-----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, IKuhoFbiK91nMDHqrqzjo+Om0HKxDuRPMb1/UE51olyz1RPSXJB88pakAd7M09w0 bV2TpP5utMpkZ2eK/s9e/g== 0001012870-98-002080.txt : 19980813 0001012870-98-002080.hdr.sgml : 19980813 ACCESSION NUMBER: 0001012870-98-002080 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-28904 FILM NUMBER: 98683469 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 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 Commission File Number 0-28904 AWARD SOFTWARE INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 94-2893462 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 777 EAST MIDDLEFIELD ROAD MOUNTAIN VIEW, CALIFORNIA (Address of principal executive offices) 94043-4023 (Zip Code) 650.237.6800 (registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No - -- Registrant had 7,195,629 shares of Common Stock, no par value, outstanding at June 30, 1998. 1 AWARD SOFTWARE INTERNATIONAL, INC. INDEX Page Number PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements 3 a) Condensed Consolidated Balance Sheet as of June 30, 1998 and December 31, 1997 (Unaudited) 3 b) Condensed Consolidated Statement of Income for the three and six months ended June 30, 1998 and 1997 (Unaudited) 4 c) Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 1998 and 1997 (Unaudited) 5 d) Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 20 Item 6. Exhibits and Reports on Form 8-K 20 SIGNATURES 21
2
PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AWARD SOFTWARE INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEET (in thousands, except share data) (Unaudited) June 30, December 31, 1998 1997 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 26,432 $ 24,631 Accounts receivable, net 3,669 4,256 Receivables from related parties 686 747 Deferred income taxes 483 483 Other current assets 2,131 1,698 ------------ ------------ Total current assets 33,401 31,815 Property and equipment, net 1,353 1,367 Other assets 1,723 1,199 ------------ ------------ $ 36,477 $ 34,381 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 317 $ 449 Accrued liabilities 3,473 3,950 ------------ ----------- Total current liabilities 3,790 4,399 Minority interest 157 170 ------------ ------------ 3,947 4,569 ------------ ------------ Commitments 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; 7,195,629 and 6,941,846 shares issued and outstanding 23,097 22,571 Deferred stock compensation (69) (106) Retained earnings 10,652 8,320 Cumulative translation adjustment (1,150) (973) ------------- ------------- Total shareholders' equity 32,530 29,812 ------------- ------------- $ 36,477 $ 34,381 ============= =============
See accompanying notes to condensed consolidated financial statements. 3
AWARD SOFTWARE INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data) (Unaudited) Three months ended Six months ended June 30, June 30, 1998 1997 1998 1997 ------------- ------------- ------------- ------------ Revenues: Software license fees $ 5,312 $ 4,287 $ 10,573 $ 8,323 Engineering services 662 695 1,341 1,042 Related parties 228 220 694 865 ------------- ------------- ------------- ------------ Total revenues 6,202 5,202 12,608 10,230 ------------- ------------- ------------- ------------ Cost of revenues: Software license fees 226 210 597 438 Engineering services 239 211 451 297 Related parties 6 8 23 34 ------------- ------------- ------------- ------------ Total cost of revenues 471 429 1,071 769 ------------- ------------- ------------- ------------ Gross profit 5,731 4,773 11,537 9,461 ------------- ------------- ------------- ------------ Operating expenses: Research and development 1,577 1,428 3,212 3,089 Sales and marketing 1,795 1,210 3,568 2,251 General and administrative 989 940 2,061 1,828 ------------- ------------- ------------- ------------ Total operating expenses 4,361 3,578 8,841 7,168 ------------- ------------- ------------- ------------ Income from operations 1,370 1,195 2,696 2,293 Interest income, net 296 275 635 536 Minority interest 26 10 - 10 ------------- ------------- ------------- ------------ Income before income taxes 1,692 1,480 3,331 2,839 Provision for income taxes 508 480 999 947 ------------- ------------- ------------- ------------ Net income $ 1,184 $ 1,000 $ 2,332 $ 1,892 ============= ============= ============= ============ Basic net income per share $ 0.17 $ 0.15 $ 0.33 $ 0.28 ============= ============= ============= ============ Weighted average common shares 7,176 6,855 7,070 6,823 ============= ============= ============= ============ Diluted net income per share $ 0.15 $ 0.13 $ 0.30 $ 0.25 ============= ============= ============= ============ Weighted average common and common equivalent shares 7,998 7,719 7,821 7,710 ============= ============= ============= ============
See accompanying notes to condensed consolidated financial statements. 4
AWARD SOFTWARE INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (Unaudited) Six months ended June 30, 1998 1997 ------------------------ ------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,332 $ 1,892 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 547 303 Deferred stock compensation 37 37 Minority interest (13) 189 Changes in assets and liabilities: Accounts receivable, net 514 (983) Receivables from related parties 61 533 Other current assets (447) (43) Other assets (255) 26 Accounts payable (139) 33 Accrued liabilities (468) (2,383) ------- ------- Net cash provided by (used in) operating activities 2,169 (396) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (340) (404) Capitalized software development costs (474) (373) ------- ------- Net cash used in investing activities (814) (777) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from common stock issuances 525 374 Payments under bank loan - (45) ------- ------- Net cash provided by financing activities 525 329 ------- ------- Effect of exchange rate changes on cash (79) (106) ------- ------- Net increase (decrease) in cash and cash equivalents 1,801 (950) Cash and cash equivalents at beginning of period 24,631 23,706 ------- ------- Cash and cash equivalents at end of period $26,432 $22,756 ======= =======
See accompanying notes to condensed consolidated financial statements. 5 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of Award Software International, Inc. (the "Company") as of June 30, 1998 for the three and six months ended June 30, 1998 and 1997 are unaudited. The condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 1997 included in the Annual Report on Form 10-K filed by the Company on March 31, 1998, as amended. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year or for any future period. 2. REVENUE RECOGNITION In October 1997, the AICPA issued Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition," which the Company has adopted for transactions entered during the year beginning January 1, 1998. SOP 97-2 provides guidance for recognizing revenue on software transactions and supersedes SOP 91-1, "Software Revenue Recognition." In March 1998, the AICPA issued Statement of Position No. 98-4 ("SOP 98-4"), "Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition." SOP 98-4 defers, for one year, the application of certain passages in SOP 97-2 which limit what is considered vendor-specific objective evidence ("VSOE") necessary to recognize revenue for software licenses in multiple-element arrangements when undelivered elements exist. Additional guidance is expected to be provided prior to adoption of the deferred provision of SOP 97-2. The Company will determine the impact, if any, the additional guidance will have on current revenue recognition practices when issued. Adoption of the remaining provisions of SOP 97-2 did not have a material impact on revenue recognition during the first and second quarters of 1998. 3. NET INCOME PER SHARE Basic net income per share is computed by dividing net income available to Common Shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated using the weighted average number of outstanding shares of Common Stock plus dilutive Common Stock equivalents. Common Stock equivalents consist of common stock options and warrants, using the treasury stock method based on the average stock price for the period.
