<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ____________ to ____________ .
Commission file number 0-17111
PHOENIX TECHNOLOGIES LTD.
-------------------------
(Exact name of Registrant as specified in its charter)
Delaware 04-2685985
- ---------------------------------- -----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
411 EAST PLUMERIA DRIVE, SAN JOSE, CALIFORNIA 95134
---------------------------------------------------
(Address of principal executive offices, including zip code)
(408) 570-1000
--------------
(Registrant's telephone number, including area code)
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
------------- ------------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, par value $.001 25,920,802
- --------------------------------------- -------------------------------
Class Number of Shares Outstanding at
April 30, 2000
<PAGE>
PHOENIX TECHNOLOGIES LTD.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2000 and September 30, 1999........................................................3
Condensed Consolidated Statements of Income for the
Three and Six Months Ended March 31, 2000 and 1999...........................................4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended March 31, 2000 and 1999.....................................................5
Notes to Condensed Consolidated Financial Statements.........................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk..................................15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.........................................16
Item 6. Exhibits and Report on Form 8-K
Exhibits....................................................................................17
Reports on Form 8-K.........................................................................17
</TABLE>
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31, September 30,
Assets 2000 1999
------------------- -------------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 60,388 $ 24,873
Short-term investments 37,403 30,719
Accounts receivable, net of allowance of $1,094 at
March 31, 2000 and $1,460 at September 30, 1999 35,293 30,105
Other current assets 9,218 8,762
------------------- -------------------
Total current assets 142,302 94,459
Other marketable securities 8,699 8,684
Investments 2,473 2,474
Property and equipment, net 12,437 12,588
Computer software costs, net 5,874 7,471
Goodwill and other intangible assets, net 9,047 10,165
Other assets 6,273 6,157
------------------- -------------------
Total assets $ 187,105 $ 141,998
=================== ===================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 3,303 $ 3,810
Payroll and related liabilities 8,431 10,612
Other accrued liabilities 9,554 19,561
Income taxes payable 6,816 7,547
------------------- -------------------
Total current liabilities 28,104 41,530
Long-term obligations 1,514 1,546
Commitments and contingencies - -
Minority Interest 13,430 -
Stockholders' equity:
Preferred stock, $.10 par value, 500 shares
authorized, none issued - -
Common stock, $.001 par value, 60,000 shares
authorized, 25,706 and 24,036 shares issued and
outstanding at March 31, 2000 and September 30, 1999 29 24
Additional paid-in capital 128,643 89,227
Stock-based compensation (1,360) (33)
Retained earnings 16,945 10,573
Accumulated other comprehensive loss (200) (869)
------------------- -------------------
Total stockholders' equity 144,057 98,922
------------------- -------------------
Total liabilities and stockholders' equity $ 187,105 $ 141,998
=================== ===================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
Page 3
<PAGE>
PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
----------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenue:
License fees $ 30,844 $25,740 $ 58,226 $ 49,973
Services 3,881 5,820 8,870 12,128
------------ ------------ ------------- ---- ------------
Total revenue 34,725 31,560 67,096 62,101
Cost of revenue:
License fees 244 1,327 1,722 2,445
Services 4,692 4,184 8,714 8,833
Amortization of purchased technology 314 533 628 1,066
------------ ------------ ------------- ------------
Total cost of revenue 5,250 6,044 11,064 12,344
------------ ------------ ------------- ------------
Gross margin 29,475 25,516 56,032 49,757
Operating expenses:
Research and development 9,704 9,726 20,208 19,793
Sales and marketing 7,707 7,138 14,664 14,388
General and administrative 4,856 3,368 9,565 7,626
Amortization of goodwill and
acquired intangible assets 555 627 1,110 1,252
Stock-based compensation 125 - 452 -
Restructuring charge - - - 1,944
------------ ------------ ------------- ------------
Total operating expenses 22,947 20,859 45,999 45,003
------------ ------------ ------------- ------------
Income from operations 6,528 4,657 10,033 4,754
Interest and other income, net 810 614 1,345 1,844
Minority interest 25 - 25 -
------------ ------------ ------------- ------------
Income before income taxes 7,363 5,271 11,403 6,598
Provision for income taxes 2,356 1,687 3,647 2,112
------------ ------------ ------------- ------------
Net income $ 5,007 $ 3,584 $ 7,756 $ 4,486
============ ============ ============= ============
Earnings per share:
Basic $ 0.20 $ 0.13 $ 0.31 $ 0.17
============ ============ ============= ============
Diluted $ 0.17 $ 0.13 $ 0.28 $ 0.16
============ ============ ============= ============
Weighted average shares used in earnings per
share calculation:
Basic 25,188 26,656 24,641 26,615
============ ============ ============= ============
Diluted 28,682 27,996 27,717 28,010
============ ============ ============= ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
Page 4
<PAGE>
PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-----------------------------------
2000 1999
----------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,756 $ 4,486
Reconciliation to net cash provided by (used in) operating activities:
Depreciation and amortization 4,432 6,469
Realized gain on sale of other marketable securities - (112)
Stock-based compensation 452 -
Minority interest (25) -
Change in operating assets and liabilities:
Accounts receivable (4,931) (5,074)
Other assets 433 1,533
Accounts payable (508) (3,643)
Payroll and related liabilities (2,273) (927)
Other accrued liabilities (6,489) 721
Income taxes payable (756) (1,182)
----------------- ---------------
Total adjustments (9,665) (2,215)
----------------- ---------------
Net cash provided by (used in) operating activities (1,909) 2,271
Cash flows from investing activities:
Maturity of short-term and long-term investments 33,234 24,342
Purchases of short-term and long-term investments (39,933) (24,011)
Proceeds from sale of other marketable securities - 117
Purchases of property and equipment (2,330) (1,637)
Additions to computer software costs (144) (1,963)
----------------- ---------------
Net cash used in investing activities (9,173) (3,152)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs 37,714 -
Proceeds from common stock purchases under stock option and
stock purchase plans 14,026 2,058
Repurchases of common stock (6,289) -
----------------- ---------------
Net cash provided by financing activities 45,451 2,058
----------------- ---------------
Effect of exchange rate changes on cash and cash equivalents 1,146 1,067
----------------- ---------------
Net increase in cash and cash equivalents 35,515 2,244
Cash and cash equivalents at beginning of period 24,873 44,234
----------------- ---------------
Cash and cash equivalents at end of period $ 60,388 $ 46,478
================= ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
Page 5
<PAGE>
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. BASIS OF PRESENTATION
Phoenix Technologies Ltd. ("Phoenix" or the "Company") is a global
leader in system-enabling software solutions for PCs and connected digital
devices. The Company has three business units (one of which is a
majority-owned subsidiary), each of which delivers leading products and
professional services that enable connected computing. The accompanying
condensed consolidated financial statements of Phoenix Technologies Ltd. and
its wholly and majority-owned subsidiaries have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). All intercompany accounts and transactions
have been eliminated. Certain information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. The information included in this report should be read in
conjunction with the Company's audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1999.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) necessary to summarize fairly the Company's
financial position, results of operations and cash flows for the interim
periods presented. All significant intercompany accounts and transactions
have been eliminated. The operating results for the three and six-month
period ended March 31, 2000, are not necessarily indicative of the results
that may be expected for the fiscal year ending September 30, 2000, or for
any other future period.
Certain amounts in the fiscal 1999 financial statements have been
reclassified to conform to the fiscal 2000 presentation.
NOTE 2. SALE OF INTERST IN INSILICON CORPORATION
The initial public offering of 3.5 million shares of the Company's
subsidiary, inSilicon Corporation ("inSilicon"), closed on March 27, 2000.
Proceeds, net of issuance costs, to inSilicon were $37.7 million. The
accompanying condensed consolidated financial statements include the
financial position and results of operations of inSilicon on a fully
consolidated basis. During fiscal 2000, as part of the separation of
inSilicon to a separate subsidiary, the Company contributed certain assets to
inSilicon including technology, licenses, personal property and other assets
with inSilicon assuming the related liabilities. The Company entered into
certain agreements with inSilicon, including services and cost sharing
agreements, employee matters agreements, and tax sharing agreements that will
govern the ongoing relationship of the parties.
NOTE 3. CHANGES IN ACCOUNTING
The Company adopted Statement of Position 98-9, ("SOP 98-9"),
Modification of SOP 97-2, "Software Revenue Recognition, With Respect to
Certain Transactions," as of October 1, 1999. The adoption of SOP 98-9 did
not have a material impact on the Company's consolidated financial results.
However, full implementation guidelines for these standards have not been
issued. Once available, the current revenue recognition accounting practices
may change and such changes could affect the Company's future revenues and
results of operations.
Page 6
<PAGE>
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statement" ("SAB 101") which outlines the
Staff's position on various revenue recognition issues. SAB 101 did not have
a material impact on the Company's financial position, results of operations
or cash flows.
NOTE 4. RESTRUCTURING CHARGES
In the first quarter of fiscal 1999, the Company recorded a
restructuring charge of $1.9 million related to facilities consolidations and
streamlining certain field operations and other functions, including closing
the offices in Texas and France. The restructuring charge included $1.8
million of severance benefits associated with the elimination of
approximately 38 positions in engineering, sales, marketing, and
administration from various product divisions, field operations, and general
administrative functions, as well as $0.1 million related to facilities
abandonment. As of March 31, 2000, the restructuring charge was fully paid.
NOTE 5. EARNINGS PER SHARE
The following table presents the calculations of basic and diluted
earnings per share under Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings per Share" (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------------ ----------------------------
2000 1999 2000 1999
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net income $ 5,007 $ 3,584 $ 7,756 $ 4,486
=============== ============== ============== =============
Weighted average common shares
outstanding 25,188 26,656 24,641 26,615
Effect of dilutive securities (using the treasury
stock method):
Stock options 2,786 1,205 2,562 1,261
Warrants 708 135 514 134
--------------- -------------- -------------- -------------
Total dilutive securities 3,494 1,340 3,076 1,395
--------------- -------------- -------------- -------------
Weighted diluted average common and
equivalent shares outstanding 28,682 27,996 27,717 28,010
=============== ============== ============== =============
Earnings per share:
Basic $ 0.20 $ 0.13 $ 0.31 $ 0.17
=============== ============== ============== =============
Diluted $ 0.17 $ 0.13 $ 0.28 $ 0.16
=============== ============== ============== =============
</TABLE>
Page 7
<PAGE>
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
NOTE 6. COMPREHENSIVE INCOME
Following are the components of comprehensive income (IN THOUSANDS):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net income $5,007 $ 3,584 $7,756 $ 4,486
Foreign currency translation adjustments 259 (478) 669 1,022
Unrealized loss on securities, net of tax - (385) - (324)
------------- ------------- -------------- -------------
Other comprehensive income (loss) 259 (863) 669 698
------------- ------------- -------------- -------------
Comprehensive income $5,266 $ 2,721 $8,425 $ 5,184
============= ============= ============== =============
</TABLE>
NOTE 7. SEGMENT REPORTING
The Company has three reportable segments: Platform Enabling,
inSilicon and PhoenixNet.
PLATFORM ENABLING: Provides system-enabling software that is
used in the design, deployment and ongoing operation of PCs, internet
appliances, embedded systems, and other connected digital devices. Platform
Enabling's flagship BIOS products provide support for current technologies
and industry standards, allowing systems and device manufacturers to base new
product designs on a range of microprocessors, chipsets and operating systems
combinations.
INSILICON: Provides communications technology that is used by
semiconductor and systems companies to design complex semiconductors called
systems-on-a-chip that are critical components of digital devices.
inSilicon's communications technology is used by hundreds of customers in
hundreds of different digital devices ranging from network routers to
cellular phones. This technology includes reusable semiconductor intellectual
property that is compatible with a wide range of microprocessor designs.
PHOENIXNET: Provides PC users worldwide with a solution to manage
and support their computers, and the ability to turn their computers into
powerful tools for communication, business, entertainment and education.
The Company evaluates operating segment performance based on
revenue, gross margin and operating income.
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
-------------------------------------------------------------------------------
(IN THOUSANDS) 2000 1999 2000 1999
--------------------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenue:
Platform Enabling $29,463 $26,635 $56,577 $52,310
inSilicon 5,838 4,925 11,095 9,791
PhoenixNet 139 - 139 -
Intercompany eliminations (715) - (715) -
------------------- ------------------- ------------------- -------------------
Total $34,725 $31,560 $67,096 $62,101
=================== =================== =================== ===================
</TABLE>
Page 8
<PAGE>
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
--------------------------------------- ---------------------------------------
(IN THOUSANDS) 2000 1999 2000 1999
-------------------------------- ------------------ ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Gross Margin:
Platform Enabling $24,513 $21,709 $46,888 $41,802
inSilicon 4,823 3,807 9,005 7,955
PhoenixNet 139 - 139 -
------------------ ------------------- ------------------- -------------------
Total $29,475 $25,516 $56,032 $49,757
================== =================== =================== ===================
Income (loss) from operations:
Platform Enabling $ 9,031 $ 6,031 $16,671 $ 9,301
inSilicon (750) (1,374) (1,808) (2,603)
PhoenixNet (2,353) - (5,430) -
Reversal of restructuring
charges - - - (1,944)
Reversal of Y2K support 600 - 600 -
------------------ ------------------- ------------------- -------------------
Total $ 6,528 $ 4,657 $10,033 $ 4,754
================== =================== =================== ===================
</TABLE>
The Company also reports geographic information, which is categorized into
three regions: North America, Asia and Europe.
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
--------------------------------------- ---------------------------------------
(IN THOUSANDS) 2000 1999 2000 1999
-------------------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenue:
North America $ 9,558 $11,182 $17,174 $21,190
Asia 22,705 17,557 44,813 35,019
Europe 2,462 2,821 5,109 5,892
------------------- ------------------- ------------------- -------------------
Total $34,725 $31,560 $67,096 $62,101
=================== =================== =================== ===================
</TABLE>
NOTE 8. STOCK REPURCHASE PROGRAM
In fiscal 1999, the Board of Directors authorized two programs to
repurchase outstanding shares of common stock. Under these programs, the
Company repurchased approximately 3.3 million shares during fiscal 1999 at a
total aggregate cost of approximately $34.1 million. The Company repurchased
an additional 175,000 shares during the fiscal quarter ended December 31,
1999 at a cost of approximately $2.1 million. As of December 1999, both
repurchase programs were completed and terminated.
Page 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS REPORT ON FORM 10-Q, INCLUDING WITHOUT LIMITATION THIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
21E AND SECTION 27A OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE
FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS THAT INVOLVE
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE PROJECTED. FACTORS THAT MAY CAUSE SUCH A DIFFERENCE INCLUDE, BUT
ARE NOT LIMITED TO, THOSE DISCUSSED HEREIN AND IN PART II, ITEM 7
(MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS) OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1999, AND IN OTHER DOCUMENTS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION.
COMPANY OVERVIEW
Phoenix Technologies Ltd. ("Phoenix" or the "Company") is a global
leader in system-enabling software solutions for PCs and connected digital
devices. Its software provides compatibility, connectivity, security, and
manageability of the various components and technologies used in such
devices. Phoenix provides these products primarily to platform and peripheral
manufacturers (collectively, "OEMs") that range from large PC manufacturers
to small system integrators. Phoenix also provides training, consulting,
maintenance and engineering services to its customers. It markets and
licenses its products and services primarily through a direct sales force, as
well as through regional distributors and sales representatives.
The Company's operations include the following:
PLATFORM ENABLING: Provides system-enabling software that is
used in the design, deployment and ongoing operation of PCs, internet
appliances, embedded systems, and other connected digital devices. Platform
Enabling's flagship BIOS products provide support for current technologies
and industry standards, allowing systems and device manufacturers to base new
product designs on a range of microprocessors, chipsets and operating systems
combinations.
INSILICON: Provides communications technology that is used by
semiconductor and systems companies to design complex semiconductors called
systems-on-a-chip that are critical components of digital devices.
inSilicon's communications technology is used by hundreds of customers in
hundreds of different digital devices ranging from network routers to
cellular phones. This technology includes reusable semiconductor intellectual
property that is compatible with a wide range of microprocessor designs.
PHOENIXNET: Provides PC users worldwide with a solution to manage
and support their computers, and the ability to turn their computers into
powerful tools for communication, business, entertainment and education.
REVENUE
The Company's products are generally designed into personal computer
systems, information appliances and semiconductors. License fee and service
revenue by segment for the three and six-month periods ended March 31, 2000
and 1999, were as follows (DOLLARS IN THOUSANDS):
<TABLE>
<CAPTION>
% of Consolidated
Amount Revenue
---------------------------- ---------------------------
Three months ended March 31: 2000 1999 % CHANGE 2000 1999
-------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Platform Enabling $ 29,463 $ 26,635 11% 84.8% 84.4%
inSilicon 5,838 4,925 19% 16.8% 15.6%
PhoenixNet 139 - N/A 0.4% -
Intercompany eliminations (715) - N/A (2.0%) -
-------------- ------------- ------------- -------------
Total revenue $ 34,725 $ 31,560 10% 100% 100%
============== ============= ============= =============
</TABLE>
Page 10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
% of Consolidated
Amount Revenue
---------------------------- ---------------------------
Six months ended March 31: 2000 1999 % CHANGE 2000 1999
-------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Platform Enabling $ 56,577 $ 52,310 8% 84.3% 84.2%
inSilicon 11,095 9,791 13% 16.5% 15.8%
PhoenixNet 139 - N/A 0.2% -
Intercompany eliminations (715) - N/A (1.0%) -
-------------- ------------- ------------- -------------
Total revenue $ 67,096 $ 62,101 8% 100% 100%
============== ============= ============= =============
</TABLE>
The increase in Platform Enabling revenue in the second quarter and
first six months of fiscal 2000 of 11% and 8%, respectively, from the
comparable periods of fiscal 1999 was due to increased worldwide demand for
personal computers. inSilicon revenue increased in the second quarter and
first six months of fiscal 2000 primarily due to the greater market
acceptance of semiconductor intellectual property. Comparison of PhoenixNet
revenues to the same periods in fiscal 1999 is not applicable, since this is
the first quarter of PhoenixNet revenue.
Revenue by geographic region for the three and six-month periods
ended March 31, 2000 and 1999, was as follows (DOLLARS IN THOUSANDS):
<TABLE>
<CAPTION>
% of Consolidated
Amount Revenue
--------------------------- -------------------------
Three months ended March 31: 2000 1999 % CHANGE 2000 1999
------------- ------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
North America $ 9,558 $11,182 (15%) 27.5% 35.4%
Asia 22,705 17,557 29% 65.4% 55.6%
Europe 2,462 2,821 (13%) 7.1% 9.0%
------------- ------------- ------------ -----------
Total revenue $34,725 $31,560 10% 100% 100%
============= ============= ============ ===========
% of Consolidated
Amount Revenue
--------------------------- -------------------------
Six months ended March 31: 2000 1999 % CHANGE 2000 1999
------------- ------------- -------------- ------------ -----------
North America $17,174 $21,190 (19%) 25.6% 34.1%
Asia 44,813 35,019 28% 66.8% 56.4%
Europe 5,109 5,892 (13%) 7.6% 9.5%
------------- ------------- ------------ -----------
Total revenue $67,096 $62,101 8% 100% 100%
============= ============= ============ ===========
</TABLE>
Asian revenue increased while North American and European revenue
decreased in the three and six-month periods ended March 31, 2000 due
primarily to the outsourcing of system design and manufacturing to Asian PC
and motherboard manufacturers and to growth in Japan PC shipments in the
Platform Enabling segment. Growth in Platform Enabling revenue may be
impacted in future quarters by a possible decline in average selling prices
due in part to the transition of design and manufacturing of motherboards to
Asia.
One customer accounted for 12% of total revenue during the three and
six-month periods ended March 31, 2000. No customer accounted for more than
10% of revenue during the three and six-month periods ended March 31, 1999.
Service revenue in the three and six-month periods ended March 31,
2000 decreased 33% and 27%, respectively, over the comparable periods in
fiscal 1999. These decreases were primarily due to the market shift within
the Platform Enabling segment to Asia where a higher proportion of total
revenues has historically been generated from license fees, the timing of new
processor chip releases from the respective semiconductor chip manufacturers
and the shift towards recurring license revenues versus non-recurring
Page 11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
service revenues, partially offset by increases in inSilicon's services
revenue due to increased maintenance revenue generated from inSilicon's
growing installed base of customers.
GROSS MARGIN
Gross margin as a percentage of revenue was 85% and 81% for the
three-month periods ended March 31, 2000 and 1999, respectively. Gross margin
as a percentage of revenue was 84% and 80% for the six-month periods ended
March 31, 2000 and 1999, respectively. Included in the costs of revenue was
$0.3 million and $0.5 million of amortization of purchased technologies from
Sand Microelectronics for the three months ended March 31, 2000 and 1999,
respectively, and $0.6 million and $1.1 million for the six months ended
March 31, 2000 and 1999, respectively. Also included in the costs of revenue
in the three months ended March 31, 2000 was $0.6 million of Year 2000
("Y2K") support cost reversal. Gross margin as a percentage of revenue before
the amortization of purchased technology and reversal of Y2K support costs
was 84% and 83% for the three-month periods ended March 31, 2000 and 1999,
respectively, and 84% and 82% for the six-month periods ended March 31, 2000
and 1999, respectively. Service gross margin as a percentage of revenue
declined to (21)% and 2% in the three and six-month periods ended March 31,
2000, from 28% and 27% in the three and six-month periods ended March 31,
1999. This decrease was mostly due to a decline in service revenues within
the Platform Enabling segment mentioned above.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the three-month periods ended
March 31, 2000 and 1999 decreased from 31% of revenue to 28%, primarily due
to increased revenues while research and development expenses remained
approximately unchanged at $9.7 million.
Research and development expenses for the six months ended March 31,
2000, increased $0.4 million (2%) from the comparable period in fiscal 1999.
This increase was primarily due to a $0.9 million of license fee related to
certain web-based PhoenixNet technologies, partially offset by decreased
headcount as a result of the Company gaining efficiency after the fiscal 1999
reorganizations into three operating segments.
