Delaware 04-2685985
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the registrant as of November 30, 2001, was $271,764,134 based upon the last reported sales price of the Common Stock in the Nasdaq National Market, as reported by the Nasdaq Stock Market.
The number of shares of the registrant's Common Stock outstanding as of November 30, 2001 was 25,210,031.
Portions of the registrant's definitive proxy statement to be filed pursuant to Regulation 14A in connection with the 2002 annual meeting of its stockholders are incorporated by reference into Part III of this Form 10-K.
FORWARD-LOOKING STATEMENTS
This report on Form 10-K, including without limitation the Business section and Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements concerning expected price erosion, plans to make acquisitions, dispositions or strategic investments, expectation of sales volume to original equipment manufacturers (or "OEM"), and plans to improve and enhance existing products and develop new products.
The forward-looking statements of the Company are subject to risks and uncertainties. Some of the factors that could cause future results to materially differ from the recent results or those projected in the forward-looking statements include, but are not limited to, significant increases or decreases in demand for Phoenix's products, increased competition, lower prices and margins, failure to successfully develop and market new products and technologies, competitor introductions of superior products, continued industry consolidation, instability and currency fluctuations in international markets, product defects, failure to secure intellectual property rights, results of litigation, failure to retain and recruit key employees, acts of war or global terrorism, power shortage, and unexpected natural disasters. For a more detailed discussion of certain risks associated with the Company's business, see the "Business Risks" section of this Form 10-K. The Company undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-K.
GENERAL DEVELOPMENT OF THE BUSINESS
Phoenix Technologies Ltd. ("Phoenix" or the "Company") is the global leader in device-enabling and management software solutions for Personal Computers (PCs) and connected digital devices. Phoenix provides its products primarily to platform and peripheral manufacturers (collectively, "OEMs") that range from large PC and information appliance manufacturers to small system integrators and value-added resellers. Phoenix also provides training, consulting, maintenance, and engineering services to its customers. The Company markets and licenses its products and services through a direct sales force as well as through regional distributors and sales representatives.
The global computer industry, driven by the expansion of the Internet, has evolved into a rich "connected device ecosystem" embracing entirely new categories of functionality and is characterized by rapid technology changes that include increased processor speeds, hardware miniaturization, portability, and new and improved ways to connect devices. Traditional PC platforms have evolved into "endpoints" of the Internet. In addition, a wide array of other new technological innovations have emerged such as TV-centric "internet Televisions" (iTVs), "internet Video Players" (iVPs), tablet PCs which recognize pen-based input in Windows-based applications, wireless handheld appliances, interactive game stations, home networks, and rack-mounted single board server systems (known as "server blades") for enterprise applications.
The Company believes that its products and services enable customers who specify, develop, and manufacture PCs, information appliances, and semiconductors to bring leading-edge products to market more quickly while reducing their costs, providing high value-added features to their customers and, hence, increasing their competitiveness.
The Company was incorporated in the Commonwealth of Massachusetts in September 1979, and was reincorporated in the State of Delaware in December 1986.
Also, in the second quarter of fiscal 2001, the Company opened a sales office in Beijing, China as part of its continuing long-term commitment to service and support its Asian-based customers.
DESCRIPTION OF BUSINESS
The Company's four operating segments were Platform Enabling Division, inSilicon, Information Appliance Division, and PhoenixNet/TM/ Division. Information regarding revenues, gross margin and operating profit by segments, and revenues from unaffiliated customers by geographic regions, can be referenced under Note 11 "Segment Reporting" in the Company's Consolidated Financial Statements.
Platform Enabling Division
The Platform Enabling Division of Phoenix has been instrumental in the advancement of PC architecture. This division's system enabling software, referred to as Basic Input Output System ("BIOS") products, continues to play an essential role in the design of PCs and other devices by providing the critical link between hardware platforms and operating systems. In 2001, the division introduced a new class of software, FirstWare applications, that is typically loaded from a protected area of a PC's hard disk. This software can be used before the operating system is started or in conjunction with an operating system to provide diagnostic, repair and other services.
PC systems and other electronic devices consist of hardware, BIOS software, operating system software, and applications software. BIOS is the software that is initially executed when the system is turned on and is typically stored on a Read Only Memory ("ROM") chip that resides on the device's motherboard. BIOS tests and initializes the hardware. It also starts some software components including FirstWare applications, initiates the operating system, and then provides certain advanced interface functions.
The Company believes that the introduction of new hardware architectures, microprocessors, peripheral equipment, and operating systems both within the PC industry and through other channels, has increased the range of possible computing options, and has increased the need for system BIOS. In addition, the Company believes that its customers will require their products to feature increased reliability, a capability offered by the FirstWare applications.
Products. The Platform Enabling Division is currently offering or developing the following BIOS products:
. PhoenixBIOS(TM) 4.0. The Company provides various versions of PhoenixBIOS
4.0 as its core system firmware for desktop and server systems. The
Company believes that the success of this product is attributable to its
reliability and advanced features, including its fourth generation modular
architecture and advanced development tools and methodology.
. AwardBIOS(TM). The Platform Enabling Division also includes the products of Award Software, acquired in September 1998. The Company believes that the Award BIOS products and engineering services enable customers to rapidly develop new motherboard designs for state-of-the-art computer systems.
. NoteBIOS(TM) 4.0 for Portable Systems. The Company offers its NoteBIOS system software for use with portable or notebook computers. The product adds extensive power management capabilities, such as Save-to-Disk and smart batteries, to the modular architecture of PhoenixBIOS 4.0.
In addition, the Company offers and continues to enhance firstware applications products, primarily for computer problem analysis and repair, for use by system owners.
Customers and Sales. The Company generates a significant portion of its Platform Enabling Division revenues from customers outside of the United States. See discussion under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." The Company has licensed its BIOS technology to over 600 global technology leaders, including:
PC Systems PC Motherboards Embedded Systems
----------------------------------- --------------------------- --------------------
Acer Samsung Asustek Force Computers
Dell Compaq Gigabyte Japan Victor Company
Fujitsu Hewlett-Packard GVC Motorola
Sony Toshiba First International Company NCR
Hitachi Fujitsu Siemens NEC
EMC IBM Radisys
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The Company licenses its BIOS products and provides professional services to major OEMs of PCs, motherboards, and other computing devices. In general, license fees are generated on a per unit basis for each system shipped, and professional service fees are generated based upon efforts expended. The Platform Enabling Division utilizes a global direct sales force in North America, Asia and Europe, and resellers and distributors on a limited basis to certain regions.
Some product modifications are generally required in order for the customer to deploy Phoenix's Platform Enabling Division products on specific hardware platforms. To support its worldwide customer base, the Platform Enabling Division employed over 125 deployment engineers in Germany, Japan, Korea, Taiwan, China, California, Oregon, and Massachusetts. The Company also provides support services by telephone, via the Internet, and on-site.
Two customers accounted for 15% and 11% of revenues generated by Platform Enabling Division in fiscal 2001. Also, one customer accounted for 19% and 11%, of revenues generated by Platform Enabling Division in fiscal 2000 and 1999, respectively. No other customer accounted for more than 10% of revenues of the Platform Enabling Division in fiscal 2001, 2000, and 1999.
Competition. The Platform Enabling Division competes for BIOS sales primarily with in-house research and development departments of PC manufacturers that may have significantly greater financial and technical resources than those of the Company. These companies include Acer Incorporated, Compaq Computer Corporation, Dell Computer Corporation, IBM Corporation. The Company also competes for system software business with other independent suppliers, ranging from small, privately-held companies to Acer Softech, Inc., a division of Acer Laboratories, Inc., a major Taiwan chip and motherboard supplier. The Company believes that OEM customers often license the Company's system software products rather than develop these products internally in order to: (1) enhance compatibility with the latest industry standards, (2) improve time to market, (3) reduce product development risks, (4) reduce product development and support costs, and/or (5) to differentiate their system offerings with advanced features. In the FirstWare software area, the Company competes with individual component software suppliers such as StorageSoft, Inc., Symantec Corporation, and other companies that develop diagnostic and repair software, as well as in-house solutions.
inSilicon Corporation ("inSilicon") is a leading provider of communications technology that is used by semiconductor and systems companies to design complex semiconductors called systems-on-a-chip. The Systems-on-a-chip are critical components of wired and wireless products. inSilicon's customers use its communications technology in hundreds of different digital devices ranging from network routers to handheld computers and cellular phones. inSilicon's modular approach emphasizes customer-proven reusable semiconductor intellectual property that focuses on communications and connectivity, and is compatible with a wide range of microprocessor designs. Semiconductor and systems companies integrate inSilicon's communications technology into their overall semiconductor designs to save time and money, allowing them to focus on their core competencies that differentiate their products. By integrating inSilicon's communications technology into their complex designs, inSilicon's customers are better able to solve the widening "design gap" caused by the difficulty of designing complex systems-on-a-chip in the time necessary to get to the market with their products.
inSilicon targets high growth markets requiring high performance, quick time to market, design flexibility, and compliance with industry standards. The primary market segments are telecommunications and data communications, consumer electronics, computers, and office automation.
Products. inSilicon's communications technology includes semiconductor intellectual property and related software. Its semiconductor intellectual property includes a wide variety of both standards-based and proprietary communications technology. inSilicon's semiconductor intellectual property platforms vertically combine many of these technologies into functional blocks tailored for ease of use and faster integration by its customers.
inSilicon supplies its technology as Verilog, a source code, and GDS II database, which are the primary design representations in use today. Semiconductor and systems companies then integrate inSilicon's communications technology into their overall semiconductor designs using electronic design automation tools, such as those provided by Synopsys, Inc., Mentor Graphics Corporation, and Cadence Design Systems, Inc. It uses a modular approach that emphasizes silicon-proven reusable, licensable technologies and software that are compatible with a wide range of processor designs.
inSilicon's technologies are outlined in the following chart. Each family consists of its technologies that relate to a specific industry standard.
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Communications
Standards Technology Families Technology Applications
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Ethernet 10/100 and 10/100/1000 Ethernet is a widely used local area networking
Ethernet Media Access communications standard, used in devices such as
Controller and Ethernet modems, cable modems, home networking,
Simulation Model routers, and switches.
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IEEE 1394 1394 Device Controller Link, IEEE 1394 is a high-speed digital interface
1394 A/V Link, 1394 Cable Phy standard used in digital cameras, audio-visual disk
and 1394 Simulation Model drives, and scanners.
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IrDA VFIR and VFIR Simulation IrDA is a wireless standard that enables
Model, IrDA and IrDA communication between appliances across short
Simulation Model distances. It is used in mobile phones, handheld
and laptop computers, and electronic games.
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Java(TM) Technology JVX(TM) and JVXtreme(TM) Java JVX is a proprietary hardware and software
Accelerators solution that accelerates applications written in the
Java programming language. JVX is primarily
targeted for wireless Internet applications.
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PCI PCI Suite and PCI Simulation Peripheral Component Interconnect is an internal
Model communications standard that connects various
elements of computer systems to each other. It is
used in many computers as well as in embedded
systems.
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PCI-X PCI-X and PCI-X Simulation PCI-X is the latest revision of the PCI standard. It
Model is used in many high performance computing
applications, including multiprocessor servers,
communications switches and routers, and storage
area networks.
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USB USB 2.0 PHY, USB 1.1 and 2.0 Universal Serial Bus is a standard designed to
OHCI Host Controller, USB 1.1 simplify connections between personal computers
Hub, USB 1.1 and 2.0 Device and peripheral devices, such as printers, digital
Controller cameras, and scanners.
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UTOPIA DMA UTOPIA Controller and UTOPIA is a broadband interface widely used in
Simulation Model Asynchronous Transfer Mode (ATM)
communications, network processors, and DSL
chipsets.
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AMBA ARM Prime Cells, and Micro Advanced ARM Micro Bus Architecture is widely
Pack used in embedded systems. The Arm Prime Cells
and the Micro Pack offer most of the building
blocks needed to build a system around an
ARMAmba processor bus which is supported by
both the ARM and MIPS embedded processor
family. This includes memory controllers, timers,
and peripheral interface
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JPEG JPEG Encoder, Decoder, Codec, JPEG and JPEG2000 are worldwide standards for
and JPEG2000 Encoder still image compression and decompression. They
are widely used in digital camera, security
monitoring, printer, scanner, and medical imaging.
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Direct Sales. inSilicon maintains a direct worldwide sales network
consisting of its own employees and a limited number of sales representatives
and field applications engineers. The sales force is distributed in key
geographic areas around the world with employees in the following locations:
Texas, Maryland, Massachusetts, California, Switzerland, England, Germany,
Canada, Taiwan, and Japan. In addition, it has a distribution agreement with
Phoenix covering Hong Kong, Japan, Korea, Singapore, and Taiwan.
Indirect Sales. In addition to the direct sales force, inSilicon also uses indirect sales channels such as ASIC manufacturers and authorized design centers.
Internet Distribution. inSilicon also allows semiconductor designers to download and test, via the Internet, encrypted versions of its technology before committing to any economic arrangement.
inSilicon has developed a strong customer base among semiconductor and systems companies that use its communications technology to design complex semiconductors. No customer accounted for more than 10% of revenues individually in fiscal 2001, 2000, or 1999.
Competition. inSilicon is one of the top five pure merchant IP companies based on world-wide revenues for fiscal 2000, according to a May 2001 report by Gartner, Inc. The other top vendors include ARM Holdings plc, MIPS Technologies, Rambus, Inc., and Mentor Graphics Corporation. The industry is very competitive and is characterized by constant technological change, rapid rates of product obsolescence, and frequently emerging new suppliers. inSilicon's existing competitors include other merchant semiconductor intellectual property (or "SIP") suppliers, such as the Inventra Division of Mentor Graphics Corporation, Synopsys Inc., Enthink, Inc., Gain Technology Corporation, and the VAutomation subsidiary of ARC Cores, Inc.; and suppliers of ASICs, such as LSI Logic Corporation, the ASIC divisions of IBM Corporation, Lucent Technologies, Inc., Toshiba Corporation, and NEC Corporation. inSilicon also competes with the internal development groups of large, vertically integrated semiconductor and systems companies, such as Intel Corporation, Motorola Inc., Cisco Systems, Inc., and Hewlett-Packard Company. In these companies, SIP developed for an individual project sometimes is subject to efforts by the company to be reused in multiple projects. Companies whose principal business is providing design services as work-for-hire, such as Intrinsix Corporation, Sci-worx Corporation, Parthus Technologies plc, and the Tality subsidiary of Cadence Design Systems, Inc., also provide competition. These companies generally build a portfolio of internally developed SIP over time and then re-use that SIP as applicable in new service projects in order to gain productivity leverage. For firmware, its primary competitors are in-house research and development departments of systems companies and small privately-held companies. As inSilicon introduces new SIP technologies, it will face competition from both existing SIP suppliers and new SIP suppliers that it anticipates will enter the market. inSilicon also may face competition from new suppliers of technologies based on new or emerging standards.
Information Appliance Division
The Information Appliance Division of Phoenix is a new division launched in March 2001. It plays a leading role in establishing new information appliance categories and it also provides solutions for those existing information appliance categories. As a leader in the development of device enabling and management software solutions, Phoenix is leveraging more than 20 years of expertise to develop this new breed of instant-on information appliances.
Unlike PCs, information appliances are designed to offer internet connectivity to a new class of users. These new users demand devices that are easy to use, reliable, inexpensive, and that provide appliance-like capabilities, such as "Instant-on" and "Instant-off". The Company offers and continues to enhance its information appliance
Products. The Information Appliance Division is currently offering the following BIOS products:
. Industrial BIOS. The Company developed the industrial BIOS for configuration and control of information appliances, also referred to as embedded platforms. The industrial BIOS as well as other informational appliance products are designed using small form factors in order to meet the requirements of embedded platforms.
. FirstView Connect. The Company offers its FirstView Connect family of products to device OEMs as its core system to enable solutions to provide the best possible user experience on non-PC devices. It was designed and developed to enable a new class of low cost, flexible device that can bypass the complex and tedious start-up and set-up procedures faced by PC users who seek internet access. The product adds extensive advanced interactive web technologies like Java and Macromedia Flash(TM) capabilities, allowing OEMs to deliver rich, multi-media based internet content to TV as well as stand-alone network appliances.
Customers and Sales. The Company generates most of its Information Appliance revenues from North America and Japan. The Company has licensed its FirstView Connect browser and Industrial BIOS technology to a number of global technology leaders, including:
PC Motherboards Embedded Systems
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First International Company TeleCruz
VIA eHomeTV
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The Company licenses its software products and provides professional services. In general, license fees are generated on a per unit basis for each system shipped, and professional service fees are generated based upon efforts expended. The Information Appliance Division utilizes a global direct sales force in North America, Asia and Europe, and resellers and distributors on a limited basis for certain regions.
Some product modifications are generally required in order for the customer to deploy the Company's Information Appliance Division products on specific hardware platforms. The Company provides support services by telephone, via the Internet, and on-site.
One customer accounted for 28% of Information Appliance Division's revenues in fiscal 2001. There were no other customers accounted for more than 10% of Information Appliance revenues in fiscal 2001. Fiscal 2001 was the first year the Information Appliance Division generated revenues.
Competition. The Information Appliance Division competes primarily with research and development departments of software developers that may have significantly greater financial and technical resources than those of the Company. These companies include OpenTV Corporation, Wind River Systems, Inc., Liberate Technologies, and Microsoft Corporation. The Company also competes for software business with other independent suppliers, ranging from small, privately-held companies to in-house research and development departments of major OEMs. The Company believes that OEM customers in the information appliance space often license the Company's software products rather than develop these products internally in order to: (1) improve time to market, (2) reduce product development risks, and/or (3) reduce product development support costs.
The Company's PhoenixNet(TM) division delivers products and services, including the introduction of its Internet security infrastructure product in fiscal 2001, to new and existing users of personal computers, internet appliances, and mobile devices for leading providers worldwide.
PhoenixNet(TM) provides technology infrastructure that enables security products and services designed to deliver a higher level of trust to both devices and device-aware e-business applications through device authentication. Applications using this infrastructure for virtual private networks (VPNs) and the Internet are supported by a global network of Regional Device Authorities.
Products. PhoenixNet(TM) is currently offering the following products:
DeviceConnect(TM). Phoenix's DeviceConnect is a software and firmware based product, currently available for Check Point VPN-1 implementations, that turns a PC into an authentication token. Users need nothing more than their PCs running a Phoenix-customized VPN Client to securely access their network.
Technologies. The PhoenixNet(TM) division offers its products using primarily StrongROM and StrongClient technologies.
StrongROM. StrongROM is a ROM chip that contains an industry-leading cryptographic engine (RSA algorithms) and three security keys. Every PC, notebook, internet appliance, and other connected device that includes a StrongROM chip on the motherboard comes equipped with built-in strong security features. The device itself can become a tool for instant, and transparent device authentication.
With Phoenix Security firmware on board, the computer or notebook itself effectively becomes a "virtual smart card" for network access or internet transaction authentication, while all existing security steps and infrastructures (like username/password logons and VPNs) remain in place. By using two authentication methods--username/password for the individual and StrongROM for the device--the customer benefits from two-factor or "strong" authentication.
StrongCLIENT. StrongCLIENT is the software version of the StrongROM security technology. It is a Windows based implementation of the cryptographic engine leveraging security keys that are in Phoenix's firmware solution, StrongROM. It provides the functionalities of the ROM-based version and is easily installed on new or existing computers.
Customers and Sales. The activities of PhoenixNet(TM) are focused on delivering internet configuration services to PhoenixNet(TM) enabled motherboards. When these motherboards are built into a PC that connects to the Internet, the free configuration services are performed from the PhoenixNet(TM) data center. The Company has expanded its offerings with an internet security infrastructure product. This key strategic offering allows a reseller to offer a trusted platform. The product uses digital signatures and an online enrollment process to establish device authentication for applications, such as access control, transaction integrity, and content security.
Two customers accounted for 35% and 34% of revenues generated by PhoenixNet(TM) in fiscal 2001. In fiscal 2000, four customers each accounted for more than 10% of revenues in fiscal 2000.
Competition. In the securities business, there are many distribution vehicles for the Company's customers to reach PC end users, including PC OEM companies, PC and hardware registration companies, and Internet web sites. Many have greater resources than the Company.
The company's research and development expenditures in fiscal years 2001, 2000, and 1999 were $45.5, $39.1 million, and $39.9 million, respectively. At November 30, 2001, its research and development group included 367 full-time equivalent persons. The Company's research and development expenditures demonstrate its continuous commitment to maintain and enhance its current product lines, develop new products, maintain technological competitiveness and meet continually changing customer and market requirements.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies primarily on U.S. and foreign patents, trade secrets, trademarks, copyrights, and contractual agreements to establish and maintain proprietary rights in its technology. The Company has an active program to file applications for and obtain patents in the U.S. and in selected foreign countries where a potential market for its products exists. As of September 30, 2001, the Company had been issued twenty-nine patents in the U.S. and had sixty-five patent applications in process in the United States Patent and Trademark Office. There can be no assurance that any of these patents would be upheld as valid if challenged.
The Company's general policy has been to seek patent protection for those inventions and improvements likely to be incorporated in its products or otherwise expected to be of long-term value. The Company protects the source code of its products as trade secrets and as unpublished copyrighted works. It also initiates litigation where appropriate to protect its rights in that intellectual property. The Company licenses the source code for its products to its customers for limited uses. Wide dissemination of its software products makes protection of its proprietary rights difficult, particularly outside the United States. Although it is possible for competitors or users to make illegal copies of its products, the Company believes the rate of technology change and the continual addition of new product features lessen the impact of illegal copying.
In recent years, there has been a marked increase in the number of patents applied for and issued with respect to software products. Although the Company believes that its products do not infringe on any copyright or other proprietary rights of third parties, the Company has no assurance that third parties will not obtain, or do not have, intellectual property rights covering features of its products, in which event the Company or its customers might be required to obtain licenses to use such features. If an intellectual property rights holder refuses to grant a license on reasonable terms or at all, the Company may be required to alter certain products or stop marketing them.
EMPLOYEES
As of November 30, 2001, Phoenix employed 515 full-time equivalent persons worldwide, of whom 302 were in research and development and customer engineering, 84 were in sales and marketing, and 129 were in general and administration. Of the 515 total full-time equivalent persons, 8 were contractors. Phoenix's employees are not represented by a labor organization, and the Company has never experienced a work stoppage. The Company considers its employee relations to be satisfactory.
As of November 30, 2001, inSilicon employed 124 full-time equivalent persons worldwide, of whom 65 were in research and development and customer engineering, 42 were in sales and marketing, and 17 were in general and administration. Of the 124 total full-time equivalent persons, 5 were contractors. inSilicon's employees are not represented by a labor organization, and inSilicon has never experienced a work stoppage. inSilicon considers its employee relations to be satisfactory.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
To the Company's present knowledge, compliance with federal, state and local provisions enacted or adopted for protection of the environment has had no material effect upon its operations.
The Company's corporate headquarters are located in a facility in San Jose, California, which the Company leases pursuant to a lease agreement expiring in November 2003. This facility also includes its Platform Enabling Division, inSilicon, Information Appliance Division, and PhoenixNet(TM) Division. In fiscal 1997, the Company entered into a five-year lease agreement for a facility in Irvine, California. The Irvine lease was renewed in August 2001 for an additional seven years effective February 2002. The Company also leases smaller office facilities in other locations including: Norwood, Massachusetts; Beaverton, Oregon; Houston and Austin, Texas; Taipei, Taiwan; Hong Kong, Beijing, and Nanjing, China; Tokyo and Osaka, Japan; Seoul, Korea; Budapest, Hungary; and Munich, Germany. These offices generally provide engineering, sales, and technical support to its customers. In November 2000, inSilicon relocated its sales and marketing function to a small office facility in San Jose, California under a two-year lease that expires in June 2002.
The Company's facilities are near capacity and are fully utilized. The Company considers its leased properties to be in good condition, well maintained, and generally suitable for their present and foreseeable future needs. The Company believes its facilities are adequate for its current needs and that suitable additional or substitute space will be available as needed to accommodate any expansion of its operations.
The Company, from time to time, becomes involved in litigation claims and disputes in the ordinary course of business. There are currently no pending legal proceedings to which either the Company or any of its subsidiaries are a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF PHOENIX TECHNOLOGIES LTD.
The executive officers of the Company serve at the discretion of the Board of Directors of Phoenix. As of the filing date of this Form 10-K, executive officers of the Company are as follows:
Name Age Position
---- --- --------
Albert E. Sisto.............. 52 Chairman, President, and Chief Executive Officer
David A. Everett............. 58 Senior Vice President
W. Curtis Francis............ 52 Senior Vice President & General Manager, Corporate Engineering and
Planning Division
David L. Gibbs............... 44 Senior Vice President & General Manager, Global Sales and Support
Division
John M. Greeley.............. 54 Senior Vice President, Finance and Chief Financial Officer
Kendall S. Larsen............ 44 Senior Vice President and General Manager, Business Development
Magda M. Madriz.............. 49 Vice President, Human Resources
Alan L. McCann............... 38 Senior Vice President & General Manager, Corporate Marketing and
Products Division
Linda V. Moore............... 55 Vice President, General Counsel and Secretary
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Mr. Sisto joined the Company as President and Chief Executive Officer and was appointed to the Board in June 1999. He was elected Chairman of the Board in January 2000. Mr. Sisto was formerly Chief Operating Officer of RSA Data Security, Inc. from 1997 to 1999. He served as President, Chairman, and CEO of DocuMagix from 1994 to 1997. From 1989 to 1994, Mr. Sisto served as the President and CEO of PixelCraft, Inc. Mr. Sisto has also served in executive management roles at MIPS Technologies, Relational Technologies (INGRES), Intel, Honeywell, and General Electric. Mr. Sisto serves as a director and Chairman of the Board of inSilicon, Corp. and is on the Boards of Directors of Hi/fn Inc., a semiconductor components company, and Tekgraf, a graphic arts distribution and service company. Mr. Sisto earned a Bachelor of Science in Engineering from Stevens Institute of Technology.
Mr. Everett has served as Senior Vice President since October 2001, with responsibility for special assignments for the CEO. From April 1999 to October 2001, Mr. Everett served as Senior Vice President and General Manager of the Platform Enabling Division in April 1999. From September 1997 to April 1999, he was CEO of 3D Labs, Inc. In September 1997, he became President and CEO of Dynamic Pictures, Inc. In January 1996, he joined the Company as Vice President, Worldwide Field Operations. Through December 1995, Mr. Everett worked for SyQuest Technology as Executive Vice President, Sales and Marketing. He also worked for Wyse Technology as Senior Vice President, Sales and Corporate Marketing. Mr. Everett earned a B.A. in Business from Michigan State University.
Mr. Francis joined the Company as Senior Vice President and General Manager of the Corporate Engineering and Planning Division in October 2001. He joined Phoenix from Quantum Corporation, where he served as Vice President of Corporate Development from May 1998 to April 2001. Before joining Quantum, Mr. Francis was Vice President of Corporate Development and Strategic Planning at Advanced Micro Devices from April 1995 to May 1998 and also served as Vice President of Corporate Development at Sun Microsystems from August 1993 to April 1995. Prior to joining Sun Microsystems, he served in a number of executive capacities in the areas of corporate strategy, strategic planning, and finance at Advanced Micro Devices, and previously had worked as a consultant for the Boston Consulting Group. Mr. Francis holds an MBA Degree from Harvard Business School, a M.S. degree in Electrical Engineering from Massachusetts Institute of Technology, and a B.S. degree in Engineering and Applied Science from Yale University.
Mr. Gibbs became the Senior Vice President and General Manager of the Global Sales and Support Division in October 2001. He joined the Company as Vice President of Business Development in March 2001 and was promoted to Senior Vice President and General Manager of the Information Appliance Division in May 2001. Prior to joining Phoenix, he served in several senior management roles at FlashPoint Technologies, an embedded appliance OS company, from 1998 to 2001. Prior to that, Mr. Gibbs was Vice President of Sales at DocuMagix/JetFax from 1997 to 1998, and held a number of executive sales and business development roles between November 1993 to March 1997 while at Insignia Solutions. Mr. Gibbs earned a B.A. degree in Economics from UCLA.