Three months ended Six months ended June 30, June 30, (in thousands, except per share data) 1998 1997 1998 1997 --------------- --------------- --------------- --------------- BASIC NET INCOME PER SHARE Net income available to Common Shareholders $1,184 $1,000 $2,332 $1,892 =============== =============== =============== =============== Weighted average common shares 7,176 6,855 7,070 6,823 =============== =============== =============== =============== Basic net income per share $ 0.17 $ 0.15 $ 0.33 $ 0.28 =============== =============== =============== ===============
6
DILUTED NET INCOME PER SHARE Net income available to Common Shareholders $1,184 $1,000 $2,332 $1,892 =============== =============== =============== =============== Weighted average common shares 7,176 6,855 7,070 6,823 Dilutive common stock equivalents 822 864 751 887 --------------- --------------- --------------- --------------- Weighted average common shares and equivalents 7,998 7,719 7,821 7,710 =============== =============== =============== =============== Diluted net income per share $ 0.15 $ 0.13 $ 0.30 $ 0.25 =============== =============== =============== ===============
4. COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." Comprehensive income is defined as the change in equity of a company from transactions, other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. The primary difference between net income and comprehensive income, for the Company, is from foreign currency translation adjustments. Comprehensive incomes for the three and six months ended June 30, 1998 are $879 and $2,155, respectively. Comprehensive incomes for the three and six months ended June 30, 1997 are $946 and $1,778, respectively. 5. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14 and requires segment information to be reported on the basis that is used entirely for evaluating segment performance and deciding how to allocate resources to segments in quarterly and annual reports. SFAS No. 131 is effective for annual reports for fiscal years beginning after December 15, 1997, and is applicable to interim financial statements beginning with the second year of application. The Company believes that the effect of adopting the new standard will not be material to its consolidated financial statements. 6. SUBSEQUENT EVENTS On April 16, 1998, the Company and Phoenix Technologies Ltd. ("Phoenix") announced the completion of a definitive merger agreement. Under the terms of the Agreement and Plan of Reorganization (the "Reorganization Agreement"), all of the Company's outstanding stock will be acquired through the merger of a wholly owned subsidiary of Phoenix with and into the Company (the "Merger"). Pursuant to the terms of the Reorganization Agreement, shareholders of Award will receive 1.225 shares of Phoenix common stock for each share of Award common stock. The completion of the Merger is subject to customary conditions to closing, including shareholder approval of both companies and regulatory approval. The transaction is intended to be treated as a tax-free reorganization pursuant to the provisions of Section 368 of the Internal Revenue Code of 1986 and a pooling of interests for financial reporting and accounting purposes. In connection with the execution of the Reorganization Agreement, the Company, Sun Corporation ("Sun"), a shareholder, and Axis Corporation ("Axis") entered into an agreement on April 13, 1998 whereby the Company will purchase Sun's 19% interest and Axis's 19% interest in Award Software Japan KK for an aggregate purchase price of approximately 20,000 shares of the Company's Common Stock. On June 30, 1998, the Company and Phoenix announced that the respective shareholders approved the Merger and Reorganization Agreement. The Company has deferred approximately $458,000 in merger expenses related to the transaction as of June 30, 1998. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This quarterly report 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, which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below and those discussed in the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 1997 on file with the Securities and Exchange Commission. The Company designs, develops and markets system enabling and management software for the global computing market. On April 16, 1998, the Company and Phoenix Technologies Ltd. ("Phoenix") announced the completion of a definitive merger agreement. Under the terms of the proposed transaction, all of the Company's outstanding stock will be acquired through the merger of a wholly owned subsidiary of Phoenix with and into the Company (the "Merger") pursuant to an Agreement and Plan of Reorganization (the "Reorganization Agreement") by and among Phoenix, its wholly owned subsidiary and the Company. Pursuant to the terms of the Reorganization Agreement, shareholders of Award will receive 1.225 shares of Phoenix common stock for each share of Award common stock. The completion of the Merger is subject to customary conditions to closing, including shareholder approval of both companies and regulatory approval, including expiration or termination of all waiting periods under the Hart-Scott- Rodino Antitrust Improvement Act of 1976, as amended (the "HSR Act"). The transaction is intended to be treated as a tax-free reorganization pursuant to the provisions of Section 368 of the Internal Revenue Code of 1986 and a pooling of interests for financial reporting and accounting purposes. In connection with the execution of the Reorganization Agreement, the Company and Vobis Microcomputer AG ("Vobis") entered into a Support Agreement on April 15, 1998 whereby the Company will provide to Vobis certain support, maintenance and development of basic input/output system code. The HSR Act, and the rules promulgated thereunder, prohibit the completion of the Merger until expiration or termination of a waiting period. On May 20, 1998, requests from the Antitrust Division for additional information and documentary material were timely received by both the Company and Phoenix. Both companies responded to requests for information issued by the Department in connection with the application under the HSR Act, and both are awaiting final government approval. No assurance can be given that approval will be obtained, or that if obtained, such approval will be given on favorable terms or on a timely basis. On June 30, 1998, the Company and Phoenix announced that the respective shareholders approved the Merger and Reorganization Agreement. The Company has deferred approximately $458,000 in merger expenses related to the transaction as of June 30, 1998. The success of the combined company will depend upon a number of factors, including (i) the combined company's ability to integrate the various functional groups, such as sales and engineering, effectively and achieve cost savings; (ii) the risk that customers may defer purchasing decisions following the announcement of the Merger; (iii) the ability of Phoenix, the Company and the combined company to retain key employees following the announcement of the Merger; (iv) the impact of transaction and restructuring charges to be incurred by the combined company; and (v) the combined company's ability to successfully introduce new products and upgrades to existing products. See "Merger Risks" contained herein for further information on factors that could affect the successful consummation of the Merger. Further information on factors that could affect the Company's results are detailed in the Company's 10-Q for the quarter ended March 31, 1998, and the Company's Joint Proxy Statement on Form S- 4 dated June 1, 1998, as filed with the Securities and Exchange Commission. Further information on factors that could affect Phoenix's results are detailed in Phoenix's Joint Proxy Statement on Form S-4 dated June 1, 1998, as filed with the Securities and Exchange Commission. On May 30, 1997, the Company acquired all of the outstanding stock of Unicore Software ("Unicore") through the merger of Unicore with and into a wholly owned subsidiary of the Company (the "Unicore Merger") pursuant to an Agreement and Plan of Merger and Reorganization (the "Merger Agreement"), dated as of May 29, 1997, by and among the Company, its wholly owned subsidiary, Unicore and Pierre A. Narath ("Narath"). Unicore is engaged in the business of providing basic input/output software upgrades for personal computers and embedded systems. Pursuant to the terms of the Merger Agreement, the Company issued to Narath, the selling shareholder, 218,571 shares of the Company's common stock. The Unicore Merger is being treated as a tax-free reorganization under the Internal Revenue Code of 1986, as amended, and is being accounted for as a pooling of interests. The terms of the Merger Agreement were determined through arm's-length negotiations between the Company and Unicore and 8 Narath. In addition, Narath entered into an employment agreement with the Company pursuant to which Narath shall serve as a Vice President of the Company and President of Unicore, the Company's wholly owned subsidiary. On April 30, 1997, the Company entered into a memorandum of understanding with Sun Corporation ("Sun"), a shareholder, and Axis Corporation ("Axis") to establish a majority-owned subsidiary, Award Software Japan KK ("Award Japan"), a joint venture corporation incorporated under the laws of Japan and based in Yokohama, Japan. The objective of Award Japan is to market and distribute the Company's products in Japan. The Company, Sun and Axis contributed approximately $310,000, $95,000 and $95,000 for 62%, 19% and 19% ownership of Award Japan, respectively. In connection with the execution of the Reorganization Agreement, the Company, Sun and Axis entered into an agreement on April 13, 1998, whereby the Company will purchase Sun's 19% interest and Axis's 19% interest in Award Japan for an aggregate purchase price of approximately 20,000 shares of the Company's Common Stock. On February 21, 1997, the Company acquired certain assets of Willows software ("Willows acquisition") for $400,000 cash, direct acquisition costs of $40,000 and the assumption of liabilities totaling $44,000. The purchase price was allocated based upon the estimated fair market value of identifiable tangible and intangible assets and liabilities assumed, including $289,000 to in-process research and development. The amount allocated to in-process research and development relates to acquired development projects that had not reached technological feasibility at the acquisition date and had no alternative future use. The following is a discussion of the financial condition and results of operations of the Company as of June 30, 1998 and for the three and six months ended June 30, 1998 and 1997, respectively, and should be read in conjunction with the accompanying Quarterly Condensed Consolidated Financial Information and Notes thereto and the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 1997, included in the Company's Annual Report on Form 10-K, as amended, and is qualified in its entirety by reference thereto. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain consolidated statement of income information as a percentage of the Company's total revenues represented by each item. The Company's historical results are not necessarily indicative of results in any future period.