The Company did not capitalize any internal software development
costs for the three-month period ended March 31, 2000 as compared to $0.9
million for the same period in fiscal 1999. The Company capitalized $0.1
million and $1.5 million of internal software development costs for the
six-month periods ended March 31, 2000 and 1999, respectively. This decrease
in capitalization was due to a higher proportion of costs being incurred on
non-capitalizable projects, such as products that have not yet reached
technological feasibility.
SALES AND MARKETING EXPENSES
Sales and marketing expenses for the three and six-month periods
ended March 31, 2000, increased $0.6 million (8%) and $0.3 million (2%),
respectively, from the comparable periods in fiscal 1999 mostly due to
increases in personnel and consulting and related recruiting costs,
especially in the PhoenixNet and inSilicon segments, partially offset by a
slight decrease in trade show and industry event attendance by Company
personnel.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three and six-month periods
ended March 31, 2000, increased $1.5 million (44%) and $1.9 million (25%),
respectively, from the comparable periods in fiscal 1999 primarily due to
increases in personnel and consulting and related recruiting costs, legal fees
due to
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
increased patent activities, as well as increased variable compensation due
to higher profitability, and to the reversal of certain excess costs in the
quarter ended March 31, 1999.
RESTRUCTURING CHARGES
In the first quarter of fiscal 1999, the Company recorded a
restructuring charge of $1.9 million related to the facilities consolidations
and streamlining certain field operations and other functions, including
closing the offices in Texas and France. The restructuring charge included
$1.8 million of severance benefits associated with the elimination of
approximately 38 positions in engineering, sales, marketing, and
administration from various product divisions, field operations, and general
administrative functions, as well as $0.1 million related to facilities
abandonment. As of March 31, 2000, the restructuring charge was fully paid.
STOCK-BASED COMPENSATION
The stock-based compensation charges in the three and six-month
periods ended March 31, 2000, was mostly due to the granting of options to
purchase inSilicon stock at exercise prices less than the fair market value
of inSilicon common stock on the grant date.
INTEREST AND OTHER INCOME, NET
Interest and other income, net, for the three-month period ended
March 31, 2000, increased $0.2 million (32%) from the three-month period
ended March 31, 1999 primarily due to higher cash balances as a result of the
proceeds inSilicon received from the initial public offering of inSilicon
stock. Interest and other income, net, for the six-month period ended March
31, 2000 decreased $0.5 million (27%) from the comparable period in fiscal
1999 primarily due to lower average cash and short-term investments balances
as a result of stock repurchases in the second half of fiscal 1999 which
lowered the fiscal 2000 beginning cash balances. In addition, the inSilicon
initial public offering occurred in the latter part of the second quarter of
fiscal 2000.
PROVISION FOR INCOME TAXES
The Company recorded income tax provisions of $2.4 million and $3.6
million for the three and six-month periods ended March 31, 2000,
respectively, as compared to $1.7 million and $2.1 million for the comparable
periods in fiscal 1999. The provisions for income taxes reflect an effective
tax rate of 32% for all periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have historically
included operating cash flow. In the second quarter of fiscal 2000 inSilicon
raised net proceeds of $37.7 million. In addition, inSilicon has a $5 million
revolving line of credit with a commercial bank that expires in January 2001.
There were no borrowings outstanding under the credit facility at March 31,
2000. The Company believes that its existing sources of liquidity will be
sufficient to satisfy the Company's cash requirements for at least the next
twelve months.
In fiscal 1999, the Board of Directors authorized two programs to
repurchase outstanding shares of common stock. Under these programs, the
Company repurchased approximately 3.3 million shares during fiscal 1999 at a
total aggregate cost of approximately $34.1 million. The Company repurchased
an
Page 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
additional 175,000 shares during the fiscal quarter ended December 31, 1999
at a cost of approximately $2.1 million. As of December 1999, both repurchase
programs were completed and terminated.
CHANGES IN FINANCIAL CONDITION
Net cash used in operating activities in the six months ended March
31, 2000 was $1.9 million, consisting primarily of an increase in accounts
receivable and a decrease in payroll and other accrued liabilities, partially
offset by $7.8 million of net income, adjusted for non-cash items. Net cash
generated from operating activities in the six months ended March 31, 1999
was $2.3 million, resulting primarily from cash provided by net income,
adjusted for non-cash items. Net cash used in investing activities in the
six-month period ended March 31, 2000 was $9.2 million, consisting primarily
of $6.7 million of net purchases of short-term and long-term investments, and
$2.3 million in purchases of property and equipment. Net cash used in
investing activities in the six-month period ended March 31, 1999, was $3.2
million. It consisted primarily of $0.3 million of net maturities of
short-term and long-term investments, $1.6 million in purchases of property
and equipment, and $2.0 million in additions to computer software costs. Net
cash provided by financing activities during the six months ended March 31,
2000 was $45.4 million, consisted primarily of $37.7 million generated from
the initial public offering of inSilicon stock and $14.0 generated from the
exercise of common stock options and the issuance of stock under the
Company's employee stock purchase plan, partially offset by $6.3 million of
cash used to repurchase the Company's common stock. Cash generated from
financing activities in the six months ended March 31, 1999, was $2.1
million, consisting of the exercise of common stock options and the issuance
of stock under the Company's employee stock purchase plan.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Position 98-9, ("SOP 98-9"),
Modification of SOP 97-2, "Software Revenue Recognition, With Respect to
Certain Transactions", as of October 1, 1999. The adoption of SOP 98-9 did
not have a material impact on the Company's consolidated financial results.
However, full implementation guidelines for these standards have not been
issued. Once available, the current revenue recognition accounting practices
may need to change and such changes could affect the Company's future
revenues and results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") and in June 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133" ("SFAS
137"). SFAS 133 established methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as
other hedging activities. SFAS 137 deferred for one year the effective date
of SFAS 133. The Company is required to adopt these statements in fiscal 2001
and have not determined the effect, if any, that adoption will have on the
Company's consolidated financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statement" ("SAB 101") which outlines the
Staff's position on various revenue recognition issues. SAB 101 did not have
a material impact on the Company's financial position, results of operations
or cash flows.
YEAR 2000
Significant uncertainty existed in the software industry concerning the
potential effects associated with the Year 2000 ("Y2K") problem. Many software
and firmware products and internally developed applications used two digits to
designate the year instead of four digits, which could result in the
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
interpretation of the year 00 as 1900 or other dates instead of correctly
interpreting it as 2000. The PC industry also defined the Y2K issue to
include proper handling of leap year calculations. A Y2K issue could have
disrupted processing transactions or even caused certain systems to fail.
This possibility affected the Company's products, its information technology
and other internal systems as well as its customers and vendors.
Consequently, the Company's Y2K compliance effort covered the Company's
products, internal systems and services provided by others.
As of March 31, 2000, the Company had not yet experienced
significant costs or business interruptions associated with: 1) previously
undetected errors in the Company's products, 2) Y2K litigation, as currently
being experienced by other software vendors or 3) a significant disruption of
the Company's internal information systems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For financial market risks related to changes in interest rate,
foreign currency exchange rates, and investment, refer to Part II, Item 7A,
Quantitative and Qualitative Disclosures About Market Risk, in the Company's
Annual Report on Form 10-K for the year ended September 30, 1999.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an Annual Meeting of its Stockholders on February
1, 2000, at which the following occurred:
ELECTION OF DIRECTORS: The stockholders elected George C. Huang and Anthony
P. Morris as Class 1 Directors to serve until the 2002 Annual Meeting of
Stockholders. The vote on the matter was as follows:
George C. Huang:
FOR 21,166,581
WITHHELD/AGAINST 1,371,708
Anthony P. Morris:
FOR 19,672,174
WITHHELD/AGAINST 2,812,115
APPROVAL OF THE AMENDMENT TO THE 1999 STOCK PLAN: The stockholders approved
the amendment to the 1999 Stock Plan to increase the number of shares
reserved for issuance thereunder by 700,000 shares. The vote on the matter
was as follows:
FOR 16,239,696
AGAINST 6,025,115
ABSTAIN 219,478
APPROVAL OF THE 1999 DIRECTOR OPTION PLAN: The stockholders approved the 1999
Director Option Plan and authorized 150,000 shares reserved for issuance
thereunder. The vote on the matter was as follows:
FOR 17,875,248
AGAINST 4,383,992
ABSTAIN 226,049
APPROVAL OF THE AMENDED AND RESTATED 1991 EMPLOYEE STOCK PURCHASE PLAN: The
stockholders approved the Amended 1991 Employee Stock Purchase Plan, which
includes an increase to the number of shares reserved for issuance thereunder
by 350,000 shares. The vote on the matter was as follows:
FOR 20,271,024
AGAINST 1,994,804
ABSTAIN 218,461
APPOINTMENT OF INDEPENDENT AUDITORS: The stockholders ratified the selection
of Ernst & Young LLP as the Company's independent public accountants for the
current fiscal year. The vote on the matter was as follows:
FOR 22,308,056
AGAINST 161,345
ABSTAIN 14,888
Page 16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. See Exhibit Index on page 19 hereof.
(b) REPORTS ON FORM 8-K.
On January 19, 2000, the Registrant filed a Current
Report on Form 8-K to report the election of two board
members.
Page 17
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
Date: MAY 12, 2000 By: /S/ JOHN M. GREELEY
--------------------------------
John M. Greeley
Vice President, Finance and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
Page 18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -------
<S> <C>
10.61 Amended and Restated Initial Public Offering Agreement (inSilicon)
10.62 Contribution Agreement (inSilicon)
10.63 Employee Matters Agreement (inSilicon)
10.64 Letter of Intent to Touchstone Software Corporation
27 Financial Data Schedule.
</TABLE>
Page 19
<PAGE>
EXHIBIT 10.61
AMENDED AND RESTATED
INITIAL PUBLIC OFFERING AGREEMENT
dated as of March 15, 2000
between
PHOENIX TECHNOLOGIES LTD.
and
INSILICON CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS................................................................................ 1
Section 1.1. Definitions........................................................................... 1
ARTICLE II THE INITIAL PUBLIC OFFERING................................................................ 4
Section 2.1. Cooperation Before to the Initial Public Offering..................................... 4
Section 2.2. Conditions Precedent to the Initial Public Offering................................... 5
ARTICLE III INDEMNIFICATION............................................................................ 6
Section 3.1. Release of Claims..................................................................... 6
Section 3.2. Indemnification by inSilicon.......................................................... 7
Section 3.3. Indemnification by Phoenix............................................................ 8
Section 3.4. Notice and Payment of Claims.......................................................... 8
Section 3.5. Notice and Defense of Third-Party Claims.............................................. 9
Section 3.6. Insurance Proceeds....................................................................10
Section 3.7. Contribution..........................................................................10
Section 3.8. Subrogation...........................................................................10
Section 3.9. No Third-Party Beneficiaries..........................................................11
Section 3.10. Remedies Cumulative...................................................................11
Section 3.11. Survival of Indemnities...............................................................11
Section 3.12. After-Tax Indemnification Payments....................................................11
ARTICLE IV CERTAIN ADDITIONAL MATTERS.................................................................11
Section 4.1. Company Officers and Board of Directors...............................................11
Section 4.2. The Company Certificate of Incorporation and Bylaws...................................11
Section 4.3. Insurance Policies and Claims Administration..........................................11
Section 4.4. Non-Solicitation of Employees.........................................................13
ARTICLE V ACCESS TO INFORMATION......................................................................14
Section 5.1. Agreement For Exchange of Information.................................................14
Section 5.2. Auditors and Audits; Annual and Quarterly Statements and Accounting...................15
Section 5.3. Confidentiality; Protection...........................................................17
Section 5.4. Mail..................................................................................17
ARTICLE VI DISPUTE RESOLUTION.........................................................................18
Section 6.1. Dispute Resolution....................................................................18
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
Section 6.2. Continuity of Service and Performance.................................................19
ARTICLE VII STANDSTILL; COVENANT NOT TO COMPETE........................................................19
Section 7.1. Standstill............................................................................19
Section 7.2. Non-Compete...........................................................................19
ARTICLE VIII MISCELLANEOUS..............................................................................20
Section 8.1. Termination...........................................................................20
Section 8.2. Expenses..............................................................................20
Section 8.3. Notices...............................................................................21
Section 8.4. Amendment and Waiver..................................................................21
Section 8.5. Counterparts..........................................................................21
Section 8.6. Governing Law.........................................................................22
Section 8.7. Entire Agreement......................................................................22
Section 8.8. Assignment............................................................................22
Section 8.9. Parties in Interest...................................................................22
Section 8.10. Tax Sharing Agreement.................................................................22
Section 8.11. Exhibits and Schedules................................................................22
Section 8.12. Legal Enforceability..................................................................22
Section 8.13. Titles and Headings...................................................................23
Section 8.14. Conflicting Agreements................................................................23
</TABLE>
-ii-
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AMENDED AND RESTATED
INITIAL PUBLIC OFFERING AGREEMENT
This Amended and Restated Initial Public Offering Agreement (this
"Agreement") is entered into effective as of March 15, 2000 by and between
Phoenix Technologies, Ltd., a Delaware corporation ("Phoenix"), and inSilicon
Corporation, a Delaware corporation and a wholly owned subsidiary of Phoenix
("inSilicon").
RECITALS
WHEREAS, the Board of Directors of Phoenix has determined that it is in
the best interests of Phoenix to separate the business and operations of Phoenix
engaged in the development and licensing of semiconductor intellectual property
cores, silicon subsystems, firmware stocks and drivers (the "Business") from
Phoenix's other operations by transferring the assets of the Business to
inSilicon and causing inSilicon to assume the liabilities of the Business (the
"Separation");
WHEREAS, the parties have determined that it is desirable and in the
best interests of inSilicon to obtain funds for the operation of the Business by
causing inSilicon to sell, in an initial public offering (the "Initial Public
Offering"), additional shares of its common stock, par value $.001 per share
("Common Stock");
WHEREAS, it is appropriate and desirable to set forth certain
agreements that will govern certain matters relating to the Separation and the
Initial Public Offering and the relationship of Phoenix and inSilicon and their
respective subsidiaries after the Initial Public Offering.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, provisions and covenants contained
in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. As used herein, the following terms have the
following meanings:
"ACTION" means any claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, governmental or regulatory or
administrative agency or commission or any other tribunal or other Governmental
Authority.
"AFFILIATE" of any specified Person means any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such specified Person.
"AGREEMENT" has the meaning set forth in the preamble, as such
agreement may be amended and supplemented from time to time in accordance with
its terms.
<PAGE>
"ANCILLARY AGREEMENTS" means each of the following agreements between
Phoenix and inSilicon dated as of November 30, 1999, as the same may be amended
from time to time: the Services and Cost-Sharing Agreement, the Employee Matters
Agreement, the Tax-Sharing Agreement, the Registration Rights Agreement and the
Technology Distributor Agreement.
"BUSINESS" has the meaning set forth in the first recital of this
Agreement.
"CLOSING DATE" means the first time at which any shares of Common Stock
are sold to the Underwriters pursuant to the Initial Public Offering in
accordance with the terms of the Underwriting Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" has the meaning set forth in the second recital of this
Agreement.
"COMPANY BYLAWS" means the bylaws of inSilicon in the form to take
effect immediately prior to the Closing Date filed as an exhibit to the
Registration Statement.
"COMPANY CERTIFICATE" means the restated certificate of incorporation
of inSilicon in the form to take effect immediately prior to the Closing Date
filed as an exhibit to the Registration Statement.
"CONTRIBUTION AGREEMENT" means that certain Contribution Agreement
between inSilicon and Phoenix dated as of November 30, 1999, as the same may be
amended from time to time.
"DISPUTES" has the meaning set forth in Section 6.1.
"EFFECTIVE INITIAL PUBLIC OFFERING DATE" means the date on which the
Registration Statement is declared effective by the Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GOVERNMENTAL AUTHORITY" means any federal, state, local, foreign or
international court, government, department, commission, board, bureau, agency,
official or other regulatory, administrative or governmental authority.
"INDEMNIFIED PARTY" has the meaning set forth in Section 3.4.
"INDEMNIFYING PARTY" has the meaning set forth in Section 3.4.
"INFORMATION" means information, whether or not patentable or
copyrightable, in written, oral, electronic or other tangible or intangible
forms, stored in any medium, including studies, reports, records, books,
contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications drawings, blueprints, diagrams, models,
prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes,
computer programs or other software, marketing plans, customer names,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under their
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<PAGE>
direction (including attorney work product), and other technical, financial,
employee or business information or data.
"INITIAL PUBLIC OFFERING" has the meaning set forth in the second
recital of this Agreement.
"INSILICON CONTRACT" shall have the meaning set forth in the
Contribution Agreement.
"INSILICON INDEMNITEES" has the meaning set forth in Section 3.3.
"INSILICON'S AUDITORS" has the meaning set forth in Section 5.2(a).
"INSURANCE CHARGES" has the meaning set forth in Section 4.3(c).
"LIABILITY" shall have the meaning set forth in the Contribution
Agreement.
"PERSON" means an individual, a general or limited partnership, a
corporation, a trust, a joint venture, an unincorporated organization, a limited
liability entity, any other entity and any Governmental Authority.
"PHOENIX'S AUDITORS" has the meaning set forth in Section 5.2(b).
"PHOENIX GROUP" means Phoenix and each Person (other than inSilicon and
its subsidiaries) that is an Affiliate of Phoenix immediately after the
Separation Date.
"PHOENIX INDEMNITEES" has the meaning set forth
"POLICY" has the meaning set forth in Section 4.3(a).
"PROSPECTUS" means each preliminary, final or supplemental prospectus
forming a part of the Registration Statement.
"REGISTRATION STATEMENT" means the registration statement on Form S-1
filed by inSilicon with the Commission to effect the registration of the Common
Stock pursuant to the Securities Act, as such registration statement may be
amended from time to time.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SEMICONDUCTOR INTELLECTUAL PROPERTY LIABILITIES" shall have the
meaning set forth in the Contribution Agreement.
"SEPARATION" has the meaning set forth in the second recital of this
Agreement.
"SEPARATION DATE" means November 30, 1999.
"TAX" or "TAXES" has the meaning set forth in the Tax-Sharing
Agreement.
"THIRD-PARTY CLAIM" has the meaning set forth in Section 3.5.
3
<PAGE>
"UNDERWRITERS" means the Persons listed as "underwriters" in the final
Prospectus.
"UNDERWRITING AGREEMENT" has the meaning set forth in Section 3.2.
Unless otherwise specified, any reference to any "subsidiary" or
"subsidiaries" of Phoenix shall not include inSilicon.
ARTICLE II
THE INITIAL PUBLIC OFFERING
Section 2.1. COOPERATION BEFORE TO THE INITIAL PUBLIC OFFERING. (a)
TRANSACTIONS BEFORE THE INITIAL PUBLIC OFFERING.
(i) Subject to the conditions specified in Section 3.3,
Phoenix and inSilicon shall use their reasonable efforts to consummate
the Initial Public Offering. Such actions shall include, but not
necessarily be limited to, those specified in this Section 2.1.
(ii) inSilicon shall file the Registration Statement, and such
amendments or supplements thereto, as may be necessary in order to
cause the same to become and remain effective as required by law or by
the Underwriters, including, but not limited to, filing such amendments
to the Registration Statement as may be required by the Underwriting
Agreement, the Commission or federal, state or foreign securities laws.
inSilicon also shall prepare, file with the Commission and cause to
become effective a registration statement registering the Common Stock
under the Exchange Act, and any registration statements or amendments
thereof which are required to reflect the establishment of, or
amendments to, any employee benefit and other plans necessary or
appropriate in connection with the Separation and the Initial Public
Offering or the other transactions contemplated by this Agreement and
the Ancillary Agreements.
(iii) inSilicon shall enter into the Underwriting Agreement,
in form and substance reasonably satisfactory to inSilicon and shall
comply with its obligations thereunder.
(iv) Phoenix and inSilicon shall consult with each other and
the Underwriters regarding the timing, pricing and other material
matters with respect to the Initial Public Offering.
(v) inSilicon shall use its best efforts to take all such
action as may be necessary or appropriate under state securities and
blue sky laws of the United States (and any comparable laws under any
foreign jurisdictions) in connection with the Initial Public Offering.
(vi) inSilicon shall prepare, file and use best efforts to
seek to make effective, a listing application for quotation of the
Common Stock issued in the Initial Public Offering in the Nasdaq
National Market, subject to official notice of issuance.
4
<PAGE>
(vii) inSilicon shall participate in the preparation of
materials and presentations as the Underwriters shall deem necessary or
desirable.
(viii) inSilicon shall pay the costs and expenses set forth in
Section 8.2.
(b) PROCEEDS OF THE INITIAL PUBLIC OFFERING. The Initial Public
Offering will consist of a primary offering of Common Stock by inSilicon.
inSilicon will receive the net proceeds of the Initial Public Offering, but
shall remain subject to any obligations to Phoenix under this Agreement, the
Contribution Agreement or any Ancillary Agreement required to be paid therefrom.
Section 2.2. CONDITIONS PRECEDENT TO THE INITIAL PUBLIC OFFERING. In no
event shall the Initial Public Offering occur unless the following conditions
shall, unless waived by Phoenix in its sole discretion, have been satisfied:
(a) The Registration Statement shall have been filed and declared
effective by the Commission, and there shall be no stop-order in effect with
respect thereto.
(b) The actions and filings with regard to state securities and blue
sky laws of the United States (and any comparable laws under any foreign
jurisdictions) described in Section 2.1 shall have been taken and, where
applicable, have become effective or been accepted.
(c) inSilicon's Board of Directors, as named in the Registration
Statement, shall have been elected by Phoenix, as sole stockholder of inSilicon,
and the Company Certificate and Company Bylaws shall be in effect.
(d) inSilicon and Phoenix shall have entered into the Underwriting
Agreement and all conditions to the obligations of inSilicon and the
Underwriters shall have been satisfied or waived.
(e) The Common Stock shall have been approved for quotation in the
Nasdaq National Market, subject to official notice of issuance.
