-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HBvd+zxyWvRzzx7m1YTwpZcpYL57sIWIPtTHLCvpseT8HBM3RFhc5ZUAYsEWxBHy sdn44i2gReKb6bI56ut88g== 0000891618-96-001179.txt : 19960712 0000891618-96-001179.hdr.sgml : 19960712 ACCESSION NUMBER: 0000891618-96-001179 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19960710 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AWARD SOFTWARE INTERNATIONAL INC CENTRAL INDEX KEY: 0001013920 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942893462 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-05107 FILM NUMBER: 96593217 BUSINESS ADDRESS: STREET 1: 777 E MIDDLEFIELD ROAD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 4159684433 MAIL ADDRESS: STREET 1: 777 E MIDDLEFIELD ROAD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 S-1/A 1 AMENDMENT NO. 1 TO FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1996 REGISTRATION NO. 333-05107 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- AWARD SOFTWARE INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 5098 94-2893462 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification Number) incorporation or organization)
--------------------- 777 EAST MIDDLEFIELD ROAD MOUNTAIN VIEW, CALIFORNIA 94043 (415) 968-4433 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) GEORGE C. HUANG CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER AWARD SOFTWARE INTERNATIONAL, INC. 777 EAST MIDDLEFIELD ROAD MOUNTAIN VIEW, CALIFORNIA 94043 (415) 968-4433 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- Copies to: JAMES C. KITCH, ESQ. ROBERT T. CLARKSON, ESQ. MATTHEW P. FISHER, ESQ. ADELE C. FREEDMAN, ESQ. COOLEY GODWARD CASTRO WILSON SONSINI GOODRICH & ROSATI, P.C. HUDDLESON & TATUM 650 PAGE MILL ROAD FIVE PALO ALTO SQUARE PALO ALTO, CALIFORNIA 94304-1050 3000 EL CAMINO REAL (415) 493-9300 PALO ALTO, CALIFORNIA 94306-2155 (415) 843-5000
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous bases pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 AWARD SOFTWARE INTERNATIONAL, INC. CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
ITEM NUMBER AND HEADING IN FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS - --------------------------------------------------- ------------------------------------------ 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus..... Facing Page of Registration Statement; Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus................................. Inside Front and Outside Back Cover Pages 3. Summary Information, Risk Factors, and Ratio of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors 4. Use of Proceeds.............................. Use of Proceeds 5. Determination of Offering Price.............. Outside Front Cover Page; Underwriting 6. Dilution..................................... Dilution 7. Selling Shareholders......................... Principal and Selling Shareholders; Certain Transactions 8. Plan of Distribution......................... Outside Front and Inside Front Cover Pages; Underwriting 9. Description of Securities to be Registered... Prospectus Summary; Capitalization; Description of Capital Stock 10. Interests of Named Experts and Counsel....... Legal Matters; Experts 11. Information with Respect to the Registrant... Outside Front and Inside Front Cover Pages; Prospectus Summary; Risk Factors; Dividend Policy; Capitalization; Selected Consolidated Financial Information; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Transactions; Principal and Selling Shareholders; Description of Capital Stock; Shares Eligible for Future Sale; Additional Information; Consolidated Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities................................ Not Applicable
3 Information contained herein is subject to completion or amendment. A Registration Statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the Registration Statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. PROSPECTUS Subject to Completion, Dated July 10, 1996 2,000,000 Shares LOGO Common Stock Of the 2,000,000 shares of common stock ("Common Stock") offered hereby (the "Offering"), 1,250,000 shares are being sold by Award Software International, Inc., a California corporation (the "Company" or "Award"), and 750,000 shares are being sold by Selling Shareholders. See "Principal and Selling Shareholders." The Company will not receive any proceeds from the sale of the Common Stock by the Selling Shareholders. Prior to the Offering, there has been no public market for the Common Stock. It is currently anticipated that the initial public offering price will be between $11.00 and $13.00 per share. See "Underwriting" for information relating to the factors to be considered in determining the initial public offering price. Application has been made for the Common Stock to be approved for quotation on the Nasdaq National Market under the symbol "AWRD." SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------------------------- PROCEEDS TO PRICE TO UNDERWRITING PROCEEDS TO SELLING PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS - -------------------------------------------------------------------------------------------------- Per Share $ $ $ $ - -------------------------------------------------------------------------------------------------- Total(3) $ $ $ $ - --------------------------------------------------------------------------------------------------
(1) The Company and certain of the Selling Shareholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses of the Offering payable by the Company estimated at $850,000. (3) The Company has granted the Underwriters an option to purchase up to an additional 300,000 shares of Common Stock, on the same terms as set forth above, solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock being offered by this Prospectus are being offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to approval of certain legal matters by Wilson Sonsini Goodrich & Rosati, P.C., counsel for the Underwriters. It is expected that delivery of the shares of Common Stock will be made against payment therefor on or about , 1996 at the offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York. J.P. MORGAN & CO. PRUDENTIAL SECURITIES INCORPORATED NEEDHAM & COMPANY, INC. , 1996 4 (COLOR ART WORK) 2 5 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. No person has been authorized to give any information or to make any representations not contained in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or any Underwriters. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, the Common Stock in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation. No action has been or will be taken in any jurisdiction by the Company, the Selling Shareholders or by any Underwriter that would permit a public offering of the Common Stock or possession or distribution of this Prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons into whose possession this Prospectus comes are required by the Company, the Selling Shareholders and the Underwriters to inform themselves about and to observe any restrictions as to the offering of the Common Stock and the distribution of this Prospectus. TABLE OF CONTENTS
Page Prospectus Summary....................... 4 Risk Factors............................. 6 Use of Proceeds.......................... 12 Dividend Policy.......................... 12 Capitalization........................... 12 Dilution................................. 13 Selected Consolidated Financial Information............................ 14 Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 15 Business................................. 23 Page Management............................... 30 Certain Transactions..................... 34 Principal and Selling Shareholders....... 37 Description of Capital Stock............. 40 Shares Eligible for Future Sale.......... 42 Underwriting............................. 44 Legal Matters............................ 44 Experts.................................. 44 Additional Information................... 45 Index to Consolidated Financial Statements............................. F-1
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. The Company intends to furnish its shareholders annual reports containing consolidated financial statements audited by its independent accountants and quarterly reports containing consolidated unaudited financial statements for each of the first three quarters of each year. The Company's logo, SMSAccess, USBAccess, RPBAccess, APMAccess, DMIAccess, WWWAccess, CardWare, CardWare Socket Services, CardWare Card Services and BIOSAccess are trademarks of the Company. This Prospectus also includes trademarks of companies other than the Company. 3 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and consolidated financial statements, including notes thereto, appearing elsewhere in this Prospectus. For a discussion of certain factors to be considered in evaluating an investment in the shares of Common Stock offered hereby, see "Risk Factors." Except as otherwise noted, all information in this Prospectus (i) assumes no exercise of the Underwriters' over-allotment option; and (ii) reflects a 1-for-2 reverse stock split of the currently outstanding Common Stock. See "Description of Capital Stock" and "Underwriting." THE COMPANY Award designs, develops and markets system management software for the global computing market. System management software is one of the fundamental layers in personal computer ("PC") architecture and provides an essential interface between a PC's operating system software and hardware. The Company's principal system management software products include a suite of Basic Input/Output System software ("BIOS"). Award's customers include designers and manufacturers of motherboards, PC systems and other microprocessor-based (or "embedded") devices. The Company believes that its products and engineering services enable customers to rapidly develop new motherboard designs for state-of-the-art computer systems. The Company markets and licenses its products and services worldwide and has established itself as a leading provider of desktop system management software in Asia, which accounts for approximately 40% of worldwide desktop motherboard production. The BIOS, which is the software initially executed after the system is turned on, tests and initializes hardware components, initiates the operating system and then provides advanced interface functions. Award's desktop BIOS products enable a PC to support a number of key advanced technologies, including Plug and Play, Peripheral Component Interconnect ("PCI"), Desktop Management Interface ("DMI") and Advanced Power Management ("APM"). The Company is currently developing further enhancements to its BIOS, including support for Universal Serial Bus ("USB"). The Company's embedded device BIOS provides customized features to address the specialized needs of its customers in this market. In addition to the Company's proprietary suite of system management software products, Award offers PC Card software that enables PCs and other electronic devices to recognize, install, configure and operate peripheral devices, such as network or modem cards. The Company currently licenses its products to more than 200 customers worldwide. In response to its customers' need to develop and integrate new technologies rapidly, the Company has developed its business with a particular emphasis on providing local engineering service and support in each of its major target regions: Asia (especially Taiwan), North America and Europe. The Company is increasing its presence in Europe through a strategic relationship with Vobis Microcomputer AG ("Vobis"), pursuant to which the Company and Vobis are jointly developing BIOS and utilities for the desktop PC and embedded device markets. As part of this relationship, Vobis purchased shares representing approximately 12% of the Company's Common Stock outstanding at the time of its investment. The Company has also entered into a joint technology development and support agreement with Advanced Micro Devices, Inc. ("AMD") to support the design and development of products related to AMD's K86 microprocessor (the "K86"). As part of this relationship, AMD has designated Award as its primary supplier of BIOS-related products and engineering services for its baseline reference and production-ready K86 platform designs and has agreed to make an equity investment in the Company's Common Stock. The Company is leveraging its existing customer relationships and desktop expertise to develop system management software for the mobile and network computing markets. The Company anticipates that leading Taiwanese desktop system and motherboard manufacturers, many of which are Award customers, will enter the mobile PC market and, in response, the Company is developing enhanced system management software for mobile PCs. In addition, the Company is developing a suite of applications called SMSAccess that, among other functions, will enable remote access to and diagnosis and repair of disabled systems. The Company was incorporated in California in 1983. The Company's executive offices are located at 777 East Middlefield Road, Mountain View, California 94043, and its telephone number is (415) 968-4433. Award's home page can be located on the World Wide Web at http://www.award.com. Information contained in the Company's web site shall not be deemed to be a part of this Prospectus. 4 7 THE OFFERING COMMON STOCK OFFERED: By the Company(1)............................ 1,250,000 shares By the Selling Shareholders.................. 750,000 shares Total Offering(1)............................ 2,000,000 shares COMMON STOCK OUTSTANDING AFTER THE OFFERING(1).................................. 6,442,358 shares USE OF PROCEEDS BY THE COMPANY................. Product development, working capital and other general corporate purposes, including possible acquisitions of complementary products and technologies. See "Use of Proceeds." PROPOSED NASDAQ NATIONAL MARKET SYMBOL......... "AWRD"
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
-------------------------------------------------------------------- PREDECESSOR PREDECESSOR THE COMPANY ---------------- AND THE ----------------------------------- COMPANY THREE MONTHS ----------- ENDED YEARS ENDED DECEMBER 31, ------------------------------------------------ 1991 MARCH 31, ------ --------------- Dollars in thousands, except per share data 1992 1993(2) 1994 1995 1995 1996 ------- ----------- ------ ------ ------ ------ (UNAUDITED) (UNAUDITED) CONSOLIDATED STATEMENT OF OPERATIONS DATA Revenues: Software license fees............... $6,307 $ 5,416 $ 3,666 $5,585 $6,989 $1,496 $2,175 Engineering services................ 180 282 154 161 239 105 131 Related parties..................... -- -- 50 972 1,902 455 506 ------ ------- ----------- ------ ------ ------ ------ Total revenues.............. 6,487 5,698 3,870 6,718 9,130 2,056 2,812 Gross profit.......................... 5,673 5,182 3,662 6,127 8,494 1,971 2,524 Net income (loss)..................... $ (72) $ (296) $(1,833) $1,258 $1,165 $ 316 $ 386 Net income per share(3)............... $ 0.19 $ 0.18 $ 0.05 $ 0.06 Weighted average common and common equivalent shares in thousands(3)... 6,453 6,646 6,768 6,190
--------------------------------------------- THE COMPANY --------------------------------------------- MARCH 31, 1996 --------------------------------------------- ACTUAL PRO FORMA (4) AS ADJUSTED(5) ------- ------------- --------------- (UNAUDITED) CONSOLIDATED BALANCE SHEET DATA Cash and cash equivalents................................. $10,591 $12,679 $25,779 Working capital........................................... 11,315 13,403 26,503 Total assets.............................................. 14,238 16,326 29,426 Total shareholders' equity................................ 12,068 14,156 27,256
- ------------------------------ (1) Assumes no exercise of the Underwriters' over-allotment option. Excludes an aggregate of 1,250,000 shares reserved for issuance under the Company's 1995 Stock Option Plan, of which 941,280 shares were subject to outstanding options as of July 5, 1996, and 518,227 shares of Common Stock issuable upon exercise of outstanding warrants. See "Capitalization," "Management-Stock Option Plan," "Certain Transactions" and Notes 7 and 11 of Notes to Consolidated Financial Statements. (2) Includes the combined results of operations for the Company and its predecessor, Award Software, Inc. (the "Predecessor"). The Company was acquired in July 1993, which resulted in a new historical accounting basis for the Company. The results of operations for the Predecessor for the period January 1, 1993 through July 1, 1993 and the Company for the period July 2, 1993 through December 31, 1993 have been combined to facilitate presentation of the results of operations on a calendar year basis. See Consolidated Financial Statements. (3) For an explanation of the determination of the weighted average number of shares used in computing net income per share, see Note 2 of Notes to Consolidated Financial Statements. (4) Assumes (i) the issuance of 148,148 shares of Common Stock at $13.50 per share to AMD for aggregate proceeds of $2,000, (ii) reflects the exercise of options to purchase 9,583 shares of Common Stock for aggregate proceeds of $10 in June 1996 and (iii) reflects the exercise of warrants to purchase 77,500 shares of Common Stock for aggregate proceeds of $78 in July 1996. (5) As adjusted to reflect the sale of 1,250,000 shares of Common Stock offered by the Company hereby, assuming an initial public offering price of $12.00 per share, after deducting underwriting discounts and estimated offering expenses payable by the Company. 5 8 RISK FACTORS In addition to the other information in this Prospectus, the following risk factors should be considered carefully by potential investors in evaluating an investment in the Common Stock offered hereby. This Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21A of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below. DEPENDENCE UPON THE UNDERLYING PC INDUSTRY; DEPENDENCE ON CURRENT PC INDUSTRY STANDARDS The demand for the Company's system management software depends principally on (i) PC manufacturers and other customers licensing the Company's software rather than developing their own system management software, (ii) the market acceptance of the products incorporating the Company's software sold by the Company's original equipment manufacturer ("OEM") customers, (iii) the emergence of new PC technologies that require system management software solutions to provide functionality, user value and performance, and (iv) the technological competence of the Company's core products. Sales of PCs fluctuate substantially from time to time based on numerous factors, including general economic conditions in the markets for the Company's customers' products, new hardware and software product introductions, demand for new applications and shortages of key components. Further, the markets in the PC industry are extremely competitive and characterized by rapid and frequent price reductions. The introduction of new hardware architectures, microprocessors, peripheral equipment and operating systems within the PC industry has increased the complexity, time to market and cost to develop PCs. A number of computer manufacturers, including IBM Corporation ("IBM") and Compaq Computer Corporation ("Compaq"), develop their own BIOS products to achieve compatibility with and integrate new technologies into their products. While the Company believes that price and time-to-market pressures will continue to foster a trend among its customers and potential customers to outsource system management software requirements to third parties, there can be no assurance that this trend will continue or will not reverse itself, which would have a material adverse effect on the business, financial condition and results of operations of the Company. See "Business -- Industry Background" and "-- Award Strategy." The Company's software to date has been primarily based on central processing units ("CPUs") designed by or compatible with those of Intel Corporation ("Intel") and operating system software designed by Microsoft Corp. ("Microsoft"). If the market for Intel and Intel-compatible CPUs with x86 architecture is materially diminished or if another CPU, such as Motorola, Inc.'s "PowerPC," achieves a high degree of success, demand for the Company's current software would be reduced. In addition, most of the Company's software has been installed on computers using Microsoft's MS/DOS or Windows operating systems. If Microsoft's operating systems cease to be the dominant operating systems for the PC industry, or if PC manufacturers use other operating systems, which are not compatible with MS/DOS or Windows, the Company could experience increased product development costs and/or diminished revenues. CONCENTRATION OF REVENUES FROM DESKTOP BIOS The Company depends on sales of desktop BIOS for a substantial majority of its revenues. The Company has not generated substantial revenues from the sale of other products to date, including sales of mobile PC products. If sales of the Company's desktop BIOS decline for any reason, the Company's business, financial condition and results of operations would be adversely affected, unless the Company is able to replace those sales with increased sales of other products. Sales of desktop BIOS could decline for a number of reasons, including a shift in the market for PCs away from desktop PCs in favor of mobile PCs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." COMPETITION FROM SYSTEM MANAGEMENT SOFTWARE COMPANIES AND OTHER PARTICIPANTS IN THE PC INDUSTRY The markets for the Company's software are highly competitive. The Company faces competition primarily from other system management software companies, including American Megatrends, Inc., Phoenix Technologies Ltd. and SystemSoft Corporation, as well as in-house software development staffs of current and prospective customers. Certain of the companies with which the Company competes or may in the future compete have substantially greater financial, marketing, sales and support resources and greater brand name and technology leadership recognition than the Company. There can be no assurance that the Company will be able to develop software comparable or superior to software offered by its competitors. In addition, the PC market experiences intense price competition and the Company expects that, in order to remain competitive, it may have to decrease unit prices on some or all of its software products. Any such decrease would have a material adverse effect on the Company's business, financial condition and results of operations. 6 9 The Company believes that interdependencies may develop between system management software companies and their customers, which would need to be overcome in order to replace an entrenched competitor. While the Company believes that such entrenchment may benefit the Company in its existing relationships with key participants in the desktop PC market, customer entrenchment may make it more difficult for the Company to displace entrenched competitors or increase market presence, particularly in the mobile PC market, where competitors may already have strong relationships with certain mobile PC manufacturers. Intel has entered into formal agreements with, and become a significant shareholder in, Phoenix Technologies Ltd. and SystemSoft Corporation. In addition, SystemSoft Corporation has entered into agreements with Microsoft, IBM and Compaq to license its PC Card software. Operating system software vendors may in the future enter the Company's primary markets as direct competitors or incorporate enough features into their products so as to reduce the need for the Company's products. Microsoft includes basic PC Card software in its Windows 95 operating system and has announced the inclusion of full PC Card software support in its next generation Windows 9x and Windows NT operating systems. As software developers provide greater functionality and features, user value and performance in their products that eliminate or reduce the need for the Company's system management software, the market for the Company's products could be materially diminished. In addition, chipset manufacturers, including Intel, may increase their presence in the motherboard manufacturing market, which may have an adverse effect on the Company's OEM customers. There can be no assurance that other participants in the PC industry will not develop products and solutions that reduce the demand or obviate the need for the Company's products. See "Business -- Competition." ABILITY TO RESPOND TO RAPID TECHNOLOGICAL CHANGE The market for system management software is characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. The general trend in the PC industry is toward shorter product life cycles, resulting in rapid product and technology obsolescence. The life cycle of the Company's products is highly dependent on the life cycles of the products sold by its customers, who are primarily in the desktop PC industry. Although the Company's core products, specifically, the desktop and embedded device BIOS and PC Card software, may have a life cycle as long as several years, specific customized adaptations of the Company's core products are generally expected to have a life cycle of six months to one year. The Company's future success will depend upon its ability to enhance its core software and to develop and introduce new software which keeps pace with technological developments and evolving industry standards as well as to respond to its customers' and end-users' demand for greater features and functionality. The Company is currently developing certain technologies that it will need to remain competitive, particularly system management software that supports USB. If the Company fails to introduce such products by the time USB becomes an industry standard, the Company's business, financial condition and results of operations will be adversely affected. There can be no assurance that the Company will be successful in developing such enhancements or new software, or, even if successful, that it will not experience delays in achieving such developments. Any failure or delay by the Company to develop such enhancements or new software or the failure of its software to achieve market acceptance would adversely affect the Company's business, financial condition and results of operations. In addition, there can be no assurance that products or technologies developed by others will not render the Company's software or technologies non-competitive or obsolete. See "Business -- Industry Background" and "-- Product Development." UNCERTAIN ACCEPTANCE IN NEW AND DEVELOPING MARKETS The Company's future success is dependent on customer acceptance of new products and penetration of markets outside the desktop PC market. There can be no assurance that the Company will be able to expand its products and technologies into the mobile PC, embedded device and network computing and Internet markets or that the Company will be able to increase its market presence in the desktop PC market. Expansion of the Company's software and technology into the mobile PC market will depend primarily on the Company's ability to replace entrenched competitors. Penetration of markets outside the desktop PC market, such as the embedded device market, will depend upon the development and availability of system management software providing the necessary functionality and customer acceptance of such new technology. There can be no assurance that the Company will be able to develop or obtain from third parties the necessary software and technology to penetrate these markets, or that, if such software and technology is developed by the Company or obtained from third parties through licensing, which may include payments of license fees or royalties in advance, the Company will be able to successfully distribute such products. There can be no assurance that such products will not be developed by others rendering the Company's products non-competitive or obsolete. In addition, there can be no assurance that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of such new products, or that such products will achieve market acceptance. Any increase in the demand for the Company's embedded device products is dependent upon the increasing use and complexity of embedded computer systems in new and traditional products. No assurance can be given that this trend will continue or, even if it does, that the Company will be able to design system management software that will address the unique requirements of the embedded device market. Further, since the Company's experience and expertise are based on Intel x86 architecture, the Company's success in the embedded device market is significantly dependent on Intel's continued commitment to, and the increased presence of x86 7 10 architecture in, this market. No assurance can be given that Intel will not de-emphasize or withdraw its support of the embedded device market, or that the trend toward x86 architecture in the embedded device market will continue, any of which could result in a material adverse effect on the Company's growth strategies, financial condition and results of operations. Certain of the markets for the Company's existing and future products, such as the Internet and private internet protocol networks ("Intranet"), have only recently begun to develop and are rapidly evolving. Demand and market acceptance for recently introduced or developing products are subject to a high level of uncertainty and risk. Critical issues concerning the commercial use of the Internet remain unresolved and could adversely affect the growth of Internet use. There can be no assurance that commerce and communication over the Internet or Intranet will become widespread, or that the Company's planned products addressing the Internet and Intranet markets will become widely accepted. Because these markets for the Company's existing and developing products are new and rapidly emerging, it is difficult to predict the future growth rate, if any, and size of these markets. There can be no assurance that such markets for the Company's existing and developing products and technology will develop or that such products will be accepted. If these markets fail to develop, develop more slowly than anticipated or become saturated with competitors, or if the Company's products do not obtain customer acceptance, the Company's business, financial condition and results of operations could be materially adversely affected. See "Business -- Award Strategy." FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY The Company has experienced and expects to continue to experience fluctuations in its quarterly results of operations. The Company's revenues are affected by a number of factors, including the demand for PCs and embedded devices, timing of new product introductions, product mix, volume and timing of customer orders, activities of competitors and the ability of the Company to penetrate new markets. The Company's business is seasonal with revenues generally increasing in the fourth quarter as the result of increased PC shipments during the holiday season. Consequently, during the three quarters ending in March, June and September, the Company has historically not been as profitable as in the quarter ending in December. In addition, the Company's revenues and profits have historically decreased in the first quarter of each year as compared with the fourth quarter of the previous year. The Company generally ships orders as they are received and, as a result, has little or no backlog. Quarterly revenues and results of operations therefore depend on the volume and timing of orders received during the quarter, which are difficult to forecast. Because the Company's staffing and other operating expenses are based on anticipated revenues, delays in the receipt of orders can cause significant variations in results of operations from quarter to quarter. The Company also may choose to reduce prices, increase spending in response to competition or pursue new market opportunities, each of which decisions may adversely affect the Company's business, financial condition and results of operations. Therefore, the Company believes that period-to-period comparisons of its revenues and operating results are not necessarily meaningful and should not be relied upon as indicators of future performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Due to all of the foregoing factors, it is likely that in some future quarters the Company's operating results will be below the expectations of public market analysts and investors. Regardless of the general outlook for the Company's business, the announcement of quarterly results of operations below analyst and investor expectations is likely to result in a decline in the trading price of the Company's Common Stock. DEPENDENCE ON KEY CUSTOMER RELATIONSHIPS; CONCENTRATION OF CREDIT RISK The Company believes that its success to date has been largely due to its relationship with participants in the desktop PC industry, particularly OEMs in the desktop PC market. The Company works closely with its customers to provide quick response to their product design needs and assists them in evaluating new technological developments as they affect future products and enhancements to be sold by the Company's customers. The loss of any one of these strategic relationships or any other significant customer in the PC industry could adversely affect the Company's product development efforts, business, financial condition and results of operations. In the year ended December 31, 1995, Vobis and Toshiba Europa (I.E.) GmbH ("Toshiba") accounted for approximately 13% and 14%, respectively, of the Company's total revenues. In the quarter ended March 31, 1996, Vobis and Toshiba accounted for approximately 18% and 13%, respectively, of the Company's total revenues. The loss of any key customer or the inability of the Company to replace revenues provided by a key customer would have a material adverse effect on the Company's business, financial condition and results of operations. Toshiba recently indicated that it intends to discontinue licensing the Company's PC Card software, and, therefore, the Company does not currently expect to receive material revenues from this customer during the second half of 1996. Further, the Company's customer base consists primarily of motherboard manufacturers and OEMs in the desktop PC market, and as a result the Company maintains individually significant receivable balances from these customers. If these customers fail to satisfy their payment obligations, the Company's business, financial condition and results of operations would be adversely affected. 8 11 DEPENDENCE ON KEY PERSONNEL; ABILITY TO ATTRACT AND RETAIN KEY TECHNICAL EMPLOYEES The Company's success to date has depended to a significant extent upon a number of key management and technical employees. The loss of services of one or more of these key employees, particularly George C. Huang, the Company's Chairman of the Board, President and Chief Executive Officer; Lyon T. Lin, General Manager, Taiwan and President, Award Software Hong Kong Limited, Taiwan Branch; and Maurice W. Bizzarri, the Company's Vice President, Engineering and Product Marketing, could have a material adverse effect on the Company's business, financial condition and results of operations. Except for the Company's employees in Germany, none of the Company's employees is party to an employment agreement with the Company. The Company believes that its future success will also depend in large part upon its ability to attract and retain highly skilled technical, management and sales and marketing personnel. Moreover, because the development of the Company's software requires knowledge of computer hardware, operating system software, system management software and application software, key technical personnel must be proficient in a number of disciplines. Competition for such technical personnel is intense, and the failure of the Company to hire and retain talented technical personnel or the loss of one or more key employees could have an adverse effect on the Company's business, financial condition and results of operations. Future growth, if any, of the Company will require additional engineering, sales and marketing, financial and administrative personnel, to expand customer services and support and to expand operational and financial systems. There can be no assurance that the Company will be able to attract and retain the necessary personnel to accomplish its growth strategies or that it will not experience constraints that will adversely affect its ability to satisfy customer demand in a timely fashion. If the Company's management is unable to manage growth effectively, the Company's business, financial condition and results of operations could be adversely affected. MANAGEMENT OF GROWTH The growth of the Company's business and, in particular, the Company's customer base, has placed, and is expected to continue to place, a strain on the Company's management systems and resources. The Company's ability to compete effectively and manage future growth, if any, will require the Company to continue to improve its financial and management controls, reporting systems and procedures on a timely basis and expand, train and manage its work force. There can be no assurance that the Company will be able to do so successfully, and the failure to do so would have a material adverse effect upon the Company's business, financial condition and results of operations. The Company's success will depend to a significant degree on the ability of its executive officers and other members of its senior management, none of whom has any prior experience managing public companies in their current roles, to manage future growth, if any. INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS; INTERNATIONAL UNREST The Company operates on a multinational basis, and a significant portion of its business is conducted in currencies other than the U.S. Dollar. As a result, the Company is subject to various risks, including exposure to currency fluctuations, greater difficulty in administering its business globally, multiple regulatory requirements and other risks associated with international sales, such as import and export licenses, political and economic instability, overlapping or differing tax structures, trade restrictions, changes in tariff rates, different legal regimes and difficulty in protecting intellectual property, enforcing agreements and collecting accounts receivable. During the year ended December 31, 1995, approximately 32.9% and 24.0% of the Company's revenues were denominated in New Taiwan Dollars and German Marks, respectively. During the three months ended March 31, 1996, approximately 35.7% and 19.9% of the Company's revenues were denominated in New Taiwan Dollars and German Marks, respectively. While the impact of foreign exchange rate movements have not had a material impact on the Company's financial statements, there can be no assurance that fluctuation in foreign currency exchange rates will not have a material adverse effect on the Company's business, financial condition and results of operations. The Company does not currently engage in foreign currency hedging transactions. There can be no assurance that exchange rate fluctuations will not have a material adverse effect on the Company's business, financial condition or results of operations. In addition, recent events such as the elections in Taiwan and the military maneuvers conducted by the People's Republic of China in the Straits of Taiwan have increased tensions in that area. During the year ended December 31, 1995, and the three months ended March 31, 1996, approximately 43.8% and 45.0% of the Company's revenues, respectively, were derived from this region. In the event that actual hostilities erupted between the two areas, the operations of the Company's customers might be interrupted for an indeterminate period of time, which would have a material adverse effect on the Company's business, financial condition and results of operations. INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS The Company's success depends in significant part on the development, maintenance and protection of its intellectual property. The Company regards all of its software as proprietary and attempts to protect it with a combination of patents, copyrights, trademarks and trade secrets, employee and third-party nondisclosure agreements and other methods of protection. Despite these precautions and the protection of copyright laws, it may be possible for unauthorized third parties to copy the Company's software or to reverse engineer or 9 12 obtain and use information that the Company regards as proprietary. The Company has patent applications pending in the U.S. and/or abroad on six inventions, three of which are owned jointly with a third party. There are currently no issued patents covering the Company's products. However, the Company does not generally rely on patents to protect its products. The Company licenses its object and source code under written license agreements. Certain provisions of such licenses, including provisions protecting against unauthorized use, copying, transfer and disclosure of the licensed programs, may be unenforceable under the laws of certain jurisdictions. In addition, the laws of some foreign jurisdictions, including Taiwan, do not protect the Company's proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the protections put in place by the Company will be adequate. Significant and protracted litigation may be necessary to protect the Company's intellectual property to determine the scope of the proprietary rights of others or to defend against claims of infringement. Moreover, although the Company is not currently involved in any litigation with respect to intellectual property rights, in the past there have been allegations that certain portions of the Company's core BIOS infringed on a third party's copyrights. In response, the Company rewrote certain software routines in a "clean room" procedure and is upgrading its customers to the new version of such software routines in order to avoid any further allegations of infringement. The Company believes that its software does not infringe the copyrights of any third parties. However, there can be no assurance that other parties will not make allegations of infringement in the future. Such assertions could require the Company to discontinue the use of certain software codes or processes, to cease the manufacture, use and sale of infringing products, to incur significant litigation costs and expenses and to develop non-infringing technology or to obtain licenses to the alleged infringing technology. Although the Company has been able to acquire licenses from third parties in the past, there can be no assurance that the Company would be able to develop alternative technologies or to obtain such licenses or, if a license were obtainable, that the terms would be commercially acceptable to the Company in the event such assertions are made in the future. CONTROL BY MANAGEMENT SHAREHOLDERS Upon completion of the Offering, the directors and executive officers of the Company as a group will beneficially own approximately 47% of the outstanding Common Stock, excluding the exercise of the Underwriters' over-allotment option. As a result, such persons will have the ability to control the business and affairs of the Company. Such concentration of ownership may have the effect of delaying or preventing a change in control of the Company. See "Management" and "Principal and Selling Shareholders." SIGNIFICANT UNALLOCATED NET PROCEEDS The principal purposes of the Offering are to create a public market for the Company's Common Stock, facilitate future access to capital markets and enhance the Company's ability to use its Common Stock as consideration for acquisitions and as a means of attracting and retaining key employees. The Company intends to use the net proceeds for general corporate purposes, including working capital and product development. The Company may use a portion of the net proceeds to acquire technologies or products complementary to the Company's business and growth strategy. The Company has no other specific uses of the proceeds of the Offering, and the exact uses of such proceeds will be subject to the discretion of management. See "Use of Proceeds." SHARES ELIGIBLE FOR FUTURE SALE Sales of a substantial number of shares of Common Stock in the public market following the Offering could adversely affect the market price for the Company's Common Stock. Upon completion of the Offering, the Company will have outstanding 6,442,358 shares of Common Stock, assuming no exercise of the Underwriters' over-allotment option and no exercise of outstanding options and warrants. Of these shares, the 2,000,000 shares sold in the Offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended (the "Securities Act"). The remaining 4,442,358 shares of Common Stock held by existing shareholders are "restricted securities" as such term is defined in Rule 144 under the Securities Act (the "Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 or Regulation S promulgated under the Securities Act. The Company, all directors and executive officers and certain shareholders of the Company have agreed not to sell or otherwise dispose of any shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of J.P. Morgan Securities Inc. As a result of contractual restrictions and the provisions of Rules 144 and 701 and Regulation S, additional shares will be available for sale in the public market as follows: (i) 45,939 Restricted Shares will be eligible for immediate sale on the date of this Prospectus, (ii) 10,833 Restricted Shares and 324,727 shares of Common Stock issuable upon exercise of currently outstanding options will be eligible for sale beginning 90 days after the date of this Prospectus and (iii) 4,385,586 Restricted Shares, 50,567 additional shares of Common Stock issuable upon exercise of currently outstanding options and 518,227 shares of Common Stock issuable upon exercise of currently outstanding warrants will be eligible for sale beginning 180 days after the date of this Prospectus upon expiration of lock-up agreements. The Restricted Shares will be eligible for sale from time to time after completion of the Offering. After the Offering, the holders of approximately 1,581,016 shares of Common Stock and warrants to purchase 518,227 shares of Common Stock will be 10 13 entitled to certain demand and piggyback rights with respect to registration of such shares under the Securities Act. If such holders, by exercising their demand rights, cause a large number of securities to be registered and sold in the public market, such sales could have an adverse effect on the market price for the Company's Common Stock. If such holders, by exercising their piggyback registration rights, cause a large number of their shares to be included in a public offering by the Company, the obligation to include such shares could have an adverse effect on the market price for the Company's Common Stock or on the Company's ability to raise capital. See "Underwriting" and "Shares Eligible for Future Sale." NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offering, there has not been any public market for the Company's Common Stock, and there cannot be any assurance that an active trading market will develop or be sustained after the Offering. The initial public offering price for the Common Stock to be sold by the Company and the Selling Shareholders will be determined by negotiation among representatives of the Company, the Selling Shareholders and the representatives of the Underwriters and may not be indicative of the future market price. The trading price of the Common Stock could be subject to wide fluctuations in response to quarter-to-quarter variations in operating results, changes in earnings estimates by analysts, announcement of technological innovations or new products by the Company or its competitors, general conditions in the system management software and PC industries and other events or factors. In addition, in recent years the stock market in general, and the shares of technology companies in particular, have experienced extreme price fluctuations. These broad market fluctuations may adversely affect the market price of the Common Stock. See "Underwriting." In addition, there has been significant volatility in the market price of securities of technology-based companies similar in size to the Company. Factors such as announcements of technological developments or new products by the Company or its competitors, variations in the Company's quarterly operating results, or general economic or stock market conditions unrelated to the Company's operating performance may adversely affect the market price of the Company's Common Stock. DILUTION Purchasers of shares of Common Stock offered hereby will suffer an immediate and substantial dilution of $7.80 in the pro forma net tangible book value per share of the Common Stock, assuming an initial public offering price of $12.00 per share. In the event the Company raises additional funds through the issuance of equity securities, the investors participating in the Offering may experience further dilution. To the extent outstanding options, warrants and other rights to purchase shares of Common Stock are exercised, there will be further dilution. See "Dilution," "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources," "Certain Transactions" and "Capitalization." 11 14 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered by the Company hereby are estimated to be approximately $13,100,000 ($16,448,000 if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $12.00. The Company will not receive any of the net proceeds from the sale of shares by the Selling Shareholders. The principal purposes of the Offering are to create a public market for the Company's Common Stock, facilitate future access to capital markets and enhance the Company's ability to use its Common Stock as consideration for acquisitions and as a means of attracting and retaining key employees. The Company intends to use the net proceeds for working capital and general corporate purposes, including an increase in the Company's internal product development, staffing in connection with new product introductions and other related product development expenditures. A portion of the proceeds may also be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, the Company evaluates potential acquisitions of such businesses, products or technologies. The Company has no present understandings, commitments or agreements with respect to any material acquisitions of other businesses, products or technologies. Pending use of the net proceeds for the above purposes, the Company intends to invest such funds in short-term, interest-bearing, investment-grade securities. DIVIDEND POLICY The Company does not pay any cash dividends on its capital stock. The Company currently intends to retain any future earnings to finance the growth and development of its business and therefore does not anticipate paying any cash dividends in the foreseeable future. Any future determination relating to dividend policy will be made at the discretion of the Board of Directors of the Company and will depend on a number of factors, including the future earnings, capital requirements, financial condition and future prospects of the Company and such other factors as the Board of Directors may deem relevant. CAPITALIZATION The following table sets forth (i) the actual capitalization of the Company as of March 31, 1996, (ii) the pro forma capitalization and (iii) as adjusted to reflect the sale by the Company of 1,250,000 shares in the Offering (assuming an initial public offering price of $12.00 per share and after deducting estimated underwriting discounts and commissions and offering expenses) and the application of the estimated net proceeds therefrom:
---------------------------------------- MARCH 31, 1996 ---------------------------------------- ACTUAL ---------- AS Dollars in thousands PRO FORMA(1) ADJUSTED ---------- ---------- (UNAUDITED) Shareholders' equity Preferred Stock, no par value, 5,000,000 shares authorized; no shares issued or outstanding............................. $ -- $ -- $ -- Common Stock, no par value, 40,000,000 shares authorized; 4,957,127 shares issued and outstanding, actual............. 10,726 -- -- 5,192,358 shares issued and outstanding, pro forma.......... -- 12,814 -- 6,442,358 shares issued and outstanding, as adjusted(2)..... -- -- 25,914 Deferred stock compensation.................................... (236) (236) (236) Retained earnings.............................................. 1,631 1,631 1,631 Cumulative translation adjustment.............................. (53) (53) (53) ---------- ---------- ---------- Total shareholders' equity..................................... 12,068 14,156 27,256 ---------- ---------- ---------- Total capitalization................................... $ 12,068 $ 14,156 $ 27,256 ========== ========== ==========
- ------------------------------ (1) Assumes (i) the issuance of 148,148 shares of Common Stock at $13.50 per share to AMD for aggregate proceeds of $2,000, (ii) reflects the exercise of options to purchase 9,583 shares of Common Stock for aggregate proceeds of $10 in June 1996 and (iii) reflects the exercise of warrants to purchase 77,500 shares of Common Stock for aggregate proceeds of $78 in July 1996. (2) Excludes 1,250,000 shares of Common Stock reserved for issuance upon exercise of stock options, of which 941,280 shares were subject to outstanding options at July 5, 1996, and 518,227 shares issuable upon the exercise of Common Stock warrants outstanding as of July 5, 1996. See "Management -- Stock Option Plan" and "Certain Transactions." 12 15 DILUTION The pro forma net tangible book value of the Company at March 31, 1996, was $13,952,000, or approximately $2.69 per share of Common Stock. The pro forma net tangible book value per share represents the amount of total pro forma tangible assets of the Company less total liabilities divided by the pro forma number of shares of the Company's outstanding Common Stock. See "Risk Factors -- Dilution." The pro forma net tangible book value dilution per share represents the difference between the amount per share paid by purchasers of Common Stock in the Offering and the as adjusted net tangible book value per share of the Common Stock immediately after completion of the Offering. After giving effect to the sale of 1,250,000 shares of Common Stock in the Offering (assuming an initial public offering price of $12.00 per share and after deducting estimated underwriting discounts and offering expenses), the as adjusted net tangible book value of the Company at March 31, 1996 would have been $27,052,000 or $4.20 per share. This represents an immediate increase in net tangible book value of $1.51 per share to existing shareholders and an immediate dilution in net tangible book value of $7.80 per share to purchasers of Common Stock in the Offering, as illustrated by in the following table: Assumed initial public offering price per share............................... $12.00 Pro forma net tangible book value per share at March 31, 1996(1).............. $2.69 Increase per share attributable to new shareholders........................... 1.51 ---------- As adjusted net tangible book value per share as of March 31, 1996 after the Offering.......................................................... 4.20 ---------- Dilution per share to new investors........................................... $7.80 ==========
The following table summarizes, as of March 31, 1996, on a pro forma basis the total consideration paid and the average price per share paid by the existing shareholders and by new investors (at an assumed initial public offering price of $12.00 per share and before deduction of underwriting discounts and commissions and estimated offering expenses):
---------------------------------------------------------------- SHARES PURCHASED -------------------- TOTAL CONSIDERATION --------------------- AVERAGE PRICE NUMBER PERCENT PERCENT PER SHARE ---------- ------- ------- ------------- AMOUNT ----------- Existing shareholders(2)....................... 5,192,358 81% $11,451,000 43% $ 2.21 New investors(2)............................... 1,250,000 19% 15,000,000 57% 12.00 ---------- ------- ----------- ------- Total................................ 6,442,358 100% $26,451,000 100% ========== ====== =========== ======
- ------------------------------ (1) Assumes (i) the issuance of 148,148 shares of Common Stock at $13.50 per share to AMD for aggregate proceeds of $2,000,000, (ii) reflects the exercise of options to purchase 9,583 shares of Common Stock for aggregate proceeds of $10,000 in June 1996 and (iii) reflects the exercise of warrants to purchase 77,500 shares of Common Stock for aggregate proceeds of $78,000 in July 1996. (2) The foregoing table computations assume no exercise of the Underwriters' over-allotment option or outstanding stock options or warrants except as stated above in footnote (1). At July 5, 1996, there were outstanding options to purchase an aggregate of 941,280 shares of Common Stock at a weighted average exercise price of $3.86 per share and outstanding warrants to purchase an aggregate 518,227 shares of Common Stock at a weighted average exercise price of $6.93 per share. If certain of these options and warrants are exercised, there will be further dilution to new investors. See "Risk Factors -- Dilution," "Management -- Stock Option Plan," "Certain Transactions" and "Description of Capital Stock." Sales by the Selling Shareholders in the Offering will reduce the number of shares of Common Stock held by existing shareholders to 4,442,358 or 69% of the total number of shares of Common Stock outstanding immediately after the Offering, and will increase the number of shares of Common Stock held by new investors to 2,000,000 or 31% of the total number of shares of Common Stock outstanding immediately after the Offering. See "Principal and Selling Shareholders." 13 16 SELECTED CONSOLIDATED FINANCIAL INFORMATION The selected consolidated financial information set forth below should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. The consolidated financial information as of December 31, 1994 and 1995 and for the six months ended July 1, 1993 and December 31, 1993, and the years ended December 31, 1994 and 1995, have been derived from the Consolidated Financial Statements of the Company and the Predecessor, audited by Price Waterhouse LLP and are included elsewhere in this Prospectus. The consolidated financial information for the years ended December 31, 1991 and 1992 and the three months ended March 31, 1995 and 1996 have been derived from the unaudited consolidated financial statements of the Predecessor and the Company, respectively, which in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information set forth therein. The results for the three months ended March 31, 1996 are not necessarily indicative of the results that may be expected for the full year or for any future period.