Mr. Greeley joined the Company as Senior Vice President of Finance and Chief Financial Officer in May 2000. From April 1999 to May 2000, he was Chief Operating and Financial Officer of Leasing Solutions, Inc. Mr. Greeley spent over sixteen years at GE Capital Corporation in various finance and general management positions. While at GE Capital, Mr. Greeley served as President of Telecom Financial Services, a wholly owned subsidiary of GE Capital specializing in the financing of telecom and data networks, from September 1996 to April 1999. From June 1994 to September 1996, he was President of NTFC Capital, acquired by GE Capital, which supported Northern Telecom and its distributors. He started his career in New York City with PricewaterhouseCoopers LLP, and is a CPA. Mr. Greeley is a graduate of St. John's University with a B.S. degree in Accounting and an M.B.A. in Finance.
Mr. Larsen became Senior Vice President and General Manager, Business Development in October 2001. He joined the Company as Senior Vice President and General Manager of the PhoenixNet Division in October
Ms. Madriz came to Phoenix from Xicor, Inc. in October 2000. She joined Xicor, Inc. in 1984 as Director of Human Resources, and was promoted to Vice President in 1990. In addition to her responsibilities as the senior executive for Human Resources, she also assumed responsibility for Safety and Environmental Compliance. Prior to Xicor, Ms. Madriz served as Division Senior HR Manager for Atari, Inc. from 1980 to 1984. She has also worked for Dysan Corporation, and Federated Department Stores in various HR capacities. She has served as an appointed Commissioner for The City of San Jose since 1994, and is on the board of several non-profit organizations. Ms. Madriz earned a B.A. degree in Business Administration from the University of Pavia, Italy.
Mr. McCann became Senior Vice President and General Manager, Corporate Marketing and Products Division in October 2001. He joined the Company as Vice President of Marketing, Platform Enabling Division in May 2001 and was promoted to Vice President and General Manager, Platform Enabling Division in August 2001. Prior to that, he served as Vice President and General Manager, PC and Consumer Electronics Divisions, Ravisent Technologies Inc. from November 1999 to April 2001; and from May 1997 to October 1999 as Sr. Director of Product Marketing, ATI Technologies Inc. Prior to that, Mr. McCann held various management positions at Xerox, QMS, and IBM. Mr. McCann earned an MBA from York University, Canada and a B.A.Sc. in Electrical/Computer Engineering from the University of Waterloo, Canada.
Ms. Moore joined the Company in November 1999. Prior to joining the Company, she was Vice President and General Counsel of Appiant Technologies, Inc., a distributor of computer-telephony products based in Fremont, California from 1998 to 1999. From 1989 to 1998, she served as General Counsel and Secretary of Jabil Circuit, Inc., an electronics contract manufacturer headquartered in St. Petersburg, Florida. She has also served as a consultant to Internet start-ups, has 6 years of experience in equipment leasing, and began her career in private practice. Ms. Moore received a B.A. degree from the University of Michigan, an M.A. from Eastern Michigan University and a J.D. from Detroit College of Law at Michigan State University.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market under the symbol PTEC. The following table presents the quarterly high and low bid quotations in the over-the-counter market, as quoted by the Nasdaq National Market. These quotations reflect the inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
High Low
------ ------
Year ended September 30, 2001:
Fourth quarter..................................... $15.14 $ 9.88
Third quarter...................................... 14.60 8.69
Second quarter..................................... 19.25 12.94
First quarter...................................... 18.63 12.19
Year ended September 30, 2000:
Fourth quarter..................................... $20.50 $14.44
Third quarter...................................... 21.50 12.38
Second quarter..................................... 30.25 13.38
First quarter...................................... 18.13 8.63
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The Company had 239 shareholders of record as of November 30, 2001. To date, the Company has paid no cash dividends on its common stock. The Company currently intends to retain all earnings for use in its business and does not anticipate paying any dividends in the foreseeable future. See Note 13 to the Consolidated Financial Statements included herein for the terms of exercise of stock options.
The Company may have issued certain shares of its common stock under its 1999 Stock Plan and 1991 Employee Stock Purchase Plan prior to the filing of applicable Registration Statements on Form S-8, all of which have now been filed.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data below includes business combinations described in Note 7 to the Consolidated Financial Statements, included herein. The tables in Part II include selected unaudited quarterly consolidated data for fiscal 2001 and 2000. This information was derived from the Company's unaudited consolidated financial statements that, in the opinion of management, reflect all recurring adjustments necessary to fairly present this information, when read in conjunction with the Company's annual Consolidated Financial Statements. The results of operations for any period are not necessarily indicative of the results to be expected for any future period.
(In thousands, except per share data)
For the Years ended September 30,
-----------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Revenues:
License fees........................................ $103,324 $125,817 $103,326 $100,344 $ 89,884
Services............................................ 18,113 18,568 22,500 22,541 15,612
-------- -------- -------- -------- --------
Total revenues................................... 121,437 144,385 125,826 122,885 105,496
Gross margin.......................................... 100,372 122,922 90,944 95,785 86,857
Impairment of long-lived assets....................... 9,393 -- -- -- --
Restructuring cost.................................... 1,525 1,270 7,892 11,682 --
Income (loss) from operations......................... (24,768) 26,825 (4,661) (431) 16,407
Net income (loss)..................................... (18,002) 20,902 1,804 722 20,335
Earnings (loss) per share:
Basic............................................... $ (0.72) $ 0.85 $ 0.07 $ 0.03 $ 0.80
Diluted............................................. $ (0.72) $ 0.77 $ 0.07 $ 0.03 $ 0.74
For the Years ended September 30,
-----------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Cash, cash equivalents, and short-term investments.... $ 65,034 $107,718 $ 55,592 $ 71,297 $ 72,168
Working capital....................................... 76,606 124,532 52,929 77,143 96,383
Total assets.......................................... 160,611 194,895 141,998 156,484 156,033
Long-term obligations................................. 638 1,449 1,546 1,428 530
Stockholders' equity.................................. 119,696 148,300 98,922 125,336 133,539
Cash dividends declared per common share.............. -- -- -- -- --
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Selected Unaudited Quarterly Consolidated Data
(In thousands, except per share data)
Fiscal 2001, Quarters ended
----------------------------------
Dec. 31 Mar. 31 Jun. 30 Sep. 30
------- ------- ------- --------
Revenues.......................................................... $38,775 $25,761 $31,734 $ 25,167
Gross margin...................................................... 34,411 20,966 25,681 19,314
Impairment of long-lived assets................................... -- -- -- 9,393
Restructuring cost................................................ -- -- 1,525 --
Income (loss) from operations..................................... 7,225 (8,183) (4,594) (19,216)
Net income (loss)................................................. 5,511 (4,396) (1,688) (17,429)
Earnings (loss) per share--basic.................................. $ 0.22 $ (0.17) $ (0.07) $ (0.69)
Earnings (loss) per share--diluted................................ $ 0.21 $ (0.17) $ (0.07) $ (0.69)
Fiscal 2000, Quarters ended
----------------------------------
Dec. 31 Mar. 31 Jun. 30 Sep. 30
------- ------- ------- --------
Revenues.......................................................... $32,371 $34,725 $36,503 $ 40,786
Gross margin...................................................... 26,557 29,475 30,308 36,582
Restructuring cost................................................ -- -- -- 1,270
Income from operations............................................ 3,505 6,528 7,226 9,566
Net income........................................................ 2,749 5,007 5,852 7,294
Earnings per share--basic......................................... $ 0.11 $ 0.20 $ 0.23 $ 0.28
Earnings per share--diluted....................................... $ 0.10 $ 0.17 $ 0.21 $ 0.26
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Phoenix is a global leader of device-enabling and management software solutions for PCs and connected digital devices. We provide our products primarily to platform and peripheral manufacturers (collectively, "OEMs") that range from large PC and information appliance manufacturers to small system integrators and value-added resellers. We also provide training, consulting, maintenance, and engineering services to our customers. We market and license our products and services through a direct sales force, as well as through regional distributors and sales representatives.
The global computer industry, driven by the expansion of the Internet, has evolved into a rich "connected device ecosystem" embracing entirely new categories of functionality and is characterized by rapid technology changes that include increased processor speeds, hardware miniaturization, portability, and new and improved ways to connect devices. Traditional PC platforms have evolved into "endpoints" of the Internet. In addition, a wide array of other new technological innovations have emerged such as TV-centric "Internet Televisions" (iTVs), "Internet Video Players" (iVPs), tablet PCs, wireless handheld appliances, interactive game stations, home networks, and rack-mounted single board server systems (known as "server blades") for enterprise applications.
We believe that our products and services enable customers who specify, develop, and manufacture PCs, information appliances, and semiconductors to bring leading-edge products to market more quickly while reducing their costs, providing high value-added features to their customers and, hence, increasing their competitiveness.
Phoenix's operations include the following:
Platform Enabling: Provides system-enabling software that is used in the design, deployment and ongoing operation of industry standard desktop, notebook and server PCs. The Platform Enabling's flagship software 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 wired and wireless products. inSilicon provides cores, related silicon subsystems and firmware to customers that use its technologies in hundreds of different digital devices ranging from network routers to handheld computers.
Information Appliance: Provides technology to electronics OEMs to develop information appliance designs. Information Appliance software delivers an easy-to-implement, low cost/high value architecture that enables "instant-on" internet access and browsing capability for devices such as internet TV, interactive screen phones, and handheld appliances. This division was launched in March 2001.
PhoenixNet(TM): Provides technology infrastructure that enables security products and services designed to deliver a higher level of trust to both devices and device-aware e-business applications through device authentication. Applications using this infrastructure for virtual private networks (VPNs) and the Internet are supported by a global network of Regional Device Authorities.
These acquisitions were accounted for using the purchase method of accounting. Accordingly, the assets and liabilities of the acquired business are included in the Consolidated Balance Sheets as of September 30, 2001. The results of operations from the date of acquisitions through September 30, 2001 were included in the accompanying Consolidated Statement of Operations for the year ended September 30, 2001. There were no acquisitions or business combinations during fiscal 2000 or 1999.
The amounts allocated to goodwill and purchased intangible assets are being amortized on a straight-line basis. The estimated asset lives are determined based on projected future economic benefits and expected life cycles of the technologies. The amounts allocated to Purchased Technology are being amortized over periods of 3 to 6 years, the amounts allocated to Other Intangible Assets (comprised of customer lists and assembled work force costs) are being amortized over periods of 2 and 6 years, and the amounts allocated to Goodwill are being amortized over periods of 5 and 6 years.
The following is a summary of purchased transactions completed in fiscal 2001 (in millions):
------------------------------------------------------------------------------------------------
Total Total Other
purchase tangible Purchased intangible Stock-based
Acquired company consideration assets technology assets compensation Goodwill
------------------------------------------------------------------------------------------------
By Phoenix:
Integrity Sciences, Inc.... $ 3.9 $ -- $3.4 $ -- $ -- $ 0.5
Ravisent Technologies, Inc. $19.1 $ -- $8.1 $ -- $ -- $11.0
------------------------------------------------------------------------------------------------
By inSilicon:
Xentec, Inc................ $11.7 $0.2 $0.2 $0.6 $0.4 $10.3
HD Lab, K.K................ $ 1.6 $ -- $1.3 $0.3 $ -- $ --
------------------------------------------------------------------------------------------------
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The following are details of the forms of consideration and their fair values for each acquisition:
------------------------------------------------------------------------------------------------
Acquired company Form of consideration Fair value
------------------------------------------------------------------------------------------------
Integrity Sciences, Inc. $2.5 million in cash................................ $ 2.5 million
75,000 shares of Phoenix common stock............... 1.3 million
Transaction costs................................... 0.1 million
--------------
Total............................................. $ 3.9 million
------------------------------------------------------------------------------------------------
Ravisent Technologies, Inc. $17.8 million in cash............................... $17.8 million
Transaction costs................................... 1.3 million
--------------
Total............................................. $19.1 million
------------------------------------------------------------------------------------------------
Xentec, Inc. $3.0 million in cash................................ $ 3.0 million
15,678 and 618,378 shares of inSilicon common and
exchangeable preferred stock, respectively........ 7.2 million
Options to purchase 96,004 shares of inSilicon
common stock...................................... 1.0 million
Transaction costs................................... 0.5 million
--------------
Total............................................. $11.7 million
------------------------------------------------------------------------------------------------
HD Lab, K.K. $1.6 million in cash................................ $ 1.6 million
------------------------------------------------------------------------------------------------
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The acquisition agreement with Integrity Sciences, Inc. includes an earn-out agreement over a five year period of up to 100,000 shares of Phoenix's common stock and cash payments of $1.5 million, if certain revenues and technology criteria are met. There is no minimum payment requirement in the earn-out agreement. No payments have been earned through September 30, 2001.
The acquisition agreement with Xentec requires that inSilicon Canada issue up to an additional 415,000 exchangeable preferred shares to the former Xentec stockholders over a two-year period, contingent upon the achievement of certain performance-based milestones. Additional goodwill will be recorded for the fair value of this consideration as the exchangeable preferred shares, if any, are issued. There is no minimum payment requirement in this contingent consideration and no payment was earned or paid for fiscal 2001. Also under the terms of the acquisition, in January 2002 inSilicon will issue common stock with a fair value of $0.5 million to former Xentec employees who continue their employment with inSilicon through December 18, 2001. The $0.5 million is being recognized as stock-based compensation expense over the one year period subsequent to the merger, and as of September 30, 2001, $0.4 million of this amount is included in payroll and related liabilities in the consolidated balance sheets.
If the performance milestones specified in the earn-out agreements are met, payments will be accrued and recorded as additional goodwill.
On March 27, 2000, Phoenix's majority-owned subsidiary, inSilicon, closed its initial public offering of 3.5 million shares. Proceeds, net of issuance costs, to inSilicon were approximately $37.0 million. The principal purpose of the offering was to increase inSilicon's equity capital, to create a public market for its common stock, to facilitate future access to public equity markets, to improve the effectiveness of its stock option plan in attracting and retaining key employees, to provide liquidity to Phoenix and to provide increased visibility of inSilicon in the marketplace. On September 30, 2001, Phoenix owned approximately 69.2% of inSilicon's common stock.
In September 1998, we acquired Sand in a purchase acquisition. The purchase price consisted of approximately $18.6 million in cash, 464,000 shares of our common stock, approximately 264,000 stock options issued in exchange for Sand stock options, and up to $3.7 million in performance incentives to be paid through fiscal 2002. Of the $3.7 million, approximately $1.6 million represents minimum anticipated payments. Performance incentives totaling of $2.6 million were earned per the agreement. Of the $2.6 million, $0.8 million was earned in fiscal 2000 and paid in fiscal 2001; $0.9 million was earned in fiscal 1999 and paid in fiscal 2000. The final payment of $0.9 million was earned in fiscal 2001 and is scheduled to be paid in fiscal 2002. The earn-out agreement ended in fiscal 2001.
The following table includes Consolidated Statement of Operations data for the years ended September 30, 2001, 2000, and 1999, as a percentage of total revenues:
2001 2000 1999
---- ---- ----
Revenues:
License fees....................................................... 85 % 87% 82%
Services........................................................... 15 13 18
--- --- ---
Total revenues.................................................... 100 100 100
Cost of revenues:
License fees....................................................... 3 2 6
Services........................................................... 12 12 15
Amortization of purchased technology............................... 2 1 2
Write-off of capitalized software.................................. -- -- 5
--- --- ---
Total cost of revenues............................................ 17 15 28
--- --- ---
Gross margin......................................................... 83 85 72
Operating expenses:
Research and development........................................... 37 27 32
Sales and marketing................................................ 31 23 23
General and administrative......................................... 20 14 13
Amortization of goodwill and acquired intangible assets............ 4 2 2
Stock-based compensation........................................... 1 -- --
Impairment of long-lived assets.................................... 8 -- --
Restructuring cost................................................. 2 1 6
--- --- ---
Total operating expenses.......................................... 103 67 76
--- --- ---
Income (loss) from operations........................................ (20) 18 (4)
Interest and other income, net....................................... 2 3 3
Gain (loss) on investment............................................ (2) -- 3
Minority interest.................................................... 4 -- --
--- --- ---
Income (loss) before income taxes.................................... (16) 21 2
Income tax expense (benefit)......................................... (1) 7 1
--- --- ---
Net income (loss).................................................... (15)% 14% 1%
=== === ===
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Revenues
Our products are generally designed into personal computer systems, information appliances, and semiconductors. License fee and service revenues by segment for fiscal 2001, 2000, and 1999 were as follows (dollars in thousands):
Amount of Revenues % Change % of Revenues
-------------------------- ----------- -------------------
2001 2000 1999 2001 2000 2001 2000 1999
-------- -------- -------- ----- ---- ----- ----- -----
Platform Enabling........ $ 96,668 $118,604 $106,872 -18.5% 11.0% 79.6% 82.1% 84.9%
inSilicon................ 19,079 24,676 18,954 -22.7% 30.2% 15.7% 17.1% 15.1%
Information Appliance.... 3,531 -- -- n/a n/a 2.9% -- --
PhoenixNet(TM)........... 2,159 1,105 -- 95.4% n/a 1.8% 0.8% --
-------- -------- -------- ----- ---- ----- ----- -----
Total revenues........... $121,437 $144,385 $125,826 -15.9% 14.7% 100.0% 100.0% 100.0%
======== ======== ======== ===== ==== ===== ===== =====
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Total revenues in fiscal 2001 decreased by $22.9 million (or 15.9%) from fiscal 2000. The decrease is primarily a result of the global economic slowdown and softness in the PC market.
inSilicon revenues in fiscal 2001 decreased by $5.6 million (or 22.7%) from fiscal 2000 due primarily to the challenging economic environment, particularly in North America. Revenues in fiscal 2000 increased by $5.7 million (or 30.2%) from fiscal 1999 due to greater market acceptance of semiconductor intellectual property, increased acceptance of re-use licenses of semiconductor intellectual property to existing customers, and increased maintenance revenues from inSilicon's growing installed base of customers.
Information Appliance first generated revenues in the third quarter of fiscal 2001. North America and Japan were the two main regions contributing to these revenues.
PhoenixNet(TM) revenues in fiscal 2001 increased by $1.1 million (or 95.4%) from fiscal 2000, primarily due to its shift in business focus from homepage and search settings solutions to device authentication security products and services during fiscal 2001. PhoenixNet(TM) first generated revenues in the second quarter of fiscal 2000.
Revenues by geographic region based on country of sale for fiscal 2001, 2000, and 1999 were as follows (dollars in thousands):
Amount of Revenues % Change % of Revenues
-------------------------- ------------ -------------------
2001 2000 1999 2001 2000 2001 2000 1999
-------- -------- -------- ----- ----- ----- ----- -----
North America........ $ 34,613 $ 41,121 $ 40,907 -15.8% 1.0% 28.5% 28.5% 32.5%
Japan................ 46,878 48,994 36,596 -4.3% 33.9% 38.6% 33.9% 29.1%
Taiwan............... 21,705 41,409 33,828 -47.6% 22.4% 17.9% 28.7% 26.9%
Other Asian Countries 9,870 3,405 2,999 189.9% 13.5% 8.1% 2.4% 2.4%
Europe............... 8,371 9,456 11,496 -11.5% -17.7% 6.9% 6.5% 9.1%
-------- -------- -------- ----- ----- ----- ----- -----
Total Revenues....... $121,437 $144,385 $125,826 -15.9% 14.7% 100.0% 100.0% 100.0%
======== ======== ======== ===== ===== ===== ===== =====
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In fiscal 2001, North America, Japan, Taiwan, and Europe revenues decreased while Other Asian Countries revenues increased. The decrease in North America, Japan, Taiwan, and Europe was due primarily to the economic slowdown in the global economy which had a significant impact on the PC market. The increase in Other Asian Countries was attributed to improved sales development efforts in Korea and China. In fiscal 2000, revenues from Japan, Taiwan, and Other Asian Countries increased while North American revenues remained relatively flat and European revenues decreased. This fluctuation of revenues was due primarily to the outsourcing of system design and manufacturing to Asian PC and motherboard manufacturers, inSilicon's release of their USB 2.0 Controller, growth in Japan PC shipments in the Platform Enabling segment, and a shift in revenues from the European market to the Asian market. Taiwan, Japan, and Other Asian Countries revenues in fiscal 2000 increased despite lower average selling prices of our BIOS products than in fiscal 1999, partly due to a shift in demand for personal computers from desktop to notebook computers.
One customer accounted for 12% of total revenues in fiscal 2001. Another customer accounted for 19% and 11% of revenues in fiscal 2000 and 1999, respectively. No other customer accounted for more than 10% of revenues in fiscal 2001, 2000, or 1999.
Gross Margin
Gross margin as a percentage of revenues was 83%, 85%, and 72% for fiscal 2001, 2000, and 1999, respectively. Included in the cost of revenues was $2.2 million, $1.3 million, and $2.1 million of amortization of
For fiscal 2001, 2000, and 1999, gross margin as a percentage of revenues before the amortization of purchased technology and software development costs, Y2K support costs (reversal of Y2K support costs), and write-off of capitalized software was 84%, 85%, and 82%, respectively. The decrease in gross margin in fiscal 2001 from fiscal 2000 was due to lower margins on Information Appliance and inSilicon product sales. The increase in gross margin in fiscal 2000 from fiscal 1999 was due to an increase in license revenues from the Platform Enabling division and inSilicon, especially in Asia. License fee gross margin as a percentage of license fee revenues was 96%, 98% and 92% in fiscal 2001, 2000 and 1999, respectively. Service gross margin as a percentage of revenues was 16%, 8% and 19% in fiscal 2001, 2000 and 1999, respectively. Total amortization of capitalized purchased technologies and software development costs charged to costs of revenues in fiscal 2001, 2000 and 1999, was $2.2 million, $2.5 million and $4.8 million, respectively.
Research and Development Expenses
Research and development expenses were $45.5 million, $39.1 million, and $39.9 million in fiscal 2001, 2000, and 1999, respectively. As a percentage of revenues, these expenses represented 37%, 27%, and 32%, respectively. In fiscal 2001, research and development expenses increased by $6.4 million (or 16%) due to increased expenses relating to recent acquisitions, the launch of a new division, and establishment of a new development center in Asia. In fiscal 2000, research and development expenses decreased by $0.8 million (or 2%) due to the improvement of product and resource management resulting in lower headcount and the movement of research and development centers to Asia and Japan where costs were lower partially offset by an increase in variable compensation due to the attainment of increased revenues.
Approximately $1.4 million, $0.4 million, and $2.4 million of internal software development costs were capitalized in fiscal 2001, 2000, and 1999, respectively.
Sales and Marketing Expenses
Sales and marketing expenses were $37.2 million, $33.1 million, and $29.0 million in fiscal 2001, 2000, and 1999, respectively. As a percentage of revenues, these expenses represented 31%, 23% and 23% in fiscal 2001, 2000, and 1999, respectively. In fiscal 2001, sales and marketing expenses increased by $4.1 million (or 12%) due primarily to the increase in the size of our direct sales force and the expansion of our distribution channels to position ourselves for growth in the security and Information Appliance markets. In fiscal 2000, sales and marketing expenses increased by $4.1 million (or 14%) due primarily to an increase in variable compensation due to the attainment of increased revenues, and costs related to sales meetings.
General and Administrative Expenses
General and administrative expenses were $24.7 million, $19.7 million, and $16.3 million in fiscal 2001, 2000, and 1999, respectively. As a percentage of revenues, these expenses represented 20%, 14%, and 13% in fiscal 2001, 2000, and 1999, respectively. In fiscal 2001, the general and administrative expenses increased by $5.0 million (or 25%) due to investment in infrastructure, including launching the new Information Appliance Division and setting up new foreign offices. Also included in the fiscal 2001 general and administrative expenses was an increase in bad debt provision of $1.2 million from fiscal 2000 to reflect current market slowdown. The increase in fiscal 2000 was primarily due to increases in personnel, especially in the PhoenixNet(TM) segment and inSilicon, and variable compensation due to higher profitability.
Amortization expenses were $5.0 million, $2.2 million, and $2.5 million in fiscal 2001, 2000, and 1999, respectively. In fiscal 2001, amortization expense increased by $2.8 million from fiscal 2000, primarily due to various purchase acquisitions completed in fiscal 2001 (see Note 7 to the Consolidated Financial Statements). The amortization expenses in fiscal 2000 and 1999 were related to the Sand acquisition, which was completed in fiscal 1998.
Stock-Based Compensation
The stock-based compensation expenses were $1.7 million, $0.8 million, and $nil in fiscal 2001, 2000, and 1999, respectively. Charges in fiscal 2001 were mostly due to the granting of options to purchase Phoenix and inSilicon stock at exercise prices less than the fair market value of the stock on the grant date.
Impairment of long-lived assets
Impairment of long-lived assets were $9.4 million in fiscal 2001 and $nil in fiscal 2000 and 1999. During the fourth quarter of fiscal 2001, pursuant to Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"), inSilicon performed an assessment of the carrying value of its long-lived assets to be held and used, including goodwill and other intangible assets recorded in connection with its various acquisitions. The assessment was necessitated by various factors that indicated these assets may be impaired, including recent operating results that did not meet management's expectations, the global downturn in technology spending, and sustained decline in inSilicon's market capitalization.
The conclusion of inSilicon's assessment was that indicators of impairment were present and therefore a test was required. inSilicon performed an asset impairment test with the assistance of independent valuation experts. The test was performed by comparing the undiscounted expected cash flows for a five-year period (the estimated life of the assets), to the carrying amount of the goodwill and other intangible assets resulting from purchase business combinations. The assumptions supporting the estimated cash flows reflect management's best estimates.
Also with the assistance of independent valuation experts, inSilicon determined the fair value of the impaired long-lived assets. Fair value was determined using the cash flow method and the income approach using the same assumptions as those used in the initial test of impairment. Based on the results of the test, inSilicon determined that the goodwill associated with Xentec was impaired and a write-down of goodwill and intangible assets totaling $9.4 million was recorded during the fourth quarter of fiscal 2001, reflecting the amount by which the carrying amount of the assets exceed their respective fair values. The write-down was included in "Impairment of long-lived assets" in the Consolidated Statements of Operations. There were no impairment charges of long-lived assets in fiscal 2000 or 1999 for inSilicon.
Phoenix also conducted an assessment of the carrying value of its long-lived assets due to similar impairment indicators and determined that no impairment charges were required in fiscal 2001, 2000, or 1999.
Restructuring Costs
Restructuring charges for fiscal 2001, 2000, and 1999, were as follows:
Years ended September 30,
-------------------------
2001 2000 1999
------ ------ ------
(in thousands)
Severance and other exit costs................... $1,525 $1,270 $7,108
Asset write-offs................................. -- -- 784
------ ------ ------
$1,525 $1,270 $7,892
====== ====== ======
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2001 Charges
In April 2001, in efforts to optimize operational efficiency and change its business strategy to address changes in customer demands, we reduced our global workforce by approximately 70 employees across all business functions. The restructuring included refocusing research and development efforts, re-evaluating sales and marketing and general and administration resource requirement, and aligning overall cost structure with current revenue levels. All terminations were completed as of September 30, 2001.
The restructuring program resulted in a charge of approximately $1.5 million for severance and related cost in the third quarter of fiscal 2001. As of September 30, 2001, approximately $1.3 million was paid and an additional $0.2 million was accrued and expected to be paid through the first quarter of fiscal 2002. As a result of the restructuring program, we expect pretax savings in operating expenses to be approximately $9.0 million on an annualized basis.
2000 Charges
In the fourth quarter of fiscal 2000, Phoenix recorded a restructuring charge of approximately $1.3 million for severance benefits associated with the elimination of three management positions. The charges were related to the streamlining of certain management functions in Taiwan and North America. All terminations were completed as of September 30, 2000.
1999 Charges
In fiscal 1999, we incurred $7.9 million of restructuring charges relating to the realignment of its business into three operating divisions, consolidation of certain facilities and operations, integration of Award and Sand, and discontinuation of the PICO and PC Enhancing Division. These charges included $5.5 million in severance costs associated with the elimination of 92 positions across all business functions from various product divisions and management, $0.8 million of fixed assets write-down for the Company's United Kingdom branch, $0.7 million in facilities abandonment, and $0.9 million of other business exit costs pursuant to the re-organization plan. All terminations were completed as of September 30, 2000.