Three months ended Six months ended June 30, June 30, 1998 1997 1998 1997 ------------- ------------ ------------- ------------- Revenues: Software license fees 86% 83% 84% 81% Engineering services 11 13 11 10 Related parties 3 4 5 9 ------------- ------------ ------------- ------------- Total revenues 100 100 100 100 ------------- ------------ ------------- ------------- Cost of revenues: Software license fees 4 4 5 4 Engineering services 4 4 4 3 Related parties 0 0 0 0 ------------- ------------ ------------- ------------- Total cost of revenues 8 8 9 7 ------------- ------------ ------------- ------------- Gross profit 92 92 91 93 ------------- ------------ ------------- ------------- Operating expenses: Research and development 25 28 26 30 Sales and marketing 29 23 28 22
9
General and administrative 16 18 16 18 ------------ ------------ ------------- ------------- Total operating expenses 70 69 70 70 ------------- ------------ ------------- ------------- Income from operations 22 23 21 23 Interest income, net 5 5 5 5 Minority interest 0 0 0 0 ------------- ------------ ------------- ------------- Income before income taxes 27 28 26 28 Provision for income taxes 8 9 8 9 ------------- ------------ ------------- ------------- Net income 19% 19% 18% 19% ============= ============ ============= =============
COMPARISON OF THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 REVENUES. The Company's revenues consist of software license fees and engineering services revenues. Revenues increased by $1.0 million, or 19%, and $2.4 million, or 23%, for the three and six month periods ended June 30, 1998, respectively, from the same periods of the prior year. Software license fees increased by $1.0 million, or 24%, and $2.2 million, or 27%, for the three and six month periods ended June 30, 1998, respectively, from the same periods of the prior year primarily due to higher unit shipments to new and existing motherboard customers in Taiwan and the U.S. and embedded systems customers in the U.S. Engineering services revenues decreased by $33,000, or 5%, for the three month period ended June 30, 1998 from the same period of the prior year primarily due to lower engineering services revenues from customers in the U.S., and increased by $299,000, or 29%, for the six month period ended June 30, 1998 from the same period of the prior year primarily due to higher engineering services revenues from customers in the U.S. Related parties revenues increased by $8,000, or 4%, for the three month period ended June 30, 1998 from the same period of the prior year primarily due to higher volume of software license fees and engineering services, and decreased by $170,000, or 20%, for the six month period ended June 30, 1998 from the same period of the prior year primarily due to lower volume of software license fees and engineering services. COST OF REVENUES. Cost of revenues consists primarily of the cost of materials and freight expenses associated with software license fees and the direct costs associated with engineering services revenues. Cost of revenues as a percentage of revenues decreased to 8% of revenues for the three month period ended June 30, 1998, as compared to 8% for the same period of the prior year. This decrease was primarily due to lower cost of software license fees and cost of engineering services revenues. Cost of revenues as a percentage of revenues increased to 9% of revenues for the six month period ended June 30, 1998, as compared to 7% for the same period of the prior year. This increase was primarily due to higher costs of royalty fees associated with the Intel Corporation ("Intel") LANDesk Client Management software, which the Company began shipping in the fourth quarter of fiscal year 1997, and higher cost of software license fees and cost of engineering services revenues, mainly due to higher engineering salary and related costs, partially offset by a decrease in cost of software license fees and cost of engineering services revenues from a related party product development effort. RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of engineering personnel and related expenses and equipment costs. Research and development expenses increased by $149,000, or 10%, and $122,000, or 4%, for the three and six month periods ended June 30, 1998, respectively, from the same periods of the prior year primarily due to the hiring of engineering personnel and related expenses to develop new software products. The Company anticipates that it will devote substantial resources to product research and development and that such expenses will increase in absolute dollars. SALES AND MARKETING. Sales and marketing expenses consist primarily of personnel and related expenses, sales commissions and travel costs. Sales and marketing expenses increased by $585,000, or 48%, and $1.3 million, or 58%, for the three and six month periods ended June 30, 1998, respectively, from the same periods of the prior year primarily due to the hiring of sales and marketing personnel and related expenses, higher sales commissions for increased revenues, increased participation in trade shows and higher product promotion expenses. 10 GENERAL AND ADMINISTRATIVE. General and administrative expenses consist primarily of personnel and related expenses, professional services and facilities costs. General and administrative expenses increased by $50,000, or 5%, and $234,000, or 13%, for the three and six month periods ended June 30, 1998, respectively, from the same periods of the prior year primarily due to the hiring of general and administrative personnel and related expenses, higher professional services fees and higher facilities costs. INTEREST INCOME, NET. Interest income, net consists primarily of interest expense associated with short-term borrowings and interest income on cash and cash equivalents, net of expenses. Interest income, net increased by $21,000 and $99,000 for the three and six month periods ended June 30, 1998, respectively, from the same periods of the prior year primarily due to an increase in interest income earned on higher cash balances and lower interest expense on a short-term borrowing. PROVISION FOR INCOME TAXES. The Company's effective tax rate decreased to 30% from 32% for the three month periods ended June 30, 1998 and June 30, 1997, respectively, and decreased to 30% from 33% for the six month periods ended June 30, 1998 and June 30, 1997, respectively, primarily due to an increase in income taxable in Taiwan at rates lower than the applicable statutory rates in the U.S. and Germany. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations primarily through the sale of equity securities and from cash generated from operations. As of June 30, 1998, the Company had cash and cash equivalents of $26.4 million and working capital of $30.0 million. Net cash provided by operating activities was $2.2 million for the six month period ended June 30, 1998 and was primarily due to higher income and collections on accounts receivable partially offset by a decrease in accrued liabilities and an increase in other current assets. Net cash used in investing activities was $814,000 for the six month period ended June 30, 1998 and was primarily due to an increase in capitalized software development costs and the purchase of computer hardware and software equipment. Net cash provided by financing activities was $525,000 for the six month period ended June 30, 1998 and was primarily due to proceeds from Common Stock issuances as a result of purchases of stock under the Employee Stock Purchase Plan and exercises of stock options under the 1995 Stock Option Plan and 1997 Equity Incentive Plan. The Company believes that anticipated cash flows from operations and existing cash balances will satisfy the Company's projected expenditures through 1998 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 personal computer ("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. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14 and requires segment information to be reported on the basis that is used entirely for evaluating segment performance and deciding how to allocate resources to segments in quarterly and annual reports. SFAS No. 131 is effective for annual reports for fiscal years beginning after December 15, 1997, and is applicable to interim financial statements beginning with the second year of application. The Company believes that the effect of adopting the new standard will not be material to its consolidated financial statements. 