------------------------------------------------------------------------------- PREDECESSOR --------------------------- YEAR ENDED DECEMBER 31, THE COMPANY THREE MONTHS --------------- ----------------------------------------------- 1991 YEAR ENDED ENDED ------ SIX SIX MONTHS DECEMBER 31, MARCH 31, Dollars in thousands, except MONTHS ENDED --------------- --------------- per share data 1992 ENDED DECEMBER 1995 1996 ------ JULY 1, 31, ------ ------ 1994 1993 1993 ------ 1995 --------- ----------- ------ (UNAUDITED) (UNAUDITED) CONSOLIDATED STATEMENT OF OPERATIONS DATA Revenues: Software license fees......... $6,307 $5,416 $ 1,763 $ 1,903 $5,585 $6,989 $1,496 $2,175 Engineering services.......... 180 282 47 107 161 239 105 131 Related parties............... -- -- -- 50 972 1,902 455 506 ------ ------ --------- ----------- ------ ------ ------ ------ Total revenues........ 6,487 5,698 1,810 2,060 6,718 9,130 2,056 2,812 ------ ------ --------- ----------- ------ ------ ------ ------ Cost of revenues: Software license fees......... 798 448 85 84 467 387 17 52 Engineering services.......... 16 68 6 21 28 43 23 26 Related parties............... -- -- -- 12 96 206 45 210 ------ ------ --------- ----------- ------ ------ ------ ------ Total cost of revenues............ 814 516 91 117 591 636 85 288 ------ ------ --------- ----------- ------ ------ ------ ------ Gross profit.................... 5,673 5,182 1,719 1,943 6,127 8,494 1,971 2,524 ------ ------ --------- ----------- ------ ------ ------ ------ Operating expenses: Research and development...... 1,003 836 887 2,071 1,601 2,751 593 855 Sales and marketing........... 2,557 1,040 845 647 1,537 2,282 425 560 General and administrative.... 2,129 3,505 615 350 932 1,600 415 590 ------ ------ --------- ----------- ------ ------ ------ ------ Total operating expenses............ 5,689 5,381 2,347 3,068 4,070 6,633 1,433 2,005 ------ ------ --------- ----------- ------ ------ ------ ------ Income (loss) from operations... (16) (199) (628) (1,125) 2,057 1,861 538 519 Interest expense................ (56) (83) (27) (54) (19) (9) (10) -- Interest and other income....... -- 1 -- 1 4 105 2 84 ------ ------ --------- ----------- ------ ------ ------ ------ Income (loss) before income taxes......................... (72) (281) (655) (1,178) 2,042 1,957 530 603 Provision for income taxes...... -- 15 -- -- 784 792 214 217 ------ ------ --------- ----------- ------ ------ ------ ------ Net income (loss)............... $ (72) $ (296) $ (655) $ (1,178) $1,258 $1,165 $ 316 $ 386 ====== ====== ======== =========== ====== ====== ====== ====== Net income (loss) per share(1)...................... $ (0.18) $ 0.19 $ 0.18 $ 0.05 $ 0.06 =========== ====== ====== ====== ====== Weighted average common and common equivalent shares in thousands..................... 6,453 6,453 6,646 6,768 6,190
------------------------------------------------------------------------ THE COMPANY -------------------------------------- PREDECESSOR ----------------------------- DECEMBER 31, JULY 1, DECEMBER 31, ----------------- ------------------------- 1991 1992 1993 1994 1995 ------ ------ ------- ------ ------ MARCH 31, 1996 1993 ---------- ------- (UNAUDITED) (UNAUDITED) CONSOLIDATED BALANCE SHEET DATA Cash and cash equivalents......... $ 452 $ 313 $ 156 $ 280 $1,374 $6,498 $ 10,591 Working capital (deficit)......... (44) (461) (1,189) (1,113) 1,173 6,642 11,315 Total assets...................... 1,596 1,085 1,088 1,807 3,119 9,083 14,238 Shareholders' equity (deficit).... (177) (453) (1,099) (468) 1,695 7,169 12,068
- ------------------------------ (1) For an explanation of the number of shares used to compute net income (loss) per share, see Note 2 of Notes to Consolidated Financial Statements. 14 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company was founded in 1983 to design, develop and market a suite of Basic Input/Output System software ("BIOS") for the system management software market. During the mid- and late-1980s, the Company established a significant market presence by providing BIOS for the 286/386 PC markets and achieved early market success as a BIOS supplier to the Taiwanese motherboard market. The Company was acquired in July 1993 by GCH Systems, Inc. ("GCH"), an independent developer of microcomputers and application-specific integrated circuits, and operated as a wholly owned subsidiary. By 1994, the Company further established itself in the system management software market with the successful introduction of enhanced system management software products including its Green BIOS and PCI BIOS. In December 1994, all of the Common Stock of the Company was distributed to the existing GCH shareholders on a pro rata basis in a spin-off transaction to allow the Company to focus exclusively on its system management software business and facilitate the Company's access to future financing, including the public capital markets. The Company markets and licenses its products and services worldwide and is a leading provider of system management software to the PC motherboard market in Asia, which accounts for approximately 40% of worldwide motherboard production. More recently, the Company has been focusing on expanding its core desktop product line by developing a suite of system management software products for the mobile and network computing markets. In addition, the Company is developing a suite of applications called SMSAccess which will enable remote access to, diagnosis and repair of disabled systems. The Company's strategy is to strengthen its presence in Taiwan while pursuing additional opportunities on a worldwide basis. In November 1993, the Company entered a joint development agreement with Vobis, a leading PC manufacturer in Europe. This collaboration resulted in the development of a specialized desktop BIOS for Vobis; the Company and Vobis have pending three joint patent applications on inventions relating to such desktop BIOS. In January 1996, Vobis acquired 570,033 shares of the Company's Common Stock and a warrant to purchase an additional 272,394 shares. The Company believes that this relationship will enable it to further penetrate the European market. See "Risk Factors -- International Operations; Currency Fluctuations; International Unrest" and "Certain Transactions." The Company has historically generated the substantial majority of its revenues from the licensing of desktop system management software, primarily to motherboard manufacturers and PC OEMs. Sales from international operations, particularly to customers in Taiwan, comprise a substantial portion of the Company's total revenues. Software license fees are recognized upon delivery of the product, fulfillment of acceptance terms, if any, and satisfaction of significant support obligations, if any. Engineering services revenues generally consist of amounts charged for customization of the software prior to delivery and are generally recognized as the services are performed. Related parties revenues include software license fees and non-recurring engineering services provided to a Common Stock shareholder and a Common Stock warrant holder. The Company believes that its business is subject to seasonal fluctuation, with shipments in the fourth calendar quarter being somewhat higher due to higher levels of PC shipments in that time period. The Company plans to increase the number and scope of system management software products it offers in order to add features and functionality to existing products and to address new market opportunities. For example, the Company is developing products to support remote system access, including remote diagnosis and repair, network-related system management software products and enhanced versions of its core BIOS. The Company also plans to expand its presence in the mobile PC and embedded device system management software markets, which the Company believes provide an opportunity for greater revenue per unit than the desktop PC market. There can be no assurance that the Company will be successful in implementing these plans or that price competition will not lead to price decreases in one or more of these markets, adversely affecting the Company's financial condition and results of operations. The Company has an established international presence and consequently generates a significant portion of its revenues and expenses in currencies other than the U.S. Dollar, primarily the German Mark and New Taiwan Dollar. As a result, any appreciation or depreciation in the U.S. Dollar against these currencies could adversely affect the Company's business, financial condition, results of operations and cashflows. In addition, foreign currency transaction gains and losses arising from normal business operations are credited to or charged against earnings in the period incurred. During the three years in the period ended December 31, 1995, fluctuations in the value of currencies in which the Company conducts its business relative to the U.S. Dollar have not been significant on an annual basis. This Prospectus contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors." 15 18 RESULTS OF OPERATIONS The following tables set forth, for the periods indicated, certain consolidated statement of operations information, as well as the percentage of the Company's total revenues represented by each item. The results of operations for the Predecessor for the period January 1, 1993 through July 1, 1993 and the Company for the period July 2, 1993 through December 31, 1993 have been combined to facilitate presentation of the results of operations on a calendar year basis. The Company's historical results are not necessarily indicative of results in any future period.
------------------------------------------------------------ PREDECESSOR AND THE COMPANY COMBINED ------------ THE COMPANY ------------------------------------------- YEAR ENDED DECEMBER 31, 1993 YEAR ENDED THREE MONTHS ENDED ------------ DECEMBER 31, MARCH 31, Dollars in thousands, except per share ------------------- ------------------- amounts 1995 1996 ------ ------ 1995 1994 ------ ------ (UNAUDITED) Revenues: Software license fees...................... $ 3,666 $5,585 $6,989 $1,496 $2,175 Engineering services....................... 154 161 239 105 131 Related parties............................ 50 972 1,902 455 506 ------------ ------ ------ ------ ------ Total revenues..................... 3,870 6,718 9,130 2,056 2,812 ------------ ------ ------ ------ ------ Cost of revenues: Software license fees...................... 169 467 387 17 52 Engineering services....................... 27 28 43 23 26 Related parties............................ 12 96 206 45 210 ------------ ------ ------ ------ ------ Total cost of revenues............. 208 591 636 85 288 ------------ ------ ------ ------ ------ Gross profit................................. 3,662 6,127 8,494 1,971 2,524 ------------ ------ ------ ------ ------ Operating expenses: Research and development................... 2,958 1,601 2,751 593 855 Sales and marketing........................ 1,492 1,537 2,282 425 560 General and administrative................. 965 932 1,600 415 590 ------------ ------ ------ ------ ------ Total operating expenses........... 5,415 4,070 6,633 1,433 2,005 ------------ ------ ------ ------ ------ Income (loss) from operations................ (1,753) 2,057 1,861 538 519 Interest expense............................. (81) (19) (9) (10) -- Interest and other income.................... 1 4 105 2 84 ------------ ------ ------ ------ ------ Income (loss) before income taxes............ (1,833) 2,042 1,957 530 603 Provision for income taxes................... -- 784 792 214 217 ------------ ------ ------ ------ ------ Net income (loss)............................ $ (1,833) $1,258 $1,165 $ 316 $ 386 =========== ====== ====== ====== ====== Net income per share......................... $ 0.19 $ 0.18 $ 0.05 $ 0.06 ====== ====== ====== ====== Weighted average common and common equivalent shares in thousands........................ 6,453 6,646 6,768 6,190
16 19
------------------------------------------------------------ PREDECESSOR AND THE COMPANY COMBINED THE COMPANY ------------ ------------------------------------------- YEAR ENDED DECEMBER 31, YEARS ENDED THREE MONTHS ENDED 1993 DECEMBER 31, MARCH 31, ------------ ------------------- ------------------- As a percentage of total revenues 1995 1996 ------ ------ 1994 1995 ------ ------ (UNAUDITED) Revenues: Software license fees...................... 95% 83% 77% 73% 77% Engineering services....................... 4 3 2 5 5 Related parties............................ 1 14 21 22 18 ------------ ------ ------ ------ ------ Total revenues..................... 100 100 100 100 100 ------------ ------ ------ ------ ------ Cost of revenues: Software license fees...................... 4 7 4 1 2 Engineering services....................... 1 1 1 1 1 Related parties............................ -- 1 2 2 7 ------------ ------ ------ ------ ------ Total cost of revenues............. 5 9 7 4 10 ------------ ------ ------ ------ ------ Gross profit................................. 95 91 93 96 90 ------------ ------ ------ ------ ------ Operating expenses: Research and development................... 76 24 30 29 30 Sales and marketing........................ 39 23 25 21 20 General and administrative................. 25 14 17 20 21 ------------ ------ ------ ------ ------ Total operating expenses........... 140 61 72 70 71 ------------ ------ ------ ------ ------ Income (loss) from operations................ (45) 30 21 26 19 Interest expense............................. 2 -- -- -- -- Interest and other income.................... -- -- 1 -- 3 ------------ ------ ------ ------ ------ Income (loss) before income taxes............ (47) 30 22 26 22 Provision for income taxes................... -- 12 9 10 8 ------------ ------ ------ ------ ------ Net income (loss)............................ (47)% 18% 13% 16% 14% =========== ====== ====== ====== ======
Comparison of Three Months Ended March 31, 1995 and March 31, 1996 Revenues. The Company's revenues consist of software license fees and engineering services revenues. Revenues increased 37% from $2.1 million to $2.8 million in the three months ended March 31, 1995 and March 31, 1996, respectively. Software license fees increased 47% from $1.5 million to $2.2 million in the three months ended March 31, 1995 and March 31, 1996, respectively. The increase in software license fees was primarily due to higher software license fees from the Company's existing Taiwanese motherboard customers, and to a lesser degree from existing U.S. PC and embedded system customers. This increase was partially offset by a decrease in software license fees from one European customer. A significant customer, which accounted for 13% of total revenues and approximately 96% of revenues from distribution of the Company's PC Card software for the three months ended March 31, 1996, recently indicated that it intends to discontinue licensing the Company's PC Card software. Accordingly, the Company does not currently expect to receive material revenues from that customer during the second half of 1996. Engineering services revenues increased 25% from $105,000 to $131,000 in the three months ended March 31, 1995 and March 31, 1996, respectively. This increase was primarily due to higher engineering services revenues from customers in the U.S. Related parties revenues increased 11% from $455,000 to $506,000 in the three months ended March 31, 1995 and March 31, 1996, respectively. The increase was primarily due to higher engineering services revenues offset by lower software license fees from related parties. Revenues derived from international operations represented 68% and 65% of the Company's revenues for the three months ended March 31, 1995 and March 31, 1996, respectively. During the three months ended March 31, 1996, 35.7% and 19.9% of the Company's revenues were denominated in New Taiwan Dollars and in German Marks, respectively. Fluctuations in foreign currency exchange rates did not have a material effect on total revenues in the periods presented. However, there can be no assurance that future fluctuations in foreign currency exchange rates will not have a material adverse effect on the Company's future revenues and results of operations. Cost of Revenues. Cost of revenues consists primarily of the cost of materials and freight expenses associated with software license fees and direct costs associated with engineering services revenues. Cost of revenues increased from $85,000, or 4% of revenues, to $288,000, or 10% of revenues, in the three months ended March 31, 1995 and March 31, 1996, respectively. Approximately 17 20 $165,000 of the increase resulted from engineering services associated with a product development effort with a related party. The remaining increase was attributed primarily to software license revenues. Research and Development. Research and development expenses consist primarily of engineering personnel and related expenses and equipment costs. Research and development expenses increased 44% from $593,000, or 29% of revenues, to $855,000, or 30% of revenues, in the three months ended March 31, 1995 and March 31, 1996, respectively. This increase was primarily due to the hiring of engineering personnel to develop new software products, such as mobile BIOS and the SMSAccess product suite. The Company anticipates that it will continue to devote substantial resources to product research and development and that such expenses will continue to increase in absolute dollars over time. Sales and Marketing. Sales and marketing expenses consist primarily of personnel and related expenses, sales commissions and travel costs. Sales and marketing expenses increased 32% from $425,000, or 21% of revenues, to $560,000, or 20% of revenues, in the three months ended March 31, 1995 and March 31, 1996, respectively. This increase in expenses was primarily due to higher sales commissions paid to the Company's sales force for increased revenues and increased participation in industry standards groups and trade shows. General and Administrative. General and administrative expenses consist primarily of personnel and related expenses, professional services and facilities costs. General and administrative expenses increased 42%, from $415,000, or 20% of revenues, to $590,000, or 21% of revenues, in the three months ended March 31, 1995 and March 31, 1996, respectively. This increase was primarily due to a one-time employee severance cost of $90,000 in the Company's European operations. In addition, during the second half of 1995, the Company recorded $297,000 of deferred stock compensation related to the difference between the exercise price of certain Common Stock options and the deemed fair market value of the Common Stock on the date of grant. Amortization of deferred compensation expense of $19,000 is included in general and administrative expense for the three months ended March 31, 1996. Interest Expense. Interest expense associated with short-term borrowings decreased from $10,000 to $0 in the three months ended March 31, 1995 and March 31, 1996, respectively, due to a decrease in short-term borrowings. Interest and Other Income. Interest income consists primarily of interest income on cash and cash equivalents. Interest income increased from $2,000 to $84,000 in the three months ended March 31, 1995 and March 31, 1996, respectively, due to an increase in interest income earned on higher cash balances. Provision for Income Taxes. The Company's effective tax rate decreased from 40% to 36% for the three months ended March 31, 1995 and March 31, 1996, respectively. This decrease was primarily due to an increase in income taxable in Taiwan at rates lower than the applicable statutory rates in the U.S. and Germany. Comparison of Years Ended December 31, 1994 and December 31, 1995 Revenues. The Company's revenues increased 36% from $6.7 million to $9.1 million in 1994 and 1995, respectively. Software license fees increased 25% from $5.6 million to $7.0 million in 1994 and 1995, respectively. This increase was primarily due to increased software license fees resulting from the introduction of PCI and other enhanced features. A significant customer, which accounted for 14% of total revenues and approximately 86% of revenues from distribution of the Company's PC Card software for the year ended December 31, 1995, recently indicated that it intends to discontinue licensing the Company's PC Card software; accordingly the Company does not currently expect to receive material revenues from that customer during the second half of 1996. Engineering services revenues increased from $161,000 to $239,000 in 1994 and 1995, respectively. This increase was primarily due to higher engineering services revenues from customers in the U.S. and Taiwan. Related parties revenues increased 96% from $1.0 million to $1.9 million in 1994 and 1995, respectively. This increase was primarily due to the growth in software license fees. Revenues derived from international operations were 75% and 68% of the Company's revenues in 1994 and 1995, respectively. During the year ended December 31, 1995, 32.9% and 24.0% of the Company's revenues were denominated in New Taiwan Dollars and German Marks, respectively. Fluctuations in foreign currency exchange rates did not have a material impact on total revenues in 1994 or 1995. However, there can be no assurance that future fluctuations in foreign currency exchange rates will not have a material adverse effect on the Company's future revenues and results of operations. Cost of Revenues. Cost of revenues increased 8% from $591,000, or 9% of revenues, to $636,000, or 7% of revenues, in 1994 and 1995, respectively. Cost of software license fees decreased 17% from $467,000 to $387,000 in 1994 and 1995, respectively. This decrease was primarily due to the phasing out of a lower gross margin product during the course of the year, offset by a one-time royalty payment of $200,000 to a third party. Cost of engineering services revenues increased from $28,000 to $43,000 in 1994 and 1995, respectively. Cost of related parties revenues increased from $96,000 to $206,000 in 1994 and 1995, respectively. This increase was primarily due to direct costs associated with engineering services. Research and Development. Research and development expenses increased 72% from $1.6 million, or 24% of revenues, to $2.8 million, or 30% of revenues, in 1994 and 1995, respectively. This increase was primarily due to the growth in research and 18 21 development personnel from 33 to 45 individuals during the year. These additional personnel were hired as part of the effort to assist customers in certifying their products for Windows 95, as well as to develop mobile BIOS and SMSAccess. Sales and Marketing. Sales and marketing expenses increased 48% from $1.5 million, or 23% of revenues, to $2.3 million, or 25% of revenues, in 1994 and 1995, respectively. This increase was primarily due to non-recurring charges of $283,000 related to the recognition of warrants issued to a related party and $36,000 related to warrants issued to a shareholder in exchange for marketing services. In addition, higher payroll and related expenses, including sales commissions, increased travel related to the improvement of customer relations, and increased participation in industry trade shows and user conferences accounted for the remainder of the increase. See "Certain Transactions." General and Administrative. General and administrative expenses increased 72% from $932,000, or 14% of revenues, to $1.6 million, or 17% of revenues, in 1994 and 1995, respectively. The increase was primarily due to increased employee compensation and office facilities cost, as well as higher professional service fees. In addition, during the second half of 1995, the Company recorded $297,000 of deferred stock compensation for the difference between the exercise price of certain Common Stock options and the deemed fair market value of the Common Stock on the date of grant. The deferred compensation expense will be recognized over the four-year vesting period of the options. Amortization of deferred compensation expense of $42,000 is included in general and administrative expense for the year ended December 31, 1995. Interest Expense. Interest expense decreased from $19,000 to $9,000 in 1994 and 1995, respectively, due to a decrease in short-term borrowings. Interest and Other Income. Interest and other income increased from $4,000 to $105,000 in 1994 and 1995, respectively, primarily due to higher interest income earned on higher cash balances during the period. Provision for Income Taxes. Provision for income taxes increased from $784,000 to $792,000 in 1994 and 1995, respectively, representing effective tax rates of 38% and 41%, respectively. This increase was primarily due to an increase in income. The higher effective income tax rate for 1995 was primarily due to one-time non-deductible sales and marketing charges of $319,000 associated with warrants issued offset by the recognition of $117,000 of deferred tax assets which were previously reserved based on a reevaluation of the realizability of future tax benefits based on the income earned in 1995. Comparison of Years Ended December 31, 1993 and December 31, 1994 The results of operations for the Predecessor for the period January 1, 1993 through July 1, 1993 and the Company for the period July 2, 1993 through December 31, 1993 have been determined based upon the historical cost basis of the Predecessor and the Company and have been combined to facilitate presentation of the results of operations on a calendar year basis. Revenues. The Company's revenues increased 74% from $3.9 million to $6.7 million in 1993 and 1994, respectively. Software license fees increased 51% from $3.7 million to $5.6 million in 1993 and 1994, respectively. This increase was primarily due to higher software license fees resulting from the introduction of the Company's Green BIOS and CardWare software. Engineering services revenues increased 5% from $154,000 to $161,000 in 1993 and 1994, respectively. Related parties revenues increased from $50,000 to $1.0 million in 1993 and 1994, respectively. This increase was primarily due to an increase in software license fees from a related party. Revenues derived from international operations were 78% and 75% of the Company's revenues in 1993 and 1994, respectively. Fluctuations in foreign currency exchange rates did not have a material impact on total revenues in 1993 or 1994. However, there can be no assurance that future fluctuations in foreign currency exchange rates will not have a material adverse effect on the Company's future revenues and results of operations. Cost of Revenues. Cost of revenues increased from $208,000, or 5% of revenues, to $591,000, or 9% of revenues, in 1993 and 1994, respectively. Cost of software license fees increased from $169,000 to $467,000 in 1993 and 1994, respectively. This increase was primarily due to higher sales of a lower margin product that the Company bundled with its desktop BIOS product. Cost of engineering services revenues increased from $27,000 to $28,000 in 1993 and 1994, respectively. Cost of related parties revenues increased from $12,000 to $96,000 in 1993 and 1994, respectively, as revenues increased. Research and Development. Research and development expenses decreased 46%, from $3.0 million, or 76% of revenues, to $1.6 million, or 24% of revenues, in 1993 and 1994, respectively. This decrease was primarily due to a one-time charge of $1.0 million recorded in 1993 for in-process research and development purchased as part of the acquisition of the Company by GCH. At the acquisition date, the in-process technology was not yet technologically feasible and had no alternative future use. Sales and Marketing. Sales and marketing expenses increased 3% from $1.5 million, or 39% of revenues, to $1.6 million, or 23% of revenues, in 1993 and 1994, respectively. This increase was primarily due to increased expenses related to sales commissions and participation in trade shows. General and Administrative. General and administrative expenses decreased 3% from $1.0 million, or 25% of revenues, to $932,000, or 14% of revenues, in 1993 and 1994, respectively. This decrease was primarily due to a reduction in payroll expenses resulting from a change in management, which was partially offset by an increase in professional service fees. 19 22 Interest Expense. Interest expense decreased from $81,000 to $19,000 in 1993 and 1994, respectively, due to a decrease in short-term borrowings. Interest and Other Income. Interest and other income increased from $1,000 to $4,000 in 1993 and 1994, respectively, due to an increase in interest income earned on higher cash balances. Provision for Income Taxes. For the period from July 2, 1993 through December 3, 1994, Award was included in GCH's consolidated federal and California state income tax returns. Under a tax sharing arrangement with GCH, the Company was allocated a proportionate share of GCH's consolidated income tax liability. The provision for income taxes was calculated using the separate return methodology in accordance with SFAS No. 109. The provision for income taxes was $0 and $784,000 in 1993 and 1994, respectively. The Company incurred a net operating loss in 1993 and consequently paid no federal, state or foreign income taxes. The Company's effective income tax rate was 38% for the year ended December 31, 1994. QUARTERLY RESULTS OF OPERATIONS The following table sets forth certain unaudited results of operations for each of the quarters in the years ended December 31, 1994 and 1995 and for the quarter ended March 31, 1996, in both absolute dollars and as a percentage of the Company's total revenues. In the opinion of management, this information has been prepared on a basis consistent with the Company's audited Consolidated Financial Statements, which appear elsewhere in this Prospectus, and includes all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary to present fairly the information for the periods presented when read in conjunction with the Consolidated Financial Statements of the Company and Notes thereto. The operating results for any quarter are not necessarily indicative of the results for the full year or any future quarter. The Company's revenues significantly increased in the fourth quarters of 1994 and 1995, reflecting the seasonality of the Company's business. In addition, the Company's revenues and profits decreased in the first quarter of 1995 and 1996 as compared with the fourth quarter of the previous year. Quarterly fluctuations in cost of revenues are due to the mix and volume of software license fees and engineering services revenues. Cost of revenues in the three months ended December 31, 1995 increased to $315,000 and was attributable primarily to a one-time royalty payment of $200,000 to a third party. Sales and marketing expenses in the three months ended September 30, 1995 increased to $757,000. This increase was attributable primarily to a non-recurring $283,000 charge related to the recognition of warrants issued to a related party. The Company has experienced and expects to continue to experience fluctuations in its quarterly results. The Company's revenues are affected by a number of factors, including the demand for PCs and other microprocessor-based devices, timing of new product introductions, product mix, volume and timing of customer orders, activities of competitors and the ability of the Company to penetrate new markets. See "Risk Factors -- Fluctuations in Quarterly Operating Results; Seasonality." 20 23
--------------------------------------------------------------------------------------- QUARTERS ENDED -------------------------------------------------------------------------------------------- 1994 1995 1996 Dollars in thousands, --------------------------------------- --------------------------------------- -------- except per share data MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 -------- ------- -------- ------- -------- ------- -------- ------- -------- (UNAUDITED) Revenues: Software license fees............ $ 1,315 $ 1,404 $ 1,473 $ 1,393 $ 1,496 $ 1,629 $ 1,675 $ 2,189 $ 2,175 Engineering services............. 20 33 75 33 105 42 48 44 131 Related parties.................. 119 45 140 668 455 310 535 602 506 -------- ------- -------- ------- -------- ------- -------- ------- -------- Total revenues............ 1,454 1,482 1,688 2,094 2,056 1,981 2,258 2,835 2,812 -------- ------- -------- ------- -------- ------- -------- ------- -------- Cost of revenues: Software license fees............ 249 137 52 29 17 94 47 229 52 Engineering services............. 2 3 17 6 23 7 8 5 26 Related parties.................. 10 4 12 70 45 36 44 81 210 -------- ------- -------- ------- -------- ------- -------- ------- -------- Total cost of revenues.... 261 144 81 105 85 137 99 315 288 -------- ------- -------- ------- -------- ------- -------- ------- -------- Gross profit....................... 1,193 1,338 1,607 1,989 1,971 1,844 2,159 2,520 2,524 -------- ------- -------- ------- -------- ------- -------- ------- -------- Operating expenses: Research and development......... 351 332 475 443 593 681 674 803 855 Sales and marketing.............. 327 374 360 476 425 612 757 488 560 General and administrative....... 150 208 189 385 415 437 371 377 590 -------- ------- -------- ------- -------- ------- -------- ------- -------- Total operating expenses................ 828 914 1,024 1,304 1,433 1,730 1,802 1,668 2,005 -------- ------- -------- ------- -------- ------- -------- ------- -------- Income from operations............. 365 424 583 685 538 114 357 852 519 Interest expense (income), net..... 8 3 7 (3) 8 5 (13) (96) (84) -------- ------- -------- ------- -------- ------- -------- ------- -------- Income before income taxes......... 357 421 576 688 530 109 370 948 603 Provision for income taxes......... 138 163 224 259 214 44 150 384 217 -------- ------- -------- ------- -------- ------- -------- ------- -------- Net income......................... $ 219 $ 258 $ 352 $ 429 $ 316 $ 65 $ 220 $ 564 $ 386 ========= ======= ======== ======= ========= ======= ======== ======= ========= Net income per share............... $ 0.03 $ 0.04 $ 0.05 $ 0.07 $ 0.05 $ 0.01 $ 0.03 $ 0.09 $ 0.06 ========= ======= ======== ======= ========= ======= ======== ======= ========= Weighted average common and common equivalent shares in thousands... 6,453 6,453 6,453 6,453 6,768 6,835 6,509 6,474 6,190
--------------------------------------------------------------------------------------- QUARTERS ENDED -------------------------------------------------------------------------------------------- 1994 --------------------------------------- MARCH 31 1995 -------- --------------------------------------- 1996 As a percentage of total revenues JUNE 30 SEPT. 30 DEC. 31 JUNE 30 SEPT. 30 DEC. 31 -------- ------- -------- ------- ------- -------- ------- MARCH 31 MARCH 31 -------- -------- (UNAUDITED) Revenues: Software license fees............ 90% 95% 87% 67% 73% 82% 74% 77% 77% Engineering services............. 2 2 5 1 5 2 2 2 5 Related parties.................. 8 3 8 32 22 16 24 21 18 -------- ------- -------- ------- -------- ------- -------- ------- -------- Total revenues............ 100 100 100 100 100 100 100 100 100 Cost of revenues: Software license fees............ 17 9 3 1 1 5 2 8 2 Engineering services............. -- 1 1 1 1 -- -- -- 1 Related parties.................. 1 -- 1 3 2 2 2 3 7 -------- ------- -------- ------- -------- ------- -------- ------- -------- Total cost of revenues.... 18 10 5 5 4 7 4 11 10 -------- ------- -------- ------- -------- ------- -------- ------- -------- Gross profit....................... 82 90 95 95 96 93 96 89 90 -------- ------- -------- ------- -------- ------- -------- ------- -------- Operating expenses: Research and development......... 24 23 28 21 29 34 30 28 30 Sales and marketing.............. 22 25 22 23 21 31 34 17 20 General and administrative....... 10 14 11 18 20 22 16 13 21 -------- ------- -------- ------- -------- ------- -------- ------- -------- Total operating expenses................ 56 62 61 62 70 87 80 58 71 -------- ------- -------- ------- -------- ------- -------- ------- -------- Income from operations............. 26 28 34 33 26 6 16 31 19 Interest expense (income), net..... 1 -- -- -- -- -- (1) (3) (3) -------- ------- -------- ------- -------- ------- -------- ------- -------- Income before income taxes......... 25 28 34 33 26 6 17 34 22 Provision for income taxes......... 10 11 13 12 10 3 7 14 8 -------- ------- -------- ------- -------- ------- -------- ------- -------- Net income......................... 15% 17% 21% 21% 16% 3% 10% 20% 14% ========= ======= ======== ======= ========= ======= ======== ======= =========
21 24 LIQUIDITY AND CAPITAL RESOURCES Since its acquisition by GCH, the Company has funded its operations primarily through the private sale of equity securities and from cash generated from operations. As of March 31, 1996, the Company had cash and cash equivalents of $10.6 million and working capital of $11.3 million. Net cash used in operating activities was $676,000 in 1993 and was primarily due to a net loss and acquired in-process research and development. Net cash provided by operating activities was $1.9 million in 1994 and was primarily due to net income and a noncash charge for income taxes. Net cash provided by operating activities was $2.1 million in 1995 and was primarily due to net income and increases in accrued liabilities. Net cash provided by operating activities was $679,000 for the three months ended March 31, 1995 and was primarily due to net income and increases in accrued liabilities. Net cash used in operating activities was $166,000 for the three months ended March 31, 1996 and was primarily due to higher accounts receivable partially offset by net income and accrued liabilities. Net cash used in investing activities was $659,000 in 1993 and was primarily due to the acquisition of the Company from the Predecessor. Net cash used in investing activities was $75,000 in 1994 and was primarily due to the purchase of general equipment. Net cash used in investing activities was $147,000, $34,000 and $233,000 in 1995 and for the three months ended March 31, 1995 and 1996, respectively, and was primarily due to the purchase and upgrade of the Company's computer hardware. Net cash provided by financing activities was $1.6 million in 1993 and was primarily due to proceeds from Common Stock issuance and borrowings from GCH. Net cash used by financing activities was $781,000 in 1994 and was primarily due to advances and repayments to GCH and principal payments under unaffiliated third-party note obligations. Net cash provided by financing activities was $3.1 million in 1995. In 1995 and the three months ended March 31, 1996, the net cash provided by financing activities was primarily due to proceeds from private equity sales. For the three months ended March 31, 1995 and 1996, cash used by financing activities was $811,000 and cash provided by financing activities was $4.5 million, respectively. The Company believes that the net proceeds from the sale of Common Stock offered hereby, together with anticipated cash flow from operations and existing cash balances, will satisfy the Company's projected expenditures through 1997 for working capital and general corporate purposes, including an increase in the Company's internal product development, staffing in connection with new product introductions and other related product development expenditures. From time to time, in the ordinary course of business, the Company enters into strategic relationships with its customers or other participants in the PC industry. Such strategic relationships may include equity investments in the Company. If additional funds are raised through the issuance of equity securities, the percentage ownership of the shareholders of the Company will be reduced, shareholders may experience additional dilution, or such equity securities may have rights, preferences or privileges senior to those of the holders of the Company's Common Stock. Other than its relationships with Vobis and AMD, the Company has no current commitments or agreements with respect to any strategic relationships, including any equity investments. See "Risk Factors -- Dilution" and "Dilution." NEW ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation." SFAS No. 123 establishes financial accounting and reporting standards for stock-based employee compensation plans and also applies to transactions in which an entity issues its equity instruments to acquire goods or services from nonemployees. SFAS No. 123 defines a "fair value" based method of accounting for an employee stock option or similar equity instrument and encourages, but does not require, entities to adopt that method of accounting for all of their employee stock compensation plans. SFAS No. 123 does however require, entities to include pro forma disclosures of the difference, if any, between compensation cost included in net income and the related cost measured by the fair value method. The Company does not intend to adopt the accounting provisions of the new standard and will adopt the disclosure provisions during the year ending December 31, 1996. 