(f) Each of the Ancillary Agreements, in form and substance
satisfactory to Phoenix, shall have been executed by the parties thereto and
shall remain in full force and effect and each of the transactions contemplated
by the Ancillary Agreements to be consummated on or before the Effective Initial
Public Offering Date shall have been consummated.
(g) No preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a government,
regulatory or administrative agency or commission, and no statute, rule,
regulation or executive order promulgated or enacted by any Governmental
Authority, shall be in effect preventing the Initial Public Offering or any of
the other transactions contemplated by this Agreement or any Ancillary Agreement
shall be in effect.
(h) Phoenix shall have been released from any Liabilities, guarantees
or other obligations with respect to any indebtedness or otherwise of inSilicon
or its subsidiaries.
5
<PAGE>
(i) Such other actions as the parties may, based upon the advice of
counsel, reasonably request to be taken before the Initial Public Offering in
order to assure the successful completion of the Initial Public Offering and the
other transactions contemplated by this Agreement shall have been taken.
(j) This Agreement shall not have been terminated.
ARTICLE III
INDEMNIFICATION
Section 3.1. RELEASE OF CLAIMS. (a) Except as provided in Section
3.1(c), effective as of the Separation Date, inSilicon does hereby, for itself
and its Affiliates (other than any member of the Phoenix Group), successors and
assigns, and all Persons who at any time prior to the Separation Date have been
stockholders, directors, officers, agents or employees of inSilicon (in each
case, in their respective capacities as such), remise, release and forever
discharge Phoenix and each member of the Phoenix Group, their respective
successors and assigns, and all Persons who at any time prior to the Separation
Date have been stockholders, directors, officers, agents or employees of Phoenix
or any member of the Phoenix Group (in each case, in their respective capacities
as such), and their respective heirs, executors, administrators, successors and
assigns, from any and all Liabilities whatsoever, whether at law or in equity
(including any right of contribution), whether arising under any contract or
agreement, by operation of law or otherwise, existing or arising from any facts
or events occurring or failing to occur or alleged to have occurred or to have
failed to occur or any conditions existing or alleged to have existed on or
before the Separation Date, including in connection with the transactions and
all other activities to implement the Separation and the Initial Public
Offering.
(b) Except as provided in Section 3.1(c), effective as of the
Separation Date, Phoenix does hereby, for itself and each member of the Phoenix
Group, successors and assigns, and all Persons who at any time prior to the
Separation Date have been stockholders, directors, officers, agents or employees
of Phoenix or any member of the Phoenix Group (in each case, in their respective
capacities as such), remise, release and forever discharge inSilicon and its
subsidiaries, their respective successors and assigns, and all Persons who at
any time prior to the Separation Date have been stockholders, directors,
officers, agents or employees of inSilicon or any of its subsidiaries (in each
case, in their respective capacities as such), and their respective heirs,
executors, administrators, successors and assigns, from any and all Liabilities
whatsoever, whether at law or in equity (including any right of contribution),
whether arising under any contract or agreement, by operation of law or
otherwise, existing or arising from any facts or events occurring or failing to
occur or alleged to have occurred or to have failed to occur or any conditions
existing or alleged to have existed on or before the Separation Date, including
in connection with the transactions and all other activities to implement the
Separation and the Initial Public Offering.
(c) Nothing contained in Sections 3.1(a) or (b) shall impair any right
of any Person to enforce this Agreement, the Contribution Agreement or any
Ancillary Agreement. Nothing contained in Sections 3.1(a) and (b) shall release
any Person from:
6
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(i) any Liability, contingent or otherwise, assumed,
transferred or assigned to such Person in accordance with, or any other
Liability of any Person under, this Agreement, the Contribution
Agreement or any Ancillary Agreement;
(ii) any Liability that the parties may have with respect to
indemnification or contribution pursuant to this Agreement for claims
brought against the parties by third Persons, which Liability shall be
governed by the provisions of this Article III and, if applicable, the
appropriate provisions of the Contribution Agreement or the Ancillary
Agreements; or
(iii) any Liability the release of which would result in the
release of any Person other than a Person released pursuant to this
Section 3.1; provided that the parties agree not to bring suit or
permit any of their subsidiaries to bring suit against any Person with
respect to any Liability to the extent that such Person would be
released with respect to such Liability by this Section 3.1 but for the
provision of this clause (iii).
(d) inSilicon shall not make, and shall not permit any of its
subsidiaries to make, any claim or demand or commence any Action asserting any
claim or demand, including any claim of contribution or indemnification, against
Phoenix or any member of the Phoenix Group or any other Person released pursuant
to Section 3.1(a), with respect to any Liabilities released pursuant to Section
3.1(a). Phoenix shall not make, and shall not permit any member of the Phoenix
Group to make, any claim or demand or commence any Action asserting any claim or
demand, including any claim of contribution or indemnification, against
inSilicon or any of its subsidiaries or any other Person released pursuant to
Section 3.1(b), with respect to any Liabilities released pursuant to Section
3.1(b).
(e) It is the intention of each of Phoenix and inSilicon by virtue of
the provisions of this Section 3.1 to provide for a full and complete release
and discharge of all Liabilities existing or arising from all acts and events
occurring or failing to occur or alleged to have occurred or failed to occur and
all conditions existing or alleged to have existed on or before the Separation
Date, between or among inSilicon or any of its subsidiaries, on the one hand,
and Phoenix or any member of the Phoenix Group, on the other hand (including any
contractual agreements or arrangements existing or alleged to exist between or
among such Persons on or before the Separation Date), except as expressly set
forth in Section 3.1(c). At any time, at the request of the other party, each
party shall execute and deliver, or shall cause such other appropriate Persons
to execute and deliver, releases reflecting the provisions hereof.
Section 3.2. INDEMNIFICATION BY INSILICON. Except as provided in
Section 3.5 and except as otherwise expressly provided in the Contribution
Agreement or any of the Ancillary Agreements, from and after the Separation
Date, inSilicon shall indemnify, defend and hold harmless Phoenix, each member
of the Phoenix Group and each of their respective directors, officers, employees
and agents and each of the heirs, executors, successors and assigns of any of
the foregoing (collectively, the "Phoenix Indemnitees") from and against any and
all Liabilities of the Phoenix Indemnitees arising out of, relating to or
resulting from any of the following items (without duplication):
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(a) the failure of inSilicon or any other Person to pay, perform or
otherwise promptly discharge any Semiconductor Intellectual Property Liability
or inSilicon Contract in accordance with their respective terms, whether before
or after the Separation Date;
(b) the Business, any Semiconductor Intellectual Property Liability or
any inSilicon Contract;
(c) any breach by inSilicon or any of its subsidiaries of this
Agreement, the Contribution Agreement or any of the Ancillary Agreements;
(d) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A under the
Securities Act, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, other than information pertaining solely to Phoenix that is supplied
by Phoenix;
(e) any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (or any supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, other than information pertaining solely to Phoenix that
is supplied by Phoenix;
(f) in whole or in part, any inaccuracy in the representations and
warranties of inSilicon contained in the underwriting agreement between
inSilicon and the Underwriters (the "Underwriting Agreement");
(g) in whole or in part upon any failure of inSilicon to perform its
obligations under the Underwriting Agreement or under law;
(h) any untrue statement or alleged untrue statement of any material
fact contained in any audio or visual materials provided by inSilicon or based
upon written information furnished by or on behalf of inSilicon including,
without limitation, slides, videos, films or tape recordings, used in connection
with the marketing of the shares of Common Stock sold pursuant to the
Prospectus; and
(i) any act or failure to act or any alleged act or failure to act by
any Underwriter in connection with, or relating in any manner to, the shares of
Common Stock sold pursuant to the Prospectus or the offering contemplated by the
Registration Statement, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon any matter
covered by clause (d), (e), (f), (g) or (h) above.
Section 3.3. INDEMNIFICATION BY PHOENIX. Except as provided in Section
3.5 and except as otherwise expressly provided in the Contribution Agreement or
any of the Ancillary Agreements, from and after the Separation Date, Phoenix
shall indemnify, defend and hold harmless inSilicon and each of its subsidiaries
and each of their respective directors, officers, employees and agents and each
of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "inSilicon Indemnitees") from and against any and all
Liabilities of
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the inSilicon Indemnitees arising out of, relating to or resulting from any
of the following items (without duplication):
(a) the failure of Phoenix or any other member of the Phoenix Group or
any other Person to pay, perform or otherwise promptly discharge any Liability
of the Phoenix Group other than the Semiconductor Intellectual Property
Liabilities in accordance with its terms, whether before or after the Separation
Date;
(b) any Liability of any member of the Phoenix Group other than the
Semiconductor Intellectual Property Liabilities and the business of any member
of the Phoenix group other than the Business;
(c) any breach by Phoenix or any member of the Phoenix Group of this
Agreement, the Contribution Agreement or any of the Ancillary Agreements;
(d) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A under the
Securities Act, pertaining solely to Phoenix that is supplied by Phoenix, or the
omission or alleged omission therefrom of a material fact pertaining solely to
Phoenix required to be stated therein or necessary to make the statements
therein not misleading; and
(e) any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (or any supplement thereto), or the omission
pertaining solely to Phoenix that is supplied by Phoenix or alleged omission
therefrom of a material fact pertaining solely to Phoenix necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
Section 3.4. NOTICE AND PAYMENT OF CLAIMS. If any Phoenix Indemnitee or
inSilicon Indemnitee (the "Indemnified Party") determines that it is or may be
entitled to indemnification under this Article III (other than in connection
with any Action subject to Section 3.5), the Indemnified Party shall deliver to
the Person from whom such indemnification is sought (the "Indemnifying Party"),
a written notice specifying, to the extent reasonably practicable, the basis for
its claim for indemnification and the amount for which the Indemnified Party
reasonably believes it is entitled to be indemnified. After the Indemnifying
Party shall have been notified of the amount for which the Indemnified Party
seeks indemnification, the Indemnifying Party shall, within 30 days after
receipt of such notice, either (i) pay the Indemnified Party such amount in cash
or other immediately available funds (or reach agreement with the Indemnified
Party as to a mutually agreeable alternative payment schedule) or (ii) object to
the claim for indemnification or the amount thereof by giving the Indemnified
Party written notice setting forth the grounds therefor. Any objection shall be
resolved in accordance with Article VI. If the Indemnifying Party does not give
such notice within such 30-day period, the Indemnifying Party shall be deemed to
have acknowledged its liability for such claim and the Indemnified Party may
exercise any and all of its rights under applicable law to collect such amount.
Section 3.5. NOTICE AND DEFENSE OF THIRD-PARTY CLAIMS. Promptly
following the earlier of (A) receipt of written notice of the commencement by a
third party of any Action against or
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otherwise involving any Indemnified Party or (B) receipt of written
information from a third party alleging the existence of a claim against an
Indemnified Party, in either case, with respect to which indemnification may
be sought pursuant to this Agreement (a "Third-Party Claim"), the Indemnified
Party shall give the Indemnifying Party prompt written notice thereof.
Failure of the Indemnified Party to give notice as provided in this Section
3.5 shall not relieve the Indemnifying Party of its obligations under this
Agreement, except to the extent that the Indemnifying Party is prejudiced by
such failure to give notice. Such notice shall describe the Third-Party Claim
in reasonable detail.
(a) Within 30 days after receipt of such notice, the Indemnifying Party
may by giving written notice thereof to the Indemnified Party, (i) elect to
assume the defense of such Third-Party Claim at its sole cost and expense or
(ii) object to the claim of indemnification for such Third-Party Claim setting
forth the grounds therefor. Any objection shall be resolved in accordance with
Article VI. If the Indemnifying Party does not give such notice within such
30-day period, the Indemnifying Party shall be deemed to have acknowledged its
liability for such Third-Party Claim.
(b) Any defense of a Third-Party Claim as to which the Indemnifying
Party has elected to assume the defense shall be conducted by counsel employed
by the Indemnifying Party and reasonably satisfactory to Phoenix in the case of
Phoenix Indemnitees and inSilicon in the case of inSilicon Indemnitees. The
Indemnified Party shall have the right to participate in such proceedings and to
be represented by counsel of its own choosing at the Indemnified Party's sole
cost and expense; PROVIDED that if the defendants or parties against which
relief is sought in any such claim include both the Indemnifying Party and one
or more Indemnified Parties and, in the reasonable judgment of Phoenix in the
case of Phoenix Indemnitees and inSilicon in the case of inSilicon Indemnitees,
a conflict of interest between such Indemnified Parties and such Indemnifying
Party exists in respect of such claim, such Indemnified Parties shall have the
right to employ one firm of counsel selected by Phoenix for Phoenix Indemnitees
or inSilicon for inSilicon Indemnitees and in that event the reasonable fees and
expenses of such separate counsel (but not more than one separate counsel
reasonably satisfactory to the Indemnifying Party) shall be paid by such
Indemnifying Party. If the Indemnifying Party assumes the defense of a
Third-Party Claim, the Indemnifying Party may settle or compromise the claim
without the prior written consent of the Indemnified Party; PROVIDED that
without the prior written consent of Phoenix in the case of Phoenix Indemnitees
and inSilicon in the case of inSilicon Indemnitees, the Indemnifying Party may
not agree to any such settlement unless as a condition to such settlement the
Indemnified Party receives a written release from any and all liability relating
to such Third-Party Claim and such settlement or compromise does not include any
remedy or relief to be applied to or against the Indemnified Party, other than
monetary damages for which the Indemnifying Party shall be responsible
hereunder.
(c) If the Indemnifying Party does not assume the defense of a
Third-Party Claim for which it has acknowledged liability for indemnification
under this Article III, Phoenix in the case of Phoenix Indemnitees and inSilicon
in the case of inSilicon Indemnitees may pursue the defense of such Third-Party
Claim and choose one firm of counsel in connection therewith. The Indemnifying
Party is required to reimburse Phoenix or inSilicon, as the case may be, on a
current basis for its reasonable expenses of investigation, reasonable
attorneys' fees and reasonable out-of-pocket expenses incurred by Phoenix in the
case of Phoenix Indemnitees and
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inSilicon in the case of inSilicon Indemnitees in defending against such
Third-Party Claim and the Indemnifying Party shall be bound by the result
obtained with respect thereto, PROVIDED that the Indemnifying Party shall not
be liable for any settlement effected without the consent of the Indemnifying
Party, which consent shall not be unreasonably withheld.
(d) The Indemnifying Party shall pay to the Indemnified Party in cash
the amount for which the Indemnified Party is entitled to be indemnified (if
any) no later than the later of (i) the date on which the Indemnified Party
makes any payment in satisfaction (partial or otherwise) of the Third-Party
Claim or (ii) the date on which such Indemnifying Party's objection, if any, to
its responsibility for indemnification under this Article III has been resolved
pursuant to Article VI or by settlement or compromise or the final nonappealable
judgment of a court of competent jurisdiction.
Section 3.6. INSURANCE PROCEEDS. The amount that any Indemnifying Party
is or may be required to pay to any Indemnified Party pursuant to this Article
III shall be reduced (including, without limitation, retroactively) by any
insurance proceeds or other amounts actually recovered by or on behalf of such
Indemnified Parties in reduction of the related Liability. If an Indemnified
Party shall have received the payment required by this Agreement from an
Indemnifying Party in respect of a Liability and shall subsequently actually
receive insurance proceeds, or other amounts in respect of such Liability as
specified above, then such Indemnified Party shall pay to such Indemnifying
Party a sum equal to the amount of such insurance proceeds or other amounts
actually received after deducting therefrom all of the Indemnifying Party's
costs and expenses associated with such Liability.
Section 3.7. CONTRIBUTION. If the indemnification provided for in this
Article III is unavailable to an Indemnified Party in respect of any Liability
arising out of or related to information contained in or omitted from the
Registration Statement or the Prospectus, then the inSilicon Indemnitees, or
Phoenix Indemnitees, as the case may be, in lieu of indemnifying the Phoenix
Indemnitees or inSilicon Indemnitees, as the case may be, shall contribute to
the amount paid or payable by the Phoenix Indemnitees or inSilicon Indemnitees,
as the case may be, as a result of such Liability in such proportion as is
appropriate to reflect the relative fault of inSilicon, on the one hand, and
Phoenix, on the other hand, in connection with the statements or omissions which
resulted in such Liability. If the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information pertaining solely to Phoenix, then Phoenix shall bear any
resulting Liability; otherwise, inSilicon shall bear any resulting Liability.
Section 3.8. SUBROGATION. In the event of payment by an Indemnifying
Party to any Indemnified Party in connection with any Third-Party Claim, such
Indemnifying Party shall be subrogated to and shall stand in the first place of
such Indemnified Party as to any events or circumstances in respect of which
such Indemnified Party may have any right or claim relating to such Third-Party
Claim. Such Indemnified Party shall cooperate with such Indemnifying Party in a
reasonable manner, and at the cost and expense of such Indemnifying Party, in
prosecuting any subrogated right or claim.
Section 3.9. NO THIRD-PARTY BENEFICIARIES. This Article III shall inure
to the benefit of, and be enforceable by Phoenix, the Phoenix Indemnitees,
inSilicon and the inSilicon Indemnitees
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and their respective successors and permitted assigns. The indemnification
provided for by this Article III shall not inure to the benefit of any other
third party or parties and shall not relieve any insurer who would otherwise
be obligated to pay any claim of the responsibility with respect thereto or,
solely by virtue of the indemnification provisions hereof, provide any
subrogation rights with respect thereto and each party agrees to waive such
rights against the other to the fullest extent permitted.
Section 3.10. REMEDIES CUMULATIVE. The remedies provided in this
Article III shall be cumulative and shall not preclude assertion by any
Indemnified Party of any other rights or the seeking of any and all other
remedies against an Indemnifying Party. The procedures set forth in this Article
III, however, shall be the exclusive procedures governing any indemnity action
brought under this Article III or otherwise relating to Liabilities.
Section 3.11. SURVIVAL OF INDEMNITIES. The rights and obligations of
each of Phoenix and inSilicon and their respective Indemnitees under this
Article III shall survive the sale or other transfer by it of any assets or
businesses or the assignment by it of any Liabilities.
Section 3.12. AFTER-TAX INDEMNIFICATION PAYMENTS. Except as otherwise
expressly provided in this Agreement, the Contribution Agreement or in an
Ancillary Agreement, indemnification payments made by either party under this
Article shall give effect to, and be reduced by the value of, any and all
applicable deductions, losses, credits, offsets or other items for Federal,
state or other Tax purposes attributable to the payment of the indemnified
Liability by the Indemnified Party.
ARTICLE IV
CERTAIN ADDITIONAL MATTERS
Section 4.1. COMPANY OFFICERS AND BOARD OF DIRECTORS. On or prior to
the Closing Date, Phoenix shall take and shall cause inSilicon to take all
actions necessary to appoint as officers and directors of inSilicon those
persons named in the Registration Statement to constitute the officers and
directors of inSilicon on the Closing Date.
Section 4.2. THE COMPANY CERTIFICATE OF INCORPORATION AND BYLAWS. Prior
to the Closing Date, Phoenix shall take all action necessary to cause the
Company Certificate and Company Bylaws to be amended and restated substantially
in the form attached to the Registration Statement as exhibits thereto.
Section 4.3. INSURANCE POLICIES AND CLAIMS ADMINISTRATION.
(a) MAINTENANCE OF INSURANCE COVERAGE PRIOR TO SEPARATION DATE. Phoenix
and inSilicon shall use reasonable efforts to maintain in full force and effect
at all times up to and including the Separation Date and for the periods set
forth in the Services and Cost-Sharing Agreement, its current property and
casualty insurance programs, including, without limitation, primary and excess
general liability, automobile, workers' compensation, property and crime
insurance policies (collectively, the "Policies" and individually, a "Policy").
inSilicon and its subsidiaries shall retain with respect to any insured claims
relating to periods before the
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Separation Date or termination of the applicable period set forth in the
Services and Cost-Sharing Agreement with respect to each such Policy
(whichever is later), all of their respective rights, benefits and
privileges, if any, under such Policies. To the extent not already provided
for by the terms of a Policy, Phoenix shall use reasonable efforts to cause
inSilicon and its subsidiaries, as appropriate, to be named as additional
insureds under such Policy in respect of Covered Claims arising or relating
to periods prior to the Separation Date or termination of the applicable
period set forth in the Services and Cost-Sharing Agreement with respect to
each such Policy (whichever is later); PROVIDED, however, that nothing
contained herein shall be construed to require Phoenix or any of its
subsidiaries to pay any additional premium or other charges in respect to, or
waive or otherwise limit any of its rights, benefits or privileges under, any
such Policy to effect the naming of inSilicon and its subsidiaries as such
additional insureds except as required by the Services and Cost-Sharing
Agreement and then only to the extent the charge, if any, is borne by
inSilicon.
(b) COMPANY RESPONSIBLE FOR ESTABLISHING INSURANCE COVERAGE ON AND
AFTER SEPARATION DATE. Except as provided under the Services and Cost-Sharing
Agreement or any other Ancillary Agreement, commencing on and as of the
Separation Date, inSilicon and each of its subsidiaries shall be responsible for
establishing and maintaining its own separate insurance programs (including,
without limitation, primary and excess general liability, automobile, workers,
compensation, property, director and officer liability, fire, crime, surety and
other similar insurance policies) for activities and claims relating to any
period on or after the Separation Date involving inSilicon or any of its
subsidiaries. Notwithstanding any other agreement or understanding to the
contrary, except as set forth in the Services and Cost-Sharing Agreement or any
such Ancillary Agreement or Section 4.3(c) with respect to claims administration
and financial administration of the Policies, neither Phoenix nor any of its
subsidiaries shall have any responsibility for or obligation to inSilicon or its
subsidiaries relating to liability and casualty insurance matters for any
period, whether before, at or after the Separation Date except to the extent set
forth in the Services and Cost-Sharing Agreement.