11 In March 1998, the AICPA issued Statement of Position No. 98-4 ("SOP 98- 4"), "Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition." SOP 98-4 defers, for one year, the application of certain passages in SOP 97-2 which limit what is considered vendor-specific objective evidence ("VSOE") necessary to recognize revenue for software licenses in multiple-element arrangements when undelivered elements exist. Additional guidance is expected to be provided prior to adoption of the deferred provision of SOP 97-2. The Company will determine the impact, if any, the additional guidance will have on current revenue recognition practices when issued. MERGER RISKS DIFFICULTIES OF INTEGRATING TWO COMPANIES The successful combination of Phoenix and the Company will require substantial attention from management. The anticipated benefits of this Merger will not be achieved unless the operations of the Company are successfully combined with those of Phoenix in a timely manner with resulting cost savings and other operating efficiencies. The difficulties of assimilation may be increased by the need to integrate personnel and to combine different corporate cultures. The diversion of the attention of management and any difficulties encountered in the transition process could have an adverse effect on the revenues and operating results of the combined company. The successful combination of the two companies will also require integration of the companies' product offerings and the coordination of their research and development and sales and marketing efforts. In addition, the process of combining the two organizations could cause the interruption of, or a loss of momentum in, the activities of either or both of the companies' businesses, which could have a material adverse effect on their combined operations. There can be no assurance that the combined company will realize the expected cost savings and other operating efficiencies or that it will be able to retain and successfully integrate its key management, technical, sales and customer support personnel, or that it will realize any of the anticipated benefits of the Merger. RISKS ASSOCIATED WITH FIXED EXCHANGE RATIO As a result of the Merger, each outstanding share of common stock of the Company will be converted into the right to receive 1.225 shares (the "Exchange Ratio") of common stock of Phoenix. Because the Exchange Ratio is fixed, it will not increase or decrease due to fluctuations in the market price of either common stock of Phoenix or the Company. The specific value of the consideration to be received by the Company's shareholders in the Merger will depend on the market price of the common stock upon the filing of an Agreement of Merger (the "Agreement of Merger") with the Secretary of State of the State of California or at such later time as may be agreed in writing by Phoenix, the Company and Merger Sub, a wholly owned subsidiary of Phoenix, and specified in the Agreement of Merger (the "Effective Time"). In the event that the market price of common stock of Phoenix decreases or increases prior to the Effective Time, the market value at the Effective Time of the common stock to be received by the Company's shareholders in the Merger would correspondingly decrease or increase. The common stock of Phoenix and the Company historically have been subject to substantial price volatility. No assurance can be given as to the market prices of the common stock of Phoenix or the Company at any time before the Effective Time or as to the market price of the common stock of Phoenix at any time thereafter. RISKS ASSOCIATED WITH GOVERNMENT APPROVALS The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules promulgated thereunder, prohibit the completion of the Merger until expiration or termination of a waiting period. On May 20, 1998, requests from the Antitrust Division for additional information and documentary material were timely received by both the Company and Phoenix. Both companies responded to requests for information issued by the Department in connection with the application under the HSR Act, and both are awaiting final government approval. It is possible that governmental authorities may impose conditions or remedial actions for granting approval under the HSR Act. However, under the terms of the Reorganization Agreement or otherwise, neither Phoenix nor Award is obligated to agree to such conditions or actions in order to facilitate the consummation of the Merger. There can be no assurance that the consummation of the Merger will not be delayed by reason of the HSR Act, or the failure to resolve antitrust objections to the Merger on favorable or timely terms and conditions would not lead to termination of the Reorganization Agreement. 12 SUBSTANTIAL EXPENSES RESULTING FROM THE MERGER The negotiation and implementation of the Merger will result in substantial pre-tax expenses to Phoenix and the Company primarily relating to costs associated with combining the operations of the two companies and the fees of financial advisors, attorneys and accountants. Such expenses may increase substantially if the companies are required to respond to a request for further information from the U.S. Federal Trade Commission and U.S. Department of Justice Antitrust Division with respect to the companies' filings under the HSR Act. In any event, costs associated with the Merger are expected to affect negatively future results of operations of Phoenix and the Company. DEPENDENCE ON RETENTION AND INTEGRATION OF KEY MANAGEMENT The success of the combined company is dependent on the retention and integration of the management of Phoenix and the Company. While the combined company intends to implement management retention arrangements for its senior management, there can be no assurance that the senior management personnel will remain with the combined company. The loss of services of any of the key members of the combined company's management team could adversely affect the combined company's business and financial results. In addition, the future success of the Combined Company is dependent, in part, on its ability to retain and attract additional skilled personnel in all areas of its business on a worldwide basis. Competition for such personnel is intense. There can be no assurance that the Combined Company will be able to retain its existing key management, engineering and sales personnel or attract additional qualified employees in the future. This could be particularly significant if the Combined Company needs to hire, train and assimilate a large number of new employees. A failure to retain or attract qualified employees could materially adversely affect the business and financial results of the Combined Company. BUSINESS RISKS DEPENDENCE ON THE UNDERLYING PC INDUSTRY; DEPENDENCE ON CURRENT PC INDUSTRY STANDARDS The demand for the Company's system enabling and management software depends principally on (i) PC manufacturers and other customers licensing the Company's software rather than developing their own system enabling and management software, (ii) 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 enabling and 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, shortages of key components and seasonality. 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 total cost of ownership. A number of computer manufacturers, including IBM Corporation ("IBM") and Compaq Computer Corporation ("Compaq"), develop some of their own Basic Input/Output System software ("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 out-source system enabling and 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 Company's business, financial condition and results of operations. The Company's software to date has been primarily based on central processing units ("CPUs") designed by or compatible with those of 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- 13 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 motherboard 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, or if the average price of desktop BIOS declines as the trend toward sub-$1,000 PCs continues, 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 and a delay in expected new hardware and software technologies from Intel and Microsoft. COMPETITION FROM SYSTEM ENABLING AND MANAGEMENT SOFTWARE COMPANIES AND OTHER PARTICIPANTS, INCLUDING MICROSOFT AND INTEL, IN THE PC INDUSTRY The markets for the Company's software are highly competitive. The Company faces competition primarily from other system enabling and management software companies, including American Megatrends, Inc., Phoenix and SystemSoft Corporation ("SystemSoft"), 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, 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 enabling and management software companies and their customers, which would need to be overcome 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 has become a significant shareholder in, Phoenix and SystemSoft. In addition, SystemSoft 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 may incorporate enough features into their products to reduce the need for the Company's products. Microsoft includes basic PC Card software in its Windows 95 operating system and full PC Card software support in its recently released Windows 98 operating system. Microsoft's Windows CE 2.0 operating system includes embedded toolkit software that incorporates system enabling and management software features and some PC Card capabilities. 