22 25 BUSINESS Award designs, develops and markets system management software for the global computing market. System management software is one of the fundamental layers in PC architecture and provides an essential interface between a PC's operating system software and hardware. The Company's principal system management software products include a suite of Basic Input/Output System software ("BIOS"). Award's customers include designers and manufacturers of motherboards, PC systems and other microprocessor-based (or "embedded") devices. The Company believes that its products and engineering services enable customers to rapidly develop new motherboard designs for state-of-the-art computer systems. The Company markets and licenses its products and services worldwide and has established itself as a leading provider of desktop system management software in Asia, which accounts for approximately 40% of worldwide desktop motherboard production. The BIOS, which is the software initially executed after the system is turned on, tests and initializes hardware components, initiates the operating system and then provides advanced interface functions. Award's desktop BIOS products enable a PC to support a number of key advanced technologies, including Plug and Play, PCI, DMI and APM. The Company is currently developing further enhancements to its BIOS, including support for USB. The Company's embedded device BIOS provides customized features to address the specialized needs of its customers in this market. In addition to the Company's proprietary suite of system management software products, Award offers PC Card software that enables PCs and other electronic devices to recognize, install, configure and operate peripheral devices, such as network or modem cards. The Company currently licenses its products to more than 200 customers worldwide. In response to its customers' need to develop and integrate new technologies rapidly, the Company has developed its business with a particular emphasis on providing local engineering service and support in each of its major target regions: Asia, especially Taiwan, North America and Europe. The Company is increasing its presence in Europe through a strategic relationship with Vobis, pursuant to which the Company and Vobis are jointly developing BIOS and utilities for the desktop PC and embedded device markets. As part of this relationship, Vobis purchased shares representing approximately 12% of the Company's Common Stock outstanding at the time of its investment. The Company has also entered into a joint technology development and support agreement with AMD to support the design and development of products related to AMD's K86 microprocessor. As part of this relationship, AMD has designated Award as its primary supplier of BIOS-related products and engineering services for its baseline reference and production-ready K86 platform designs, and has agreed to make an equity investment in the Company's Common Stock. The Company is leveraging its existing customer relationships and desktop expertise to develop system management software for the mobile and network computing markets. The Company anticipates that leading Taiwanese desktop system and motherboard manufacturers, many of which are Award customers, will enter the mobile PC market, and, in response, the Company is developing enhanced system management software for mobile PCs. In addition, the Company is developing a suite of applications called SMSAccess that, among other functions, will enable remote access to, and diagnosis and repair of, disabled systems. INDUSTRY BACKGROUND PC systems consist of four layers: the hardware, the BIOS, the operating system and the application software. The computer's primary hardware component, the motherboard, is connected to peripheral hardware devices, such as a keyboard, hard disk drive and mouse. The BIOS is stored in a non-volatile memory chip on the motherboard while the operating system and application software are stored on the hard disk drive. The BIOS, which is the software initially executed after the system is turned on, tests and initializes hardware components and initiates the operating system. After the BIOS completes the start up or "booting" of the system, it serves as the interface between the computer hardware and the operating system. By acting as the bridge between the operating system and the computer hardware, the BIOS makes it possible to develop hardware and software independently. As a result, the pace of innovation for hardware products in the PC industry, where the typical life cycle of a hardware design is six to twelve months, has not been constrained by the slower pace of operating system development, where generational advances can take several years to develop. Enhanced BIOS and other system management software have been developed to support implementation of new industry standards and technologies, such as Plug and Play, PC Card, DMI, "hot-docking" and APM. Improved versions of BIOS are currently being developed to support USB and the latest PC industry standards. Many of these new technologies will play an important part in the development of PCs and embedded devices for the Internet and other network computing environments. Several important trends are currently affecting the system management software industry: Outsourcing of System Management Software Development. The rapid pace of technological innovation in recent years has required system makers to adapt to short production cycles and operate in an environment of continuous innovation. As PC and motherboard designers and manufacturers continuously improve their hardware products, they must ensure the compatibility of these new designs with existing operating systems through a customized BIOS. While some PC and motherboard manufacturers develop system 23 26 management software internally, increasingly complex technology, demand for compatibility and competitive market pressures are driving many manufacturers to rely on dedicated system management software providers. These manufacturers demand high levels of support at all stages of product development, making it necessary for system management software vendors to provide effective localized engineering support during the production process. Outsourcing of Motherboard Production. Competitive pressures in the PC market have also caused system manufacturers to outsource PC motherboard production to reduce cost and stay current with advancing technologies. Manufacturers in Taiwan have taken advantage of this trend to become significant participants in the world desktop system and motherboard production market. Further, their role has expanded to include design decisions, such as the selection of the BIOS and other system management software. To rapidly integrate new motherboard designs into the overall PC system, these manufacturers require locally based system management software engineering resources. Proliferation of x86 Architecture in the Embedded Device Market. Traditional PC architecture, which is based on the x86 design, is being adopted for use in the embedded computer market. The implementation of x86 architecture permits the development of open systems that can employ standard software, development tools and peripheral hardware products. Embedded devices perform a single or limited number of complex applications for a dedicated purpose. These embedded devices require advanced capabilities for data analysis, communication, control and ease-of-use and depend upon highly customized system management software solutions to ensure performance, reliability and functionality. Demands for Product Support Solutions. As PC use by less technically sophisticated home and business users has grown, PC system manufacturers have been searching for cost-effective solutions to provide technical customer support services. The emerging network computing environment potentially provides system manufacturers with the ability to access the hardware and operating systems in order to ascertain the problems of the user and to make repairs. Additionally, manufacturers of embedded systems are searching for cost-effective ways to maintain and support their products, which are broadly distributed and sometimes installed in remote locations that cannot be directly accessed by support personnel. To address this opportunity, providers of system management software are beginning to work closely with system manufacturers to develop products with remote access, diagnostic and repair capabilities. For example, AMD has committed to license the Company's SMSAccess suite of applications for use with its platforms as they become commercially available. AWARD STRATEGY The Company's objective is to become the leading designer, developer and marketer of system management software by providing innovative solutions to the desktop PC, embedded device, mobile PC and network computing markets. The Company's strategy includes the following key elements: Build Upon Desktop Leadership in Asia. Award is currently a leading provider of system management software to the Asian desktop motherboard market and will attempt to increase market share in this important region. The Company believes that PC manufacturers worldwide increasingly outsource PC design decisions, including the selection of system management software, to the OEMs and original design manufacturers in Taiwan that form the core of the Company's client base. Award further believes its longstanding focus on Asia positions it to take advantage of this market growth, and the Company plans to maintain a high level of engineering and management resources in this region. Leverage Existing Customer Relationships and Desktop Expertise to Pursue the Mobile and Embedded Markets. The Company believes that it can leverage its desktop system management software expertise to design and develop products for the mobile PC and embedded device markets. To complement its mobile BIOS products, the Company also offers system management software to support the PC Card standard, which is broadly implemented in the mobile PC market. The Company believes that the leading Taiwanese desktop system and motherboard manufacturers, many of which are Award customers, will enter the mobile PC market and provide the Company with opportunities to license its mobile BIOS products. In addition, the Company is establishing a full service operation in Tokyo to design, develop and market system management software to the mobile PC manufacturers in Japan, which are significant participants in the mobile PC market. The Company is also pursuing opportunities with manufacturers of embedded devices, a market characterized by relatively long product life cycles, often from three to seven years. Provide Innovative Products for the Emerging Network and Internet Computing Marketplace. The Company is designing and developing a number of products for the emerging network computing market. For example, as part of the SMSAccess suite of applications, Award is developing its RPBAccess software, which will allow an end-user to obtain diagnostic and repair system support service through a modem or the Internet without a functional operating system or operational hard disk. In addition, Award's SMSAccess software suite will allow a network administrator to access and retrieve system management information, either locally or remotely. The Company's WWWAccess software, which will include web browser technology licensed from third parties, will provide embedded devices, such as point-of-sale systems, set-top boxes and personal digital assistants, with Internet capabilities. There can be no assurance, however, that the Company will successfully develop and market such software. 24 27 Provide Localized Customer Service in Key Markets. The Company provides responsive and competitive system management software engineering and support by maintaining engineering, marketing and sales staff in three key PC design centers around the world: Taiwan, the U.S. and Germany. For many of its customers, Award serves as an important source of research and development, providing customized solutions within the tight timeframes required in the competitive motherboard market. In addition, the Company's local service centers allow it to act as an important conduit between the technology centers in the U.S. and key PC design centers. Easy accessibility, frequent communication and localized interaction are crucial to the selection and implementation of Award system management software. The Company believes that its emphasis on local service enables it to perform high quality, reliable and timely engineering and support services and provides it with a competitive advantage. PRODUCTS -- SYSTEM MANAGEMENT SOFTWARE Award System BIOS The Company's Award System BIOS consists of core software code that can be combined with additional software modules to add specific functions and features, including Plug and Play, PCI, APM and DMI. The Company is currently testing additional modules that support the USB standard. The Company integrates the core software code with some or all of these software modules to create a product that meets the needs of its three principal markets: desktop PCs, embedded devices and mobile PCs. To date, the majority of the Company's software license fees have been derived from sales in the desktop PC market. Desktop BIOS integrates the core software code with modules that support the following technological advancements: - Plug and Play permits the BIOS and operating system software to automatically recognize and configure PC hardware and peripherals, such as printers, network cards and multimedia accessories. A variation of this technology, known as "hot" Plug and Play, allows for the installation, recognition and removal of peripherals while power is on. - PCI was developed by a consortium led by Intel and provides an automatically configured interface between high-speed peripheral components and PC systems. - APM reduces power consumption by continuously monitoring system activity, sensing idle time and powering down or powering off components. - DMI is a new industry standard that allows the desktop configuration data to be easily accessed locally or over a network. This software is capable of detecting and storing configuration information from devices and systems that comply with the industry standard Desktop Management Task Force specification. The Company is currently developing a module to support USB. USB is a new Plug and Play interface under development by Microsoft and Intel, which is designed to provide an easy connection for slow and medium speed peripherals to a PC by supplying a uniform connector to make installing a peripheral as simple as plugging in a telephone. Embedded Device BIOS integrates the core software code with selected modules and additional custom features. Award works closely with embedded device customers to incorporate BIOS into design intensive embedded hardware. Unlike PC products, which typically experience short product cycles, a typical embedded device solution has a relatively long product life, with most designs lasting through the life cycles of the products into which they are integrated, often three to seven or more years. Mobile PC BIOS is a new customized BIOS solution for use in notebook and other portable PCs, which will integrate the core software code with modules that support Plug and Play, PCI, APM and DMI. In addition, this new product will support the hardware associated with mobile PCs, such as chipsets and keyboard controllers, as well as other advanced technologies. For example, "hot docking" allows users to connect to and disconnect from their mobile PCs to desktop docking stations without turning off their machines. The Company is also developing smart battery support which ensures compatibility and monitors diagnostic information for the advanced batteries found in mobile PCs. PC Card Software The Personal Computer Memory Card International Association ("PCMCIA") was formed to enact standards for credit card size computer memory and peripheral add-on products called "PC Cards." Award supplies software to enable PCs and other electronic devices to recognize, install, configure and operate peripheral devices that comply with PCMCIA standards. Award's PC Card software, CardWare and CardControl, provides a number of benefits over traditional PC Card software, including the efficient use of system memory, greater portability, ease of maintenance, and a more modular design. CardWare consists of several software components: CardWare Socket Services, which works with the hardware to recognize PC Card socket status and report that status to other PC Card software; CardWare Card Services, which provides resource management as well as the industry standard programming interface and allows the user to hot-swap multiple PC Cards in the system; and a suite of software drivers, which handle recognition and configuration of CardWare Socket Services and CardWare Card Services. 25 28 CardControl is a software program that operates under Windows and allows a user to review or configure a PC Card. In addition, this software contains two unique advisory modes, which automatically configure a card for optimal performance or suggest available configurations. SMSAccess The Company is currently developing the SMSAccess suite of applications that includes significant enhancements to traditional system management software products: DMIAccess is a Windows application that allows a user to view hardware specific information without physically looking in the computer or reading the system start-up messages. Such information includes RAM configuration, system serial number, motherboard serial number, and hard drive options. In conjunction with third-party software, DMIAccess provides a complete solution which network administrators can use to remotely access data provided by DMI-compliant hardware. BIOSAccess is a Windows application, currently under development, that will allow a user to view and change system setup information, such as power management, display, security, sound, keyboard, and serial/parallel port options. The application also will allow the user to view basic system parameters such as RAM size, hard disk size, processor type, and BIOS version. BIOSAccess is expected to replace traditional, less user-friendly character-based utilities. RPBAccess is a patent-pending product, currently under development, that will allow technical support personnel to remotely access a disabled PC via a modem, network or Internet connection. The Company believes that this software is unique because it operates without a functioning hard drive or operating system and thus can solve a greater number of system problems. RPBAccess will allow an expert system or technical support person to run BIOS setup, see error messages, upload and download files (if the hard disk functions), and upload and download diagnostic software. Consequently, PC manufacturers will be able to efficiently diagnose and potentially repair systems without the usual user telephone relay or site visit. RPBAccess will benefit PC system manufacturers because it can reduce both the time and expense to diagnose and repair the system. USBAccess is a Windows application the Company plans to develop that will display the type and status of all connected USB devices, providing the user with access to such USB options as bandwidth allocation and power management. In conjunction with third party software, USBAccess will provide a complete solution that network administrators can use remotely to access data provided by USB-compliant hardware. CUSTOMERS The Company services over 200 customers worldwide, including designers and manufacturers of desktop PC motherboards, PC systems and notebooks and hardware component and embedded device manufacturers. From time to time, the Company has worked with selected customers to co-develop certain products and expects to pursue additional co-development opportunities in the future. For example, the Company is currently working with Vobis to develop custom products for certain embedded applications and with AMD on the design and development of products related to its K86 microprocessor. The following is a list of customers of the Company who individually accounted for at least $50,000 in revenues in the year ended December 31, 1995, representing, in the aggregate, approximately 74% of the Company's revenues. These customers have licensed the Company's software, and certain of such customers have contracted for the Company to provide non-recurring engineering ("NRE") services, in the categories in which they are listed below. PC Motherboard Designers and Manufacturers Ansoon Technology Co. BCM Advanced Research, Inc. Chaintech Computer Limited Co. Diamond Flower International Inc. Elitegroup Computer Systems Inc. First International Computer Inc. Full Yes Industrial Corp. Gemlight Computer Ltd. GigaByte Technology Co., Ltd. Hsing Tech Enterprise Co., Ltd. Holco Enterprise Co., Ltd. J. Bond Computer Systems Corp. Ocean Office Automation Ltd. Powertech, Inc. President Technology Inc. Sukjung Rectron Ltd. United Spring Association Ltd. Vector Vtech Industries, Inc. 26 29 PC System and Notebook Manufacturers Kapok Mitac Electronics Group Maxdata Computer GmbH Siemens Components, Inc. Synnex Information Technologies, Inc. Toshiba Europa (I.E.) GmbH Vobis Microcomputer AG Hardware Component and Embedded Manufacturers Advanced Micro Devices, Inc. Quadrus Helix Magnetics, Inc. RadiSys Corporation In the year ended December 31, 1994, Siemens and Toshiba accounted for approximately 17% and 12% of the Company's revenues, respectively, and in the year ended December 31, 1995, Vobis and Toshiba accounted for approximately 13% and 14% of the Company's revenues, respectively. In the quarter ended March 31, 1996, Vobis and Toshiba accounted for approximately 18% and 13% of the Company's revenues, respectively. Toshiba recently indicated that it would discontinue licensing the Company's PC Card software during the third quarter of 1996. See "Risk Factors -- Competition" and "-- Dependence on Key Customer Relationships; Concentration of Credit Risk." See Note 9 of Notes to Consolidated Financial Statements for geographic segment information. SALES AND MARKETING The Company markets its products directly and through independent sales representatives. In North America, Award sales managers operate from the Company's headquarters in Mountain View, California. The Company complements its sales force in the U.S. with an independent sales representative in Southern California. In Asia, the Company operates from its office in Taipei, Taiwan, and through independent sales representatives in Korea and Japan. In Europe, the Company markets through its office in Munich, Germany. The Company supports its sales efforts with marketing programs that include exhibitions at trade shows, participation in industry associations, attendance at technical seminars and designation as hardware reference platform designs by chipset manufacturers. For example, AMD has designated the Award Desktop BIOS for its baseline K86 microprocessor design for desktop PC and server applications. The Company believes that customer service and technical support are important competitive factors in the system management software market. Accordingly, the Company provides local service and support for its customers in the U.S., Europe and Asia. In addition, the Company provides worldwide technical support from the U.S. for end-users of its products through dial-in telephone services, facsimile, e-mail and the Company's home page on the World Wide Web at http://www.award.com. Information contained in the Company's home page shall not be deemed to be a part of this Prospectus. Award believes that close contact with its customers not only improves its customers' level of satisfaction, but also provides early access to its customers' new product plans and requirements. PRODUCT DEVELOPMENT Award's research and development efforts consist of new product development, product enhancements and product customization for individual customers. The Company develops new products in response to emerging standards such as DMI and to address perceived opportunities in related markets such as mobile computing and remote diagnostics. Award's engineers actively participate in a number of relevant industry standard groups, such as the Personal Computer Memory Card International Association, the Desktop Management Task Force and the Peripheral Component Interconnect Special Interest Group, which help guide the Company's product planning. Software is developed in a modular fashion to facilitate changes and updates as needed to meet customer requirements and rapid development of new products. An important function of the Company's engineering group is to perform the customization of the BIOS for each new motherboard. The Company works closely with the customer's engineers to ensure that the final motherboard design and the Award BIOS are developed efficiently. The turnaround time for customizing a BIOS for a customer (from receipt of motherboard and engineering to quality assurance and product release) can be as short as one week. Customization of a BIOS can be done either in the U.S., Taiwan or Europe, depending on resource availability and customer needs. Because the development of the Company's software products requires knowledge of computer hardware, operating system software, system management software and application software, key technical personnel must be proficient in a number of disciplines. Competition to attract and retain such personnel is intense, and the failure of the Company to hire and retain talented technical personnel or the loss of one or more key technical employees could have an adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors -- Dependence on Key Personnel; Ability to Attract and Retain Key Technical Employees." 27 30 COMPETITION The markets for the Company's products are highly competitive. The principal competitive factors affecting the markets for the Company's software include technological excellence, timeliness of product introduction, responsiveness to customer requirements, customer relationships, industry relationships, engineering services, ease of use, ease of integration and price. Due to its technological competence, large customer base in the desktop PC market, and strong relationships with industry participants, the Company believes it competes favorably with respect to all of these factors. Further, part of the Company's strategy is to develop innovative software product solutions to address the emerging trends in the PC and embedded device markets. There can be no assurance that such products or technologies will be successfully developed by the Company or that such products will not be developed by others, rendering the Company's software or technologies non-competitive or obsolete. Failure to successfully implement this strategy could have a material adverse effect upon the Company's business, financial condition and results of operations. See "Business -- Industry Background" and "-- Product Development." The Company faces competition primarily from other systems management software companies, including American Megatrends, Inc., Phoenix Technologies Ltd. and SystemSoft Corporation, and also from the in-house software development staffs of current and prospective customers. Certain of the companies with which the Company competes or may in the future compete have substantially greater financial, marketing, sales and support resources and greater brand name and technological leadership recognition than the Company. There can be no assurance that the Company will be able to develop software comparable or superior to software offered by its competitors. In addition, the PC market experiences intense price competition and the Company expects that, in order to remain competitive, it may have to decrease unit prices on some or all of its software products. Any such decrease would have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes that interdependencies may develop between system management software companies and their customers, which would need to be overcome in order to replace an entrenched competitor. While Award believes such entrenchment may benefit the Company in its existing relationships with key participants in the PC market, especially with its customers in Taiwan, customer entrenchment may make it more difficult for the Company to displace competitors or increase market presence, particularly in the mobile PC market, where competitors may have strong relationships with certain mobile PC manufacturers. Intel, for example, has entered into formal agreements with, and become a significant shareholder in, Phoenix Technologies Ltd. and SystemSoft Corporation. In addition, SystemSoft Corporation has entered into agreements with Microsoft, IBM and Compaq to license its PC Card software. The Company believes that competitive pressures in the system management software market may increase as (i) microprocessor manufacturers continue to enter the motherboard manufacturing market and (ii) operating software system vendors incorporate more system management software into their products. The entrance or expansion of microprocessor manufacturers who are not customers of the Company into the motherboard manufacturing markets may have an adverse effect on the Company's motherboard manufacturing customers. Further, as software manufacturers provide greater functionality and features, user value and performance to their products that eliminate or encroach upon the need for the Company's software products, the market for such products could be materially diminished. Microsoft includes basic PC Card software in its Windows 95 operating system and has announced the inclusion of full PC Card software support in its next generation Windows 9x and Windows NT operating systems. Currently, the Company is developing PC Card software for Microsoft's Windows NT. If end-users of Microsoft's version of the basic PC Card and Plug and Play software included in its operating systems perceive such software as being adequate for their computing needs, Award's revenues from PC Card software would be adversely affected. While the Company believes that the trend in the PC industry toward greater complexity will continue and that the Company's products offer a technologically proven, timely and cost-effective solution to this need, there can be no assurance that other participants in the PC industry will not develop products and solutions that encroach upon the demand, or obviate the need, for the Company's products. See "Risk Factors -- Dependence on Key Customer Relationships; Concentration of Credit Risk." INTELLECTUAL PROPERTY The Company's success depends in significant part on the development, maintenance and protection of its intellectual property. The Company regards all of its software as proprietary and attempts to protect it with a combination of patents, copyrights, trademarks and trade secrets, employee and third-party nondisclosure agreements and other methods of protection. Despite these precautions and the protection of copyright laws, it may be possible for unauthorized third parties to copy the Company's software or to reverse engineer or obtain and use information that the Company regards as proprietary. The Company has patent applications pending in the U.S. and/or abroad on six inventions, three of which are owned jointly with a third party. There are currently no issued patents covering the Company's products. However, the Company does not generally rely on patents to protect its products. The Company licenses its object and source code under written license agreements. Certain provisions of such licenses, including provisions protecting against unauthorized use, copying, transfer and disclosure of the licensed programs, may be unenforceable under the laws of certain jurisdictions. In addition, the laws of some foreign jurisdictions, including Taiwan, do not protect the Company's proprietary rights to the 28 31 same extent as do the laws of the United States. There can be no assurance that the protections put in place by the Company will be adequate. Significant and protracted litigation may be necessary to protect the Company's intellectual property rights to determine the scope of the proprietary rights of others or to defend against claims of infringement. Moreover, although the Company is not currently involved in any litigation with respect to intellectual property rights, in the past there have been allegations that certain portions of the Company's core BIOS infringed on a third party's copyrights. In response, the Company rewrote certain software routines in a "clean room" procedure and is upgrading its customers to the new version of such software routines in order to avoid any further allegations of infringement. The Company believes that its software does not presently infringe the copyrights of any third parties. However, there can be no assurance that other parties will not make allegations of infringement in the future. Such assertions could require the Company to discontinue the use of certain software routines, to cease the manufacture, use and sale of infringing products, to incur significant litigation costs and expenses and to develop non-infringing technology or to obtain licenses to the alleged infringing technology. Although the Company has been able to acquire licenses from third parties in the past, there can be no assurance that the Company would be able to develop alternative technologies or to obtain such licenses or, if a license is obtainable, that the terms would be commercially acceptable to the Company in the event such assertions are made in the future. EMPLOYEES As of June 30, 1996, the Company had 94 full-time employees, of whom 49 are engaged in engineering and technical positions, 24 in sales and marketing, and 21 in finance, operations and administration. Except for its employees in Germany, none of the Company's employees is subject to an employment agreement with the Company. No employee of the Company is represented by a labor union or is subject to a collective bargaining agreement. The Company has never experienced a work stoppage due to labor difficulties and believes that its employee relations are good. LEGAL PROCEEDINGS The Company is not currently engaged in any material litigation or legal proceedings. FACILITIES The Company's headquarters are located in Mountain View, California. The Company subleases approximately 20,000 square feet in this facility under a lease agreement that expires on December 31, 1996 and may be renewed on a yearly basis thereafter. The Company also leases office space in Taipei, Taiwan and Munich, Germany. These offices provide sales and technical support to its customers in Asia and Europe, respectively. The Company believes that its facilities are adequate to support operations for the next twelve months. In the event that additional space is needed, the Company believes that suitable additional or alternative space adequate to serve its needs will be readily available on commercially reasonable terms. See "Certain Transactions." 29 32 MANAGEMENT The executive officers and directors of Award and their ages as of June 30, 1996 are as follows:
------------------------------------------------------------------------ NAME AGE POSITION ------------------------------------------------------------------------ George C. Huang.............. 54 Chairman of the Board, President, Chief Executive Officer and Director Reza Afghan.................. 35 Vice President, Operations Kevin J. Berry............... 46 Vice President, Finance, Chief Financial Officer, Treasurer and Secretary Maurice W. Bizzarri.......... 40 Vice President, Engineering and Product Marketing Lyon T. Lin.................. 43 General Manager, Taiwan; President, Award Software Hong Kong Limited Ann P. Shen.................. 55 Vice President, Sales and Marketing Cheng Ming Lee............... 53 Director David S. Lee(1)(2)........... 59 Director Theodor L. Lieven............ 44 Director Masami Maeda................. 61 Director Anthony Sun(1)............... 43 Director William P. Tai(1)(2)......... 34 Director
- --------------- (1) Member of Compensation Committee (2) Member of Audit Committee GEORGE C. HUANG has served as Chairman of the Board of Directors, President, Chief Executive Officer and Director since July 1993. From January 1984 to the present, Dr. Huang has served as Chairman of the Board of Directors of GCH Systems, Inc. ("GCH"), a company that develops and markets embedded controllers, Application Specific Integrated Circuits and PC systems, and from January 1984 until November 1994, he also served as Chief Executive Officer of GCH. From February 1987 to the present Dr. Huang has served as a Director of GCH-Sun Systems Company Ltd. ("GSS"), a subsidiary of GCH. From January 1990 to May 1996, Dr. Huang served as a Director of Fidelity Venture Capital Corporation ("FVCC"), a shareholder of GCH and the Company. Dr. Huang received a B.S. from the National Taiwan University, an M.S. from Washington State University, and a Ph.D. in Electrical Engineering from University of Washington. REZA AFGHAN has served as Vice President, Operations since January 1994. From November 1987 to January 1994, Mr. Afghan served as Vice President, Sales and Operations of GCH. He received his B.S. in Electrical Engineering from Oregon State University. KEVIN J. BERRY has served as Vice President, Finance, Chief Financial Officer and Treasurer since June 1995 and Secretary since October 1995. From December 1988 to May 1995, Mr. Berry served as Vice President, Finance for the CMX and Aurora divisions of Chyron Corporation, a developer and manufacturer of software and systems for the video marketplace. Mr. Berry received a B.S. in Finance and an M.B.A. from New York University. MAURICE W. BIZZARRI has served as Vice President, Engineering and Product Marketing since July 1995. From June 1992 to July 1995, Mr. Bizzarri consulted in the systems software industry. From November 1990 to June 1992, he served as Vice President, Research and Development of Connective Strategies, Inc., a hardware/software company. LYON T. LIN has served as General Manager, Taiwan, and President, Award Software Hong Kong Limited since July 1993. From January 1984 to June 1993, Mr. Lin served as Vice President of GCH. Mr. Lin is also a director of GSS. Mr. Lin received a B.S. in Electrical Engineering from National Chiao-Tung University and an M.S. in Electrical Engineering from Santa Clara University. Mr. Lin is the brother-in-law of George C. Huang. ANN P. SHEN has served as Vice President, Sales and Marketing since December 1994. From June 1994 to December 1994, she served as Vice President, Engineering and Marketing and from August 1993 to June 1994 she served as Vice President, Engineering. Dr. Shen served as Vice President, Engineering at GCH from October 1992 to June 1994. From March 1990 to August 1992, Dr. Shen served as Vice President, Engineering and Manufacturing Director of OPTA, a digital camera and high-end graphic/video card company. Dr. Shen received a B.S. in Physics from National Taiwan University, an M.S. in Physics from the University of California, Los Angeles and a Ph.D. in Solid State Physics from New York Polytechnical University. CHENG MING LEE has served as a director since July 1993. From April 1987 to the present, Dr. Lee has served as the President and Chief Executive Officer of Taiwan Venture Capital Corporation ("TVCC") and FVCC, both of which are shareholders of the Company. Dr. Lee serves on the Board of Directors of Taiwan Opportunities Fund Limited and CNET Technology Corp. Dr. Lee received a B.S. from National Taiwan University, M.S. from Stanford University and a Ph.D. in Chemical Engineering from the University of Houston. 30 33 DAVID S. LEE has served as a director since December 1994. From May 1995 to the present, Mr. Lee has served as the Chairman of CMC Industries, Inc., a contract manufacturing company. From November 1985 to August 1994, Mr. Lee served as the President and Chief Executive Officer of DTC Data Technology Corporation (formerly Qume Corporation), a manufacturer of disk controller and communication peripherals. Mr. Lee serves on the Board of Directors of Linear Technology Corporation and Photonics Corporation. In addition, Mr. Lee is a member of the Board of Regents of the University of California. Mr. Lee holds an Honorary Doctorate of Engineering and B.S. in Mechanical Engineering from Montana State University and an M.S. in Mechanical Engineering from North Dakota State University. THEODOR L. LIEVEN has served as a director since January 1996. From January 1975 to the present, Mr. Lieven has served as Chief Executive Officer of Vobis Microcomputer AG, a computer and peripherals retailing and production company which he co-founded in 1975. For a description of the voting agreement relating to Mr. Lieven and Vobis, see "Certain Transactions." MASAMI MAEDA has served as a director since January 1995. From April 1971 to the present, Mr. Maeda has served as President and Chief Executive Officer of Sun Electronics Corporation, a manufacturer of electronic devices. He is also a member of the Board of Directors of GCH and GSS. ANTHONY SUN has served as a director since October 1995. From August 1979 to the present, he has been a general partner of Venrock Associates, a venture capital partnership. Mr. Sun serves on the Board of Directors of Cognex Corporation, Conductus, Inc., Centura Software Corporation, Fractal Design Corporation, Inference Corporation, Komag, Inc., Photonics Corporation, StrataCom, Inc. and World Talk Communications Corp. Mr. Sun holds S.B.E.E. and S.M.E.E. degrees from Massachusetts Institute of Technology and an M.B.A. from Harvard University. WILLIAM P. TAI has served as a director since June 1995. From September 1991 to the present, Mr. Tai has been a general partner of the Walden Group of Venture Capital Funds. Concurrently, from August 1995 to the present, he has been Chairman and Chief Executive Officer of AUNET Corporation, an Asia-based affiliate of UUNET Technologies, Inc. From August 1987 to September 1991, Mr. Tai served as Vice President of Alex. Brown & Sons Inc., where he was responsible for the firm's efforts in the semiconductor industry. Mr. Tai also serves on the Board of Directors of Network Peripherals Inc. Mr. Tai holds a B.S. with Honors in Electrical Engineering from the University of Illinois and an M.B.A. from Harvard University. Each director of the Company serves for a one year term or until his successor has been duly elected and qualified. Executive officers of the Company serve at the pleasure of the Board of Directors. COMMITTEES OF THE BOARD OF DIRECTORS The Company's Board of Directors has established a Compensation Committee and an Audit Committee. The Compensation Committee establishes salaries, incentives and other forms of compensation for directors, executive officers and employees of the Company and administers various incentive compensation and benefit plans. The Audit Committee oversees the work performed by the Company's independent accountants and reviews the Company's internal controls. COMPENSATION OF THE BOARD OF DIRECTORS The Company's directors do not currently receive any cash compensation for service on the Board of Directors or any committee thereof, but directors may be reimbursed for certain expenses in connection with attendance at Board and committee meetings. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee consists of Messrs. David S. Lee, Sun and Tai. No member of the Compensation Committee of the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee. For a description of transactions and relationships involving the Company and members of the Compensation Committee, see "Certain Transactions." 31 34 EXECUTIVE COMPENSATION The following table sets forth certain compensation of the Company's Chief Executive Officer and the three highest paid executive officers of the Company who earned more than $100,000 in the fiscal year ended December 31, 1995 (collectively, the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
---------------------------------------------------- ANNUAL COMPENSATION -------------------- SALARY -------- LONG TERM COMPENSATION AWARDS ALL OTHER ----------- COMPENSATION BONUS ----------- NAME AND PRINCIPAL POSITION EARNED SECURITIES ------- UNDERLYING OPTIONS ----------- George C. Huang........................................ $ 92,986 $ -- -- $ -- Chairman of the Board, President and Chief Executive Officer Lyon T. Lin............................................ 110,618 62,703(1) -- -- General Manager, Taiwan; President, Award Software Hong Kong Limited Ann P. Shen............................................ 85,000 32,090(1) -- -- Vice President, Sales and Marketing Cornelia Schumann(2)................................... 79,930 23,367(1) -- 4,400(3) General Manager, Munich
- --------------- (1) Represents sales commissions earned. (2) Resigned from the Company effective March 31, 1996. (3) Allowance for automobile. STOCK OPTION PLAN The Company's 1995 Stock Option Plan (the "Option Plan") was adopted by the Board of Directors in December 1994 and amended in November 1995. The purpose of the Option Plan is to attract and retain qualified personnel, to provide additional incentives to employees, including officers, directors and consultants of the Company, and to promote the success of the Company's business. Pursuant to the Option Plan, the Company may grant or issue incentive stock options to employees and officers and nonstatutory stock options to consultants, employees, and directors. A total of 1,250,000 shares of Common Stock has been reserved for issuance under the Option Plan. At July 5, 1996, options to purchase 37,916 shares of Common Stock had been exercised under the Option Plan and the Company had outstanding options to purchase 941,280 shares of Common Stock at a weighted average per share exercise price of $3.86. A total of 270,804 shares of Common Stock is available for future issuance under the Option Plan. Although no vesting schedule is required under the Option Plan, options previously granted under the Option Plan generally have become exercisable one year after date of grant and vest over a maximum period of five years following the date of grant. The maximum term of a stock option under the Option Plan is ten years, but if the optionee at the time of grant has voting power over more than 10% of the Company's outstanding capital stock, the maximum term of incentive stock option is five years. The exercise price of incentive stock options granted under the Option Plan must be at least equal to 100%, or 110% with respect to holders of 10% of the voting power of the Company's outstanding capital stock, of the fair market value of the stock subject to the option on the date of grant. The exercise price of nonstatutory stock options granted under the Option Plan must be at least equal to 85% of the fair market value of the stock subject to the option on the date of the grant. No executive officer or director shall be eligible to be granted options covering more than 500,000 shares of the Company's Common Stock in any twelve-month period. The Option Plan may be amended at any time by the Board, although certain amendments require shareholder approval. The Option Plan will terminate in January 2005 unless earlier terminated by the Board. 32 35 In April 1996, the following Named Executive Officers received grants of options to purchase shares of Common Stock in the amounts stated below at a weighted average per share exercise price of $10.56:
---------------- NUMBER OF SHARES NAME SUBJECT TO OPTIONS ------------------- George C. Huang......................................................................... 35,000 Lyon T. Lin............................................................................. 20,000 Ann P. Shen............................................................................. 7,500
OPTIONS GRANTED IN LAST FISCAL YEAR No options were granted during the year ended December 31, 1995 to the Named Executive Officers. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth for each of the Named Executive Officers the shares acquired and the value realized on each exercise of stock options during the fiscal year ended December 31, 1995 and the number and value of securities underlying unexercised options held by the Named Executive Officers at December 31, 1995.
