<PAGE>
Executed as a sealed instrument this 15th day of March, 1995.
LANDLORD:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
BY: /s/Gary H. Picone
-----------------------
TENANT:
PHOENIX TECHNOLOGIES LTD.
BY: /s/ Ronald D. Fisher
-----------------------
Its: Chairman and CEO
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<PAGE>
EXHIBIT 1
846 UNIVERSITY AVENUE
NORWOOD, MASSACHUSETTS
REFERENCE DATA
Execution Date: March 15, 1995
Landlord: The Prudential Insurance Company of America.
Tenant: Phoenix Technologies Ltd.
Premises: 846 University Avenue, Norwood, Massachusetts [ ] rentable square
feet on the first floor.
Tenant's Proportionate Share: 100% until the Adjustment Date, then 27.77%
subject to further adjustment if the Premises are reduced as provided in
Section 7.10.
Term Commencement Date: The date hereof
Term Expires: July 27, 1998
Use of Premises: General Office
Fixed Rent: At the annual rate of $2,780.70 per day from the Term
Commencement Date through the Adjustment Date. Commencing on the Adjustment
Date and continuing until July 27, 1998, the fixed rent shall be the sum of
(i) $15.98 per rentable square foot times the number of rentable square feet
then occupied by Tenant plus (ii) $4.48 per rentable square foot times the
number of rentable square feet in the Building occupied by NYL.
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<PAGE>
EXHIBIT A
Amended and Restated Lease Agreement
Phoenix Technologies Ltd.
846 University Avenue
Norwood, MA
<PAGE>
EXHIBIT A-1
Amended and Restated Lease Agreement
Phoenix Technologies Ltd.
846 University Avenue
Norwood, MA
<PAGE>
EXHIBIT A-2
Amended and Restated Lease Agreement with
Phoenix Technologies Ltd.
<PAGE>
EXHIBIT B
CLEANING SPECIFICATIONS
846 UNIVERSITY AVENUE
NORWOOD, MA
Page 1 of 2
NIGHTLY CLEANING SERVICES
LOBBY
1. Clean entry door.
2. Sweep and wash tile floor.
3. Vacuum all carpets and entry mats.
4. Wipe down reception desk and planter pots.
5. Polish furniture and vacuum or brush upholstered furniture.
OFFICE AREAS AND CONFERENCE ROOMS
1. Vacuum all carpets.
2. Empty and remove all trash to designated area, replace liners as
necessary.
3. Dust desks in offices, wash them if cleared off. Wipe down and
polish conference room tables.
4. Perform high-dusting on a rotating basis.
5. Spot clean walls and light switches.
6. Vacuum or brush all upholstered furniture on a rotating basis.
7. Dust all flat surfaces, including window sills, heat registers,
file-cabinets, partitions, etc.
8. Wash glass partitions, wipe window ledges.
9. Dust and wipe down water units.
CORRIDORS
1. Vacuum carpets.
2. Brush upholstered furniture.
3. Spot clean carpets as needed.
DRINKING FOUNTAINS
1. Clean and sanitize all fountains.
ELEVATORS
1. Wash down walls and doors.
2. Wipe down all switches and buttons.
3. Clean and polish tracks.
4. Clean or vacuum floors.
RESTROOMS
1. Clean & disinfect all fixtures, floors, walls, partitions,
dispensers and counters.
2. Empty all trash and replace liners.
3. Replenish all sanitary and paper products with customer provided
supplies.
4. Polish mirrors and all brightwork.
5. Sweep and mop floors.
6. Remove fingerprints and smudges from walls, doors and light
switches.
TILE FLOORS
1. Damp mop nightly.
<PAGE>
EXHIBIT B
Cleaning Specifications
846 University Avenue
Norwood, MA
Page 2 of 2
WEEKLY CLEANING SERVICES
ELEVATORS
1. Clean ceilings and grills.
ALL TILE FLOORS
1. Spray buff.
OTHER CLEANING SERVICES
LOBBY
1. Machine scrub tile floor as needed.
TILE FLOORS
1. Strip semi-annually
2. Scrub and re-coat as needed.
OFFICE AREAS AND CONFERENCE ROOMS
1. Wash trash receptacles inside and out as needed.
RESTROOMS
1. Machine scrub floors quarterly.
CARPETS
1. Shampoo semi-annually (rotary & extraction).
DAY PORTER
1. Services as in Tenant's existing cleaning contract.
<PAGE>
EXHIBIT C
LANDLORD'S OTHER SERVICES
The Landlord shall furnish elevator service.