In October 2001, due to continuing global economic downturn and industry trends, we announced a restructuring program that would reduce its global workforce by approximately 15%. This restructuring program will align our expense structure with current market conditions to return to profitability. This reduction will result in a one-time charge of approximately $4.0 million in the first quarter of fiscal 2002.
As part of the restructuring program, we also announced a reorganization plan that would align its corporate actions with corporate strategy to improve customer focus, unify product marketing, streamline engineering, and create a market driven development process. The Corporate Marketing and Products Division (or CMPD), will be customer-focused and responsible for product marketing functions and applications development activities. The Corporate Engineering and Planning Division (or CEPD), will be technology-focused and includes the core development resources and deployment-engineering group. The Global Sales and Support Division (or GSSD), will focus on growing customer base and revenues.
As a result of the restructuring program announced in October 2001, we expect a pre-tax saving of $10.0 million on an annualized basis starting from the second quarter of fiscal 2002.
Interest and Other Income, Net
Net interest and other income was $2.9 million, $4.0 million, and $3.3 million in fiscal 2001, 2000, 1999, respectively. Net interest and other income consists mostly of interest income. Interest income is primarily derived from cash and short-term investments. The income generated each period is highly dependent on available cash and fluctuations in government interest rates. The average interest rate earned in fiscal 2001 was approximately 4.3%. All of the cash equivalents and short-term investments are in USD and are not subject to fluctuations in foreign currency exchange rates. Interest income was $3.5 million, $4.4 million, and $3.4 million in fiscal 2001, 2000, 1999, respectively, of which $1.6 million in fiscal 2001 was inSilicon's. Interest income decreased by $0.9 million and increased by $1.0 million in fiscal year 2001 and 2000, respectively. The decrease in interest income in fiscal 2001 was primarily due to the decrease in the average cash balance available for investment as a result of funding various acquisitions and stock repurchase programs during the year. The increase of $1.0 million interest income in fiscal 2000 was primarily due to higher cash balances as a result of proceeds inSilicon received from the initial public offering of inSilicon stock.
Gain/Loss on Investment
Gain (loss) on investment was ($2.8 million), $nil, and $4.0 million in fiscal 2001, 2000, and 1999, respectively. Equity investments in companies in which Phoenix does not have significant influence, which is usual when ownership is less than 20%, are included in other assets. These investments are accounted for using the cost method. These investments are assessed for impairment periodically through review of operations and indications of continued viability, such as subsequent rounds of financing. In the fourth quarter of fiscal 2001, as a result of the deterioration of financial markets and the corresponding effect on company valuations and financing prospects, Phoenix recorded $3.5 million in losses as a result of other than temporary declines in the value of investments in these companies. We do not participate in subsequent financings for any of the companies we invested in, and we are not obligated or committed in any way to participate in any future financings of these companies. Net loss on investment in fiscal 2001 was $2.8 million resulting from $3.5 million of write-down netted against $0.7 million of gain on sale of investments. The net gain on investment in fiscal 1999 was mainly related to a sale of Xionics common stock, which resulted in a $4.0 million gain.
Provision for Income Taxes
Phoenix recorded income tax benefit of $0.8 million and income tax provisions of $9.8 million and $0.9 million, reflecting effective tax rates of 4%, 32%, and 32% in fiscal 2001, 2000, and 1999, respectively. The effective tax rate in 2001 was lower than the statutory rate due to change of valuation allowance related to inSilicon's deferred tax assets and foreign withholding taxes. Phoenix's effective tax rate in fiscal 2000 and 1999 had been lower than the statutory rate due to various federal and state tax credits and lower tax rates imposed on foreign earnings in certain jurisdictions. inSilicon is not consolidated for federal income tax purposes in fiscal 2001, as Phoenix owns less than 80% of inSilicon's issued outstanding voting stock.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires all business combinations to be accounted for using the purchase method of accounting and is effective for all business combinations
On October 3, 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), that is applicable to financial statements issued for fiscal years beginning after December 15, 2001. The FASB's new rules on asset impairment supersede SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and portions of Accounting Principles Board Opinion 30, "Reporting the Results of Operations." This Standard provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. Classification as held-for-sale is an important distinction since such assets are not depreciated and are stated at the lower of fair value and carrying amount. This Standard also requires expected future operating losses from discontinued operations to be displayed in the period(s) in which the losses are incurred, rather than as of the measurement date as presently required. The Company is currently assessing the potential impact of SFAS 144 on its operating results and financial position.
Fluctuations in Operating Results
The tables in Part II, Item 6 of this Form 10-K include selected unaudited quarterly consolidated data for fiscal 2001 and 2000. This information was derived from our unaudited consolidated financial statements that, in the opinion of management, reflect all recurring adjustments necessary to fairly present this information, when read in conjunction with our annual Consolidated Financial Statements. The results of operations for any period are not necessarily indicative of the results to be expected for any future period.
Our future operating results may vary substantially from period to period. The timing and amount of our license fees are subject to a number of factors that make estimating revenues and operating results prior to the end of a quarter uncertain. While we receive recurring revenues on royalty-based license agreements and some agreements contain minimum quarterly royalty commitments, a significant amount of license fees in any quarter is dependent on signing agreements and delivering the licensed software in that quarter. Generally, we experience a pattern of recording 50% or more of our quarterly revenues in the third month of the quarter. We have historically monitored our revenue bookings through regular, periodic worldwide forecast reviews within the quarter. These reviews keep management informed of areas where additional selling efforts may be needed in order to meet the internal plans and market expectations. There can be no assurances that this process will result in our meeting revenue expectations. Operating expenses for any year are normally based on the attainment of planned revenue levels for that year and are incurred ratably throughout the year. As a result, if revenues were less than planned in any period while expense levels remain relatively fixed, our operating results would be adversely affected for that period. In addition, unplanned expenses could adversely affect operating results for the period in which such expenses were incurred.
Business Risks
The additional following factors should be considered carefully when evaluating our business.
Product Development
Our long-term success will depend on our ability to enhance existing products and to introduce new products timely and cost-effectively that meet the needs of customers in present and emerging markets. There
Protection of Intellectual Property
We rely on a combination of patent, trade secret, copyright, trademark, and contractual provisions to protect our proprietary rights in our software products. There can be no assurance that these protections will be adequate or that competitors will not independently develop technologies that are substantially equivalent or superior to our technology. In addition, copyright and trade secret protection for our products may be unavailable or unreliable in certain foreign countries. We have been issued twenty-nine patents with respect to our current product offerings and have sixty-five patent applications pending with respect to certain of the products we market. Phoenix maintains an active internal program designed to identify internally developed inventions worthy of being patented. There can be no assurance that any of the applications pending will be approved and patents issued or that our engineers will be able to develop technologies capable of being patented. Also, as the number of software patents increases, we believe that companies that develop software products may become increasingly subject to infringement claims.
There can be no assurance that a third party will not assert that our patents or other proprietary rights are violated by products offered by Phoenix. Any such claims, whether or not meritorious, may be time consuming and expensive to defend, can trigger indemnity obligations owed by us to third parties, and may have an adverse effect on our business, results of operations and financial condition. Infringement of valid patents or copyrights or misappropriation of valid trade secrets, whether alleged against us, or our customers, and regardless of whether such claims have merit, could also have an adverse effect on our business, results of operations and financial condition.
Importance of Microsoft and Intel
For a number of years, Phoenix has worked closely with leading software and semiconductor companies in developing standards for the PC industry. We remain optimistic regarding relationships with these industry leaders. However, there can be no assurance that leading software and semiconductor companies will not develop alternative product strategies that could conflict with our product plans and marketing strategies. Action by such companies may adversely impact our business and results of operations. Presently, there is little overlap or conflict in our product offerings, although these companies now incorporate some functionality that has traditionally resided in the BIOS. These leading software and semiconductor companies, in their endeavors to add value, incorporate features or functions provided by Phoenix either in the silicon or in the operating system. Therefore, we must continuously create new features and functions to sustain, as well as increase, our software's added value to OEMs. There can be no assurances that we will be successful in these efforts.
Attraction and Retention of Key Personnel
Our ability to achieve our revenue and operating performance objectives will depend in large part on our ability to attract and retain technically qualified engineering, sales, marketing, and finance personnel. In particular, approximately 50% to 60% of our employees are involved in engineering efforts. Semiconductors IP and Internet products are based on new and emerging technologies that are different from BIOS technologies. The available pool of engineering talent is limited for all four operating segments. Accordingly, failure to attract, retain and grow our research and development teams could adversely affect our business and operating results.
Dependence on Key Customers; Concentration of Credit Risk
The loss of any key customer and our inability to replace revenues provided by a key customer may have a material adverse effect on our business and financial condition. Phoenix's customer base includes large OEMs in the PC, semiconductor and Internet markets, system integrator value-added reseller, and motherboard manufacturers. As a result, we maintain individually significant receivable balances due from some of them. If these customers fail to meet guaranteed minimum royalty payments and other payment obligations, our operating results could be adversely affected. As of September 30, 2001, our largest receivable balance from any one customer represented approximately 20% of total accounts receivable. As of the filing date, this receivable had been collected.
Competition
The market for our BIOS products is very competitive, resulting in downward pricing pressure. In marketing our BIOS products, we compete primarily with in-house research and development departments of PC manufacturers that may have significantly greater financial and technical resources than ours. These companies include Acer Incorporated, Compaq Computer Corporation, Dell Computer Corporation, IBM Corporation, and Toshiba Corporation. We also compete for system software business with other independent suppliers, ranging from small, privately held companies to Acer Softech, a division of Acer Laboratories, Inc., a major Taiwan chip and motherboard supplier. There can be no assurance that we will continue to compete successfully with our current competitors or potential new competitors. There can be no assurance that intense competition in the industry and particular actions of our competitors will not have an adverse effect on our business, operating results and financial condition. Due to the competitive nature of the business and the overall price pressures within the PC market, we expect that prices on many of our products may decrease in the future and that such price decreases could have an adverse impact on our results of operations or financial condition.
The SIP industry is very competitive and is characterized by constant technological change, rapid rates of product obsolescence, and frequently emerging new suppliers. Our existing competitors include other merchant semiconductor intellectual property (or "SIP") suppliers, such as the Inventra Division of Mentor Graphics Corporation, Synopsys Inc., Enthink, Inc., Gain Technology Corporation, and the VAutomation subsidiary of ARC Cores, Inc.; and suppliers of ASICs, such as LSI Logic Corporation, the ASIC divisions of IBM Corporation, Lucent Technologies, Inc., Toshiba Corporation, and NEC Corporation. We also compete with the internal development groups of large, vertically integrated semiconductor and systems companies, such as Intel Corporation, Motorola Inc., Cisco Systems, Inc., and Hewlett-Packard Company. In these companies, SIP developed for an individual project sometimes is subject to efforts by the company to be reused in multiple projects. Companies whose principal business is providing design services as work-for-hire, such as Intrinsix Corporation, Sci-worx Corporation, Parthus Technologies plc, and the Tality subsidiary of Cadence Design Systems, Inc., also provide competition.
In the FirstWare software area, we compete with individual component software suppliers such as StorageSoft, Inc., Symantec Corporation, and other companies that develop diagnostic and repair software, as well as in-house solutions.
In the Internet and securities business, there are many distribution vehicles for our partners to reach PC end users, including PC OEM companies, PC and hardware registration companies and Internet web sites. Many have greater resources than Phoenix.
International Sales and Activities
Revenues derived from the international operations of our Platform Enabling Division comprises a majority of total revenues. There can be no assurances that we will not experience significant fluctuations in international revenues. While the major portion of our license fee or royalty contracts are U.S. dollar denominated, we are entering into a number of contracts denominated in local currencies. Phoenix has sales and engineering offices in Germany, Japan, Korea, Taiwan, and China. Our operations and financial results may be adversely affected by factors associated with international operations, such as changes in foreign currency exchange rates, uncertainties relative to regional economic circumstances, political instability in emerging markets, difficulties in attracting qualified employees, and language, cultural and other difficulties managing foreign operations.
Recent Terrorist Attacks
On September 11, 2001, the United States was a target of terrorist attacks of unprecedented scope. These attacks have caused instability in the global financial markets, and have contributed to downward pressure on stock prices of United States publicly traded companies. This instability has resulted in a slowdown in the economy. These attacks may lead to armed hostilities or to further acts of terrorism and civil disturbances in the United States, or elsewhere, which may further contribute to economic instability in the United States and could have a material adverse effect on our business, financial condition and operating results.
Volatile Market for Phoenix Stock
The market for our stock is highly volatile. The trading price of our common stock has been, and will continue to be, subject to fluctuations in response to operating and financial results, announcements of technological innovations, new products or customer contracts by us or our competitors, changes in our or our competitors' product mix or product direction, changes in our revenue mix and revenue growth rates, changes in expectations of growth for the PC industry, as well as other events or factors which we may not be able to influence or control. Statements or changes in opinions, ratings or earnings estimates made by brokerage firms and industry analysts relating to the market in which Phoenix does business, companies with which Phoenix competes or relating to it specifically could have an immediate and adverse effect on the market price of our stock. In addition, the stock market has from time to time experienced extreme price and volume fluctuations that have particularly affected the market price for many small capitalization, high-technology companies and have often included factors other than the operating performance of these companies.
Certain Anti-Takeover Effects
Our Certificate of Incorporation, Bylaws and Stockholder Rights Plan and the Delaware General Corporation Law include provisions that may be deemed to have anti-takeover effects and may delay, defer or prevent a takeover attempt that stockholders might consider in their best interests. These include provisions under which members of the Board of Directors are divided into three classes and are elected to serve staggered three-year terms.
Rapid Change with the Internet
Critical issues concerning the commercial use of the Internet, including security, reliability, cost, ease of use, accessibility, quality of service, potential tax or other government regulation, may affect the use of the
Business Disruptions
While Phoenix has not been the target of software viruses specifically designed to impede the performance of its products, such viruses could be created and deployed against its products in the future. Similarly, experienced computer programmers or hackers may attempt to penetrate our network security or the security of our web sites from time to time. A hacker who penetrates our network or web sites could misappropriate proprietary information or cause interruptions of our services. We might be required to expend significant capital and resources to protect against, or to alleviate, problems caused by virus creators and/or hackers.
Financial Condition
Liquidity and Capital Resources
Our primary sources of liquidity include cash, cash equivalents, and short-term investments, totaling $65.0 million and $107.7 million at September 30, 2001 and 2000, respectively. Consolidated cash and cash equivalents were of $62.1 million at September 30, 2001, of which $32.0 million was owned directly by inSilicon. Consolidated short-term investment totaled $2.9 million at September 30, 2001, and none was restricted. We believe that current cash and cash flow from operations will be sufficient to meet our operating and capital requirements on a short-term and long-term basis.
In February 2001, the Board of Directors authorized a program to repurchase up to $30 million of outstanding shares of common stock over a 12-month period. In fiscal 2001, we repurchased approximately 469,000 shares at a cost of approximately $5.1 million under the 2001 repurchase program.
In fiscal 2000, the Board of Directors authorized a program to repurchase outstanding shares of common stock over a 24-month period. Under this program, we repurchased approximately 836,000 shares during fiscal 2000 at a cost of $14.5 million. Also, in first quarter of fiscal 2001, we repurchased approximately 1,028,000 shares at a cost of approximately $15.9 million under the 2000 repurchase program and completed the program.
Changes in Financial Condition
We reported $62.1 million consolidated cash in fiscal 2001, of which $32.0 million was owned directly by inSilicon. Net cash generated from operating activities during fiscal 2001 was $5.1 million, consisting primarily of a decrease of $18.3 million in accounts receivable and a $1.7 million increase in income tax payable, partially offset by an outflow of $3.3 million of net loss adjusted for non-cash items, a $4.8 million increase in prepaid royalties, and other fluctuations in working capital. Net cash provided by investing activities in fiscal 2001 was $18.6 million, consisting primarily of $51.0 million in net proceeds in disposal from short-term investments, offset by $3.8 million in purchases of property and equipment, $1.4 million in additions to computer software costs, and $27.2 million in business acquisitions. Net cash used in financing activities during fiscal 2001 was $15.1 million, consisting primarily of repurchase of the our common stock of $21.0 million, repurchase of the Intel warrant for $2.9 million, and net payment of borrowings of $0.8 million, partially offset by exercise of common stock options and issuance of stock under Phoenix and inSilicon's employee purchase plan of $9.6 million.
Net cash generated from operating activities during fiscal 2000 was $11.0 million, consisting primarily of $20.9 million of net income, adjusted for non-cash items, partially offset by increases in accounts receivable, other current assets and other assets and decreases in payroll, other accrued liabilities and income taxes payable.
Net cash generated from operating activities during fiscal 1999 was $21.6 million, resulting primarily from cash provided by net income, adjusted for non-cash items. Net cash used in investing activities was $13.7 million, which consisted primarily of $6.2 million of net purchases of short-term and long-term investments and marketable securities, $5.0 million in purchases of property and equipment, and $2.4 million in addition to computer software costs. Cash used in financing activities during fiscal 1999 was $28.3 million, consisting primarily of $34.1 million to repurchase our common stock, partially offset by $5.8 million generated from the exercise of common stock options and the issuance of stock under our employee stock purchase plan.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the impact of interest rate changes, foreign currency fluctuations, and change in the market values of our investments.
Interest Rate Risk
Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. Our investments are in debt instruments of the U.S. Government and its agencies, and in high-quality corporate issuers and, by policy, limit the amount of credit exposure to any one issuer. We protect and preserve our invested funds by limiting default, market and reinvestment risk. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if there is a decline in interest rates. Due in part to these factors, our future investment income may fall short of expectations, or we may suffer a loss in principal if it is forced to sell securities, which have declined in market value due to changes in interest rates.
Foreign Currency Risk
International revenues from our foreign subsidiaries were 71%, 71%, and 67% of total revenues in fiscal 2001, 2000, and 1999, respectively. International sales are primarily from our foreign sales subsidiaries in their respective countries and are often denominated in the local currency of each country. These subsidiaries incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries use the local currency as their functional currency. Our international business is subject to risks typical of an international business, including, but not limited to differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors. Our exposure to foreign exchange rate fluctuations arises in part from intercompany accounts in which costs incurred in the United States are charged to our foreign sales subsidiaries. These intercompany accounts are typically denominated in the functional currency of the foreign subsidiary in order to centralize foreign exchange risk with the parent company in the United States. We are also exposed to foreign exchange rate fluctuations as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation. As exchange rates vary, these results, when translated, may vary from expectations and adversely impact overall expected profitability. The impact from a hypothetical 10 percent appreciation/depreciation of the U.S. Dollar from September 30, 2001 market rates would be immaterial on our net income.
We invest in equity instruments of information technology companies for business and strategic purposes. These investments are included in other long-term assets and are accounted for under the cost method when ownership is less than 20%. For these non-quoted investments, our policy is to regularly review the assumptions underlying the operating performance and cash flow forecasts in assessing the carrying values. We identify and record impairment losses on these assets when events and circumstances indicate that such assets might be impaired. In fiscal 2001, after re-valuating our investments, we recorded impairment charges of $3.5 million on these investments. Equity security price fluctuations would have an immaterial negative impact on the value of our securities in fiscal 2001 due to our low net equity investment balance at September 30, 2001.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) for an index to the consolidated financial statements and supplementary financial information attached hereto.
ITEM 9. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item with respect to its Company's directors will be contained in its definitive proxy statement to be filed pursuant to Regulation 14A in connection with the 2001 annual meeting of its stockholders (the "Proxy Statement") and is incorporated herein by this reference. The information required by this item with respect to its executive officers is contained in Part I in the section captioned, "Election of Directors" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this section is incorporated by reference from the information contained in the section captioned, "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this section is incorporated by reference from the information contained in the section captioned, "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this section is incorporated by reference from the information contained in the section captioned, "Certain Transactions" in the Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Index to Consolidated Financial Statements
The following Consolidated Financial Statements of the Company and its subsidiaries are filed as part of this report on Form 10-K:
Page
----
Report of Ernst & Young LLP, Independent Auditors.................................. 36
Consolidated Balance Sheets as of September 30, 2001 and 2000...................... 37
Consolidated Statements of Operations for the years ended September 30, 2001, 2000,
and 1999......................................................................... 38
Consolidated Statements of Stockholders' Equity for the years ended September 30,
2001, 2000, and 1999 39
Consolidated Statements of Cash Flows for the years ended September 30, 2001, 2000,
and 1999......................................................................... 40
Notes to Consolidated Financial Statements......................................... 41
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2. Consolidated Financial Statement Schedules
All other schedules are omitted because they are not required, are not applicable or the information is included in the consolidated financial statements or notes thereto. The consolidated financial statements and financial statement schedules follow the signature page hereto.
3. See Item 14(c)
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended September 30, 2001.
(c) Exhibits
Exhibit
Number Description
------ -----------
2.1 Agreement and Plan of Reorganization dated April 15, 1998, among Phoenix, Portland Acquisition
Corporation and Award (incorporated herein by this reference to Exhibit 2.1 to the Registration
Statement on Form S-4 filed with the SEC on May 26, 1998).
2.2 Agreement of Merger between Award and Portland Acquisition Corporation (incorporated herein by
this reference to Exhibit 2.2 to the Registration Statement on Form S-4 filed with the SEC on
May 26, 1998).
2.3 Asset Acquisition Agreement among Phoenix, Ravisent I.P., Inc., Ravisent Operating Company, Inc.,
Ravisent Technologies Internet Appliance Group, Inc., and Ravisent Technologies, Inc., dated
March 21, 2001.
3.1 Amended and Restated Certificate of Incorporation of Phoenix dated June 29, 1998 (incorporated
herein by this reference to Exhibit 3.1 to the Registration Statement on Form S-4 filed with the SEC
on May 26, 1998).
3.2 By-laws of Phoenix as amended through February 6, 1995 (incorporated herein by reference to
Exhibit 4.2 to Phoenix's Registration Statement on Form S-8, Registration No. 333-03065).
4.2 Phoenix Preferred Share Purchase Rights Plan dated October 28, 1999 (incorporated herein by
reference to Exhibit 1 of Form 8-A as filed on October 28, 1999).
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Exhibit
Number Description
------ -----------
10.15 1994 Equity Incentive Plan, as amended through February 28, 1996 (incorporated herein by reference
to Exhibit 10.17 to Phoenix's Report on Form 10-K for the fiscal year ended September 30, 1995 (the
"1995 10-K")).
10.21 Amended and Restated Lease Agreement dated March 15, 1995 between The Prudential Insurance
Company of America and Phoenix with respect to certain facilities located at 846 University Avenue,
Norwood, MA (incorporated herein by reference to Exhibit 10.23 to the 1995 10-K).
10.22+ Agreement dated December 18, 1995 between Intel Corporation and Phoenix (incorporated herein by
reference to Exhibit 10.24 to Phoenix's Report on Form 10-Q for the quarter ended December 31,
1995, as amended by a Form 10-Q/A-1 (the "December 1995 10-Q")).
10.26 Standard Industrial Lease--Full Net between The Equitable Life Assurance Society of the United
States as Landlord and Phoenix as Tenant dated as of May 15, 1996 for that certain property located
at 411 E. Plumeria Drive, San Jose, California (incorporated herein by reference to Exhibit 10.20 to
Phoenix's Report on Form 10-Q for the quarter ended June 30, 1996).
10.28 Industrial Lease (Single Tenant; Net) dated October 1, 1996 by and between The Irvine Company
and Phoenix for that certain property located at 135 Technology Drive, Irvine, California
(incorporated herein by reference to Exhibit 10.28 to Phoenix's Report on Form 10-K for the fiscal
year ended September 30, 1996).
10.29 1996 Equity Incentive Plan, as amended through December 12, 1996 (incorporated herein by
reference to Exhibit 4.2 to Phoenix's Registration Statement on Form S-8 filed on January 27, 1997
(Registration No. 333-20447)).
10.30 1997 Non-statutory Stock Option Plan (incorporated herein by reference to Exhibit 4.1 to Phoenix's
Registration Statement on Form S-8, filed on October 2, 1997, Registration No. 333-37063).
10.32 1998 Stock Plan (incorporated herein by reference to Exhibit 99.1 to Phoenix's Registration
Statement on Form S-8, filed on June 5, 1998, Registration No. 333-56103).
10.33 Amended and Restated 1991 Employee Stock Purchase Plan, as amended June 4, 1998 (incorporated
herein by reference to Exhibit 99.2 to Phoenix's Registration statement on Form S-8, filed on June 5,
1998, Registration No. 333-56103) .
10.53 Letter Agreement dated March 1, 1998 between Pierre A. Narath and Phoenix (incorporated herein
by reference to Exhibit 10.36 of the 10-K of Award for the year ended December 31, 1997).
10.54+ Master Original Equipment Manufacturer (OEM) Software License Agreement, dated September 10,
1997, between Phoenix and Intel Corporation (incorporated herein by reference to Exhibit 10.37 of
the 10-K of Award for the year ended December 31, 1997).
10.59 Employment Agreement dated June 8, 1999 between Phoenix and Albert E. Sisto (incorporated
herein by reference to Exhibit 10.59 to the 1999 Form 10-K).
10.61 Amended and Restated Initial Public Offering Agreement, dated March 15, 2000, between Phoenix
and inSilicon (incorporated herein by reference to Exhibit 10.61 to the Form 10-Q for the quarter
ended March 31, 2000).
10.62 Contribution Agreement, dated November 30, 1999, between Phoenix and inSilicon (incorporated
herein by reference to Exhibit 10.62 to the Form 10-Q for the quarter ended March 31, 2000).
10.63 Employee Matters Agreement, dated November 30,1999, between Phoenix and inSilicon
(incorporated herein by reference to Exhibit 10.63 to the Form 10-Q for the quarter ended March 31,
2000).
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Exhibit
Number Description
------ -----------
10.64 Registration Rights Agreement dated as of November 30, 1999 by and between Phoenix and
inSilicon Corporation (incorporated herein by reference to Exhibit 10.8 to inSilicon Corporation's
Registration Statement on Form S-1, Registration No. 333-94573).
10.65 1999 Stock Plan (incorporated herein by reference to Exhibit 4.1 to Phoenix's Registration Statement
on Form S-8 filed on December 5, 2001, Registration No. 333-74532).
10.66 1999 Director Option Plan (incorporated herein by reference to Exhibit 4.2 to Phoenix's Registration
Statement on Form S-8 filed on December 5, 2001, Registration No. 333-74532).
10.67 Employment Agreement, dated February 19, 1999, between Phoenix and David A. Everett.
10.68 Employment Agreement, dated January 4, 2001, between Phoenix and John M. Greeley.
10.69 Employment Agreement, dated January 4, 2001, between Phoenix and Linda V. Moore.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24 Power of Attorney. See signature page.
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(d) See Item 14(a)2
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
/s/ ALBERT E. SISTO
By: _________________________________
Albert E. Sisto
Chairman, President and Chief
Executive Officer
Date: December 5, 2001
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KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Linda V. Moore, Albert E. Sisto and John M. Greeley jointly and severally, his attorneys-in-fact and agents, each with the power of substitution and resubstitution, for him and in his name, place or stead, in any and all capacities, to sign any amendments to this Registration Statement on Form 10-K, and to file such amendments, together with exhibits and other documents in connection therewith, with the Securities and Exchange Commission, granting to each attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as he might or could do in person, and ratifying and confirming all that the attorney-in-facts and agents, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ ALBERT E. SISTO /s/ JOHN M. GREELEY
_______________________________________ _______________________________________
Albert E. Sisto John M. Greeley
Chairman, President and Chief Executive Principal Financial and Accounting
Officer Officer
Date: December 5, 2001 Date: December 5, 2001
/s/ TAHER ELGAMAL /s/ GEORGE C. HUANG
_______________________________________ _______________________________________
Taher Elgamal George C. Huang
Director Director
Date: December 5, 2001 Date: December 5, 2001
_______________________________________ /s/ ANTHONY SUN
Edmund P. Jensen _______________________________________
Director Anthony Sun
Director
Date: December , 2001
Date: December 5, 2001
/s/ ANTHONY P. MORRIS
_______________________________________
Anthony P. Morris
Director
Date: December 5, 2001
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The Board of Directors and Stockholders
Phoenix Technologies Ltd.