--------------------------------------------------------------------------------- NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT ACQUIRED ON VALUE DECEMBER 31, 1995(#) DECEMBER 31, 1995($)(1) NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ------------ --------------- -------------------------- -------------------------- George C. Huang..................... -- -- 0/60,000 $0/$660,000 Lyon T. Lin......................... -- -- 0/50,000 $0/$550,000 Ann P. Shen......................... -- -- 0/26,050 $0/$286,550 Cornelia Schumann(2)................ -- -- 0/17,500 $0/$192,500
- --------------- (1) Value realized and value of unexercised in-the-money options is based on the assumed initial public offering price of $12.00 per share of the Company's Common Stock, minus the exercise price, multiplied by the number of shares underlying the option. (2) Resigned from the Company effective March 31, 1996. EXECUTIVE COMPENSATION PLAN In April 1996, the Company adopted an Executive Compensation Plan, pursuant to the terms of which the Company's senior management, including the Named Executive Officers, will receive at the end of 1996 cash bonuses based on the Company's performance in 1996. EMPLOYEE STOCK PURCHASE PLAN In May 1996, the Company's Board of Directors approved the 1996 Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of 150,000 shares of Common Stock. The Purchase Plan is to become effective upon the effectiveness of the Offering. The Purchase Plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code (the "Code"). Under the Purchase Plan, the Board of Directors may authorize participation by eligible employees, including officers, in periodic offerings following the adoption of the Purchase Plan. The offering period for any offering will be no more than 27 months. Employees are eligible to participate if they are employed by the Company or an affiliate of the Company designated by the Board of Directors. Employees who participate in an offering can have up to 15% of their earnings withheld pursuant to the Purchase Plan and applied, on specified dates determined by the Board of Directors, to the purchase of shares of Common Stock. The price of Common Stock purchased under the Purchase Plan will be equal to 85% of the lower of the fair market value of the Common Stock on the commencement date of each offering period or the relevant purchase date. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically on termination of employment with the Company. In the event of certain changes of control, the Company and the Board of Directors have discretion to provide that each right to purchase Common Stock will be assumed or an equivalent right substituted by the successor corporation, or the Board may shorten the offering period and provide for all sums collected by payroll deductions to be applied to purchase stock immediately prior to the change in control. The Purchase Plan will terminate at the Board's direction. 33 36 401(K) PLAN In January 1995, the Company adopted a tax-qualified employee savings and retirement plan (the "401(k) Plan") covering all of the Company's employees. Pursuant to the 401(k) Plan, employees may elect to reduce their current compensation by up to the lesser of 15% of eligible compensation or the statutorily prescribed annual limit ($9,500 in 1996) and have the amount of such reduction contributed to the 401(k) Plan. The trustee under the 401(k) Plan, at the direction of each participant, invests the assets of the 401(k) Plan in any of several designated investment options. The 401(k) Plan is intended to qualify under Section 401 of the Code so that contributions by employees to the 401(k) Plan, and income earned on plan contributions, are not taxable to employees until withdrawn, and so that the contributions by employees will be deductible by the Company when made. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Bylaws provide that the Company will indemnify its directors, and may indemnify its officers, employees and other agents, to the fullest extent not prohibited by California law. The Company is also empowered under its Bylaws to enter into indemnification agreements with its directors, officers, employees and other agents and to purchase insurance on behalf of any person whom it is required or permitted to indemnify. Pursuant to this provision, the Company will enter into indemnity agreements with each of its directors and executive officers. In addition, the Company's Amended and Restated Articles of Incorporation provide that, to the fullest extent permitted by California law, the Company's directors will not be liable for monetary damages for breach of the directors' fiduciary duty of care to the Company and its shareholders. This provision in the Amended and Restated Articles of Incorporation does not eliminate the duty of care, and in appropriate circumstances, equitable remedies such as an injunction or other forms of non-monetary relief would remain available under California law. Each director will continue to be subject to liability for breach of the director's duty of loyalty to the Company for acts or omissions not in good faith or involving intentional misconduct or knowing or culpable violations of law that the director believes to be contrary to the best interests of the Company or its shareholders, for acts or omissions involving a reckless disregard for the director's duty to the Company or its shareholders when the director was aware or should have been aware of a risk of serious injury to the Company or its shareholders, or an unexcused pattern of inattention that amounts to an abdication of the director's duty to the Company or its shareholders, for improper transactions between the director and the Company or for improper distributions to shareholders and loans to directors and officers, or for acts or omissions by the director as an officer. This provision also does not affect a director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. At the present time, there is no pending litigation or proceeding involving a director, officer, employee or other agent of the Company in which indemnification would be required or permitted. The Company is not aware of any pending or threatened litigation or proceeding which may result in a claim for such indemnification by any director, officer, employee or other agent. CERTAIN TRANSACTIONS FINANCINGS In January 1996, Vobis purchased 570,033 shares of Common Stock at $12.28 per share and a warrant (the "Vobis Warrant") at $0.02 per warrant share to purchase 272,394 shares of Common Stock with an exercise price of $12.28 per share. Pursuant to that certain Investors' Rights Agreement, dated as of January 12, 1996, among the Company, Vobis and the other parties thereto (the "Investors' Rights Agreement"), Vobis may elect in respect of future issuances of the Company's equity securities to purchase that number of shares as is necessary to maintain its ownership interest (in no event to exceed 17.5% on a fully diluted basis) in the Company existing immediately prior to such future issuances, subject to certain restrictions (the "Catch-up Right"). Pursuant to the Catch-up Right, Vobis is entitled to purchase (i) up to 96,000 shares of Common Stock, in the event of a Qualified Public Offering (as defined below), or up to 263,636 shares of Common Stock upon any other public offering, at the per share price sold to the public in the Offering and (ii) up to 41,169 shares of Common Stock at $10.00 per share in respect of certain issuances of options to purchase shares of Common Stock. The Catch-up Right expires and terminates in accordance with its terms upon the earlier of (i) the date upon which Vobis owns less than 8% of the Company's outstanding shares of Common Stock on a fully diluted basis, or (ii) completion of an offering of shares of the Company's Common Stock under the Securities Act with an aggregate offering price to the public of at least $10,000,000 and a per share price of at least $13.60 (a "Qualified Public Offering"). Vobis has indicated its intention to exercise its option to purchase the 41,169 shares at $10.00 per share and has waived its right to purchase any shares in respect of the Offering. Assuming exercise of its warrant and consummation of such purchase, Vobis will own approximately 883,596 shares of the Company's Common Stock, or approximately 13.2% of the Company's outstanding shares, subsequent to the Offering. See "Principal and Selling Shareholders." In 1994, 1995 and the three months ended March 31, 1996, Vobis accounted for revenues of $622,000, $1,227,000 and $506,000, or approximately 9%, 13% and 18% of the Company's revenues, respectively. Theodor L. Lieven, a director of the 34 37 Company, is the Chief Executive Officer of Vobis, which owns approximately 12% of the Company's outstanding shares of Common Stock prior to the Offering. See "Principal and Selling Shareholders." In September 1995, Walden Capital Partners II, L.P. and Walden Technology Ventures II, L.P. (collectively "Walden") purchased 72,917 and 10,416 shares, respectively, of the Company's Common Stock at $6.00 per share and warrants (the "Walden Warrants") at $0.02 per warrant share to purchase 35,000 and 5,000 shares, respectively, of the Company's Common Stock each with an exercise price of $1.00 per share. William P. Tai, a director of the Company, is a general partner of Walden Capital Partners II, L.P. and Walden Technology Ventures II, L.P. In May 1995, the Company issued Mr. Tai options to purchase 25,000 shares of Common Stock with an exercise price of $1.00 per share. In September 1995, Venrock Associates and Venrock Associates II, L.P. (collectively "Venrock") purchased 229,302 and 104,031 shares, respectively, of Common Stock at a purchase price of $6.00 per share and warrants (the "Venrock Warrants") at $0.02 per warrant share to purchase 57,325 and 26,008 shares, respectively, of the Company's Common Stock each with an exercise price of $1.00 per share. Anthony Sun, a director of the Company, is a general partner of Venrock Associates and Venrock Associates II, L.P. In October 1995, Mr. Sun received options to purchase 32,105 shares of Common Stock with an exercise price of $5.00. The Company granted Vobis, Walden and Venrock the right to convert their shares of Common Stock into shares of preferred stock of the Company in the event the Company fails to effect a registration of its Common Stock under the Securities Act on or before June 30, 1996. Such rights to convert have been waived until December 31, 1996 and expire upon consummation of the Offering. In addition, Vobis, Walden and Venrock are entitled to certain rights with respect to the registration of their shares of Common Stock under the Securities Act. See "Description of Capital Stock -- Registration Rights." In connection with Vobis' investment, the Company entered into a voting agreement with Vobis, Walden, Venrock and the Company's Chief Executive Officer pursuant to which such shareholders agreed not to reduce the number of directors on the Board of Directors below five and to elect a person designated by Vobis to the Company's Board of Directors. This agreement will terminate upon the earlier of (i) January 12, 1999, (ii) a change of control of the Company, (iii) the date upon which Vobis owns less than 8% of the Company's outstanding shares of Common Stock on a fully diluted basis, or (iv) completion of a Qualified Public Offering. The Vobis, Walden and Venrock Warrants contain a net exercise provision and expire upon the earlier of (i) September 30, 2000 or (ii) completion of a Qualified Public Offering. The holders of these warrants are entitled to certain rights with respect to the registration of the shares of Common Stock issuable upon exercise thereof under the Securities Act. See "Description of Capital Stock -- Registration Rights." REPURCHASES In July 1995 and August 1995, the Company repurchased 149,963 shares and 112,503 shares, respectively, of Common Stock for an aggregate amount of $899,778 and $675,027, or $6.00 per share, from certain relatives of George C. Huang, Chairman of the Board, President and Chief Executive Officer of the Company. In January 1996 and February 1996, the Company repurchased 55,163 shares and 2,500 shares, respectively, of Common Stock for an aggregate amount of $551,650 and $25,000, or $10.00 per share, from certain relatives of Dr. Huang. Dr. Huang disclaims beneficial ownership of any of such shares held by his relatives. In July 1995 and August 1995, the Company repurchased 33,493 shares of Common Stock owned by GCH for an aggregate amount of $200,958, or $6.00 per share, which shares were acquired by GCH from several of its existing shareholders, including Dr. Huang and Mr. Lin, who transferred 14,110 and 2,604 shares, respectively. In July 1995 and August 1995, the Company repurchased 139,963 shares and 152,503 shares, respectively, of Common Stock for an aggregate amount of $839,781 and $915,027, or $6.00 per share, from certain relatives of Lyon T. Lin, General Manager, Taiwan; President, Award Software Hong Kong Limited, Taiwan Branch. In January 1996, the Company repurchased 24,391 shares of Common Stock for an aggregate amount of $243,925, or $10.00 per share, from certain relatives of Mr. Lin. Mr. Lin disclaims beneficial ownership of any of such shares held by his relatives. In January 1996, the Company repurchased 123,549 shares of the Company's Common Stock for an aggregate amount of $1,235,495, or $10.00 per share, from Intra Electronics Co., Ltd. ("Intra Electronics"), an affiliate of FVCC, TVCC and Cheng Ming Lee. Dr. Lee, a director of the Company, was a director of Intra Electronics at the time of repurchase. Dr. Lee disclaims beneficial ownership of any such shares held by Intra Electronics. The aforementioned repurchases were made in order to minimize the dilution to the Company's remaining shareholders resulting from the financing activities described above. 35 38 SELLING SHAREHOLDERS Certain of the Selling Shareholders who are relatives of Dr. Huang intend to sell 45,000 shares of Common Stock in the Offering. Dr. Huang disclaims beneficial ownership of any of such shares held by his relatives. Certain of the Selling Shareholders who are relatives of Mr. Lin intend to sell 45,000 shares of Common Stock in the Offering. Mr. Lin disclaims beneficial ownership of any of such shares held by his relatives. MISCELLANEOUS In July 1993, GCH purchased all of the issued and outstanding shares of the Company's Common Stock, after which the Company was operated as a wholly owned subsidiary until December 1994. On December 31, 1994, GCH effected a spin-off of the Company by distributing all of the outstanding shares of Common Stock of the Company to the existing shareholders of GCH on a pro rata basis. Dr. George C. Huang, the Chairman of the Board, Chief Executive Officer, President and director of the Company, is a director, executive officer and shareholder of GCH. Masami Maeda, a director of the Company, is a director and shareholder of GCH. Dr. Lee, a director of the Company, is a shareholder of GCH and President and Chief Executive Officer of TVCC and FVCC, each of which is a shareholder of GCH and the Company. The Company subleases its headquarters facilities from GCH. In 1993, 1994, 1995 and for the three months ended March 31, 1996, the Company made lease payments to GCH of $123,000, $221,000, $273,000 and $79,000, respectively. From time to time in the past, the Company and GCH have made non-interest bearing inter-company cash advances to each other for working capital purposes. In 1993, 1994, 1995 and for the three months ended March 31, 1996, GCH, and its affiliates, advanced to (or borrowed from) the Company a maximum amount of $723,000/$(19,000), $1,104,000/$(263,000), $616,354/$(1,474,000) and $(272,000), respectively, with an outstanding balance of $816,000, $413,000, $(282,000) and $(258,000) at the end of such periods, respectively. The Company leases its office space in Taipei, Taiwan, from Sun Corporation, an affiliate of Sun Electronics Corporation ("Sun"), of which Mr. Maeda, a director of the Company, is President, Chief Executive Officer, director and majority shareholder, and GSS, an affiliate of Dr. George C. Huang, Dr. Cheng Ming Lee, Masami Maeda and Lyon T. Lin. In 1993, 1994, 1995 and as of March 31, 1996, the Company made lease payments to Sun Corporation of $19,700, $15,100, $58,900 and $15,800, respectively. During the three months ended March 31, 1996, the Company made lease payments to GSS of $13,500. Sun intends to sell 47,500 shares of Common Stock as a Selling Shareholder in the Offering. In June 1995, the Company issued to Dr. Cheng Ming Lee warrants to purchase 20,000 shares of Common Stock with an exercise price of $1.00 per share in consideration of certain marketing services performed for the Company. In December 1994, the Company authorized the issuance of, and issued to TVCC and FVCC, each an affiliate of Dr. Cheng Ming Lee, warrants to purchase 30,000 and 50,000 shares of Common Stock with an exercise price of $1.00 per share in consideration of certain marketing services performed for the Company. TVCC and FVCC intend to sell 25,000 and 75,000 shares of Common Stock, respectively, as Selling Shareholders in the Offering. In October 1994, the Company issued Synnex Information Technologies, Inc., a California corporation ("Synnex") a warrant (the "Synnex Warrant") to purchase up to 200,000 shares of Common Stock with an exercise price of $1.00 per share. In July 1996 Synnex exercised the Synnex Warrant with respect to 77,500 shares, which shares it intends to sell in the Offering as a Selling Shareholder. The Synnex Warrant contains a net exercise provision and expires on March 31, 1998. The holder of the Synnex Warrant is entitled to certain rights with respect to the registration of the shares of Common Stock issuable upon exercise thereof under the Securities Act. See "Description of Capital Stock -- Registration Rights." The Company believes that the foregoing transactions were in its best interests. As a matter of policy, all future transactions between the Company and any of its officers, directors or principal shareholders will be approved by a majority of the independent and disinterested members of the Board of Directors, will be on terms no less favorable to the Company than could be obtained from unaffiliated third parties and will be in connection with bona fide business purposes of the Company. 36 39 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock as of July 5, 1996 and as adjusted to reflect the sale of the Common Stock being offered hereby (assuming no exercise of the Underwriters' over-allotment option) by (i) each person (or group of affiliated persons) who is known by the Company to own beneficially more than 5% of the Common Stock, (ii) each of the Company's directors, (iii) each of the Named Executive Officers, (iv) all directors and executive officers of the Company as a group and (v) the Selling Shareholders.
-------------------------------------------------------------------- SHARES BENEFICIALLY SHARES TO BE OWNED PRIOR BENEFICIALLY OWNED TO OFFERING(1) NUMBER OF AFTER OFFERING(1)(2) ---------------------- SHARES BEING -------------------------- BENEFICIAL OWNERS NUMBER PERCENT OFFERED NUMBER PERCENT(2) --------- ------- ------------ ---------- ---------- Vobis Microcomputer AG (3)........................ 883,596 16.0% -- 883,596 13.1% Theodor L. Lieven Carlo-Schmid-Str. 12 D-52146 Wurselen Germany George C. Huang (4)............................... 525,900 10.1 -- 525,900 8.1 Award Software International, Inc. 777 East Middlefield Road Mountain View, CA 94043 Sun Electronics Corporation....................... 472,297 9.1 47,500 424,797 6.6 Masami Maeda 250 Asahi Kochino-Cho Konan City, Aichi Prefecture 483 Japan Venrock Associates (5)............................ 416,666 7.9 -- 416,666 6.4 Anthony Sun 30 Rockfeller Plaza, #5508 New York, NY 10112 Taiwan Venture Capital Corporation................ 375,285 7.2 25,000 350,285 5.4 Cheng Ming Lee 6F, 305 Ming-Shen E. Rd. Taipei, Taiwan Fidelity Venture Capital Corporation.............. 318,445 6.1 75,000 243,445 3.8 Cheng Ming Lee 6F, 305 Ming-Shen E. Rd. Taipei, Taiwan John Miao(6)...................................... 286,750 5.5 19,550 27,740 * 39 Alley 669 Tun Hua S. Rd. Taipei, Taiwan Theodor L. Lieven (7)............................. 883,596 16.0 -- 883,596 13.1 Cheng Ming Lee (8)................................ 731,429 14.1 -- 631,429 9.8 Masami Maeda (9).................................. 487,921 9.4 -- 440,421 6.8 Anthony Sun (5)................................... 416,666 7.9 -- 416,666 6.4 Lyon T. Lin (10).................................. 135,818 2.6 -- 135,818 2.1 William P. Tai (11)............................... 131,144 2.5 -- 131,144 2.0 David S. Lee (12)................................. 73,500 1.4 -- 73,500 1.1 Reza Afghan(13)................................... 25,207 * -- 25,207 * Ann P. Shen (14).................................. 24,808 * -- 24,808 * Kevin J. Berry(15)................................ 10,416 * -- 10,416 * Maurice W. Bizzarri(16)........................... 8,332 * -- 8,332 * All directors and executive officers as a group (12 persons)(17).......................... 3,454,730 60.2 -- 3,307,237 47.3 OTHER SELLING SHAREHOLDERS HanTech Venture Capital Corporation............... 250,000 4.8 239,460 10,540 * Chailease Venture Capital Co., Ltd................ 250,000 4.8 95,000 155,000 2.4 and affiliated entities (18) Synnex Information Technologies, Inc.(19)......... 200,000 3.8 77,500 122,500 1.9 Hsiang Kang & Chao Yeh(20)........................ 141,889 2.7 6,500 135,389 2.0 John Chao-Piao Huang (21)......................... 109,331 2.1 7,500 101,831 1.6 Pin-Wei Chen (22)................................. 105,426 2.0 6,000 99,426 1.5 James R. McGowan.................................. 73,439 1.4 15,000 58,439 * Edina S. Huang(23)................................ 43,000 * 25,000 18,000 * Spencer Lin(24)................................... 40,158 * 25,000 15,158 * South Orient Capital Corporation(25).............. 29,920 * 29,920 -- -- Allen Chen........................................ 14,617 * 3,500 11,117 * Leon Chen......................................... 14,617 * 3,500 11,117 *
37 40
-------------------------------------------------------------------- SHARES BENEFICIALLY SHARES TO BE OWNED PRIOR BENEFICIALLY OWNED TO OFFERING(1) NUMBER OF AFTER OFFERING(1)(2) ---------------------- SHARES BEING -------------------------- OTHER SELLING SHAREHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT(2) --------- ------- ------------ ---------- ---------- Tzu-Mu Lin........................................ 14,320 * 5,000 9,320 * Gerard Kuang Chang Yeh............................ 12,500 * 2,500 10,000 * Chuan Lan Yeh..................................... 10,500 * 10,500 -- -- Joyce Cin-Cheng Huang............................. 9,685 * 1,500 8,185 * Chih Hong Ho...................................... 9,550 * 4,550 5,000 * Hung Auyeung...................................... 8,753 * 3,753 5,000 * Cornelia Schumann(26)............................. 7,583 * 7,583 -- -- Ai-Jen Shih....................................... 5,570 * 5,570 -- -- Sherry Hsin Ju Yeh................................ 5,000 * 5,000 -- -- Jeffrey Flink(27)................................. 2,000 * 2,000 -- -- Hsiu Fen Shih..................................... 1,114 * 1,114 -- --
- ------------------ * Less than one percent. (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. Percentage of beneficial ownership is based on 5,192,358 shares of Common Stock outstanding as of July 5, 1996 (assuming the issuance of 148,148 shares of Common Stock to AMD) and 6,442,358 shares of Common Stock outstanding after completion of the Offering. (2) Assumes no exercise of the Underwriters' over-allotment option to purchase up to an aggregate of 300,000 shares of Common Stock of the Company. (3) Includes (i) 272,394 shares issuable pursuant to a warrant exercisable within 60 days of July 5, 1996 and (ii) the right to purchase 41,169 shares exercisable within 60 days of July 5, 1996. Mr. Lieven, a director of the Company, is the Chief Executive Officer of Vobis Microcomputer AG. See "Certain Transactions." Mr. Lieven disclaims beneficial ownership of shares held by such entity. (4) Includes (i) 13,609 shares held by Margaret Huang and (ii) 14,727 shares held by Dwight Huang, Dr. Huang's wife and son, respectively. Also includes 25,000 and 8,332 shares issuable pursuant to options exercisable within 60 days of July 5, 1996 by Dr. Huang and his wife. Dr. Huang disclaims beneficial ownership of shares held by his wife and son. (5) Includes (i) 229,302 shares held by Venrock Associates, (ii) 104,031 shares held by Venrock Associates II, L.P. and (iii) 57,325 shares and 26,008 shares issuable pursuant to warrants exercisable within 60 days of July 5, 1996 by Venrock Associates and Venrock Associates II, L.P., respectively. Mr. Sun, a director of the Company, is a general partner of Venrock Associates. Mr. Sun disclaims beneficial ownership of shares held by such entities, except to the extent of his pecuniary interest therein. (6) Includes (i) 250,000 shares held by HanTech Venture Capital Corporation ("HanTech") and (ii) 9,550 shares held by Min Chun Chang, Mr. Miao's wife. Mr. Miao is deemed to have voting power over the shares held by HanTech. He disclaims beneficial ownership over the shares held by HanTech and his wife. (7) Includes (i) 570,033 shares held by Vobis Microcomputer AG, (ii) 272,394 shares issuable pursuant to a warrant exercisable within 60 days of July 5, 1996 and (iii) the right to purchase 41,169 shares exercisable within 60 days of July 5, 1996. See "Certain Transactions." Mr. Lieven disclaims beneficial ownership of shares held by such entity. (8) Includes (i) 375,285 shares held by TVCC, (ii) 318,445 shares held by FVCC, and (iii) 14,211 shares held by Hwaxing Capital Corporation. Dr. Lee, a director of the Company, is deemed to have voting power over the shares held by such entities; however, he disclaims beneficial ownership of the shares. (9) Includes (i) 472,297 shares held by Sun Electronics Corporation and (ii) 15,624 shares issuable pursuant to options exercisable within 60 days of July 5, 1996. Mr. Maeda, a director of the Company, is President, Chief Executive Officer and a majority shareholder of Sun Electronics Corporation. (10) Includes (i) 6,500 shares held by Anne Lin (ii) 10,000 shares held by Christine and Eric Lin, Mr. Lin's wife and children respectively, and (iii) 20,832 and 3,124 shares issuable pursuant to options exercisable within 60 days of July 5, 1996, by Mr. Lin and his wife, respectively. Mr. Lin disclaims beneficial ownership of shares held by his wife and children. (11) Includes (i) 72,917 shares held by Walden Capital Partners II, L.P., (ii) 10,416 shares held by Walden Technology Ventures II, L.P. and (iii) 35,000 and 5,000 shares issuable pursuant to warrants exercisable within 60 days of July 5, 1996. Also includes 7,811 shares issuable pursuant to options exercisable within 60 days of July 5, 1996. Mr. Tai, a director of the Company, is a general partner of The Walden Group. Mr. Tai disclaims beneficial ownership of shares held by such entities, except to the extent of his pecuniary interest therein. (12) Includes 73,500 shares issuable pursuant to options exercisable within 60 days of July 5, 1996. 38 41 (13) Includes 5,207 shares issuable pursuant to options exercisable within 60 days of July 5, 1996. (14) Includes 10,853 shares issuable pursuant to options exercisable within 60 days of July 5, 1996. (15) Includes 10,416 shares issuable pursuant to options exercisable within 60 days of July 5, 1996. (16) Includes 8,332 shares issuable pursuant to options exercisable within 60 days of July 5, 1996. (17) Includes 189,031 and 312,394 shares issuable pursuant to options and warrants held by executive officers and directors and the right to purchase 41,169 shares exercisable within 60 days of July 5, 1996. (18) Includes (i) 83,250 shares held by ChinaTrust Venture Capital Co., Ltd. and (ii) 83,250 shares held by Koos Venture Capital Co., Ltd. (19) Includes 122,500 shares issuable pursuant to a warrant exercisable within 60 days of July 5, 1996. David S. Lee, a director of the Company, is a director of Synnex Information Technologies, Inc. Mr. Lee disclaims beneficial ownership of shares held by such entity. (20) Includes 8,848 shares held by Hsiang Kang Yeh individually. Mr. Yeh is a director of GCH and the brother-in-law of Dr. Huang. Dr. Huang disclaims beneficial ownership of such shares. (21) Includes 1,666 shares issuable pursuant to options exercisable within 60 days of July 5, 1996. Mr. Huang is the brother of Dr. Huang. Dr. Huang disclaims beneficial ownership of such shares. (22) Includes (i) 6,792 shares held by Grace Chen, Mr. Chen's wife and (ii) 2,083 and 10,666 shares issuable pursuant to options exercisable within 60 days of July 5, 1996 by Mr. Chen and his wife, respectively. Pin-Wei Chen is the former Secretary and, until May 5, 1995, a director of the Company. Mr. Chen is the brother-in-law of Dr. Huang. Dr. Huang disclaims beneficial ownership of such shares. (23) Edina S. Huang is the daughter of Dr. Huang. Dr. Huang disclaims beneficial ownership of such shares. (24) Spencer Lin is the brother of Lyon Lin and brother-in-law of Dr. Huang. Both Lyon Lin and Dr. Huang disclaim beneficial ownership of such shares. (25) Dr. Cheng Ming Lee, a director of the Company, is a former director of South Orient Capital Corporation. (26) Cornelia Schumann is the former General Manager, Munich, who resigned effective March 1996. (27) Jeffrey Flink is a former employee of the Company, who resigned effective April 1996. 39 42 DESCRIPTION OF CAPITAL STOCK The following description of the capital stock of the Company and certain provisions of the Company's Articles of Incorporation and Bylaws is a summary that will be in effect at the time of the Offering and is qualified in its entirety by the provisions of the Certificate of Incorporation and Bylaws, which have been filed as exhibits to the Company's Registration Statement, of which this Prospectus is a part. Upon the closing of the Offering the authorized capital stock of the Company will consist of 40,000,000 shares of Common Stock, without par value ("Common Stock"), and 5,000,000 shares of Preferred Stock, without par value ("Preferred Stock"). COMMON STOCK As of July 5, 1996, there were 5,192,358 shares of Common Stock outstanding held by 104 holders of record (assuming the issuance of 148,148 shares of Common Stock to AMD). The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders. The holders of Common Stock are not entitled to cumulative voting rights with respect to the election of directors, and as a consequence, minority shareholders will not be able to elect directors on the basis of their votes alone. Subject to preferences that may be applicable to any shares of Preferred Stock issued by the Company in the future, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, holders of the Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding Preferred Stock. Holders of Common Stock have no preemptive rights and no right to convert their Common Stock into any other securities. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are, and all shares of Common Stock to be outstanding upon completion of the Offering will be, fully paid and nonassessable. PREFERRED STOCK The Board of Directors has the authority, without further action by the shareholders, to issue up to 5,000,000 shares of Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, without any further vote or action by shareholders. The issuance of Preferred Stock could adversely affect the voting power of holders of Common Stock and the likelihood that such holders will receive dividend payments and payments upon liquidation and could have the effect of delaying, deferring or preventing a change in control of the Company. The Company has no present plan to issue any shares of Preferred Stock. WARRANTS The Company has outstanding warrants to purchase 518,227 shares of Common Stock as of July 5, 1996. For a description of such warrants see "Certain Transactions." REGISTRATION RIGHTS After the Offering, the holders of 1,581,016 shares of Common Stock and warrants to purchase 518,227 shares of Common Stock will be entitled to certain rights with respect to the registration of such shares under the Securities Act, pursuant to the Investors' Rights Agreement among such holders and the Company, dated January 12, 1996 (the "Investors' Rights Agreement"). Under the terms of the Investors' Rights Agreement, if the Company proposes to register any of its securities under the Securities Act either for its own account or for the account of other security holders exercising registration rights, such holders are entitled to notice of such registration and are entitled, subject to certain limitations, to include shares therein. The holders may also require the Company to file a registration statement under the Securities Act with respect to their shares, subject to certain limitations. Further, the holders may require the Company to register their shares on Form S-3 when use of such form becomes available to the Company. The Company is required to bear all registration expenses in connection with all subsequent registrations, except that any Form S-3 registration expenses incurred after the first two registrations shall be borne by the selling shareholders on a pro rata basis in proportion to the number of shares sold by each. The selling shareholders in each subsequent registration are required to bear all selling expenses on a pro rata basis in proportion to the number of shares sold by each. These rights are subject to certain conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares included in such registration. CERTAIN ANTI-TAKEOVER CHARTER PROVISIONS The Company's Bylaws (i) provide that a majority of the members of the Board of Directors in office, although less than a quorum, may elect directors to fill vacancies created either by resignation, death, disqualification, removal or by an increase in the size of the Board of Directors and (ii) require advance notice by a shareholder of a proposal or director nomination that such shareholder desires to present at the annual meeting. In addition, the Company's Amended and Restated Articles of Incorporation (i) prohibit shareholder 40 43 actions by written consent, (ii) eliminate automatically on and after the Company becomes a "listed corporation" as defined in Section 301.5 of the California Corporations Code the ability of the shareholders to cumulate votes in the election of directors and (iii) provide that the Bylaws of the Company may only be amended by the Board of Directors or holders of two-thirds of the Company's outstanding voting stock. These provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of the Company. TRANSFER AGENT AND REGISTRAR First National Bank of Boston has been appointed as the transfer agent and registrar for the Company's Common Stock. Its telephone number is (617) 575-2900. 41 44 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offering, the Company will have outstanding 6,442,358 shares of Common Stock, assuming no exercise of the Underwriters' over-allotment option and no exercise of outstanding options and warrants. Of these shares, 2,000,000 shares sold in the Offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended (the "Securities Act"). The remaining 4,442,358 shares of Common Stock held by existing shareholders are "restricted securities" as the term is defined in Rule 144 under the Securities Act (the "Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 or Regulation S promulgated under the Securities Act. As a result of contractual restrictions and the provisions of Rule 144 and 701 or Regulation S, additional shares will be available for sale in the public market as follows: (i) 45,939 Restricted Shares will be eligible for immediate sale on the date of this Prospectus, (ii) 10,833 Restricted Shares and 324,727 shares of Common Stock issuable upon exercise of currently outstanding options will be eligible for sale beginning 90 days after the date of this Prospectus and (iii) 4,385,586 Restricted Shares, 50,567 additional shares of Common Stock issuable upon exercise of currently outstanding options and 518,227 shares of Common Stock issuable upon exercise of currently outstanding warrants will be eligible for sale beginning 180 days after the date of this Prospectus upon expiration of lock-up agreements. The Restricted Shares will be eligible for sale from time to time after completion of the Offering. The Company, directors, all executive officers and certain shareholders of the Company and certain holders of options to acquire Common Stock have agreed with the representatives of the Underwriters for a period of 180 days after the effective date of this Prospectus (the "Lock-Up Period"), subject to certain exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of Common Stock, any options or warrants to purchase any shares of Common Stock, or any securities convertible into or exchangeable for shares of Common Stock owned as of the date of this Prospectus or thereafter acquired directly by such holders or with respect to which they have or hereafter acquire the power of disposition, without the prior written consent of J.P. Morgan Securities Inc. However, J.P. Morgan Securities Inc. may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements. In addition, the Company has agreed that during the Lock-Up Period, the Company will not, without the prior written consent of J.P. Morgan Securities Inc., subject to certain exceptions, issue, sell, contract to sell, or otherwise dispose of, any shares of Common Stock, any options or warrants to purchase any shares of Common Stock or any securities convertible into, exercisable for or exchangeable for shares of Common Stock other than the Company's sale of shares in the Offering, the issuance of Common Stock upon the exercise of outstanding options, the Company's sale of shares in the Offering, and the Company's issuance of options and shares under existing employee stock option and stock purchase plans. As of July 5, 1996 there were 941,280 shares of Common Stock subject to outstanding options. The Company intends to file registration statements under the Securities Act to register shares of Common Stock reserved for issuance under the Option Plan and the Purchase Plan, thus permitting the sale of such shares by non-affiliates in the public market without restriction under the Securities Act. Such registration statements will become effective immediately upon filing. Upon effectiveness of such registration statements, holders of vested options to purchase approximately 255,658 shares will be entitled to exercise such options and immediately sell such shares. Holders of all of these option shares have also entered into agreements not to offer to sell, contract to sell, or otherwise sell, dispose, loan, pledge or grant any rights with respect to any shares of Common Stock, any options or warrants to purchase any shares of Common Stock, or any securities convertible into or exchangeable for shares of Common Stock owned as of the date of this Prospectus or thereafter acquired directly by such holders or with respect to which they have or hereafter acquire the power of disposition, during the Lock-Up Period without the prior written consent of J.P. Morgan Securities Inc. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, an Affiliate of the Company, or person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least two years, will be entitled to sell in any three-month period a number of shares that does not exceed the greater of (i) 1% of then outstanding shares of the Company's Common Stock (approximately 63,648 shares immediately after the Offering) or (ii) the average weekly trading volume of the Company's Common Stock in the Nasdaq National Market during the four calendar weeks immediately preceding the date on which notice of the sale is filed with the Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to certain requirements relating to manner of sale, notice and availability of current public information about the Company. A person (or person whose shares are aggregated) who is not deemed to have been an Affiliate of the Company at any time during the 90 days immediately preceding the sale and who has beneficially owned Restricted Shares for at least three years is entitled to sell such shares pursuant to Rule 144(k) without regard to the limitations described above. In general, under Regulation S as currently in effect, a person who purchased equity securities pursuant to Regulation S and has owned such equity securities for at least one year, assuming no other restrictions on resale, will be able to sell such securities in the United States on the date public trading begins in the U.S. market in which the Company's Common Stock is traded. 42 45 An employee, officer or director of or consultant to the Company who purchased or was awarded shares or options to purchase shares pursuant to a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701 under the Securities Act, which permits Affiliates and non-Affiliates to sell their Rule 701 shares without having to comply with Rule 144's holding period restrictions, in each case commencing 90 days after the date of this Prospectus. In addition, non-Affiliates may sell Rule 701 shares without complying with the public information, volume and notice provisions of Rule 144. Prior to the Offering, there has been no public market for the Company's Common Stock, and there can be no assurance that an active public market for the Common Stock will develop or will continue after the Offering or that the market price of the Common Stock will not decline below the initial public offering price. Future sales of substantial amounts of Common Stock in the public market could adversely affect market prices prevailing from time to time. As described herein, only a limited number of shares will be available for sale shortly after the Offering because of certain contractual and legal restrictions on resale. Sales of substantial amounts of Common Stock of the Company in the public market after the restrictions lapse could adversely affect the prevailing market price and the ability of the Company to raise equity capital in the future. 43 46 UNDERWRITING The Underwriters named below (the "Underwriters"), for whom J.P. Morgan Securities Inc., Prudential Securities Incorporated and Needham & Company, Inc. are acting as representatives (the "Representatives"), have severally agreed, subject to the terms and conditions set forth in the underwriting agreement among the Company, the Selling Shareholders and the Representatives (the "Underwriting Agreement"), to purchase from the Company and Selling Shareholders, and the Company and the Selling Shareholders have agreed to sell to the Underwriters, the respective numbers of shares of Common Stock set forth opposite their names:
---------------- Underwriters NUMBER OF SHARES ---------------- J.P. Morgan Securities Inc. ............................................................. Prudential Securities Incorporated....................................................... Needham & Company, Inc................................................................... --------- Total.......................................................................... 2,000,000 =========
The nature of the Underwriters' obligations under the Underwriting Agreement is such that all of the Common Stock being offered, excluding shares covered by the over-allotment option granted to the Underwriters, must be purchased if any are purchased. The Representatives have advised the Company and the Selling Shareholders that the several Underwriters propose to offer the Common Stock to the public initially at the public offering price set forth on the cover page of this Prospectus and may offer the Common Stock to selected dealers at such price less a concession not to exceed $ per share. The Underwriters may allow, and such dealers may reallow, a concession to other dealers not in excess of $ per share. After the public offering of the Common Stock, the public offering price and other selling terms may be changed by the Representatives. The Company has granted the Underwriters an option, exercisable within 30 days after the date of this Prospectus, to purchase up to 300,000 additional shares of Common Stock from the Company at the same price per share to be paid by the Underwriters for the other shares offered hereby. If the Underwriters purchase any such additional shares pursuant to the option, each of the Underwriters will be committed to purchase such additional shares in approximately the same proportion as set forth in the above table. The Underwriters may exercise the option only to cover over-allotments, if any, made in connection with the distribution of Common Stock offered hereby. Prior to the Offering, there has been no public market for the Common Stock. The initial public offering price will be determined by negotiations among the Company, the Selling Shareholders and the Representatives. The factors to be considered in determining the initial offering price include the prevailing market conditions, the market valuations of certain publicly traded companies, revenue and earnings of the Company and comparable companies in recent periods, estimates of the business potential and prospects of the Company, the experience of the Company's management and the position of the Company in its industry. The Representatives have informed the Company and the Selling Shareholders that the Underwriters will not confirm, without customer authorization, sales to their customer accounts as to which they have discretionary trading power. The Company, all directors and executive officers and certain shareholders have agreed not to offer, sell or otherwise dispose of, any Common Stock or any securities convertible into Common Stock or register for sale under the Securities Act any Common Stock, for a period of 180 days after the date of this Prospectus without the prior written consent of the Representatives. See "Shares Eligible for Future Sale." The Company and certain of the Selling Shareholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Cooley Godward Castro Huddleson & Tatum, Palo Alto, California. Certain legal matters will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California. EXPERTS The consolidated financial statements as of December 31, 1994 and 1995 and for the six-month periods ended July 1, 1993 and December 31, 1993 and for each of the two years in the period ended December 31, 1995, included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 44 47 ADDITIONAL INFORMATION A Registration Statement on Form S-1, including amendments thereto, relating to the Common Stock offered hereby has been filed by the Company with the Securities and Exchange Commission, Washington, D.C. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. For further information with respect to the Company and the Common Stock offered hereby, reference is made to such Registration Statement, exhibits and schedules. A copy of the Registration Statement may be inspected by anyone without charge at the Commission's principal office in Washington, D.C., and copies of all or any part thereof may be obtained from the Commission upon the payment of certain fees prescribed by the Commission. 45 48 AWARD SOFTWARE INTERNATIONAL, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ----- Report of Price Waterhouse LLP, Independent Accountants........................................... F-2 Consolidated Balance Sheet........................................................................ F-3 Consolidated Statement of Operations.............................................................. F-4 Consolidated Statement of Shareholders' Equity.................................................... F-5 Consolidated Statement of Cash Flows.............................................................. F-6 Notes to Consolidated Financial Statements........................................................ F-7
F-1 49 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Award Software International, Inc. The recapitalization and reverse stock split described in the first paragraph of Note 11 to the consolidated financial statements have not been consummated at July 5, 1996. When it has been consummated, we will be in a position to furnish the following report: "In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Award Software International, Inc. and its subsidiary at December 31, 1994 and 1995, and the results of their operations and their cash flows for the six month periods ended July 1, 1993 and December 31, 1993, and the years ended December 31, 1994 and 1995 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above." PRICE WATERHOUSE LLP San Jose, California May 29, 1996 except for Note 11 which is as of July 5, 1996 F-2 50 AWARD SOFTWARE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET
---------------------------------------- DECEMBER 31, ------------------------- 1994 MARCH 31, ---------- 1996 Dollars in thousands, except share data 1995 ---------- ---------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents...................................... $ 1,374 $ 6,498 $ 10,591 Accounts receivable, net....................................... 953 992 1,475 Accounts receivable from related parties....................... 75 568 915 Receivable from GCH Systems, Inc............................... -- 282 258 Other current assets........................................... 195 216 246 ---------- ---------- ---------- Total current assets................................... 2,597 8,556 13,485 Property and equipment, net...................................... 204 276 465 Other assets..................................................... 318 251 288 ---------- ---------- ---------- $ 3,119 $ 9,083 $ 14,238 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable............................................... $ 138 $ 191 $ 130 Accrued liabilities............................................ 873 1,723 2,040 Payable to GCH Systems, Inc.................................... 413 -- -- ---------- ---------- ---------- Total current liabilities.............................. 1,424 1,914 2,170 ---------- ---------- ---------- Commitments (Note 10) Shareholders' equity: Preferred stock, 5,000,000 shares authorized; no par value; no shares issued or outstanding................................ -- -- -- Common stock, 40,000,000 shares authorized; no par value; 3,841,801, 4,586,283 and 4,957,127 shares issued and outstanding....... 1,627 6,215 10,726 Deferred stock compensation.................................... -- (255) (236) Retained earnings.............................................. 80 1,245 1,631 Cumulative translation adjustment.............................. (12) (36) (53) ---------- ---------- ---------- Total shareholders' equity............................. 1,695 7,169 12,068 ---------- ---------- ---------- $ 3,119 $ 9,083 $ 14,238 ========== ========== ==========
The accompanying notes are an integral part of these Consolidated Financial Statements. F-3 51 AWARD SOFTWARE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF OPERATIONS
---------------------------------------------------------------------------- PREDECESSOR ---------- SIX MONTHS ENDED JULY 1, ---------- THE COMPANY --------------------------------------------------------------- 1993 THREE MONTHS ENDED ---------- SIX MONTHS YEAR ENDED DECEMBER 31, MARCH 31, Dollars in thousands, except per ENDED ----------------------- ----------------------- share data DECEMBER 1995 1996 31, ---------- ---------- ----------- 1994 1995 ---------- ---------- 1993 ----------- (UNAUDITED) Revenues: Software license fees.......... $ 1,763 $ 1,903 $ 5,585 $ 6,989 $ 1,496 $ 2,175 Engineering services........... 47 107 161 239 105 131 Related parties................ -- 50 972 1,902 455 506 ---------- ----------- ---------- ---------- ---------- ---------- Total revenues......... 1,810 2,060 6,718 9,130 2,056 2,812 ---------- ----------- ---------- ---------- ---------- ---------- Cost of revenues: Software license fees.......... 85 84 467 387 17 52 Engineering services........... 6 21 28 43 23 26 Related parties................ -- 12 96 206 45 210 ---------- ----------- ---------- ---------- ---------- ---------- Total cost of revenues............. 91 117 591 636 85 288 ---------- ----------- ---------- ---------- ---------- ---------- Gross profit..................... 1,719 1,943 6,127 8,494 1,971 2,524 ---------- ----------- ---------- ---------- ---------- ---------- Operating expenses: Research and development....... 887 2,071 1,601 2,751 593 855 Sales and marketing............ 845 647 1,537 2,282 425 560 General and administrative 615 350 932 1,600 415 590 ---------- ----------- ---------- ---------- ---------- ---------- Total operating expenses............. 2,347 3,068 4,070 6,633 1,433 2,005 ---------- ----------- ---------- ---------- ---------- ---------- Income (loss) from operations.... (628) (1,125) 2,057 1,861 538 519 Interest expense................. (27) (54) (19) (9) (10) -- Interest and other income........ -- 1 4 105 2 84 ---------- ----------- ---------- ---------- ---------- ---------- Income (loss) before income taxes.......................... (655) (1,178) 2,042 1,957 530 603 Provision for income taxes....... -- -- 784 792 214 217 ---------- ----------- ---------- ---------- ---------- ---------- Net income (loss)................ $ (655) $ (1,178) $ 1,258 $ 1,165 $ 316 $ 386 ========== =========== ========== ========== ========== ========== Net income (loss) per share...... $ (0.18) $ 0.19 $ 0.18 $ 0.05 $ 0.06 =========== ========== ========== ========== ========== Weighted average common and common equivalent shares in thousands...................... 6,453 6,453 6,646 6,768 6,190 =========== ========== ========== ========== ==========