The Landlord shall repair and maintain and keep clear the access roadways and
drives and the parking areas, including without limitation, removal of snow
and ice, adjacent to the Building in which the demised premises are located
and treating of all sidewalk and parking areas.
The Landlord shall maintain the landscaping of the Property.
The Landlord shall furnish hot water and water at City temperature for
ordinary cleaning, toilet, lavatory and drinking purposes. All water piping
and equipment beyond Building Standard shall be installed and maintained by
the Landlord at the Tenant's expense. The Landlord shall furnish Building
Standard heat or air conditioning consistent with comparable First Class
Office Buildings in the Norwood area as reasonably required for the
comfortable occupancy of the Premises (subject to applicable governmental
regulation of heating and air conditioning) during the hours of 8:00 a.m. to
6:00 p.m. Mondays through Fridays and 8:00 a.m. to 1:00 p.m. on Saturdays,
State and Federal holidays excepted. Any costs Landlord incurs in providing
same after Building Hours shall be paid by Tenant directly and not as an
Operating Expense.
The Landlord shall maintain the Building's operating systems including the
repair and replacement of all components thereof.
Landlord to provide and maintain a building directory in the main lobby
identifying tenant.
Landlord to provide heating, air conditioning and lighting to common areas.
Landlord shall maintain and operate the first floor shower facilities
provided that the expense thereof is entirely borne by the tenants in the
Building as set forth elsewhere in this Lease.
Landlord shall provide pest extermination services.
Landlord shall provide a security system for the Building.
Landlord shall provide rubbish removal.
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EXHIBIT D
(Deliberately Omitted)
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<PAGE>
EXHIBIT E
Rules and Regulations
1. The sidewalks, plazas, entrances, lobbies, corridors, elevators, fire
exits and stairways shall not be encumbered or obstructed by any tenant
or its agents, employees, licensees or invitees, or be used for any
purpose other than ingress to and egress from the Tenant's premises.
2. Building operating personnel are not authorized to receipt for shipments
to or from the Building.
Furniture, equipment and supplies, and other packages, materials and
items requiring the use of a hand truck or other type of wheeled
transporter, shall be moved in or out of the Building or between floors
of the Building only upon the elevator or elevators designated by the
Landlord for that purpose and then only during such hours and in such
manner as may be reasonably prescribed by the Landlord and any damage to
the Building or any part thereof caused by the moving in or out of the
Building or between floors of the Buildings of said materials shall be
repaired by the Landlord at the reasonable expense of the tenant
responsible therefore.
3. If a Tenant's premises becomes infested with vermin due to Tenant's own
misuse of the premises, such tenant, at its sole cost and expense, shall
cause its premises to be exterminated by such exterminators as shall be
approved by the Landlord at such times and to such extent as the
Landlord deems necessary to exterminate the vermin.
4. No animals or birds shall be allowed in the corridors, lobbies,
elevators, or elsewhere in the Building.
5. Canvassing, soliciting and peddling in the Building is prohibited and
each tenant shall cooperate to prevent the same.
6. The water and wash closets and other plumbing fixtures shall not be used
for any purposes other than those for which they were constructed, and
no sweeping, rubbish, rags or other substances shall be thrown therein.
All damages resulting from any misuse of the fixtures by Tenant, its
servants, employees, agents, visitors of licensees, shall be borne by
Tenant.
7. Each tenant shall, at its expense, provide artificial light for the
employees of Landlord while doing janitor's service or other cleaning and
in making repairs or alterations in said premises.
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<PAGE>
8. Typical floors are designed to carry live loads not exceeding eighty
pounds per square foot. The slab on grade first floor is designed to
carry live loads not exceeding 100 pounds per square foot. Safes and
other especially heavy items shall not be located in the Premises
without Landlord's prior written approval. Landlord represents that
Tenant's initial occupancy, exclusive of any equipment not shown on
Tenant's plans, will not exceed the building load capacity.
9. Each tenant shall be responsible for all persons which it has authorized
to have access to the Building and shall be liable to Landlord for all
of their acts while in the Building. Landlord may require all persons
given access to the Building during non-business hours to sign a
register on entering and leaving the Building.