(c) ADMINISTRATION AND PROCEDURE. (i) Phoenix or a subsidiary of
Phoenix, as appropriate, shall be responsible for the claims administration and
financial administration of all Policies for insured claims relating to the
assets, ownership or operation of the Business prior to the Separation Date or
termination of the applicable period set forth in the Services and Cost-Sharing
Agreement with respect to each such Policy (whichever is later); PROVIDED,
HOWEVER, that such retention by Phoenix of the Policies and the responsibility
for claims administration and financial administration of the Policies are in no
way intended to limit, inhibit or preclude any right to insurance coverage for
any insured claims under the Policies by inSilicon. Phoenix shall direct each
insurance carrier to pay to inSilicon any proceeds for the insured claims of
inSilicon or, if Phoenix receives such proceeds, it shall forward them promptly
to inSilicon. inSilicon or a subsidiary thereof, as appropriate, shall be
responsible for all administrative and financial matters relating to insurance
policies established and maintained by inSilicon and its subsidiaries for claims
relating to any period on or after the Separation Date involving inSilicon or
any of its subsidiaries.
(ii) inSilicon shall notify Phoenix of any insured claim
relating to inSilicon or a subsidiary thereof under one or more of the
Policies, and inSilicon agrees to cooperate and coordinate with Phoenix
concerning any strategy Phoenix may reasonably elect to
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pursue to secure coverage and payment for such insured claim by the
appropriate insurance carrier. Notwithstanding the foregoing,
Phoenix shall not be entitled to settle any insured claim relating
to inSilicon or a subsidiary thereof without inSilicon's consent,
which consent will not be unreasonably withheld.
(iii) inSilicon or an appropriate subsidiary thereof shall
assume responsibility for, and shall pay to the appropriate insurance
carriers or otherwise, any premiums, retrospectively-rated premiums,
defense costs, indemnity payments, deductibles, retentions or other
charges, as appropriate (collectively, "Insurance Charges"), whenever
arising, which shall become due and payable under the terms and
conditions of any applicable Policy in respect of any liabilities,
losses, claims, actions or occurrences, whenever arising or becoming
known, involving or relating to any of the assets, businesses,
operations or liabilities of inSilicon or any of its subsidiaries, to
the extent set forth in Section 4.3(a) and any such charges that relate
to the period after the Separation Date or, if later, termination of
the applicable period set forth in the Services and Cost-Sharing
Agreement with respect to each such Policy. To the extent that the
terms of any applicable Policy provide that Phoenix or a subsidiary
thereof, as appropriate, shall have an obligation to pay or guarantee
the payment of any Insurance Charges, Phoenix or such subsidiary shall
be entitled to demand that inSilicon or a subsidiary thereof make such
payment directly to the Person entitled thereto. In connection with any
such demand, Phoenix shall submit to inSilicon or a subsidiary thereof
a copy of any invoice received by Phoenix or a subsidiary pertaining to
such Insurance Charges, together with appropriate supporting
documentation, if available. In the event that inSilicon or its
subsidiary fails to pay any Insurance Charges when due and payable,
whether at the request of the party entitled to payment or upon demand
by Phoenix or a subsidiary of Phoenix, Phoenix or a subsidiary of
Phoenix may (but shall not be required to) pay such Insurance Charges
for and on behalf of inSilicon or its subsidiary and, thereafter,
inSilicon or its subsidiary shall forthwith reimburse Phoenix or such
subsidiary of Phoenix for such payment.
Section 4.4. NON-SOLICITATION OF EMPLOYEES. Each party agrees not to
directly solicit or recruit the other party's employees for a period of one year
after the Separation Date if such solicitation or recruitment would be
disruptive or damaging or would interfere with the operation or business of the
other party. This prohibition on solicitation does not apply to actions taken by
a party (i) as a result of an employee's affirmative response to a general
recruitment effort carried out through a public solicitation or a general
solicitation or (ii) as a result of an employee's initiative.
ARTICLE V
ACCESS TO INFORMATION
Section 5.1. AGREEMENT FOR EXCHANGE OF INFORMATION. Each of Phoenix and
inSilicon agrees to provide, or cause to be provided, to each other, at any time
before or after the Separation Date, as soon as reasonably practicable after
written request therefor, any Information in the possession or under the control
of such party that the requesting party reasonably needs (i)
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to comply with reporting, disclosure, filing or other requirements imposed on
the requesting party (including under applicable securities laws) by a
Governmental Authority having jurisdiction over the requesting party, (ii)
for use in any other judicial, regulatory, administrative or other proceeding
or in order to satisfy audit, accounting, claims, regulatory, litigation or
other similar requirements, (iii) to comply with its obligations under this
Agreement, the Contribution Agreement or any ancillary Agreement or (iv) in
connection with the ongoing businesses of Phoenix or inSilicon, as the case
may be; provided, however, that in the event that any party determines that
any such provision of Information could be commercially detrimental, violate
any law or agreement, or waive any attorney-client privilege, the parties
shall take all reasonable measures to permit the compliance with such
obligations in a manner that avoids any such harm or consequence.
(a) INTERNAL ACCOUNTING CONTROLS; FINANCIAL INFORMATION. Except as
provided in the Services and Cost-Sharing Agreement, after the Separation Date,
(i) each party shall maintain in effect at its own cost and expense adequate
systems and controls for its business to the extent necessary to enable the
other party to satisfy its reporting, accounting, audit and other obligations,
and (ii) each party shall provide, or cause to be provided, to the other party
and its subsidiaries in such form as such requesting party shall request, at no
charge to the requesting party, all financial and other data and information as
the requesting party determines necessary or advisable in order to prepare its
financial statements and reports or filings with any Governmental Authority.
(b) OWNERSHIP OF INFORMATION. Any Information owned by a party that is
provided to a requesting party pursuant to this Section 5.1 shall be deemed to
remain the property of the providing party. Unless specifically set forth
herein, nothing contained in this Agreement shall be construed as granting or
conferring rights of license or otherwise in any such Information.
(c) RECORD RETENTION. To facilitate the possible exchange of
Information pursuant to this Section 5.1 and other provisions of this Agreement
after the Separation Date, each party agrees to use its reasonable commercial
efforts to retain all Information in their respective possession or control on
the Separation Date substantially in accordance with the policies of Phoenix as
in effect on the Separation Date. However, except as set forth in the Tax
Sharing Agreement, at any time after the Separation Date, each party may amend
their respective record retention policies at such party's discretion; PROVIDED,
however, that if a party desires to effect the amendment within three (3) years
after the Separation Date, the amending party must give thirty (30) days prior
written notice of such change in the policy to the other party to this
Agreement. No party will destroy, or permit any of its subsidiaries to destroy,
any Information that exists on the Separation Date (other than Information that
is permitted to be destroyed under the current record retention policy of
Phoenix) without first using its reasonable commercial efforts to notify the
other party of the proposed destruction and giving the other party the
opportunity to take possession of such Information prior to such destruction.
(d) LIMITATION OF LIABILITY. No party shall have any liability to any
other party in the event that any Information exchanged or provided pursuant to
this Section 5.1 is found to be inaccurate, in the absence of willful misconduct
by the party providing such Information. No party shall have any liability to
any other party if any Information is destroyed or lost after reasonable
commercial efforts by such party to comply with the provisions of Section
5.1(c).
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(e) OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF INFORMATION. The rights
and obligations granted under this Section 5.1 are subject to any specific
limitations, qualifications or additional provisions on the sharing, exchange or
confidential treatment of Information set forth in this Agreement, the
Contribution Agreement and any Ancillary Agreement.
(f) PRODUCTION OF WITNESSES; RECORDS; COOPERATION. After the Separation
Date, except in the case of a legal or other proceeding by one party against the
other party, each party shall use its reasonable commercial efforts to make
available to the other party, upon written request, the former, current and
future directors, officers, employees, other personnel and agents of such party
as witnesses and any books, records or other documents within its control or
which it otherwise has the ability to make available, to the extent that any
such Person (giving consideration to business demands of such directors,
officers, employees, other personnel and agents) or books, records or other
documents may reasonably be required in connection with any legal,
administrative or other proceeding in which the requesting party may from time
to time be involved, regardless of whether such legal, administrative or other
proceeding is a matter with respect to which indemnification may be sought
hereunder. The requesting party shall bear all costs and expenses in connection
therewith.
Section 5.2. AUDITORS AND AUDITS; ANNUAL AND QUARTERLY STATEMENTS AND
ACCOUNTING. Each party agrees that, for so long as Phoenix is required in
accordance with United States generally accepted accounting principles to
consolidate inSilicon's results of operations and financial position:
(a) SELECTION OF AUDITORS. inSilicon shall not select a different
accounting firm than Ernst & Young LLP (or its successors) to serve as its (and
its subsidiaries') independent certified public accountants ("inSilicon's
Auditors") for purposes of providing an opinion on its consolidated financial
statements without Phoenix's prior written consent (which shall not be
unreasonably withheld).
(b) DATE OF AUDITORS' OPINION AND QUARTERLY REVIEWS. inSilicon shall
use its reasonable commercial efforts to enable the inSilicon Auditors to
complete their audit such that they will date their opinion on inSilicon's
audited annual financial statements on the same date that Phoenix's independent
certified public accountants ("Phoenix's Auditors") date their opinion on
Phoenix's audited annual financial statements, and to enable Phoenix to meet its
timetable for the printing, filing and public Dissemination of Phoenix's annual
financial statements. inSilicon shall use its reasonable commercial efforts to
enable the inSilicon Auditors to complete their quarterly review procedures such
that they will provide clearance on inSilicon's quarterly financial statements
on the same date that Phoenix's Auditors provide clearance on Phoenix's
quarterly financial statements.
(c) ANNUAL AND QUARTERLY FINANCIAL STATEMENTS. inSilicon shall provide
to Phoenix on a timely basis all Information that Phoenix reasonably requires to
meet its schedule for the preparation, printing, filing, and public
dissemination of Phoenix's annual and quarterly financial statements. Without
limiting the generality of the foregoing, inSilicon will provide all required
financial Information with respect to inSilicon and its subsidiaries to
inSilicon's Auditors in a sufficient and reasonable time and in sufficient
detail to permit inSilicon's Auditors to take all steps and perform all reviews
necessary to provide sufficient assistance to Phoenix's Auditors
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with respect to Information to be included or contained in Phoenix's annual
and quarterly financial statements. Similarly, Phoenix shall provide to
inSilicon on a timely basis all Information that inSilicon reasonably
requires to meet its schedule for the preparation, printing, filing, and
public dissemination of inSilicon's annual and quarterly financial
statements. Without limiting the generality of the foregoing, Phoenix will
provide all required financial Information with respect to Phoenix and its
subsidiaries to Phoenix's Auditors in a sufficient and reasonable time and in
sufficient detail to permit Phoenix's Auditors to take all steps and perform
all reviews necessary to provide sufficient assistance to inSilicon's
Auditors with respect to Information to be included or contained in
inSilicon's annual and quarterly financial statements.
(d) IDENTITY OF PERSONNEL PERFORMING THE ANNUAL AUDIT AND QUARTERLY
REVIEWS. inSilicon shall authorize inSilicon's Auditors to make available to
Phoenix's Auditors both the personnel who performed or are performing the annual
audits and quarterly reviews of inSilicon and work papers related to the annual
audits and quarterly reviews of inSilicon, in all cases within a reasonable time
prior to inSilicon's Auditors' opinion date, so that Phoenix's Auditors are able
to perform the procedures they consider necessary to take responsibility for the
work of inSilicon's Auditors as it relates to Phoenix's Auditors' report on
Phoenix's financial statements, all within sufficient time to enable Phoenix to
meet its timetable for the printing, filing and public dissemination of
Phoenix's annual and quarterly statements. Similarly, Phoenix shall authorize
Phoenix's Auditors to make available to inSilicon's Auditors both the personnel
who performed or are performing the annual audits and quarterly reviews of
Phoenix and work papers related to the annual audits and quarterly reviews of
Phoenix, in all cases within a reasonable time prior to the Auditors' opinion
date, so that inSilicon's Auditors are able to perform the procedures they
consider necessary to take responsibility for the work of Phoenix's Auditors as
it relates to inSilicon's Auditors' report on inSilicon's statements, all within
sufficient time to enable inSilicon to meet its timetable for the printing,
filing and public dissemination of inSilicon's annual and quarterly financial
statements.
(e) ACCESS TO BOOKS AND RECORDS. inSilicon shall provide Phoenix's
internal auditors and their designees access to inSilicon's and its
subsidiaries' books and records so that Phoenix may conduct reasonable audits
relating to the financial statements provided by inSilicon pursuant hereto as
well as to the internal accounting controls and operations of inSilicon and its
subsidiaries. Similarly, Phoenix shall provide inSilicon's internal auditors and
their designees access to Phoenix's and its subsidiaries' books and records so
that inSilicon may conduct reasonable audits relating to the financial
statements provided by Phoenix pursuant hereto as well as to the internal
accounting controls and operations of Phoenix and its subsidiaries.
(f) NOTICE OF CHANGE IN ACCOUNTING PRINCIPLES. inSilicon shall give
Phoenix as much prior notice as reasonably practical of any proposed
determination of, or any significant changes in, its accounting estimates or
accounting principles from those in effect on the Separation Date. inSilicon
will consult with Phoenix and, if requested by Phoenix, inSilicon will consult
with Phoenix's independent public accountants with respect thereto. Phoenix
shall give inSilicon as much prior notice as reasonably practical of any
proposed determination of, or any significant changes in, its accounting
estimates or accounting principles from those in effect on the Separation Date.
17
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(g) CONFLICT WITH THIRD-PARTY AGREEMENTS. Nothing in Sections 5.1 and
5.2 shall require inSilicon to violate any agreement with any third parties
regarding the confidentiality of confidential and proprietary Information
relating to that third party or its business; PROVIDED, however, that in the
event that inSilicon is required under Sections 5.1 and 5.2 to disclose any such
Information, inSilicon shall use commercially reasonable efforts to seek to
obtain such customer's consent to the disclosure of such Information.
Section 5.3. CONFIDENTIALITY; PROTECTION.
(a) CONFIDENTIAL INFORMATION. Except as otherwise expressly provided in
this Agreement, each party and each of its subsidiaries shall hold and shall
cause its respective directors, officers, employees, agents, consultants and
advisors to hold, in strict confidence, unless compelled to disclose by judicial
or administrative process or, in the opinion of its counsel, by other
requirements of law, all Information concerning the other party (except to the
extent that such Information can be shown to have been (i) in the public domain
through no fault of such party, (ii) later lawfully acquired on a
non-confidential basis from other sources by the party to which it was
furnished, (iii) independently generated without reference to any proprietary or
confidential Information of the other party, or (iv) Information that may be
disclosed pursuant to any Ancillary Agreement). Neither party shall release or
disclose any such Information to any other Person, except its auditors,
attorneys, financial advisors, bankers and other consultants and advisors who
shall be advised of and agree to comply with the provisions of this Section 5.3.
For purposes of this Section 5.3, confidential Information of third parties that
is known to, in the possession of or acquired by a party shall be deemed
Information of that party.
(b) PROTECTIVE ARRANGEMENTS. In the event that either party (or any of
its subsidiaries) either determines on the advice of its counsel that it is
required to disclose any information pursuant to applicable law or receives any
demand under lawful process or from any Governmental Authority to disclose or
provide information of the other party (or any of its subsidiaries) that is
subject to the confidentiality provisions hereof, such party shall notify the
other party prior to disclosing or providing such Information and shall
cooperate at the expense of the requesting party in seeking any reasonable
protective arrangements requested by such other party. Subject to the foregoing,
the Person that received such request may thereafter disclose or provide
Information to the extent required by such law (as so advised by counsel) or by
lawful process or such Governmental Authority.
Section 5.4. MAIL. After the Separation Date, each of Phoenix and
inSilicon may receive mail and other communications properly belonging to the
other. Accordingly, at all times after the Separation Date, each of Phoenix and
inSilicon authorizes the other to receive and open all mail and other
communications received by it and not unambiguously intended for the other party
or any of the other party's officers or directors specifically in their
capacities as such, and to retain the same to the extent that they relate to the
business of the receiving party or, to the extent that they do not relate to the
business of the receiving party and do relate to the business of the other
party, or to the extent that they relate to both businesses, the receiving party
shall promptly contact the other party by telephone for delivery instructions
and such mail or other communications (or, in case the same relate to both
businesses, copies thereof) shall promptly be forwarded to the other party in
accordance with its delivery instructions. The foregoing
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provisions of this Section 5.4 shall constitute full authorization to the
postal authorities and courier companies and all other persons to make
deliveries to Phoenix or inSilicon, as the case may be, addressed to either
of them or to any of their officers or directors specifically in their
capacities as such. The provisions of this Section 5.4 are not intended to
and shall not be deemed to constitute an authorization by either Phoenix or
inSilicon to permit the other to accept service of process on its behalf, and
neither party is or shall be deemed to be the agent of the other for service
of process purposes or for any other purpose.
ARTICLE VI
DISPUTE RESOLUTION
Section 6.1. DISPUTE RESOLUTION. Except as otherwise set forth in any
Ancillary Agreement, resolution of any and all disputes arising from or in
connection with this Agreement, whether based on contract, tort, or otherwise
(collectively, "Disputes"), shall be exclusively governed by and settled in
accordance with the provisions of this Section 6.1.
(a) NEGOTIATION. The parties shall make a good faith attempt to resolve
any Dispute arising out of, relating to or resulting from this Agreement through
negotiation. Within thirty (30) days after notice of a Dispute is given by
either party to the other party, each party shall select a first tier
negotiating team comprised of vice president level employees of such party and
shall meet and make a good faith attempt to resolve such Dispute and shall
continue to negotiate in good faith in an effort to resolve the Dispute or
renegotiate the applicable section or provision without the necessity of any
formal proceedings. If the first tier negotiating teams are unable to agree
within thirty (30) days of their first meeting, then each party shall select a
second tier negotiating team comprised of the chief executive officers of such
party and shall meet within thirty (30) days after the end of the first thirty
(30) day negotiating period to attempt to resolve the matter. During the course
of negotiations under this Section 6.1(a), all reasonable requests made by one
party to the other for Information, including requests for copies of relevant
documents, will be honored. The specific format for such negotiations will be
left to the discretion of the designated negotiating teams but may include the
preparation of agreed upon statements of fact or written statements of position
furnished to the other party.
(b) NON-BINDING MEDIATION. In the event that any Dispute arising out of
or related to this Agreement is not settled by the parties within fifteen (15)
days after the first meeting of the second tier negotiating teams under Section
6.1(a), the parties will attempt in good faith to resolve such Dispute by
non-binding mediation in accordance with the American Arbitration Association
Commercial Mediation Rules. The mediation shall be held within thirty (30) days
of the end of such fifteen (15) day negotiation period of the second tier
negotiating teams. Except as provided below in Section 6.1(c), no litigation for
the resolution of such dispute may be commenced until the parties try in good
faith to settle the dispute by such mediation in accordance with such rules and
either party has concluded in good faith that amicable resolution through
continued mediation of the matter does not appear likely. The costs of mediation
shall be shared equally by the parties to the mediation. Any settlement reached
by mediation shall be recorded in writing, signed by the parties, and shall be
binding on them.
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(c) PROCEEDINGS. Nothing herein, however, shall prohibit either party
from initiating litigation or other judicial or administrative proceedings if
such party would be substantially harmed by a failure to act during the time
that such good faith efforts are being made to resolve the Dispute through
negotiation or mediation. In the event that litigation is commenced under this
Section 6.1(c), the parties agree to continue to attempt to resolve any Dispute
according to the terms of Sections 6.1(a) and 6.1(b) during the course of such
litigation proceedings under this Section 6.1(c).
(d) PAY AND DISPUTE. Except as provided herein or in any Ancillary
Agreement, in the event of any dispute regarding payment of a third-party
invoice (subject to standard verification of receipt of products or services),
the party named in a third party's invoice must make timely payment to such
third party, even if the party named in the invoice desires to pursue the
dispute resolution procedures outlined in this Section 6.1. If the party that
paid the invoice is found pursuant to this Section 6.1 to not be responsible for
such payment, such paying party shall be entitled to reimbursement, with
interest accrued at the prime interest rate announced by Bank of America NT&SA
plus one percent per annum compounded monthly for the period such amount remains
unpaid from the party found responsible for such payment.
Section 6.2. CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise
agreed in writing, the parties will continue to provide service and honor all
other commitments under this Agreement and each Ancillary Agreement during the
course of dispute resolution pursuant to the provisions of this Article VI with
respect to all matters not subject to such Dispute.
ARTICLE VII
STANDSTILL; COVENANT NOT TO COMPETE
Section 7.1. STANDSTILL. Phoenix agrees that so long as Phoenix
beneficially owns, directly or indirectly, fifty percent (50%) or more of
inSilicon's outstanding voting securities, it shall not acquire by purchases in
"brokers' transactions" (as defined in the Securities Act) or in transactions
directly with a "market maker" (as defined in the Exchange Act) during any
twelve (12-) month period shares of Common Stock that exceed two percent (2%) of
the number of shares of Common Stock outstanding at the commencement of that
period, without inSilicon's prior consent.
Section 7.2. NON-COMPETE.
(a) During the "Phoenix Restricted Period," as defined below, Phoenix
agrees it will not carry on or become involved, directly or indirectly (whether
as owner, partner, agent, consultant or stockholder) in any business or activity
competitive with any business conducted by inSilicon as of the Separation Date
without the consent of inSilicon. For this purpose, the "Phoenix Restricted
Period" for any business or activity conducted by inSilicon as of the Separation
Date means the earliest of (i) November 30, 2004, (ii) the date Phoenix no
longer owns, directly or indirectly, ten percent (10%) or more of inSilicon's
outstanding voting securities and (iii) the date on which inSilicon no longer
engages in such business or activity.
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(b) During the "inSilicon Restricted Period," as defined below,
inSilicon agrees it will not carry on or become involved, directly or indirectly
(whether as owner, partner, agent, consultant or stockholder) in any business or
activity competitive with any business conducted by Phoenix as of the Separation
Date (other than the Business) without the consent of Phoenix. For this purpose,
the "inSilicon Restricted Period" for any business or activity conducted by
Phoenix as of the Separation Date means the earliest of (i) November 30, 2004,
(ii) the date Phoenix no longer owns, directly or indirectly, ten percent (10%)
or more of inSilicon's outstanding voting securities and (iii) the date on which
Phoenix no longer engages in such business or activity.