The accompanying notes are an integral part of these Consolidated Financial Statements. F-4 52 AWARD SOFTWARE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------------- COMMON STOCK ------------------------- RETAINED SHARES DEFERRED EARNINGS CUMULATIVE TOTAL ----------- STOCK (ACCUMULATED TRANSLATION SHAREHOLDERS' Dollars in thousands AMOUNT COMPENSATION DEFICIT) ADJUSTMENT EQUITY ----------- ------------ ------------ ----------- ----------- PREDECESSOR Balance at December 31, 1992............. 450,000.... $ 1 $ -- $ (359) $ (93) $ (451) Cumulative translation adjustment...... -- -- -- -- 7 7 Net loss............................... -- -- -- (655) -- (655) ----------- ----------- ------------ ------------ ----------- ----------- Balance at July 1, 1993.................. 450,000 $ 1 $ -- $ (1,014) $ (86) $ (1,099) ============ ============ ============= ============= ============ ============ ----------------------------------------------------------------------------------- THE COMPANY Issuance of Common Stock............... 3,841,801 $ 725 $ -- $ -- $ -- $ 725 Cumulative translation adjustment...... -- -- -- -- (15) (15) Net loss............................... -- -- -- (1,178) -- (1,178) ----------- ----------- ------------ ------------ ----------- ----------- Balance at December 31, 1993............. 3,841,801 725 -- (1,178) (15) (468) Capital contribution................... -- 902 -- -- -- 902 Cumulative translation adjustment...... -- -- -- -- 3 3 Net income............................. -- -- -- 1,258 -- 1,258 ----------- ----------- ------------ ------------ ----------- ----------- Balance at December 31, 1994............. 3,841,801 1,627 -- 80 (12) 1,695 Issuance of Common Stock and related warrants, net of issuance costs of $165................................. 1,166,669 6,837 -- -- -- 6,837 Repurchase of Common Stock............. (499,687) (2,998) -- -- -- (2,998) Exercise of Common Stock options....... 7,500 8 -- -- -- 8 Exercise of Common Stock warrants...... 70,000 70 -- -- -- 70 Warrants issued for services........... -- 374 -- -- -- 374 Deferred stock compensation............ -- 297 (297) -- -- -- Amortization of deferred stock compensation......................... -- -- 42 -- -- 42 Cumulative translation adjustment...... -- -- -- -- (24) (24) Net income............................. -- -- -- 1,165 -- 1,165 ----------- ----------- ------------ ------------ ----------- ----------- Balance at December 31, 1995............. 4,586,283 6,215 (255) 1,245 (36) 7,169 Issuance of Common Stock and related warrants, net of issuance costs of $45 (Unaudited)...................... 570,011 6,960 -- -- -- 6,960 Repurchase of Common Stock (Unaudited).......................... (250,000) (2,500) -- -- -- (2,500) Exercise of Common Stock options (Unaudited).......................... 20,833 21 -- -- -- 21 Exercise of Common Stock warrants (Unaudited).......................... 30,000 30 -- -- -- 30 Amortization of deferred stock compensation......................... -- -- 19 -- -- 19 Cumulative translation adjustment (Unaudited).......................... -- -- -- -- (17) (17) Net income (Unaudited)................. -- -- -- 386 -- 386 ----------- ----------- ------------ ------------ ----------- ----------- Balance at March 31, 1996 (Unaudited).... 4,957,127 $ 10,726 $ (236) $ 1,631 $ (53) $ 12,068 ============ ============ ============= ============= ============ ============
The accompanying notes are an integral part of these Consolidated Financial Statements. F-5 53 AWARD SOFTWARE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
---------------------------------------------------------------------------- THE COMPANY --------------------------------------------------------------- PREDECESSOR ---------- SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER JULY 1, 31, THREE MONTHS ENDED 1993 1993 YEAR ENDED DECEMBER 31, MARCH 31, ---------- ----------- ----------------------- ----------------------- Dollars in thousands 1995 1996 ---------- ---------- 1994 ---------- 1995 ---------- (UNAUDITED) Cash flows from operating activities: Net income (loss)................... $ (655) $ (1,178) $ 1,258 $ 1,165 $ 316 $ 386 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Acquired in-process research and development.................... -- 1,092 -- -- -- -- Noncash charge for income taxes.......................... -- -- 902 -- -- -- Depreciation and amortization.... 39 135 269 132 55 53 Warrants issued for services..... -- -- -- 374 -- -- Deferred stock compensation...... -- -- -- 42 -- 19 Changes in assets and liabilities, net of acquisition: Accounts receivable, net....... 168 (213) (240) (40) (25) (428) Accounts receivable from related parties............. -- -- (75) (510) 85 (347) Other current assets........... (193) (8) (11) (5) 33 (64) Other assets................... (28) 67 (7) 24 49 (52) Accounts payable............... 309 (334) (131) 49 (16) (58) Accrued liabilities............ (71) 194 (44) 899 182 325 ---------- ----------- ---------- ---------- ---------- ---------- Net cash provided by (used in) operating activities................ (431) (245) 1,921 2,130 679 (166) ---------- ----------- ---------- ---------- ---------- ---------- Cash flows from investing activities: Acquisition of predecessor company, net of cash acquired............. -- (569) -- -- -- -- Purchase of property and equipment........................ (86) (4) (75) (147) (34) (233) ---------- ----------- ---------- ---------- ---------- ---------- Net cash used in investing activities.......................... (86) (573) (75) (147) (34) (233) ---------- ----------- ---------- ---------- ---------- ---------- Cash flows from financing activities: Proceeds from common stock issuance......................... -- 725 -- 3,917 -- 4,511 Advances from GCH................... 546 272 -- 651 -- 24 Repayments to GCH................... -- -- (476) (1,346) (778) -- Payments under capital leases....... (4) (13) (24) -- -- -- Proceeds under note obligations..... -- 120 -- -- -- -- Payments under note obligations..... (29) (26) (281) (73) (33) -- ---------- ----------- ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities................ 513 1,078 (781) 3,149 (811) 4,535 ---------- ----------- ---------- ---------- ---------- ---------- Effect of exchange rate changes on cash................................ (4) 20 29 (8) 98 (43) ---------- ----------- ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents.................... (8) 280 1,094 5,124 (68) 4,093 Cash and cash equivalents at beginning of period........................... 164 -- 280 1,374 1,374 6,498 ---------- ----------- ---------- ---------- ---------- ---------- Cash and cash equivalents at end of period.............................. $ 156 $ 280 $ 1,374 $ 6,498 $ 1,306 $ 10,591 ========== =========== ========== ========== ========== ========== Supplemental cash flow information: Cash paid for interest.............. $ 27 $ 20 $ 3 $ 10 $ 2 $ -- Cash paid for income taxes.......... $ 37 $ 17 $ 41 $ 282 $ 6 $ --
The accompanying notes are an integral part of these Consolidated Financial Statements. F-6 54 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) NOTE 1 -- ORGANIZATION AND BUSINESS The Company Award Software International, Inc. ("Award" or the "Company") designs, develops and markets system management software for the global computing market. System management software is one of the fundamental layers in personal computer ("PC") architecture and provides an essential interface between a PC's operating system software and its hardware. The Company's principal system management software products include a suite of Basic Input/Output System software ("BIOS"). Award's customers include designers and manufacturers of motherboards, PC systems and other microprocessor-based (or "embedded") devices. The Company was incorporated in California, in 1983, and operates in one business segment through its headquarters facility in Mountain View, California, a branch office in Munich, Germany, and a wholly-owned subsidiary in Hong Kong with a branch office in Taipei, Taiwan. GCH Acquisition On July 2, 1993, GCH Systems, Inc. ("GCH"), an independent developer of microcomputers and application specific integrated circuits, acquired 100 percent of Award's outstanding Common Stock for $1,905 consisting of $725 in cash and the assumption of $1,180 in liabilities. The transaction was accounted for as a purchase and established a new accounting basis for Award. The purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed on the basis of their fair values at the acquisition date. The purchase price exceeded the fair value of Award's net assets by approximately $265, which was assigned to goodwill. In addition, $1,092 of the purchase price was allocated to in-process research and development. Because such in-process technology had not reached the stage of technological feasibility and had no alternative future use, the amount was immediately charged to operations. From the acquisition date through December 30, 1994, Award operated as a wholly-owned subsidiary of GCH. On December 31, 1994, Award and GCH became separate companies through a spin-off of 100 percent of Award's Common Stock on a pro-rata basis to GCH shareholders. Award and GCH have certain common members on their Boards of Directors. Award and GCH, from time to time have made non-interest bearing cash advances to each other for working capital purposes. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition The Company's revenues are derived primarily from software license fees and also from non-recurring engineering services. Software license fees are recognized upon delivery of the product, fulfillment of acceptance terms, if any, and satisfaction of any significant support obligations. The Company's normal sales terms are net 30 days. Payments received in advance of revenue recognition are recorded as deferred revenue. Engineering services revenue generally consist of amounts charged for customization of the software and are generally recognized as the services are performed. Amounts received under engineering contracts that require software delivery are deferred until delivery and customer acceptance occur. Related parties revenues include software licenses and non-recurring engineering services to holders of the Company's Common Stock and Common Stock warrants. The Company does not offer separate post contract customer support contracts, and due to the nature of the Company's product offerings has not incurred any significant post-sale warranty or support obligations. Allowances for uncollectible amounts and warranties are recorded in the same period as the related revenues based upon the Company's historical experience. Cash and Cash Equivalents The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist principally of short-term time deposits and money-market deposit accounts that are stated at cost, which approximates fair value. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets, which range from three to five years. F-7 55 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Software Development Costs Costs incurred in the research and development of new products and enhancements to existing products are charged to expense as incurred until the technological feasibility of the product or enhancement has been established. After establishing technological feasibility through the development of a working model, any additional costs incurred through the date the product is available for general release, if any, are capitalized and amortized over the estimated product life, generally three years, using the greater of the amounts determined using the straight-line method or the ratio of current period products revenue over total estimated product revenues. Capitalized software development costs are included in other assets in the accompanying financial statements. Amortization expense on capitalized software development costs totaled $0, $12, $18, $18, $5 and $5 for the six month periods ended July 1, 1993 and December 31, 1993, the years ended December 31, 1994 and 1995, and the three months ended March 31, 1995 and 1996, respectively. Intangible Assets Goodwill and a covenant not to compete resulting from the acquisition of Award's Common Stock by GCH are included in other assets at December 31, 1995 and are being amortized using the straight line method over five years and two years, respectively. Income Taxes The provision for income taxes is calculated in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, a current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current period. A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences between the carrying amount and tax bases of other assets and liabilities and for tax carryforwards. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. For the period from July 2, 1993 through December 31, 1994, Award was included in GCH's consolidated federal and California state income tax returns. Under a tax sharing arrangement with GCH, Award was allocated a proportionate share of GCH's consolidated income tax liability. The provision for income taxes has been calculated using the separate return methodology in accordance with SFAS No. 109. The difference between the allocated amount and the separate return provision totaled $902 and has been reflected as a capital contribution. Foreign Currency Translation The Company has a subsidiary in Hong Kong and branch operations in Taiwan and Germany. The functional currencies of these entities are the local currencies. Accordingly, all assets and liabilities of these entities are translated at the current exchange rate in effect at the balance sheet date and revenues and expenses are translated at the average exchange rates in effect during the reporting period. Gains and losses resulting from foreign currency translation are recorded directly into a separate component of shareholders' equity. Foreign currency transaction gains and losses were immaterial for all periods presented. Net Income (Loss) per Share Net income (loss) per share is computed using the weighted average number of common and common equivalent shares, when dilutive, from stock options and warrants (using the treasury stock method). Pursuant to a Securities and Exchange Commission Staff Accounting Bulletin, common and common equivalent shares (using the treasury stock method and the assumed public offering price) issued within 12 months prior to the Company's initial public offering filing and through the effective date of such filing have been included in the calculation as if they were outstanding for all periods presented. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. New Accounting Pronouncements In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation." SFAS No. 123 establishes financial accounting and reporting standards for stock-based employee compensation plans and also applies to transactions in which an entity issues its equity instruments to acquire goods or services from nonemployees. SFAS No. 123 defines a "fair value" based method of accounting for an employee stock option or similar equity instrument and encourages, but does not require, entities to adopt that method of accounting for all of their employee stock compensation plans. SFAS No. 123 does however require, entities to include pro forma disclosures of the difference, if any, between compensation cost included in net F-8 56 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) income and the related cost measured by the fair value method. The Company does not intend to adopt the accounting provisions of the new standard and will adopt the disclosure provisions during the year ending December 31, 1996. Interim Financial Information (Unaudited) The accompanying consolidated balance sheet as of March 31, 1996 and the consolidated statements of operations and of cash flows for the three months ended March 31, 1995 and 1996 and the consolidated statement of shareholders' equity for the three months ended March 31, 1996, are unaudited. In the opinion of management, these statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the results of the interim periods. The financial and other data disclosed in these notes to the consolidated financial statements for these periods are also unaudited. NOTE 3 -- CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of bank deposits and accounts receivable. The Company places its cash and cash equivalents in checking and market rate accounts with major financial institutions and has not incurred any losses related to these investments. The Company markets its products to original equipment manufacturers ("OEMs") in the personal computer market, designers of motherboards and other microprocessor-based or embedded systems manufacturers and, as a result, maintains individually significant receivable balances from major customers located throughout the world. The Company performs ongoing credit evaluations of its customers' financial condition and maintains an allowance for uncollectible accounts receivable based upon the expected collectibility of all accounts receivable. The following table summarizes the net accounts receivable from customers located in the United States, Asia Pacific and Europe:
------------------------------------ DECEMBER 31, ----------------------- MARCH 31, 1994 1995 1996 ---------- ---------- ---------- (UNAUDITED) United States........................................................ $ 87 $ 20 $ 180 Asia Pacific......................................................... 424 663 934 Europe............................................................... 442 309 361 ---------- ---------- ---------- $ 953 $ 992 $ 1,475 ========== ========== ==========
All related party receivables are from United States customers. No individual customer accounted for 10% or more of accounts receivable at December 31, 1994. One customer accounted for 28.8% of accounts receivable at December 31, 1995. Two customers accounted for 18.2% and 18.8%, respectively, of accounts receivable at March 31, 1996. NOTE 4 -- NONCASH INVESTING AND FINANCING ACTIVITIES On July 2, 1993, GCH acquired all of the capital stock of the Company for $725. In connection with the acquisition, liabilities were assumed as follows:
---------- LIABILITIES ASSUMED ---------- Tangible assets, including cash of $156..................................................... $ 348 Goodwill.................................................................................... 265 Covenant not to compete..................................................................... 200 In-process research and development......................................................... 1,092 Cash paid for common stock.................................................................. (725) ---------- Liabilities assumed......................................................................... $ 1,180 ==========
F-9 57 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 5 -- BALANCE SHEET COMPONENTS
------------------------------------ DECEMBER 31, ----------------------- MARCH 31, 1994 1995 1996 ---------- ---------- ---------- (UNAUDITED) Accounts receivable: Accounts receivable................................................ $ 991 $ 1,071 $ 1,564 Less: allowance for doubtful accounts.............................. (38) (79) (89) ---------- ---------- ---------- $ 953 $ 992 $ 1,475 ========== ========== ========== Property and equipment: Computer equipment................................................. $ 201 $ 310 $ 500 Office equipment................................................... 63 82 82 Furniture and fixtures............................................. 39 62 75 ---------- ---------- ---------- 303 454 657 Less accumulated depreciation...................................... (99) (178) (192) ---------- ---------- ---------- $ 204 $ 276 $ 465 ========== ========== ========== Other assets: Goodwill........................................................... $ 265 $ 265 $ 265 Covenant not to compete............................................ 200 200 200 Capitalized software............................................... 90 139 139 Other.............................................................. 23 28 84 ---------- ---------- ---------- 578 632 688 Less accumulated amortization: Goodwill........................................................ (80) (133) (146) Covenant not to compete......................................... (150) (200) (200) Capitalized software............................................ (30) (48) (54) ---------- ---------- ---------- $ 318 $ 251 $ 288 ========== ========== ========== Accrued liabilities: Salaries and benefits.............................................. $ 232 $ 401 $ 286 Royalties.......................................................... 325 476 276 Income taxes payable............................................... 53 542 773 Deferred revenue................................................... 62 54 251 Other.............................................................. 201 250 454 ---------- ---------- ---------- $ 873 $ 1,723 $ 2,040 ========== ========== ==========
NOTE 6 -- SHAREHOLDERS' EQUITY The Company is authorized to issue 40,000,000 shares of Common Stock. In connection with the issuance of Common Stock during 1995, the Company agreed that, in the event that an initial public offering was not completed by June 30, 1996, 416,666 shares of Common Stock may be exchanged for convertible Preferred Stock of the Company. The convertible Preferred Stock would have certain rights, preferences and restrictions with respect to conversion, liquidation, voting, dividends and redemption. In May 1996, the shareholders waived their conversion rights with respect to these shares through December 31, 1996. In October 1994, the Company granted 200,000 Common Stock warrants to a customer under a software licensing agreement. The warrants were deemed to have a nominal value on the date of grant. The warrants have an exercise price of $1.00 per share and are exercisable any time up to March 31, 1998. During the period from October 1994 through June 1995, the customer earned 45,500 of the Common Stock warrants based on purchasing volumes. In July 1995, to solidify the Company's long-term relationship with the F-10 58 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) customer, the Company vested the remaining 154,500 warrants to the customer and recorded the difference between the estimated fair market value and the exercise price of the warrants of approximately $283 as sales and marketing expense. In December 1994, the Company granted 80,000 Common Stock warrants with an exercise price of $1.00 per share to holders of approximately 16.1% of the Company's Common Stock at December 31, 1995, in exchange for marketing services. The warrants had a nominal value when granted and were exercised in November 1995. In June 1995, the Company granted 20,000 Common Stock warrants with an exercise price of $1.00 per share to a holder of approximately 0.4% of the Company's Common Stock, respectively, at the time of grant in exchange for marketing services. The warrants are exercisable at any time up to the later of (i) June 15, 1998 or (ii) the six month anniversary of the closing of an initial public offering. The Company recorded the difference between the estimated fair market value and the exercise price of the warrants of approximately $36 as sales and marketing expense. The warrants were exercised in December 1995. In connection with the issuance of shares of Common Stock in 1995, the Company issued 123,333 Common Stock warrants with an exercise price of $1.00 per share for $0.02 per share. The warrants are exercisable at any time up to the earlier of (i) the closing of the Company's initial public offering of its Common Stock, of which the aggregate offering price is at least $10,000 and the per share price to the public is $13.60, or (ii) September 30, 2000. No proceeds were separately allocated to the warrants. NOTE 7 -- STOCK OPTIONS PLAN During 1994, the Company adopted the 1995 Stock Option Plan (the "Plan"), under which 1,250,000 shares of Common Stock are reserved for issuance to eligible employees, directors and consultants upon exercise of the stock options. Stock options are granted at prices determined by Board of Directors and generally may not be less than 100% and 85%, for incentive and nonstatutory options, respectively, of the estimated fair value of the related shares on the date of grant. Options granted under the Plan are for periods not to exceed ten years, are exercisable generally one year after date of grant and vest over a maximum period of five years following the date of grant. For options expired or canceled, the stock not purchased under such options shall revert to and again become available for re-issuance under the plan. The Plan provides for an unvested share repurchase option on behalf of the Company. In the event an optionee ceases to be eligible under the Plan for any reason, shares acquired on the exercise of an option which have not yet vested may be repurchased by the Company at the optionee's original cost per share. At December 31, 1995, no shares were subject to repurchase. A summary of the stock option activity under the Plan for the years ended December 31, 1994 and 1995 and the three month period ended March 31, 1996, is as follows:
--------------------------------------- SHARES SUBJECT TO OUTSTANDING OPTIONS OPTIONS ----------------------- AVAILABLE FOR PRICE PER GRANT SHARE ------------- ----------- NUMBER OF SHARES --------- Options authorized.................................................... 1,250,000 -- -- Granted............................................................. (564,050) 564,050 $ 1.00 ------------- --------- ----------- Balance at December 31, 1994.......................................... 685,950 564,050 1.00 Granted............................................................. (191,105) 191,105 1.00-6.00 Exercised........................................................... -- (7,500) 1.00 Canceled............................................................ 1,500 (1,500) 1.00 ------------- --------- ----------- Balance at December 31, 1995.......................................... 496,345 746,155 1.00-6.00 Granted (Unaudited)................................................. -- -- -- Exercised (Unaudited)............................................... -- (20,833) 1.00 Canceled (Unaudited)................................................ 43,584 (43,584) 1.00 ------------- --------- ----------- Balance at March 31, 1996 (Unaudited)................................. 539,929 681,738 $1.00-$6.00 ========== ======== ===========
During 1995, the Company recorded $297 of deferred stock compensation for the excess of the deemed fair market value over the exercise price at the date of grant related to certain options granted in 1995. The compensation expense will be recognized over the option vesting period of four years. Compensation expense recognized in 1995 aggregated $42. In April 1996, the Company granted F-11 59 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) options to purchase an aggregate of 273,000 shares of common stock at exercise prices of $10.00 or $11.00 per share and cancelled options to purchase an aggregate of 3,875 shares of Common Stock at exercise prices ranging from $1.00 to $10.00 per share. Options on 106,500 shares of common stock were exercisable at December 31, 1995. NOTE 8 -- INCOME TAXES Income (loss) before income taxes was subject to tax in the following jurisdictions:
-------------------------------------------------------- THE COMPANY ----------------------------------------- PREDECESSOR ---------- SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER YEAR ENDED DECEMBER 31, JULY 1, 31, ------------------------- 1993 1993 1995 ---------- ----------- ---------- 1994 ---------- United States..................................... $ (427) $ (1,266) $ 1,638 $ 464 Foreign........................................... (228) 88 404 1,493 ---------- ----------- ---------- ---------- $ (655) $ (1,178) $ 2,042 $ 1,957 ========== =========== ========== ==========
The provision (benefit) for income taxes is comprised of the following:
------------------------- YEAR ENDED DECEMBER 31, ------------------------- 1994 1995 ---------- ---------- Current: Federal..................................................................... $ 674 $ 484 State....................................................................... 185 46 Foreign..................................................................... 43 405 ---------- ---------- Total current....................................................... 902 935 ---------- ---------- Deferred: Federal..................................................................... (98) (133) State....................................................................... (20) (10) Foreign..................................................................... -- -- ---------- ---------- Total deferred...................................................... (118) (143) ---------- ---------- $ 784 $ 792 ========== ==========
Significant components of the Company's deferred tax assets (liabilities) were as follows:
------------------------- DECEMBER 31, ------------------------- 1994 1995 ---------- ---------- Deferred tax liabilities: Capitalized software...................................................... $ (24) $ (17) ---- ---- Deferred tax assets: Accrued liabilities....................................................... 116 191 Depreciation.............................................................. 20 19 Allowance for doubtful accounts........................................... 15 31 State tax deduction....................................................... 63 7 Other..................................................................... 45 30 ---- ---- 259 278 ---- ---- Net deferred tax assets..................................................... 235 261 Deferred tax assets valuation allowance..................................... (117) -- ---- ---- $ 118 $ 261 ==== ====
F-12 60 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company provides a valuation allowance for deferred tax assets when it is more likely than not, based on available evidence, that some portion or all of the deferred tax assets will not be realized. Based on an evaluation of the realizability of future tax benefits based on income earned in 1995, the Company reversed all previously established valuation allowances during 1995. The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income (loss) before income taxes as follows:
-------------------------------------------------------- THE COMPANY ----------------------------------------- PREDECESSOR ---------- SIX MONTHS ENDED SIX MONTHS DECEMBER ENDED 31, YEAR ENDED DECEMBER 31, JULY 1, ------------------------- 1993 1993 1995 ---------- ----------- ---------- 1994 ---------- Tax provision (benefit) at the U.S. federal statutory rate of 34%..................................... $(219) $(398) $694 $ 666 Foreign income taxes at different rates......... -- -- (27) (77) State and local taxes, net of federal benefit... (40) (72) 123 117 Net operating loss carryforwards................ 259 470 -- -- Release of valuation allowance.................. -- -- (62) (117) Nondeductible charges and accruals.............. -- -- -- 166 Other........................................... -- -- 56 37 ----- ----- ---- ----- Provision for income taxes........................ $ -- $ -- $784 $ 792 ===== ===== ==== ===== Effective tax rates............................... -- -- 38% 40% ===== ===== ==== =====
NOTE 9 -- REVENUES, GEOGRAPHIC INFORMATION AND EXPORT SALES Revenues from customers representing 10% or more of consolidated revenues were as follows:
------------------------------------------------------------------ PREDECESSOR ----------- THE COMPANY -------------------------------------------------- SIX MONTHS YEAR ENDED ENDED DECEMBER 31, THREE MONTHS JULY 1, --------------- ENDED 1993 SIX MONTHS 1995 MARCH 31, ----------- ENDED ----- DECEMBER 31, 1996 ------------- 1993 1994 ------------ ----- (UNAUDITED) Customer A.................................... -- -- 11.6% 13.9% 12.5% Customer B -- Related party................... -- -- -- 13.4% 18.0% Customer C.................................... -- 34.2% 16.5% -- --
The components of related parties revenues and costs of revenues are:
-------------------------------------------------- THREE MONTHS YEAR ENDED SIX MONTHS ENDED ENDED DECEMBER 31, MARCH 31, DECEMBER 31, --------------- ------------- 1993 1995 1996 ------------ ------ ---- 1994 1995 ---- ---- (UNAUDITED) Revenues Software license fees................................. $-- $752 $1,084 $185 $ 41 Engineering services.................................. 50 220 818 270 465 ------------ ---- ------ ---- ---- Total related party revenues.................. $50 $972 $1,902 $455 $506 =========== ===== ====== ===== ===== Cost of revenues Software license fees................................. $-- $ 63 $ 60 $ 10 $ 1 Engineering services.................................. 12 33 146 35 209 ------------ ---- ------ ---- ---- Total related party cost of revenues.......... $12 $ 96 $ 206 $ 45 $210 =========== ===== ====== ===== =====
There were no related parties revenues for the period ended July 1, 1993. F-13 61 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a summary of the Company's geographic operations:
----------------------------------------------------------------- UNITED ASIA STATES EUROPE PACIFIC ELIMINATIONS CONSOLIDATED -------- -------- -------- ------------ ------------ PREDECESSOR Six months ended July 1, 1993 Revenues.................................... $ 494 $ 741 $ 575 $ -- $ 1,810 Income (loss) from operations............... (400) 61 (289) -- (628) Identifiable assets......................... 696 321 485 (414) 1,088 ----------------------------------------------------------------- THE COMPANY Six months ended December 31, 1993 Revenues from unaffiliated customers........ $ 404 $ 921 $ 685 $ -- $ 2,010 Revenue from related parties................ 50 -- -- -- 50 Income (loss) from operations............... (1,215) (36) 126 -- (1,125) Identifiable assets......................... 1,604 631 644 (1,072) 1,807 Year ended December 31, 1994 Revenues from unaffiliated customers........ $ 700 $2,273 $2,773 $ -- $ 5,746 Revenue from related parties................ 972 -- -- -- 972 Income from operations...................... 1,664 214 179 -- 2,057 Identifiable assets......................... 2,166 1,100 1,891 (2,038) 3,119 Year ended December 31, 1995 Revenues from unaffiliated customers........ $ 1,017 $2,216 $3,995 $ -- $ 7,228 Revenue from related parties................ 1,902 -- -- -- 1,902 Income from operations...................... 393 59 1,409 -- 1,861 Identifiable assets......................... 6,907 976 2,764 (1,564) 9,083
Geographic information for Europe and Asia Pacific related primarily to the Company's operations in Germany and Taiwan, respectively. Export sales from the United States to international customers totaled $66, $137, $708, $1,410 and $685 for the six month periods ended July 1, 1993 and December 31, 1993, the years ended December 31, 1994 and 1995, and the three months ended March 31, 1996, respectively. NOTE 10 -- COMMITMENTS The Company leases its facilities in California, Taiwan and Germany. Future minimum payments under noncancelable operating leases are as follows:
YEAR ENDING DECEMBER 31, ---------- 1996...................................................................................... $227 1997...................................................................................... 87 1998...................................................................................... 45 ---------- Total............................................................................. $359 ==========
Under an agreement that extends through 1996, the Company shares GCH office facilities in Mountain View, California and is charged a pro rata portion based on square footage occupied by the Company and GCH of actual rent and utilities expense incurred. Management believes the allocation between the Company and GCH of such expenses is reasonable. Total rent expense, including amounts allocated from GCH, was $101, $123, $221, $273 and $79 for the six month periods ended July 1, 1993 and December 31, 1993, the years ended December 31, 1994 and 1995, and the three months ended March 31, 1996, respectively. F-14 62 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 11 -- SUBSEQUENT EVENTS Recapitalization and Reverse Stock Split In May 1996, the Board of Directors approved an increase in the number of common shares authorized to 40,000,000, authorized 5,000,000 shares of Preferred Stock and approved a 1-for-2 reverse stock split of the Company's Common Stock, subject to shareholders' approval, to be effected before the closing of the Company's initial public offering. All references to the number of common shares and per share amounts have been retroactively restated in the accompanying consolidated financial statements to reflect the reverse stock split. Equity Transactions In January 1996, the Company issued 570,033 shares of Common Stock at a price of $12.28 per share. In connection with the issuance, the Company agreed that in the event that an initial public offering is not completed by December 31, 1996, the shares issued may be exchanged for the Company's convertible Preferred Stock. The convertible Preferred Stock has certain rights, preferences and restrictions with respect to conversion, liquidation, voting, cumulative dividends and redemption. In connection with the issuance and sale of the shares, the Company issued 272,394 Common Stock warrants with an exercise price of $12.28 per share for $0.02 per warrant. The warrants are exercisable at any time up to the earlier of (i) the closing of the Company's initial public offering of its Common Stock, of which the aggregate offering price and per share price to the public are at least $10,000 and $13.60 per share, respectively, or (ii) September 30, 2000. No proceeds were separately allocated to the warrants. During January and February 1996, the Company repurchased 250,000 shares of common stock from existing shareholders at a price of $10.00 per share. In June 1996, the Company entered into a joint technology development and support agreement with Advanced Micro Devices, Inc. ("AMD") to support the design and development of products related to AMD's K86 microprocessor. As part of this relationship, the Company agreed to sell to AMD 148,148 shares of Common Stock at a price of $13.50 per share for approximately $2,000 in cash. In July 1996, the Company issued 77,500 shares of Common Stock upon the partial exercise of a warrant held by a customer. The warrants had an exercise price of $1.00 per share, resulting in proceeds totaling $78. Employee Stock Purchase Plan In May 1996, the Board of Directors adopted the Employee Stock Purchase Plan (the "Purchase Plan"), which provides for the issuance of a maximum of 150,000 shares of Common Stock. Eligible employees may have up to 15% of their earnings withheld, to be used to purchase shares of the Common Stock on specified dates determined by the Board of Directors. The price of Common Stock purchased under the Purchase Plan will be equal to 85% of the lower of the fair market value of the Common Stock on the commencement date of each offering period or the specified purchase date. 401(k) Plan In January 1995, the Board of Directors adopted an employee savings and retirement plan (the "401(k) Plan") covering substantially all of the Company's employees. Pursuant to the 401(k) Plan, eligible employees may elect to reduce their current compensation by up to the statutory prescribed limit and have the amount of such reduction contributed to the 401(k) Plan. The Company may make contributions to the 401(k) Plan on behalf of eligible employees. The Company made no contributions to the 401(k) Plan in 1994 or 1995. Technology License In June 1996, the Company entered into a license agreement with an independent party under which the Company has been granted a non-exclusive, non-transferable right and license to web browser technology. Upon delivery of such technology, the Company will be required to make a non-refundable, advanced royalty payment of $300. F-15 63 LOGO 64 APPENDIX -- DESCRIPTION OF GRAPHICS OUTSIDE FRONT COVER Graphic: Award logo. Graphic caption: Award Software International(R), Inc. INSIDE FRONT COVER Graphic: Uses of Award's System Management Software. This graphic depicts a PC motherboard which contains a non-volatile memory device bearing the Company's logo. The PC motherboard is surrounded by four exemplary uses of the Company's system management software: a personal digital assistant, a client-server tower, a laptop computer and a symbolic depiction of the Internet/Intranet depicting the Earth and the words "Internet" and "Intranet." Bordering the corners of the page are the words "Desktop," "Embedded," "Mobile BIOS," "PCI," "DMI," "USB," "Hot Docking," "PC Card" and "SMSAccess." Graphic Caption: Award Software International(R), Inc.; http://www.award.com; SMSAccess, USBAccess and support for USB are under development and not commercially available. PAGE 19 Graphic: a cube depicted in three dimensions and divided into four equal horizontal layers bearing the labels, in order from bottom to top, "Hardware," "BIOS," "Operating System" and "Application Software." Graphic caption: Award Software International(R), Inc. BACK COVER Graphic: Award logo. Graphic caption: Award Software International(R), Inc. 65 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the sale of the Common Stock being registered. All the amounts shown are estimates except for the registration fee and the NASD filing fee. Registration fee.............................................................................. $ 11,897 NASD filing fee............................................................................... 3,950 Nasdaq application fee........................................................................ 1,000 Blue sky qualification fee and expenses....................................................... 10,000 Printing and engraving expenses............................................................... 115,000 Legal fees and expenses....................................................................... 300,000 Accounting fees and expenses.................................................................. 225,000 Transfer agent and registrar fees............................................................. 5,000 Custodian..................................................................................... 2,500 Miscellaneous................................................................................. 175,653 --------- Total............................................................................... $ 850,000 ========
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Section 317 of the California Corporations Code ("CCC") provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any proceeding or may procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. Section 204 of the CCC provides that a corporation's articles of incorporation may set forth a provision authorizing, whether by bylaw, agreement, or otherwise, the indemnification of agents in excess of that expressly permitted by Section 317 for those agents of the corporation for breach of duty to the corporation and its stockholders, provided, however, that the provision may not provide for indemnification of any agent for any acts or omissions or transactions from which a director may not be relieved of liability, including (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the corporation or its shareholders, (v) for acts or omissions that constitute an executed pattern of inattention that amounts to an abdication of the director's duty to the corporation or its shareholders, (vi) under Section 310 of the CCC requiring that a director who has a contract or other transaction with the corporation or has a material financial interest in a contract or other transaction between the corporation and another corporation, obtain approval of such contract or transaction by the shareholders or the board of directors, or (vii) under Section 316 of the CCC subjecting a director to joint and several liability for making any improper distribution, loan or guarantee. Section 204 further provides that no such indemnification provision may eliminate or limit the liability of (i) a director for any act or omission occurring prior to the date when the provision becomes effective, or (ii) an officer for any act or omission as an officer, notwithstanding that the officer is also a director or that his or her action, if negligent or improper, has been ratified by the directors. Article 8 of the Registrant's Amended and Restated Articles of Incorporation provides that the corporation is authorized to provide indemnification of agents through a bylaw provision and agreements with agents in excess of the indemnification otherwise permitted by Section 317 of the CCC, subject only to the applicable limits on such excess indemnification set forth in Section 204 of the CCC. Article 8 of the Registrant's Amended and Restated Articles of Incorporation further provides that any repeal or modification of Article 8 shall only be prospective and shall not affect the rights under Article V in effect at the time of the alleged occurrence of any act or omission to act giving rise to indemnification. Section 63 of the Registrant's Bylaws provides that the corporation shall indemnify its directors to the fullest extent not prohibited by the California General Corporation Law; provided, however, that the corporation may limit the extent of such indemnification by individual contracts with its directors; and, provided, further, that the corporation shall not be required to indemnify any director in connection II-1 66 with any proceeding (or part thereof) initiated by such person or any proceeding by such person against the corporation or its directors, officers, employees or other agents unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the board of directors of the corporation or (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the California General Corporation Law. Section 63 of the Registrant's Bylaws further provide that the corporation shall have power to indemnify its officers, employees and other agents as set forth in the California General Corporation Law. Under the form of Underwriting Agreement filed as Exhibit 1.1 hereto, the Underwriters are obligated, under certain circumstances, to indemnify directors and officers of the Registrant against certain liabilities, including liabilities under the Securities Act of 1933, as amended. The Company intends to purchase a general liability insurance policy which covers certain liabilities of directors and officers of the Registrant arising out of claims based on acts or omissions in their capacity as directors or officers. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. In July 1993, GCH Systems, Inc. ("GCH") acquired all of the capital stock of the Registrant. Since July 1993, the Registrant has sold and issued the following unregistered securities (share and dollar amounts reflect a 1-for-2 reverse stock split): (1) In October 1994, the Registrant issued a warrant exercisable for up to 200,000 shares of Common Stock to an accredited investor at an exercise price of $1.00 per share. (2) In December 1994, GCH distributed all of the Registrant's outstanding 3,841,801 shares of Common Stock, all of the Registrant's capital stock, to GCH's existing shareholders on a pro rata basis for no consideration. (3) In June 1995, the Registrant issued warrants exercisable for an aggregate of 100,000 shares of Common Stock to an accredited group of investors at an exercise price of $1.00 per share. (4) In July 1995, the Registrant sold an aggregate of 750,000 shares of Common Stock to a group of accredited investors for cash in the aggregate amount of $4,500,000. (5) In September 1995, the Registrant sold an aggregate of 416,666 shares for an aggregate purchase price of $2,500,000 and warrants for a purchase price of $2,467 exercisable for 123,333 shares of Common Stock with an exercise price of $1.00 per share. (6) In January 1996, the Registrant sold 570,033 shares of Common Stock for an aggregate purchase price of $7,000,005 and issued a warrant for $5,448 exercisable for 272,394 shares of Common Stock at an exercise price of $12.28 per share to an accredited investor. (7) In July 1996, the Registrant sold 148,148 shares of Common Stock for an aggregate purchase price of $1,999,998 to an accredited investor. (8) In July 1996, the Registrant issued 77,500 shares pursuant to the exercise of a warrant for an aggregate exercise price of $77,500. (9) From December 1994 to July 1996, the Registrant granted incentive stock options and nonstatutory stock options to employees, directors and consultants under its 1995 Stock Option Plan covering an aggregate of 1,028,155 shares of the Registrant's Common Stock, at an average exercise price of $3.62 per share. Options to purchase 48,959 shares of Common Stock have been canceled or have lapsed without being exercised. The Registrant has sold 37,916 shares of its Common Stock to employees, directors and consultants of the Registrant pursuant to exercise of stock options granted under the 1995 Stock Option Plan. The sales and issuances of securities in the transactions described in paragraph (9) above were deemed to be exempt from registration under the Securities Act by virtue of Rule 701 promulgated thereunder in that they were offered and sold either pursuant to written compensatory benefit plans or pursuant to a written contract relating to compensation, as provided by Rule 701. The sales and issuances of securities in the transactions described in paragraphs (1) through (8) above were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) and/or Regulation D promulgated under the Securities Act. The purchasers in each case represented their intention to acquire the securities for investment only and not with a view to the distribution thereof. Appropriate legends are affixed to the stock certificates issued in such transactions. Similar legends were imposed in connection with any subsequent sales of any such securities. All recipients either received adequate information about the Registrant or had access, through employment or other relationships, to such information. II-2 67 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - --------- -------------------------------------------------------------------------------------------- 1.1** -- Form of Underwriting Agreement. 3.1* -- Amended and Restated Articles of Incorporation of the Registrant. 3.1.1 -- Form of Amended and Restated Articles of Incorporation of the Registrant effecting the 1-for-2 reverse stock split. 3.1.2 -- Form of Amended and Restated Articles of Incorporation of the Registrant, to be effective upon the completion of the Offering. 3.2* -- Amended and Restated Bylaws of the Registrant. 3.2.1 -- Form of Amended and Restated Bylaws of the Registrant, to be effective upon the completion of the Offering. 4.1* -- Reference is made to Exhibits 3.1 through 3.2. 4.5 -- Specimen stock certificate. 5.1** -- Opinion of Cooley Godward Castro Huddleson & Tatum. 10.1* -- Form of Indemnity Agreement to be entered into between the Registrant and its directors and officers, with related schedule. 10.2* -- Registrant's 1995 Stock Option Plan, as amended (the "Option Plan"). 10.3* -- Form of Incentive Stock Option under the Option Plan. 10.4* -- Form of Nonstatutory Stock Option under the Option Plan. 10.5 -- Registrant's 1996 Employee Stock Purchase Plan. 10.6 -- Registrant's Amended and Restated Executive Compensation Plan. 10.7* -- Lease, dated January 1, 1996, between GCH Systems, Inc. and the Registrant. 10.8* -- Summary of Leases, dated March 1, 1996, between Sun Corporation, GSS Corporation and the Registrant. 10.9* -- Voting Agreement, dated January 12, 1996, between the Registrant and certain persons named therein. 10.10* -- Investors' Rights Agreement among the Registrant and certain other persons named therein, dated as of January 12, 1996. 10.11* -- Warrant issued to Synnex Information Technologies, Inc. 10.12* -- Warrant issued to Vobis Microcomputer AG. 10.13* -- Warrant issued to Venrock Associates. 10.14* -- Warrant issued to Venrock Associates II, L.P. 10.15* -- Warrant issued to Walden Capital Partners II, L.P. 10.16* -- Warrant issued to Walden Technology Ventures II, L.P. 10.17+ -- Technology Development and Support Agreement, dated June 28, 1996, between Registrant and Advanced Micro Devices, Inc. 11.1 -- Statement regarding calculation of net income (loss) per share. 23.1 -- Consent of Price Waterhouse LLP. 23.2** -- Consent of Cooley Godward Castro Huddleson & Tatum. Reference is made to Exhibit 5.1. 24.1* -- Power of Attorney. 27 -- Financial Data Schedule
* Previously filed. ** To be filed by amendment. + Confidential treatment requested. (B) FINANCIAL STATEMENT SCHEDULES.