10. No curtains, blinds, shades or screens other than those furnished by
Landlord shall be attached to, hung in or used in connection with, any
window or door of the Premises, without the prior written consent of
Landlord. Such curtain, blinds, shades, screens or other fixtures must
be of a quality type, design and color, and attached in the manner
approved by Landlord.
11. Tenants may be requested to assign from among their employees personnel
to perform specific tasks required by the Building's emergency
evacuation plan.
12. The Landlord reserves the right at any time to change, rescind or waive
any one or more of these rules and regulations, and to make such other
and further reasonable rules and regulations as its judgment from time
to time be necessary for the safety, care, convenience or cleanliness of
the Building or for the preservation of comfort of good order therein.
The Landlord shall not be liable to any tenant for violation of the same
by any other tenant, its agents, employees, licensees or invitees. In
the event of any changes to these rules and regulations, Landlord agrees to
give Tenant 30 days advance written notice of such change. In the event
of any conflict between the rules and regulations and the Lease, the
Lease shall govern. Landlord agrees to uniformly enforce these Rules and
Regulations to all tenants in the project.
13. The Building is a Non-Smoking Building. Landlord requests the
cooperation of all tenants in enforcing a non-smoking policy.
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EXHIBIT G
TENANT IMPROVEMENT ESCROW AGREEMENT
This Tenant Improvement Escrow Agreement (this "Agreement") is made and
entered into as of March --, 1995, by and among The Prudential Insurance
Company of America, a New Jersey corporation ("Prudential"), NYL Benefit
Services Company, Inc., a Massachusetts corporation ("NYL"), Maric Inc., a
Massachusetts corporation (the "Escrow Holder") and Phoenix Technologies Ltd.
a Delaware corporation ("Phoenix"), with reference to the following facts:
A. Prudential is the owner of the building (the "Building") located at 846
University Avenue, Norwood, MA, and Phoenix is currently the tenant of the
entire Building.
B. Maric has entered into a Real Estate Purchase Agreement with prudential
pursuant to which Maric will acquire the Building. In connection with such
acquisition and at the request of Phoenix, Maric has negotiated, and
Prudential and NYL have entered into, a Lease Agreement of even date with NYL
(the "NYL Lease") pursuant to which NYL will lease a portion of the space
occupied by Phoenix. Maric and Phoenix have also negotiated, and Prudential
and Phoenix have entered into, an Amended and Reinstated Lease of even date
(the "Phoenix Lease") pursuant to which Phoenix will reduce the number of
square feet rented by Phoenix in the Building. In consideration of reducing its
rental obligation to Prudential, Phoenix has agreed to reimburse NYL for a
portion of the tenant improvements to be constructed pursuant to the NYL Lease.
C. As security for Phoenix's performance of its obligation to reimburse NYL
for such tenant improvements, Phoenix will establish an interest-bearing
escrow account (the "ESCROW") with the Escrow Holder and deposit therein the
amount of $642,264 (the "Escrow Amount") to be used only to pay for the
actual cost of tenant improvement work ("TI Work") pursuant to the NYL Lease.
Now, therefore, for and in consideration of the foregoing facts which are
made a part hereof, the mutual covenants contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. ESTABLISHMENT OF ESCROW. Upon execution of this Agreement, the Escrow
Amount shall be delivered by Phoenix to the Escrow Holder to be held in
Escrow.
<PAGE>
2. TENANT IMPROVEMENT DISBURSEMENTS. NYL shall be entitled to
disbursements from the Escrow for reimbursement for tenant improvement
expenditures pursuant to the NYL Lease upon the following specified
conditions:
(a) Upon notice to Escrow Holder, given no more frequently than monthly,
and submission of paid invoices with respect to TI Work done through
the date of such request, lien waivers evidencing payment from the
general contractor for all costs in connection with the TI Work for
which reimbursement is requested, and an inspection report of Escrow
Holder or an inspecting architect or engineer selected by Escrow
Holder (the reasonable cost of which shall be included in the
disbursement) indicating that such work has been done in accordance
with the requirements of the NYL Lease and the percentage of the TI
Work which is complete through the date of such certificate (the
"Percentage Completion"), an amount equal to the (i) Escrow Amount
times the Percentage Completion, less (ii) any retainage applicable
under the construction contracts for such TI Work, less (iii) the
portion of the Escrow Amount theretofor distributed. No disbursement
shall be made unless NYL has submitted reasonably satisfactory
assurances to Escrow Agent that all amounts previously due with
respect to such TI Work have been paid.