(c) Each of Phoenix and inSilicon agrees that it will not unreasonably
withhold its consent to any request by the other to carry on or become involved
in any business or activity competitive with any business conducted by the other
as of the Separation Date, which request relates to activities which occur
following a "change in control" of the requesting party. For this purpose, a
"change of control" shall be deemed to have occurred on the earliest date on or
by which (i) the beneficial ownership of the equity securities of the affected
party on the part of any Person or group (other than Phoenix in the case of
inSilicon), together with the beneficial ownership thereof on the part of the
affiliates and/or associates of such Person or group, first equals or exceeds
fifty percent (50%) of the equity securities of the affected party or (ii) any
Person or group acquires assets of the affected party, which together with any
assets acquired from such party by any affiliates and/or associates of such
Person or group constitute fifty percent (50%) or more of the assets of the
affected party. A party shall not be deemed to be "unreasonable" in withholding
its consent if the Person acquiring control of a party competes with the party
from which consent is sought.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. TERMINATION. This Agreement may be terminated and/or the
Initial Public Offering may be deferred, modified or abandoned at any time prior
to the Closing Date by and in the sole discretion of the Board of Directors of
Phoenix without the approval of inSilicon. In the event of such termination, no
party hereto (or any of its respective directors or officers) shall have any
liability to any other party pursuant to this Agreement.
Section 8.2. EXPENSES. Except as specifically provided in Services and
Cost-Sharing Agreement or in this Agreement and except for the expenses of
Phoenix that are not third party expenses, all costs and expenses incurred in
connection with the interpretation, execution, delivery and implementation of
this Agreement and with the consummation of the transactions contemplated by
this Agreement shall be paid by inSilicon. The expenses payable by inSilicon
shall include without limitation the filing, legal, accounting, printing and
other out-of-pocket expenditures in connection with (i) the preparation,
printing and filing of the Registration Statement and (ii) sale of the shares of
Common Stock in the Initial Public Offering, including, without limitation,
third party costs, fees and expenses relating to the Initial Public Offering,
and all of the reimbursable expenses of the Underwriters pursuant to the
Underwriting Agreement, and all of the costs of producing, printing, mailing and
otherwise distributing the Prospectus.
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After the Closing Date, all costs and expenses that are not subject to the
Services and Cost-Sharing Agreement or any other agreement between the
parties shall be borne by the party incurring the expense.
Section 8.3. NOTICES. All notices and communications under this
Agreement shall be in writing and any communication or delivery hereunder shall
be deemed to have been duly given when received addressed as follows:
If to Phoenix, to:
411 East Plumeria Drive
San Jose, CA 95134
Attn: General Counsel
If to inSilicon, to:
411 East Plumeria Drive
San Jose, CA 95134
Attn: General Counsel
Any party may, by written notice so delivered to the other party,
change the address to which delivery of any notice shall thereafter be made.
Section 8.4. AMENDMENT AND WAIVER. This Agreement may not be altered or
amended, nor may rights hereunder be waived, except by an instrument in writing
executed by the party or parties to be charged with such amendment or waiver. No
waiver of any terms, provision or condition of or failure to exercise or delay
in exercising any rights or remedies under this Agreement, in any one or more
instances shall be deemed to be, or construed as, a further or continuing waiver
of any such term, provision, condition, right or remedy or as a waiver of any
other term, provision or condition of this Agreement. Notwithstanding the
foregoing, this Agreement may not be altered or amended, nor may rights
hereunder be waived by inSilicon after the Closing Date without the affirmative
vote or written consent of a majority of the directors of inSilicon who are not
Affiliates of Phoenix.
Section 8.5. COUNTERPARTS. This Agreement may be executed in
counterparts each of which shall be deemed an original instrument, but all of
which together shall constitute but one and the same Agreement.
Section 8.6. GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of California, without
regard to the conflicts of law rules of such state.
Section 8.7. ENTIRE AGREEMENT. This Agreement including the schedules
and the other agreements referenced specifically in this Agreement constitute
the entire understanding of the parties with respect to the subject matter of
this Agreement, superseding all negotiations, prior discussions and prior
agreements and understandings relating to such subject matter.
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Section 8.8. ASSIGNMENT.
(a) No party to this Agreement shall (i) consolidate with or merge into
any Person or permit any Person to consolidate with or merge into such party
(other than a merger or consolidation in which the party is the surviving or
continuing corporation), or (ii) sell, assign, transfer, lease or otherwise
dispose of, in one transaction or a series of related transactions, all or
substantially all of its assets, unless the resulting, surviving or transferee
Person expressly assumes, by instrument in form and substance reasonably
satisfactory to the other parties, all of the obligations of the party under
this Agreement.
(b) Except as expressly provided in paragraph (a) above, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assignable, directly or indirectly, by any party without the prior written
consent of the party, and any attempt to so assign without such consent shall be
void.
Section 8.9. PARTIES IN INTEREST. Subject to Section 8.8, this
Agreement shall be binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and permitted assigns. Nothing contained
in this Agreement, express or implied, is intended to confer any benefits,
rights or remedies upon any person or entity other than Phoenix and inSilicon,
and Phoenix Indemnitees and inSilicon Indemnitees under Article III hereof.
Section 8.10. TAX SHARING AGREEMENT. Notwithstanding any other
provision of this Agreement to the contrary, any and all matters relating to
Taxes shall be exclusively governed by the Tax Sharing Agreement.
Section 8.11. EXHIBITS AND SCHEDULES. The Exhibits and Schedules shall
be construed with and as an integral part of this Agreement to the same extent
as if the same had been set forth verbatim herein.
Section 8.12. LEGAL ENFORCEABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without prejudice
to any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
Section 8.13. TITLES AND HEADINGS. Titles and headings to Sections
herein are inserted for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
Section 8.14. CONFLICTING AGREEMENTS. In the event of conflict between
this Agreement and the Contribution Agreement, the provisions of this Agreement
and shall prevail.
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
PHOENIX TECHNOLOGIES LTD.
By: /S/ LINDA V. MOORE
-----------------------------------
Name: Linda V. Moore
Title: Vice President, General Counsel
and Secretary
INSILICON CORPORATION
By: /S/ DAVID J. POWER
-----------------------------------
Name: David J. Power
Title: Vice President and General Counsel
24
<PAGE>
EXHIBIT 10.62
CONTRIBUTION AGREEMENT
dated as of November 30, 1999
between
PHOENIX TECHNOLOGIES LTD.
and
INSILICON CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I DEFINITIONS.......................................... 1
Section 1.1. Definitions.................................... 1
Section 1.2. Internal References............................ 5
ARTICLE II CONTRIBUTION OF ASSETS AND ASSUMPTION OF LIABILITIES;
ISSUANCE OF INSILICON SHARES......................... 5
Section 2.1. Contribution of Assets......................... 5
Section 2.2. Assignment and Assumption of Liabilities....... 6
Section 2.3. Transfers Not Effected On or Prior to
the Separation Date............................ 7
Section 2.4. No Representations or Warranties; Consents..... 7
Section 2.5. Documents Relating to Transfer of Assets and
Assignment and Assumption of Liabilities....... 8
Section 2.6. Issuance of inSilicon Shares................... 8
ARTICLE III REPRESENTATIONS AND WARRANTIES....................... 9
Section 3.1. Representations and Warranties of inSilicon.... 9
Section 3.2. Representations and Warranties of
Phoenix; Legends............................... 9
ARTICLE IV RIGHT OF FIRST OFFER................................. 10
Section 4.1. Grant of Right of First Offer.................. 10
Section 4.2. Terms of Offer and Purchase.................... 10
ARTICLE V BRIDGE LOAN.......................................... 11
Section 5.1. Request for Advance............................ 11
Section 5.2. Advances by inSilicon.......................... 11
Section 5.3. Interest....................................... 11
Section 5.4. Repayment...................................... 11
ARTICLE VI MISCELLANEOUS........................................ 11
Section 6.1. Expenses....................................... 11
Section 6.2. Notices........................................ 12
Section 6.3. Amendment and Waiver........................... 12
Section 6.4. Counterparts................................... 12
Section 6.5. Governing Law.................................. 12
Section 6.6. Entire Agreement............................... 12
Section 6.7. Parties in Interest............................ 12
Section 6.8. Exhibits and Schedules......................... 13
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
<S> <C>
Section 6.9. Legal Enforceability........................... 13
Section 6.10. Covenants of inSilicon......................... 13
Section 6.11. Titles and Headings............................ 14
Section 6.12. Conflicting Agreements......................... 14
Section 6.13. Disputes....................................... 14
Section 6.14. Adjustments for Stock Splits and
Recapitalizations.............................. 14
SCHEDULE 1.1(a) INSILICON CONTRACTS............................... 1
SCHEDULE 2.1(f) EQUIPMENT AND OTHER ASSETS........................ 1
SCHEDULE 2.1(g) INTELLECTUAL PROPERTY............................. 1
SCHEDULE 2.1(j) INDUSTRY ASSOCIATIONS............................. 1
SCHEDULE 2.4(a) SPECIFIED INTELLECTUAL PROPERTY................... 1
</TABLE>
-ii-
<PAGE>
CONTRIBUTION AGREEMENT
This Contribution Agreement (this "Agreement") is entered into
effective as of November 30, 1999 by and between Phoenix Technologies Ltd., a
Delaware corporation ("Phoenix"), and inSilicon Corporation, a Delaware
corporation and a wholly owned subsidiary of Phoenix ("inSilicon").
RECITALS
WHEREAS, the Board of Directors of Phoenix has determined that it is in
the best interests of Phoenix and inSilicon to separate the Business from
Phoenix's other operations; and
WHEREAS, in furtherance of the foregoing, it is appropriate and
desirable to transfer the Semiconductor Intellectual Property Assets to
inSilicon and to cause inSilicon to assume the Semiconductor Intellectual
Property Liabilities, all as more fully described in this Agreement (such
transfer of assets and assumption of liabilities are hereinafter referred to as
the "Separation");
WHEREAS, it is appropriate and desirable to set forth the principal
corporate transactions required to effect the Separation.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements, provisions and covenants contained in this Agreement, the
parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. As used in this Agreement, the following
terms have the following meanings:
"ACTION" means any claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, governmental or regulatory or
administrative agency or commission or any other tribunal or other Governmental
Authority.
"AFFILIATE" of any specified Person means any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such specified Person.
"AGREEMENT" has the meaning set forth in the preamble hereof, as such
agreement may be amended and supplemented from time to time in accordance with
its terms.
"ANCILLARY AGREEMENTS" means the IPO Agreement and the Services and
Cost-Sharing Agreement and each of the following agreements between Phoenix and
inSilicon dated as of November 30, 1999, as the same may be amended from time to
time: the Tax-Sharing Agreement, the Employee Matters Agreement and the
Registration Rights Agreement and Technology Distributor Agreement.
<PAGE>
"BUSINESS" means the business and operations of Phoenix engaged in the
development and licensing of semiconductor intellectual property cores, silicon
subsystems, firmware stacks and drivers and test environments, simulation models
and verification systems related thereto, as well as service, maintenance and
customizations of same.
"COMMON STOCK" means the common stock, par value $0.001 per share, of
inSilicon.
"CONSENTS" means any consents, waivers or approvals from, or
notification requirements to, any third parties.
"CONTRACTS" means any contract, agreement, lease, license, sales order,
purchase order, instrument or other commitment that is binding on any Person or
any part of its property under applicable law.
"GAAP" shall have the meaning set forth in Section 6.10(a).
"GOVERNMENTAL AUTHORITY" means any federal, state, local, foreign or
international court, government, department, commission, board, bureau,
agency, official or other regulatory, administrative or governmental
authority.
"INSILICON" has the meaning set forth in the preamble of this
Agreement.
"INSILICON BALANCE SHEET" means the audited balance sheet of
inSilicon, including the notes thereto, as of September 30, 1999.
"INSILICON CAPITAL STOCK" means any shares of or securities
convertible into or exercisable for any shares of any class of capital stock
of inSilicon.
"INSILICON CONTRACTS" means the following Contracts related to the
Business to which Phoenix or any of its Affiliates is a party or by which it
or any of its Affiliates or their respective assets is bound, whether or not
in writing, including but not limited to:
(a) all Contracts listed or described on Schedule 1.1(a);
(b) any Contracts entered into in the name of, or expressly on behalf
of, inSilicon (including its former names, RaviCad, Virtual Chips, Sand, Award
(as related to the IFG group of Award), and semiconductor IP Group); and
(c) any guarantee, indemnity, representation, warranty or other
Liability of inSilicon or Phoenix in respect of any other inSilicon Contract,
any Semiconductor Intellectual Property Liability or the Business.
"INTELLECTUAL PROPERTY" means (a) inventions, whether or not
patentable, whether or not reduced to practice or whether or not yet made the
subject of a pending patent application or applications or draft applications
(b) ideas and conceptions of potentially patentable subject matter, including,
without limitation, any patent disclosures invention disclosures, whether or not
reduced to practice and whether or not yet made the subject of a pending patent
application or applications, (c) national (including the United States) and
multinational statutory invention
2
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registrations, patents, patent registrations and patent applications
(including all reissues, divisions, continuations, continuations-in-part,
extensions and reexaminations and all patents issuing thereon) and all rights
therein provided by multinational treaties or conventions and all
improvements to the inventions disclosed in each such registration, patent or
application, (d) trademarks, service marks, trade dress, logos, trade names
domain names, web addresses and corporate names, whether or not registered,
including all common law rights, and registrations and applications for
registration thereof, including, but not limited to, all marks registered in
the United States Patent and Trademark Office, the Trademark Offices of the
States and Territories of the United States of America, and the Trademark
offices of other nations throughout the world, and all rights therein
provided by multinational treaties or conventions, (e) copyrights (registered
existing commerce or otherwise) and registrations and applications for
registration thereof, and all rights therein provided by multinational
treaties or conventions, (f) moral rights (including, without limitation,
rights of paternity and integrity), and waivers of such rights by others, (g)
computer software, including, without limitation, source code, object code,
programming notes, operating systems and specifications, data, data bases,
files, documentation and other materials related thereto, data and
documentation, (h) trade secrets and confidential, technical or business
information (including ideas, formulas, systems, methodologies, compositions,
inventions, and conceptions of inventions whether patentable or unpatentable
and whether or not reduced to practice), (i) whether or not confidential,
technology (including know-how and show-how), manufacturing, production,
design and verification processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, copyrightable works, financial, marketing and business data, pricing
and cost information, business and marketing plans and customer and supplier
lists and information, (j) copies and tangible embodiments of all the
foregoing, in whatever form or medium, (k) all rights to obtain and rights to
apply for patents, and to register trademarks and copyrights, and all other
intelectual property rights anywhere in the world, and (l) all rights to sue
and recover and retain damages and costs and attorneys' fees for present and
past infringement of any of the Intellectual Property rights hereinabove set
out.
"IPO AGREEMENT" means that certain Initial Public Offering Agreement
between inSilicon and Phoenix dated as of November 30, 1999, as the same may be
amended from time to time.
"IPO DATE" means the date of the closing of the first qualified IPO.
"LIABILITIES" means any and all claims, charges, debts, demands,
Actions, causes of Action, suits, damages, obligations, payments, costs and
expenses, accounts, bonds, indemnities and similar obligations, covenants,
Contracts, agreements, promises, guarantees and other liabilities, including all
contractual obligations, whether absolute or contingent, matured or not matured,
liquidated or unliquidated, accrued or not accrued, known or unknown, whenever
arising, and including those arising under any law, rule, regulation, Action,
threatened or contemplated Action (including the costs and expenses of demands,
assessments, judgments, settlements and compromises relating thereto), order or
consent decree of any Governmental Authority or any award of any arbitrator or
mediator of any kind, and those arising under any contract, commitment or
undertaking, including those arising under this Agreement, whether or not
recorded or reflected or required to be recorded or reflected on the books and
records or financial statements of any Person.
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"NOTICE" has the meaning set forth in Section 4.2.
"PERSON" means an individual, a general or limited partnership, a
corporation, a trust, a joint venture, an unincorporated organization, a limited
liability company, any other entity and any Governmental Authority.
"PHOENIX" has the meaning set forth in the preamble of this Agreement.
"PHOENIX GROUP" means Phoenix and each Person (other than inSilicon and
its subsidiaries) that is an Affiliate of Phoenix immediately after the
Separation Date.
"QUALIFIED IPO" means a firm commitment underwritten public offering
by inSilicon of shares of its Common Stock pursuant to a registration statement
under the Securities Act, the public offering price of which is not less than
$7.50 per share (appropriately adjusted for any stock split, dividend,
combination or other recapitalization after the date hereof and which results in
aggregate cash proceeds to inSilicon of $10 million.
"SECURITIES" means the Series A Preferred Stock, the Warrant and the
Common Stock issuable upon conversion or exercise thereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor statute.
"SEMICONDUCTOR INTELLECTUAL PROPERTY ASSETS" has the meaning set forth
in Section 2.1(a).
"SEMICONDUCTOR INTELLECTUAL PROPERTY LIABILITIES" has the meaning set
forth in Section 2.2.
"SEPARATION" has the meaning specified in the second recital of this
Agreement.
"SEPARATION DATE" means November 30, 1999.
"SERIES A PREFERRED STOCK" means the Series Preferred Stock, par value
$.001 per share, of inSilicon.
"SERVICES AND COST-SHARING AGREEMENT" means that certain Services and
Cost-Sharing Agreement between inSilicon and Phoenix dated as of November 30,
1999, as the same may be amended from time to time.
"SHORTFALL AMOUNT" has the meaning set forth in Section 5.1.
"SHORTFALL REQUEST" has the meaning set forth in Section 5.1.
"WARRANT" means the warrant to purchase shares of Common Stock in the
form set forth on Exhibit A.
Unless otherwise specified, any reference to any "subsidiary" or
"subsidiaries" of Phoenix shall not include inSilicon.
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Section 1.2. INTERNAL REFERENCES. Unless the context indicates
otherwise, references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement and references
to the parties shall mean the parties to this Agreement.
ARTICLE II
CONTRIBUTION OF ASSETS AND
ASSUMPTION OF LIABILITIES; ISSUANCE OF INSILICON SHARES
Section 2.1. CONTRIBUTION OF ASSETS. Phoenix hereby assigns, transfers,
conveys and delivers to inSilicon as of the Separation Date, and agrees to cause
each of its subsidiaries to assign, transfer, convey and deliver to inSilicon as
of the Separation Date, and inSilicon hereby accepts from Phoenix and such
subsidiaries as of the Separation Date, all of Phoenix's and such subsidiaries'
respective right, title and interest in or under the following assets primarily
related to the Business (the "Semiconductor Intellectual Property Assets"):
(a) all assets reflected in the inSilicon Balance Sheet as "Assets" of
inSilicon, subject to any dispositions of such assets after the date of the
inSilicon Balance Sheet;
(b) all assets that have been written off, expensed or fully
depreciated that, had they not been written off, expensed or fully depreciated,
would have been reflected in the inSilicon Balance Sheet in accordance with the
principles and accounting policies under which the inSilicon Balance Sheet was
prepared; and
(c) all assets acquired by Phoenix or its subsidiaries after the date
of the inSilicon Balance Sheet that would have been reflected in the
consolidated balance sheet of inSilicon as of the Separation Date if such
consolidated balance sheet was prepared using the same principles and accounting
policies under which the inSilicon Balance Sheet was prepared; and
(d) all assets that are used primarily by the Business at the
Separation Date but are not reflected in the inSilicon Balance Sheet due to
mistake or unintentional omission; PROVIDED, HOWEVER, that no such asset shall
be a Semiconductor Intellectual Property Asset unless inSilicon has, on or
before the first anniversary of the IPO Date, given notice that such asset is a
Semiconductor Intellectual Property Asset and thereafter cooperate for transfer
of those assets agreed to as being assets related to the Business;
(e) the inSilicon Contracts;
(f) the equipment and other assets used primarily by employees of
Phoenix that will become employees of inSilicon in connection with the
Separation, a list of which is set forth in Schedule 2.1(f).
(g) the Intellectual Property set forth on Schedule 2.1(g);
(h) the right to use all corporate documentation, license agreements
and forms necessary to conduct the Business that are owned by Phoenix on the
date hereof ;
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(i) Services and costs to inSilicon under the Services and Cost-Sharing
Agreement for the month of December 1999 equal to the lesser of the amount that
would otherwise be due and payable thereunder and $550,000; and
(j) Phoenix's membership's in the industry associations listed on
Schedule 2.1(j).
Section 2.2. ASSIGNMENT AND ASSUMPTION OF LIABILITIES. inSilicon hereby
assumes and agrees as of the Separation Date faithfully to pay, perform and
fulfill all obligations under the following in accordance with their respective
terms (the "SEMICONDUCTOR INTELLECTUAL PROPERTY LIABILITIES"):
(a) all Liabilities reflected as "Liabilities" or obligations of
inSilicon in the inSilicon Balance Sheet, subject to any discharge of such
Liabilities after the date of the inSilicon Balance Sheet.
(b) all Liabilities of Phoenix or its subsidiaries that arise after the
date of the inSilicon Balance Sheet that would be reflected in the consolidated
balance sheet of inSilicon as of the Separation Date if such consolidated
balance sheet was prepared using the same principles and accounting policies
under which the inSilicon Balance Sheet was prepared;
(c) all Liabilities that are related primarily to the Business at the
Separation Date but are not reflected in the inSilicon Balance Sheet due to
mistake or unintentional omission; PROVIDED, HOWEVER, that no such Liability
shall be a Semiconductor Intellectual Property Liability unless Phoenix, on or
before the first anniversary of the IPO Date, has given inSilicon notice that
such Liability is a Semiconductor Intellectual Property Liability;
(d) except as may be explicitly provided in an Ancillary Agreement, all
Liabilities whether arising before, on or after the Separation Date, primarily
related to, arising out of or resulting from:
(i) the operation of the Business, as conducted at any time
prior to, on or after the Separation Date (including any Liability
relating to, arising out of or resulting from any act or failure to act
by any director, officer, employee, agent or representative (whether or
not such act or failure to act is or was within such Person's
authority));
(ii) the operation of any business conducted directly or
indirectly by inSilicon at any time after the Separation Date
(including any Liability relating to, arising out of or resulting from
any act or failure to act by any director, officer, employee, agent or
representative (whether or not such act or failure to act is or was
within such Person's authority));
(iii) the Semiconductor Intellectual Property Assets; or
(iv) the acquisition of Sand Microelectronics, Inc.,
including, but not limited to those related to, arising out of or
resulting from the Agreement and Plan of Reorganization dated as of
September 17, 1998 by and among Phoenix Technologies Ltd., Phoenix
SubCorp., Sand Microelectronics Inc. and Babu Chilukuri, Anand Naidu
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and Ajit Deora, the agreements referred to therein and the retention
bonus program established in connection therewith.