We have audited the accompanying consolidated balance sheets of Phoenix Technologies Ltd. as of September 30, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 30, 2001. Our audits also included the financial statement schedule listed in Part IV, Item 14(a). These consolidated financial statements and schedule are the responsibility of the management of Phoenix Technologies Ltd. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Phoenix Technologies Ltd. at September 30, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
San Jose, California
October 17, 2001
|
September 30,
------------------
2001 2000
-------- --------
Assets
Current assets:
Cash and cash equivalents........................................................ $ 62,084 $ 55,017
Short-term investments........................................................... 2,950 52,701
Accounts receivable, net of allowances of $2,374 and $2,283 at September 30, 2001
and 2000....................................................................... 21,527 39,868
Prepaid royalties and maintenance................................................ 5,623 791
Deferred income taxes............................................................ 5,186 3,926
Other current assets............................................................. 6,572 3,703
-------- --------
Total current assets......................................................... 103,942 156,006
Property and equipment, net....................................................... 10,793 13,272
Computer software costs, net...................................................... 17,602 5,385
Goodwill and intangible assets, net............................................... 17,104 7,937
Deferred income taxes............................................................. 8,743 6,422
Other assets...................................................................... 2,427 5,873
-------- --------
Total assets................................................................. $160,611 $194,895
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable................................................................. $ 2,949 $ 3,945
Accrued compensation and related liabilities..................................... 9,918 10,554
Deferred revenue................................................................. 5,088 4,733
Treasury stock payable........................................................... 108 2,212
Accrued acquisition costs........................................................ 1,802 1,000
Income taxes payable............................................................. 3,201 5,254
Other accrued liabilities........................................................ 4,270 3,776
-------- --------
Total current liabilities.................................................... 27,336 31,474
Long-term obligations............................................................. 638 1,449
-------- --------
Total liabilities............................................................ 27,974 32,923
-------- --------
Minority interest................................................................. 12,941 13,672
-------- --------
Stockholders' equity:
Preferred stock, $.10 par value, 500 shares authorized,none issued............... -- --
Common stock, $.001 par value, 60,000 shares authorized, 30,114 and 28,985 shares
issued, 25,239 and 25,608 shares outstanding at September 30, 2001 and 2000.... 30 30
Additional paid-in capital....................................................... 165,396 153,530
Retained earnings................................................................ 35,888 53,890
Accumulated other comprehensive income (loss).................................... (1,878) (380)
Less: Cost of treasury stock (4,875 and 3,377 shares at September 30, 2001
and 2000)...................................................................... (79,740) (58,770)
-------- --------
Total stockholders' equity................................................... 119,696 148,300
-------- --------
Total liabilities and stockholders' equity................................... $160,611 $194,895
======== ========
|
See notes to consolidated financial statements
Years ended September 30,
----------------------------
2001 2000 1999
-------- -------- --------
Revenues:
License fees.............................................. $103,324 $125,817 $103,326
Services.................................................. 18,113 18,568 22,500
-------- -------- --------
Total revenues........................................ 121,437 144,385 125,826
-------- -------- --------
Cost of revenues:
License fees.............................................. 3,712 3,133 7,844
Services.................................................. 15,138 17,074 18,344
Amortization of purchased technology...................... 2,215 1,256 2,132
Write-off of capitalized software......................... -- -- 6,562
-------- -------- --------
Total cost of revenues................................ 21,065 21,463 34,882
-------- -------- --------
Gross Margin............................................... 100,372 122,922 90,944
Operating expenses:
Research and development.................................. 45,526 39,055 39,910
Sales and marketing....................................... 37,213 33,050 29,020
General and administrative................................ 24,743 19,713 16,287
Amortization of goodwill and acquired intangible assets... 5,027 2,220 2,496
Stock-based compensation.................................. 1,713 789 --
Impairment of long-lived assets........................... 9,393 -- --
Restructuring cost........................................ 1,525 1,270 7,892
-------- -------- --------
Total operating expenses.............................. 125,140 96,097 95,605
-------- -------- --------
Income (loss) from operations.............................. (24,768) 26,825 (4,661)
Interest and other income, net............................. 2,866 3,997 3,346
Gain (loss) on investments................................. (2,824) -- 3,969
Minority interest.......................................... 5,891 (81) --
-------- -------- --------
Income (loss) before income taxes.......................... (18,835) 30,741 2,654
Income tax expense (credit)................................ (833) 9,839 850
-------- -------- --------
Net income (loss).......................................... $(18,002) $ 20,902 $ 1,804
======== ======== ========
Earnings (loss) per share:
Basic..................................................... $ (0.72) $ 0.85 $ 0.07
======== ======== ========
Diluted................................................... $ (0.72) $ 0.77 $ 0.07
======== ======== ========
Shares used in earnings (loss) per share calculation:
Basic..................................................... 25,141 24,720 25,966
======== ======== ========
Diluted................................................... 25,141 27,120 27,250
======== ======== ========
|
See notes to consolidated financial statements
Accumulated
Common Stock Additional Other Total
------------- Paid-In Retained Comprehensive Treasury Stockholders' Comprehensive
Shares Amount Capital Earnings Income (Loss) Stock Equity Income (Loss)
------ ------ ---------- -------- ------------- -------- ------------- -------------
BALANCE, SEPTEMBER 30, 1998.......... 26,286 $26 $102,629 $ 31,150 $ 101 $ (8,568) $125,336
Stock purchases under option and
purchase plans...................... 1,028 1 5,335 -- -- -- 5,336
Stock warrants exercised............. 49 -- 40 -- -- -- 40
Repurchase of common stock........... (3,327) -- -- -- -- (34,106) (34,106)
Stock-based compensation............. -- -- 1,101 -- -- -- 1,101
Tax benefit on exercise of stock
options............................. -- -- 186 -- -- -- 186
Purchase of minority interest in
Award Japan......................... -- -- 158 37 -- -- 195
Comprehensive income:
Net income......................... -- -- -- 1,804 -- -- 1,804 $ 1,804
Change in unrealized gain on
investments, net of a tax benefit
of $963........................... -- -- -- -- (2,046) -- (2,046) (2,046)
Translation adjustment, net of tax
of $506........................... -- -- -- -- 1,076 -- 1,076 1,076
--------
Comprehensive income.............. $ 834
------ --- -------- -------- ------- -------- -------- ========
BALANCE, SEPTEMBER 30, 1999.......... 24,036 27 109,449 32,988 (869) (42,674) 98,922
Stock purchases under option and
purchase plans...................... 2,481 2 19,473 -- -- -- 19,475
Stock warrants exercised............. 102 -- -- -- -- -- --
Net proceeds under inSilicon IPO..... -- 4 36,972 -- -- -- 36,976
Changes in APIC resulting from
issuances of inSilicon stock........ -- (4) (13,588) -- -- -- (13,592)
Repurchase of common stock........... (1,011) -- -- -- -- (16,096) (16,096)
Tax benefit on exercise of
stock options....................... 455 -- -- -- 455
Stock-based compensation............. -- -- 770 -- -- -- 770
Comprehensive income:
Net income......................... -- -- -- 20,902 -- -- 20,902 $ 20,902
Translation adjustment, net of tax
of $230........................... -- -- -- -- 489 -- 489 489
--------
Comprehensive income.............. $ 21,391
------ --- -------- -------- ------- -------- -------- ========
BALANCE, SEPTEMBER 30, 2000.......... 25,608 29 153,531 53,890 (380) (58,770) 148,300
Purchases under stock option and
purchase plans...................... 1,052 1 8,677 -- -- -- 8,678
Changes in APIC resulting from
issuances of inSilicon stock........ -- -- 4,051 -- -- -- 4,051
Issuance of stock and options for
ISI acquisition..................... 75 -- 1,303 -- -- -- 1,303
Repurchase of common stock........... (1,497) -- -- -- -- (20,970) (20,970)
Repurchase of Intel Warrant.......... -- -- (2,900) -- -- -- (2,900)
Stock-based compensation............. 1 -- 697 -- -- -- 697
Amortization of deferred stock-based
compensation........................ -- -- 37 -- -- -- 37
Comprehensive income: --
Net income (loss).................. -- -- -- (18,002) -- -- (18,002) $(18,002)
Translation adjustment, net of tax
of $705........................... -- -- -- -- (1,498) -- (1,498) (1,498)
--------
Comprehensive loss................ $(19,500)
------ --- -------- -------- ------- -------- -------- ========
BALANCE, SEPTEMBER 30, 2001.......... 25,239 $30 $165,396 $ 35,888 $(1,878) $(79,740) $119,696
====== === ======== ======== ======= ======== ========
|
See notes to consolidated financial statements
Years ended September 30,
-----------------------------
2001 2000 1999
-------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................................. $(18,002) $ 20,902 $ 1,804
Reconciliation to net cash provided by operating activities:
Depreciation and amortization.................................................... 13,341 8,811 12,558
Write-offs related to merger and restructuring activities........................ -- -- 784
Write-off of capitalized software................................................ -- -- 6,562
Impairment of long-lived assets.................................................. 9,393 -- --
Stock-based compensation......................................................... 1,713 770 1,101
Minority interest................................................................ (5,891) 81 --
Gain (loss) on investment........................................................ 2,824 -- (4,034)
Deferred income tax.............................................................. (6,704) 232 (8,570)
Change in operating assets and liabilities:
Accounts receivable............................................................. 18,341 (9,678) (1,193)
Other assets.................................................................... (384) (2,296) 1,480
Prepaid royalties and maintenance............................................... (4,821) (599) 150
Accounts payable................................................................ (996) 149 (3,167)
Accrued compensation and related liabilities.................................... (636) (1,322) 3,130
Other accrued liabilities....................................................... (1,731) (3,659) 8,037
Deferred Revenue................................................................ 355 622 1,790
Income taxes.................................................................... (1,725) (2,995) 1,190
-------- --------- --------
Net cash provided by operating activities..................................... 5,077 11,018 21,622
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments.................................................. 61,420 505,251 54,300
Purchases of investments........................................................... (10,381) (518,550) (60,533)
Purchases of property and equipment................................................ (3,763) (4,829) (5,003)
Additions to computer software..................................................... (1,406) (411) (2,423)
Acquisition of businesses, net of cash acquired.................................... (27,249) -- --
-------- --------- --------
Net cash provided by (used in) investing activities........................... 18,621 (18,539) (13,659)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock purchases under stock option and stock purchase plans.......... 9,551 19,930 5,376
Proceeds from initial public offering of inSilicon common stock.................... -- 36,976 --
Repurchase of common stock......................................................... (20,970) (20,322) (34,106)
Repurchase of warrant.............................................................. (2,900) -- --
Repayment of long term-obligations................................................. (1,139) -- --
Proceeds from borrowings........................................................... 325 -- --
Other financing activities......................................................... -- -- 383
-------- --------- --------
Net cash provided by (used in) financing activities........................... (15,133) 36,584 (28,347)
-------- --------- --------
Effect of exchange rate changes on cash and cash equivalents......................... (1,498) 1,081 1,023
-------- --------- --------
Net increase in cash and cash equivalents............................................ 7,067 30,144 (19,361)
Cash and cash equivalents at beginning of period..................................... 55,017 24,873 44,234
-------- --------- --------
Cash and cash equivalents at end of period........................................... $ 62,084 $ 55,017 $ 24,873
======== ========= ========
Supplemental disclosure of cash flow information:
Income taxes paid during the year, net of refunds.................................. $ 7,208 $ 12,413 $ 6,115
Supplemental schedule of non-cash investing and financing activities:
Issuance of Phoenix common shares and stock options related to the ISI acquisition. $ 1,303 $ -- $ --
|
See notes to consolidated financial statements
Note 1. Description of Business
Phoenix Technologies Ltd. ("Phoenix" or the "Company") is the global leader in device-enabling and management software solutions for PCs and other user-driven connected digital devices. Phoenix provides these products primarily to platform and peripheral manufacturers (collectively, "OEMs") which range from large PC and Information Appliance manufacturers to small system integrators and value-added resellers. Phoenix also provides training, consulting, maintenance and engineering services to its customers. The Company markets and licenses its products and services through a direct sales force as well as through regional distributors and sales representatives. The Company had four business units (one of which, inSilicon Corporation ("inSilicon"), is a majority-owned subsidiary), each of which delivers leading products and professional services that enable connected computing. See Note 11 - "Segment Reporting".
Note 2. Summary of Significant Accounting Policies
Financial Statement Presentation. The consolidated financial statements of the Company include the financial statements of the Company and subsidiaries, including inSilicon. All significant intercompany accounts and transactions have been eliminated.
Reclassification. Certain amounts in the prior years' financial statements have been reclassified to conform to the current year presentation.
Foreign Currency Translation. The Company has determined that the functional currency of its foreign operations is the local currency. Therefore, assets and liabilities are translated at year-end exchange rates and income statement transactions are translated at average exchange rates prevailing during each period.
Use of Estimates. The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition. The Company licenses software under non-cancelable license agreements and provides services including non-recurring engineering efforts, maintenance consisting of product support services and rights to upgrades on a when-and-if available basis, and training.
Revenues from software license agreements is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable. The Company uses the residual method to recognize revenue when an agreement includes one or more elements to be delivered at a future date and vendor specific objective evidence of the fair value of all the undelivered elements exists. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenues. If evidence of fair value of one or more undelivered elements does not exist, revenues are deferred and recognized when delivery of those elements occurs or when fair value can be established. When the Company provides the customer with significant customization of the software products, revenues are recognized in accordance with AICPA Statement of Position 81-1 ("Accounting for Performance of Construction-Type and Certain Production-Type Contracts") which requires revenues to be recognized using the percentage-of-completion method based on time and materials or when services are complete. Revenues from arrangements with distributors or resellers are recognized on a sell-through basis.
Royalty revenues from OEMs are generally recorded in each period based on estimates of shipments by the OEMs of products containing the Company's software during the period. Revenues from OEMs for fully paid up, non-refundable royalties is recorded when the revenue recognition criteria has been met.
Non-recurring engineering service revenues are recognized on a time and materials basis or when contractual milestones are met. Contractual milestones involve the use of estimates and approximate the percentage-of-completion method. Software maintenance revenues are recognized ratably over the maintenance period which is typically one year. Training and other service revenues are recognized as the services are performed. Amounts paid in advance for licenses and services that are in excess of revenues recognized are recorded as deferred revenues.
Provisions are made for doubtful accounts, estimated returns, and customer credits.
Cash Equivalents. The Company considers all highly liquid securities purchased with an original or remaining maturity of less than three months at the date of purchase to be cash equivalents.
Investments. Short-term investments represent marketable securities acquired with original maturities ranging from three months to one year. As of September 30, 2001, the Company had short-term investments of $2.9 million, which consisted only of auction instruments. All marketable securities acquired with excess cash were classified as cash equivalents as they mature within three months. At September 30, 2000, the short-term investments were classified as held-to-maturity and consisted of U.S. government agency obligations, commercial paper, and corporate debt securities. The fair value of such short-term investments approximated amortized cost and gross unrealized holding gains and losses were not material. The cost of securities sold and the fair value of securities are based on the specific identification method. Realized gains or losses and declines in value deemed to be other than temporary, if any, are reported in gain (loss) on investments in the consolidated statements of operations.
Other investments primarily consist of equity investments of less than 20% equity interest in publicly held and private companies. The Company does not have the ability to exercise significant influence over any of these companies and therefore account for the investments as available-for-sale securities under Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). Investments in publicly held companies are recorded at fair value as measured by quoted market prices and investments in privately held companies, which are recorded at cost, are accounted for under the cost method of accounting. Realized gains and losses are recorded in gain (loss) on investment when the related investments are sold and temporary fluctuations in values are recorded in other comprehensive income. In fiscal 2001, the Company sold its investment in certain marketable securities and recorded a realized gain of $0.7 million.
The Company performs periodic reviews of its investments for impairment. The Company's investments in publicly held companies are generally considered impaired when a decline in the fair value of an investment as measured by quoted market prices is less than its carrying value and such decline is other than temporary. The impairment charge is included in the gain (loss) on investment in the consolidated statements of operations. The Company's investments in privately held companies are considered impaired when a review of operations and other indicators of impairment show that the carrying value of the investment is not likely to be recoverable. Such indicators include operating losses, significant cash outflows, prices of subsequent issuances of equity securities, and limited liquidity. Impaired investments in privately held companies are written down to estimated fair value, which is the amount the Company believes is recoverable from its investments. Impairment write-downs when deemed other than temporary create a new carrying value for both publicly and privately held investments and the Company does not realize gains from subsequent increases in fair value in excess of the new carrying value until disposition. In fiscal 2001, the Company recorded a write-down of $3.5 million for impairments of its equity investments.
Fair Value of Financial Instruments. The carrying values of the Company's financial instruments, including accounts receivable, accounts payable, and accrued liabilities, approximate their fair values due to their short maturities. The estimated fair values may not be representative of actual values of the financial instruments that could be realized as of the period end or that will be realized in the future.
Credit Risk. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash investments and trade receivables. The Company places its cash investments with high credit qualified financial institutions. The Company extends credit on open accounts to its customers and does not require collateral. The Company performs ongoing credit evaluations of all customers and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information. One customer accounted for 20% and 18% of accounts receivable as of September 30, 2001 and 2000, respectively.
Property and Equipment. Property and equipment are carried at cost and depreciated using the straight-line method over the estimated useful life of the assets, which are typically three to five years. Leasehold improvements are recorded at cost and amortized over the lesser of the useful life of the assets or the remaining term of the related lease.
Computer Software Costs. Computer software costs consist of internally developed and purchased software capitalized under the provisions of Statement of Financial Accounting Standards No. 86, "Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"). Costs incurred in the research and development of new software products and enhancements to existing products are expensed as incurred until technological feasibility (beta test version) has been established, at which time, such costs are capitalized. Capitalized computer software costs are amortized over the economic life of the product, generally three to six years, using the straight-line method.
Goodwill and other intangible assets. Goodwill is amortized using the straight-line method over the estimated life of the assets, which is typically from five to six years. Goodwill was $15.9 million and $6.3 million, net, as of September 30, 2001 and 2000, respectively. Accumulated amortization amounted to $7.9 million and $5.2 million on September 30, 2001 and 2000, respectively.
Other intangible assets were amortized using the straight-line method over the estimated life of the assets, which is typically from two to six years. Other intangible assets were $1.2 million and $1.6 million, net, as of September 30, 2001 and 2000, respectively. Accumulated amortization amounted to $1.8 million and $1.2 million on September 30, 2001 and 2000, respectively.
The Company evaluates the net realizable value and amortization periods of computer software costs, goodwill, and other intangible assets on an ongoing basis and records charges to reduce carrying value to net realizable value, as necessary. In assessing net realizable value, the Company relies on a number of factors including operating results, business plans, budgets and economic projections. In addition, the Company's evaluation considers non-financial data such as market trends, customer relationships, buying patterns, and product development cycles.
Impairment of goodwill and other long-lived assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. These indicators may be a significant industry downturn, a significant decline in the market value of the Company, or significant reductions in projected future cash flows of operating segments. Pursuant to Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" ("SFAS 121"), recoverability of long-lived assets is based on an estimate of future undiscounted cash flows to initially determine whether impairment should be measured. Measurement of impairment charges for long-lived assets is based on the fair value of the assets. If quoted market prices for the assets are not available, the fair value is calculated using the present value of estimated expected future cash flows. The cash flow calculations are based on management's best estimates, using appropriate assumptions and projections. When impairments are assessed, the Company records charges to reduce goodwill or other long-lived assets based on the amount by which the carrying amounts of these assets exceed their fair values.
Income Taxes. Income taxes are accounted for in accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment.
Stock-Based Compensation. The Company accounts for its stock option plans and employee stock purchase plan in accordance with provisions of the Accounting Principles Board's Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). The Company has adopted the disclosure only criteria, described in Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). See Note 13 for more details.
Computation of Earnings (loss) per Share. Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common and dilutive potential common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common shares and excludes dilutive potential common shares outstanding, as their effect is anti-dilutive. Dilutive potential common shares primarily consist of employee stock options and warrants.
New Accounting Pronouncements. In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires all business combinations to be accounted for using the purchase method of accounting and is effective for all business combinations completed after June 30, 2001. The adoption did not have a material effect on the Company's operating results or financial condition. SFAS 142 requires goodwill to be tested for impairment under certain circumstances, and written-off when impaired, rather than being amortized as previous standards required. Furthermore, SFAS 142 required purchased intangible assets to be amortized over their estimated useful lives unless these lives are determined to be indefinite. SFAS 142 is effective for fiscal years beginning after December 15, 2001. Early application is permitted for entities with fiscal years beginning after March 15, 2001 provided that the first interim period financial statements have not been previously issued. The Company is currently assessing the impact of SFAS 142 on its operating results and financial condition. The unamortized goodwill was $15.9 million as of September 30, 2001 and the amortization of goodwill was $4.1 million for fiscal 2001.
On October 3, 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), that is applicable to financial statements issued for fiscal years beginning after December 15, 2001. The FASB's new rules on asset impairment supersede
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and portions of Accounting Principles Board Opinion 30, "Reporting the Results of Operations." This Standard provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. Classification as held-for-sale is an important distinction since such assets are not depreciated and are stated at the lower of fair value and carrying amount. This Standard also requires expected future operating losses from discontinued operations to be displayed in the period(s) in which the losses are incurred, rather than as of the measurement date as presently required. The Company is currently assessing the potential impact of SFAS 144 on its operating results and financial position.
Note 3. Sale of Interest in inSilicon Corporation
The initial public offering of 3.5 million shares of common stock of the Company's subsidiary, inSilicon, closed on March 27, 2000. Proceeds, net of issuance costs, to inSilicon were approximately $37.0 million. The Company owned 69.2% of inSilicon's outstanding common stock as of September 30, 2001. The accompanying 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 the inSilicon business 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 a service and cost sharing agreement, employee matters agreement, and a tax sharing agreement that govern the ongoing relationship of the parties
Note 4. Property and Equipment
Property and equipment consist of the following:
September 30,
------------------
2001 2000
-------- --------
(in thousands)
Equipment..................................... $ 25,464 $ 19,486
Leasehold improvements........................ 4,690 7,843
Furniture and fixtures........................ 3,283 3,003
-------- --------
33,437 30,332
Less accumulated depreciation and amortization (22,644) (17,060)
-------- --------
Property and equipment, net................ $ 10,793 $ 13,272
======== ========
|
Depreciation expense related to property and equipment totaled $6.0 million, $5.1 million, and $5.1 million for fiscal 2001, 2000, and 1999, respectively.
Note 5. Computer Software Costs
Additional costs associated with purchased and internally developed computer software of $1.4 million, $0.4 million, and $2.4 million were capitalized in fiscal 2001, 2000, and 1999, respectively. During fiscal 2001, Phoenix capitalized $3.4 million and $8.1 million of software costs in conjunction with its acquisitions of Integrity Sciences, Inc. and Ravisent Technologies, Inc., respectively. inSilicon also capitalized $1.3 million and $0.2 million of software costs in conjunction with its acquisition of HD Lab, K.K. and Xentec, Inc., respectively. Amortization charged to costs of revenues was $2.2 million, $2.5 million and $4.8 million, during fiscal 2001, 2000, and 1999, respectively. Accumulated amortization of capitalized computer software costs was $5.7 million and $3.5 million at September 30, 2001 and 2000, respectively.
Note 6. Earnings Per Share
The following table presents the calculation of basic and diluted earnings per share required under Statement of Financial Accounting Standards No. 128 ("SFAS 128"):
Years ended September 30,
-------------------------------
2001 2000 1999
-------- ------- -------
(in thousands, except per share
amounts)
Net income (loss)............................................... $(18,002) $20,902 $ 1,804
======== ======= =======
Weighted average common shares outstanding...................... 25,141 24,720 25,966
Effect of dilutive securities (using the treasury stock method):
Stock options.................................................. -- 2,125 1,160
Warrants....................................................... -- 275 124
Total dilutive securities.................................... -- 2,400 1,284
-------- ------- -------
Weighted average diluted common and equivalent shares
outstanding................................................... 25,141 27,120 27,250
======== ======= =======
Earnings (loss) per share:
Basic.......................................................... $ (0.72) $ 0.85 $ 0.07
======== ======= =======
Diluted........................................................ $ (0.72) $ 0.77 $ 0.07
======== ======= =======
|
The dilutive potential common shares that were anti-dilutive for fiscal 2001 amounted to 1,114,000 shares.
Note 7. Business Combinations
During fiscal 2001, the Company completed four business combinations. In February 2001, Phoenix acquired Integrity Sciences, Inc., a provider of core computer security products, which developed and marketed strong password technology. In March 2001, Phoenix acquired certain assets of Ravisent Technologies, Inc., a provider of digital audio and video software solutions and internet appliance technology. In December 2000, inSilicon acquired Xentec, Inc., a privately held IP developer that specialized in the design of high-speed mixed-signal analog and wireless technologies and HD Lab, K.K., a wireless design services group specialized in certain Bluetooth baseband technology.
These acquisitions were accounted for using the purchase method of accounting. Accordingly, the assets and liabilities of the acquired business are included in the Consolidated Balance Sheets as of September 30, 2001. The results of operations from the date of acquisition through September 30, 2001 were included in the accompanying Consolidated Statement of Operations for the year ended September 30, 2001. There were no acquisitions or business combinations during fiscal 2000 or 1999.
The amounts allocated to goodwill and purchased intangible assets are being amortized on a straight-line basis. The estimated asset lives are determined based on projected future economic benefits and expected life cycles of the technologies. The amounts allocated to Purchased Technology are being amortized over periods of 3 to 6 years, the amounts allocated to Other Intangible Assets (comprised of customer lists and assembled work force costs) are being amortized over periods of 2 and 6 years, and the amounts allocated to Goodwill are being amortized over periods of 5 and 6 years.
The following is a summary of purchased transactions completed in fiscal
2001 (in millions):
------------------------------------------------------------------------------------------------
Total Total Other
purchase tangible Purchased intangible Stock-based
Acquired company consideration assets technology assets Compensation Goodwill
------------------------------------------------------------------------------------------------
By Phoenix:
Integrity Sciences, Inc.... $ 3.9 $ -- $3.4 $ -- $ -- $ 0.5
Ravisent Technologies, Inc. $19.1 $ -- $8.1 $ -- $ -- $11.0
------------------------------------------------------------------------------------------------
By inSilicon:
Xentec, Inc................ $11.7 $0.2 $0.2 $0.6 $0.4 $10.3
HD Lab, K.K................ $ 1.6 $ -- $1.3 $0.3 $ -- $ --
------------------------------------------------------------------------------------------------
|
The following are details of the forms of consideration and their fair
values for each acquisition:
--------------------------------------------------------------------------------------------------
Acquired company Form of consideration Fair value
--------------------------------------------------------------------------------------------------
Integrity Sciences, Inc. $2.5 million in cash................................... $ 2.5 million
75,000 shares of Phoenix common stock.................. 1.3 million
Transaction costs...................................... 0.1 million
-------------
Total................................................ $ 3.9 million
--------------------------------------------------------------------------------------------------
Ravisent Technologies, Inc. $17.8 million in cash.................................. $17.8 million
Transaction costs...................................... 1.3 million
-------------
Total................................................ $19.1 million
--------------------------------------------------------------------------------------------------
Xentec, Inc. $3.0 million in cash................................... $ 3.0 million
15,678 and 618,378 shares of inSilicon common and
exchangeable preferred stock, respectively........... 7.2 million
Options to purchase 96,004 shares of inSilicon common
stock................................................ 1.0 million
Transaction costs...................................... 0.5 million
-------------
Total................................................ $11.7 million
--------------------------------------------------------------------------------------------------
HD Lab, K.K. $1.6 million in cash................................... $ 1.6 million
--------------------------------------------------------------------------------------------------
|
As of September 30, 2001, $1.2 million of the $1.6 million specified in the HD Lab, K.K. acquisition agreement had been paid. The remaining balance of $0.4 million will be paid in fiscal 2002.
The acquisition of Integrity Sciences, Inc. includes an earn-out agreement over a five year period of up to 100,000 shares of Phoenix's common stock and cash payments of $1.5 million, if certain revenues and technology criteria are met. There is no minimum payment requirement in the earn-out agreement. No payments have been earned through September 30, 2001.
