-----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, VIOO8poZf9swdREYcaTQuJ78PcPxr13QaOmLAE3nPo2FsTRZtxF5hAJxdOXX9C81 8Q4CfMxGMFI5EdV55jL1eA== 0000891618-96-000743.txt : 19960605 0000891618-96-000743.hdr.sgml : 19960605 ACCESSION NUMBER: 0000891618-96-000743 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19960603 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AWARD SOFTWARE INTERNATIONAL INC CENTRAL INDEX KEY: 0001013920 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-05107 FILM NUMBER: 96576336 BUSINESS ADDRESS: STREET 1: 777 E MIDDLEFIELD ROAD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 4159684433 MAIL ADDRESS: STREET 1: 777 E MIDDLEFIELD ROAD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 S-1 1 FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE , 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- AWARD SOFTWARE INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 5098 94-2893462 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification Number) incorporation or organization)
--------------------- 777 EAST MIDDLEFIELD ROAD MOUNTAIN VIEW, CALIFORNIA 94043 (415) 968-4433 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) GEORGE C. HUANG CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER AWARD SOFTWARE INTERNATIONAL, INC. 777 EAST MIDDLEFIELD ROAD MOUNTAIN VIEW, CALIFORNIA 94043 (415) 968-4433 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- Copies to: JAMES C. KITCH, ESQ. ROBERT T. CLARKSON, ESQ. MATTHEW P. FISHER, ESQ. ADELE C. FREEDMAN, ESQ. COOLEY GODWARD CASTRO WILSON SONSINI GOODRICH & ROSATI, P.C. HUDDLESON & TATUM 650 PAGE MILL ROAD FIVE PALO ALTO SQUARE PALO ALTO, CALIFORNIA 94304-1050 3000 EL CAMINO REAL (415) 493-9300 PALO ALTO, CALIFORNIA 94306-2155 (415) 843-5000
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous bases pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / --------------------- CALCULATION OF REGISTRATION FEE PROPOSED MAXIMUM PROPOSED MAXIMUM AGGREGATE TITLE OF SECURITIES OFFERING PRICE OFFERING AMOUNT OF TO BE REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE Common Stock................................. $11,897
(1) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457 under the Securities Act of 1933. --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 AWARD SOFTWARE INTERNATIONAL, INC. CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
ITEM NUMBER AND HEADING IN FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS - --------------------------------------------------- ------------------------------------------ 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus..... Facing Page of Registration Statement; Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus................................. Inside Front and Outside Back Cover Pages 3. Summary Information, Risk Factors, and Ratio of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors 4. Use of Proceeds.............................. Use of Proceeds 5. Determination of Offering Price.............. Outside Front Cover Page; Underwriting 6. Dilution..................................... Dilution 7. Selling Shareholders......................... Principal and Selling Shareholders; Certain Transactions 8. Plan of Distribution......................... Outside Front and Inside Front Cover Pages; Underwriting 9. Description of Securities to be Registered... Prospectus Summary; Capitalization; Description of Capital Stock 10. Interests of Named Experts and Counsel....... Legal Matters; Experts 11. Information with Respect to the Registrant... Outside Front and Inside Front Cover Pages; Prospectus Summary; Risk Factors; Dividend Policy; Capitalization; Selected Consolidated Financial Information; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Transactions; Principal and Selling Shareholders; Description of Capital Stock; Shares Eligible for Future Sale; Additional Information; Consolidated Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities................................ Not Applicable
3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS Subject to Completion Dated June , 1996 2,000,000 Shares LOGO Common Stock Of the 2,000,000 shares of common stock ("Common Stock") offered hereby, 1,250,000 are being sold by Award Software International, Inc., a California Corporation (the "Company" or "Award"), and 750,000 shares are being sold by Selling Shareholders. See "Principal and Selling Shareholders." The Company will not receive any proceeds from the sale of the Common Stock by the Selling Shareholders. Prior to the Offering, there has been no public market for the Common Stock. It is currently anticipated that the initial public offering price will be between $ and $ per share. See "Underwriting" for information relating to the factors to be considered in determining the initial public offering price. Application has been made for the Common Stock to be approved for quotation on the Nasdaq National Market under the symbol "AWRD." SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------------------------- PROCEEDS TO PRICE TO UNDERWRITING PROCEEDS TO SELLING PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS - -------------------------------------------------------------------------------------------------- Per Share $ $ $ $ - -------------------------------------------------------------------------------------------------- Total(3) $ $ $ $ - --------------------------------------------------------------------------------------------------