NUMBER DESCRIPTION ------------------------------------------------- ---------------------------------------------- Schedule II...................................... Valuation and Qualifying Accounts
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. ITEM 17. UNDERTAKINGS. The Registrant hereby undertakes to provide the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. II-3 68 Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the provisions described in Item 14 or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant undertakes that: (1) for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus as filed as part of the registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective, and (2) for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 69 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mountain View, County of Santa Clara, State of California, on the tenth day of July 1996. AWARD SOFTWARE INTERNATIONAL, INC. By: /s/ GEORGE C. HUANG ------------------------------------------ George C. Huang Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------------ ------------------------------------------------ -------------- /s/ GEORGE C. HUANG Chairman of the Board, President, Chief July 10, 1996 - ------------------------------------------ Executive Officer and Director (Principal George C. Huang Executive Officer) /s/ KEVIN J. BERRY Vice President, Finance, Chief Financial Officer July 10, 1996 - ------------------------------------------ and Secretary (Principal Financial and Kevin J. Berry Accounting Officer) * Director July 10, 1996 - ------------------------------------------ Cheng Ming Lee * Director July 10, 1996 - ------------------------------------------ David S. Lee * Director July 10, 1996 - ------------------------------------------ Theodor L. Lieven * Director July 10, 1996 - ------------------------------------------ Masami Maeda * Director July 10, 1996 - ------------------------------------------ Anthony Sun * Director July 10, 1996 - ------------------------------------------ William P. Tai *By: /s/ GEORGE C. HUANG - ------------------------------------------ George C. Huang Attorney-in-Fact
II-5 70 SCHEDULE II AWARD SOFTWARE INTERNATIONAL, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Balance at beginning Balance at of end of in thousands period Provision Write-off period ---------- ---------- --------- ---------- Allowance for doubtful accounts 1993.................................................... $45 31 (38) $38 1994.................................................... $38 -- -- $38 1995.................................................... $38 50 (9) $79 Deferred tax asset valuation allowance 1993.................................................... $152 27 -- $179 1994.................................................... $179 -- (62) $117 1995.................................................... $117 -- (117) $--
S-1 71 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - --------- --------------------------------------------------------------------------------------------- 1.1** -- Form of Underwriting Agreement. 3.1* -- Amended and Restated Articles of Incorporation of the Registrant. 3.1.1 -- Form of Amended and Restated Articles of Incorporation of the Registrant effecting the 1-for-2 reverse stock split. 3.1.2 -- Form of Amended and Restated Articles of Incorporation of the Registrant, to be effective upon the completion of the Offering. 3.2* -- Amended and Restated Bylaws of the Registrant. 3.2.1 -- Form of Amended and Restated Bylaws of the Registrant, to be effective upon the completion of the Offering. 4.1* -- Reference is made to Exhibits 3.1 through 3.2. 4.5 -- Specimen stock certificate. 5.1** -- Opinion of Cooley Godward Castro Huddleson & Tatum. 10.1* -- Form of Indemnity Agreement to be entered into between the Registrant and its directors and officers, with related schedule. 10.2* -- Registrant's 1995 Stock Option Plan, as amended (the "Option Plan"). 10.3* -- Form of Incentive Stock Option under the Option Plan. 10.4* -- Form of Nonstatutory Stock Option under the Option Plan. 10.5 -- Registrant's 1996 Employee Stock Purchase Plan. 10.6 -- Registrant's Amended and Restated Executive Compensation Plan. 10.7* -- Lease, dated January 1, 1996, between GCH Systems, Inc. and the Registrant. 10.8* -- Summary of Leases, dated March 1, 1996, between Sun Corporation, GSS Corporation and the Registrant. 10.9* -- Voting Agreement, dated January 12, 1996, between the Registrant and certain persons named therein. 10.10* -- Investors' Rights Agreement among the Registrant and certain other persons named therein, dated as of January 12, 1996. 10.11* -- Warrant issued to Synnex Information Technologies, Inc. 10.12* -- Warrant issued to Vobis Microcomputer AG. 10.13* -- Warrant issued to Venrock Associates. 10.14* -- Warrant issued to Venrock Associates II, L.P. 10.15* -- Warrant issued to Walden Capital Partners II, L.P. 10.16* -- Warrant issued to Walden Technology Ventures II, L.P. 10.17+ -- Technology Development and Support Agreement, dated June 28, 1996, between Registrant and Advanced Micro Devices, Inc. 11.1 -- Statement regarding calculation of net income (loss) per share. 23.1 -- Consent of Price Waterhouse LLP. 23.2** -- Consent of Cooley Godward Castro Huddleson & Tatum. Reference is made to Exhibit 5.1. 24.1* -- Power of Attorney. 27 -- Financial Data Schedule
* Previously filed. ** To be filed by amendment. + Confidential treatment requested. EX-3.1.1 2 AMENDED AND RESTATED ARTICLES OF INCORPORATION 1 EXHIBIT 3.1.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF AWARD SOFTWARE INTERNATIONAL, INC. A CALIFORNIA CORPORATION The undersigned, GEORGE C. HUANG and KEVIN J. BERRY hereby certify that: ONE: They are the duly elected and acting President and Secretary, respectively, of AWARD SOFTWARE INTERNATIONAL, INC., a California corporation. TWO: Upon the amendment and restatement of the Articles of said corporation as set forth below, each two (2) issued and outstanding shares of Common Stock shall be converted into one (1) share of Common Stock; provided, however, that the corporation shall issue no fractional shares, but shall instead pay in cash to any shareholder who would be entitled to receive a fractional share as the result of the conversion the fair market value of such fractional share as determined by the Board of Directors as of the effective date of this Amended and Restated Articles of Incorporation of Award Software International, Inc. THREE: The Articles of said corporation shall be amended and restated to read in full as follows: ARTICLE 1 The name of this corporation is AWARD SOFTWARE INTERNATIONAL, INC. ARTICLE 2 The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE 3 This corporation is authorized to issue one class of stock to be designated "Common Stock." The total number of shares that the corporation is authorized to issue is Twenty Million (20,000,000) shares. ARTICLE 4 The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. 1. 2 ARTICLE 5 This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) for breach of duty to the corporation and its shareholders through bylaw provisions or through agreements with the agents, or both, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject to the limits on such excess indemnification set forth in Section 204 of the California Corporations Code. Any repeal or modification of the provisions of Article V or Article VI shall not adversely affect any right of indemnification or limitation of liability of an agent of this corporation relating to acts or omissions occurring prior to such repeal or modification. * * * * * FOUR: The foregoing amendment and restatement has been duly approved by the Board of Directors of said corporation. FIVE: The foregoing amendment and restatement of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Sections 902 and 903 of the California Corporations Code. The number of shares voting in favor of the amendment and restatement equaled or exceeded the vote required. The percentage vote required was more than 50% of the outstanding Common as a class. 2. 3 IN WITNESS WHEREOF, the undersigned have executed this certificate on ____________, 1996. ____________________________________________ GEORGE C. HUANG President ____________________________________________ KEVIN J. BERRY Secretary The undersigned certify under penalty of perjury that they have read the foregoing Restated Articles of Incorporation and they know the contents thereof, and that the statements therein are true. Executed at Mountain View, California on _________________, 1996. ____________________________________________ GEORGE C. HUANG President ____________________________________________ KEVIN J. BERRY Secretary EX-3.1.2 3 AMENDED AND RESTATED ARTICLES AFTER OFFERING 1 EXHIBIT 3.1.2 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF AWARD SOFTWARE INTERNATIONAL, INC. A CALIFORNIA CORPORATION The undersigned, GEORGE C. HUANG and KEVIN J. BERRY, hereby certify that: ONE: They are the duly elected and acting President and Secretary, respectively, of AWARD SOFTWARE INTERNATIONAL, INC., a California corporation. TWO: The Articles of said corporation shall be amended and restated to read in full as follows: ARTICLE 1 The name of this corporation is AWARD SOFTWARE INTERNATIONAL, INC.. ARTICLE 2 The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE 3 This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares that the corporation is authorized to issue is Forty-Five Million (45,000,000) shares. Forty Million (40,000,000) shares shall be Common Stock. Five Million (5,000,000) shares shall be Preferred Stock. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized to determine and alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any such series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issuance of shares of that series. 1. 2 ARTICLE 4 Shareholders shall not cumulate votes in the election of directors; provided that this provision shall become effective only when this corporation becomes a listed corporation within the meaning of Section 301.5 of the Corporations Code. ARTICLE 5 Following the closing of this corporation's initial public offering of its Common Stock registered under the Securities Act of 1933, as amended, no action shall be taken by the shareholders of the corporation except at an annual or special meeting of shareholders called in accordance with the Bylaws. ARTICLE 6 The Bylaws may be altered or amended or new Bylaws adopted by the shareholders only by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares entitled to vote. The Board of Directors shall also have the power to adopt, amend, or repeal Bylaws. ARTICLE 7 The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. ARTICLE 8 This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) for breach of duty to the corporation and its shareholders through bylaw provisions or through agreements with the agents, or both, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject to the limits on such excess indemnification set forth in Section 204 of the California Corporations Code. Any repeal or modification of the provisions of Article VII or Article VIII shall not adversely affect any right of indemnification or limitation of liability of an agent of this corporation relating to acts or omissions occurring prior to such repeal or modification. * * * * * THREE: The foregoing amendment and restatement has been duly approved by the Board of Directors of said corporation. 2. 3 FOUR: The foregoing amendment and restatement of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Sections 902 and 903 of the California Corporations Code. The number of shares voting in favor of the amendment and restatement equaled or exceeded the vote required. The percentage vote required was more than 50% of the outstanding Common as a class. 3. 4 IN WITNESS WHEREOF, the undersigned have executed this certificate on ___________, 1996. _____________________________________________ GEORGE C. HUANG President _____________________________________________ KEVIN J. BERRY Secretary The undersigned certify under penalty of perjury that they have read the foregoing Amended and Restated Articles of Incorporation and they know the contents thereof, and that the statements therein are true. Executed at Mountain View, California on ___________, 1996. _____________________________________________ GEORGE C. HUANG President _____________________________________________ KEVIN J. BERRY Secretary 4. EX-3.2.1 4 AMENDED AND RESTATED BYLAWS OF THE REGISTRANT 1 EXHIBIT 3.2.1 AMENDED AND RESTATED BYLAWS OF AWARD SOFTWARE INTERNATIONAL, INC. (A CALIFORNIA CORPORATION) 2 TABLE OF CONTENTS
PAGE ARTICLE I OFFICES............................................................................ 1 Section 1. Principal Office................................................................... 1 Section 2. Other Offices...................................................................... 1 ARTICLE II CORPORATE SEAL..................................................................... 1 Section 3. Corporate Seal..................................................................... 1 ARTICLE III SHAREHOLDERS' MEETINGS AND VOTING RIGHTS.......................................... 1 Section 4. Place of Meetings................................................................. 1 Section 5. Annual Meeting.................................................................... 2 Section 6. Postponement of Annual Meeting.................................................... 3 Section 7. Special Meetings.................................................................. 3 Section 8. Notice of Meetings................................................................ 4 Section 9. Manner of Giving Notice........................................................... 5 Section 10. Quorum and Transaction of Business................................................ 5 Section 11. Adjournment and Notice of Adjourned Meetings...................................... 6 Section 12. Waiver of Notice, Consent to Meeting or Approval of Minutes....................... 6 Section 13. No Action by Written Consent Without a Meeting.................................... 7 Section 14. Voting............................................................................ 7 Section 15. Persons Entitled to Vote or Consent............................................... 8 Section 16. Proxies........................................................................... 8 Section 17. Inspectors of Election............................................................ 8 ARTICLE IV BOARD OF DIRECTORS................................................................ 9 Section 18. Powers............................................................................ 9 Section 19. Number of Directors............................................................... 9 Section 20. Election Of Directors, Term, Qualifications....................................... 10 Section 21. Resignations...................................................................... 10 Section 22. Removal........................................................................... 10 Section 23. Vacancies......................................................................... 10 Section 24. Regular Meetings.................................................................. 11 Section 25. Participation by Telephone........................................................ 11 Section 26. Special Meetings.................................................................. 11 Section 27. Notice of Meetings................................................................ 11 Section 28. Place of Meetings................................................................. 11 Section 29. Action by Written Consent Without a Meeting....................................... 11 Section 30. Quorum and Transaction of Business................................................ 12 Section 31. Adjournment....................................................................... 12 Section 32. Organization...................................................................... 12 Section 33. Compensation...................................................................... 12 Section 34. Committees........................................................................ 12
i. 3 TABLE OF CONTENTS (CONTINUED)
PAGE ARTICLE V OFFICERS.......................................................................... 13 Section 35. Officers.......................................................................... 13 Section 36. Appointment....................................................................... 13 Section 37. Inability to Act.................................................................. 13 Section 38. Resignations...................................................................... 14 Section 39. Removal........................................................................... 14 Section 40. Vacancies......................................................................... 14 Section 41. Chairman of the Board............................................................. 14 Section 42. President......................................................................... 14 Section 43. Vice Presidents................................................................... 14 Section 44. Secretary......................................................................... 15 Section 45. Chief Financial Officer........................................................... 15 Section 46. Compensation...................................................................... 16 ARTICLE VI CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS................................ 16 Section 47. Execution of Contracts and Other Instruments...................................... 16 Section 48. Loans............................................................................. 17 Section 49. Bank Accounts..................................................................... 17 Section 50. Checks, Drafts, Etc............................................................... 17 ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER........................................ 17 Section 51. Certificate for Shares............................................................ 17 Section 52. Transfer on the Books............................................................. 18 Section 53. Lost, Destroyed and Stolen Certificates........................................... 18 Section 54. Issuance, Transfer and Registration of Shares..................................... 18 ARTICLE VIII INSPECTION OF CORPORATE RECORDS................................................... 19 Section 55. Inspection by Directors........................................................... 19 Section 56. Inspection by Shareholders........................................................ 19 Section 57. Written Form...................................................................... 20 ARTICLE IX MISCELLANEOUS..................................................................... 20 Section 58. Fiscal Year....................................................................... 20 Section 59. Annual Report..................................................................... 20 Section 60. Record Date....................................................................... 20 Section 61. Bylaw Amendments.................................................................. 21 Section 62. Construction and Definition....................................................... 21
ii. 4 TABLE OF CONTENTS (CONTINUED)
PAGE ARTICLE X INDEMNIFICATION................................................................... 21 Section 63. Indemnification of Directors, Officers, Employees And Other Agents............................................................................ 21 ARTICLE XI LOANS OF OFFICERS AND OTHERS...................................................... 25 Section 64. Certain Corporate Loans and Guaranties............................................ 25
iii. 5 AMENDED AND RESTATED BYLAWS OF AWARD SOFTWARE INTERNATIONAL, INC. (A CALIFORNIA CORPORATION) ARTICLE I OFFICES SECTION 1. PRINCIPAL OFFICE. The principal executive office of the corporation shall be located at such place as the Board of Directors may from time to time authorize. If the principal executive office is located outside this state, and the corporation has one or more business offices in this state, the board of directors shall fix and designate a principal business office in the State of California. SECTION 2. OTHER OFFICES. Additional offices of the corporation shall be located at such place or places, within or outside the State of California, as the Board of Directors may from time to time authorize. ARTICLE II CORPORATE SEAL SECTION 3. CORPORATE SEAL. If the Board of Directors adopts a corporate seal such seal shall have inscribed thereon the name of the corporation and the state and date of its incorporation. If and when a seal is adopted by the Board of Directors, such seal may be engraved, lithographed, printed, stamped, impressed upon, or affixed to any contract, conveyance, certificate for shares, or other instrument executed by the corporation. ARTICLE III SHAREHOLDERS' MEETINGS AND VOTING RIGHTS SECTION 4. PLACE OF MEETINGS. Meetings of shareholders shall be held at the principal executive office of the corporation, or at any other place, within or outside the State of California, which may be fixed either by the Board of Directors or by the written consent of all persons entitled to vote at such meeting, given either before or after the meeting and filed with the Secretary of the Corporation. 1. 6 SECTION 5. ANNUAL MEETING. (a) The annual meeting of the shareholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. (b) At an annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (B) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (C) otherwise properly brought before the meeting by a shareholder. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the shareholder to be timely must be so received not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or, in the event public announcement of the date of such annual meeting is first made by the corporation fewer than seventy (70) days prior to the date of such annual meeting, the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the corporation. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the shareholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the shareholder, (iv) any material interest of the shareholder in such business and (v) any other information that is required to be provided by the shareholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a proponent to a shareholder proposal. Notwithstanding the foregoing, in order to include information with respect to a shareholder proposal in the proxy statement and form of proxy for a shareholder's meeting, shareholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. 2. 7 (c) Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of shareholders by or at the direction of the Board of Directors or by any shareholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 5. Such shareholder's notice shall set forth (i) as to each person, if any, whom the shareholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the shareholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (ii) as to such shareholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 5. At the request of the Board of Directors, any person nominated by a shareholder for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in the shareholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded. (d) For purposes of this Section 5, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. SECTION 6. POSTPONEMENT OF ANNUAL MEETING. The Board of Directors and the President shall each have authority to hold at an earlier date and/or time, or to postpone to a later date and/or time, the annual meeting of shareholders. SECTION 7. SPECIAL MEETINGS. (a) Special meetings of the shareholders, for any purpose or purposes, may be called by the Board of Directors, the Chairman of the Board of Directors, the President, or the holders of shares entitled to cast not less than ten percent (10%) of the votes at the meeting. 3. 8 (b) Upon written request to the Chairman of the Board of Directors, the President, any vice president or the Secretary of the corporation by any person or persons (other than the Board of Directors) entitled to call a special meeting of the shareholders, such officer forthwith shall cause notice to be given to the shareholders entitled to vote, that a meeting will be held at a time requested by the person or persons calling the meeting, such time to be not less than thirty-five (35) nor more than sixty (60) days after receipt of such request. If such notice is not given within twenty (20) days after receipt of such request, the person or persons calling the meeting may give notice thereof in the manner provided by law or in these bylaws. Nothing contained in this Section 7 shall be construed as limiting, fixing or affecting the time or date when a meeting of shareholders called by action of the Board of Directors may be held. SECTION 8. NOTICE OF MEETINGS. Except as otherwise may be required by law and subject to subsection 7(b) above, written notice of each meeting of shareholders shall be given to each shareholder entitled to vote at that meeting (see Section 15 below), by the Secretary, assistant secretary or other person charged with that duty, not less than ten (10) (or, if sent by third class mail, thirty (30)) nor more than sixty (60) days before such meeting. Notice of any meeting of shareholders shall state the date, place and hour of the meeting and, (a) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted at such meeting; (b) in the case of an annual meeting, the general nature of matters which the Board of Directors, at the time the notice is given, intends to present for action by the shareholders; (c) in the case of any meeting at which directors are to be elected, the names of the nominees intended at the time of the notice to be presented by management for election; and (d) in the case of any meeting, if action is to be taken on any of the following proposals, the general nature of such proposal: (1) a proposal to approve a transaction within the provisions of California Corporations Code, Section 310 (relating to certain transactions in which a director has an interest); (2) a proposal to approve a transaction within the provisions of California Corporations Code, Section 902 (relating to amending the Articles of Incorporation of the corporation); (3) a proposal to approve a transaction within the provisions of California Corporations Code, Sections 181 and 1201 (relating to reorganization); 4. 9 (4) a proposal to approve a transaction within the provisions of California Corporations Code, Section 1900 (winding up and dissolution); (5) a proposal to approve a plan of distribution within the provisions of California Corporations Code, Section 2007 (relating to certain plans providing for distribution not in accordance with the liquidation rights of preferred shares, if any). At a special meeting, notice of which has been given in accordance with this Section, action may not be taken with respect to business, the general nature of which has not been stated in such notice. At an annual meeting, action may be taken with respect to business stated in the notice of such meeting, given in accordance with this Section, and, subject to subsection 8(d) above, with respect to any other business as may properly come before the meeting. SECTION 9. MANNER OF GIVING NOTICE. Notice of any meeting of shareholders shall be given either personally or by first-class mail, or, if the corporation has outstanding shares held of record by 500 or more persons (determined as provided in California Corporations Code Section 605) on the record date for such meeting, third-class mail, or telegraphic or other written communication, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices shall be deemed to have been duly given without further mailing if these shall be available to the shareholder on written demand by the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice. SECTION 10. QUORUM AND TRANSACTION OF BUSINESS. (a) At any meeting of the shareholders, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum. If a quorum is present, the affirmative vote of the majority of shares represented at the meeting and entitled to vote on any matter shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by law or by the Articles of Incorporation, and except as provided in subsection (b) below. 5. 10 (b) The shareholders present at a duly called or held meeting of the shareholders at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, provided that any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. (c) In the absence of a quorum, no business other than adjournment may be transacted, except as described in subsection (b) above. SECTION 11. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of shareholders may be adjourned from time to time, whether or not a quorum is present, by the affirmative vote of a majority of shares represented at such meeting either in person or by proxy and entitled to vote at such meeting. In the event any meeting is adjourned, it shall not be necessary to give notice of the time and place of such adjourned meeting pursuant to Sections 8 and 9 of these bylaws; provided that if any of the following three events occur, such notice must be given: (a) announcement of the adjourned meeting's time and place is not made at the original meeting which it continues or (b) such meeting is adjourned for more than forty- five (45) days from the date set for the original meeting or (c) a new record date is fixed for the adjourned meeting. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. SECTION 12. WAIVER OF NOTICE, CONSENT TO MEETING OR APPROVAL OF MINUTES. (a) Subject to subsection (b) of this Section, the transactions of any meeting of shareholders, however called and noticed, and wherever held, shall be as valid as though made at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote but not present in person or by proxy signs a written waiver of notice or a consent to holding of the meeting or an approval of the minutes thereof. (b) A waiver of notice, consent to the holding of a meeting or approval of the minutes thereof need not specify the business to be transacted or transacted at nor the purpose of the meeting; provided that in the case of proposals described in subsection (d) of Section 8 of these bylaws, the general nature of such proposals must be described in any such waiver of notice and such proposals can only be approved by waiver of notice, not by consent to holding of the meeting or approval of the minutes. 6. 11 (c) All waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. (d) A person's attendance at a meeting shall constitute waiver of notice of and presence at such meeting, except when such person objects at the beginning of the meeting to transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters which are required by law or these bylaws to be in such notice (including those matters described in subsection (d) of Section 8 of these bylaws), but are not so included if such person expressly objects to consideration of such matter or matters at any time during the meeting. SECTION 13. NO ACTION BY WRITTEN CONSENT WITHOUT A MEETING. No action of the shareholders may be taken without a meeting or without prior notice. SECTION 14. VOTING. Voting at any meeting of shareholders need not be by ballot; provided, however, that elections for directors must be by ballot if balloting is demanded by a shareholder at the meeting and before the voting begins. Until such time as this corporation becomes a listed corporation within the meaning of Section 301.5 of the California Corporations Code, every person entitled to vote at an election for directors may cumulate the votes to which such person is entitled, i.e., such person may cast a total number of votes equal to the number of directors to be elected multiplied by the number of votes to which such person's shares are entitled, and may cast said total number of votes for one or more candidates in such proportions as such person thinks fit; provided, however, no shareholder shall be entitled to so cumulate such shareholder's votes unless the candidates for which such shareholder is voting have been placed in nomination prior to the voting and a shareholder has given notice at the meeting, prior to the vote, of an intention to cumulate votes. In any election of directors, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected. Except as may be otherwise provided in the Articles of Incorporation or by law, and subject to the foregoing provisions regarding the cumulation of votes, each shareholder shall be entitled to one vote for each share held; provided, however, that the right to cumulative voting provided for above shall be eliminated at such time as this corporation becomes a listed corporation within the meaning of Section 301.5 of the California Corporation Code. Any shareholder may vote part of such shareholder's shares in favor of a proposal and refrain from voting the remaining shares or vote them against the proposal, other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. No shareholder approval, other than unanimous approval of those entitled to vote, will be valid as to proposals described in subsection 8(d) of these bylaws unless the general nature of such business was stated in the notice of meeting or in any written waiver of notice. 7. 12 SECTION 15. PERSONS ENTITLED TO VOTE OR CONSENT. The Board of Directors may fix a record date pursuant to Section 60 of these bylaws to determine which shareholders are entitled to notice of and to vote at a meeting as provided in Section 14 of these bylaws. Only persons in whose name shares otherwise entitled to vote stand on the stock records of the corporation on such date shall be entitled to vote or consent. If no record date is fixed: (a) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; and (b) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting; provided, however, that the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting. Shares of the corporation held by its subsidiary or subsidiaries (as defined in California Corporations Code, Section 189(b)) are not entitled to vote in any matter. SECTION 16. PROXIES. Every person entitled to vote may do so either in person or by one or more agents authorized to act by a written proxy executed by the person or such person's duly authorized agent and filed with the Secretary of the corporation; provided that no such proxy shall be valid after the expiration of eleven (11) months from the date of its execution unless otherwise provided in the proxy. The manner of execution, suspension, revocation, exercise and effect of proxies is governed by law. SECTION 17. INSPECTORS OF ELECTION. Before any meeting of shareholders, the Board of Directors may appoint any persons, other than nominees for office, to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or proxy shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. 8. 13 These inspectors shall: (a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) Receive votes or ballots; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) Count and tabulate all votes or ballots; (e) Determine when the polls shall close; (f) Determine the result; and (g) Do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE IV BOARD OF DIRECTORS SECTION 18. POWERS. Subject to the provisions of law or any limitations in the Articles of Incorporation or these bylaws, as to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised, by or under the direction of the Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. SECTION 19. NUMBER OF DIRECTORS. The authorized number of directors of the corporation shall be not less than a minimum of five (5) nor more than a maximum of nine (9) (which maximum number in no case shall be greater than two times said minimum, minus one) and the number of directors presently authorized is seven (7). The exact number of directors shall be set within these limits from time to time (a) by approval of the Board of Directors, or (b) by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by the written consent of shareholders pursuant to Section 13 hereinabove. 9. 14 Any amendment of these bylaws changing the maximum or minimum number of directors may be adopted only by the affirmative vote of a majority of the outstanding shares entitled to vote; provided, an amendment reducing the minimum number of directors to less than five (5), cannot be adopted if votes cast against its adoption at a meeting are equal to more than 16-2/3 percent of the outstanding shares entitled to vote. No reduction of the authorized number of directors shall remove any director prior to the expiration of such director's term of office. SECTION 20. ELECTION OF DIRECTORS, TERM, QUALIFICATIONS. The directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting. Each director, including a director elected or appointed to fill a vacancy, shall hold office either until the expiration of the term for which elected or appointed and until a successor has been elected and qualified, or until his death, resignation or removal. Directors need not be shareholders of the corporation. SECTION 21. RESIGNATIONS. Any director of the corporation may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation specifies effectiveness at a future time, a successor may be elected pursuant to Section 23 of these bylaws to take office on the date that the resignation becomes effective. SECTION 22. REMOVAL. The Board of Directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or who has been convicted of a felony. The entire Board of Directors or any individual director may be removed from office (i) with cause by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote or (ii) without cause by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the outstanding shares entitled to vote; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal would be sufficient to elect that director if voted cumulatively at an election at which the same total number of votes cast were cast and the entire number of directors authorized at the time of such director's most recent election were then being elected. SECTION 23. VACANCIES. A vacancy or vacancies on the Board of Directors shall be deemed to exist in case of the death, resignation or removal of any director, or upon increase in the authorized number of directors or if shareholders fail to elect the full authorized number of directors at an annual meeting of shareholders or if, for whatever reason, there are fewer directors on the Board of Directors, than the full number authorized. Such vacancy or vacancies may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director. The shareholders may elect a director at any time to fill any vacancy not filled by the directors. 10. 15 If, after the filling of any vacancy by the directors, the directors then in office who have been elected by the shareholders constitute less than a majority of the directors then in office, any holder or holders of an aggregate of five percent (5%) or more of the shares outstanding at that time and having the right to vote for such directors may call a special meeting of shareholders to be held to elect the entire Board of Directors. The term of office of any director shall terminate upon such election of a successor. SECTION 24. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such times, places and dates as fixed in these bylaws or by the Board of Directors; provided, however, that if the date for such a meeting falls on a legal holiday, then the meeting shall be held at the same time on the next succeeding full business day. Regular meetings of the Board of Directors held pursuant to this Section 24 may be held without notice. SECTION 25. PARTICIPATION BY TELEPHONE. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Such participation constitutes presence in person at such meeting. SECTION 26. SPECIAL MEETINGS. Special meetings of the Board of Directors for any purpose may be called by the Chairman of the Board or the President or any vice president or the Secretary of the corporation or any two (2) directors. SECTION 27. NOTICE OF MEETINGS. Notice of the date, time and place of all meetings of the Board of Directors, other than regular meetings held pursuant to Section 24 above shall be delivered personally, orally or in writing, or by telephone or telegraph to each director, at least forty-eight (48) hours before the meeting, or sent in writing to each director by first-class mail, charges prepaid, at least four (4) days before the meeting. Such notice may be given by the Secretary of the corporation or by the person or persons who called a meeting. Such notice need not specify the purpose of the meeting. Notice of any meeting of the Board of Directors need not be given to any director who signs a waiver of notice of such meeting, or a consent to holding the meeting or an approval of the minutes thereof, either before or after the meeting, or who attends the meeting without protesting prior thereto or at its commencement such director's lack of notice. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. SECTION 28. PLACE OF MEETINGS. Meetings of the Board of Directors may be held at any place within or without the state which has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, designated in the bylaws or by resolution of the Board of Directors. SECTION 29. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board of Directors individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. 11. 16 SECTION 30. QUORUM AND TRANSACTION OF BUSINESS. A majority of the authorized number of directors shall constitute a quorum for the transaction of business. Every act or decision done or made by a majority of the authorized number of directors present at a meeting duly held at which a quorum is present shall be the act of the Board of Directors, unless the law, the Articles of Incorporation or these bylaws specifically require a greater number. A meeting at which a quorum is initially present may continue to transact business, notwithstanding withdrawal of directors, if any action taken is approved by at least a majority of the number of directors constituting a quorum for such meeting. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present may adjourn the meeting, as provided in Section 31 of these bylaws. SECTION 31. ADJOURNMENT. Any meeting of the Board of Directors, whether or not a quorum is present, may be adjourned to another time and place by the affirmative vote of a majority of the directors present. If the meeting is adjourned for more than twenty-four (24) hours, notice of such adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. SECTION 32. ORGANIZATION. The Chairman of the Board shall preside at every meeting of the Board of Directors, if present. If there is no Chairman of the Board or if the Chairman is not present, a Chairman chosen by a majority of the directors present shall act as chairman. The Secretary of the corporation or, in the absence of the Secretary, any person appointed by the Chairman shall act as secretary of the meeting. SECTION 33. COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board of Directors. SECTION 34. COMMITTEES. The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two (2) or more directors, to serve at the pleasure of the Board of Directors. The Board of Directors, by a vote of the majority of authorized directors, may designate one or more directors as alternate members of any committee, to replace any absent member at any meeting of such committee. Any such committee shall have authority to act in the manner and to the extent provided in the resolution of the Board of Directors, and may have all the authority of the Board of Directors in the management of the business and affairs of the corporation, except with respect to: (a) the approval of any action for which shareholders' approval or approval of the outstanding shares also is required by the California Corporations Code; (b) the filling of vacancies on the Board of Directors or any of its committees; (c) the fixing of compensation of directors for serving on the Board of Directors or any of its committees; (d) the adoption, amendment or repeal of these bylaws; 12. 17 (e) the amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable; (f) a distribution to shareholders, except at a rate or in a periodic amount or within a price range determined by the Board of Directors; or (g) the appointment of other committees of the Board of Directors or the members thereof. Any committee may from time to time provide by resolution for regular meetings at specified times and places. If the date of such a meeting falls on a legal holiday, then the meeting shall be held at the same time on the next succeeding full business day. No notice of such a meeting need be given. Such regular meetings need not be held if the committee shall so determine at any time before or after the time when such meeting would otherwise have taken place. Special meetings may be called at any time in the same manner and by the same persons as stated in Sections 25 and 26 of these bylaws for meetings of the Board of Directors. The provisions of Sections 24, 27, 28, 29, 30 and 31 of these bylaws shall apply to committees, committee members and committee meetings as if the words "committee" and "committee member" were substituted for the word "Board of Directors", and "director", respectively, throughout such sections. ARTICLE V OFFICERS SECTION 35. OFFICERS. The corporation shall have a Chairman of the Board or a President or both, a Secretary, a Chief Financial Officer and such other officers with such titles and duties as the Board of Directors may determine. Any two or more offices may be held by the same person. SECTION 36. APPOINTMENT. All officers shall be chosen and appointed by the Board of Directors; provided, however, the Board of Directors may empower the chief executive officer of the corporation to appoint such officers, other than Chairman of the Board, President, Secretary or Chief Financial Officer, as the business of the corporation may require. All officers shall serve at the pleasure of the Board of Directors, subject to the rights, if any, of an officer under a contract of employment. SECTION 37. INABILITY TO ACT. In the case of absence or inability to act of any officer of the corporation or of any person authorized by these bylaws to act in such officer's place, the Board of Directors may from time to time delegate the powers or duties of such officer to any other officer, or any director or other person whom it may select, for such period of time as the Board of Directors deems necessary. 13. 18 SECTION 38. RESIGNATIONS. Any officer may resign at any time upon written notice to the corporation, without prejudice to the rights, if any, of the corporation under any contract to which such officer is a party. Such resignation shall be effective upon its receipt by the Chairman of the Board, the President, the Secretary or the Board of Directors, unless a different time is specified in the notice for effectiveness of such resignation. The acceptance of any such resignation shall not be necessary to make it effective unless otherwise specified in such notice. SECTION 39. REMOVAL. Any officer may be removed from office at any time, with or without cause, but subject to the rights, if any, of such officer under any contract of employment, by the Board of Directors or by any committee to whom such power of removal has been duly delegated, or, with regard to any officer who has been appointed by the chief executive officer pursuant to Section 36 above, by the chief executive officer or any other officer upon whom such power of removal may be conferred by the Board of Directors. SECTION 40. VACANCIES. A vacancy occurring in any office for any cause may be filled by the Board of Directors, in the manner prescribed by this Article of the bylaws for initial appointment to such office. SECTION 41. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there be such an officer, shall, if present, preside at all meetings of the Board of Directors and shall exercise and perform such other powers and duties as may be assigned from time to time by the Board of Directors or prescribed by these bylaws. If no President is appointed, the Chairman of the Board is the general manager and chief executive officer of the corporation, and shall exercise all powers of the President described in Section 42 below. SECTION 42. PRESIDENT. Subject to such powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the general manager and chief executive officer of the corporation and shall have general supervision and control over the business and affairs of the corporation, subject to the control of the Board of Directors. The President may sign and execute, in the name of the corporation, any instrument authorized by the Board of Directors, except when the signing and execution thereof shall have been expressly delegated by the Board of Directors or by these bylaws to some other officer or agent of the corporation. The President shall have all the general powers and duties of management usually vested in the president of a corporation, and shall have such other powers and duties as may be prescribed from time to time by the Board of Directors or these bylaws. The President shall have discretion to prescribe the duties of other officers and employees of the corporation in a manner not inconsistent with the provisions of these bylaws and the directions of the Board of Directors. SECTION 43. VICE PRESIDENTS. In the absence or disability of the President, in the event of a vacancy in the office of President, or in the event such officer refuses to act, the Vice President shall perform all the duties of the President and, when so acting, shall have all the powers of, and be subject to all the restrictions on, the President. If at any such time the corporation has more than one vice president, the duties and powers of the President shall pass to each vice president in order of such vice president's rank as fixed by the Board of Directors or, if the vice presidents are not so ranked, to the vice president designated by the Board of 14. 19 Directors. The vice presidents shall have such other powers and perform such other duties as may be prescribed for them from time to time by the Board of Directors or pursuant to Sections 35 and 36 of these bylaws or otherwise pursuant to these bylaws. SECTION 44. SECRETARY. The Secretary shall: (a) Keep, or cause to be kept, minutes of all meetings of the corporation's shareholders, Board of Directors, and committees of the Board of Directors, if any. Such minutes shall be kept in written form. (b) Keep, or cause to be kept, at the principal executive office of the corporation, or at the office of its transfer agent or registrar, if any, a record of the corporation's shareholders, showing the names and addresses of all shareholders, and the number and classes of shares held by each. Such records shall be kept in written form or any other form capable of being converted into written form. (c) Keep, or cause to be kept, at the principal executive office of the corporation, or if the principal executive office is not in California, at its principal business office in California, an original or copy of these bylaws, as amended. (d) Give, or cause to be given, notice of all meetings of shareholders, directors and committees of the Board of Directors, as required by law or by these bylaws. (e) Keep the seal of the corporation, if any, in safe custody. (f) Exercise such powers and perform such duties as are usually vested in the office of secretary of a corporation, and exercise such other powers and perform such other duties as may be prescribed from time to time by the Board of Directors or these bylaws. If any assistant secretaries are appointed, the assistant secretary, or one of the assistant secretaries in the order of their rank as fixed by the Board of Directors or, if they are not so ranked, the assistant secretary designated by the Board of Directors, in the absence or disability of the Secretary or in the event of such officer's refusal to act or if a vacancy exists in the office of Secretary, shall perform the duties and exercise the powers of the Secretary and discharge such duties as may be assigned from time to time pursuant to these bylaws or by the Board of Directors. SECTION 45. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall: (a) Be responsible for all functions and duties of the treasurer of the corporation. (b) Keep and maintain, or cause to be kept and maintained, adequate and correct books and records of account for the corporation. 15. 