The acquisition agreement with Xentec requires that inSilicon Canada issue up to an additional 415,000 exchangeable preferred shares to the former Xentec stockholders over a two-year period, contingent upon the achievement of certain performance-based milestones. Additional goodwill will be recorded for the fair value of this consideration as the exchangeable preferred shares, if any, are issued. There is no minimum payment requirement in this contingent consideration and no payment was earned or paid for fiscal 2001. Also under the terms of the acquisition, in January 2002 inSilicon will issue common stock with a fair value of $0.5 million to former Xentec employees who continue their employment with inSilicon through December 18,
2001. The $0.5 million is being recognized as stock-based compensation expense over the one year period subsequent to the merger, and as of September 30, 2001, $0.4 million of this amount is included in payroll and related liabilities in the consolidated balance sheets.
If the performance milestones specified in the earn-out agreements are met, payments will be accrued and recorded as additional goodwill.
The following unaudited, pro forma information shows the results of operations of the Company for the years ended September 30, 2001 and 2000, as if the business combinations had occurred at the beginning of each period. This data is not indicative of the results of operations that would have arisen if the business combinations had occurred at the beginning of the respective periods. Moreover, this data is not intended to be indicative of future results of operations.
Pro Forma Years ended
September 30,
---------------------
2001 2000
-------- --------
(unaudited)
Revenues................................... $121,553 $145,571
Net income (loss).......................... $(21,074) $ 14,813
Earnings (loss) per share:
Basic................................... $ (0.84) $ 0.60
Diluted................................. $ (0.84) $ 0.55
|
In September 1998, the Company acquired Sand in a purchase acquisition. The purchase price consisted of approximately $18.6 million in cash, 464,000 shares of the Company's common stock, approximately 264,000 stock options issued in exchange for Sand stock options, and up to $3.7 million in performance incentives to be paid through fiscal 2002. Of the $3.7 million, approximately $1.6 million represents minimum anticipated payments. Performance incentives totaling $2.6 million were earned per the agreement. Of the $2.6 million, $0.8 million was earned in fiscal 2000 and paid in fiscal 2001, $0.9 million was earned in fiscal 1999 and paid in fiscal 2000. The final payment of $0.9 million was earned in fiscal 2001 and is scheduled to be paid in fiscal 2002. The earn-out agreement ended in fiscal 2001.
Note 8. Restructuring Charges
Restructuring charges during fiscal 2001, 2000, and 1999, were as follow:
Years ended September 30,
-------------------------
2001 2000 1999
-------- ------- -------
(in thousands)
Severance and other exit costs......... $1,525 $1,270 $7,108
Asset write-offs....................... -- -- 784
-------- ------- -------
$1,525 $1,270 $7,892
======== ======= =======
|
Write-off of capitalized software of $6.6 million that was previously categorized as restructuring charges in fiscal 1999 was reclassified to costs of revenues for presentation purposes.
2001 Charges
In April 2001, in efforts to optimize operational efficiency and change its business strategy to address changes in customer demands, the Company reduced its global workforce by approximately 70 employees across all business functions. The restructuring included refocusing research and development efforts, re-evaluating sales and marketing and general and administration resource requirement, and aligning overall cost structure with current revenue levels. All terminations were completed as of September 30, 2001.
The restructuring program resulted in a charge of approximately $1.5 million for severance and related cost in the third quarter of fiscal 2001. As of September 30, 2001, approximately $1.3 million was paid and an additional $0.2 million was accrued and expected to be paid through the first quarter of fiscal 2002.
2000 Charges
In the fourth quarter of fiscal 2000, the Company recorded a restructuring charge of approximately $1.3 million for severance benefits associated with the elimination of three management positions. The charges were related to the streamlining of certain management functions in Taiwan and North America. All terminations were completed as of September 30, 2000.
1999 Charges
In fiscal 1999, the Company recorded $7.9 million restructuring charges relating to the realignment of its business into three operating divisions, consolidation of certain facilities and operations, integration of Award and Sand, and discontinuation of the PICO and PC Enhancing Division. These charges included $5.5 million in severance costs associated with the elimination of 92 positions across all business functions from various product divisions and management, $0.8 million of fixed assets write-down for the Company's United Kingdom branch, $0.7 million in facilities abandonment, and $0.9 million of other business exit costs pursuant to the re-organization plan. All terminations were completed as of September 30, 2000.
Note 9. Impairment of Goodwill and Other Long-lived Assets
During the fourth quarter of fiscal 2001, pursuant to SFAS 121, inSilicon performed an assessment of the carrying value of its long-lived assets to be held and used, including goodwill and other intangible assets recorded in connection with its various acquisitions. The assessment was necessitated by various factors that indicated these assets may be impaired, including recent operating results that did not meet management's expectations, the global downturn in technology spending, and sustained decline in inSilicon's market capitalization.
The conclusion of inSilicon's assessment was that indicators of impairment were present and therefore a test was required. inSilicon performed the asset impairment test with the assistance of independent valuation experts. The test was performed by comparing the undiscounted expected cash flows for a five-year period (the estimated life of the assets), to the carrying amount of the goodwill and other intangible assets resulting from the business combinations. The assumptions supporting the estimated cash flows reflect management's best estimates. Based on the results of the test, inSilicon determined that the goodwill associated with Xentec was impaired and the write-down was included in "Impairment of long-lived assets" in the Consolidated Statements of Operations.
With the assistance of independent valuation experts, inSilicon determined the fair value of the impaired long-lived assets. Fair value was determined based on the cash flow method and the income approach using the same assumptions as those used in the initial test of impairment. A write-down of goodwill and intangible assets
totaling $9.4 million was recorded during the fourth quarter of fiscal 2001, reflecting the amount by which the carrying amounts of the assets exceed their respective fair values. There were no impairment charges of long-lived assets in fiscal 2000 or 1999 for inSilicon.
Phoenix also conducted an assessment of the carrying value of its long-lived assets based on the same factors noted above and determined that no impairment charges were required in fiscal 2001, 2000, or 1999.
Note 10. Income Taxes
The components of income tax expense (credit) from continuing operations are as follows:
Years ended September 30,
-------------------------
2001 2000 1999
------- ------- -------
(in thousands)
Current:
Federal.................................................. $ (800) $ 882 $ 470
State.................................................... 34 802 1,356
Foreign.................................................. 6,637 8,809 7,594
------- ------- -------
Total current......................................... 5,871 10,493 9,420
Deferred:
Federal.................................................. (5,100) (1,224) (7,161)
State.................................................... (1,428) 570 (1,409)
Foreign.................................................. (176) -- --
------- ------- -------
Total deferred........................................ (6,704) (654) (8,570)
------- ------- -------
Income tax expense (credit)................................ $ (833) $ 9,839 $ 850
======= ======= =======
|
The reconciliation of the United States Federal statutory rate to the Company's income tax expense (credit) recorded is as follows:
Years ended September 30,
--------------------------
2001 2000 1999
------- ------- --------
(in thousands)
Tax at U.S. federal statutory rate......................... $(8,654) $10,759 $ 928
State taxes, net of federal tax benefit.................... (1,754) 1,000 (34)
Research and development tax credits....................... (990) (892) (471)
Nondeductible merger and acquisition costs................. 813 562 562
Effect of foreign earnings taxed at less than U.S. rate.... -- (295) (251)
Effect of extraterritorial income exclusion/foreign sales
corporation.............................................. (399) (1,438) --
Foreign taxes.............................................. 3,618 -- --
Valuation allowance........................................ 6,094 -- --
Other...................................................... 439 143 116
------- ------- --------
Income tax expense (credit)................................ $ (833) $ 9,839 $ 850
======= ======= ========
|
The components of net deferred tax assets and liabilities are as follow:
September 30,
---------------
2001 2000
------- -------
(in thousands)
Deferred tax assets:
Foreign tax credits............................ $ 5,704 $ 6,459
Research and development tax credits........... 4,813 2,809
Minimum tax carryforward....................... 1,216 1,104
Reserves and accruals.......................... 6,493 5,066
Depreciation................................... 1,122 751
Intangible assets.............................. 3,993 --
Net operating loss carryforwards............... 1,952 --
Other.......................................... 68 --
------- -------
Total........................................ 25,361 16,189
Less valuation allowance....................... 8,908 2,814
------- -------
Net deferred tax assets...................... 16,453 13,375
Deferred tax liabilities:
Capitalized software and other intangibles, net 2,374 2,613
Other.......................................... 150 414
Total deferred tax liabilities............... 2,524 3,027
------- -------
Net deferred tax assets......................... $13,929 $10,348
======= =======
|
Due to the uncertainty surrounding the timing of the realization of the benefit of certain tax attributes in future tax returns, the Company has recorded a valuation allowance against otherwise recognizable net deferred tax assets. Realization of the Company's net deferred tax assets is dependent upon its generating sufficient taxable income in future years in appropriate tax jurisdictions to obtain benefit from the reversal of temporary differences and from tax credit carryforwards. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are reduced. The increase in valuation allowance by approximately $6.1 million in fiscal 2001 reflects the uncertainty regarding the realizability of inSilicon's deferred tax assets.
Net undistributed earnings of certain foreign subsidiaries amounted to approximately $15.0 million as of September 30, 2001. These earnings are considered to be indefinitely reinvested, and accordingly, no provision for U.S. Federal and state income taxes has been provided thereon. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes (subject to an adjustment for foreign tax credits) of approximately $1.5 million.
As of September 30, 2001, the Company had available for U.S. Federal income tax purposes foreign tax credits of $2.4 million, which expire in the years 2003 through 2005, if not utilized. The Company's federal and state research and development tax credit carryforwards for income tax purposes are approximately $3.9 million and $0.9 million, respectively. If not utilized, the federal tax credit carryforwards will begin to expire in fiscal 2003.
Note 11. Segment Reporting
Segment information is presented in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). This standard requires segmentation based upon the Company's internal reporting to the Chief Executive Officer and disclosure of revenues and operating income based upon internal accounting methods. The Company had four reportable segments: Platform Enabling, inSilicon, Information Appliance, and PhoenixNet(TM).
Platform Enabling: Provides system-enabling software that is used in the design, deployment and ongoing operation of industry standard desktop, notebook and server PCs. The Platform Enabling's flagship software 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 wired and wireless products. inSilicon provides cores, related silicon subsystems and firmware to customers that use its technologies in hundreds of different digital devices ranging from network routers to handheld computers.
Information Appliance: Provides technology to electronics OEMs to develop information appliance designs. Information Appliance software delivers an easy-to-implement, low cost/high value architecture that enables "instant-on" Internet access and browsing capability for devices such as Internet TV, interactive screen phones, and handheld appliances. This division was launched in March 2001.
PhoenixNet(TM): Provides technology infrastructure that enables security products and services designed to deliver a higher level of trust to both devices and device-aware e-business applications through device authentication. Applications using this infrastructure for virtual private networks (VPNs) and the Internet are supported by a global network of Regional Device Authorities.
The Company evaluates operating segment performance based on revenues, gross margin, and income or loss from operations. It has not historically allocated assets to its individual operating segments.
Years ended September 30,
----------------------------
2001 2000 1999
-------- -------- --------
(in thousands)
Revenues:
Platform Enabling.............................. $ 96,668 $118,604 $106,872
inSilicon...................................... 19,079 24,676 18,954
Information Appliance.......................... 3,531 -- --
PhoenixNet/TM/................................. 2,159 1,105 --
-------- -------- --------
Total..................................... $121,437 $144,385 $125,826
======== ======== ========
Gross margin:
Platform Enabling.............................. $ 79,974 $100,269 $ 80,896
inSilicon...................................... 16,052 21,558 10,048
Information Appliance.......................... 2,206 -- --
PhoenixNet/TM/................................. 2,140 1,095 --
-------- -------- --------
Total..................................... $100,372 $122,922 $ 90,944
======== ======== ========
Income (loss) from operations:
Platform Enabling.............................. $ 16,241 $ 37,485 $ 13,146
inSilicon...................................... (21,573) (1,903) (12,082)
Information Appliance.......................... (4,451) -- --
PhoenixNet/TM/................................. (14,985) (8,757) (5,725)
-------- -------- --------
Total..................................... $(24,768) $ 26,825 $ (4,661)
======== ======== ========
|
During fiscal 2001, inSilicon recorded a $9.4 million impairment charge related to goodwill arising from the acquisition of Xentec, which was reflected in the $21.6 million inSilicon operating loss.
The Company also records geographic information based on country of sale, which is categorized into five major regions: North America, Japan, Taiwan, Other Asian Countries, and Europe:
Years ended September 30,
--------------------------
2001 2000 1999
-------- -------- --------
(in thousands)
Revenues:
North America..................................... $ 34,613 $ 41,121 $ 40,907
Japan............................................. 46,878 48,994 36,596
Taiwan............................................ 21,705 41,409 33,828
Other Asian Countries............................. 9,870 3,405 2,999
Europe............................................ 8,371 9,456 11,496
-------- -------- --------
Total........................................ $121,437 $144,385 $125,826
======== ======== ========
|
Net income (loss) from foreign operations was approximately ($1.4 million), $1.8 million, and ($2.5 million) for fiscal 2001, 2000, and 1999, respectively.
One customer accounted for 12% of total revenues in fiscal 2001. Another customer accounted for 19% and 11% of revenues in fiscal 2000 and 1999, respectively. No other customer accounted for more than 10% of revenues in fiscal 2001, 2000, or 1999.
Note 12. Commitments
The Company has commitments related to office facilities under operating leases. Total rent expense was $5.4 million, $4.7 million, and $4.5 million in fiscal 2001, 2000, and 1999, respectively.
On September 30, 2001, future minimum operating lease payments are required as follows (in thousands):
Years ending September 30,
--------------------------
2002................................... $ 5,120
2003................................... 2,895
2004................................... 1,182
2005................................... 886
2006................................... 877
2007 and thereafter.................... 844
-------
Total minimum lease payments........... $11,804
=======
|
Note 13. Stockholders' Equity
Sales of Common Stock and Issuance of Warrants. In February 2001, the Company repurchased from Intel Corporation the outstanding warrant to purchase approximately 1,074,000 shares of Phoenix Technologies common stock for approximately $2.9 million in cash. The repurchase was to eliminate potential dilution to the Company's existing shareholders. Under the original agreement entered in February 1996, the Company sold approximately 895,000 newly issued, unregistered shares of its common stock and a warrant to purchase approximately 1,074,000 additional shares of its common stock to Intel Corporation for $10.4 million. The purchase rights under the warrant vested over a four-year period, beginning in December 1996. The warrant was to expire in April 2001.
Stock Repurchase Program. In February 2001, the Board of Directors authorized a program to repurchase up to $30 million of outstanding shares of common stock over a 12-month period. In fiscal 2001, the Company repurchased approximately 469,000 shares of its common stock at a cost of $5.1 million under the fiscal 2001 program. In fiscal 2001, the Company repurchased approximately 1,498,000 shares of its common stock at a cost of $21.0 million under the fiscal 2001 and 2000 repurchase programs.
In fiscal 2000, the Board of Directors authorized a program to repurchase $30 million of outstanding shares of common stock over a 24-month period. In fiscal 2000, the Company repurchased approximately 836,000 shares at a cost of $14.5 million under the fiscal 2000 program. Also, during the first quarter of fiscal 2001, the Company repurchased approximately 1,028,000 shares of common stock at a cost of $15.9 million under the fiscal 2000 repurchase program. As of December 31, 2000, the fiscal 2000 repurchase program was completed and terminated. In fiscal 2000, the company repurchased approximately 1,011,000 shares at a cost of $16.6 million under the fiscal 2000 and 1999 repurchase programs.
In fiscal 1999, the Board of Directors authorized two programs to repurchase outstanding shares of common stock. Under these programs, the Company repurchased approximately 3,300,000 shares during fiscal 1999 at a total aggregate cost of $34.1 million.
Employee Stock Purchase Plan. The Phoenix Technologies Ltd. 1991 Employee Stock Purchase Plan ("1991 ESPP") allows eligible employees to purchase shares at six month intervals, through payroll deductions,
at 85% of the fair market value of the Company's common stock at the beginning or end of the six-month period, whichever is lower. The maximum amount each employee may contribute during an offering period is 10% of gross base pay. As of September 30, 2001, approximately 1,065,000 shares had been issued under the Purchase Plan and approximately 169,000 shares remained reserved for future issuance.
Stock Option Plans. The Company has various incentive stock option plans for employees, officers, directors, consultants, and independent contractors. Incentive stock options may not be granted at a price less than 100% (110% in certain cases) of the fair market value of the shares on the date of grant. Nonqualified options may not be granted at a price less than 85% of the fair value of the shares on the date of grant unless it is performance based. To date, all grants of incentive stock options, except for performance-based options, have been made at fair market value or greater. Options vest evenly over a period determined by the Company's Board of Directors, generally four years, and have a term not exceeding ten years.
The following table sets forth the option activity under the Company's option plans all periods presented (in thousands, except per-share amounts):
Options Outstanding
------------------------
Weighted Average
Shares Exercise Price
------ ----------------
Balance as of September 30, 1998....... 6,626 $ 8.52
Options granted...................... 3,279 9.07
Options exercised.................... (674) 4.80
Options canceled..................... (1,476) 9.46
------
Balance as of September 30, 1999....... 7,755 8.90
Options granted...................... 2,259 16.15
Options exercised.................... (2,254) 7.10
Options canceled..................... (1,861) 10.41
------
Balance as of September 30, 2000....... 5,899 11.92
Options granted...................... 2,915 13.31
Options exercised.................... (911) 7.80
Options canceled..................... (1,180) 14.72
------
Balance as of September 30, 2001....... 6,723 $12.66
======
|
On September 30, 2001, the number of shares exercisable under the stock option plans was approximately 2,818,000.
The following table summarizes information about stock options outstanding as of September 30, 2001 (in thousands, except per-share amounts):
Options Outstanding Options Exercisable
------------------------------------------- ---------------------
Range Number Weighted Average Weighted Number Weighted
of of Remaining Contractual Average of Average
Exercise Prices Shares Life (years) Exercise Price Shares Exercise Price
--------------- ------ --------------------- -------------- ------ --------------
$ 0.01 - $ 7.55... 639 5.76 $ 4.68 571 $ 4.49
$ 7.69 - $ 9.70... 1,084 7.75 9.02 459 8.53
$10.03 - $11.13... 956 7.88 10.93 478 10.95
$11.19 - $13.75... 1,390 8.27 12.80 468 12.40
$13.81 - $16.75... 1,429 8.59 14.80 462 15.32
$16.88 - $28.56... 1,225 8.59 18.76 380 18.98
----- ---- ------ ----- ------
$ 0.01 - $28.56... 6,723 8.02 $12.66 2,818 $11.29
===== ==== ====== ===== ======
|
Amortization of deferred stock-based compensation. The Company amortizes deferred stock-based compensation for options that were granted below market value at the date of grant over the respective vesting period of the options granted. For fiscal 2001, amortization of deferred stock-based compensation was $37,000 and the unamortized deferred stock-based compensation as of September 30, 2001 was $701,000. There were no unamortized deferred stock-based compensation for fiscal 2000 and 1999.
Disclosures of Stock-Based Compensation Plans. The Company accounts for its stock-based compensation plans in accordance with the provisions of APB 25. If compensation cost for the Company's stock-based compensation plan had been determined based on the fair value method at the grant date, as prescribed in SFAS 123, the Company's net income (loss) and net income (loss) per share would have been as follows:
Years ended September 30,
------------------------
2001 2000 1999
-------- ------- ------
(in thousands, except per
share amounts)
Net income (loss):
As reported...................................... $(18,002) $20,902 $1,804
Pro forma........................................ $(24,810) 19,290 (370)
Basic earnings (loss) per share:
As reported...................................... $ (0.72) $ 0.85 $ 0.07
Pro forma........................................ (0.99) 0.78 (0.01)
Diluted earnings (loss) per share:
As reported...................................... $ (0.72) $ 0.77 $ 0.07
Pro forma........................................ (0.99) 0.71 (0.01)
|
The fair value of options granted in fiscal 2001, 2000, and 1999 reported below has been estimated as of the date of the grant using a Black-Scholes multiple option pricing model with the following assumptions for the years ended September 30, 2001, 2000, and 1999:
Employee Employee Stock
Stock Options Purchase Plan
---------------- ----------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
Expected life from vest date (in years)... 0.70 0.70 0.70 0.50 0.50 0.50
Risk-free interest rate................... 5-6% 6-7% 5-6% 5-6% 6-7% 5-6%
Volatility................................ 0.76 0.88 0.56 0.76 0.88 0.56
Dividend yield............................ None None None None None None
|
The weighted average estimated fair value of employee stock options granted during fiscal 2001, 2000, and 1999 was $7.27, $9.60, and $3.48 per share, respectively. The weighted average estimated fair value of shares granted under the 1991 ESPP during fiscal 2001, 2000, and 1999 was $6.28, $5.07, and $2.58, respectively.
Note 14. Retirement Plans
The Company has a retirement plan ("401(k) Plan") which qualifies under
Section 401(k) of the Internal Revenue Code. This plan covers U.S. employees
who meet minimum age and service requirements and allows participants to defer
a portion of their annual compensation on a pre-tax basis. In addition, the
Company's contributions to the 401(k) Plan may be made at the discretion of the
Board of Directors. In January 1996, the Company began making a matching
contribution of 25% of each participant's contribution, up to a match of $1,000
per year per participant. The matching contributions vest over a four-year
period, which starts with the participant's employment start date with the
Company. Effective January 1, 2000, the Company matches employee contributions
to the 401(k) plan at 100% up to the first 3% of salary contributed to the plan
and 50% on the next 3% of salary, up to a maximum company match of $3,000 per
participant per year. The Company's contributions to the 401(k) Plan for fiscal
2001, 2000, and 1999 were $0.9 million, $0.8 million, and $0.4 million,
respectively.
Note 15. Subsequent Events (unaudited)
In October 2001, due to continuing global economic downturn and industry trends, Phoenix announced a restructuring program that would reduce its global workforce by approximately 15%. This restructuring program will align the Company's expense structure with current market conditions.
In December 2001, inSilicon announced a restructuring program to realign ongoing expense structure. This restructuring program includes a global workforce reduction of approximately 20% and will also result in a substantial non-cash write-down of previously capitalized software. The restructuring is expected to be completed by the first quarter of fiscal 2002.
In November 2001, the Board of Directors adopted the 2001 Employee Stock Purchase Plan ("2001 ESPP) and reserved 200,000 shares of common stock for issuance, subject to stockholder approval. The 1991 ESPP will terminate in February 2002 and be replaced by the 2001 ESPP.
Balance at
Beginning of Balance at End
Year Ended Year Provisions Deductions(1) Other of Year
---------- ------------ ---------- ------------- ----- --------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
September 30, 2001............. $ 790 $1,491 $(1,069) $(60) $1,152
September 30, 2000............. $1,460 $ 272 $ (877) $(65) $ 790
September 30, 1999............. $1,113 $ 709 $ (362) $ -- $1,460
ALLOWANCE FOR SALES RETURNS
September 30, 2001............. $1,492 $1,443 $(1,713) $ -- $1,222
September 30, 2000............. $1,363 $1,317 $(1,188) $ -- $1,492
September 30, 1999............. $1,410 $ 670 $ (717) $ -- $1,363
ALLOWANCE FOR DEFERRED TAX VALUATION
September 30, 2001.............
$2,814 $6,094 $ -- $ -- $8,908
September 30, 2000.............
$2,814 $ -- $ -- $ -- $2,814
September 30, 1999.............
$2,814 $ -- $ -- $ -- $2,814
|
TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS ...............................................2
SECTION 1.1. CERTAIN DEFINED TERMS .......................................2
---------------------
ARTICLE II ACQUISITION OF ASSETS .............................................4
SECTION 2.1. ASSETS TO BE ACQUIRED .......................................4
---------------------
SECTION 2.2. LIABILITIES ASSUMED AND EXCLUDED ............................5
--------------------------------
SECTION 2.3. PURCHASE PRICE; ALLOCATION ..................................5
--------------------------
SECTION 2.4. CLOSING .....................................................6
-------
SECTION 2.5. CLOSING DELIVERIES BY SELLER ................................6
----------------------------
SECTION 2.6. CLOSING DELIVERIES BY PURCHASER .............................6
-------------------------------
SECTION 2.7. DELIVERY OF THE PURCHASED ASSETS ............................7
--------------------------------
SECTION 2.8. UNASSIGNABLE ASSETS .........................................7
-------------------
SECTION 2.9. POST CLOSING ACTION .........................................7
-------------------
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER ..........................7
SECTION 3.1. ORGANIZATION AND GOOD STANDING OF SELLER ....................7
----------------------------------------
SECTION 3.2. AUTHORIZATION AND VALIDITY ..................................8
--------------------------
SECTION 3.3. NO CONFLICT .................................................8
-----------
SECTION 3.4. CONSENTS ....................................................8
--------
SECTION 3.5. TITLE TO PURCHASED ASSETS ...................................8
-------------------------
SECTION 3.6. SELLER CONTRACTS ............................................9
----------------
SECTION 3.7. LITIGATION ..................................................9
----------
SECTION 3.8. INTELLECTUAL PROPERTY RIGHTS ................................9
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SECTION 3.9. COMPLIANCE WITH LAWS ........................................9
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SECTION 3.10. TAX MATTERS ................................................10
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SECTION 3.11. EMPLOYEES ..................................................10
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SECTION 3.12. PENSION AND EMPLOYEE BENEFIT MATTERS .......................11
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SECTION 3.13. YEAR 2000 MATTERS ..........................................11
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SECTION 3.14. BROKERS ....................................................11
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SECTION 3.15. INSURANCE ..................................................11
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SECTION 3.16. EMPLOYEE CONFIDENTIALITY AGREEMENTS ........................12
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SECTION 3.17. DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES .........12
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TABLE OF CONTENTS
(continued)
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER ......................12
SECTION 4.1. ORGANIZATION AND GOOD STANDING OF PURCHASER ................12
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SECTION 4.2. AUTHORIZATION AND VALIDITY .................................12
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SECTION 4.3. NO CONFLICT ................................................13
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SECTION 4.4. CONSENTS ...................................................13
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SECTION 4.5. LITIGATION .................................................13
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SECTION 4.6. BROKERS ....................................................13
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SECTION 4.7. DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES .........13
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SECTION 4.8. INVESTIGATION BY PURCHASER .................................13
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ARTICLE V COVENANTS ..................................................14
SECTION 5.1. CONDUCT OF BUSINESS PRIOR TO THE CLOSING ...................14
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SECTION 5.2. CONSENT OF THIRD PARTIES ...................................14
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SECTION 5.3. ACCESS TO INFORMATION ......................................14
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SECTION 5.4. FURTHER ACTIONS ............................................14
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SECTION 5.5. CONFIDENTIALITY ............................................14
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SECTION 5.6. PUBLIC ANNOUNCEMENTS .......................................15
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SECTION 5.7. BOOKS AND RECORDS ..........................................15
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SECTION 5.8. REGULATORY AND OTHER AUTHORIZATIONS; CONSENTS ..............15
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SECTION 5.9. MAINTENANCE OF INSURANCE ...................................15
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SECTION 5.10. BULK SALES .................................................16
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SECTION 5.11. SUPPORT ....................................................16
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SECTION 5.12. SURVIVAL ...................................................16
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ARTICLE VI EMPLOYEE MATTERS ...........................................16
SECTION 6.1. OFFERS TO EMPLOYEES ........................................16
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SECTION 6.2. EMPLOYEE OBLIGATIONS OF SELLER .............................16
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SECTION 6.3. SURVIVAL ...................................................17
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ARTICLE VII TAX MATTERS ................................................17
SECTION 7.1. TRANSACTION TAXES ..........................................17
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SECTION 7.2. OTHER TAXES ................................................17
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SECTION 7.3. TAX LIABILITY ..............................................18
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TABLE OF CONTENTS
(continued)
Page
ARTICLE VIII CONDITIONS TO THE CLOSING ..................................18
SECTION 8.1. CONDITIONS TO OBLIGATIONS OF SELLER .......................18
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SECTION 8.2. CONDITIONS TO OBLIGATIONS OF PURCHASER ....................19
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ARTICLE IX TERMINATION, AMENDMENT AND WAIVER .................................20
SECTION 9.1. TERMINATION ...............................................20
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SECTION 9.2. EFFECT OF TERMINATION .....................................20
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SECTION 9.3. WAIVER ....................................................20
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ARTICLE X INDEMNIFICATION ....................................................20
SECTION 10.1. LOSS DEFINED; INDEMNITEES .................................20
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SECTION 10.2. INDEMNIFICATION BY SELLER .................................21
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SECTION 10.3. INDEMNIFICATION BY PURCHASER ..............................21
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SECTION 10.4. THIRD PARTY CLAIMS ........................................22
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SECTION 10.5. LIMITATIONS ON INDEMNIFICATION ............................22
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SECTION 10.6. ESCROW FUND ...............................................23
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SECTION 10.7. ESCROW PERIOD .............................................23
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SECTION 10.8. CLAIMS UPON ESCROW FUND ...................................23
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SECTION 10.9. RESOLUTION OF CONFLICTS; ARBITRATION ......................23
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ARTICLE XI GENERAL PROVISIONS ...............................................24
SECTION 11.1. EXPENSES ..................................................24
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SECTION 11.2. NOTICES ...................................................24
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SECTION 11.3. HEADINGS; DISCLOSURE ......................................25
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SECTION 11.4. SEVERABILITY ..............................................25
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SECTION 11.5. SURVIVAL ..................................................26
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SECTION 11.6. ENTIRE AGREEMENT ..........................................26
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SECTION 11.7. ASSIGNMENT ................................................26
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SECTION 11.8. NO THIRD-PARTY BENEFICIARIES ..............................26
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SECTION 11.9. AMENDMENT; WAIVER .........................................26
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SECTION 11.10. GOVERNING LAW; JURISDICTION AND VENUE .....................26
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SECTION 11.11. COUNTERPARTS ..............................................26
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SECTION 11.12. NO JOINT VENTURE ..........................................26
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Exhibits
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A Assignment and Assumption Agreement and Bill of Sale
B Escrow Agreement
C CEO Non-Competition Agreement
D Intellectual Property Assignment
E Form of Opinion from Counsel to Ravisent
F Legal Opinion of Seller's Special Delaware Counsel
G Secretary's Certificate of Seller
Schedules
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1 Intangible Assets
2 Tangible Assets
3 Seller Disclosure Letter
4 Excluded Assets
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WHEREAS, Seller desires to sell and assign to Purchaser, and Purchaser desires to purchase and acquire from Seller, certain assets related to its Internet Appliance Business (as defined below), all upon the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, in connection with the sale of assets described above, Seller will permit Purchaser to make offers of employment and hire employees of Seller who have worked in the Internet Applicance Business;
NOW, THEREFORE, in consideration of the facts stated in the above recitals and of the mutual agreements and covenants hereinafter set forth, and for good and valuable consideration, the receipt, sufficiency and adequacy of which is hereby acknowledged, the parties agree as follows:
SECTION 1.1. Certain Defined Terms As used in this Agreement, the following terms shall have the following meanings:
"Affiliate" shall have those meanings ascribed to such terms by Rule 405 promulgated under the U.S. Securities Act of 1933, as amended.