(b) A final payment of the Escrow Amount shall be made upon notice to
Escrow Holder, Prudential and Phoenix, accompanied by certificates of
occupancy, paid invoices, final lien waivers from the general
contractor evidencing payment of all costs in connection with the TI
Work, and a reasonably satisfactory inspection report of Escrow
Holder or an inspecting architect or engineer selected by Escrow
Holder (the reasonable cost of which shall be included in the
disbursement) indicating that such work has been done in accordance
with the requirements of the Lease.
(c) The parties hereto agree that ADD, Inc. shall serve as the inspecting
architect for the TI Work as contemplated by Section 2(a) and (b)
above, except that an engineer named by Landlord shall perform an
inspection of the HVAC systems prior to the final payment
contemplated by Section 2(b) above.
3. DISBURSEMENT FROM ESCROW. Upon receipt of the notice set forth in
SECTION 2, Escrow Holder shall determine within 5 days after receipt of such
request that the documentation submitted for any disbursement establishes
that the request is
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<PAGE>
otherwise complete and, upon such determination, release to NYL the lesser
of: (i) the amount provided in Section 2(a) above, or (ii) the remaining
amount of the Escrow.
4. DEFAULT. Notwithstanding any provision in this Agreement to the
contrary, no release shall be made to NYL if there has been a default beyond
the applicable grace period under the NYL Lease. Upon any such Default, the
entire balance of the Escrow fund may be used by the then owner of the
Building, in its sole discretion, to complete the TI Work. Escrow Holder is
irrevocably authorized and directed to honor a withdrawal of funds from the
Escrow at any time by such owner upon receipt of written notice from such
owner that any such Default has occurred.
5. INVESTMENT OF ESCROW. The Escrow shall immediately be invested, and
shall remain invested until disbursed according to this Agreement, in a
federally insured interest bearing account or in securities issued by the
United States or an agency thereof with a remaining term to maturity of 90
days or less, or in other securities directed by Phoenix and approved by
Prudential in writing, but in no event shall the maturities of any securities
extend beyond 90 days. All interest and other investment income shall be paid
to Phoenix immediately upon being credited to the Escrow Account.
6. ESCROW HOLDER'S INSTRUCTIONS. This Agreement shall be delivered to the
Escrow Holder and the provisions hereof shall constitute the escrow
instructions to the Escrow Holder from the parties hereto; provided, however,
that the parties shall execute such additional instructions as reasonably
requested by the Escrow Holder not inconsistent with the provisions hereof.
The Escrow Holder shall not be liable to either Phoenix or NYL in connection
with the performance of any duty imposed on the Escrow Holder hereunder or
any action taken by the Escrow Holder in good faith and in conformity with
the provisions of this Agreement, except for the Escrow Holder's negligence
or willful misconduct.
7. FEES AND COSTS. Phoenix shall have no liability for any fees, costs
and/or expenses of the Escrow Holder in connection with the performance of
its duties under this Agreement and Phoenix shall not be responsible for any
taxes imposed upon or assessed against the Escrow other than income taxes due
on interest or other investment income paid to Phoenix from the Escrow.
8. NOTICE. All notices shall be given in accordance with the provisions
of the NYL Lease or the Phoenix Lease as applicable. Notices to Escrow Holder
shall be addressed as follows:
-3-
<PAGE>
Maric, Inc.
160 Commonwealth Avenue
Suite U-9
Boston, MA 02116
9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of
which shall constitute one and the same Agreement.
10. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the heirs, personal representatives, successors and assigns of the
parties hereto. Upon acquisition of the Building by Maric from Prudential,
Prudential shall cease to be a party to this Agreement, Prudential shall have
no further rights or obligations hereunder and Maric shall succeed to and
assume all of Prudential's rights and obligations hereunder.
11. CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
12. PHOENIX OBLIGATIONS. Upon depositing the Escrow Amount in the Escrow
Account, Phoenix shall have no further obligation or liability (under the
Phoenix Lease or otherwise) with respect to any tenant improvement work for
space demised to NYL in the Building.
In witness whereof, the parties hereto have executed this Agreement as a
sealed instrument as of the day and year first set forth above.
PHOENIX TECHNOLOGIES LTD.
By: _______________________
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: _______________________
-4-
<PAGE>
NYL BENEFIT SERVICES COMPANY,
INC.