Section 2.3. TRANSFERS NOT EFFECTED ON OR PRIOR TO THE SEPARATION DATE.
To the extent any transfers contemplated by this Article II shall not have been
fully effected on or before the Separation Date, Phoenix and inSilicon shall
cooperate to effect such transfers as promptly as possible following the
Separation Date. Nothing herein shall be deemed to require the transfer of any
assets or the assignment or assumption of any Liabilities that by their terms or
by operation of law cannot be so transferred, assigned or assumed; PROVIDED,
HOWEVER, that any such asset shall be deemed a Semiconductor Intellectual
Property Asset for purposes of determining whether any Liability is a inSilicon
Liability or any benefit received related to the Business and should be held for
the benefit of inSilicon; and PROVIDED, FURTHER, that Phoenix and inSilicon and
their respective Affiliates shall cooperate in seeking to obtain any necessary
Consents for the transfer of all assets and the assignment or assumption of all
Liabilities as contemplated by this Article II. In the event that any transfer
of assets or assignment or assumption of Liabilities contemplated by this
Article II has not been consummated effective as of the Separation Date, (a) the
party retaining such assets shall thereafter hold such assets in trust for the
use and benefit of the party entitled thereto (at the expense of the party
entitled thereto); and (b) the party retaining such Liabilities shall thereafter
hold such Liabilities for the account of the party assuming such Liability or to
whom such Liability is to be assigned pursuant hereto (at the expense of the
party assuming such Liability or to whom such Liability is to be assigned), and
in each such case shall take such other actions as it may be commercially
reasonable for the Person to whom such asset is to be transferred to request in
order to place such Person, insofar as reasonably possible, in the same position
as if such asset had been transferred as contemplated hereby and so that all the
benefits and burdens relating to such Semiconductor Intellectual Property Assets
(or such Non-Semiconductor Intellectual Property Assets, as the case may be),
including possession, use, revenue, risk of loss, potential for gain, and
dominion, control and command over such assets, are to inure from and after the
Separation Date to inSilicon (or the Phoenix Group, as the case may be). As and
when any such asset or Liability becomes transferable, assignable or assumable,
as the case may be, such transfer, assignment or assumption, as the case may be,
shall be effected forthwith. Phoenix and inSilicon agree that, as of the
Separation Date, each party hereto shall be deemed to have acquired complete and
sole beneficial ownership over all of the assets, together with all of the
rights, powers and privileges incidental thereto, that such party is entitled to
acquire pursuant to the terms of this Agreement.
Section 2.4. NO REPRESENTATIONS OR WARRANTIES; CONSENTS. (a) Each of
the parties hereto understands and agrees that no party hereto is, in this
Agreement representing or warranting in any way as to the value or freedom from
encumbrance of, or any other matter concerning, any assets of such party, or as
to the legal sufficiency to convey title to an asset transferred pursuant to
this Agreement, including, without limitation, any conveyancing or assumption
instruments. It is also agreed and understood that there are no warranties
whatsoever, express or implied, given by either party to this Agreement, as to
the condition, quality, merchantability or fitness of any of the assets,
businesses or other rights transferred or retained by the parties, as the case
may be, and all such assets, businesses and other rights shall be "as is, where
is" and "with all faults" (provided that the absence of warranties given by the
parties shall not negate the allocation of Liabilities under this Agreement and
shall have no effect on any manufacturers, sellers, or other third party
warranties that are intended to be transferred
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with such assets), and inSilicon shall bear the economic and legal risks that
any conveyance shall prove to be insufficient to vest in it good and
marketable title, free and clear of any security interest, pledge, lien,
charge, claim, option, right to acquire, covenant, condition, restriction on
transfer or other encumbrance of any nature whatsoever. Notwithstanding the
foregoing, Phoenix represents and warrants to inSilicon that it has good and
marketable title to the Intellectual Property listed on Schedule 2.4(a).
(b) Each party hereto understands and agrees that no party hereto is,
in this Agreement or any other agreement or document contemplated by this
Agreement or otherwise, representing or warranting in any way that the obtaining
of any Consents, the execution and delivery of any amendatory agreements and the
taking of any filings or applications contemplated by this Agreement will
satisfy the provisions of any or all applicable laws or judgments or other
instruments or agreements relating to such assets.
Notwithstanding the foregoing, the parties shall use commercially
reasonable efforts in the United States (and best efforts in jurisdictions
outside the United States) to obtain all Consents (including such Consents as
may be required by any Governmental Authority). The parties shall also use
commercially reasonable efforts to make all filings and applications
contemplated by this Agreement, and shall take all such further actions as shall
be deemed reasonably necessary to preserve for each of Phoenix and inSilicon, to
the greatest extent reasonably feasible, consistent with this Agreement, the
economic and operational benefits of the allocation of assets and liabilities
provided for in this Agreement.
Section 2.5. DOCUMENTS RELATING TO TRANSFER OF ASSETS AND ASSIGNMENT
AND ASSUMPTION OF LIABILITIES. In connection with the transfer of the
Semiconductor Intellectual Property Assets pursuant to Section 2.1 of this
Agreement and the assignment and assumption of the Semiconductor Intellectual
Property Liabilities pursuant to Section 2.2 of this Agreement, simultaneously
with the execution and delivery hereof or as promptly as practicable thereafter,
(a) Phoenix shall execute and deliver such bills of sale, deeds, stock powers,
certificates of title, assignments of Contracts and other instruments or
transfer, conveyance and assignment as and to the extent necessary to evidence
the transfer, conveyance and assignment of all of Phoenix's right, title and
interest in and to the Semiconductor Intellectual Property Assets to inSilicon
and (b) inSilicon shall execute and deliver to Phoenix such bills of sale,
certificates of title, assumptions of Contracts and other instruments or
assumption as may be necessary to evidence the valid and effective assumption of
the Semiconductor Intellectual Property Liabilities by inSilicon.
Section 2.6. ISSUANCE OF INSILICON SHARES. As of the Separation Date,
in consideration of the transfer of the Semiconductor Intellectual Property
Assets, inSilicon shall, in addition to assuming the Semiconductor Intellectual
Property Liabilities, issue and deliver to Phoenix 10,400,000 shares of Series A
Preferred Stock and the Warrant.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATIONS AND WARRANTIES OF INSILICON. inSilicon
hereby represents and warrants to Phoenix that:
(a) The Series A Preferred Stock that is being issued to Phoenix in
connection with this Agreement will be duly and validly issued, fully paid and
nonassessable and free of restrictions on transfer other than restrictions on
transfer under applicable federal and state securities laws.
(b) The Warrant will be a valid and binding obligation of inSilicon
enforceable against inSilicon in accordance with its terms and free of
restrictions on transfer other than restrictions under applicable federal and
state securities laws.
(c) The Series A Preferred Stock and the Warrant will be issued in
compliance with all applicable federal and state securities laws.
(d) The Common Stock issuable upon conversion of the Series A Preferred
Stock and exercise of the Warrant has been duly and validly reserved for
issuance, and upon issuance in accordance with the terms of the Amended and
Restated Certificate of Incorporation of inSilicon, will be duly and validly
issued, fully paid and nonassessable and free of restrictions on transfer other
than restrictions on transfer under applicable federal and state securities laws
and will be issued in compliance with all applicable federal and state
securities laws.
Section 3.2. REPRESENTATIONS AND WARRANTIES OF PHOENIX; LEGENDS. (a)
Phoenix hereby represents and warrants to inSilicon that:
(i) The Securities to be acquired by Phoenix will be
acquired for investment for Phoenix's own account, and not with a
view to the resale or distribution of any part thereof, and that
Phoenix has no present intention of selling, granting any
participation in, or otherwise distributing the same in a manner
contrary to applicable laws.
(ii) The Securities have not been registered under the
Securities Act, by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent and the accuracy
of Phoenix's representations as expressed herein. Phoenix understands
that the Securities are "restricted securities" under applicable U.S.
federal and state securities laws and that, pursuant to these laws,
Phoenix must hold the Securities indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by
state authorities, or an exemption from such registration and
qualification requirements is available.
(b) LEGENDS. Phoenix understands that the Securities and any securities
issued in respect of or exchange for the Securities, may bear one or all of the
following legends:
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(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION
MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO INSILICON
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933."
(ii) Any legend required by the Blue Sky laws of any state
to the extent such laws are applicable to the shares represented by
the certificate so legended.
ARTICLE IV
RIGHT OF FIRST OFFER
Section 4.1. GRANT OF RIGHT OF FIRST OFFER. Subject to the terms and
conditions specified in this Article IV, inSilicon hereby grants to Phoenix a
right of first offer with respect to future sales by inSilicon of inSilicon
Capital Stock. As long as Phoenix owns 50,000 shares of Series A Preferred Stock
(or the Common Stock issued upon conversion thereof) Phoenix may designate as
purchasers under such right itself or its Affiliates in such proportions as it
deems appropriate.
Section 4.2. TERMS OF OFFER AND PURCHASE. Each time inSilicon proposes
to offer any shares of inSilicon Capital Stock, inSilicon shall first make an
offering of such inSilicon Capital Stock to Phoenix in accordance with the
following provisions:
(a) inSilicon shall deliver a notice (the "Notice") to Phoenix stating
(i) its bona fide intention to offer such inSilicon Capital Stock, (ii) the
number of shares of such inSilicon Capital Stock to be offered, and (iii) the
price and terms, if any, upon which it proposes to offer such inSilicon Capital
Stock.
(b) Within fifteen (15) calendar days after delivery of the Notice,
Phoenix may elect to purchase or obtain, at the price and on the terms specified
in the Notice, up to that portion of such inSilicon Capital Stock which equals
the proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities then held, by Phoenix bears to the total number of shares of Common
Stock then outstanding (assuming full conversion and exercise of all options,
warrants and convertible or exercisable securities). Such purchase shall be
completed at the same closing as that of any third party purchasers or at an
additional closing thereunder.
(c) inSilicon may, during the forty five (45)-day period following the
expiration of the period provided in Section 4.2(b) hereof, offer the remaining
unsubscribed portion of the inSilicon Capital Stock to any Person or Persons at
a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If inSilicon does not enter into a Memorandum of
Understanding ("MOU") for the sale of the inSilicon Capital Stock within such
period, or if such agreement is not consummated within sixty (60) days following
the execution
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of the MOU, the right provided hereunder shall be deemed to be revived and
such Stock shall not be offered unless first reoffered to Phoenix in
accordance herewith.
(d) The right of first offer in this Article IV shall not be applicable
(i) to the issuance or sale of 2,700,000 shares of Common Stock (or options
therefor) to employees, consultants or directors pursuant to the 1999 Employee
Stock Option Plan approved by the Board of Directors; (ii) to the issuance of
securities in connection with a bona fide business acquisition of or by
inSilicon, whether by merger, consolidation, sale of assets, sale or exchange of
stock or otherwise; (iii) to the issuance of securities to financial
institutions or lessors in connection with commercial credit arrangements,
equipment financings, or similar transactions; (iv) to the shares issued upon
the conversion of the Series A Preferred Stock; (v) to the securities issued
pursuant to or after consummation of a Qualified IPO; (vi) to the issuance of
securities pursuant to the Warrant; or (vii) to securities issued pursuant to
stock splits, stock dividends or similar transactions.
ARTICLE V
BRIDGE LOAN
Section 5.1. REQUEST FOR ADVANCE. If from time to time prior to a
Qualified IPO, the Liabilities of inSilicon then due and payable shall exceed
its cash and cash equivalents (as determined under GAAP), inSilicon may require
Phoenix to provide to inSilicon up to an amount of cash equal to the amount by
which such Liabilities exceed such cash and cash equivalents (a "Shortfall
Amount") by delivering a request therefor to Phoenix (a "Shortfall Request").
Section 5.2. ADVANCES BY INSILICON. Within two (2) business days after
delivery of a Shortfall Request, Phoenix shall deposit or cause to be deposited
into an account designated by inSilicon the Shortfall Amount set forth in the
Shortfall Request in immediately available funds.
Section 5.3. INTEREST. Amounts advanced by Phoenix under Section 5.2
shall bear interest at the rate of 8% per annum, computed from the date of
deposit in the applicable inSilicon account to the date of repayment to Phoenix.
Section 5.4. REPAYMENT. The principal amounts advanced by Phoenix under
Section 5.2 and/or interest thereon under Section 5.3 may be paid by inSilicon
to Phoenix at any time and from time to time, in whole or in part; PROVIDED,
THAT, all principal and interest that remains outstanding as of the date of the
closing of a Qualified IPO shall become due and payable to Phoenix concurrent
with the closing of the Qualified IPO.
ARTICLE VI
MISCELLANEOUS
Section 6.1. EXPENSES. All costs and expenses of third parties incurred
by Phoenix and all costs and expenses incurred by inSilicon in connection with
the interpretation, execution,
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delivery and implementation of this Agreement and with the consummation of
the transactions contemplated by this Agreement shall be paid by inSilicon.
Section 6.2. NOTICES. All notices and communications under this
Agreement shall be in writing and any communication or delivery hereunder shall
be deemed to have been duly given when received addressed as follows:
If to Phoenix, to:
411 East Plumeria Drive
San Jose, CA 95134
Attn: General Counsel
If to inSilicon, to:
411 East Plumeria Drive
San Jose, CA 95134
Attn: General Counsel
Any party may, by written notice so delivered to the other party,
change the address to which delivery of any notice shall thereafter be made.
Section 6.3. AMENDMENT AND WAIVER. This Agreement may not be altered or
amended, nor may rights hereunder be waived, except by an instrument in writing
executed by the party or parties to be charged with such amendment or waiver. No
waiver of any terms, provision or condition of or failure to exercise or delay
in exercising any rights or remedies under this Agreement, in any one or more
instances shall be deemed to be, or construed as, a further or continuing waiver
of any such term, provision, condition, right or remedy or as a waiver of any
other term, provision or condition of this Agreement. Notwithstanding the
foregoing, this Agreement may not be altered or amended, nor may rights
hereunder be waived by inSilicon after the closing of a Qualified IPO without
the affirmative vote or written consent of a majority of the directors of
inSilicon who are not Affiliates of Phoenix.
Section 6.4. COUNTERPARTS. This Agreement may be executed in
counterparts each of which shall be deemed an original instrument, but all of
which together shall constitute but one and the same Agreement.
Section 6.5. GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of California, without
regard to the conflicts of law rules of such state.
Section 6.6. ENTIRE AGREEMENT. This Agreement including the schedules
and the other agreements referenced specifically in this Agreement constitute
the entire understanding of the parties with respect to the subject matter of
this Agreement, superseding all negotiations, prior discussions and prior
agreements and understandings relating to such subject matter.
Section 6.7. PARTIES IN INTEREST. Neither of the parties hereto may
assign its rights or delegate any of its duties under this Agreement without the
prior written consent of each other
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party which shall not be unreasonably withheld. This Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns. Nothing contained in this
Agreement, express or implied, is intended to confer any benefits, rights or
remedies upon any Person other than Phoenix and inSilicon.
Section 6.8. EXHIBITS AND SCHEDULES. The Exhibits and Schedules shall
be construed with and as an integral part of this Agreement to the same extent
as if the same had been set forth verbatim herein.
Section 6.9. LEGAL ENFORCEABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without prejudice
to any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
Section 6.10. COVENANTS OF INSILICON. For as long as Phoenix owns
50,000 shares of Series A Preferred Stock (or shares of Common Stock onto which
such Series A Preferred Stock is converted) but not after the date of a
Qualified IPO, inSilicon shall deliver to Phoenix:
(a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of inSilicon, an income statement for such
fiscal year, a balance sheet of inSilicon and statement of stockholder's equity
as of the end of such year, and a statement of cash flows for such year, such
year-end financial reports to be in reasonable detail, prepared in accordance
with generally accepted accounting principles ("GAAP"), and audited and
certified by an independent public accounting firm of nationally recognized
standing selected by inSilicon;
(b) within thirty (30) days of the end of each month and each quarter,
an unaudited income statement and a statement of cash flows and balance sheet
for and as of the end of such quarter or month, as the case may be, in
reasonable detail;
(c) as soon as practicable, but in any event thirty (30) days prior to
the end of each fiscal year, a budget and business plan for the next fiscal
year, prepared on a monthly basis, and, as soon as prepared, any other budgets
or revised budgets prepared by inSilicon; and
(d) with respect to the financial statements called for in subsection
(b), an instrument executed by the Chief Financial Officer or President of the
Corporation and certifying that such financials were prepared in accordance with
GAAP consistently applied with prior practice for earlier periods (with the
exception of footnotes that may be required by GAAP) and fairly present the
financial condition of inSilicon and its results of operation for the period
specified, subject to year-end audit adjustment, provided that the foregoing
shall not restrict the right of inSilicon to change its accounting principles
consistent with GAAP, if the Board of Directors determines that it is in the
best interest of inSilicon to do so.
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Section 6.11. TITLES AND HEADINGS. Titles and headings to Sections
herein are inserted for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
Section 6.12. CONFLICTING AGREEMENTS. In the event of conflict between
this Agreement and any Ancillary Agreement executed in connection herewith, the
provisions of the Ancillary Agreement and shall prevail.
Section 6.13. DISPUTES. All disputes arising out of, related to or
resulting from this Agreement, including the interpretation hereof shall be
resolved in accordance with the procedures set forth in the IPO Agreement.
Section 6.14. ADJUSTMENTS FOR STOCK SPLITS AND RECAPITALIZATIONS.
Notwithstanding the other provisions of this Agreement, all references to
numbers of shares of the Common Stock and Series A Preferred Stock provided in
Article IV and Section 6.10 shall be deemed automatically amended to give effect
to any stock split, stock dividend recapitalization or similar transactions that
occur after the issuance of the Series A Preferred Stock and the Warrant.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
PHOENIX TECHNOLOGIES LTD.
By: /s/ LINDA V. MOORE
------------------------------------------
Name: Linda V. Moore
Title: Vice President, General Counsel and Secretary
INSILICON CORPORATION
By: /s/ DAVID J. POWER
------------------------------------------
Name: David J. Power
Title: Vice President and General Counsel
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EXHIBIT 10.63
EMPLOYEE MATTERS AGREEMENT
BETWEEN
PHOENIX TECHNOLOGIES LTD.
AND
INSILICON CORPORATION
DATED AS OF
NOVEMBER 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS...........................................................1
ARTICLE II GENERAL PRINCIPLES....................................................4
2.1 Assumption of inSilicon Liabilities.......................................4
2.2 Establishment of inSilicon Plans..........................................4
2.3 inSilicon's Participation in Phoenix Plans................................5
2.4 Disputes..................................................................5
2.5 Foreign Employees.........................................................5
ARTICLE III DEFINED CONTRIBUTION PLAN.............................................6
3.1 401(k) Plan...............................................................6
ARTICLE IV HEALTH AND WELFARE PLANS..............................................6
4.1 Assumption of Health and Welfare Plan Liabilities.........................6
4.2 Claims for Health and Welfare Plans.......................................6
4.3 Vendor Arrangements.......................................................7
ARTICLE V EQUITY COMPENSATION...................................................7
5.1 Stock Options.............................................................7
6.1 Payment of Liabilities, Plan Expenses and Related Matters.................7
6.2 Sharing of Participant Information........................................7
6.3 Reporting and Disclosure Communications to Participants...................8
6.4 Audits Regarding Vendor Contracts.........................................8
6.5 Requests for IRS and DOL Opinions.........................................8
6.6 Fiduciary Matters.........................................................8
6.7 Consent of Third Parties..................................................8
ARTICLE VII EMPLOYMENT-RELATED MATTERS............................................9
7.1 Employment of Employees with U.S. Work Visas..............................9
7.2 Confidentiality and Proprietary Information...............................9
7.3 Consistency of Tax Positions; Duplication.................................9
7.4 Personnel and Pay Records.................................................9
7.5 Non-Termination of Employment; No Third-Party Beneficiaries...............9
7.6 Pre-Separation Service...................................................10
ARTICLE VIII GENERAL PROVISIONS...................................................10
8.1 Relationship of Parties..................................................10
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TABLE OF CONTENTS
(CONTINUED)
8.2 Affiliates...............................................................10
8.3 Governing Law............................................................10
8.4 Severability.............................................................10
8.5 Amendment................................................................10
8.6 Conflict.................................................................10
8.7 Counterparts.............................................................11
</TABLE>
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EMPLOYEE MATTERS AGREEMENT
This EMPLOYEE MATTERS AGREEMENT (this "Agreement") is entered into
as of November 30, 1999, between Phoenix Technologies Ltd. ("Phoenix"), a
Delaware corporation, and inSilicon Corporation ("inSilicon"), a Delaware
corporation. Capitalized terms used herein and not otherwise defined shall
have the respective meanings assigned to them in the Contribution Agreement
of even date herewith between Phoenix and inSilicon (the "Contribution
Agreement").