"Ancillary Agreements" means, collectively, the Assignment, Bill of Sale and Assumption Agreement and the Escrow Agreement.
"Assignment, Bill of Sale and Assumption Agreement" means the Assignment
and Assumption Agreement and Bill of Sale substantially in the form of Exhibit
A.
"Encumbrance" means any pledge, lien, collateral assignment, security interest, mortgage, deed of trust, title retention, conditional sale or other security arrangement, or adverse claim of title or ownership, other than those, which do not materially detract from or interfere with the ownership of the properties subject thereto.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as amended, and the rulings and regulations promulgated thereunder.
"Excluded Assets" means all assets of Seller other than the Purchased Assets, including, without limitation, (i) all Seller's cash, bank accounts and securities; (ii) all insurance policies of Seller and all rights of Seller of every nature and description under or arising out of such insurance policies (except those insurance policies set forth in Section 3.6 of the Seller Disclosure Letter); (iii) all assets of, or held by or with respect to, any employee benefit plan (whether or not governed by ERISA) or any trust, fund or account that is related to any such employee benefit plan or that is similar in purpose or function thereto; (iv) except as otherwise provided herein, Seller's right, title and interest in the name "Ravisent" or any variation or combination thereof, or Seller's other trademarks trade dress, monograms or logos and the goodwill associated therewith (iv) all monies owed to Seller, accrued or unaccrued, under the Seller Contracts as of the Closing Date, and (v) the assets listed on Schedule 4 hereto.
"Employees" means those employees and consultants listed on Section 3.11(a)
of the Seller Disclosure Letter hereto.
"Intangible Assets" means, collectively, the Intellectual Property Rights and intangible assets, properties and rights of Seller listed on Schedule I hereto.
"Intellectual Property Rights" means any and all existing or future patent rights (including patent applications and disclosures), rights of priority, industrial design rights, copyrights, moral rights, rights of Seller in trade secrets, know-how and any other intellectual property rights recognized in any country or jurisdiction of the world, including licensed rights derived from agreements with third parties.
"Internal Revenue Code" means the U.S. Internal Revenue Code of 1986, as amended, and the Treasury regulations (final and temporary) promulgated thereunder and the administrative pronouncements issued by the Internal Revenue Service relating thereto.
"Internet Appliance Business" means the business of designing, developing, manufacturing, testing, marketing, licensing, distributing, using, modifying, operating, installing, servicing, supporting, maintaining, or otherwise using or commercially exploiting one or more of the Internet Appliance Products.
"Internet Appliance Market" means the market for wired and wireless
electronic products that are (i) capable of browsing the Internet and (ii) may
be capable of decompressing streaming video standards (e.g. Real Networks, Apple
Quicktime, Windows Media Formats, MPEG-1, MPEG-4, etc.) only on the Internet and
(iii) otherwise incapable of decompressing MPEG digital signals.
"Internet Appliance Products" means the services, hardware products, software products, development tools and any other products directed towards or suitable to be offered in the Internet Appliance Market.
"Person" means any individual, partnership, limited liability company, firm, corporation, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
"Seller Contracts" means those leases, licenses, agreements, contracts,
understandings, arrangements, commitments and purchase orders listed on Section
3.6 of the Seller Disclosure Letter hereto. -------
"Seller's or Purchaser's knowledge" or "Knowledge of Purchaser or Seller":
A particular fact or other matter shall be deemed to be within "Seller's
knowledge" or "Purchaser's knowledge," or similar phrases, as the case may be,
if any officer, or technical division head or manager of Seller or Purchaser (as
applicable) is aware of such fact or other matter.
"Tangible Assets" means, the tangible personal property assets of Seller
listed on Schedule 2 hereto.
"Tax" or "Taxes" means all taxes or similar governmental charge or levy of any kind whatsoever (whether payable directly or by withholding), including without limitation, income taxes, gross receipts taxes, franchise taxes, transfer taxes or fees, stamp taxes, sales taxes, use taxes, excise taxes, ad valorem taxes, value added taxes, documentary taxes, intangible personal property taxes, withholding taxes, real or personal property taxes, employee withholding taxes, worker's compensation, payroll taxes, unemployment insurance, social security, minimum taxes or windfall profits taxes, together with any related liabilities, penalties, fines, additions to tax or interest imposed by any governmental agency, and whether disputed or not.
SECTION 2.1. Assets to Be Acquired.
(a) Purchased Assets. Subject to the terms and conditions of this
Agreement, at the Closing, Seller shall sell, assign, transfer, convey and
deliver (or cause to be sold, assigned, transferred, conveyed and delivered) to
Purchaser and Purchaser shall purchase and accept from Seller, free and clear of
all Encumbrances, all right, title and interest in and to all of the following
(collectively, the "Purchased Assets"):
(i) the Intangible Assets (including all Intellectual Property Rights therein and thereto);
(ii) the Tangible Assets;
(iii) the right to enforce confidentiality, non-disclosure, employee invention assignment and other proprietary rights agreements between Seller and Seller Employees related to
(iv) the right to enforce confidentiality, non-disclosure or similar agreements not assigned to Purchaser pursuant to the terms of this Agreement, between Seller and third parties, related to the Internet Appliance Business; provided that Seller may redact portions of such documents which do not relate to the Internet Appliance Business;
(v) all of Seller's rights under the Seller Contracts, to the extent that such rights arise on or subsequent to the Closing Date
(vi) all copies of Seller's marketing and sales information, pricing, marketing plans, business plans, financial and business projections and other files and records which pertain exclusively to the Internet Appliance Business;
(vii) all rights, claims or causes of action against any third party relating to the Internet Appliance Business or the Purchased Assets, except for claims with regard to Excluded Assets; and
(viii) the goodwill associated with the foregoing.
(b) Excluded Assets. Notwithstanding any provision to the contrary set forth herein, the parties agree that Seller is not selling or assigning to Purchaser, and the Purchased Assets do not include, any of the Excluded Assets.
SECTION 2.2. Liabilities Assumed and Excluded.
(a) At the Closing, Purchaser shall assume and be responsible for the payment, performance, and discharge of the Assumed Liabilities.
(b) Except for the Assumed Liabilities, Purchaser shall not assume or otherwise become obligated to pay, perform or discharge any liabilities, debts or obligations of Seller and Seller shall retain, and shall be solely responsible and liable for paying, performing and discharging when due, all of Seller's liabilities other than the Assumed Liabilities.
SECTION 2.3. Purchase Price: Allocation.
(a) Purchase Price. Subject to the performance by Seller of all of its obligations under this Agreement (including delivering all documents required to be delivered) at the Closing, in consideration of the acquisition of the Purchased Assets under Section 2.1, Purchaser agrees (i) to delivcr to Seller the sum of Sixteen Million Two Hundred Thousand Dollars ($16,200,000) in immediately available funds and (ii) to deliver to a mutually acceptable escrow agent (the "Escrow Agent") the sum of One Million Eight Hundred Thousand Dollars ($1,800,000) (the "Escrow Cash") in immediately available funds to be held by such Escrow Agent for a period of twelve (12) months ("Escrow Period") in accordance with the terms and conditions of an Escrow Agreement to be executed at Closing (together, the "Purchase Price").
(b) Allocation. As soon as practicable following the Effective Date, Purchaser and Seller shall use best efforts to agree upon an allocation of the Purchase Price among the Purchased Assets,
(i) Consistent Treatment and Characterization of Amounts. For all Tax purposes, Purchaser and Seller agree to report the transactions contemplated in this Agreement in a manner consistent with the Purchase Price Allocation Agreement, and will not take any position inconsistent therewith in any Tax return, in any refund claim, in any litigation or otherwise, unless required to do so by a governmental authority. Seller and Purchaser shall each be responsible for the preparation of their own Section 1060 statements and forms in accordance with applicable Tax laws, and each shall execute and deliver to each other such statements and forms as are reasonably requested by the other party to accomplish the foregoing.
SECTION 2.4. Closing. Subject to the terms and conditions of this Agreement, the sale, purchase and transfer of the Purchased Assets and the assumption of the Assumed Liabilities shall take place at a closing (the "Closing"). The Closing shall occur as soon as reasonably practicable upon fulfillment or waiver of the closing conditions set forth in Article VIII (the "Closing Date") at the offices of Phoenix Technologies Ltd., 411 East Plumeria Drive, San Jose, California at 10:00 a.m. local time.
SECTION 2.5.Closing Deliveries by Seller. At the Closing, Seller shall deliver or cause to be delivered to Purchaser:
(a) duly executed counterparts of each Ancillary Agreement to which Seller is a party;
(b) Seller shall deliver to Purchaser any assignments, and any required consents to assignment, that it has obtained in respect of the Seller Contracts, duly executed by parties having the authority to so assign or consent to assign.
(c) assignments substantially in the forms of Exhibit D (the "Intellectual Property Assignment"), by which Seller shall assign to Purchaser the Intellectual Property Rights included in the Purchased Assets, duly executed on Seller's behalf by an officer of Seller with his or her execution notarized; and
(d) all other items required to be delivered by Seller at the Closing pursuant to Section 8.2 of this Agreement, any other provision hereof or any Ancillary Agreement.
SECTION 2.6. Closing Deliveries by Purchaser. At the Closing, Purchaser shall deliver or cause to be delivered to Seller:
(a) payment of the Purchase Price by wire transfer of immediately available funds to Seller and Escrow Agent in accordance with Section 2.3(a) hereof;
(b) executed counterparts of the Escrow Agreement and each Ancillary Agreement to which Purchaser is a party; and
SECTION 2.7. Delivery of the Purchased Assets. Seller shall make available the Purchased Assets to Purchaser on the Closing Date at 1731 Technology Drive, San Jose, CA 95113.
SECTION 2.8. Unassignable Assets. Notwithstancbng any other provision of this Agreement or any of the Ancillary Agreements, to the extent that any of the Seller Contracts or any other assets constituting part of the Purchased Assets are not assignable or otherwise transferable to Purchaser without the consent, approval or waiver of another party thereto or any third party (including any governmental agency), or if such assignment or transfer would constitute a breach thereof or a violation of any applicable law or agreement with any third party, then neither this Agreement nor such Ancillary Agreements shall constitute an assignment or transfer (or an attempted assignment or transfer) thereof until such consent, approval or waiver of such party or parties has been duly obtained. With respect to each Seller Contract whose assignment or transfer to Purchaser requires the consent, approval or waiver of another party thereto or any third party, Seller shall use its best reasonable efforts to obtain such consent, approval or waiver of such other party or parties or such third party to such assignment or transfer as promptly as practicable. Purchaser agrees to cooperate with Seller and supply relevant information to such party or parties or such third party in order to assist Seller in its obligations under this Section.
SECTION 2.9.Post Closing Action. Subsequent to the Closing Date, Seller
shall, and shall cause any subsidiary of Seller to, from time to time execute
and deliver, upon the request of Purchaser, all such other and further materials
and documents and instruments of conveyance, transfer or assignment as may
reasonably be requested by Purchaser to effect, record or verify the transfer to
and vesting in Purchaser of full right, title and interest in and to the
Purchased Assets, free and clear of all Encumbrances, (except as specified in
Section 3.5(a) of the Seller Disclosure Letter) in accordance with the terms of
this Agreement.
Seller hereby represents and warrants to Purchaser that, except as expressly set forth in the Seller's Disclosure Letter, all of the following statements, representations and warranties are true and correct as of the Effective Date:
SECTION 3.1. Organization and Good Standing of Seller. Seller is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes qualification necessary, except for such failures to be so qualified and in good standing would not, individually or in the aggregate, prevent or materially delay the consummation of the transactions contemplated in this Agreement or the Ancillary Agreements, or otherwise prevent or materially delay Seller from performing its obligations under this Agreement or the Ancillary Agreements. Seller has all requisite corporate power and authority to carry on the Internet Appliance Business as now conducted and to enter into this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby.
SECTION 3.3. No Conflict. The execution, delivery and performance of this Agreement and the Ancillary Agreements by Seller and the consummation of the transactions contemplated hereby and thereby, subject to compliance with the consents required in Section 3.4 of the Seller Disclosure Letter, do not and will not (a) result in a violation or default in any material respect of any provision of Seller's charter documents or any judgment, order, writ or decree applicable to Seller, (b) constitute a default (or event which with the giving of notice or lapse of time, or both, would become a breach, violation or default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any of the Seller Contracts or (c) result in the creation of any Encumbrance on any of the Purchased Assets.
SECTION 3.4. Consents. No consent, approval, order or authorization of or registration, qualification, designation, declaration or filing with, any governmental entity on the part of Seller is required in connection with the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements, except for where the failure to obtain such consents, approvals, orders or authorizations or to make such registrations, qualifications, designations, declarations or filings would not prevent or materially delay consummation of the transactions contemplated by this Agreement and the Ancillary Agreements. Section 3.4 of the Seller Disclosure Letter sets forth a true and complete list of each and every instrument pursuant to which the consent or approval of any third party or governmental authority is required in order for Seller to assign or transfer to Purchaser any of the Purchased Assets or any rights or obligations under Seller Contracts.
SECTION 3.5. Title to Purchased Assets.
(a) Purchased Assets. Seller and its wholly owned subsidiaries own all of the Purchased Assets and has good and marketable title in and to all of the Purchased Assets, free and clear of all Encumbrances whatsoever. Title to all of the Purchased Assets is freely transferable from Seller and its Affiliates to Purchaser free and clear of all Encumbrances.
(b) Sufficiency of Assets. The Purchased Assets include all the assets and rights that are necessary and sufficient to conduct the Internet Appliance Business as conducted by the Seller as of the Effective Date.
SECTION 3.7. Litigation. There is no claim, action, suit, arbitration, mediation, investigation or other proceeding of any nature pending or, of Seller's knowledge, threatened, at law or in equity, by way of arbitration or before any court, governmental department, commission, board or agency that could adversely affect the Purchased Assets, or contests or challenges Seller's authority, right or ability to sell or convey, as the case may be, any of the Purchased Assets to Purchaser hereunder or otherwise perform Seller's obligations under this Agreement or any of the Ancillary Agreements. There are no judgments, decrees, injunctions or orders of any court, governmental department, commission, agency, instrumentality or arbitrator pending or binding against Seller, which adversely affect any of the Purchased Assets.
SECTION 3.8. Intellectual Property Rights.
(a) Ownership. Seller and its Affiliates are the sole owner of all Intellectual Property Rights in the Intangible Assets, to be transferred to Purchaser as set forth herein. Seller has taken reasonable steps to maintain and protect all Intellectual Property Rights in the Intangible Assets.
(b) Non-Infringement. To Seller's knowledge, the Purchased Assets have not infringed or violated and currently do not infringe, violate, or misappropriate any Intellectual Property Rights of any third party, and, to Seller's knowledge, no third party has asserted or threatened to assert against Seller any claim of infringement or misappropriation of any such rights. To Seller's knowledge, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any of the Intellectual Property Rights in and to the Purchased Assets.
(c) Licenses. Section 3.8 of the Seller Disclosure Letter sets forth each material license Seller has granted to any third party with respect to any Purchased Asset. Section 3.8 of the Seller's Disclosure Letter sets forth each Intellectual Property Right in connection with the development, use or sale of the Internet Appliance Products that a third party owns and that Seller uses pursuant to a license, sublicense, agreement or other permission.
SECTION 3.9. Compliance with Laws. Seller has complied in all respects with and has not received any notices of violation with respect to, any federal, state or local statute, law or regulation applicable to any of the Purchased Assets, except for such violations and failures to comply that would not prevent or materially delay the consummation of the transactions contemplated in this Agreement or the Ancillary Agreements, or otherwise prevent or materially delay Seller from performing its obligations under this Agreement or the Ancillary Agreements.
(a) Tax Assessments. There is no claim or assessment pending or, to Seller's knowledge, threatened for any alleged deficiency in Tax attributable to Seller or the affiliated, combined consolidated or unitary group of which Seller is or had been a member (the "Seller Group"), relating to the Purchased Assets, and to Seller's knowledge, there is no audit or investigation with respect to any liability of Seller or the Seller Group for Taxes.
(b) No Tax Liens. There are (and as of immediately following the Closing there will be) no Encumbrances on any of the Purchased Assets relating to or attributable to Taxes, other than liens for Taxes not yet due and payable.
(c) Filings and Tax Liability. (i) Seller has duly filed all federal, state, local and foreign Tax returns required to be filed by it (in material compliance with applicable Tax laws and regulations); (ii) no extensions with respect to such Tax returns has been requested or granted; and (iii) all Taxes required to be paid by Seller as set forth in such Tax returns have been paid.
SECTION 3.11. Employees.
(a) Section 3.11(a) of the Seller Disclosure Letter sets forth a comprehensive list of all employees and consultants working in the Internet Appliance Business (each, an "Employee" and collectively, the "Employees") and, for each Employee, the annual base salary of such Employee effective as of the Effective Date, their current status as exempt or non-exempt, all bonuses, profit sharing, or commissions accrued or payable, any special compensatory or reimbursement arrangements, comp time or other arrangements with such Employees and any other compensatory agreements between such Employee and Seller.
(b) No collective bargaining agent or employee association represents Employees with respect to Seller's employment of Employee.
(c) There has not been for a period of twelve (12) consecutive months prior to the Effective Date, nor is there existing or threatened, any strike, slowdown, picketing, or work stoppage with respect to the Internet Appliance Business.
(d) Seller is in material compliance with all laws relating to employment that are applicable to the Employees;
(e) Set forth in Section 3.11(e) of the Seller Disclosure Letter is a complete and accurate list of all Employees currently on leave and in receipt of short-term disability ("STD") benefits along with their STD commencement date
(f) Set forth in Section 3.11(f) of the Seller Disclosure Letter is a complete and accurate list of all Employees currently on leave and in receipt of long-term disability ("LTD") benefits along with their LTD commencement date and
(g) Set forth in Section 3.11(g) of the Seller Disclosure Letter is a complete and accurate list of all Employees currently on leave and in receipt of applicable workers' compensation legislation benefits along with, if applicable, their leave commencement date and expected date of return to work; and
SECTION 3.12. Pension and Employee Benefit Matters.
(a) Neither Seller nor any entity which, within the last 5 years, has been under common control of or affiliated with Seller (an "ERISA Affiliate") within the meaning of Section 414(b), (c) or (m) of the Internal Revenue Code, has ever been obligated to contribute to any "multi-employer plan" as such term is defined in Section 3(37) of ERISA. No liability to the Pension Benefit Guaranty Corporation is expected to be incurred in connection with the transactions contemplated hereby. Neither Seller nor any ERISA Affiliate has any liability with respect to a pension plan that is subject to Section 412 of the Internal Revenue Code or Title IV of ERISA.
(b) With respect to the employee plans maintained, sponsored, or contributed to by Seller which are intended to be qualified under Section 401(a) of the Internal Revenue Code ("Seller Employee Plans"), no event has occurred and, to Seller's knowledge, there exists no condition or set of circumstances in connection with which Seller could be subject to any liability under the terms of or with respect to, such Seller Employee Plans, ERISA, the Internal Revenue Code or any other applicable law. Each Seller Employee Plan intended to be qualified under Section 401(a) of the Internal Revenue Code has (i) received a favorable determination letter from the Internal Revenue Service regarding such qualified status or (ii) been established under a standardized prototype plan for which an Internal Revenue Service opinion letter has been obtained by the plan sponsor and is valid as to the adopting employer. Set forth on Section 3.12 of the Seller Disclosure Letter is a list of the most recent Internal Revenue Service determination letters with respect to any such Plans, accurate and complete copies of which letters have been delivered to Parent. Each Seller Employee Plan has been maintained in material compliance with its terms and with the requirements prescribed by all applicable laws, including but not limited to ERISA and the Internal Revenue Code, which are applicable to such Seller Employee Plans.
SECTION 3.13. Year 2000 Matters. None of the Purchased Assets or Internet
Appliance Products are date or time sensitive.
SECTION 3.14. Brokers. Other than Bear, Stearns & Co., Inc., the fees and expenses of whom shall be paid by Seller, neither Seller, nor any of its affiliates, has employed any broker, finder, investment banker or agent, incurred or agreed to pay any brokerage fee, finder's fee or commission with respect to the transactions contemplated by this Agreement, or dealt with anyone purporting to act in the capacity of a broker, finder, investment banker or agent with respect thereto.
SECTION 3.15. Insurance. Section 3.15 of the Seller Disclosure Letter contains a list of all insurance policies maintained by the Seller for the benefit of or in connection with the Purchased Assets and each such policy will be maintained in full force and effect up to the Closing Date. The Seller is not in default of any material obligation pursuant to any of these insurance policies. All premiums payable under all such policies and bonds have been paid and the Seller is otherwise in full compliance with the material terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage).
SECTION 3.17. Disclaimer of Other Representations and Warranties. Neither Seller, the stockholders of Seller nor any Affiliates of Seller make, and they have not made, any representations or warranties relating to either Seller or any of its Affiliates in connection with the transactions contemplated hereby other than those expressly set forth by Seller in this Article III.
Purchaser hereby represents and warrants to Seller that, except as set forth in the Purchaser's Disclosure Letter, all of the following statements, representations and warranties are true, accurate and correct:
SECTION 4.1. Organization and Good Standing of Purchaser. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes qualification necessary, except for such failures to be so qualified and in good standing would not prevent or materially delay the consummation of the transactions contemplated in this Agreement or the Ancillary Agreements, or otherwise prevent or materially delay Purchaser from performing its obligations under this Agreement or the Ancillary Agreements. Purchaser has all requisite corporate power and authority to enter into this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby.
SECTION 4.2. Authorization and Validity. The execution and delivery of this Agreement and the Ancillary Agreements and the performance of all obligations of Purchaser hereunder and thereunder, has been duly and validly authorized by all necessary corporate action on the part of Purchaser and no other act or proceeding on the part of or on behalf of Purchaser by or on behalf of its shareholders is necessary to approve the execution and delivery of this Agreement, the Ancillary Agreements and such other agreements and instruments, the performance by Purchaser of its obligations hereunder or thereunder and the consummation of the transactions contemplated hereby and thereby. This Agreement has been, and at the Closing the other Ancillary Agreements will be, duly executed and delivered by Purchaser. This Agreement constitutes, and, upon Purchaser's execution of each of the other Ancillary Agreements, each of the other Ancillary Agreements will constitute, assuming the due authorization, execution and delivery by Seller, a legal, valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application, now or hereafter in effect, affecting enforcement of creditors'
SECTION 4.3. No Conflict. The execution, delivery and performance of this Agreement and the Ancillary Agreements by Purchaser and the consummation of the transactions contemplated hereby and thereby do not and will not (a) result in a violation or default in any material respect of any provision of Purchaser's charter documents or any judgment, order, writ or decree applicable to Purchaser, or (b) constitute a default (or event which with the giving of notice or lapse of time, or both, would become a breach, violation or default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material contract of Purchaser.
SECTION 4.4. Consents. No consent, approval, order or authorization of or registration, qualification, designation, declaration or filing with, any governmental entity on the part of Purchaser is required in connection with the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements, except for where the failure to obtain such consents, approvals, orders or authorizations or to make such registrations, qualifications, designations, declarations or filings would not prevent or materially delay consummation of the transactions contemplated by this Agreement and the Ancillary Agreements.
SECTION 4.5. Litigation. There is no claim, action, suit, arbitration, mediation, investigation or other proceeding of any nature pending or, to Purchaser's knowledge, threatened, at law or in equity, by way of arbitration or before any court, governmental department, commission, board or agency that could adversely affect, contest or challenge Purchaser's authority, right or ability to purchase or receive any of the Purchased Assets from Seller hereunder or otherwise perform Purchaser's obligations under this Agreement or any of the Ancillary Agreements.
SECTION 4.6. Brokers. Neither Purchaser nor any of its affiliates has employed any broker, finder or agent, incurred or agreed to pay any brokerage fee, finder's fee or commission with respect to the transactions contemplated by this Agreement, or dealt with anyone purporting to act in the capacity of a broker, finder or agent with respect thereto.
SECTION 4.7. Disclaimer of Other Representations and Warranties. Neither the stockholders of Purchaser nor any affiliate of Purchaser make, and they have not made, any representations or warranties other than those set forth in this Article IV.
SECTION 4.8. Investigation by Purchaser. Purchaser has conducted an investigation, review and analysis of the operations, assets, liabilities, results of operations, financial condition, software and prospects of the Internet Appliance Business and the Purchased Assets, which investigation, review and analysis was performed by Purchaser and its Affiliates, and, to the extent Purchaser deemed appropriate, by Purchaser's advisors and representatives. Purchaser acknowledges that it and its representatives have been provided adequate access to the personnel, properties, premises and records of Seller it has deemed necessary to enter into this Agreement and, at Closing, to consummate the transactions contemplated hereby.
SECTION 5.1. Conduct of Business Prior to the Closing. Seller agrees that, from the Effective Date and continuing until the earlier of the Closing Date or the termination of this Agreement according to its terms, Seller will carry on the Internet Appliance Business in the ordinary course and consistent with Seller's past practice (taking into account the sale of the Purchased Assets contemplated hereby and Seller's other agreements hereunder) except for such actions of Seller as may be contemplated by this Agreement or agreed to by Purchaser. Without limiting the foregoing, during the period described in the preceding sentence, except in the ordinary course and consistent with Seller's past practice or as agreed to by Purchaser, Seller agrees not to: (i) sell, transfer, assign, convey, license, move, relocate, encumber or otherwise dispose of any of the Purchased Assets; (ii) transfer any Employee to any other division or position of employment within Seller; (iii) terminate the employment of any Employee; or (iv) materially change the base salary or bonus of any Employee or establish a bonus plan or any new employee benefits for any Employee without Purchaser's prior written approval.