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 enabling and 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. ABILITY TO RESPOND TO RAPID TECHNOLOGICAL CHANGE The market for system enabling and 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 14 desktop PC industry. Although the Company's core products, specifically, the desktop and embedded device BIOS, PC Card software and embedded system enabling products, 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 on its ability to enhance its core software and to develop and introduce new software that keeps pace with technological developments and evolving industry standards, as well as its ability 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. 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. 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. 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. 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 enabling and 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 are 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. 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. In addition, there can be no assurance that the introduction of Microsoft Windows CE into the embedded device and Internet appliance market will not have a material impact on the Company's new products for these markets. 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 enabling and 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 architecture in, this market. There can be no assurance 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 15 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. 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 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. 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. VARIATIONS IN OPERATING RESULTS The revenue growth rates experienced by the Company to date may not be indicative of future growth rates and there can be no assurance that the Company will remain profitable in the future. Future results of operations may fluctuate significantly based on numerous factors including the demand for PCs and embedded devices, the 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 volume and timing of new contracts and delays in the achievement of milestones could have a significant impact on operating results for a particular quarter. 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; and Lyon T. Lin, General Manager, Taiwan and President, Award Software Hong Kong Limited, Taiwan Branch, could have a material adverse effect 16 on the Company's business, financial condition and results of operations. Except for two employees in the U.S. and all employees in Germany, none of the Company's employees is party to an employment agreement with the Company. Eight executive officers of the Company are parties to Severance Benefits Agreements. 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 enabling and 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, and 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 to 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 global business, 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, difficulty in protecting intellectual property, enforcing agreements and collecting accounts receivable. For the three and six month periods ended June 30, 1998, approximately 48% and 45% of the Company's revenues were denominated in New Taiwan Dollars, respectively, and approximately 4% and 4% of the Company's revenues were denominated in German Marks, respectively. The Company's revenues denominated in Japanese Yen were immaterial during the three and six month periods ended June 30, 1998. 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. The Company operates in Taiwan, Hong Kong, Japan, and Germany. Its business, financial condition or results of operations could be adversely affected by factors associated with international operations such as changes in foreign currency exchange rates, uncertainties relative to regional economic circumstances, political instability in emerging markets, and difficulties in staffing and managing foreign operations, as well as by other risks associated with international activities. In particular, the recent currency devaluations in South East Asia and the general downturn of the economies in Asia, including Japan, could materially adversely affect the Company's business, financial condition or results of operations. As a result of such economic instability, Dataquest, Inc. has revised downward its forecasts of demand for PCs in the region. Any such reduction in demand for PCs would adversely 17 affect the Company's business, financial condition or results of operation. See "Dependence on the Underlying PC Industry; Dependence on Current PC Industry Standards." Award Software Hong Kong Limited, the company's wholly owned subsidiary, is incorporated under the laws of Hong Kong ("Award Hong Kong"). Substantially all of the Company's Asian desktop motherboard and OEM development and design facilities are operated through Award Hong Kong's branch office located in Taipei, Taiwan. These operations could be severely affected by national or regional political instability in China, including instability which may occur in connection with a change in leadership in China, change of control of Hong Kong from the United Kingdom to China, by evolving interpretation and enforcement of legal standards, by conflicts, embargoes, increased tensions or escalation of hostilities between China and Taiwan and by other trade customs and practices that are dissimilar to those in the United States. Interpretation and enforcement of China's laws and regulations continue to evolve and the Company expects that differences in interpretation and enforcement will continue in the foreseeable future. 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 obtain and use information that the Company regards as proprietary. The Company currently holds a patent in the U.S. for one invention and a patent abroad for one invention which is jointly owned with a third party. The Company has patent applications pending in the U.S. and/or abroad on seven inventions, two of which are owned jointly with a third party. 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 upgraded its customers to the new version of such software routines 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 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. VOLATILE MARKET FOR STOCK The market for the Company's stock is highly volatile. The trading price of the Company's Common Stock has been and will continue to be subject to fluctuations in response to financial condition and results of operations, announcements of technological innovations or new products by the Company and its competitors, changes in the Company's or its competitors' product mix or product direction, changes in the Company's revenue mix and revenue growth rates, changes in expectations of growth for the PC industry, as well as other events or factors which the Company may not be able to influence or control. Statements or changes in opinions, ratings or earnings estimates made by brokerage firms and industry analysts relating to the market in which the Company does business, companies with which the Company competes or relating to the Company specifically could have an immediate and adverse effect on the market price of the Company's stock. In addition, the stock market has from 18 time to time experienced extreme price and volume fluctuations that have particularly affected the market price for many high-technology companies and that often have been unrelated to the operating performance of these companies. These broad market fluctuations may adversely affect the market price of the Company's Common Stock. 19 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. At the Annual meeting of Shareholders held June 30, 1998, the shareholders of the Company approved the following matters. 1. A proposal for the approval and adoption of the Reorganization Agreement, the related Agreement of Merger and the approval of the Merger was approved by the vote of 4,952,636 for, 21,761 opposed, 5,304 withheld and 1,612,108 broker non-votes. 2. A proposal to elect seven (7) directors of the Company to serve for the ensuing year and until their successors are elected or until such directors earlier resignation or removal. Nominee In favor Withheld George C. Huang 6,752,726 0 Cheng Ming Lee 6,473,271 0 David S. Lee 6,582,063 0 Masami Maeda 6,583,263 0 Anthony Sun 6,583,263 0 William P. Tai 6,583,263 0 Willy Weck 6,470,636 0