20 (c) Receive or be responsible for receipt of all monies due and payable to the corporation from any source whatsoever; have charge and custody of, and be responsible for, all monies and other valuables of the corporation and be responsible for deposit of all such monies in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors or a duly appointed and authorized committee of the Board of Directors. (d) Disburse or be responsible for the disbursement of the funds of the corporation as may be ordered by the Board of Directors or a duly appointed and authorized committee of the Board of Directors. (e) Render to the chief executive officer and the Board of Directors a statement of the financial condition of the corporation if called upon to do so. (f) Exercise such powers and perform such duties as are usually vested in the office of chief financial officer of a corporation, and exercise such other powers and perform such other duties as may be prescribed by the Board of Directors or these bylaws. If any assistant financial officer is appointed, the assistant financial officer, or one of the assistant financial officers, if there are more than one, in the order of their rank as fixed by the Board of Directors or, if they are not so ranked, the assistant financial officer designated by the Board of Directors, shall, in the absence or disability of the Chief Financial Officer or in the event of such officer's refusal to act, perform the duties and exercise the powers of the Chief Financial Officer, and shall have such powers and discharge such duties as may be assigned from time to time pursuant to these bylaws or by the Board of Directors. SECTION 46. COMPENSATION. The compensation of the officers shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such compensation by reason of the fact that such officer is also a director of the corporation. ARTICLE VI CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS SECTION 47. EXECUTION OF CONTRACTS AND OTHER INSTRUMENTS. Except as these bylaws may otherwise provide, the Board of Directors or its duly appointed and authorized committee may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authorization may be general or confined to specific instances. Except as so authorized or otherwise expressly provided in these bylaws, no officer, agent, or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. 16. 21 SECTION 48. LOANS. No loans shall be contracted on behalf of the corporation and no negotiable paper shall be issued in its name, unless and except as authorized by the Board of Directors or its duly appointed and authorized committee. When so authorized by the Board of Directors or such committee, any officer or agent of the corporation may effect loans and advances at any time for the corporation from any bank, trust company, or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other evidences of indebtedness of the corporation and, when authorized as aforesaid, may mortgage, pledge, hypothecate or transfer any and all stocks, securities and other property, real or personal, at any time held by the corporation, and to that end endorse, assign and deliver the same as security for the payment of any and all loans, advances, indebtedness, and liabilities of the corporation. Such authorization may be general or confined to specific instances. SECTION 49. BANK ACCOUNTS. The Board of Directors or its duly appointed and authorized committee from time to time may authorize the opening and keeping of general and/or special bank accounts with such banks, trust companies, or other depositaries as may be selected by the Board of Directors, its duly appointed and authorized committee or by any officer or officers, agent or agents, of the corporation to whom such power may be delegated from time to time by the Board of Directors. The Board of Directors or its duly appointed and authorized committee may make such rules and regulations with respect to said bank accounts, not inconsistent with the provisions of these bylaws, as are deemed advisable. SECTION 50. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes, acceptances or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents, of the corporation, and in such manner, as shall be determined from time to time by resolution of the Board of Directors or its duly appointed and authorized committee. Endorsements for deposit to the credit of the corporation in any of its duly authorized depositaries may be made, without counter-signature, by the President or any vice president or the Chief Financial Officer or any assistant financial officer or by any other officer or agent of the corporation to whom the Board of Directors or its duly appointed and authorized committee, by resolution, shall have delegated such power or by hand-stamped impression in the name of the corporation. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 51. CERTIFICATE FOR SHARES. Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the Chairman or Vice Chairman of the Board or the President or a Vice President and by the Chief Financial Officer or an assistant financial officer or by the Secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by 17. 22 the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. In the event that the corporation shall issue any shares as only partly paid, the certificate issued to represent such partly paid shares shall have stated thereon the total consideration to be paid for such shares and the amount paid thereon. SECTION 52. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or transfer agent (if any) of the corporation of a certificate for shares of the corporation duly endorsed, with reasonable assurance that the endorsement is genuine and effective, or accompanied by proper evidence of succession, assignment or authority to transfer and upon compliance with applicable federal and state securities laws and if the corporation has no statutory duty to inquire into adverse claims or has discharged any such duty and if any applicable law relating to the collection of taxes has been complied with, it shall be the duty of the corporation, by its Secretary or transfer agent, to cancel the old certificate, to issue a new certificate to the person entitled thereto and to record the transaction on the books of the corporation. SECTION 53. LOST, DESTROYED AND STOLEN CERTIFICATES. The holder of any certificate for shares of the corporation alleged to have been lost, destroyed or stolen shall notify the corporation by making a written affidavit or affirmation of such fact. Upon receipt of said affidavit or affirmation the Board of Directors, or its duly appointed and authorized committee or any officer or officers authorized by the board so to do, may order the issuance of a new certificate for shares in the place of any certificate previously issued by the corporation and which is alleged to have been lost, destroyed or stolen. However, the Board of Directors or such authorized committee, officer or officers may require the owner of the allegedly lost, destroyed or stolen certificate, or such owner's legal representative, to give the corporation a bond or other adequate security sufficient to indemnify the corporation and its transfer agent and/or registrar, if any, against any claim that may be made against it or them on account of such allegedly lost, destroyed or stolen certificate or the replacement thereof. Said bond or other security shall be in such amount, on such terms and conditions and, in the case of a bond, with such surety or sureties as may be acceptable to the Board of Directors or to its duly appointed and authorized committee or any officer or officers authorized by the Board of Directors to determine the sufficiency thereof. The requirement of a bond or other security may be waived in particular cases at the discretion of the Board of Directors or its duly appointed and authorized committee or any officer or officers authorized by the Board of Directors so to do. SECTION 54. ISSUANCE, TRANSFER AND REGISTRATION OF SHARES. The Board of Directors may make such rules and regulations, not inconsistent with law or with these bylaws, as it may deem advisable concerning the issuance, transfer and registration of certificates for shares of the capital stock of the corporation. The Board of Directors may appoint a transfer agent or registrar of transfers, or both, and may require all certificates for shares of the corporation to bear the signature of either or both. 18. 23 ARTICLE VIII INSPECTION OF CORPORATE RECORDS SECTION 55. INSPECTION BY DIRECTORS. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records, and documents of every kind of the corporation and any of its subsidiaries and to inspect the physical properties of the corporation and any of its subsidiaries. Such inspection may be made by the director in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. SECTION 56. INSPECTION BY SHAREHOLDERS. (a) INSPECTION OF CORPORATE RECORDS. (1) A shareholder or shareholders holding at least five percent in the aggregate of the outstanding voting shares of the corporation or who hold at least one percent of such voting shares and have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of directors of the corporation shall have an absolute right to do either or both of the following: (A) Inspect and copy the record of shareholders' names and addresses and shareholdings during usual business hours upon five business days' prior written demand upon the corporation; or (B) Obtain from the transfer agent, if any, for the corporation, upon five business days' prior written demand and upon the tender of its usual charges for such a list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), a list of the shareholders' names and addresses who are entitled to vote for the election of directors and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. (2) The record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to such holder's interest as a shareholder or holder of a voting trust certificate. (3) The accounting books and records and minutes of proceedings of the shareholders and the Board of Directors and of any committees of the Board of Directors of the corporation and of each of its subsidiaries shall be open to inspection, copying and making extracts upon written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as a holder of such voting trust certificate. (4) Any inspection, copying, and making of extracts under this subsection (a) may be done in person or by agent or attorney. 19. 24 (b) INSPECTION OF BYLAWS. The original or a copy of these bylaws shall be kept as provided in Section 44 of these bylaws and shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is not in California, and the corporation has no principal business office in the state of California, a current copy of these bylaws shall be furnished to any shareholder upon written request. SECTION 57. WRITTEN FORM. If any record subject to inspection pursuant to Section 56 above is not maintained in written form, a request for inspection is not complied with unless and until the corporation at its expense makes such record available in written form. ARTICLE IX MISCELLANEOUS SECTION 58. FISCAL YEAR. Unless otherwise fixed by resolution of the Board of Directors, the fiscal year of the corporation shall end on the 31st day of December in each calendar year. SECTION 59. ANNUAL REPORT. (a) Subject to the provisions of Section 59(b) below, the Board of Directors shall cause an annual report to be sent to each shareholder of the corporation in the manner provided in Section 9 of these bylaws not later than one hundred twenty (120) days after the close of the corporation's fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. When there are more than 100 shareholders of record of the corporation's shares, as determined by Section 605 of the California Corporations Code, additional information as required by Section 1501(b) of the California Corporations Code shall also be contained in such report, provided that if the corporation has a class of securities registered under Section 12 of the United States Securities Exchange Act of 1934, that Act shall take precedence. Such report shall be sent to shareholders at least fifteen (15) days prior to the next annual meeting of shareholders after the end of the fiscal year to which it relates. (b) If and so long as there are fewer than 100 holders of record of the corporation's shares, the requirement of sending of an annual report to the shareholders of the corporation is hereby expressly waived. SECTION 60. RECORD DATE. The Board of Directors may fix a time in the future as a record date for the determination of the shareholders entitled to notice of or to vote at any meeting or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any change, conversion or exchange of 20. 25 shares or entitled to exercise any rights in respect of any other lawful action. The record date so fixed shall not be more than sixty (60) days nor less than ten (10) days prior to the date of the meeting nor more than sixty (60) days prior to any other action or event for the purpose of which it is fixed. If no record date is fixed, the provisions of Section 15 of these bylaws shall apply with respect to notice of meetings and votes and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolutions relating thereto, or the sixtieth (60th) day prior to the date of such other action or event, whichever is later. Only shareholders of record at the close of business on the record date shall be entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation, by agreement or by law. SECTION 61. BYLAW AMENDMENTS. Except as otherwise provided by law or Section 19 of these bylaws, these bylaws may be amended or repealed by the Board of Directors or by the affirmative vote of sixty-six and two-thirds percent (66-2/3%) of the outstanding shares entitled to vote, including, if applicable, the affirmative vote of sixty-six and two-thirds percent (66- 2/3%) of the outstanding shares of each class or series entitled by law or the Articles of Incorporation to vote as a class or series on the amendment or repeal or adoption of any bylaw or bylaws; provided, however, after issuance of shares, a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa may only be adopted by approval of the outstanding shares as provided herein. SECTION 62. CONSTRUCTION AND DEFINITION. Unless the context requires otherwise, the general provisions, rules of construction, and definitions contained in the California Corporations Code shall govern the construction of these bylaws. Without limiting the foregoing, "shall" is mandatory and "may" is permissive. ARTICLE X INDEMNIFICATION SECTION 63. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS. (a) DIRECTORS. The corporation shall indemnify its directors to the fullest extent not prohibited by the California General Corporation Law; provided, however, that the corporation may limit the extent of such indemnification by individual contracts with its directors; and, provided, further, that the corporation shall not be required to indemnify any director in connection with any proceeding (or part thereof) initiated by such person or any proceeding by such person against the corporation or its directors, officers, employees or other agents unless (i) such indemnification is expressly required to be made by law, (ii) the 21. 26 proceeding was authorized by the board of directors of the corporation or (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the California General Corporation Law. (b) OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall have power to indemnify its officers, employees and other agents as set forth in the California General Corporation Law. (c) DETERMINATION BY THE CORPORATION. Promptly after receipt of a request for indemnification hereunder (and in any event within 90 days thereof) a reasonable, good faith determination as to whether indemnification of the director is proper under the circumstances because each director has met the applicable standard of care shall be made by: (1) a majority vote of a quorum consisting of directors who are not parties to such proceeding; (2) if such quorum is not obtainable, by independent legal counsel in a written opinion; or (3) approval or ratification by the affirmative vote of a majority of the shares of this corporation represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by written consent of a majority of the outstanding shares entitled to vote; where in each case the shares owned by the person to be indemnified shall not be considered entitled to vote thereon. (d) GOOD FAITH. (1) For purposes of any determination under this bylaw, a director shall be deemed to have acted in good faith and in a manner he reasonably believed to be in the best interests of the corporation and its shareholders, and, with respect to any criminal action or proceeding, to have had no reasonable cause to believe that his conduct was unlawful, if his action is based on information, opinions, reports and statements, including financial statements and other financial data, in each case prepared or presented by: (A) one or more officers or employees of the corporation whom the director believed to be reliable and competent in the matters presented; (B) counsel, independent accountants or other persons as to matters which the director believed to be within such person's professional competence; and (C) a committee of the Board upon which such director does not serve, as to matters within such committee's designated authority, which committee the director believes to merit confidence; so long as, in each case, the director acts without knowledge that would cause such reliance to be unwarranted. 22. 27 (2) The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in the best interests of the corporation and its shareholders or that he had reasonable cause to believe that his conduct was unlawful. (3) The provisions of this paragraph (d) shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth by the California General Corporation Law. (e) EXPENSES. The corporation shall advance, prior to the final disposition of any proceeding, promptly following request therefor, all expenses incurred by any director in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it shall be determined ultimately that such person is not entitled to be indemnified under this bylaw or otherwise. (f) ENFORCEMENT. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors under this bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director. Any right to indemnification or advances granted by this bylaw to a director shall be enforceable by or on behalf of the person holding such right in the forum in which the proceeding is or was pending or, if such forum is not available or a determination is made that such forum is not convenient, in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. The corporation shall be entitled to raise as a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any proceeding in advance of its final disposition when the required undertaking has been tendered to the corporation) that the claimant has not met the standards of conduct that make it permissible under the California General Corporation Law for the corporation to indemnify the claimant for the amount claimed. Neither the failure of the corporation (including its board of directors, independent legal counsel or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the California General Corporation Law, nor an actual determination by the corporation (including its board of directors, independent legal counsel or its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (g) NON-EXCLUSIVITY OF RIGHTS. To the fullest extent permitted by the corporation's Articles of Incorporation and the California General Corporation Law, the rights conferred on any person by this bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, bylaws, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. 23. 28 The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent permitted by the California General Corporation Law and the corporation's Articles of Incorporation. (h) SURVIVAL OF RIGHTS. The rights conferred on any person by this bylaw shall continue as to a person who has ceased to be a director and shall inure to the benefit of the heirs, executors and administrators of such a person. (i) INSURANCE. The corporation, upon approval by the board of directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this bylaw. (j) AMENDMENTS. Any repeal or modification of this bylaw shall only be prospective and shall not affect the rights under this bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (k) EMPLOYEE BENEFIT PLANS. The corporation shall indemnify the directors and officers of the corporation who serve at the request of the corporation as trustees, investment managers or other fiduciaries of employee benefit plans to the fullest extent permitted by the California General Corporation Law. (l) SAVING CLAUSE. If this bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director to the fullest extent permitted by any applicable portion of this bylaw that shall not have been invalidated, or by any other applicable law. (m) CERTAIN DEFINITIONS. For the purposes of this bylaw, the following definitions shall apply: (1) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement and appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative. (2) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding, including expenses of establishing a right to indemnification under this bylaw or any applicable law. (3) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person 24. 29 who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (4) References to a "director," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. ARTICLE XI LOANS OF OFFICERS AND OTHERS SECTION 64. CERTAIN CORPORATE LOANS AND GUARANTIES. If the corporation has outstanding shares held of record by 100 or more persons on the date of approval by the Board of Directors, the corporation may make loans of money or property to, or guarantee the obligations of, any officer of the corporation or its parent or any subsidiary, whether or not a director of the corporation or its parent or any subsidiary, or adopt an employee benefit plan or plans authorizing such loans or guaranties, upon the approval of the Board of Directors alone, by a vote sufficient without counting the vote of any interested director or directors, if the Board of Directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation. 25. EX-4.5 5 SPECIMEN COMMON STOCK CERTIFICATE 1 EXHIBIT 4.5 [SPECIMEN COMMON STOCK CERTIFICATE] COMMON STOCK AWARD COMMON STOCK SHARES [LOGO] SOFTWARE SHARES [ ] INTERNATIONAL(R) [ ] INC. SEE REVERSE FOR CERTIFICATION THIS CERTIFICATE IS TRANSFERABLE INCORPORATED UNDER THE LAWS OF CUSIP 054531 10 8 IN BOSTON, MA OR NEW YORK, NY THE STATE OF CALIFORNIA
THIS CERTIFIES THAT IS THE HOLDER OF FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, NO PAR VALUE, OF AWARD SOFTWARE INTERNATIONAL(R), INC. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: /s/ Kevin J. Berry [SEAL] /s/ George C. Huang SECRETARY PRESIDENT COUNTERSIGNED AND REGISTERED: THE FIRST NATIONAL BANK OF BOSTON TRANSFER AGENT AND REGISTRAR BY /s/ SIG ILLEGIBLE AUTHORIZED SIGNATURE 2 A statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights as established, from time to time, by the Articles of Incorporation of the Corporation and by any certificate of determination, the number of shares constituting each class and series, and the designations thereof, may be obtained by the holder hereof upon request and without charge from the Secretary of the Corporation at the principal office of the Corporation. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- _______________ Custodian _________________ (Cust) (Minor) under Uniform Gifts to Minors Act________________________________________ (State) UNIF TRF MIN ACT -- _______________ Custodian (until age _____) (Cust) ____________________under Uniform Transfers (Minor) to Minors Act______________________________ (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, _______________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE [ ] ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ __________________________________________________________________________Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________________________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated_____________________________ X________________________________________________ X________________________________________________ THE SIGNATURE(S) TO THIS ASSIGNMENT MUST NOTICE: CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed By_______________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15. EX-10.5 6 EMPLOYEE STOCK PURCHASE PLAN 1 EXHIBIT 10.5 AWARD SOFTWARE INTERNATIONAL, INC. EMPLOYEE STOCK PURCHASE PLAN ADOPTED MAY 29, 1996 APPROVED BY SHAREHOLDERS _____________, 1996 1. PURPOSE. (a) The purpose of the Employee Stock Purchase Plan (the "Plan") is to provide a means by which employees of Award Software International, Inc., a California corporation (the "Company"), and its Affiliates, as defined in subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the rights to purchase stock of the Company granted under the Plan be considered options issued under an "employee stock purchase plan" as that term is defined in Section 423(b) of the Code. 2. ADMINISTRATION. (a) The Plan shall be administered by the Board of Directors (the "Board") of the Company unless and until the Board delegates administration to a Committee, as provided in subparagraph 2(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan. (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine when and how rights to purchase stock of the Company shall be granted and the provisions of each offering of such rights (which need not be identical). 1. 2 (ii) To designate from time to time which Affiliates of the Company shall be eligible to participate in the Plan. (iii) To construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iv) To amend the Plan as provided in paragraph 13. (v) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and its Affiliates and to carry out the intent that the Plan be treated as an "employee stock purchase plan" within the meaning of Section 423 of the Code. (c) The Board may delegate administration of the Plan to a Committee composed of not fewer than two (2) members of the Board (the "Committee") constituted in accordance with the requirements of Rule 16b-3 under the Exchange Act. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of paragraph 12 relating to adjustments upon changes in stock, the stock that may be sold pursuant to rights granted under the Plan shall not exceed in the aggregate one hundred fifty thousand (150,000) shares of the Company's common stock (the "Common Stock"). If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 4. GRANT OF RIGHTS; OFFERING. (a) The Board or the Committee may from time to time grant or provide for the grant of rights to purchase Common Stock of the Company under the Plan to eligible employees (an "Offering") on a date or dates (the "Offering Date(s)") selected by the Board or the Committee. Each Offering shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate, which shall comply with the requirements of Section 423(b)(5) of the Code that all employees granted rights to purchase stock under the Plan shall 2. 3 have the same rights and privileges. The terms and conditions of an Offering shall be incorporated by reference into the Plan and treated as part of the Plan. The provisions of separate Offerings need not be identical, but each Offering shall include (through incorporation of the provisions of this Plan by reference in the document comprising the Offering or otherwise) the period during which the Offering shall be effective, which period shall not exceed twenty-seven (27) months beginning with the Offering Date, and the substance of the provisions contained in paragraphs 5 through 8, inclusive. (b) If an employee has more than one right outstanding under the Plan, unless he or she otherwise indicates in agreements or notices delivered hereunder: (1) each agreement or notice delivered by that employee will be deemed to apply to all of his or her rights under the Plan, and (2) a right with a lower exercise price (or an earlier-granted right, if two rights have identical exercise prices), will be exercised to the fullest possible extent before a right with a higher exercise price (or a later-granted right, if two rights have identical exercise prices) will be exercised. 5. ELIGIBILITY. (a) Rights may be granted only to employees of the Company or, as the Board or the Committee may designate as provided in subparagraph 2(b), to employees of any Affiliate of the Company. Except as provided in subparagraph 5(b), an employee of the Company or any Affiliate shall not be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee has been in the employ of the Company or any Affiliate for such continuous period preceding such grant as the Board or the Committee may require, but in no event shall the required period of continuous employment be equal to or greater than two (2) years. In addition, unless otherwise determined by the Board or the Committee and set forth in the terms of the applicable Offering, no employee of the Company or any Affiliate shall be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee's customary employment with the Company or such Affiliate is for at least twenty (20) hours per week and at least five (5) months per calendar year. (b) The Board or the Committee may provide that, each person who, during the course of an Offering, first becomes an eligible employee of the Company or designated Affiliate will, on a date or dates specified in the Offering which coincides with the day on which such person becomes an eligible employee or occurs thereafter, receive a right under that Offering, which right shall thereafter be deemed to be a part of that Offering. Such right shall have the same characteristics as any rights originally granted under that Offering, as described herein, except that: (i) the date on which such right is granted shall be the "Offering Date" of such right for all purposes, including determination of the exercise price of such right; (ii) the period of the Offering with respect to such right shall begin on its Offering Date and end coincident with the end of such Offering; and 3. 4 (iii) the Board or the Committee may provide that if such person first becomes an eligible employee within a specified period of time before the end of the Offering, he or she will not receive any right under that Offering. (c) No employee shall be eligible for the grant of any rights under the Plan if, immediately after any such rights are granted, such employee owns stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Affiliate. For purposes of this subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in determining the stock ownership of any employee, and stock which such employee may purchase under all outstanding rights and options shall be treated as stock owned by such employee. (d) An eligible employee may be granted rights under the Plan only if such rights, together with any other rights granted under "employee stock purchase plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of the Code, do not permit such employee's rights to purchase stock of the Company or any Affiliate to accrue at a rate which exceeds twenty five thousand dollars ($25,000) of fair market value of such stock (determined at the time such rights are granted) for each calendar year in which such rights are outstanding at any time. (e) Officers of the Company and any designated Affiliate shall be eligible to participate in Offerings under the Plan, provided, however, that the Board may provide in an Offering that certain employees who are highly compensated employees within the meaning of Section 423(b)(4)(D) of the Code shall not be eligible to participate. 6. RIGHTS; PURCHASE PRICE. (a) On each Offering Date, each eligible employee, pursuant to an Offering made under the Plan, shall be granted the right to purchase up to the number of shares of Common Stock of the Company purchasable with a percentage designated by the Board or the Committee not exceeding fifteen percent (15%) of such employee's Earnings (as defined by the Board or the Committee in each Offering) during the period which begins on the Offering Date (or such later date as the Board or the Committee determines for a particular Offering) and ends on the date stated in the Offering, which date shall be no later than the end of the Offering. The Board or the Committee shall establish one or more dates during an Offering (the "Purchase Date(s)") on which rights granted under the Plan shall be exercised and purchases of Common Stock carried out in accordance with such Offering. (b) In connection with each Offering made under the Plan, the Board or the Committee may specify a maximum number of shares that may be purchased by any employee as well as a maximum aggregate number of shares that may be purchased by all eligible employees pursuant to such Offering. In addition, in connection with each Offering that contains more than one Purchase Date, the Board or the Committee may specify a maximum aggregate number of shares which may be purchased by all eligible employees on any given Purchase Date under 4. 5 the Offering. If the aggregate purchase of shares upon exercise of rights granted under the Offering would exceed any such maximum aggregate number, the Board or the Committee shall make a pro rata allocation of the shares available in as nearly a uniform manner as shall be practicable and as it shall deem to be equitable. (c) The purchase price of stock acquired pursuant to rights granted under the Plan shall be not less than the lesser of: (i) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the Offering Date; or (ii) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the Purchase Date. 7. PARTICIPATION; WITHDRAWAL; TERMINATION. (a) An eligible employee may become a participant in the Plan pursuant to an Offering by delivering a participation agreement to the Company within the time specified in the Offering, in such form as the Company provides. Each such agreement shall authorize payroll deductions of up to the maximum percentage specified by the Board or the Committee of such employee's Earnings during the Offering (as defined by the Board or Committee in each Offering). The payroll deductions made for each participant shall be credited to an account for such participant under the Plan and shall be deposited with the general funds of the Company. A participant may reduce (including to zero) or increase such payroll deductions, and an eligible employee may begin such payroll deductions, after the beginning of any Offering only as provided for in the Offering. A participant may make additional payments into his or her account only if specifically provided for in the Offering and only if the participant has not had the maximum amount withheld during the Offering. (b) At any time during an Offering, a participant may terminate his or her payroll deductions under the Plan and withdraw from the Offering by delivering to the Company a notice of withdrawal in such form as the Company provides. Such withdrawal may be elected at any time prior to the end of the Offering except as provided by the Board or the Committee in the Offering. Upon such withdrawal from the Offering by a participant, the Company shall distribute to such participant all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the participant) under the Offering, without interest, and such participant's interest in that Offering shall be automatically terminated. A participant's withdrawal from an Offering will have no effect upon such participant's eligibility to participate in any other Offerings under the Plan but such participant will be required to deliver a new participation agreement in order to participate in subsequent Offerings under the Plan. (c) Rights granted pursuant to any Offering under the Plan shall terminate immediately upon cessation of any participating employee's employment with the Company and any designated Affiliate, for any reason, and the Company shall distribute to such terminated 5. 6 employee all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the terminated employee) under the Offering, without interest. (d) Rights granted under the Plan shall not be transferable by a participant otherwise than by will or the laws of descent and distribution, or by a beneficiary designation as provided in paragraph 14 and, otherwise during his or her lifetime, shall be exercisable only by the person to whom such rights are granted. 8. EXERCISE. (a) On each Purchase Date specified therefor in the relevant Offering, each participant's accumulated payroll deductions and other additional payments specifically provided for in the Offering (without any increase for interest) will be applied to the purchase of whole shares of stock of the Company, up to the maximum number of shares permitted pursuant to the terms of the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares shall be issued upon the exercise of rights granted under the Plan. The amount, if any, of accumulated payroll deductions remaining in each participant's account after the purchase of shares which is less than the amount required to purchase one share of stock on the final Purchase Date of an Offering shall be held in each such participant's account for the purchase of shares under the next Offering under the Plan, unless such participant withdraws from such next Offering, as provided in subparagraph 7(b), or is no longer eligible to be granted rights under the Plan, as provided in paragraph 5, in which case such amount shall be distributed to the participant after such final Purchase Date, without interest. The amount, if any, of accumulated payroll deductions remaining in any participant's account after the purchase of shares which is equal to the amount required to purchase whole shares of stock on the final Purchase Date of an Offering shall be distributed in full to the participant after such Purchase Date, without interest. (b) No rights granted under the Plan may be exercised to any extent unless the shares to be issued upon such exercise under the Plan (including rights granted thereunder) are covered by an effective registration statement pursuant to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is in material compliance with all applicable state, foreign and other securities and other laws applicable to the Plan. If on a Purchase Date in any Offering hereunder the Plan is not so registered or in such compliance, no rights granted under the Plan or any Offering shall be exercised on such Purchase Date, and the Purchase Date shall be delayed until the Plan is subject to such an effective registration statement and such compliance, except that the Purchase Date shall not be delayed more than twelve (12) months and the Purchase Date shall in no event be more than twenty-seven (27) months from the Offering Date. If on the Purchase Date of any Offering hereunder, as delayed to the maximum extent permissible, the Plan is not registered and in such compliance, no rights granted under the Plan or any Offering shall be exercised and all payroll deductions accumulated during the Offering (reduced to the extent, if any, such deductions have been used to acquire stock) shall be distributed to the participants, without interest. 6. 7 9. COVENANTS OF THE COMPANY. (a) During the terms of the rights granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such rights. (b) The Company shall seek to obtain from each federal, state, foreign or other regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the rights granted under the Plan. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such rights unless and until such authority is obtained. 10. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to rights granted under the Plan shall constitute general funds of the Company. 11. RIGHTS AS A SHAREHOLDER. A participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to rights granted under the Plan unless and until the participant's shareholdings acquired upon exercise of rights under the Plan are recorded in the books of the Company. 12. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any rights granted under the Plan (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan and outstanding rights will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding rights. Such adjustments shall be made by the Board or the Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company.") (b) In the event of: (1) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) the acquisition by any 7. 8 person, entity or group within the meaning of Section 13(d) or 14(d) of the Exchange Act or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any Affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors, then, as determined by the Board in its sole discretion (i) any surviving or acquiring corporation may assume outstanding rights or substitute similar rights for those under the Plan, (ii) such rights may continue in full force and effect, or (iii) participants' accumulated payroll deductions may be used to purchase Common Stock immediately prior to the transaction described above and the participants' rights under the ongoing Offering terminated. 13. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the shareholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (i) Increase the number of shares reserved for rights under the Plan; (ii) Modify the provisions as to eligibility for participation in the Plan (to the extent such modification requires shareholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3 promulgated under the Exchange Act as amended ("Rule 16b-3")); or (iii) Modify the Plan in any other way if such modification requires shareholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to employee stock purchase plans and/or to bring the Plan and/or rights granted under it into compliance therewith. (b) Rights and obligations under any rights granted before amendment of the Plan shall not be impaired by any amendment of the Plan, except with the consent of the person to whom such rights were granted, or except as necessary to comply with any laws or governmental regulations, or except as necessary to ensure that the Plan and/or rights granted under the Plan comply with the requirements of Section 423 of the Code. 8. 9 14. DESIGNATION OF BENEFICIARY. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of an Offering but prior to delivery to the participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death during an Offering. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its sole discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 15. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board in its discretion, may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate at the time that all of the shares subject to the Plan's share reserve, as increased and/or adjusted from time to time, have been issued under the terms of the Plan. No rights may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any rights granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except as expressly provided in the Plan or with the consent of the person to whom such rights were granted, or except as necessary to comply with any laws or governmental regulation, or except as necessary to ensure that the Plan and/or rights granted under the Plan comply with the requirements of Section 423 of the Code. 16. EFFECTIVE DATE OF PLAN. The Plan shall become effective on the same day that the Company's initial public offering of shares of common stock becomes effective (the "Effective Date"), but no rights granted under the Plan shall be exercised unless and until the Plan has been approved by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted by the Board or the Committee, which date may be prior to the Effective Date. 9. EX-10.6 7 AMENDED AND RESTATED EXECUTIVE COMPENSATION PLAN 1 EXHIBIT 10.6 AMENDED AND RESTATED EXECUTIVE COMPENSATION PLAN 1. Corporate Structure- This Plan covers the compensation details for corporate top managers - Vice Presidents and above, at Award Software International. Award Software currently is organized into three groups: Headquarters in Mountain View, Taiwan Office in Taipei and European Office in Munich. This organization supports the local business needs worldwide. The General Managers in Taiwan and Europe have P/L responsibilities for the regions under their management. The top managers in the headquarters have the responsibilities for US operating P/L, corporate marketing, R/D, and financial management. The overall corporate financial performance responsibility resides with the CEO, who is assisted by senior staff. 2. Performance Goals- The business plan for Award Software calls for continued profitability with a goal of operating income based on revenue. The revenue is planned to grow a specified amount over 1995. The longer term goal for Award Software is to dominate selected business areas. Certain nonquantitative performance goals are also contemplated for the Company, which do not directly affect current managers' compensation packages. 2 3. Compensation Components- The compensation philosophy is based on the theory that job reward comes from the feeling of accomplishment, ownership in the company and cash income. The compensation package for a senior manager typically consists of Base Salary, Performance Bonus and Stock Options. The sales bonuses (commissions) are set as a percentage of revenue. The performance bonuses are calculated by the following formula: Performance Bonus = [operating income as a percentage of target - 70%] x base salary. 4. Stock Option- Employee stock option packages should be revised and approved by the Compensation Committee from time to time. EX-10.17 8 TECHNOLOGY DEVELOPMENT AND SUPPORT AGREEMENT 1 EXHIBIT 10.17 CONFIDENTIAL TECHNOLOGY DEVELOPMENT AND SUPPORT AGREEMENT This Technology Development and Support Agreement (the "Agreement") is made and entered into this 28th day of June, 1996, (the "Effective Date") by and between Award Software International, Inc., a California corporation ("Award"), having its corporate offices at 777 East Middlefield Road, Mountain View, California, 94043, and Advanced Micro Devices, Inc., a Delaware corporation ("AMD"), having its corporate offices at One AMD Place, P.O. Box 3453, Sunnyvale, California 94088. 1. BACKGROUND 1.1 The following background paragraphs are intended to be a general introduction to this Agreement. They set forth the circumstances under which the parties entered into this Agreement and the intentions and objectives of the parties in doing so. To the extent that this Agreement does not address a particular circumstance or is otherwise unclear or ambiguous, this Agreement is to be construed so as to give the fullest possible effect to the intentions and objectives stated in this Section 1. 1.1.1 Award is in the business of developing, marketing, and licensing BIOSes, firmware and other system software for x86-based desktop, portables, and server computers. 1.1.2 AMD is in the business of designing, manufacturing, marketing, and selling integrated circuits, and is presently developing a series of advanced x86-compatible superscalar microprocessors, known as the "K86 superscalar microprocessors." AMD intends to design and develop a number of PC system platforms for its K86 superscalar microprocessors, including platforms used (i) for validation and debugging, (ii) for evaluation, and (iii) to serve as a baseline reference design or production-ready design for AMD's microprocessor customers. 1.1.3 Award and AMD desire to enter into this Agreement and one or more Work Statements under which Award would develop BIOSes, firmware, system software and other software products ("Developed Products") to support AMD's platforms designed for its K86 superscaler microprocessor. Award shall use [*] to develop the Developed Products based on AMD's specifications and performance and functionality requirements, and AMD shall provide development assistance and resources, as provided in the applicable Work Statement. 1.1.4 AMD and Award desire that Award shall make the Developed Products commercially available in Binary Code, and provide quality assurance, marketing resources, maintenance and customer support for the Developed Products as provided herein. 1.1.5 AMD and Award agree to explore additional opportunities for supplemental agreements regarding the purchase by AMD from Award of - ------------------ * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission (the "Commission"). Confidential treatment has been requested with respect to the omitted portions. 2 CONFIDENTIAL goods, licenses, and services, and joint product development and distribution in the embedded processor and flash device markets. 1.2 For and in consideration of the mutual covenants set forth herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 2. DEFINITIONS When used in this Agreement, the capitalized terms below shall have the following meanings: 2.1 "Affiliate" means, when used with respect to a specified entity, another entity that directly or indirectly Controls, or is under common Control with, or is Controlled by the entity specified; provided that such other entity shall be deemed to be an Affiliate only for so long as such Control exists. For purposes of this definition of Affiliate, "Control" means the ownership or control of [*] or more interest in the equity or voting power of an entity. 2.2 "Agreement" means this Technology Development and Support Agreement made and entered into on the Effective Date by and between Award and AMD, including the Initial Work Statement and all future Work Statements that may be entered into by the parties pursuant to Section 3.5 below. 2.3 "AMD" means Advanced Micro Devices, Inc. and its Affiliates. 2.4 "Award" means Award Software International, Inc. and its Affiliates. 2.5 "Code" means computer programming code. If not otherwise specified, Code includes both Object Code and Source Code. 2.5.1 "Object Code" means the machine-readable form of the Code. 2.5.2 "Source Code" means the human-readable form of the Code. 2.6 "Deliverables" means all Code, related documentation, other materials regardless of form or media, and services that Award does or is required to develop, deliver, or render to or for AMD pursuant to this Agreement. Deliverables include, without limitation, the intermediate and final releases of Developed Products, and all Updates thereto as provided in Section 7.4 below. 2.7 "Developed Products" means the production-ready version of BIOSes, firmware, system software and other software products developed by Award pursuant to a Work Statement, and all Updates thereto developed by Award. 2.8 "Initial Work Statement" means the Work Statement described in Section 3.4 below. 2.9 "Intellectual Property Rights" means the worldwide intangible legal rights or interests evidenced by or embodied in (i) any idea design, concept, method, process, technique, apparatus, invention, discovery, or improvement, including any patents, trade secrets, and know-how; (ii) any work of authorship, including any copyrights, industrial designs, or moral rights recognized by law; and (iii) any other - ------------------ * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 2 3 CONFIDENTIAL similar rights. Intellectual Property Rights of a party include all worldwide intangible legal rights or interests that a party may have lawfully acquired or licensed from any third party. 2.10 "Proprietary Information" means all trade secret or confidential information in any form or media disclosed by one party (the "Disclosing Party") to the other party (the "Receiving Party"); provided, however, that to be deemed Proprietary Information, the information, if in tangible form, must be prominently marked with the words "proprietary," "confidential," or words of similar import, or if disclosed orally, must be identified at the time it is disclosed as constituting trade secret or confidential information subject to the restrictions provided in this Agreement, provided that any confidential information relating to future products or product development plans disclosed by either party at any quarterly meeting held pursuant to Section 6.4 shall constitute "Proprietary Information" even if it has not been identified as such at the time it is disclosed. Notwithstanding the above, however, Proprietary Information shall not include: 2.10.1 any information which is generally known or available, or becomes known or available, without breach of this Agreement; 2.10.2 any information which has been publicly disclosed by the Disclosing Party; 2.10.3 any information previously known by the Receiving Party; 2.10.4 any information that is rightfully received from a third party without breach of an obligation of confidence; or 2.10.5 any information that is independently developed by Receiving Party without use of Proprietary Information of the Disclosing Party. 2.11 "Software Requirements" means the functional specifications and performance standards for a Deliverable as specified in the applicable Work Statement. 2.12 "Testing Criteria" means the testing criteria for a Deliverable as specified in the applicable Work Statement. 2.13 "Updates" means revisions of any Developed Product that corrects any error, problem, or defect that causes the Developed Product to fail to meet the applicable Software Requirements, renders the Developed Product completely or partially inoperable, causes incorrect results, or causes incorrect functions to occur during the operation of the Developed Party. 2.14 "Work Statements" means the Initial Work Statement and all future work statements issued in accordance with Section 3 below. 3. WORK STATEMENTS 3.1 Generally. All work to be performed under this Agreement shall be in accordance with the terms set forth in this Agreement and in the applicable Work Statement. A Work Statement shall be a writing signed by an authorized representative of each party and shall reference this Agreement. A Work Statement must also meet 3 4 CONFIDENTIAL the requirements of Section 3.2 below. Upon execution, all Work Statements shall be attached hereto and incorporated herein by reference. 