By: _______________________
Name:
Title:
MARIC, INC.
By: _______________________
Name:
Title:
Hereunto duly authorized
This exhibit shall be set forth above with the changes penned hereon and
such other changes as are mutually agreeable to all parties.
-5-
<PAGE>
Exhibit 11.1
PHOENIX TECHNOLOGIES LTD.
COMPUTATION OF EARNINGS PER SHARE
PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year ended September 30,
1995 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
Income from continuing
operations $8,815,000 $19,230,000 $3,565,000
Loss from discontinued
operations -- (12,436,000) (966,000)
---------- ----------- ----------
Net income $8,815,000 $ 6,794,000 $2,599,000
---------- ----------- ----------
---------- ----------- ----------
Weighted average number
of common shares
outstanding 13,613,000 13,219,000 12,657,000
Weighted average number
of common equivalent
shares (1) 1,490,000 831,000 1,045,000
---------- ----------- ----------
Weighted average number
of common and common
equivalent shares
outstanding 15,103,000 14,050,000 13,702,000
---------- ----------- ----------
---------- ----------- ----------
Primary earnings per
share: (1)
Continuing operations $ 0.58 $ 1.37 $ 0.26
Discontinued operations (0.00) (0.89) (0.07)
------ ------ ------
Net Income $ 0.58 $ 0.48 $ 0.19
------ ------ ------
------ ------ ------
</TABLE>
- ----------------
(1) In a loss period, loss per share is computed using only the weighted
average number of common shares outstanding, as the effect of common
equivalent shares would be antidilutive.
<PAGE>
Exhibit 11.2
PHOENIX TECHNOLOGIES LTD.
COMPUTATION OF EARNINGS PER SHARE
FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year ended September 30,
1995 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
Income from continuing
operations $8,815,000 $19,230,000 $3,565,000
Loss from discontinued
operations -- (12,436,000) (966,000)
---------- ----------- ----------
Net income $8,815,000 $6,794,000 $2,599,000
---------- ----------- ----------
---------- ----------- ----------
Weighted average number
of common shares
outstanding 13,613,000 13,219,000 12,657,000
Weighted average number
of common equivalent
shares (1) 1,610,000 1,019,000 1,047,000
---------- ----------- ----------
Weighted average number
of common and common
equivalent shares
outstanding 15,223,000 14,238,000 13,704,000
---------- ----------- ----------
---------- ----------- ----------
Primary earnings per
share: (1)
Continuing operations $ 0.58 $ 1.37 $ 0.26
Discontinued operations (0.00) (0.89) (0.07)
------ ------ ------
Net Income $ 0.58 $ 0.48 $ 0.19
------ ------ ------
------ ------ ------
</TABLE>
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF
PHOENIX TECHNOLOGIES LTD.
Subsidiary State of Incorporation
---------- ----------------------
WHOLLY OWNED
Phoenix Technologies (Taiwan) Ltd. Delaware
Phoenix Technologies Kabushiki Kaisha Japan
MINORITY OWNED
Phoenix Publishing Systems, Inc. (20%) Delaware
Xionics Document Technologies, Inc. (19.9%) Delaware
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Phoenix Technologies Ltd. on Form S-8 (File numbers 33-58027, 33-67858,
33-24416, 33-26996, 33-30939, 33-30940, 33-44211 and 33-81984) of our reports
dated October 27, 1995, on our audits for the consolidated financial statements
and financial statement schedule of Phoenix Technologies Ltd. as of September
30, 1995 and 1994 and for each of the three fiscal years in the period ended
September 30, 1995, which reports are included in this Annual Report on Form
10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND, L.L.P.
San Jose, California
December 27, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 25797
<SECURITIES> 7147
<RECEIVABLES> 12494
<ALLOWANCES> 430
<INVENTORY> 53
<CURRENT-ASSETS> 48698
<PP&E> 11899
<DEPRECIATION> 9274
<TOTAL-ASSETS> 62390
<CURRENT-LIABILITIES> 11902
<BONDS> 0
<COMMON> 14
0
0
<OTHER-SE> 53710
<TOTAL-LIABILITY-AND-EQUITY> 62390
<SALES> 43448
<TOTAL-REVENUES> 49941
<CGS> 9582
<TOTAL-COSTS> 14355
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> 8270
<INCOME-TAX> 1483
<INCOME-CONTINUING> 8815
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8815
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
</TABLE>