WHEREAS, the Board of Directors of Phoenix has determined that it is
in the best interests of Phoenix and inSilicon to separate the Business from
Phoenix's other operations; and;
WHEREAS, in furtherance of the foregoing, Phoenix and inSilicon have
agreed to enter into this Agreement to allocate between them assets,
liabilities and responsibilities with respect to certain employee
compensation, benefit plans and programs, and certain employment matters; and
NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements set forth below, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Wherever used in this Agreement, the following terms shall have the
meanings indicated below, unless a different meaning is plainly required by
the context. The singular shall include the plural, unless the context
indicates otherwise. Headings of sections are used for convenience of
reference only, and in case of conflict, the text of this Agreement, rather
than such headings, shall control:
"AFFILIATE" means, with respect to Phoenix, an entity in which
Phoenix holds a fifty percent (50%) or more ownership and with respect to
inSilicon, any entity in which inSilicon holds a fifty percent (50%) or more
ownership.
"COBRA" means the continuation coverage requirements for "group
health plans" under Title X of the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended from time to time, and as codified in Code Section
4980B and ERISA Sections 601 through 608.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
"DOL" means the United States Department of Labor.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"FMLA" means the Family and Medical Leave Act of 1993, as amended
from time to time.
<PAGE>
"FRINGE BENEFITS," when immediately preceded by "Phoenix" means all
fringe benefits, plans, programs and arrangements sponsored and maintained by
Phoenix. When immediately preceded by "inSilicon," "Fringe Benefits" means
the fringe benefits, plans, programs and arrangements established by
inSilicon that correspond to the respective Phoenix Fringe Benefits.
"HEALTH AND WELFARE PLANS," when immediately preceded by "Phoenix,"
means the Phoenix Health Plans, the health and welfare plans established and
maintained by Phoenix for the benefit of employees and retirees of the
Phoenix Group, and such other welfare plans or programs as may apply to such
employees and retirees as of the Separation Date. When immediately preceded
by "inSilicon," "Health and Welfare Plans" means the health and welfare plans
to be established by inSilicon.
"HMO" means a health maintenance organization that provides benefits
under the Phoenix Health Plans or the inSilicon Health Plans.
"INSILICON EMPLOYEE" means any individual who is: (a) either
actively employed by, or on leave of absence from, the inSilicon Group on the
Separation Date; (b) either actively employed by, or on leave of absence
from, the Phoenix Group as either part of a work group or organization, or
common support function that, at any time after the Separation Date and
before inSilicon ceases to be a Phoenix Affiliate, moves to the employ of the
inSilicon Group from the employ of the Phoenix Group; (c) an employee or
group of employees designated as inSilicon Employees (as of the specified
date) by Phoenix and inSilicon by mutual agreement; and (d) an alternate
payee under a QDRO, alternate recipient under a QMCSO, beneficiary, covered
dependent, or qualified beneficiary (as such term is defined under COBRA), in
each case, of an employee, described in (a) through (c) with respect to that
employee's benefit under the applicable Plan(s). (Unless specified otherwise
in this Agreement, such an alternate payee, alternate recipient, beneficiary,
covered dependent, or qualified beneficiary shall not otherwise be considered
an inSilicon Employee with respect to any benefits he or she accrues or
accrued under any applicable Plan(s), unless he or she is an inSilicon
Employee by virtue of (a) through (c)).
"INSILICON GROUP" means inSilicon and each Affiliate of inSilicon as
of the Separation Date, or that is contemplated to be a Subsidiary or
Affiliate of inSilicon after the Separation Date.
"IPO" means the initial public offering of inSilicon common stock
pursuant to a registration statement on Form S-1 pursuant to the Securities
Act of 1933, as amended.
"IRS" means the United States Internal Revenue Service.
"OPTION," when immediately preceded by "Phoenix," means an option to
purchase Phoenix common stock pursuant to a Stock Plan. When immediately
preceded by "inSilicon," "Option" means an option to purchase inSilicon
common stock pursuant to a Stock Plan.
"PARTICIPATING COMPANY" means: (a) Phoenix; (b) any Person (other
than an individual) that Phoenix has approved for participation in, has
accepted participation in, and which is participating in, a Plan sponsored by
Phoenix; or (c) any Person (other than an individual) which,
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by the terms of such Plan, participates in such Plan or any employees of
which, by the terms of such Plan, participate in or are covered by such Plan.
"PERSON" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization, and a governmental entity or
any department, agency or political subdivision thereof.
"PHOENIX EMPLOYEE" means any individual who is: (a) either actively
employed by, or on leave of absence from, the Phoenix Group on the Separation
Date; (b) either actively employed by, or on leave of absence from, the
inSilicon Group as either part of a work group or organization, or common
support function that, at any time after the Separation Date and before
inSilicon ceases to be a Phoenix Affiliate, moves to the employ of the
Phoenix Group from the employ of the inSilicon Group; (c) an employee or
group of employees designated as Phoenix Employees (as of the specified date)
by Phoenix and inSilicon by mutual agreement; and (d) an alternate payee
under a QDRO, alternate recipient under a QMCSO, beneficiary, covered
dependent, or qualified beneficiary (as such term is defined under COBRA), in
each case, of an employee, described in (a) through (c) with respect to that
employee's benefit under the applicable Plan(s). (Unless specified otherwise
in this Agreement, such an alternate payee, alternate recipient, beneficiary,
covered dependent, or qualified beneficiary shall not otherwise be considered
an Phoenix Employee with respect to any benefits he or she accrues or accrued
under any applicable Plan(s), unless he or she is an Phoenix Employee by
virtue of (a) through (c)).
"PHOENIX GROUP" means Phoenix and each Affiliate of Phoenix other
than inSilicon or an Affiliate of inSilicon.
"PLAN," means any plan, policy, program, payroll practice,
arrangement, contract, trust, insurance policy, or any agreement or funding
vehicle providing compensation or benefits to employees, former employees or
directors of Phoenix or inSilicon.
"QDRO" means a domestic relations order which qualifies under Code
Section 414(p) and ERISA Section 206(d) and which creates or recognizes an
alternate payee's right to, or assigns to an alternate payee, all or a
portion of the benefits payable to a participant under any of the Phoenix
Retirement Plans.
"QMCSO" means a medical child support order which qualifies under
ERISA Section 609(a) and which creates or recognizes the existence of an
alternate recipient's right to, or assigns to an alternate recipient the
right to, receive benefits for which a participant or beneficiary is eligible
under any of the Health Plans.
"STOCK PLAN," when immediately preceded by "Phoenix," means any
plan, program or arrangement, other than the Stock Purchase Plan, pursuant to
which employees and other service providers hold Phoenix Options, Phoenix
Restricted Stock, or other Phoenix equity incentives. When immediately
preceded by "inSilicon," "Stock Plan" means stock-based plans, programs or
arrangements that may be established by inSilicon.
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"STOCK PURCHASE PLAN," when immediately preceded by "Phoenix," means
the Phoenix Employee Stock Purchase Plan. When immediately preceded by
"inSilicon," "Stock Purchase Plan" means the employee stock purchase plan
that may be established by inSilicon.
ARTICLE II
GENERAL PRINCIPLES
2.1 ASSUMPTION OF INSILICON LIABILITIES. Except as specified
otherwise in this Agreement, or as mutually agreed upon by inSilicon and
Phoenix from time to time, inSilicon hereby assumes and agrees to pay,
perform, fulfill and discharge, in accordance with their respective terms,
all of the following: (a) all Liabilities to or relating to inSilicon
Employees, in each case relating to, arising out of or resulting from
employment by the inSilicon Group from and after becoming inSilicon
Employees, respectively (including Liabilities arising under or relating to
Phoenix Plans and inSilicon Plans); (b) all other Liabilities to or relating
to inSilicon Employees, to the extent relating to, arising out of, or
resulting from future, present or former employment with the inSilicon Group
(including Liabilities arising under or relating to Phoenix Plans and
inSilicon Plans); (c) all Liabilities relating to, arising out of or
resulting from any other actual or alleged employment relationship with the
inSilicon Group; and (d) all other Liabilities relating to, arising out of,
or resulting from obligations, liabilities and responsibilities expressly
assumed or retained by the inSilicon Group, or an inSilicon Plan pursuant to
this Agreement.
2.2 ESTABLISHMENT OF INSILICON PLANS.
(a) HEALTH AND WELFARE PLANS. Effective from and after the
Separation Date or such other date(s) as Phoenix and inSilicon may mutually
agree, inSilicon shall adopt the inSilicon Health and Welfare Plans.
(b) RETIREMENT PLANS AND FRINGE BENEFITS. Effective from and
after the Separation Date or such other date(s) as Phoenix and inSilicon may
mutually agree, inSilicon shall adopt the inSilicon Retirement Plans and the
inSilicon Fringe Benefits.
(c) EQUITY AND OTHER COMPENSATION. Effective from and after the
Separation Date or such other date(s) as Phoenix and inSilicon may mutually
agree, inSilicon shall adopt the inSilicon Stock Plans. Effective on or after
the IPO or such other date as Phoenix and inSilicon may mutually agree,
inSilicon shall adopt the inSilicon Stock Purchase Plan.
(d) INSILICON PLAN TERMS. The inSilicon Plans need not provide
the same or similar benefits terms or features as the comparable Phoenix
Plans.
(e) INSILICON UNDER NO OBLIGATION TO MAINTAIN PLANS. Except as
specified otherwise in this Agreement, nothing in this Agreement shall
preclude inSilicon, at any time after the Separation Date from amending,
merging, modifying, terminating, eliminating, reducing, or otherwise altering
in any respect any inSilicon Plan, any benefit under any inSilicon Plan or
any trust, insurance policy or funding vehicle related to any inSilicon Plan
(to the extent permitted by law).
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2.3 INSILICON'S PARTICIPATION IN PHOENIX PLANS.
(a) PARTICIPATION IN PHOENIX PLANS. Except as specified
otherwise in this Agreement, or as Phoenix and inSilicon may mutually agree,
effective as of the Separation Date, inSilicon may continue as or become, as
the case may be, a Participating Company in the Phoenix Plans in effect as of
the Separation Date, to the extent that inSilicon has not yet established a
comparable Plan.
(b) PHOENIX'S GENERAL OBLIGATIONS AS PLAN SPONSOR. To the extent
that inSilicon is a Participating Company in any Phoenix Plan(s), Phoenix
shall continue to administer, or cause to be administered, in accordance with
their terms and applicable law, such Phoenix Plan(s), and shall have the sole
and absolute discretion and authority to interpret the Phoenix Plan(s), as
set forth therein. Except as specified otherwise in this Agreement, nothing
in this Agreement shall preclude Phoenix, at any time after the Separation
Date from amending, merging, modifying, terminating, eliminating, reducing,
or otherwise altering in any respect any Phoenix Plan, any benefit under any
Phoenix Plan or any trust, insurance policy or funding vehicle related to any
Phoenix Plan (to the extent permitted by law).
(c) INSILICON'S GENERAL OBLIGATIONS AS PARTICIPATING COMPANY.
inSilicon shall perform with respect to its participation in the Phoenix
Plans, the duties of a Participating Company as set forth in each such Plan
or any procedures adopted pursuant thereto, including (without limitation):
(i) assisting in the administration of claims, to the extent requested by the
claims administrator of the applicable Phoenix Plan; (ii) cooperating fully
with Phoenix Plan auditors, benefit personnel and benefit vendors; (iii)
preserving the confidentiality of all financial arrangements Phoenix has or
may have with any vendors, claims administrators, trustees or any other
entity or individual with whom Phoenix has entered into an agreement relating
to the Phoenix Plans; and (iv) preserving the confidentiality of participant
information (including, without limitation, health information in relation to
FMLA leaves) to the extent not specified otherwise in this Agreement.
(d) TERMINATION OF PARTICIPATING COMPANY STATUS. Except as
otherwise may be mutually agreed upon by Phoenix and inSilicon, effective as
of such date as inSilicon establishes a comparable Plan (as specified in
Section 2.2 or otherwise in this Agreement), inSilicon shall automatically
cease to be a Participating Company in the corresponding Phoenix Plan, unless
such automatic cessation is prohibited by applicable law.
2.4 DISPUTES. All disputes arising out of, related to or resulting
from this Agreement, including the interpretation hereof, shall be resolved
in accordance with the procedures set forth in the IPO Agreement.
2.5 FOREIGN EMPLOYEES. inSilicon and Phoenix each authorize their
non-U.S. subsidiaries to enter into separate local agreements with the
counterpart of the other party ("Local Agreements"). inSilicon and Phoenix
intend that the Local Agreements will generally specify the terms under which
Phoenix and inSilicon agree to allocate between them all assets, liabilities
and responsibilities relating to, and arising from Foreign Plans and certain
employment matters. To the extent, however, that any such Local Agreement
does not address a particular
5
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principle or plan, then the intent of the parties relating to comparable U.S.
matters or issues as reflected in this Agreement shall govern (to the extent
permitted by law).
ARTICLE III
DEFINED CONTRIBUTION PLAN
3.1 401(k) PLAN. Effective from and after the Separation Date as of
such date as Phoenix and inSilicon may mutually agree, inSilicon shall adopt
a 401(k) plan (the "inSilicon 401(k) Plan").
(a) 401(k) TRUST: ASSETS AND LIABILITIES. Effective from and
after the Separation Date as of such date(s) as inSilicon and Phoenix may
mutually agree: (i) the inSilicon 401(k) Plan may assume and be solely
responsible for all Liabilities for or relating to inSilicon Employees under
the Phoenix 401(k) Plan (such date referred to as the "401(k) Transfer
Date"); and (ii) Phoenix may cause the accounts of the inSilicon Employees
under the Phoenix 401(k) Plan that are held by its related trust as of the
401(k) Transfer Date to be transferred to the inSilicon 401(k) Plan and its
related trust, and inSilicon shall cause such transferred accounts to be
accepted by such plan and its related trust. As soon as reasonably
practicable after the Separation Date, inSilicon shall use its commercially
reasonable best efforts to enter into agreements satisfactory to inSilicon to
accomplish such assumption and transfer, the maintenance of the necessary
participant records, the appointment of an initial trustee under the
inSilicon 401(k) Plan, and the engagement of an initial recordkeeper under
the inSilicon 401(k) Plan. inSilicon and Phoenix each agree to use their
commercially reasonable best efforts to accomplish this spin-off.
(b) NO DISTRIBUTION TO INSILICON EMPLOYEES. The inSilicon 401(k)
Plan and the Phoenix 401(k) Plan shall provide that no distribution of
account balances shall be made to any inSilicon Employee on account of the
inSilicon Group ceasing to be an Affiliate of the Phoenix Group.
ARTICLE IV
HEALTH AND WELFARE PLANS
4.1 ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES. Except as
specified otherwise in this Agreement, as of the Separation Date, all
Liabilities for or relating to inSilicon Employees under the Phoenix Health
and Welfare Plans shall be reimbursed by inSilicon on a pro rata basis.
4.2 CLAIMS FOR HEALTH AND WELFARE PLANS. Phoenix shall administer
claims incurred under the Phoenix Health and Welfare Plans by inSilicon
Employees but only to the extent that inSilicon has not established and
assumed administrative responsibility for a comparable Plan. Any
determination made or settlements entered into by Phoenix with respect to
such claims shall be final and binding.
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4.3 VENDOR ARRANGEMENTS. Phoenix shall use its commercially
reasonable best efforts for and on behalf of inSilicon to procure, effective
as of such date as Phoenix and inSilicon mutually agree upon: (a) third party
ASO contracts; (b) group insurance policies; and (c) HMO agreements. In each
case, inSilicon shall, as of such date as Phoenix and inSilicon may mutually
agree upon, establish, adopt and/or implement such contracts, agreements or
arrangements.
ARTICLE V
EQUITY COMPENSATION
5.1 STOCK OPTIONS. After the Separation Date and as of such date as
inSilicon and Phoenix may mutually agree, inSilicon may offer to inSilicon
Employees inSilicon Options in exchange for the cancellation of Phoenix
Options. Any such exchange shall generally preserve the economic value of the
cancelled Phoenix Options and shall preserve the terms and features of the
Phoenix Options. This Agreement shall not in any way limit the ability of
inSilicon to offer additional inSilicon Options or other inSilicon equity
incentives to inSilicon Employees.
ARTICLE VI
ADMINISTRATIVE PROVISIONS
6.1 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS.
(a) SHARED COSTS. inSilicon shall pay its share, as determined
by Phoenix in good faith, of any contributions made to any trust maintained
in connection with an Phoenix Plan while inSilicon is a Participating Company
in that Phoenix Plan.
(b) CONTRIBUTIONS TO TRUSTS. With respect to Phoenix Plans to
which inSilicon Employees make contributions, Phoenix shall use reasonable
procedures to determine inSilicon Liabilities associated with such Plans,
taking into account such contributions, settlements, refunds and similar
payments.
(c) ADMINISTRATIVE EXPENSES NOT CHARGEABLE TO A TRUST. To the
extent not otherwise agreed to by Phoenix and inSilicon, and to the extent
not chargeable to a trust established in connection with an Phoenix Plan,
inSilicon shall be responsible, through either direct payment or
reimbursement to Phoenix, for its allocable share of expenses incurred by
Phoenix in the administration of (i) the Phoenix Plans while inSilicon
participates in such Plans, and (ii) the inSilicon Plans, to the extent
Phoenix administers such Plans. For this purpose, inSilicon's allocable share
of such expenses shall be that portion of the total of such expenses as the
number of inSilicon Employees who are participants in the applicable Plan
bears to the total number of participants in such Plan.
6.2 SHARING OF PARTICIPANT INFORMATION. Phoenix and inSilicon shall
share, or cause to be shared, all participant information that is necessary
or appropriate for the efficient and accurate administration of each of the
Phoenix Plans and the inSilicon Plans during the respective periods
applicable to such Plans as inSilicon and Phoenix may mutually agree.
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Phoenix and inSilicon and their respective authorized agents shall, subject
to applicable laws of confidentiality and data protection, be given
reasonable and timely access to, and may make copies of, all information
relating to the subjects of this Agreement in the custody of the other party
or its agents, to the extent necessary or appropriate for such administration.
6.3 REPORTING AND DISCLOSURE COMMUNICATIONS TO PARTICIPANTS. While
inSilicon is a Participating Company in the Phoenix Plans, inSilicon shall
take, or cause to be taken, all actions necessary or appropriate to
facilitate the distribution of all Phoenix Plan-related communications and
materials to employees, participants and beneficiaries, including (without
limitation) summary plan descriptions and related summaries of material
modification(s), summary annual reports, investment information,
prospectuses, notices and enrollment material for the Phoenix Plans and
inSilicon Plans. inSilicon shall reimburse Phoenix for the costs and expenses
relating to the copies of all such documents provided to inSilicon. inSilicon
shall assist, and inSilicon shall cause each other applicable member of the
inSilicon Group to assist, Phoenix in complying with all reporting and
disclosure requirements of ERISA, including the preparation of Form Series
5500 annual reports for the Phoenix Plans, where applicable.
6.4 AUDITS REGARDING VENDOR CONTRACTS. From the period beginning as
of the Separation Date and ending on such date as Phoenix and inSilicon may
mutually agree, Phoenix and inSilicon and their duly authorized
representatives shall have the right to conduct joint audits with respect to
any vendor contracts that relate to both the Phoenix Health and Welfare Plans
and the inSilicon Health and Welfare Plans. The scope of such audits shall
encompass the review of all correspondence, account records, claim forms,
canceled drafts (unless retained by the bank), provider bills, medical
records submitted with claims, billing corrections, vendor's internal
corrections of previous errors and any other documents or instruments
relating to the services performed by the vendor under the applicable vendor
contracts. Phoenix and inSilicon shall agree on the performance standards,
audit methodology, auditing policy and quality measures, reporting
requirements, and the manner in which costs incurred in connection with such
audits will be shared.
6.5 REQUESTS FOR IRS AND DOL OPINIONS. Phoenix and inSilicon shall
make such applications to regulatory agencies, including the IRS and DOL, as
may be necessary or appropriate. inSilicon and Phoenix shall cooperate fully
with one another on any issue relating to the transactions contemplated by
this Agreement for which Phoenix and/or inSilicon elects to seek a
determination letter or private letter ruling from the IRS or an advisory
opinion from the DOL.
6.6 FIDUCIARY MATTERS. Phoenix and inSilicon each acknowledge that
actions contemplated to be taken pursuant to this Agreement may be subject to
fiduciary duties or standards of conduct under ERISA or other applicable law,
and no party shall be deemed to be in violation of this Agreement if such
party fails to comply with any provisions hereof based upon such party's good
faith determination that to do so would violate such a fiduciary duty or
standard.
6.7 CONSENT OF THIRD PARTIES. If any provision of this Agreement is
dependent on the consent of any third party (such as a vendor) and such
consent is withheld, Phoenix and inSilicon shall use their commercially
reasonable best efforts to implement the applicable provisions of
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this Agreement. If any provision of this Agreement cannot be implemented due
to the failure of such third party to consent, Phoenix and inSilicon shall
negotiate in good faith to implement the provision in a mutually satisfactory
manner.
ARTICLE VII
EMPLOYMENT-RELATED MATTERS
7.1 EMPLOYMENT OF EMPLOYEES WITH U.S. WORK VISAS. inSilicon
Employees who, on the Separation Date, are employed in the U.S. pursuant to a
work or training visa which authorizes employment only by the Phoenix Group
shall remain employed by the Phoenix Group until the visa is amended or a new
visa is granted to authorize employment by the inSilicon Group and, at that
time, shall become an employee of the inSilicon Group with substantially
similar rights as all other inSilicon Employees. During the period from the
Separation Date until the amended or new visa is issued, such employee shall
continue to participate in Phoenix Plans and inSilicon shall, as and when
invoiced by Phoenix, promptly reimburse Phoenix for its direct and indirect
costs and expenses relating to compensation and benefits.
7.2 CONFIDENTIALITY AND PROPRIETARY INFORMATION. No provision of the
Separation Agreement or any Ancillary Agreement shall be deemed to release
any individual for any violation of the Phoenix non-competition guideline or
any agreement or policy pertaining to confidential or proprietary information
of any member of the Phoenix Group, or otherwise relieve any individual of
his or her obligations under such non-competition guideline, agreement, or
policy.