SECTION 5.2. Consent of Third Parties. Seller shall use its commercially reasonable efforts to obtain the consent in writing of all persons, if any, necessary to permit Seller to assign and transfer all of the Purchased Assets free and clear of all Encumbrances.
SECTION 5.3. Access to Information. From the Effective Date until the earlier of the Closing Date or the termination of this Agreement according to its terms, Seller will afford to the representatives of Purchaser, including its counsel and auditors, during normal business hours, access to any and all of the Purchased Assets such that Purchaser may have a reasonable opportunity to make a full investigation of the Purchased Assets in advance of the Closing Date as it shall reasonably desire, and the Seller will confer with representatives of Purchaser and will furnish to Purchaser, either orally or by means of such records, documents, and memoranda as are available or reasonably capable of preparation, such information as Purchaser may reasonably request, and Seller will furnish to Purchaser's auditors all consents and authority that they may reasonably request in connection with any such examination.
SECTION 5.4. Further Actions. Each of the parties hereto shall, at its own expense, execute and deliver such documents and other papers and take such further actions as may be required to carry out the provisions of this Agreement, the Escrow Agreement and the Ancillary Agreements, to cause the conditions to Closing set forth in Article VIII to be fulfilled as promptly as possible, and to give effect to the transactions contemplated by this Agreement and the Ancillary Agreements.
SECTION 5.5. Confidentiality. All copies of financial information,
marketing and sales information, pricing, marketing plans, business plans,
financial and business projections, manufacturing processes and procedures,
formulae, methodologies, inventions, product designs, product specifications and
drawings, and other confidential and/or proprietary information of a party (the
"Disclosing Party") disclosed to the other party (the "Non-Disclosing Party") in
the course of negotiating the transactions contemplated by this Agreement
("Confidential Information") will be held in strict confidence and not used or
disclosed by the Non-Disclosing Party or any of its employees, affiliates or
stockholders and, upon termination of this Agreement in accordance with its
terms and upon the Disclosing Party's written request to the Non-Disclosing
Party, will be promptly
SECTION 5.6. Public Announcements. On and prior to the Closing Date, Purchaser and Seller shall advise and confer with each other prior to the issuance of any reports, statements or releases concerning this Agreement (including the exhibits hereto) and the transactions contemplated hereby. Neither Purchaser nor Seller will make any public disclosure prior to the Closing or with respect to such matters unless both parties agree on the text and timing of such public disclosure, except as may be required by law, court process, securities exchange listing agreement or the rules of the National Association of Securities Dealers. Promptly following the execution of this Agreement, the parties shall issue a joint press release approved by both parties announcing the transactions contemplated hereby.
SECTION 5.7. Books and Records. If, in order to properly prepare documents required to be filed with governmental authorities (including Tax authorities) or its financial statements, it is necessary that any party hereto or any successors be furnished with additional information relating to the Purchased Assets, and such information is in the possession of any other party hereto, such party agrees to use its good faith efforts to promptly furnish such information to the party needing such information, at the cost and expense of the party being furnished such information. From and after the Effective Date and continuing after the Closing, each party shall cooperate with the other party and provide at the expense of the requesting party, all information that may be required to enable such party to comply with all applicable laws, rules and regulations, and any governmental filing requirements, with respect to reporting and reflecting the transactions contemplated by this Agreement and the Ancillary Agreements.
SECTION 5.8. Regulatory and Other Authorizations; Consents.
(a) Efforts. Each party hereto will use all commercially reasonable efforts to obtain all authorizations, consents, orders and approvals of all federal, state and local regulatory bodies and officials that may be or become necessary for the execution and delivery of, and the performance of its obligations pursuant to, this Agreement and the Ancillary Agreements and will cooperate fully with the other party in promptly seeking to obtain all such authorizations, consents, orders and approvals. The parties hereto will not take any action that will have the effect of delaying, impairing or impeding the receipt of any required approvals.
SECTION 5.9. Maintenance of Insurance. Seller shall continue to maintain in full force and effect until the Closing Date all policies of insurance in effect with respect to the Purchased Assets or duly renew the same upon similar terms and conditions.
SECTION 5.11. Support. As of the Closing Date, for a period of up to six months thereafter, Purchaser shall be entitled to occupy and use the space currently occupied and used by the Employees at 1731 Technology Drive, San Jose, California (the "Leased Premises") solely for the purpose of conducting the Internet Appliance Business. In consideration for the occupancy and use of the Leased Premises by Purchaser, Purchaser shall pay its pro rata share of the costs incurred by Seller for the lease and occupancy of the Leased Premises, including but not limited to, lease payments, electricity and heating expenses, telecommunications expenses and all similar costs associated with the occupancy and use of the Leased Premises.
SECTION 5.12. Survival. Each of the agreements and covenants set forth in this Article V shall survive the Closing.
SECTION 6.1. Offers to Employees.
(a) Purchaser shall have the right to solicit and make written offers of employment or services as a consultant to any Employee. Seller agrees that, from the Effective Date and continuing until the earlier of the Closing Date or the termination of this Agreement according to its terms, Seller will provide Purchaser with reasonable access to and the opportunity to meet and interview each Employee.
(b) Purchaser agrees that for a period of one (1) year commencing on the Effective Date, Purchaser will not, without Seller's written consent or except as provided in this Agreement, directly or indirectly engage or participate in any effort or act to solicit employees of Seller (or any subsidiary of Seller) to cease their employment with Seller (or such subsidiary) or to breach any employment obligation with Seller (or any subsidiary of Seller), or to hire any person who was an employee of Seller (or any subsidiary of Seller) on the Effective Date.
SECTION 6.2. Employee Obligations of Seller.
(a) Seller and any subsidiaries thereof shall be liable for and shall hold Purchaser and its affiliates harmless from, any and all liabilities with respect to: (i) the employment by Seller or termination of employment by Seller of any past, current or future employee or consultant of Seller or any of its affiliates (collectively, "Seller Employees"); (ii) any claims of discrimination under state or federal law arising from a Seller Employee's employment or service with or termination by Seller; (iii) any withholding or employment and or wage Taxes with respect to any Seller Employees which accrue or become payable during the period of such Seller Employee's employment or service with Seller or any affiliate of Seller or arise out of the termination of such person's employment with Seller or any affiliate of Seller; (iv) any other claims or obligations arising out of the terms and
(b) Seller shall pay to all Seller Employees, any liability for accrued vacation, sick leave or similar accrued benefits with respect to such Employees attributable to periods of employment or service with Seller, consistent with Seller's policies and applicable law, and shall make such payment within the statutory time period therefore.
(c) Seller agrees to comply with the provisions of any statute or regulation regarding termination of employment, plant closing or layoffs and to perform all obligations required by Seller with respect to the cessation of any operations of the Internet Appliance Business or the termination, re-assignment, re-location or change in position of any Employee in connection with the transactions contemplated hereby.
(d) For a period of two (2) years after the Closing Date, Seller shall not solicit for employment or service as a consultant nor hire nor engage the services of any Employee without the prior written consent of Purchaser.
SECTION 6.3. Survival. Each of the agreements and covenants set forth in this Article VI shall survive the Closing.
SECTION 7.1. Transaction Taxes. Seller shall be responsible for, and shall defend, indemnify and hold harmless Purchaser from and against any and all excise, value added, registration, stamp, property, documentary, transfer, sales, use and similar Taxes, levies, charges and fees incurred, or that may be payable to any taxing authority, in connection with, the transactions contemplated by this Agreement or the Ancillary Agreements (collectively, "Transaction Taxes"). Seller and Purchaser shall use all commercially reasonable efforts to cooperate in order to minimize the Transaction Taxes and any Taxes to be paid or withheld in connection with the transactions contemplated by this Agreement or the Ancillary Agreements.
SECTION 7.2. Other Taxes. Seller is and shall remain solely responsible for all Tax matters arising from or relating to the Purchased Assets and related businesses on or prior to the Closing Date ("Pre-Closing Period"). Seller shall indemnify and hold harmless Purchaser from any liability for, or arising out of or based upon, or relating to any Tax matter arising from the Purchased Assets and related businesses during the Pre-Closing Period. Purchaser shall be solely responsible for all Tax matters arising from or relating to the Purchased Assets and Purchaser's related businesses beginning after the Closing Date ("Post-Closing Period"). Purchaser shall indemnify and hold harmless Seller from any liability for, or arising out of or based upon, or relating to any Tax matter arising from the Purchased Assets and related businesses during the Post-Closing Period. Seller and Purchaser shall cooperate concerning all Tax matters relating to this division of responsibility,
(i) Purchaser shall have received from the Chief Executive Officer of Ravisent, an executed non-competition agreement substantially in the form attached hereto as Exhibit C.
(j) Purchaser shall have received copies of the resolutions of the board of directors and stockholders of Ravisent approving the restructuring of assets and liabilities of Ravisent in the form attached hereto as Exhibit G.
SECTION 9.1. Termination. This Agreement may be terminated at any time prior to the Closing:
(a) by the mutual written consent of Seller and Purchaser; or
(b) by either Seller or Purchaser at any time prior to Closing, if the other commits a material breach of this Agreement that is not cured within thirty (30) days after written notice thereof; or
(c) by either Seller or Purchaser, if the Closing shall not have occurred prior to May 15, 2001; provided, however, that the right to terminate this Agreement under this Section 9.1(c) shall not be available to any party whose failure to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur prior to such date; or
(d) by either Seller or Purchaser if a permanent injunction or other order by any federal, state or foreign court of competent jurisdiction which would make illegal or otherwise restrain or prohibit the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements shall have been issued and shall have become final and non-appealable.
SECTION 9.2. Effect of Termination. In the event cf termination of this Agreement as provided in Section 9.1, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto; provided that nothing herein shall relieve either party from liability for any willful breach hereof.
SECTION 9.3. Waiver. At any time prior to the Closing, any Party hereto may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant to this
Agreement by the other party or (c) waive compliance by the other party of any
of the agreements or conditions contained herein: Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by the party
to be bound thereby.
SECTION 10.1. Loss Defined; Indemnitees. For purposes of this Article X, the term "Loss" will mean and include any and all liability, loss, damage, claim, expense, cost, fine, fee, penalty, obligation, injury or amounts paid in settlement, together with reasonable costs and expenses, including the reasonable attorneys' and experts' fees, court costs, arbitration costs, filing fees and other legal costs and expenses relating thereto. As used in this Article X, the term "Purchaser Indemnitees" means and includes Purchaser and any present or future officer, director, employee, affiliate, stockholder or agent of Purchaser and its successors and assigns. As used in this Article X, the term "Seller Indemnities" means and includes Seller and any present or future officer, director, employee, affiliate, stockholder or agent of Seller and its successors and assigns.
SECTION 10.2. Indemnification by Seller. Seller agrees, subject to the other terms, conditions and limitations of this Agreement, to indemnify the Purchaser Indemnitees against, and to hold the Purchaser Indemnitees harmless from, all Loss arising out of, resulting from, caused by or attributable to:
(a) the failure of any representation or warranty of Seller contained in this Agreement (including any Schedule or Exhibit hereto), to be true and correct as of the Effective Date or the failure of any representation or warranty contained in the Ancillary Agreements or the Officer's Certificate to be delivered pursuant to Section 8.1(a) hereof, to be true and correct as of the Closing Date;
(b) the breach or violation by Seller of any covenant or agreement of Seller contained in this Agreement (including any Schedule or Exhibit hereto) or the Ancillary Agreements; and
(c) except for the Assumed Liabilities, the operation or management of the Internet Appliance Business or the Purchased Assets at any time or times on or prior to the Closing Date, and except as otherwise provided in Article VI hereof, any charges or actions brought by employees, agents or representatives of Seller arising out of or based upon actions of the Seller taken on or prior to the Closing Date; or
(d) any Encumbrances upon the Purchased Assets existing at the Closing.
SECTION 10.3. Indemnification by Purchaser. Purchaser agrees, subject to the other terms, conditions and limitations of this Agreement, to indemnify the Seller Indemnitees against, and to hold the Seller Indemnitees harmless from, all Loss arising out of, resulting from, caused by or attributable to:
(a) the failure of any representation or warranty of Purchaser contained in this Agreement (including any Schedule or Exhibit hereto), to be true and correct as of the Effective Date or the failure of any representation or warranty contained in the Ancillary Agreements or the Officer's Certificate to be delivered pursuant to Section 8.2(a) hereof, to be true and correct as of the Closing Date;
(b) the breach or violation by Purchaser of any covenant or agreement of Purchaser contained in this Agreement (including any Schedule or Exhibit hereto) or the Ancillary Agreements;
(d) the operation of the Purchased Assets and the sale and license of Internet Appliance Products by Purchaser after the Closing Date.
SECTION 10.4. Third Party Claims.
(a) As used herein, an "Indemnified Party" means a Purchaser Indemnitee seeking indemnification pursuant to Section 10.2 hereof or a Seller Indemnitee seeking indemnification pursuant to Section 10.3 hereof. The Indemnified Party agrees to give the other party ("Indemnitor") prompt written notice of any event, or any claim, action, suit, demand, assessment, investigation, arbitration or other proceeding by or in respect of a third party (a "Third Party Claim") of which it has knowledge, for which such Indemnified Party is entitled to indemnification under this Article X (including in any case copies of any summons, complaint or other pleading which may have been served on it and any written claim, demand, invoice, billing or other document evidencing or asserting the same). No delay on the part of an Indemnified Party in giving the Indemnitor notice of a Third Party Claim shall relieve the Indemnitor from any obligation hereunder unless the Indemnitor is prejudiced thereby.
(b) Within twenty days of delivery of such written notice, the Indemnitor may, at the expense of the Indemnitor, elect to take all necessary steps properly to contest any Third Party Claim or to prosecute such Third Party Claim to conclusion or settlement satisfactory to the Indemnitor. If the Indemnitor makes the foregoing election, an Indemnified Party will have the right to participate at its own expense in all proceedings. If the Indemnitor does not make such election, an Indemnified Party shall be free to handle the prosecution or defense of any such Third Party Claim, will take all necessary steps to contest the Third Party Claim or to prosecute such Third Party Claim to conclusion or settlement satisfactory to such Indemnified Party, and will notify the Indemnitor of the progress of any such Third Party Claim, will permit the Indemnitor, at the sole cost of the Indemnitor, to participate in such prosecution or defense and will provide the Indemnitor with reasonable access to all relevant information and documentation relating to the Third Party Claim and the prosecution or defense thereof. In any case, the party not in control of the Third Party Claim will cooperate with the other party in the conduct of the prosecution or defense of such Third Party Claim. Notwithstanding the foregoing, if an Indemnified Party is offered a written settlement proposal by a third party that has as its sole component the payment of money by the Indemnified Party and the Indemnitor recommends to the Indemnified Party in writing that it accept such settlement proposal (the "Sanctioned Settlement") and the Indemnified Party refuses to accept such settlement proposal, in such event if the ultimate settlement terms agreed to by the Indemnified Party with such third party or the final monetary damages award against the Indemnified Party (either, a "Final Settlement Amount"), is greater than the amount of the Sanctioned Settlement, the Indemnified Party shall be responsible for the differential between the Final Settlement Amount and the Sanctioned Settlement and the Indemnitor's liability shall be limited to the amount specified in the Sanctioned Settlement.
SECTION 10.5. Limitations on Indemnification.
(a) Limits on Seller Indemnification.
(ii) The maximum aggregate Loss recoverable by Purchaser Indemnitees (considered together as a group) against Seller under Section 10.2 shall not exceed One Hundred Percent (100%) of the Purchase Price (the "Indemnity Cap").
(b) Limits on Purchaser Indemnification.
(i) Purchaser shall not be required to provide indemnification under
Section 10.3 unless and until the aggregate Loss for which one or more Seller
Indemnitees seeks indemnification thereunder exceeds an aggregate of the
Deductible Amount, in which event Purchaser shall be liable to indemnify the
Seller Indemnitees for aggregate Loss, which exceeds the Deductible Amount.
(ii) The maximum aggregate Loss recoverable by Seller Indemnitees (considered together as a group) against Purchaser under Section 10.3 shall not exceed the Indemnity Cap.
(c) Time Limits. Notwithstanding anything herein to the contrary, no claim for indemnification under Sections 10.2 or 10.3 may be brought after the date that is eighteen (18) months after the Closing Date.
SECTION 10.6. Escrow Fund. At the Closing, the Escrow Amount shall be deposited with the Escrow Agent, such deposit (together with interest and other income thereon) to constitute an escrow fund (the "Escrow Fund") and to be governed by the terms set forth herein and in the Escrow Agreement substantially in the form attached hereto as Exhibit B. The Escrow Fund shall be available to satisfy, and to compensate Purchaser for amounts recoverable by Purchaser pursuant to, the indemnification obligations of Seller set forth in Section 10.2 hereof, subject to the limitations set forth in this Article X.
SECTION 10.7. Escrow Period. The Escrow Fund shall be maintained by the
Escrow Agent and be available to satisfy the indemnification obligations of
Seller hereunder until the date that is twelve (12) months after the Closing
Date (the "Escrow Termination Date").
SECTION 10.8. Claims upon Escrow Fund. Purchaser shall make a claim upon the Escrow Fund by delivering to the Escrow Agent on or before the Escrow Termination Date a certificate signed by any officer of Purchaser (an "Officer's Certificate") specifying in reasonable detail the individual items of indemnifiable Loss included in the amount so stated, the date each such item was paid, or properly accrued or arose, and the basis for indemnification. At the time of delivery of any Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate shall be delivered to Seller. No payments shall be made out of the Escrow Fund except as set forth in the Escrow Agreement.
SECTION 10.9. Resolution of Conflicts; Arbitration. In case Seller shall object in writing to any claim or claims made in any Officer's Certificate, Seller and Purchaser shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If
SECTION 11.1. Expenses. All costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred.
SECTION 11.2. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made by delivery in person, by courier service, by telecopy (confirmed in writing), or by registered or certified mail (postage prepaid, return receipt requested), and shall be deemed to have been duly given or made upon actual
(a) if to Seller:
Ravisent Technologies Inc.
with a copy to:
Brobeck, Phleger & Harrrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: David Makarechian, Esq.
(b) if to Purchaser:
Phoenix Technologies, Ltd.
with a copy to:
Orrick, Herrington & Sutcliffe LLP
1020 Marsh Road
Menlo Park, CA 94025
Attention: Brian C. Burr
Telecopy: 650-614-7401
SECTION 11.3. Headings; Disclosure. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. A disclosure made in any section of Purchaser's Disclosure Letter or Seller's Disclosure Letter, respectively, with respect to a representation made in this Agreement may apply to or qualify any other representation made by such party in this Agreement.
SECTION 11.4. Severability. If any term or other provision of this Agreement is 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 any 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
SECTION 11.5. Survival. Unless otherwise expressly set forth herein, all covenants to be performed prior to the Closing Date, and all representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the consummation of the transactions contemplated hereby until the date that is eighteen (18) months after the Closing Date.
SECTION 11.6. Entire Agreement. This Agreement and the Ancillary Agreements constitute the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersede all prior agreements and undertakings with respect to the subject matter hereof, both written and oral.
SECTION 11.7. Assignment. This Agreement shall not be assigned by Purchaser or Seller without the prior written consent of the non-assigning party; provided, however, that Purchaser may assign all or a portion of its rights and obligations hereunder to one or more affiliates that control or are under common control with Purchaser. Any purported assignment not permitted by this Section shall be void.
SECTION 11.8. No Third-Party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other person or entity, including but not limited to any Employee, any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. No statement, reference or disclosure set forth in this Agreement, the Ancillary Agreements or the exhibits or schedules thereto constitutes an admission (express or implied) of any liability or obligation of the parties hereto to any third party, nor an admission (express or implied) against any such party's interests.
SECTION 11.9. Amendment; Waiver. This Agreement may not be amended or modified except by an instrument in writing signed by Seller and Purchaser. Waiver of any term or condition of this Agreement shall only be effective if in writing and shall not be construed as a waiver of any subsequent breach or waiver of the same term or condition, or a waiver of any other term or condition of this Agreement.
SECTION 11.10. Governing Law; Jurisdiction and Venue. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California. Each party irrevocably consents to submit to the exclusive jurisdiction of any federal or state court located in the State of California, County of Santa Clara, for any lawsuits, actions or proceedings with respect to this Agreement or the transactions contemplated hereby.
SECTION 11.11. Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
SECTION 11.12. No Joint Venture. Nothing contained in this Agreement will be deemed or construed as creating a joint venture or partnership between the parties hereto. No party is by
By: /s/ Albert E. Sisto
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Name: Albert E. Sisto
Title: Chairman, CEO, & President
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By: /s/ Francis E. Wilde
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Name: Francis E. Wilde
Title: President & CEO
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By: /s/ Francis E. Wilde
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Name: Francis E. Wilde
Title: President & CEO
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By: /s/ Thomas J. Fogarty
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Name: Thomas J. Fogarty
Title: President
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By: /s/ Francis E. Wilde
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Name: Francis E. Wilde
Title: President & CEO
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This Severance Agreement (the "Agreement") is effective as of February 19, 1999, by and between David A. Everett (the "Executive") and Phoenix Technologies Ltd., a Delaware corporation (the "Company").
A. Management of the Company believes that it is in the best interest of the Company and its stockholders to provide the Executive with certain severance benefits should Executive's employment with the Company terminate under certain circumstances. Such benefits will provide Executive with enhanced financial security and with sufficient incentive and encouragement for Executive to remain with the Company.
B. To accomplish the foregoing objectives, the Company will, upon execution of this Agreement by the parties, agree to the terms provided herein.
C. Certain capitalized terms used in the Agreement are defined in Section 7 below.
In consideration of the mutual covenants herein contained, and in consideration of the continuing employment of Executive by the Company, the parties agree as follows:
1. Duties and Scope of Employment. The Company currently employs Executive as Senior Vice President. The Executive shall comply with and be bound by the Company's operating policies, procedures and practices from time to time in effect during his employment. Executive shall continue to devote his full time, skill and attention to her duties and responsibilities, and shall perform them faithfully, diligently and competently, and the Executive shall use his best efforts to further the business of the Company and its affiliated entities.
2. Base Compensation. The Company shall continue to pay Executive as compensation for his services a base salary in accordance with normal Company payroll practices ("Base Compensation"). The Base Compensation may be increased from time to time, in which case the "Base Compensation" will refer to the base salary earned by Executive at the time in question.
3. Executive Benefits. The Executive shall be eligible to participate in the employee benefit plans and executive compensation programs maintained by the Company applicable to other key executives of the Company, including (without limitation) retirement plans, savings or profit-sharing plans, stock options, incentive or other bonus plans, life, disability, health, accident and other insurance programs, paid vacations, and similar plans or programs, subject in each case to the generally applicable terms and conditions of the applicable plan or program in question and to the sole determination of the Board or any committee administering such plan or program.
(b) Bonus Eligibility and Payment. Executive is currently eligible to receive a bonus based on application of the terms of the executive bonus plan (i.e. if the Company fails to meet minimum financial objectives or Executive fails to complete personal objectives under the plan, no bonus will be paid). Such bonus, if any, will be paid to Executive at approximately the same time other Company Executives receive their bonuses.
4. Term of Agreement. The terms of this Agreement shall terminate on the date that all obligations of the parties hereunder have been satisfied. A termination of the terms of this Agreement pursuant to this Section shall be effective for all purposes.
5. Severance Benefits.
(a) Termination Not for Cause. If the Company terminates Executive's employment for any reason other than Cause, or terminates Executive by Constructive Termination as defined in this Agreement, the Executive shall be entitled to receive the following severance benefits:
(i) Severance Payments.
(1) Guaranteed Severance Payments. Subject to Executive entering
into a Release of Claims (in a form substantially similar to
the release of claims attached as Exhibit A), Executive
shall be entitled to receive severance payments for twelve
(12) months from the date of termination at Executive's then
current base salary, which may be greater than, but will not
be less than the Base Compensation (the "Guaranteed
Severance Payment"). The Guaranteed Severance Payment will
be paid to Executive in accordance with the Company's
standard payroll practices. Upon termination, Executive will
also be entitled to receive a pro rate portion of his then
current targeted bonus for the fiscal year following his
termination as described in Section 3(b)(ii).
(2) Contingent Severance Payments. If Executive has not secured Reemployment as of the end of the twelve (12) month period, Executive shall be eligible to receive an additional six (6) months of Base Compensation, also paid in accordance with the Company's standard payroll practices ("Contingent Severance Payments"). The Contingent Severance Payments shall discontinue upon Executive notifying Company of Re-Employment.
(iii) Change in Control. In the event the Company undergoes a Change in Control, or other material event in that the Company or Key Executive's position undergoes a material change as a result of the material event, Key Executive's stock options will accelerate vesting such that fifty percent (50%) of the options will vest at the completion of the Change in Control, or material event, and the remaining fifty percent (50%) will vest 90 days thereafter. If there is an inconsistency between this Agreement and the Company's Stock Option Plan or a Stock Option Agreement, the terms of this Agreement shall prevail.
(b) Voluntary Resignation; Termination For Cause. If the Executive voluntarily resigns from the Company, or if the Company terminates the Executive's employment for Cause, then the Executive shall not be entitled to receive severance or other benefits pursuant to this Agreement. However, Executive shall remain eligible for the severance and other benefits (if any) as may then be available under the Company's then existing severance and benefits plans and policies at the time of Executive's termination.
(c) Disability; Death. If the Company terminates the Executive's employment as a result of the Executive's Disability or if the Executive's employment terminates due to the death of the Executive, then the Executive shall not be entitled to receive severance or other benefits pursuant to this Agreement. However, Executive shall remain eligible for those severance and other benefits (if any) as may be available under the Company's then existing severance and benefit plans and policies at the time of Executive's termination or death.
(a) Upon the termination of the Executive's employment with the Company pursuant to Section 5(a) and for a period of eighteen (18) months thereafter, Executive agrees that he shall not, on his own behalf, or as owner, manager, advisor, principal, agent, partner, consultant, director, officer, stockholder, or employee of any business entity, or otherwise in any territory in which the Company is actively engaged in business (i) open or operate any business which is in competition with any business of the Company, (ii) act as an employee, agent, advisor or consultant or any competitor of the Company, (iii) solicit or accept business from any of the Company's competitors, (iv) take any action to or do anything reasonably intended to divert business from the Company or influence or attempt to influence any existing customers of the Company to cease doing business with the Company or to alter its business relationship with the Company, or (v) take any action or do anything reasonably intended to influence any suppliers of the Company to cease doing business with the Company or to alter its business relationship with the Company. Executive further covenants and agrees that he will not for himself or on behalf of any other person, partnership, firm, association or corporation in any territory served by the Company, directly or indirectly solicit or accept business from any of the Company's existing customers for the purchase or sale of products or services of a like kind to those sold or provided the Company. The foregoing covenant shall not be deemed to prohibit Executive from acquiring an investment not more than one percent (1%) of the capital stock of a competing business, whose stock is traded on a national securities exchange or through the automated quotation system of a registered securities association.
(b) Upon the termination of the Executive's employment with the Company pursuant to Section 5(a) and for a period of eighteen (18) months thereafter, Executive agrees that he shall not either directly or indirectly solicit, induce, attempt to hire, recruit, encourage, take away, hire any employee of the Company or cause any employee of the Company to leave his or her employment either for Executive or for any other entity or person.
(c) Executive represents that he (i) is familiar with the foregoing covenants not to compete and not to solicit, and (ii) is fully aware of his obligations hereunder, including, without limitation, the reasonableness of the length of time, scope and geographic coverage of these covenants.
(d) Company will respond within two weeks to any written request by Executive to exclude a particular company or business entity from the scope of this Section 6. Company will not unreasonably deny such a request. The parties agree that a passive financial investment by Executive in a third party will not constitute competition within the scope of this Section 6.
(a) Cause. "Cause" shall mean (i) any act of personal dishonesty taken by
the Executive in connection with his responsibilities as an Executive
and intended to result in substantial personal enrichment of the
Executive, (ii) conviction of a felony that is injurious to the
Company, (iii) a willful act by the Executive which constitutes gross
misconduct and which results in material injury to the Company, and
(iv) continued violations by the Executive of the Executive's
obligations under Section 1 of this Agreement that are demonstrably
willful and deliberate on the Executive's part after which describes
the basis for the Company's belief that the Executive has not
substantially performed his duties.