3.2 Mandatory Provisions. A Work Statement must include the following provisions and items: 3.2.1 A description and timeline of the phases of work to be performed, and milestones for Award's performance, delivery and testing of the Deliverables ("Delivery Schedule"); 3.2.2 A list of the Deliverables to be delivered to AMD under the Work Statement; 3.2.3 The amount of payment, and milestone dates for payment by AMD, if any, for the Deliverables ("Payment Schedule"); 3.2.4 The description and amount of engineer training and consultation to be provided to AMD by Award; 3.2.5 The Software Requirements for each of the Deliverables; 3.2.6 The Testing Criteria for each of the Deliverables; 3.2.7 A list of resources made available by AMD for Award's use in the performance of its obligations under this Agreement, if any; 3.2.8 The name, address, phone number, and facsimile number of the Project Coordinators for each party, as described in Section 4.2 below, and, if different from the Project Coordinators, the Technical Coordinators for each party, as described in Section 4.3 below; and 3.2.9 The provisions for written and/or oral progress reports by Award if different than as set forth in Section 6 below. 3.3 Optional Provisions. In addition to the mandatory provisions provided in Section 3.2, a Work Statement may include one or more of the following items: 3.3.1 Whether training classes shall be provided to AMD, and a description of the subject matter to be covered, the location where the classes will be conducted, fees, if any, payable by AMD for such training, and the maximum number of AMD employees who may attend; 3.3.2 For each Developed Product, the number of copies AMD is licensed to distribute for use with the applicable platform; and 3.3.3 The minimal level of staffing required of Award for the development of the Deliverables. 3.4 Initial Work Statement. The Initial Work Statement is attached to this Agreement as Exhibit A. 3.5 Future Work Statements. Upon AMD's reasonable request, AMD and Award will meet from time-to-time to discuss their respective product plans and technologies, pursuant to which AMD may provide Award with proposed Software 4 5 CONFIDENTIAL Requirements for one or more Deliverables that AMD is interested in Award developing, and request Award to provide a response to such proposal. Within thirty (30) days of AMD's request, Award agrees to provide AMD with a written response. If, in AMD's sole discretion, the response is acceptable, then the parties shall prepare and execute a Work Statement that shall incorporate the proposed Software Requirements and relevant terms of Award's response, which together shall constitute the applicable Software Requirements. Award may only commence work upon such Deliverables after execution by both parties of the Work Statement. 3.6 Number of Work Statements. During each year of the term of this Agreement, Award shall agree to use [*] to develop and support Developed Products as provided hereunder for at least the [*] AMD K86 platforms for which AMD provides proposed Software Requirements during such year, and accepts Award's written response as provided in Section 3.5 above. Award agrees to negotiate in good faith a Work Statement for each such Developed Product. The maximum amount of non-recurring engineering charges ("NRE") payable by AMD for each of such Developed Products shall be [*]; provided, however, that if Award demonstrates that the development of such Developed Product would require Award's expenditure of materially more time and effort than that required by any preceding Developed Product developed hereunder for an NRE of [*], the parties shall in good faith negotiate an increased NRE payable for such Developed Product that is commensurate with such increased time and/or effort. The number of Developed Products requested by AMD hereunder, the providing of proposed Software Requirements, and the acceptance of Award's response shall be at AMD's sole discretion. 3.7 Changes to Agreement, Work Statement. Either party may propose changes to this Agreement or any Work Statement to the other party, provided that such change proposals shall be submitted in writing. No changes to the Agreement or any Work Statement shall become effective until a written amendment specifying the change or changes is executed by authorized representatives of both parties. 3.8 Changes to Software Requirements. AMD may request changes to the Software Requirements at any time during the term of the applicable Work Statement. Such requests shall be submitted by AMD in writing. If such modifications do not, in Award's reasonable judgment, require Award's expenditure of materially more time and effort, Award will develop the corresponding Deliverable to conform to such modifications at no additional charge and with no change to the Delivery Schedule. If any such modification does require, in Award's reasonable judgment, Award's expenditure of materially more time or effort, the parties will discuss in good faith how the additional cost, if any, will be allocated between them, and Award will advise AMD of the impact on the Delivery Schedule. Upon receipt of AMD's written approval, Award will proceed with implementation of the prescribed changes, and the parties shall update the Software Requirements and Delivery Schedule to reflect such changes. - ------------------ * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 5 6 CONFIDENTIAL 4. CONTRACT ADMINISTRATION AND STAFFING 4.1 Contract Coordinators. The Contract Coordinators for the parties shall be as follows: For Award: Dave Wippich Ph: (415) 968-4433, Ext. 462 Fax: (415) 968-9158 For AMD: Ned Finkle Ph: (408) 749-2452 Fax: (408) 774-7007 The Contract Coordinator shall oversee the performance of the parties' obligations under this Agreement, and resolve any issues relating to Deliverables applicable to that Work Statement that the Project Coordinator or Technical Coordinators for that Work Statement are unable to resolve. The Contract Coordinator shall also be responsible for receiving all notices under this Agreement and for all administrative matters such as invoices, payments, and changes. Either party may change its Contract Coordinator upon written notice to the other party. 4.2 Project Coordinator. Each Work Statement shall designate a Project Coordinator for the parties for the Deliverables applicable to that Work Statement. The Project Coordinator shall also be responsible for overseeing the performance of the parties' obligations under the applicable Work Statement, and resolving any issues relating to Deliverables applicable to that Work Statement that the Technical Coordinators for that Work Statement are unable to resolve. The Project Coordinator shall be responsible for arranging all meetings, visits, and consultations between the parties relating to the applicable Work Statement. 4.3 Technical Coordinators. The Project Coordinators shall also serve as the Technical Coordinators for the parties; provided, however, that each Work Statement may otherwise designate one or more different Technical Coordinators for the Deliverables applicable to that Work Statement. The Technical Coordinator(s) of each party shall be responsible for technical and performance matters and delivery and receipt of the Deliverables and technical information between the parties, in so far as the Deliverables and technical information relate to such Work Statement. 4.4 Staffing Requirements. Award agrees to provide qualified and sufficient staffing necessary to meet its obligations under this Agreement, including each Work Statement. Each Work Statement may designate a specific minimum level of staffing required for such Work Statement. 4.5 Employee Issues. Award's employees shall be and remain the employees of Award and shall not be considered as joint employees with AMD for any purpose. Award shall be responsible for the supervision of its employees. Award shall be responsible for the payment of all compensation and benefits attributable to its 6 7 CONFIDENTIAL employees and for the maintenance of appropriate workers' compensation and other employment related insurance. With each of its employees and contractors who participate in any of Award's work under this Agreement, including any Work Statements, Award shall obtain and maintain in effect written agreements imposing an obligation of confidence on the employee or contractor with respect to any third party's proprietary information, and assigning all Intellectual Property Rights conceived, developed or created by the employee or contractor to Award. At AMD's request, Award shall supply copies of such agreements to AMD. 5. NOTICE OF DELAY OR INABILITY TO PERFORM 5.1 Generally. Award agrees to notify AMD orally within twenty-four (24) hours of its discovery of any factor, occurrence, or event coming to its attention that may affect Award's ability to meet the requirements of any Work Statement. The oral notice shall be confirmed in writing within one week following the oral report. The written confirmation shall also state the reason for the delay and the impact of the delay upon the Deliverables and the Delivery Schedule. 5.2 Time is of the Essence. The parties agree that the dates corresponding to each milestone in each Work Statement are firm, and that time is of the essence in this Agreement, including all of the Work Statements. By executing a Work Statement, Award agrees that the deadlines and milestones specified therein are reasonable. Except as otherwise stated in Section 16.3 ("Relief from Obligations"), a delay of more than thirty (30) days in the delivery of a Deliverable for such Work Statement shall be considered a material breach by Award of such Work Statement and this Agreement, unless (i) such delay was caused by a delay or non-delivery by AMD, or any third party that AMD requires Award to use, of a resource specified in the applicable Work Statement (ii) such delay is due to incorrect operation of a resource supplied by AMD, or (iii) AMD has agreed to a delay on a project as provided in Section 7.3 below. By accepting late or otherwise inadequate performance of any of Award's obligations, AMD shall not waive its rights thereafter to require timely performance or performance that strictly complies with this Agreement. 6. REPORTS AND MEETINGS 6.1 Frequency and Content of Reports. For each Work Statement, Award agrees to provide AMD's applicable Project Coordinator a biweekly written report of the progress of the work required under the Work Statement, any anticipated problems (resolved or unresolved), software and hardware bugs, and bug resolution and tracking, and any indication of delay in Award's performance or delivery of the applicable Deliverables. A Work Statement may, however, provide for a different content or frequency for such reports and information than as specified above. 6.2 Project Meetings. For each Work Statement, the parties shall conduct [*] conference calls at a time to be mutually agreed upon, during which Award shall - ------------------ * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 7 8 CONFIDENTIAL describe the status of the work required under the Work Statement, and shall provide projections of the time of completion of the Work Statement, the status of the applicable Deliverables, and address any problems that have come to Award's attention. Award shall also provide its view as to how any problems may be resolved. During such meetings, AMD agrees to provide Award with information relating to the status and results of AMD's testing of Award's Deliverables. 6.3 Modifications. Modifications discussed or proposed in reports by either party, or meetings or conferences between the parties, shall not modify this Agreement, any Work Statement, or any of Award's obligations thereunder unless such modification is agreed to in writing by both parties. 6.4 [*] Meetings. During the term of this Agreement, AMD and Award agree to meet [*] at a time and location to be mutually agreed upon, during which AMD shall discuss with Award its product and marketing roadmaps, as well as BIOS and firmware requirements, for AMD's K86 microprocessors, chip sets, and platforms designed for K86 microprocessors. In addition, each party shall discuss their perspectives regarding industry standards, marketing trends for such standards, and industry initiatives affecting PC architecture, BIOS and firmware. 7. DELIVERABLES 7.1 Deliverables. For each Work Statement, Award shall use [*] to deliver all Deliverables specified in such Work Statement upon completion, but in no event later than the Delivery Schedule, to AMD's applicable Technical Coordinator. Award shall memorialize such delivery in a written confirmation, which sets forth the nature and condition of the Deliverables, the medium of delivery, and the date of delivery. 7.2 Test and Debug by Award. Prior to delivery, Award shall perform such tests of the Deliverables as are specified in the applicable Testing Criteria to determine if the Deliverables substantially conform to and meet in every material respect the applicable Software Requirements. All such testing shall be performed and completed by Award by the dates corresponding to each applicable "test" milestone in the applicable Work Statement. For each Deliverable, Award shall advise AMD in writing upon completing the testing, but in no event later than the date corresponding to the applicable "test" milestone, whether the Deliverable, as tested, substantially meets the applicable Software Requirements in every material respect. In the event the Deliverable fails to meet any material aspect of the applicable Software Requirements, Award shall advise AMD in writing of the non-compliance(s) and the suspected reasons for the non-compliance(s). 7.3 Acceptance and Rejection. Upon receipt of written notification from Award relating to the test results for each Deliverable, AMD shall have [*] days to notify Award in writing whether AMD accepts or rejects the applicable Deliverable. The parties agree that AMD may, in its reasonable judgment, determine if each of the Deliverables conforms to and meets in every material respect the applicable Software Requirements. AMD shall be deemed to have - --------------- * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 8 9 CONFIDENTIAL accepted the Deliverables if it does not notify Award of its decision to accept or reject any or all of the Deliverables within such [*] day period. Any rejection of a Deliverable by AMD must be based on a failure of the Deliverable to operate correctly, or meet a requirement set forth in the applicable Software Requirement. If AMD provides written notice, within the specified time-frame, of its decision to reject any or all of the Deliverables and the basis for such rejection, then AMD may: 7.3.1 allow Award an additional amount of time in which to make such corrections as AMD may deem appropriate, which additional amount of time shall be at least [*] days from the receipt of notice of AMD's rejection notice for the first submission of the Deliverable; whereupon (i) the delivery date(s) shall be adjusted accordingly, (ii) Award shall, within the additional time given, make such corrections, at its own expense, as are necessary to ensure the Deliverables meet in every material respect the applicable Software Requirements and re-deliver the Deliverables, and (iii) the testing provisions of Paragraph 7.2 above the acceptance provisions of this Section 7.3 shall apply again to the previously rejected Deliverables; 7.3.2 provisionally accept the applicable Deliverables, whereupon the applicable "payment" amount(s) associated with such Deliverables shall be reduced by the Contract Coordinators to reflect the failure of such Deliverables to meet in every material respect the applicable Software Requirements, provided that such reduction shall not exceed [*] of the applicable payment amount associated with such Deliverables; or 7.3.3 immediately terminate the applicable Work Statement, or this Agreement and all Work Statements, provided that such remedy shall not be available for the first rejection of the Deliverable. Such termination shall be pursuant to Section 15.3 and AMD shall be entitled to the remedies set forth in Section 15.3.3. [*] 7.4 Updates. For a period of [*] following AMD's acceptance of a Developed Product, Award will promptly notify AMD of (i) any information Award becomes aware of regarding hardware and software bugs in the Developed Product or the applicable AMD platform, and (ii) Updates provided to any Award customer. Award shall provide such Updates to AMD within [*] after such Updates were provided to any Award customer. 7.5 Final Delivery. Upon [*] following AMD's acceptance of a Developed Product, Award will deliver to AMD one copy of the then current final Object Code and Source Code of that Developed Product, as well as the applicable build - --------------- * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 9 10 CONFIDENTIAL tools and environment, and relevant documentation, any and all of which shall be considered a Deliverable under this Agreement. 8. LICENSING AND SUPPORT OF DEVELOPED PRODUCTS 8.1 Licensing. For a period of at least [*] following acceptance by AMD of a Developed Product as provided in Section 7 above, Award agrees to make that Developed Product and licenses for the use thereof commercially available. [*]. 8.2 Ongoing Support. For a period of at least [*] following AMD's acceptance of a Developed Product as provided in Section 7 above, Award agrees to provide, [*]. 9. COMPENSATION 9.1 Payment for Deliverables. In consideration of the development work to be performed by Award, AMD shall pay to Award an NRE as provided, if such a charge is provided, in the applicable Work Statement. Payments shall be made in accordance with the Payment Schedule set forth in the applicable Work Statement. 9.2 Minimum [*] Purchases. [*] following the Effective Date of this Agreement, AMD agrees to purchase from Award, and Award agrees to provide, as AMD requests, goods, licenses, or services, or any combination thereof, for a total amount of [*], respectively; or, in the event that AMD does not make such minimum purchase in any such period, then within [*], AMD shall pay to Award the applicable minimum purchase amount less the total amount of purchases made by AMD in that period. Such payments by AMD applicable to [*] - ------------------ * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 10 11 CONFIDENTIAL [*] Any and all purchases referenced in this Section may be pursuant to Work Statements issued under this Agreement, or may be pursuant to supplemental agreements, if any, between Award and AMD, the terms and conditions of which the parties agree to negotiate in good faith. 9.3 Primary Supplier. During the term of this Agreement, AMD agrees to use Award as its primary supplier of BIOS development products and services for the K86 baseline reference platform designs and production-ready platform designs, for desktop and server applications, that AMD develops for its K86 microprocessor customers, except in such instances where a customer specifically requests another BIOS supplier. For the purposes of this Agreement, using Award as AMD's primary supplier shall mean the following: In the event that AMD submits a request for proposal for the purchase or development of any BIOS development product or service not already provided by Award, it shall so notify Award in writing and shall give Award at least [*] to respond with a proposal for such products or services. If AMD, in its reasonable judgment, determines that the terms offered by Award for the products or performance of such services are comparable or more favorable than the terms offered by other providers, AMD shall purchase such products or services from Award. If AMD determines that the terms offered by any other provider are more favorable than those of Award, AMD shall offer Award the opportunity to match such terms. If Award responds within [*] with a proposal that AMD, in its reasonable judgment, determines matches such terms, then AMD shall purchase such products or services from Award; otherwise, AMD shall be free to purchase such products or services from such other provider. In addition, where deemed appropriate by AMD, AMD agrees to recommend Award as a provider of BIOS-related products and services for the K86 platforms to its customers. This Section 9.3 shall not apply to production platforms sold by or for AMD, or in any instance where the performance under this Section would constitute a breach by AMD of a pre-existing agreement with any third party. 9.4 Expenses. Award shall bear all of its own expenses arising from its performance of its obligations under this Agreement, including without limitation, expenses for facilities, work spaces, utilities, management, employees, supplies, and the like. AMD agrees to reimburse Award for travel to and from AMD's facilities, lodging and meal expenses reasonably incurred by Award in the performance of services hereunder, provided however, that Award must obtain prior written approval from AMD for such expenditures. 9.5 Invoicing and Payment. Award shall submit invoices to AMD for payment for Deliverables or milestones at such time or times as payment becomes due under this Agreement. Invoices shall be net [*] and shall be addressed to AMD's Contract Coordinator; provided, however, that AMD shall not be - ------------ * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 11 12 CONFIDENTIAL obligated to pay any amount for any Deliverable until such Deliverable has been accepted by AMD pursuant to Section 7.3 above. 10. OWNERSHIP OF DELIVERABLES AND RIGHTS OF PARTIES 10.1 Ownership by Award. Subject to the licenses granted in Sections 10.2 and 10.3, Award shall retain all right, title, and interest in and to all Deliverables and all Developed Products, and all Intellectual Property Rights therein, provided, however, that AMD shall retain all right, title, and interest in and to any and all information that it provides to Award, and Intellectual Property Rights therein. 10.2 License for Deliverables. Award hereby grants to AMD a [*] license to use, execute, reproduce, modify, and create derivative works of the Deliverables, in Source Code and Object Code, [*]. The license granted in this Subsection 10.2 shall [*]. 10.3 License for Developed Product. For each Developed Product, Award hereby grants to AMD a [*] license to make [*] of the Developed Product, in Object Code only, for use with the corresponding platform, and to distribute such copies in connection with the corresponding platform, provided, however, that the corresponding Work Statement may provide for a lesser or greater number of copies AMD is licensed to make and distribute. In making copies of such licensed Developed Products as permitted under this Agreement, AMD shall reproduce and include on such copies (including any media embodying such copies) all proprietary legends that appear on the original copies that Award shall provide to AMD. The license granted in this Subsection 10.3 shall [*]. 10.4 License Assurance in the Event of Bankruptcy. In the event Award shall suffer an insolvency, and either Award, as a debtor-in-possession, or the trustee in a case under the Bankruptcy Code, shall reject this Agreement including any Work Statements as permitted in the Bankruptcy Code, then AMD may elect to retain its rights (including all licenses) under this Agreement to the maximum extent provided in Section 365(n) of the Bankruptcy Code. 10.5 Limitation. Except as expressly set forth in this Section 10, no rights or licenses are granted, whether expressly, by implication, or by estoppel, under any Intellectual Property Rights owned or controlled by either party. Furthermore, without limiting the foregoing, and notwithstanding Section 10.1, Award acknowledges that it receives no right or license, expressly, implied or by estoppel to any AMD Intellectual Property Rights, process technology, microprocessor technology, system logic, or platform design. 10.6 Third Party Intellectual Property Rights. Unless AMD gives its prior written consent, Award shall not incorporate any third party Intellectual Property Rights into the Deliverables and shall not use any third party Intellectual Property Rights - --------------- * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 12 13 CONFIDENTIAL with the Deliverables in a manner which would restrict the use of the Deliverables by AMD or AMD customers as contemplated under this Agreement, or would require AMD or AMD customers to pay a royalty for such use. 10.7 Affiliates. The licenses in Sections 10.2 and 10.3 shall apply only to such Affiliates which agree with Advanced Micro Devices, Inc. ("AMD Inc.") in writing to be bound by the terms and conditions relevant to such licenses imposed on AMD, Inc. hereunder, and any breach of any rights granted under this Agreement by any such Affiliate shall be deemed a breach by AMD, Inc. 11. REPRESENTATIONS AND WARRANTIES 11.1 Award's Representations and Warranties. Award represents and warrants to AMD that (i) Award has good title to the Deliverables; (ii) the services provided by Award hereunder, and the Deliverables and their use by AMD as is permitted under this Agreement, will not infringe, directly or indirectly, any copyrights or trade secrets of any third party, (iii) Award shall be the sole author or a licensee of all works developed hereunder, and (iv) Award has and will have full and sufficient right to assign or grant the rights or licenses granted in the Deliverables pursuant to this Agreement. 11.2 Authority and General Warranties. Each party represents to the other that it is duly existing; that it has full power and authority to enter into this Agreement; that this Agreement does not and will not interfere with any other agreement to which it is a party; that it will not enter into any agreement the execution or performance of which would violate or interfere with this Agreement; and that it is not presently subject to a voluntary or involuntary petition for bankruptcy and does not contemplate filing any such petition. 11.3 NO OTHER WARRANTIES. EXCEPT FOR THE WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT, NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, ARE MADE WITH RESPECT TO THE DELIVERABLES OR DEVELOPED PRODUCTS, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 11.4 No Obligation Regarding Microprocessors, Platforms. Nothing in this Agreement or any Work Statement shall be deemed to obligate AMD to develop, manufacture, or sell any K86 microprocessor or platform, not to do so according to any particular schedule. 11.5 Market Size. Both parties acknowledge that each is relying solely on its own estimate of the market for its respective products, including but not limited to Developed Products, and that no representations or warranties, expressed or implied, have been made by either party regarding the size of such market or the amount of profit or revenue that either party might expect to receive for such products. 13 14 CONFIDENTIAL 12. [*] 12.1 [*] - --------------- * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 14 15 CONFIDENTIAL 13. LIMITATION OF LIABILITY 13.1 Limitation of Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, INCLUDING ANY WORK STATEMENTS, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL, OR EXEMPLARY DAMAGES OF ANY KIND ARISING FROM USE OF THE DELIVERABLES, DEVELOPED PRODUCT, OR FROM THE WORK PERFORMED OR INFORMATION DISCLOSED TO THE OTHER PARTY UNDER THIS AGREEMENT, OR ANY WORK STATEMENT. 13.2 Cumulative Liability. IN NO EVENT SHALL AWARD'S AGGREGATE CUMULATIVE LIABILITY UNDER THIS AGREEMENT EXCEED THE TOTAL AMOUNT PAID BY AMD TO AWARD UNDER THIS AGREEMENT, [*]. THIS LIMITATION OF LIABILITY SHALL APPLY TO ANY CLAIM OR CAUSE OF ACTION, WHETHER IN CONTRACT OR TORT, OR UNDER ANY THEORY. THE FOREGOING LIMITATION OF LIABILITY IS INDEPENDENT OF ANY EXCLUSIVE REMEDIES SET FORTH IN THIS AGREEMENT. THE PARTIES ACKNOWLEDGE AND AGREE THAT THIS LIMITATION OF LIABILITY IS A FUNDAMENTAL ASPECT OF THE AGREEMENT AND THAT IN ITS ABSENCE, THE ECONOMIC TERMS SET FORTH IN THE AGREEMENT WOULD BE SUBSTANTIALLY DIFFERENT. 14. CONFIDENTIALITY 14.1 Obligation of Confidence. Each party agrees to (i) maintain the confidentiality of the other party's Proprietary Information so as to prevent its unauthorized use, dissemination and disclosure, and (ii) not disclose the specific terms of this Agreement or any of the negotiations between the parties related to this Agreement, without the express written consent of the other party. Notwithstanding the foregoing, either party may (i) disclose the other party's Proprietary Information or the specific terms of this Agreement, to the extent required by a court or other governmental agency having authority to require such disclosure (provided, however, that each party will limit such disclosure to only that which is reasonably necessary to comply with the orders of any such court or governmental authority); and (ii) make such disclosure to the extent required by any law, statute, rule, regulation, or order of any court, governmental agency or self regulating organization, including without limitation, applicable securities laws or the rules and regulations of the Securities and Exchange Commission (the "SEC"). Each party agrees to immediately notify the other party of any breach of the provisions of confidentiality under this Section 14 of which it becomes aware and to cooperate with the nonbreaching party in curing or minimizing the effects of such breach. - --------------- * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 15 16 CONFIDENTIAL 14.2 Method of Protection. To protect the other party's Proprietary Information against unauthorized use, dissemination, and disclosure, each party agrees to use protective measures no less stringent than those used by that party within its own business to protect its own Proprietary Information, which protective measures shall under all circumstances be at least reasonable measures designed to ensure the continued confidentiality of the Proprietary Information of the other party. 14.3 Duration. The parties will maintain the confidentiality of Proprietary Information during the term of this Agreement and for [*] thereafter. 14.4 Non-solicitation. During the term of this Agreement and for [*] following the termination or expiration thereof, AMD agrees that AMD's employees who are engaged in any way in the development under this Agreement or who, in connection with this Agreement, have contact with Award's employees engaged in the development under this Agreement, shall not, directly or indirectly, solicit or seek to employ, or cause another, such as AMD's employment department or a recruiter, to solicit or seek to employ, any employee of Award who has provided services to AMD in connection with such development efforts pursuant to this Agreement. During the term of this Agreement and for [*] following the termination or expiration thereof, Award agrees not to solicit or seek to employ any employee of AMD associated with the development under this Agreement. 15. TERM; TERMINATION 15.1 Term. This Agreement will commence as of the Effective Date and will continue for [*], unless otherwise terminated as provided herein; provided, however, that all Work Statements issued before, and outstanding at the time of, such termination or expiration shall remain in effect with respect to such Work Statement, until such Work Statements are themselves terminated and/or performance thereunder is completed. Termination of a Work Statement shall not automatically result in the termination of any other Work Statement or this Agreement. 15.2 [*] - --------------- * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 16 17 CONFIDENTIAL [*] 15.3 Termination for Cause. 15.3.1 Right to Terminate. Either party has the right to terminate any Work Statement, or this Agreement and all Work Statements, at any time if: (a) the other party is in material breach of any warranty, term, condition or covenant of this Agreement or any Work Statement and fails to cure that breach within [*], or the breaching party fails to provide the non-breaching party assurance that the breach will be cured within a longer period of time which is acceptable to the non-breaching party after receiving notice of that breach and the non-breaching party's intention to terminate; or (b) the other party (i) becomes insolvent; (ii) fails to pay its debts or perform its obligations in the ordinary course of business as they mature; (iii) admits in writing its insolvency or inability to pay its debts or perform its obligations as they mature; or (iv) becomes the subject of any voluntary or involuntary proceeding in bankruptcy, liquidation, dissolution, receivership, attachment or composition or general assignment for the benefit of creditors; provided that if such condition is assumed involuntarily it has not been dismissed with prejudice within [*] after it begins. 15.3.2. Effective Date of Termination. Termination will become effective under Section 15.3.1(a) automatically upon expiration of the cure period in the absence of a cure, and under Section 15.3.1(b) immediately upon the non-terminating party's receipt of a notice of termination at any time after the specified event or the failure of the specified proceeding to be timely dismissed. 15.3.3 Effect of Termination for Cause. (a) If AMD terminates this Agreement and/or any Work Statement for cause, [*] - --------------- * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 17 18 CONFIDENTIAL [*] (b) If Award terminates this Agreement and/or any Work Statement for cause, [*]. Furthermore, in the case of termination by Award for non-payment by AMD, Award will be entitled to retain the hardware and software delivered by AMD hereunder against payment owing by AMD, but shall be required to return to AMD such hardware and software and all accompanying documentation delivered to Award therewith upon payment by AMD to Award of all payments due. 15.4 Survival. The provisions of Sections 10, 11, 12, 13, 14 and 15 shall survive any termination or the natural expiration of this Agreement, and Sections 7.4, 7.5, and 8 shall also survive the natural expiration of this Agreement. 16. MISCELLANEOUS 16.1 Right to Develop Independently. Each party agrees that the other may acquire, license, independently develop, manufacture or distribute, or have others independently develop, manufacture or distribute for them, similar technology performing the same or similar functions as the technologies contemplated by this Agreement, or to market and distribute such similar technologies; provided that any such technology is developed without direct reference to the other party's Proprietary Information, specifications, Code, or other documentation disclosed to the other under this Agreement. 16.2 Advertising. Without the prior written consent of AMD, Award may not use any trademarks, service marks, trade names, logos or other commercial or product designations of AMD, including, but not limited to, use in connection with any promotions, advertisements or exhibitions. Notwithstanding the foregoing, AMD agrees to the use of its name in any registration statement, prospectus or other filing with the SEC. 16.3 Relief from Obligations. Neither party will be deemed in default of this Agreement to the extent that performance of its obligations or attempts to cure any breach are delayed or prevented by reason of any act of God, fire, natural disaster, accident, act of government, shortages of material or supplies or any other cause beyond the control of such party ("Force Majeure") provided that such party gives the other - ------------ * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 18 19 CONFIDENTIAL party written notice thereof promptly and, in any event, within thirty (30) days of discovery thereof and uses good faith efforts to so perform or cure. In the event of such a Force Majeure, the time for performance or cure will be extended for a period equal to the duration of the Force Majeure but not in excess of six (6) months. 16.4 Relationship of Parties. Award is an independent contractor and neither Award nor Award's employees, consultants, contractors or agents are agents, employees or joint ventures of AMD, nor do they have any authority whatsoever to bind AMD by contract or otherwise. They will not represent to the contrary, either expressly, implicitly, by appearance or otherwise. Award will determine, in Award's sole discretion, the manner and means by which the services are accomplished, subject to the express condition that Award will at all times comply with applicable law. 16.5 Assignment. The rights and liabilities of the parties under this Agreement will bind and inure to the benefit of the parties' respective successors, executors and administrators, as the case may be; provided that, neither party may assign this Agreement or its obligations hereunder in whole or in part without the prior written approval of the other party except in the case of a sale of all or substantially all of the assets of such party or a merger in which such party is not a surviving entity. Notwithstanding the above, [*]. Any attempted assignment or delegation without such consent will be void. 16.6 Governing Law. This Agreement is deemed entered into in California and shall in all respects be governed by and construed under the laws of the State of California as such laws are applied to agreements between California residents entered into and performed entirely within California. 16.7 Severability. If any provision of this Agreement, or the application thereof, shall for any reason and to any extent be determined by a court of competent jurisdiction to be invalid or unenforceable under applicable law, the remaining provisions of this Agreement shall be interpreted so as best to reasonable effect the intent of the parties. The parties further agree to replace any such invalid or unenforceable provisions with valid and enforceable provisions designed to achieve, to the extent possible, the business purposes and intent of such invalid and unenforceable provisions. 16.8 Entire Agreement. Each Work Statement, together with this Agreement and the terms and conditions of AMD's purchase order attached to such Work Statement, constitutes the entire understanding and agreement of the parties with respect to the work performed under, and all Deliverables and Developed Products applicable to, that Work Statement, and supersedes all prior and contemporaneous - ------------ * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 19 20 CONFIDENTIAL understanding and agreements, whether written or oral, with respect to such subject matter. The terms and conditions of AMD's purchase order attached to a Work Statement are hereby incorporated by reference. Where there is any conflict or inconsistency with the express terms of the Agreement, the Work Statement shall supersede any conflicting terms and conditions of this Technology Development and Support Agreement, and the terms of this Technology Development and Support Agreement shall supersede any conflicting terms and conditions of the AMD purchase order. 16.9 Amendments, Modifications and Waivers. No delay or failure by either party to exercise or enforce at any time any right or provision of this Agreement will be considered a waiver thereof or of such party's right thereafter to exercise or enforce each and every right and provision of this Agreement. Without limiting the foregoing sentence, neither notification by Award (including but not limited to notifications as provided in Sections 5.1, 6.1, and 7.2), nor delay or inaction by AMD, with respect to Award's inability to meet the requirements of a Work Statement shall constitute a waiver or impairment of any rights or remedies of AMD. No single waiver will constitute a continuing or subsequent waiver. No waiver, modification or amendment of any provision of this Agreement will be effective unless it is in writing and signed by the parties, but it need not be supported by consideration. 16.10 Attorneys' Fees. If any dispute between the parties arising out of the performance, non-performance or alleged breach of this Agreement is litigated in a court of competent jurisdiction, the prevailing party shall be entitled to recover its reasonable attorneys' fees in addition to any other relief to which it may be entitled. 16.11 Equitable Relief. Because the services contracted for hereunder are personal and unique, and because both Award and AMD will have access to and become acquainted with confidential and proprietary information of each other, the unauthorized use or disclosure of which would cause irreparable harm and significant injury which would be difficult to ascertain and which would not be compensable by damages alone, each party agrees that the other party will have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief without prejudice to any other rights and remedies that either party may have for breach of this Agreement. 16.12 Headings and References. The headings and captions used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. All references in this Agreement to sections, paragraphs, exhibits and schedules shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits and schedules attached hereto, all of which are incorporated herein by this reference. 16.13 Construction. This Agreement has been negotiated by the parties and their respective counsel. This Agreement will be fairly interpreted in accordance with 20 21 CONFIDENTIAL its terms and without any strict construction in favor of or against either party. Any ambiguity will not be interpreted against the drafting party. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. ADVANCED MICRO DEVICES, INC. AWARD SOFTWARE INT'L, INC. By: /s/ S. Atia Raza By: /s/ George C. Huang ----------------------------- ----------------------------- Printed Printed Name: S. Atia Raza Name: George C. Huang --------------------------- --------------------------- Title: Chief Technical Officer Title: Chairman CEO -------------------------- -------------------------- Date: 6-28-96 Date: June 28, 1996 --------------------------- --------------------------- 21 22 CONFIDENTIAL EXHIBIT A INITIAL WORK STATEMENT This Work Statement is entered into this 28th day of June, 1996 (the "Effective Date"), by and between Award Software International, Inc., a California corporation ("Award"), having its corporate offices at 777 East Midddlefield Road, Mountain View, California, 94043, and Advanced Micro Devices, Inc., a Delaware corporation ("AMD"), having its corporate offices at One AMD Place, P.O. Box 3453, Sunnyvale, California, 94088. For and in consideration of the mutual covenants set forth herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 1. This Work Statement is governed by the terms and conditions of the Technology Development and Support Agreement, dated the 28th day of June, 1996 between Award and AMD. 2. Statement of Work (a) Description of work to be performed. Award shall perform the services as described in the attached Proposed Software Requirements Document ("SRD"), which is hereby incorporated by reference. (b) Delivery Schedule. The Delivery Schedule is as provided in the section of the SRD titled Deliverables: Delivery Schedule. (c) Deliverables. The Deliverables Award is to provide AMD under this Work Statement are listed in the section of the SRD titled Deliverables; Delivery Schedule. (d) Payment and Payment Schedule. As provided in the sections of the SRD titled Compensation, and NRE Payment Schedule. (e) Description and amount of engineer training and consultation to be provided. As provided in the section of the SRD titled Additional Support Requirements. (f) Software Requirements. As provided in the sections of the SRD titled [*] H/W Components and Requirements for Award Firmware Deliverables, and Deliverables; Delivery Schedule. (g) Testing Criteria. As provided in the section of the SRD titled Testing Criteria For Deliverables. (h) AMD Resources. As provided in the section of the SRD titled AMD Platform Resources. (i) Project Coordinators. As provided in the section of the SRD titled Project Coordination. 3. Additional Services. Award shall also provide the additional services as outlined in the section of the SRD titled Additional Support Requirements. __________________ * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 22 23 CONFIDENTIAL IN WITNESS WHEREOF, the parties hereto have executed this Work Statement as of the Effective Date. ADVANCED MICRO DEVICES, INC. AWARD SOFTWARE INT'L, INC. By: /s/ S. ATIRO RAZA By: /s/ GEORGE C. HUANG ------------------------------ ------------------------------ Printed Printed Name: S. Atiro Raza Name: George C. Huang ---------------------------- ---------------------------- Title: Chief Technical Officer Title: Chairman CEO --------------------------- --------------------------- Date: 6-28-96 Date: June 28, 1996 ---------------------------- ---------------------------- 24 [AMD LOGO] PROPOSED SOFTWARE REQUIREMENTS AWARD FIRMWARE DEVELOPMENT FOR [*] PROJECT REVISION 1.28 06/26/96 - --------------- * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. Advanced Micro Devices CONFIDENTIAL 1 25 INTRODUCTION This document includes details regarding the [*] platform and deliverables needed from Award to successfully meet the platform goals. This document and Award's response, if acceptable to AMD, will be incorporated into a Work Statement covering the [*] Platform, in accordance with the Technology Development and Support Agreement between Award and AMD. This proposal identifies Award as the primary BIOS developer, AMD as the primary hardware developer with resource at AMD to provide interface, documentation, acceptance qualification, and bug reporting/closure tracking. [*] H/W COMPONENTS [*] is a single [*] form factor board [*]. [*] The following feature list outlines the hardware features on the boards, [*], that must be supported by Award's BIOS. [*] - ---------------------------------------------------------------------
- --------------- * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. Advanced Micro Devices CONFIDENTIAL 2 26 [*] - ---------------------------------------------------------------------
AMD PLATFORM RESOURCES AMD will provide Award with the following resources: o [*] complete [*] platforms for development purposes. o [*] complete [*] platforms for Quality Assurance purposes. REQUIREMENTS FOR AWARD FIRMWARE DELIVERABLES Standard [*] System BIOS(es) supporting the following features: [*] - --------------- * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. Advanced Micro Devices CONFIDENTIAL 3 27 [*] COMPENSATION In consideration of the development work to be performed by Award, AMD agrees to pay Award a non-recurring engineering charge of [*] according to the schedule shown below. [*] DELIVERABLES: DELIVERY SCHEDULE [*] Support Milestones and Schedule o Software requirements documented [*] o Work Statement generated [*] o Work Statement mutually agreed upon [*] o Initial BIOS available [*] o BIOS source code Included with each BIOS delivery Initial BIOS should include support for [*] processors. Support should also be present for [*] utilities as defined in the Award firmware deliverables section and will be used for basic bring up [*]. Testing is not possible until hardware is delivered to Award. o [*] available to Award [*] o Alpha BIOS available [*] Alpha BIOS should have all functionality completed to work with [*] processors. Functionality is defined as all capabilities as defined in the Award firmware deliverables section. [*] o Alpha bug action list complete [*] - --------------- * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. Advanced Micro Devices CONFIDENTIAL 4 28 o Beta BIOS available [*] Award must provide internal Quality Assurance on the Beta BIOS before delivery. Available [ * ] modules should be included. [*] Support Milestones and Schedule o Initial [*] Software Development Guide Award [*] o Complete [*] Software Development Guide to Award [*] o Initial [*] samples to Award [*] o Initial [*] BIOS available [*] Initial [*] BIOS should leverage from Beta [*] BIOS and target demonstration functionality for [*]. Testing is not possible until [*] samples are delivered to Award. o Alpha [*] BIOS available [*] Alpha BIOS should have all functionality completed to work with [*] processors. Functionality is defined as all capabilities as defined in the Award firmware deliverables section. o Beta [*] BIOS available [*] Award must provide internal Quality Assurance on the Beta BIOS before delivery. o Final [*] BIOS available [*] Final BIOS, in addition to features supported in the beta release, should include the following: [*]. It should be robust, bug-free, and production worthy. NRE PAYMENT SCHEDULE [*] ADDITIONAL SUPPORT REQUIREMENTS o Award shall provide AMD with a quote covering delivery and installation of an on-site [*]. - --------------- * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. Advanced Micro Devices CONFIDENTIAL 5 29 o Delivery of Deliverables to AMD shall occur via electronic means (email, BBS, or [*]). o AMD BIOS training--Award will provide their standard training on BIOS source code for up to [*] AMD engineers. This training will cover the following topics: [*] o Award shall process the Developed Product and Updates through Award's standard BIOS Quality Assurance process. o Award shall optimize BIOS performance based on AMD's test and evaluation results prior to delivery of Final BIOS. If such optimizations require modifications to the Software Requirements Document, such modifications shall be handled as provided in Section 3.8 of the Agreement. o TESTING CRITERIA FOR DELIVERABLES Alpha, beta and final versions of the Award BIOS should demonstrate the following capabilities: [*] PROJECT COORDINATION o Project Coordinators Award: David J. Wippich 777 East Middlefield Road Mountain View, CA 94043-4023 Phone: (415) 968-4433 FAX: (415) 968-0274 - --------------- * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. Advanced Micro Services CONFIDENTIAL 6 30 AMD: Scott Swanstrom 5900 E. Ben White Blvd. Mailstop 592 Austin, TX 78741 Phone: (512) 602-5064 FAX: (512) 602-7807 o Technical Coordinators Award: Jim Busse 777 East Middlefield Mountain View, CA 94043-4023 Phone: (415) 968-4433 FAX: (415) 968-0274 AMD: Michael T. Wisor 5900 E. Ben White Blvd. Mailstop 522 Austin, TX 78741 Phone: (512) 602-4044 FAX: (512) 602-4490 Advanced Micro Devices CONFIDENTIAL 7 EX-11.1 9 STATEMENT REGARDING COMPUTATION OF NET INCOME 1 EXHIBIT 11.1 AWARD SOFTWARE INTERNATIONAL, INC. STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
--------------------------------------------------------------------- THREE MONTH YEAR ENDED PERIOD ENDED DECEMBER 31, MARCH 31, 1995 THREE MONTH SIX MONTHS ENDED --------------- -------------- PERIOD ENDED In thousands, except per share data DECEMBER 31, 1993 1994 1995 MARCH 31, 1996 ----------------- ------ ------ -------------- (Unaudited) Net income (loss)........................ $ (1,178) $1,258 $1,165 $ 316 $ 386 ----------------- ------ ------ -------------- -------------- Weighted average Common and Common Equivalent Shares Common Stock........................... 3,842 3,842 3,612 3,841 3,097 Common Stock equivalents from stock options/warrants using the treasury stock method........................ -- -- 423 316 482 Shares of Common Stock issued and options and warrants granted in accordance with SAB No. 83.......... 2,611 2,611 2,611 2,611 2,611 ----------------- ------ ------ -------------- -------------- Total.......................... 6,453 6,453 6,646 6,768 6,190 ================ ====== ====== ============= ============= Net income (loss) per share.............. $ (0.18) $ 0.19 $ 0.18 $ 0.05 $ 0.06 ================ ====== ====== ============= =============
Net Income (Loss) per Share Net income (loss) per share is computed using the weighted average number of common and common equivalent shares, when dilutive, from stock options and warrants (using the treasury stock method). Pursuant to a Securities and Exchange Commission Staff Accounting Bulletin, common and common equivalent shares (using the treasury stock method and the assumed public offering price) issued by the Company within 12 months prior to the Company's initial public offering filing and through the effective date of such filing have been included in the calculation as if they were outstanding for all periods presented. EX-23.1 10 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 (No. 333-05107) of our report dated May 29, 1996, except for Note 11 which is as of July 5, 1996, relating to the consolidated financial statements of Award Software International, Inc., which appears in such Prospectus. We also consent to the application of such report to the Financial Statement Schedules for the three years ended December 31, 1995 listed under Item 16(b) of this Registration Statement when such schedules are read in conjunction with the financial statements referred to in our report. The audits referred to in such report also included these schedules. We also consent to the references to us under the headings "Experts" and "Selected Consolidated Financial Information" in such Prospectus. However, it should be noted that Price Waterhouse LLP has not prepared or certified such "Selected Consolidated Financial Information." PRICE WATERHOUSE LLP San Jose, California July 10, 1996. EX-27 11 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1995 DEC-31-1995 $6,498,000 0 1,921,000 (79,000) 0 8,556,000 454,000 (178,000) 9,083,000 1,914,000 0 0 0 6,215,000 954,000 9,083,000 9,130,000 9,130,000 636,000 636,000 6,633,000 0 9,000 1,957,000 792,000 1,165,000 0 0 0 1,165,000 $0.18 0
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