7.3 CONSISTENCY OF TAX POSITIONS; DUPLICATION. Phoenix and inSilicon
shall individually and collectively make commercially reasonable best efforts
to avoid unnecessarily duplicated federal, state or local payroll taxes,
insurance or workers' compensation contributions, or unemployment
contributions arising on or after the Separation Date. Phoenix and inSilicon
shall take consistent reporting and withholding positions with respect to any
such taxes or contributions.
7.4 PERSONNEL AND PAY RECORDS. For the period beginning on the
Separation Date and ending on any substantially complete disposition of
Phoenix's ownership interest in inSilicon (and for such additional period as
Phoenix and inSilicon may mutually agree), Phoenix shall make reasonably
available to inSilicon, subject to applicable laws on confidentiality and
data protection, all current and historic forms, documents or information, no
matter in what format stored, relating to pre-Separation Date personnel,
medical records, and payroll information with respect to inSilicon Employees.
Such forms, documents or information may include, but is not limited to: (a)
information regarding an inSilicon Employee's ranking or promotions; (b) the
existence and nature of garnishment orders or other judicial or
administrative actions or orders affecting an employee's or service
provider's compensation; and (c) performance evaluations. inSilicon shall
fully reimburse Phoenix for the cost associated with such availability and
access.
7.5 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES. No
provision of this Agreement, the Separation Agreement, or any Ancillary
Agreement shall be construed to
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create any right, or accelerate entitlement, to any compensation or benefit
whatsoever on the part of any inSilicon Employee or other future, present or
former employee of Phoenix or inSilicon under any Phoenix Plan or inSilicon
Plan or otherwise.
7.6 PRE-SEPARATION SERVICE. As of the Separation Date, the legal
responsibility for claims relating to pre-Separation Date Service remain with
Phoenix. All claims with respect to post-Separation Date Service of inSilicon
Employees with inSilicon shall be the exclusive legal responsibility of
Phoenix.
ARTICLE VIII
GENERAL PROVISIONS
8.1 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be
deemed or construed by the parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties, the understanding and agreement being that no provision contained
herein, and no act of the parties, shall be deemed to create any relationship
between the parties other than the relationship set forth herein.
8.2 AFFILIATES. Each of Phoenix and inSilicon shall cause to be
performed, and hereby guarantee the performance of, any and all actions of
the Phoenix Group or the inSilicon Group, respectively.
8.3 GOVERNING LAW. To the extent not preempted by applicable federal
law, this Agreement shall be governed by, construed and interpreted in
accordance with the laws of the State of California, without regard to the
conflicts of law rules of such state.
8.4 SEVERABILITY. If any term or other provision of this Agreement
is determined to be invalid, illegal or incapable of being enforced by any
rule of law or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to either party. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties
as closely as possible and in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the fullest possible extent.
8.5 AMENDMENT. The Board of Directors of inSilicon and Phoenix may
mutually agree to amend the provisions of this Agreement at any time or
times, either prospectively or retroactively, to such extent and in such
manner as the Boards mutually deem advisable. Each Board may delegate its
amendment power, in whole or in part, to one or more Persons or committees as
it deems advisable. Accordingly, each Board hereby gives its Vice President,
Human Resources the full power and authority to mutually adopt an amendment
to this Agreement (subject to each of their authority to amend Plans).
8.6 CONFLICT. In the event of any conflict between the provisions of
this Agreement and the Separation Agreement, any Ancillary Agreement, or
Plan, the provisions of this
10
<PAGE>
Agreement shall control. In the event of any conflict between the provisions
of this Agreement and any Local Agreement, the provisions of the Local
Agreement shall control.
8.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts each of which shall be deemed to be an original, but all of
which together shall constitute but one and the same Agreement.
IN WITNESS WHEREOF, each of the parties have caused this Agreement
to be executed on its behalf by its officers thereunto duly authorized on the
day and year first above written.
PHOENIX TECHNOLOGIES LTD.
By: /s/ LINDA V. MOORE
----------------------------
Name: Linda V. Moore
Title: Vice President, General Counsel and Secretary
INSILICON CORPORATION
By: /s/ DAVID J. POWER
----------------------------
Name: David J. Power
Title: Vice President and General Counsel
11
<PAGE>
EXHIBIT 10.64
March 6, 2000
Mr. Pierre A. Narath
Chairman, President and Chief Executive Officer
Touchstone Software Corporation
1538 Turnpike Street
North Andover, Massachusetts 01845
Dear Pierre:
This letter sets forth certain understandings and agreements among
Phoenix Technologies Ltd. ("Phoenix"), Touchstone Software Corporation
("Touchstone"), Unicore Software, Inc. and eSupport.com, Inc. (each a wholly
owned subsidiary of Touchstone and collectively, the "Subsidiaries"), with
respect to Phoenix's proposed acquisition of all of Touchstone's and the
Subsidiaries' respective assets related to the development and licensing of
Personal Computer ("PC") software utility packages, system level software
packages (including BIOS software), hardware diagnostic software, Internet
access optimization software, Internet diagnostic and online software and PC
to PC file transfer software (the "Business"), and the assumption of the
liabilities of Touchstone and the Subsidiaries related to the Business, on
the terms and subject to the conditions set forth below (the "Acquisition").
The Acquisition will be subject to the execution of a definitive
asset purchase agreement and such other agreements and documents as may be
necessary or appropriate and containing, among other things, such
representations, warranties, conditions, covenants, and indemnities customary
in transactions of this kind (the "Agreement"). The following numbered
paragraphs summarize our understanding with respect to the matters described
in them, but do not, except as otherwise expressly stated in this letter,
constitute a legally binding or enforceable agreement or commitment on the
part of Touchstone, the Subsidiaries or Phoenix with respect to the matters
described therein or impose on either Touchstone, the Subsidiaries or Phoenix
an enforceable duty or obligation to negotiate towards or conclude any such
agreement or commitment.
1. Purchase of Assets
a. Phoenix will purchase, at the closing ("Closing") specified
in the Agreement, (i) all of the assets and properties of Touchstone and the
Subsidiaries related to the Business, and
<PAGE>
Mr. Pierre A. Narath
March 6, 2000
Page 2
(ii) the number of shares of Touchstone's single class of preferred
securities, subject to the terms and conditions of such preferred securities
and convertible into shares of Touchstone's common securities (the "Preferred
Shares"), equivalent in value to the difference between $9,000,000 and 85% of
Touchstone's audited FY 1999 consolidated revenues derived from operations
(collectively, the "Assets"). The number of Preferred Shares shall be subject
to adjustment at the Closing pursuant to the same formula used to adjust the
number of Common Shares to be delivered by Phoenix at the Closing. Subject to
the foregoing, the Assets will be substantially the same as the present
assets and properties of Touchstone and the Subsidiaries, except for any
agreed-upon changes contemplated by the Agreement. The following shall not
constitute Assets:
(i) Shares or securities issued by third parties, and
partnership and other ownership interests of entities
not issuing shares or securities, in each case owned
by Touchstone for investment purposes and reflected
on Touchstone's balance sheet as of the date of
Closing;
(ii) All office furniture, personal computers, file
cabinets, office supplies and similar property
presently used by Touchstone's president, his
personal assistant and Touchstone's chief financial
officer, and all files and records unrelated to the
Business; and
(iii) All cash, certificates of deposit, notes receivable
and like instruments, but excluding all accounts
receivable relating to the Business, reflected on
Touchstone's balance sheet as of the Closing.
b. At the Closing, Phoenix will (i) assume all of the
liabilities of Touchstone and the Subsidiaries relating to the Business and
reflected on Touchstone's audited balance sheet as of December 31, 1999 and
any disclosed liabilities of Touchstone and the Subsidiaries incurred in the
ordinary course of the Business between December 31, 1999 and the Closing,
but shall specifically exclude all extraordinary items (as defined in the
Agreement) and liabilities incurred other than in the regular and ordinary
course of the Business ("Liabilities"), subject to the establishment of the
escrow described in Section 2.c, and (ii) pay Touchstone a purchase price
composed of (x) $4,500,000 in immediately available funds (subject to
adjustment pursuant to Section 1.c below) and (y) the number of shares of
Phoenix common stock ("Common Shares") determined pursuant to Section 1.d
below subject to the registration schedule set forth in Section 1.e below.
The Liabilities assumed will include the assumption of approximately $530,000
of long-term indebtedness recorded on Touchstone's balance sheet as of the
date of this letter.
c. The amount payable at Closing in immediately available
funds is based on Touchstone's consolidated revenues derived from its
operations ("Consolidated Revenues") as reported on a pro forma basis for its
fiscal year 1999 ending December 31st. In the event the total of Touchstone's
audited fiscal year 1999 Consolidated Revenues differ by more than ten (10%)
percent (the "Threshold") from the pro forma total for the same period, the
amount of
<PAGE>
Mr. Pierre A. Narath
March 6, 2000
Page 3
immediately available funds payable at the Closing will be adjusted upward or
downward, on a dollar for dollar basis, by the amount of the difference,
above the Threshold, between the statements of pro forma and audited
Consolidated Revenues.
d. The number of Phoenix Common Shares delivered at the
Closing shall be calculated by dividing $4.5 million by the average closing
share price of the Common Shares for the 30 consecutive trading days (the "30
Day Trailing Average") immediately prior to the date of the Closing as
reported on NASDAQ; provided however, that if the 30 Day Trailing Average
determined as of three (3) trading days prior to the Closing:
(i) is at least 115% of the closing share price on the
first day of such 30 Day Trailing Average (the "First
Day Share Price"), then the number of Common Shares
to be delivered shall be calculated by dividing $4.5
million by the First Day Share Price and multiplying
the result by the product of dividing 115% of the
First Day Share Price by the 30 Day Trailing Average;
or
(ii) is no greater than 85% of the First Day Share Price,
then the number of Common Shares to be delivered
shall be calculated by dividing $4.5 million by the
First Day Share Price and multiplying the result by
the product of dividing 85% of the First Day Share
Price by the 30 Day Trailing Average.
e. At the Closing, 50% of the Common Shares will be delivered
in registered, unrestricted form, and 50% shall be delivered in unregistered,
restricted form. Not later than 180 days after the date of the Closing,
Phoenix, at its expense and in accordance with applicable securities laws,
will register the Common Shares that were delivered in restricted form, and
remove or cancel any restrictions applicable to such Common Shares.
2. Other Provisions
a. In accordance with a Lockup Agreement to be entered into at
the Closing by and between Phoenix and Touchstone, (i) Phoenix will not sell
any Preferred Shares during the two (2) years after the Closing, after which
time Phoenix will have the right to sell up to 50% of the Preferred Shares
without restriction. Four (4) years after the Closing, Phoenix will have the
right to sell the balance of the Preferred Shares without restriction. Any
sale of Preferred Shares or Common Shares resulting from the transactions
contemplated hereby shall be in compliance with applicable securities laws.
b. Phoenix's obligation to close shall be conditioned on,
among other things, Touchstone and its president entering into a
noncompetition agreement with Phoenix on terms satisfactory to Phoenix,
Touchstone and its president; provided, however that: (i) the term of the
<PAGE>
Mr. Pierre A. Narath
March 6, 2000
Page 4
non-compete shall be two (2) years from the date of the Closing; (ii) the
scope of the non-compete shall be limited to the Business, and shall include
a prohibition on the direct or indirect (x) solicitation or hiring of any
former Touchstone or any Subsidiary's employees identifiable to, and hired by
Phoenix in connection with, the Business, as identified by Phoenix to
Touchstone on the date of the Closing, and (y) solicitation of any business
relationship with customers of the Business existing as of the date of
Closing, but shall exclude from its scope the acquisition by Touchstone
during the non-compete term of an ownership interest of five (5) percent or
less in any publicly traded direct competitor of Phoenix and (iii) as
consideration for his agreement to, and full and faithful performance of, the
provisions of the noncompetition agreement, at the Closing, Phoenix shall
forgive the outstanding promissory note executed by the president of
Touchstone in Phoenix's favor and any accrued and unpaid interest thereon.
During the second year of the non-compete term, the president of Touchstone
may engage in activities that would otherwise be prohibited by the terms of
the noncompetition agreement, upon obtaining the advance written consent of
Phoenix, which consent shall not be unreasonably withheld or delayed. It is
expressly stated that the terms and conditions of section 2(f) of this letter
shall be excluded from the non-competition obligations contained herein.
c. The Agreement will contain provisions for the escrow of ten
percent (10%) of the purchase price for a period of one year after the
Closing to secure Phoenix against undisclosed liabilities, misrepresentations
and breaches of warranties, covenants, and agreements by Touchstone and the
Subsidiaries (collectively, "Losses"); provided, however, that the deposit of
the escrow shall be in kind (on a proportionate basis) with respect to the
cash and stock portions of the purchase price; and provided further that,
with respect to any Loss arising during the escrow period, the value of the
Common Shares held in escrow and available for payment of the Loss shall be
the average closing share price of the Common Shares as reported on NASDAQ
for the trading day immediately prior to date of the Closing, and provided
further that (i) no Losses shall be paid until the aggregate Losses exceed
$125,000 (the "Basket"), at which time all Losses shall be paid in full
without deduction, (ii) no individual Loss of less than $5,000 shall be
applied to meeting the Basket and (iii) at the option of Touchstone,
Touchstone may satisfy any such Loss with the cash portion of the escrow in
lieu of the Common Shares. During the escrow period, the escrow shall be held
and maintained by an independent escrow agent, with the cost and expense of
said escrow agent to be the sole responsibility of Phoenix. During the escrow
period, Touchstone shall be entitled to receive any interest earned on the
cash portion of the purchase price held in escrow or any increase in the
value of the Common Stock held in escrow. Touchstone shall further be
entitled to all dividends and voting rights with respect to the shares of the
Common Stock held in escrow during the escrow period.
d. Except as may otherwise be provided in this letter,
Phoenix, Touchstone and the Subsidiaries will each be solely responsible for
and bear all of their own respective expenses, including, without limitation,
expenses of legal counsel, accountants, and other advisers, incurred at any
time in connection with pursuing or consummating the Agreement and the
transactions contemplated thereby; provided however, that if Closing occurs,
Phoenix will reimburse
<PAGE>
Mr. Pierre A. Narath
March 6, 2000
Page 5
Touchstone at the Closing for up to $50,000 of directly related expenses
incurred by Touchstone and the Subsidiaries.
e. Phoenix will develop at its expense a retention plan to
identify Touchstone and Subsidiary employees with critical skills, and will
make employment offers to such individuals, which offers will include stock
option grants that take into consideration the option grant practices
observed by Touchstone, to the extent such practices are consistent with
Phoenix's currently effective option plan. Touchstone and the Subsidiaries
will terminate all of such employees' employment simultaneously with the
Closing and pay all accrued salaries, vacation and other benefits to such
employees at such time, subject to reimbursement by Phoenix at the Closing of
up to $150,000 of such incurred expenses. In addition, Phoenix will offer
employment to Mr. Jason K. Raza for a period of two (2) years following the
Closing pursuant to the provisions of a mutually satisfactory agreement of
employment.
f. During the period in which Phoenix owns the Preferred
Shares, if Phoenix agrees to invest in any third party in furtherance of its
PhoenixNet business strategy and funding, in addition to the kinds and
amounts Phoenix is willing to provide is necessary or advisable, Phoenix will
use its best efforts to refer such party and the investment opportunity to
Touchstone for direct negotiations. During the same period, if Phoenix is
presented with and declines an investment proposal by a party with whom
Phoenix has a business relationship related to PhoenixNet (a "PhoenixNet
Partner"), Phoenix will refer the PhoenixNet Partner and its proposal to
Touchstone, to the extent referral is consistent with any applicable
confidentiality obligation assumed by Phoenix in connection with its
consideration of the proposal.
g. The Closing will take place at a location mutually
acceptable to the parties hereto, or by mail, if the parties so agree, within
30 days of the last to occur of:
(i) the execution and delivery of the Agreement;
(ii) if required, compliance with the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act (the
"Act"); and
(ii) the approval of the respective Boards of Directors of
the parties and, to the extent required, the approval
of their respective shareholders.
h. If any filing under the Act is required, Phoenix,
Touchstone and the Subsidiaries will cooperate with one another and proceed,
as promptly as is reasonably practicable, to prepare and file the
notifications required by the Act, to seek to obtain all necessary consents
and approvals from lenders and landlords, and to endeavor to comply with all
other legal or contractual requirements for or preconditions to the execution
and consummation of the Agreement including, without limitation bulk sales or
similar laws.
<PAGE>
Mr. Pierre A. Narath
March 6, 2000
Page 6
i. During the term of this letter, Touchstone and each
Subsidiary grant Phoenix and its representatives full and free access to
Touchstone's and each Subsidiary's respective properties, employees,
facilities, books, records, financial and operating data, contracts and other
documents, subject to the terms and conditions of the Confidentiality and
Non-Disclosure Agreement previously executed between the parties and dated as
of February 14, 2000. Notwithstanding the foregoing, neither Phoenix nor its
agents will contact, directly or indirectly, any of Touchstone's or a
Subsidiary's customers, vendors, suppliers or employees without first
obtaining the consent of Touchstone or each Subsidiary, which consent shall
not be delayed or unreasonably withheld. Touchstone and each Subsidiary shall
cooperate with Phoenix in arranging contacts and communications with such
customers, vendors, suppliers and employees.
j. Touchstone and each Subsidiary agree that, from and after
the execution of this letter of intent until the termination hereof in
accordance with paragraph 3 below, no director, officer, employee, agent or
representative of Touchstone or either Subsidiary will, directly or
indirectly, initiate contact with, solicit or encourage any inquiries or
proposals by, or participate in any discussions or negotiations with, or
afford any access to its properties, books, and records to, any corporation,
person or other entity regarding the sale, transfer or other disposition of
the Business, or regarding any other business combination, which would be
inconsistent with the intent of the parties as set forth in this letter.
Touchstone will provide Phoenix with immediate written notice in the event of
any solicitation, inquiry or expression of interest made by any third party
to any of the foregoing persons.
k. Phoenix, Touchstone and the Subsidiaries each agree not to
disclose to any person or entity (excluding any stockholder of any entity
specified herein) or to make any public statement of this proposed
transaction or of this letter of intent without the prior written consent of
the other party hereto, except any disclosure required by law, prior to
Closing. However, Phoenix, Touchstone and the Subsidiaries understand that
certain disclosures regarding this proposed transaction may be made to (a)
their employees and agents on a need-to-know basis, and (b) any entity whose
consent or approval may be required in connection with this proposed
transaction, provided that prior to any such disclosure pursuant to (b)
above, the disclosing party will use its best efforts to provide the other
party with reasonable notice, the opportunity to comment thereon, and, if the
notice is in writing, a draft of it.
3. Termination
The obligations of the parties under Sections 2.h through 2.k
inclusive of this letter of intent will terminate on the earlier of (i)
Touchstone's notice of its election not to proceed with or consummate the
Acquisition, but only if given to Phoenix within three (3) business days of
any proposal by Phoenix to reduce or modify the purchase price or restructure
any of the material terms or conditions of the Acquisition, (ii) March 31,
2000, or (iii) the execution of the Agreement, provided however, that such
termination shall not relieve any party of liability for its breach of any
obligation occurring prior to such termination.
<PAGE>
Mr. Pierre A. Narath
March 6, 2000
Page 7
4. Miscellaneous
a. In the event that the Closing does not occur and the
Acquisition is not consummated for any reason, neither Phoenix, nor any
Phoenix subsidiary, shall, directly or indirectly for a period of two (2)
years after the date of execution of this letter, employ, hire, cause to be
employed or hired away, entice away, solicit or establish a business with any
then current officer, employee, or director of Touchstone or either
Subsidiary. Solicitation or employment of such officers, employees and
directors resulting from general advertisements on the Internet, in
newspapers or other mass media shall not constitute a breach or violation of
this Section 4.a, provided that within three (3) days of extending an offer
of employment to such officer, employee or director of Touchstone or either
Subsidiary, Phoenix shall give written notice to Touchstone thereof.
b. The consummation of the Acquisition is conditioned (i) upon
Touchstone's satisfaction of the federal income tax treatment of the
Acquisition, with respect to Touchstone and each Subsidiary; and (ii) Phoenix
making certain representations, warranties and covenants relating to the
Common Shares.
c. This letter shall be governed by, and construed in
accordance with the laws of the State of California, excluding its choice of
law principles. Except as otherwise provided herein, this letter may not be
amended, terminated, waived or rescinded except pursuant to a written
agreement duly executed by the parties hereto. This letter may be signed in
facsimile counterparts, each of which will constitute an original but all of
which shall constitute one and the same instrument.
Upon the execution of counterparts of this letter on behalf of
Touchstone and the Subsidiaries, Sections 2.h through 2.k inclusive and
Sections 3 and 4.a will constitute legally binding agreements which are
enforceable against the respective party or parties, regardless of whether
the parties later execute or fail to execute the Agreement. Except as to the
foregoing provisions, the statements of intent or understandings expressed in
this letter are not deemed to constitute an offer, acceptance or legally
binding agreement, and do not create any rights or obligations for or on the
part of Phoenix, Touchstone or the respective Subsidiaries.
Please indicate your agreement to the terms summarized above by
signing and returning a copy of this letter to the undersigned. Following
receipt, our due diligence will proceed, and we will begin preparation of the
definitive asset purchase agreement pursuant to which our
<PAGE>
Mr. Pierre A. Narath
March 6, 2000
Page 8
respective obligations with respect to the Acquisition will arise.
Very truly yours,
PHOENIX TECHNOLOGIES LTD.
By: /s/ ALBERT E. SISTO
---------------------------------------------
Albert E. Sisto
Chairman, President & Chief Executive Officer
Acknowledged And Agreed To
this 6th day of March 2000
TOUCHSTONE SOFTWARE CORPORATION
By: /s/ PIERRE A. NARATH
------------------------------
Pierre A. Narath
President
Date: March 6, 2000
----------------------------
ESUPPORT.COM, INC.
By: /s/ PIERRE A. NARATH
------------------------------
Pierre A. Narath
President
Date: March 6, 2000
----------------------------
UNICORE SOFTWARE, INC.
By: /s/ PIERRE A. NARATH
------------------------------
Pierre A. Narath
President
Date: March 6, 2000
----------------------------
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