(b) Constructive Termination. "Constructive Termination" shall mean any of the following: (i) any material reduction in compensation, including bonus, unless such a reduction is applied to all members of the Company's executive officers or members of the Chief Executive's staff; (ii) reduction of Executive's title or (iii) material reduction in Executive's responsibilities.
(c) Disability. "Disability" shall mean that Executive has been unable to perform his duties under this Agreement as the result of his incapacity due to physical or mental illness, and such inability, at least ninety (90) days after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such Agreement as to acceptability not to be unreasonably withheld). Termination resulting from Disability may only be effected after at least 30 days' written notice by the Company of its intention to terminate the Executive's employment. In the event that the Executive resumes the performance of substantially all of her duties hereunder before the termination of his employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked.
(d) Re-employment. "Re-employment" shall mean that the Executive has obtained work for compensation from any single employer or client, or any group of employers or clients in a cumulative amount greater than twenty-four (24) hours per week, or one hundred (100) hours per month.
(e) Change in Control. "Change in Control" means the occurrence of any of the following:
(i) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization;
(iii) Any transaction as a result of which any person becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing at least 20% of the total voting power represented by the Company's then outstanding voting securities. For purposes of this Paragraph (iii), the term "person" shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall exclude:
(A) A trustee or other fiduciary holding securities under an employee benefit plan of the Company or a subsidiary of the Company;
(B) A corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company.
8. Successors.
(a) Company's Successors. Any successor to the Company (whether direct or
indirect and whether by purchase. Lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's
business and assets shall assume the obligations under this Agreement
and agree expressly to perform the obligations under this Agreement in
the same manner and to the same extent as the Company would be
required to perform such obligations in the absence of a succession.
For all purposes under this Agreement, the term "Company" shall
include any successor to the Company's business and assets which
executes and delivers the assumption agreement described in this
Section or which becomes bound by the terms of this Agreement by
operation of law.
(b) Executive's Successors. The terms of this Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive's personal or legal representatives, executors, administrators, successors, heirs, devisees and legatees.
9. Notice.
(a) General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Executive, mailed notices shall be addressed to him at the home address that he most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.
10. Arbitration.
(a) The Company and Executive agree that any dispute or controversy arising out of, relating to, or in connection with this Agreement, the interpretation, validity, construction, performance, breach, or termination hereof, or any of the matters herein released shall be settled by binding arbitration to be held in Santa Clara County, California in accordance with the national Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of any dispute or claim, without reference to conflicts of law rules. Executive hereby consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement or relating to any arbitration in which the Parties are participants.
(c) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF, OR ANY OF THE MATTERS HEREIN TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THIS SEVERANCE AGREEMENT AND RELEASE OF ALL CLAIMS.
11. Miscellaneous Provisions.
(a) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(c) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal substantive laws but not the choice of law rules of the State of California.
(d) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.
(e) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this Section 11(e) shall be void.
(f) Employment Taxes. All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.
(g) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.
PHOENIX TECHNOLOGIES LTD. EXECUTIVE ---------------------------------- -------------------------------------- By: Albert E. Sisto David A. Everett President and CEO |
In consideration for Executive accepting the benefits under his Severance Agreement dated January 4, 2001, Executive agrees to release Company of all claims arising from his employment as set forth below.
Employee hereby forever waives for himself, his attorneys, heirs, executors, administrators, successors and assigns any claims against Phoenix, including its subsidiaries, affiliates, insurers, shareholders, officers, directors and employees (the "Parties Released"), for any action, loss, expense or any damages arising from any occurrence from the beginning of time until the date of the signing of this Agreement and arising or in any way resulting from Employee's employment with Phoenix or the termination thereof. The only exceptions to the above waiver are claims by Employee under any worker's compensation or unemployment statutes and any right arising under this Agreement. Employee represents that he has no current intention to assert any claim on any basis against the Parties Released. Phoenix releases its claims on intellectual property created by Employee after the date of execution of this Agreement.
In the event of breach of this Agreement by Phoenix, Employee's exclusive remedy for such breach shall be limited to the enforcement of the terms of this Agreement.
COMPANY: PHOENIX TECHNOLOGIES LTD.
EXECUTIVE: David A. Everett
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This Severance Agreement (the "Agreement") is made and entered into effective as of January 4, 2001, by and between John M. Greeley (the "Executive") and Phoenix Technologies Ltd., a Delaware corporation (the "Company").
A. Management of the Company believes that it is in the best interest of the Company and its stockholders to provide the Executive with certain severance benefits should Executive's employment with the Company terminate under certain circumstances. Such benefits will provide Executive with enhanced financial security and with sufficient incentive and encouragement for Executive to remain with the Company.
B. To accomplish the foregoing objectives, the Company will, upon execution of this Agreement by the parties, agree to the terms provided herein.
C. Certain capitalized terms used in the Agreement are defined in Section 7 below.
In consideration of the mutual covenants herein contained, and in consideration of the continuing employment of Executive by the Company, the parties agree as follows:
1. Duties and Scope of Employment. The Company currently employs Executive as Senior Vice President and Chief Financial Officer. The Executive shall comply with and be bound by the Company's operating policies, procedures and practices from time to time in effect during his employment. Executive shall continue to devote his full time, skill and attention to her duties and responsibilities, and shall perform them faithfully, diligently and competently, and the Executive shall use his best efforts to further the business of the Company and its affiliated entities.
2. Base Compensation. The Company shall continue to pay Executive as compensation for his services a base salary in accordance with normal Company payroll practices ("Base Compensation"). The Base Compensation may be increased from time to time, in which case the "Base Compensation" will refer to the base salary earned by Executive at the time in question.
3. Executive Benefits. The Executive shall be eligible to participate in the employee benefit plans and executive compensation programs maintained by the Company applicable to other key executives of the Company, including (without limitation) retirement plans, savings or profit-sharing plans, stock options, incentive or other bonus plans, life, disability, health, accident and other insurance programs, paid vacations, and similar plans or programs, subject in each case to the generally applicable terms and conditions of the applicable plan or program in question and to the sole determination of the Board or any committee administering such plan or program.
(b) Bonus Eligibility and Payment. Executive is currently eligible to receive a bonus based on application of the terms of the executive bonus plan (i.e. if the Company fails to meet minimum financial objectives or Executive fails to complete personal objectives under the plan, no bonus will be paid). Such bonus, if any, will be paid to Executive at approximately the same time other Company Executives receive their bonuses.
4. Term of Agreement. The terms of this Agreement shall terminate on the date that all obligations of the parties hereunder have been satisfied. A termination of the terms of this Agreement pursuant to this Section shall be effective for all purposes.
5. Severance Benefits.
(a) Termination Not for Cause. If the Company terminates Executive's employment for any reason other than Cause, or terminates Executive by Constructive Termination as defined in this Agreement, the Executive shall be entitled to receive the following severance benefits:
(i) Severance Payments.
(1) Guaranteed Severance Payments. Subject to Executive entering into a Release of Claims (in a form substantially similar to the release of claims attached as Exhibit A), Executive shall be entitled to receive severance payments for twelve (12) months from the date of termination at Executive's then current base salary, which may be greater than, but will not be less than the Base Compensation (the "Guaranteed Severance Payment"). The Guaranteed Severance Payment will be paid to Executive in accordance with the Company's standard payroll practices. Upon termination, Executive will also be entitled to receive a pro rate portion of his then current targeted bonus for the fiscal year following his termination as described in Section 3(b)(ii).
(2) Contingent Severance Payments. If Executive has not secured Reemployment as of the end of the twelve (12) month period, Executive shall be eligible to receive an additional six (6) months of Base Compensation, also paid in accordance with the Company's standard payroll practices ("Contingent Severance Payments"). The Contingent Severance Payments shall discontinue upon Executive notifying Company of Re-Employment.
(iii)Change in Control. In the event the Company undergoes a Change in Control, or other material event in that the Company or Key Executive's position undergoes a material change as a result of the material event, Key Executive's stock options will accelerate vesting such that fifty percent (50%) of the options will vest at the completion of the Change in Control, or material event, and the remaining fifty percent (50%) will vest 90 days thereafter. If there is an inconsistency between this Agreement and the Company's Stock Option Plan or a Stock Option Agreement, the terms of this Agreement shall prevail.
(b) Voluntary Resignation; Termination For Cause. If the Executive voluntarily resigns from the Company, or if the Company terminates the Executive's employment for Cause, then the Executive shall not be entitled to receive severance or other benefits pursuant to this Agreement. However, Executive shall remain eligible for the severance and other benefits (if any) as may then be available under the Company's then existing severance and benefits plans and policies at the time of Executive's termination.
(c) Disability; Death. If the Company terminates the Executive's employment as a result of the Executive's Disability or if the Executive's employment terminates due to the death of the Executive, then the Executive shall not be entitled to receive severance or other benefits pursuant to this Agreement. However, Executive shall remain eligible for those severance and other benefits (if any) as may be available under the Company's then existing severance and benefit plans and policies at the time of Executive's termination or death.
(a) Upon the termination of the Executive's employment with the Company pursuant to Section 5(a) and for a period of eighteen (18) months thereafter, Executive agrees that he shall not, on his own behalf, or as owner, manager, advisor, principal, agent, partner, consultant, director, officer, stockholder, or employee of any business entity, or otherwise in any territory in which the Company is actively engaged in business (i) open or operate any business which is in competition with any business of the Company, (ii) act as an employee, agent, advisor or consultant or any competitor of the Company, (iii) solicit or accept business from any of the Company's competitors, (iv) take any action to or do anything reasonably intended to divert business from the Company or influence or attempt to influence any existing customers of the Company to cease doing business with the Company or to alter its business relationship with the Company, or (v) take any action or do anything reasonably intended to influence any suppliers of the Company to cease doing business with the Company or to alter its business relationship with the Company. Executive further covenants and agrees that he will not for himself or on behalf of any other person, partnership, firm, association or corporation in any territory served by the Company, directly or indirectly solicit or accept business from any of the Company's existing customers for the purchase or sale of products or services of a like kind to those sold or provided the Company. The foregoing covenant shall not be deemed to prohibit Executive from acquiring an investment not more than one percent (1%) of the capital stock of a competing business, whose stock is traded on a national securities exchange or through the automated quotation system of a registered securities association.
(b) Upon the termination of the Executive's employment with the Company pursuant to Section 5(a) and for a period of eighteen (18) months thereafter, Executive agrees that he shall not either directly or indirectly solicit, induce, attempt to hire, recruit, encourage, take away, hire any employee of the Company or cause any employee of the Company to leave his or her employment either for Executive or for any other entity or person.
(c) Executive represents that he (i) is familiar with the foregoing covenants not to compete and not to solicit, and (ii) is fully aware of his obligations hereunder, including, without limitation, the reasonableness of the length of time, scope and geographic coverage of these covenants.
(d) Company will respond within two weeks to any written request by Executive to exclude a particular company or business entity from the scope of this Section 6. Company will not unreasonably deny such a request. The parties agree that a passive financial investment by Executive in a third party will not constitute competition within the scope of this Section 6.
(a) Cause. "Cause" shall mean (i) any act of personal dishonesty taken by
the Executive in connection with his responsibilities as an Executive
and intended to result in substantial personal enrichment of the
Executive, (ii) conviction of a felony that is injurious to the Company,
(iii) a willful act by the Executive which constitutes gross misconduct
and which results in material injury to the Company, and (iv) continued
violations by the Executive of the Executive's obligations under Section
1 of this Agreement that are demonstrably willful and deliberate on the
Executive's part after which describes the basis for the Company's
belief that the Executive has not substantially performed his duties.
(b) Constructive Termination. "Constructive Termination" shall mean any of
the following: (i) any material reduction in compensation, including
bonus, unless such a reduction is applied to all members of the
Company's executive officers or members of the Chief Executive's staff;
(ii) reduction of Executive's title or (iii) material reduction in
Executive's responsibilities.
(c) Disability. "Disability" shall mean that Executive has been unable to perform his duties under this Agreement as the result of his incapacity due to physical or mental illness, and such inability, at least ninety (90) days after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such Agreement as to acceptability not to be unreasonably withheld). Termination resulting from Disability may only be effected after at least 30 days' written notice by the Company of its intention to terminate the Executive's employment. In the event that the Executive resumes the performance of substantially all of her duties hereunder before the termination of his employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked.
(d) Re-employment. "Re-employment" shall mean that the Executive has obtained work for compensation from any single employer or client, or any group of employers or clients in a cumulative amount greater than twenty-four (24) hours per week, or one hundred (100) hours per month.
(e) Change in Control. "Change in Control" means the occurrence of any of the following:
(i) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization;
(iii) Any transaction as a result of which any person becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing at least 20% of the total voting power represented by the Company's then outstanding voting securities. For purposes of this Paragraph (iii), the term "person" shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall exclude:
(A) A trustee or other fiduciary holding securities under an employee benefit plan of the Company or a subsidiary of the Company;
(B) A corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company.
8. Successors.
(a) Company's Successors. Any successor to the Company (whether direct or indirect and whether by purchase. Lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Company" shall include any successor to the Company's business and assets which executes and delivers the assumption agreement described in this Section or which becomes bound by the terms of this Agreement by operation of law.
(b) Executive's Successors. The terms of this Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive's personal or legal representatives, executors, administrators, successors, heirs, devisees and legatees.
9. Notice.
(a) General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Executive, mailed notices shall be addressed to him at the home address that he most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.
10. Arbitration.
(a) The Company and Executive agree that any dispute or controversy arising out of, relating to, or in connection with this Agreement, the interpretation, validity, construction, performance, breach, or termination hereof, or any of the matters herein released shall be settled by binding arbitration to be held in Santa Clara County, California in accordance with the national Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of any dispute or claim, without reference to conflicts of law rules. Executive hereby consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement or relating to any arbitration in which the Parties are participants.
(c) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF, OR ANY OF THE MATTERS HEREIN TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THIS SEVERANCE AGREEMENT AND RELEASE OF ALL CLAIMS.
11. Miscellaneous Provisions.
(a) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(c) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal substantive laws but not the choice of law rules of the State of California.
(d) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.
(e) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this Section 11(e) shall be void.
(f) Employment Taxes. All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.
(g) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.
PHOENIX TECHNOLOGIES LTD. EXECUTIVE ---------------------------------- -------------------------------------- By : Albert E. Sisto John M. Greeley President and CEO |
In consideration for Executive accepting the benefits under his Severance Agreement dated January 4, 2001, Executive agrees to release Company of all claims arising from his employment as set forth below.
Employee hereby forever waives for himself, his attorneys, heirs, executors, administrators, successors and assigns any claims against Phoenix, including its subsidiaries, affiliates, insurers, shareholders, officers, directors and employees (the "Parties Released"), for any action, loss, expense or any damages arising from any occurrence from the beginning of time until the date of the signing of this Agreement and arising or in any way resulting from Employee's employment with Phoenix or the termination thereof. The only exceptions to the above waiver are claims by Employee under any worker's compensation or unemployment statutes and any right arising under this Agreement. Employee represents that he has no current intention to assert any claim on any basis against the Parties Released. Phoenix releases its claims on intellectual property created by Employee after the date of execution of this Agreement.
In the event of breach of this Agreement by Phoenix, Employee's exclusive remedy for such breach shall be limited to the enforcement of the terms of this Agreement.
COMPANY: PHOENIX TECHNOLOGIES LTD.
EXECUTIVE: John M. Greeley
This Severance Agreement (the "Agreement") is made and entered into effective as of January 4, 2001, by and between Linda V. Moore (the "Executive") and Phoenix Technologies Ltd., a Delaware corporation (the "Company").
A. Management of the Company believes that it is in the best interest of the Company and its stockholders to provide the Executive with certain severance benefits should Executive's employment with the Company terminate under certain circumstances. Such benefits will provide Executive with enhanced financial security and with sufficient incentive and encouragement for Executive to remain with the Company.
B. To accomplish the foregoing objectives, the Company will, upon execution of this Agreement by the parties, agree to the terms provided herein.
C. Certain capitalized terms used in the Agreement are defined in Section 7 below.
In consideration of the mutual covenants herein contained, and in consideration of the continuing employment of Executive by the Company, the parties agree as follows:
1. Duties and Scope of Employment. The Company currently employs Executive as Vice President, General Counsel and Secretary. The Executive shall comply with and be bound by the Company's operating policies, procedures and practices from time to time in effect during his employment. Executive shall continue to devote his full time, skill and attention to her duties and responsibilities, and shall perform them faithfully, diligently and competently, and the Executive shall use his best efforts to further the business of the Company and its affiliated entities.
2. Base Compensation. The Company shall continue to pay Executive as compensation for his services a base salary in accordance with normal Company payroll practices ("Base Compensation"). The Base Compensation may be increased from time to time, in which case the "Base Compensation" will refer to the base salary earned by Executive at the time in question.
3. Executive Benefits. The Executive shall be eligible to participate in the employee benefit plans and executive compensation programs maintained by the Company applicable to other key executives of the Company, including (without limitation) retirement plans, savings or profit-sharing plans, stock options, incentive or other bonus plans, life, disability, health, accident and other insurance programs, paid vacations, and similar plans or programs, subject in each case to the generally applicable terms and conditions of the applicable plan or program in question and to the sole determination of the Board or any committee administering such plan or program.
(b) Bonus Eligibility and Payment. Executive is currently eligible to receive a bonus based on application of the terms of the executive bonus plan (i.e. if the Company fails to meet minimum financial objectives or Executive fails to complete personal objectives under the plan, no bonus will be paid). Such bonus, if any, will be paid to Executive at approximately the same time other Company Executives receive their bonuses.
4. Term of Agreement. The terms of this Agreement shall terminate on the date that all obligations of the parties hereunder have been satisfied. A termination of the terms of this Agreement pursuant to this Section shall be effective for all purposes.
5. Severance Benefits.
(a) Termination Not for Cause. If the Company terminates Executive's employment for any reason other than Cause, or terminates Executive by Constructive Termination as defined in this Agreement, the Executive shall be entitled to receive the following severance benefits:
(i) Severance Payments.
(1) Guaranteed Severance Payments. Subject to Executive entering
into a Release of Claims (in a form substantially similar to
the release of claims attached as Exhibit A), Executive
shall be entitled to receive severance payments for twelve
(12) months from the date of termination at Executive's then
current base salary, which may be greater than, but will not
be less than the Base Compensation (the "Guaranteed
Severance Payment"). The Guaranteed Severance Payment will
be paid to Executive in accordance with the Company's
standard payroll practices. Upon termination, Executive will
also be entitled to receive a pro rate portion of his then
current targeted bonus for the fiscal year following his
termination as described in Section 3(b)(ii).
(2) Contingent Severance Payments. If Executive has not secured Reemployment as of the end of the twelve (12) month period, Executive shall be eligible to receive an additional six (6) months of Base Compensation, also paid in accordance with the Company's standard payroll practices ("Contingent Severance Payments"). The Contingent Severance Payments shall discontinue upon Executive notifying Company of Re-Employment.
(iii) Change in Control. In the event the Company undergoes a Change in Control, or other material event in that the Company or Key Executive's position undergoes a material change as a result of the material event, Key Executive's stock options will accelerate vesting such that fifty percent (50%) of the options will vest at the completion of the Change in Control, or material event, and the remaining fifty percent (50%) will vest 90 days thereafter. If there is an inconsistency between this Agreement and the Company's Stock Option Plan or a Stock Option Agreement, the terms of this Agreement shall prevail.
(b) Voluntary Resignation; Termination For Cause. If the Executive voluntarily resigns from the Company, or if the Company terminates the Executive's employment for Cause, then the Executive shall not be entitled to receive severance or other benefits pursuant to this Agreement. However, Executive shall remain eligible for the severance and other benefits (if any) as may then be available under the Company's then existing severance and benefits plans and policies at the time of Executive's termination.
(c) Disability; Death. If the Company terminates the Executive's employment as a result of the Executive's Disability or if the Executive's employment terminates due to the death of the Executive, then the Executive shall not be entitled to receive severance or other benefits pursuant to this Agreement. However, Executive shall remain eligible for those severance and other benefits (if any) as may be available under the Company's then existing severance and benefit plans and policies at the time of Executive's termination or death.
(a) Upon the termination of the Executive's employment with the Company pursuant to Section 5(a) and for a period of eighteen (18) months thereafter, Executive agrees that he shall not, on his own behalf, or as owner, manager, advisor, principal, agent, partner, consultant, director, officer, stockholder, or employee of any business entity, or otherwise in any territory in which the Company is actively engaged in business (i) open or operate any business which is in competition with any business of the Company, (ii) act as an employee, agent, advisor or consultant or any competitor of the Company, (iii) solicit or accept business from any of the Company's competitors, (iv) take any action to or do anything reasonably intended to divert business from the Company or influence or attempt to influence any existing customers of the Company to cease doing business with the Company or to alter its business relationship with the Company, or (v) take any action or do anything reasonably intended to influence any suppliers of the Company to cease doing business with the Company or to alter its business relationship with the Company. Executive further covenants and agrees that he will not for himself or on behalf of any other person, partnership, firm, association or corporation in any territory served by the Company, directly or indirectly solicit or accept business from any of the Company's existing customers for the purchase or sale of products or services of a like kind to those sold or provided the Company. The foregoing covenant shall not be deemed to prohibit Executive from acquiring an investment not more than one percent (1%) of the capital stock of a competing business, whose stock is traded on a national securities exchange or through the automated quotation system of a registered securities association.
(b) Upon the termination of the Executive's employment with the Company pursuant to Section 5(a) and for a period of eighteen (18) months thereafter, Executive agrees that he shall not either directly or indirectly solicit, induce, attempt to hire, recruit, encourage, take away, hire any employee of the Company or cause any employee of the Company to leave his or her employment either for Executive or for any other entity or person.
(c) Executive represents that he (i) is familiar with the foregoing covenants not to compete and not to solicit, and (ii) is fully aware of his obligations hereunder, including, without limitation, the reasonableness of the length of time, scope and geographic coverage of these covenants.
(d) Company will respond within two weeks to any written request by Executive to exclude a particular company or business entity from the scope of this Section 6. Company will not unreasonably deny such a request. The parties agree that a passive financial investment by Executive in a third party will not constitute competition within the scope of this Section 6.
(a) Cause. "Cause" shall mean (i) any act of personal dishonesty taken by the Executive in connection with his responsibilities as an Executive and intended to result in substantial personal enrichment of the Executive, (ii) conviction of a felony that is injurious to the Company, (iii) a willful act by the Executive which constitutes gross misconduct and which results in material injury to the Company, and (iv) continued violations by the Executive of the Executive's obligations under Section 1 of this Agreement that are demonstrably willful and deliberate on the Executive's part after which describes the basis for the Company's belief that the Executive has not substantially performed his duties.
(b) Constructive Termination. "Constructive Termination" shall mean any of the following: (i) any material reduction in compensation, including bonus, unless such a reduction is applied to all members of the Company's executive officers or members of the Chief Executive's staff; (ii) reduction of Executive's title or (iii) material reduction in Executive's responsibilities.
(c) Disability. "Disability" shall mean that Executive has been unable to perform his duties under this Agreement as the result of his incapacity due to physical or mental illness, and such inability, at least ninety (90) days after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such Agreement as to acceptability not to be unreasonably withheld). Termination resulting from Disability may only be effected after at least 30 days' written notice by the Company of its intention to terminate the Executive's employment. In the event that the Executive resumes the performance of substantially all of her duties hereunder before the termination of his employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked.
(d) Re-employment. "Re-employment" shall mean that the Executive has obtained work for compensation from any single employer or client, or any group of employers or clients in a cumulative amount greater than twenty-four (24) hours per week, or one hundred (100) hours per month.
(e) Change in Control. "Change in Control" means the occurrence of any of the following:
(i) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization;
(iii) Any transaction as a result of which any person becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing at least 20% of the total voting power
represented by the Company's then outstanding voting
securities. For purposes of this Paragraph (iii), the term
"person" shall have the same meaning as when used in sections
13(d) and 14(d) of the Exchange Act but shall exclude:
(A) A trustee or other fiduciary holding securities under an employee benefit plan of the Company or a subsidiary of the Company;
(B) A corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company.
8. Successors.
(a) Company's Successors. Any successor to the Company (whether direct or indirect and whether by purchase. Lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company's business and assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Company" shall include any successor to the Company's business and assets which executes and delivers the assumption agreement described in this Section or which becomes bound by the terms of this Agreement by operation of law.
(b) Executive's Successors. The terms of this Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive's personal or legal representatives, executors, administrators, successors, heirs, devisees and legatees.
9. Notice.
(a) General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Executive, mailed notices shall be addressed to him at the home address that he most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.
10. Arbitration.
(a) The Company and Executive agree that any dispute or controversy arising out of, relating to, or in connection with this Agreement, the interpretation, validity, construction, performance, breach, or termination hereof, or any of the matters herein released shall be settled by binding arbitration to be held in Santa Clara County, California in accordance with the national Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of any dispute or claim, without reference to conflicts of law rules. Executive hereby consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement or relating to any arbitration in which the Parties are participants.
(c) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF, OR ANY OF THE MATTERS HEREIN TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THIS SEVERANCE AGREEMENT AND RELEASE OF ALL CLAIMS.
11. Miscellaneous Provisions.
(a) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(c) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal substantive laws but not the choice of law rules of the State of California.
(d) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.
(e) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this Section 11(e) shall be void.
(f) Employment Taxes. All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.
(g) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.
PHOENIX TECHNOLOGIES LTD. EXECUTIVE ---------------------------------- -------------------------------------- By: Albert E. Sisto Linda V. Moore President and CEO |
In consideration for Executive accepting the benefits under his Severance Agreement dated January 4, 2001, Executive agrees to release Company of all claims arising from his employment as set forth below.
Employee hereby forever waives for himself, his attorneys, heirs, executors, administrators, successors and assigns any claims against Phoenix, including its subsidiaries, affiliates, insurers, shareholders, officers, directors and employees (the "Parties Released"), for any action, loss, expense or any damages arising from any occurrence from the beginning of time until the date of the signing of this Agreement and arising or in any way resulting from Employee's employment with Phoenix or the termination thereof. The only exceptions to the above waiver are claims by Employee under any worker's compensation or unemployment statutes and any right arising under this Agreement. Employee represents that he has no current intention to assert any claim on any basis against the Parties Released. Phoenix releases its claims on intellectual property created by Employee after the date of execution of this Agreement.
In the event of breach of this Agreement by Phoenix, Employee's exclusive remedy for such breach shall be limited to the enforcement of the terms of this Agreement.
COMPANY: PHOENIX TECHNOLOGIES LTD.
EXECUTIVE: Linda V. Moore
Subsidiary Country/State of Incorporation
-----------------------------------------
Wholly Owned
Phoenix Technologies (Taiwan) Ltd............................... Delaware
Phoenix Technologies Kabushiki Kaisha........................... Japan
Phoenix Technologies SARL....................................... France
Phoenix Technologies GmbH....................................... Germany
Phoenix Technologies FSC Ltd.................................... Barbados
Phoenix Technologies (Hungary) Ltd.............................. Hungary
Phoenix Technologies (Korea) Ltd................................ Korea
Phoenix Technologies Asia Pacific Ltd........................... Hong Kong
Phoenix Technologies (Nanjing) Co. Ltd.......................... PRC
Award Software Far East Ltd. Taiwan............................. Taiwan
Majority Owned
inSilicon Corporation........................................... Delaware
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We consent to the incorporation by reference in the Registration Statements of Phoenix Technologies Ltd. (Form S-8 File Numbers 333-74532, 333-53892, 33-42948, 33-38770, 000-17111, 33-58027, 33-67858, 33-30939, 33-44211, 33-81984, 333-37063, 333-20447, 333-56103 and 333-65291; Form S-3 File Number 333-16309) of our report dated October 17, 2001, with respect to the consolidated financial statements and schedule of Phoenix Technologies Ltd. included in the Annual Report (Form 10-K) for the year ended September 30, 2001.
/s/ ERNST & YOUNG LLP
San Jose, California
December 5, 2001
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