3. A proposal for the approval of the amendment to the Company 's 1997 Equity Incentive Plan to increase the number of shares reserved for issuance thereunder by 700,000 was approved by a vote of 4,176,421 for, 741,673 opposed, 61,607 withheld and 1,612,108 broker non-votes. 4. A proposal for the approval of the amendment to Award's Employee Stock Purchase Plan to increase the number of shares reserved for issuance thereunder by 200,000 was approved by a vote of 4,885,644 for, 30,600 opposed, 63,457 withheld and 1,612,108 broker non-votes. 5. A proposal for the approval and ratification of Price Waterhouse LLP as independent accountants of Award for the year ending December 31, 1998 was approved by a vote of 6,576,279 for, 6,100 opposed and 9,430 withheld. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits The following exhibits are filed herewith: Exhibit 10.1 Common Stock Purchase Agreement by and among Award Software International, Inc., Sun Corporation and Axis Corporation dated April 13, 1998. Exhibit 10.2 Support Agreement by and between Award Software International, Inc. and Vobis Microcomputer AG dated April 15, 1998. Exhibit 27 Financial Data Schedule. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three month period for which this report is filed. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AWARD SOFTWARE INTERNATIONAL, INC. August 11, 1998 By: /s/ George C. Huang ------------------- George C. Huang Chairman of the Board, President and Chief Executive Officer August 11, 1998 By: /s/ Kevin J. Berry ------------------ Kevin J. Berry Vice President, Finance, Chief Financial Officer, Treasurer and Secretary 21 EXHIBIT INDEX Exhibit No. Description 10.1 Common Stock Purchase Agreement by and among Award Software International, Inc., Sun Corporation and Axis Corporation dated April 13, 1998. 10.2 Support Agreement by and between Award Software International, Inc. and Vobis Microcomputer AG dated April 15, 1998. 27 Financial Data Schedule. 22 EX-10.1 2 COMMON STOCK PURCHASE AGREEMENT EXHIBIT 10.1 COMMON STOCK PURCHASE AGREEMENT THIS COMMON STOCK TRANSFER PURCHASE AGREEMENT (this "Agreement") is entered into as of April 13, 1998, by and among AWARD SOFTWARE INTERNATIONAL, INC., a California corporation (the "Company"), SUN CORPORATION ("Sun") and AXIS CORPORATION ("Axis"). RECITALS A. On April 30, 1997, the Company, Sun and Axis entered into a Memorandum of Understanding to organize and incorporate a joint stock company under the laws of Japan ("Award Japan"). B. In connection with the above transaction, each of Sun and Axis owned stock (the "Stock") representing a 19% interest in Award Japan. (The 19% interest of Sun to be hereinafter referred to as the "Sun Stock" and the 19% interest of the Axis to be hereinafter referred to as the "Axis Stock"). C. Award desires to irrevocably and unconditionally purchase the Sun Stock and the Axis Stock, and Sun and Axis desire to irrevocably and unconditionally sell the Sun Stock and Axis Stock, respectively. AGREEMENT NOW, THEREFORE, in consideration of the foregoing premises, the mutual agreements, covenants and conditions set forth herein, and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. PURCHASE OF STOCK. Sun and Axis (each a "Seller" and collectively the "Sellers") each unconditionally and irrevocably agree to sell to the Company the Sun Stock and the Axis Stock, respectively, and the Company unconditionally and irrevocably agrees to purchase from each of Sun and Axis, the Sun Stock and the Axis Stock, respectively. The purchase price to be paid by the Company for each of the Sun Stock and the Axis Stock shall be US $120,000 and paid in Award Software stock. The number of shares will be determined by the average price of Award Software stock for the five day period prior to the day of closing. The purchase price (US $120,000) will be supported by an independent appraisal (the "Appraisal") to be completed by the closing. 2. CLOSING DATE. The closing for the transfer of the Stock (the "Closing") shall be held at the offices of the Company at such time after the Appraisal as the parties hereto agree upon, in no event later than ten (10) business days after the Appraisal has abeen delivered (the "Closing Date"). 3. CLOSING. 3.1 (a) At the Closing, Sun and Axis will deliver to the Company stock certificates representing the Sun Stock and the Axis Stock, respectively, against payment by or on behalf of the Company of the purchase price for each such interest by wire transfer, or by such other means as shall be mutually agreeable to Sun or Axis, as the case may be, and the Company. 4. REPRESENTATIONS AND WARRANTIES OF SELLERS. Each Seller hereby represents and warrants, with respect to the Stock to be transferred by it pursuant to this Agreement, severally but not jointly, to Company: 4.1 AUTHORIZATION. All action on the part of the Seller necessary for the execution and delivery of this Agreement and the performance of all of his obligations hereunder, has been taken, and this Agreement constitutes a valid and legally binding obligation of the Seller enforceable in accordance with its terms. 4.2 TITLE TO INTEREST. The Seller has good and marketable title to the Stock and owns the Stock beneficially and of record. Good and marketable title to the Stock will be conveyed to the Company pursuant to this Agreement free and clear of any liens, claims or other encumbrances, except such restrictions on transfer which arise under federal and state securities laws. 1 4.3 RIGHT TO SELL. The Seller has not made any prior sale or transfer of such Stock. 5. FURTHER ACTION. The parties hereto agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 6. AMENDMENT. This Agreement may be amended, or any provision hereof waived, only with the prior written consent of the Company and each Seller whose rights or obligations hereunder would be so affected by such amendment or waiver. 7. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 8. MISCELLANEOUS. This Agreement shall be governed by and construed under the laws of the State of California as such laws are applied to agreements between residents of such state entered into and to be performed entirely within such state. This Agreement shall be binding upon the transferees, successors, permitted assigns and legal representatives of the parties. This Agreement constitutes the full, complete and final agreement of the parties and supersedes all prior agreements, written or oral, with respect to the subject matter herein. This Agreement may be executed in any number of counterparts, each of which shall he deemed an original but all of which together shall constitute one and the same instrument. 9. ATTORNEYS' FEES. In the event that any dispute among the parties to this Agreement, the prevailing party or parties, as the case may be, in such dispute shall be entitled to recover from the losing party or parties, as the case may be, reasonable fees, costs and expenses of enforcing any right of such prevailing party or parties, as the case may be, under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, reasonable fees, costs and expenses of appeals. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. COMPANY: SELLER: AWARD SOFTWARE INTERNATIONAL, INC. SUN CORPORATION By: By: --------------------------- ----------------------------------- Name: Name: ------------------------- --------------------------------- Title: Title: ------------------------ -------------------------------- AXIS CORPORATION By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- 2 EX-10.2 3 SUPPORT AGREEMENT EXHIBIT 10.2 SUPPORT AGREEMENT THIS SUPPORT AGREEMENT (the "Agreement") is entered into as of this __ day of __________, 1998 (the "Effective Date"), by and between AWARD SOFTWARE INTERNATIONAL, INC. ("Award"), a California corporation having its principal place of business at 777 East Middlefield Road, Mountain View, CA 94043, and VOBIS MICROCOMPUTER AG, ("Vobis") a corporation organized under the laws of Germany having its principal place of business at Carlo-Schmid Strasse 12, D- 52146 Wuerselen, Germany. RECITALS WHEREAS Vobis and Award have previously developed certain basic input/output system code; WHEREAS The parties wish to clarify their obligations with respect to the support, maintenance and development of such basic input/output system code; NOW THEREFORE, in consideration of the promises recited herein, and other valuable consideration, the sufficiency and receipt of which are hereby acknowledged, Award and Vobis hereby agree as follows: 1. DEFINITIONS. Capitalized terms used herein shall have the following meanings: 1.1 "BIOS CODE" shall mean the firmware code set forth on EXHIBIT A ("BIOS CODE") hereto, in both Source Code and Object Code, including all Corrections, Updates, Upgrades, and Custom Development Work of the BIOS Code delivered by Award hereunder. 1.2 "BIOS PATENT RIGHTS" shall mean any and all rights in and to: (i) the claims contained in the patents and patent applications described in EXHIBIT A hereto and incorporated herein by reference; (ii) all claims contained in patents and patent applications filed in foreign countries corresponding to any of the foregoing patents and patent applications; and (iii) all claims contained in continuations, divisions, substitutions, reexaminations, patents of addition, continuations-in-part, reissues, renewals and extensions of the patents and patent applications referenced in (i) and (ii) above, to the extent the same claim subject matter disclosed in a claim contained in a patent or patent application described in EXHIBIT A hereto. 1.3 "CONFIDENTIAL INFORMATION" shall have the meaning assigned to it in SECTION 7 ("CONFIDENTIALITY"). 1.4 "CORRECTION" shall mean shall mean a "patch", "bug fix", "work around", or other modification to Award's generally offered BIOS code (not incorporating inventions covered by the BIOS Patent Rights); or the BIOS Code, which corrects or minimizes an Error therein, but does not provide additional features or functions. 1.5 "CUSTOM DEVELOPMENT WORK" shall mean development work carried out by Award pursuant to a Custom Development Work Exhibit signed by Award and Vobis. 1 1.6 "CUSTOM DEVELOPMENT WORK EXHIBIT" shall mean an exhibit to this Agreement, in substantially the form described in EXHIBIT B ("CUSTOM DEVELOPMENT WORK"), signed by Award and Vobis, which shall incorporate the terms of this Agreement by reference, and pursuant to which Custom Development Work shall be carried out by Award. 1.7 "DESIGNATED EMPLOYEES" shall mean up to three (3) designated Vobis employees whose names shall be provided to Award within ten (10) days of the Effective Date. 1.8 "ERROR" shall mean a documented and reproducible "bug", defect, error or problem with Award's generally offered BIOS code (not incorporating inventions covered by the BIOS Patent Rights) or the BIOS Code which causes the such code to deviate from its published specifications in normal use. 1.9 "OBJECT CODE" shall mean compiled BIOS Code, in a format not readily perceivable by humans. 1.10 "SOURCE CODE" shall mean uncompiled BIOS Code, in a format readily perceivable by humans. 1.11 "SUPPORT" shall have the meaning assigned to it in SUBSECTION 3.2 ("CUSTOM DEVELOPMENT WORK"). 1.12 "TERM" shall have the meaning assigned to it in SECTION 6 ("TERM AND TERMINATION"). 1.13 "UPDATES" shall mean additions, enhancements, improvements, updates and upgrades to Award's generally offered BIOS code (not incorporating inventions covered by the BIOS Patent Rights), or the BIOS Code, which add additional features or functions, and which may correct Errors, but for which Award does not ordinarily charge a fee to its existing licensees. 1.14 "UPGRADES" shall mean additions, enhancements, improvements, updates and upgrades to Award's generally offered BIOS code (not incorporating inventions covered by the BIOS Patent Rights), or the BIOS Code, which add additional features or functions or are made for the purpose of maintaining the compatibility of such code with changes in hardware or operating systems. 2. PATENTS PRICING 2.1 NO AWARD EXPLOITATION OF BIOS PATENT RIGHTS. Award agrees that, without Vobis's prior written consent and except for the development and license to Vobis of the BIOS Code, Award shall not make, have made, use, offer for sale sell, import or export any product, nor practice any method, on which the BIOS Patent Rights read, nor shall Award sublicense any of such rights to any third party. 2.2 NO ACCOUNTING BY VOBIS. Vobis shall not have any obligation to account to Award for any exercise by Vobis of its rights of the BIOS Patent Rights by sublicensing the 2 BIOS Code as embedded in Vobis hardware, except for those accounting obligations required by the BIOS Code license agreements between the parties. 2.3 FUTURE PRICING OF BIOS CODE. Award agrees that for five (5) years after the Effective Date of this Agreement, it shall not increase the license fees or other fees charged to Vobis with respect to the BIOS Code by more than ten percent (10%) annually, and that in all events, Award shall charge Vobis no more than it charges customers licensing similar volumes of copies of Award's BIOS code which does not incorporate inventions covered by the BIOS Patent Rights. 3. BIOS CODE SUPPORT AND CUSTOM DEVELOPMENT WORK. 3.1 SUPPORTING ENGINEERING OF BIOS CODE. Award agrees that for five (5) years after the Effective Date of this Agreement, each time that it creates Corrections, Updates or Upgrades of its generally offered BIOS code (not incorporating inventions covered by the BIOS Patent Rights), it shall promptly create similar Corrections, Updates, or Upgrades (as applicable) of the BIOS Code. Award shall provide such Corrections, Updates, or Upgrades of the BIOS Code to Vobis upon terms and conditions mutually agreeable to the parties, subject to the price increase limitations of Section 2.3. 3.2 SUPPORT. During the Term of this Agreement, Award shall provide to Vobis certain support ("Support") with respect to the BIOS Code as follows: (a) Vobis shall have the right, exercisable through the Designated Employees only, to contact Award by telephone or e-mail, during Award's normal business hours, and to consult with Award for a reasonable period regarding the use or operation of the BIOS Code, including any Errors therein; (b) Vobis shall have the right to have Award exercise its reasonable commercial efforts to identify and correct, and, to the extent deemed reasonable by Award, to provide Corrections for, Errors in the BIOS Code; 3.3 CUSTOM DEVELOPMENT WORK. From time to time during the Term of this Agreement, the Designated Employees may request in writing Award to deliver Updates or Upgrades of the BIOS Code or to develop and deliver Custom Development Work. Such requests shall be in sufficient detail to allow Award's technical staff to clearly understand the nature and scope of the request and shall at all times be technically reasonable. Award and Vobis agree to negotiate in good faith with respect to each such request, subject to the limitations on price increases in Section 2.3, and the agreement of the parties with respect thereto shall be in writing and signed by both parties. Payment to Award for Custom Development Work shall be on a time and materials basis at customary rates then offered by Award to third parties for similar work and subject to the availability of Award personnel and resources. 3.4 NO LICENSE. Vobis expressly acknowledges that Award is not providing or licensing to Vobis any Award intellectual property rights, software or products pursuant to this Agreement. Vobis' use or ownership of the BIOS Code, including all Corrections, Updates and 3 Custom Development Work, shall be governed by the terms of the BIOS Code License Agreement for Source Code entered into by the parties on March 11, 1998, unless otherwise agreed to by the parties in writing. 4. DISCLAIMER OF WARRANTY. 4.1 NO WARRANTY. THE SUPPORT, CUSTOM DEVELOPMENT WORK, UPDATES AND CORRECTIONS ARE PROVIDED "AS IS," WITHOUT WARRANTY OF ANY KIND. AWARD MAKES NO, AND EXPRESSLY DISCLAIMS ALL, WARRANTIES OR CONDITIONS, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF TITLE, NON- INFRINGEMENT OF THIRD PARTY RIGHTS, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 5. LIMITATION OF LIABILITY. IN NO EVENT WILL AWARD BE LIABLE TO VOBIS OR TO ANY THIRD PARTY CLAIMING THROUGH OR UNDER VOBIS FOR ANY LOST PROFITS, LOST SAVINGS, BUSINESS INTERRUPTION, OTHER TANGIBLE BUSINESS LOSS, OR OTHER INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES OR FOR ANY CLAIM BY ANY OTHER PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT OR BASED ON A WARRANTY, ARISING OUT OF THIS AGREEMENT, EVEN IF AWARD HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 6. TERM AND TERMINATION. 6.1 TERM. The term ("Term") of this Agreement shall continue indefinitely unless earlier terminated as herein provided. 6.2 TERMINATION FOR MATERIAL BREACH. Either party may terminate this Agreement for the material breach of the other party which material breach has remained uncured for a period of thirty (30) days from the date of written notice thereof. 6.3 TERMINATION FOR CONVENIENCE. Vobis may terminate this Agreement for convenience upon thirty (30) days' written notice to Award. 7. CONFIDENTIALITY. 7.1 CONFIDENTIAL INFORMATION. Vobis understands and agrees that the Support, Custom Development Work, Upgrades, Updates and Corrections, including without limitation all elements thereof, and including any information disclosed to Vobis in the course of receiving any of the foregoing, whether disclosed orally or in tangible form, is and shall remain the confidential information of Award, regardless of whether so designated in writing (collectively, "Confidential Information"). 7.2 OBLIGATIONS. Vobis shall not use or disclose Confidential Information except as expressly set forth in this Agreement until such time as such Confidential Information becomes publicly-known without breach of this Agreement or violation of applicable law. 4 7.3 EXCEPTIONS. The foregoing obligations shall not apply to any information which: (a) was already lawfully known to Vobis without obligation of confidence prior to disclosure by Award; (b) was lawfully received by Vobis from a third party without obligation of confidence; (c) Vobis can demonstrate by documentary evidence was independently developed by Vobis without access to, or use of, the Confidential Information; (d) is required to be disclosed by applicable law or the order of a court or similar body of competent jurisdiction; provided, however, that in such case Vobis shall give prompt, written notice of such requirement to Award, and shall cooperate reasonably with Award in the obtaining of a protective or similar order with respect to the Confidential Information. 8. GENERAL. 8.1 ASSIGNMENT. Except as otherwise provided herein, neither this Agreement nor any interest hereunder shall be assignable in whole or in part by either party without the prior written consent of the other; provided, however, that Award may assign this Agreement upon notice to any successor by merger or sale of all or substantially all of its business in a manner such that the Award will remain liable and responsible for the performance and observance of all its duties and obligations hereunder. This Agreement will be binding upon the successors and permitted assigns of the parties and the name of a party appearing herein will be deemed to include the names of such party's successors and permitted assigns to the extent necessary to carry out the intent of this Agreement. Any purported assignment which is not in accordance with this SUBSECTION 8.1 ("ASSIGNMENT") will be void. 8.2 FORCE MAJEURE. Neither party will be liable to the other for any default or delay attributable to any cause beyond its reasonable control, including without limitation any fire, floods, earthquake, embargo, war, act of war (whether declared or not), insurrections, riots, civil commotion, strikes, lockouts or other labor disturbances, acts of God or act, omission or delay in acting by any governmental authority, if the party affected gives prompt notice of any such cause to the other party. The party giving such notice will thereupon be excused from such of its obligations hereunder as it is thereby disabled from performing for sixty (60) days thereafter; provided, however, that such affected party commences and continues to take reasonable and diligent actions to cure such cause. 8.3 GOVERNING LAW, VENUE AND LEGAL FEES AND COSTS. This Agreement shall be governed by the laws of the State of California, excluding its conflict of law provisions. Any suit hereunder shall be brought solely in the Federal or State courts located in Santa Clara County, California, and both parties hereby submit to the jurisdiction thereof. The prevailing party in any legal action brought by one party against the other and arising out of this Agreement shall be entitled, in addition to any other rights and remedies it may have, to reimbursement for its 5 expenses, including court costs and reasonable attorneys' fees. The United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement. 8.4 SURVIVAL. SECTION 1 ("DEFINITIONS"), SECTION 2 ("PATENTS AND PRICING"), SUBSECTION 3.3 ("NO LICENSE"), SECTION 4 ("DISCLAIMER OF WARRANTY"), SECTION 5 ("LIMITATION OF LIABILITY"), SECTION 6 ("TERM AND TERMINATION"), SECTION 7 ("CONFIDENTIALITY") and SECTION 8 ("GENERAL") shall survive any termination or expiration of this Agreement, and shall continue to bind the parties, their permitted assigns and successors. 8.5 NOTICES. All notices under this Agreement shall be addressed to the parties at the addresses set forth below. Either party may change its address for purposes of this SUBSECTION 8.5 ("NOTICES") upon delivery of notice thereof to the other party: AWARD SOFTWARE INTERNATIONAL, INC. 777 East Middlefield Road Mountain View, CA 94043 VOBIS MICROCOMPUTER AG Carlo-Schmid-Strasse 12, D-52146 Wuerselen, Germany 8.6 AMENDMENT. No amendment, modification or supplement of any provision of this Agreement will be valid or effective unless made in writing and signed by a duly authorized officer of each party. 8.7 WAIVER. No provision of the Agreement may be waived by any act, omission or knowledge of a party or its agents or employees except by an instrument in writing expressly waiving such provision and signed by a duly authorized officer of the waiving party. 8.8 SEVERABILITY. Whenever possible, each provision of the Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of the Agreement. 8.9 ENTIRE AGREEMENT. This Agreement including all exhibits hereto will constitute and contain the complete, final and exclusive understanding and agreement of the parties and supersedes any and all prior negotiations, correspondence, understandings and agreements, whether oral or written, between the parties respecting the subject matter hereof. 8.10 HEADINGS. The section headings appearing in this Agreement are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent of any such section nor in any way affect this Agreement. 6 ACCEPTED AND AGREED: VOBIS MICROCOMPUTER AG By:_______________________________ Title:____________________________ Date:_____________________________ AWARD SOFTWARE INTERNATIONAL, INC. By:_______________________________ Title:____________________________ Date:_____________________________ 7 EXHIBIT A BIOS CODE Firmware commonly referred to as "P-BIOS" existing as of the Effective Date and containing inventions, apparatus, devices, or processes covered by the BIOS Patent Rights embodied in one or more of the following: 1. CGA-MODES, as described in the attached patent abstract #5,726,680 issued March 10, 1998. 2. Scrolling, as described in application serial #08/537,801 filed February 17, 1995. 3. Floppy-Bios, as described in application serial #08/891,032 filed June 7, 1996. 8 EXHIBIT B CUSTOM DEVELOPMENT WORK VOBIS MICROCOMPUTER AG AWARD SOFTWARE INTERNATIONAL, INC. By:_______________________________ By:_________________________________ Title:____________________________ Title:______________________________ Date:_____________________________ Date:_______________________________ 9 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 6-MOS DEC-31-1998 DEC-31-1998 APR-01-1998 JAN-01-1998 JUN-30-1998 JUN-30-1998 0 26,432 0 0 0 4,535 0 (180) 0 0 0 2,614 0 2,423 0 (1,070) 0 36,477 0 3,790 0 0 0 0 0 0 0 23,097 0 9,433 0 36,477 6,202 12,608 6,202 12,608 471 1,071 471 1,071 4,361 8,841 0 0 0 0 1,692 3,331 508 999 1,184 2,332 0 0 0 0 0 0 1,184 2,332 0.17 0.33 0.15 0.30
-----END PRIVACY-ENHANCED MESSAGE-----