(1) The Company and certain of the Selling Shareholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses of the Offering payable by the Company estimated at $ . (3) The Company has granted the Underwriters an option to purchase up to an additional 300,000 shares of Common Stock, on the same terms as set forth above, solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock being offered by this Prospectus are being offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to approval of certain legal matters by Wilson Sonsini Goodrich & Rosati, P.C., counsel for the Underwriters. It is expected that delivery of the shares of Common Stock will be made against payment therefor on or about , 1996 at the offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York. J.P. MORGAN & CO. PRUDENTIAL SECURITIES INCORPORATED NEEDHAM & COMPANY, INC. , 1996 4 (COLOR ART WORK) 2 5 No person has been authorized to give any information or to make any representations not contained in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or any Underwriters. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, the Common Stock in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation. No action has been or will be taken in any jurisdiction by the Company, the Selling Shareholders or by any Underwriter that would permit a public offering of the Common Stock or possession or distribution of this Prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons into whose possession this Prospectus comes are required by the Company, the Selling Shareholders and the Underwriters to inform themselves about and to observe any restrictions as to the offering of the Common Stock and the distribution of this Prospectus. TABLE OF CONTENTS
Page Prospectus Summary....................... 4 Risk Factors............................. 6 Use of Proceeds.......................... 12 Dividend Policy.......................... 12 Capitalization........................... 12 Dilution................................. 13 Selected Consolidated Financial Information............................ 14 Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 15 Business................................. 22 Page Management............................... 29 Certain Transactions..................... 33 Principal and Selling Shareholders....... 36 Description of Capital Stock............. 39 Shares Eligible for Future Sale.......... 41 Underwriting............................. 43 Legal Matters............................ 43 Experts.................................. 43 Additional Information................... 44 Index to Consolidated Financial Statements............................. F-1
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The Company intends to furnish its shareholders annual reports containing consolidated financial statements audited by its independent auditors and quarterly reports containing consolidated unaudited financial statements for each of the first three quarters of each year. The Company's logo, SMSAccess, USBAccess, RPBAccess, APMAccess, DMIAccess, WWWAccess and BIOSAccess are trademarks of the Company. This Prospectus also includes trademarks of companies other than the Company. 3 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and consolidated financial statements, including notes thereto, appearing elsewhere in this Prospectus. For a discussion of certain factors to be considered in evaluating an investment in the shares of Common Stock offered hereby, see "Risk Factors." Except as otherwise noted, all information in this Prospectus (i) assumes no exercise of the Underwriters' over-allotment option; and (ii) reflects a 1-for-2 reverse stock split of the currently outstanding Common Stock. See "Description of Capital Stock" and "Underwriting." THE COMPANY Award designs, develops and markets system management software for the global computing market. System management software is one of the fundamental layers in personal computer ("PC") architecture and provides an essential interface between a PC's operating system software and hardware. The Company's principal system management software products include a suite of Basic Input/Output System software ("BIOS"). Award's customers include designers and manufacturers of motherboards, PC systems and other microprocessor-based (or "embedded") devices. The Company believes that its products and engineering services enable customers to rapidly develop new motherboard designs for state-of-the-art computer systems. The Company markets and licenses its products and services worldwide and has established itself as a leading provider of desktop system management software in Asia, which accounts for approximately 40% of worldwide desktop motherboard production. The BIOS, which is the software initially executed after the system is turned on, tests and initializes hardware components, initiates the operating system and then provides advanced interface functions. Award's desktop BIOS products enable a PC to support a number of key advanced technologies, including Plug and Play, Peripheral Component Interconnect ("PCI"), Desktop Management Interface ("DMI") and Advanced Power Management ("APM"). The Company is currently developing further enhancements to its BIOS, including support for Universal Serial Bus ("USB"). The Company's embedded device BIOS provides customized features to address the specialized needs of its customers in this market. In addition to the Company's proprietary suite of system management software products, Award offers PC Card software that enables PCs and other electronic devices to recognize, install, configure and operate peripheral devices, such as a network or modem card. The Company currently services more than 100 customers worldwide, including many of the world's leading original equipment and embedded device manufacturers. In response to its customers' need to develop and integrate new technologies rapidly, the Company has developed its business with a particular emphasis on providing local engineering service and support in each of its major target regions: Asia (especially Taiwan), North America and Europe. The Company is increasing its presence in Europe through a strategic relationship with Vobis Microcomputer AG ("Vobis"), pursuant to which the Company and Vobis are jointly developing BIOS and utilities for the desktop PC and embedded device markets. As part of this relationship, Vobis has purchased approximately 12% of the Company's Common Stock. The Company is leveraging its existing customer relationships and desktop expertise to develop system management software for the mobile and network computing markets. The Company anticipates that leading Taiwanese desktop system and motherboard manufacturers, many of which are Award customers, will enter the mobile PC market and, in response, the Company is developing enhanced system management software for mobile PCs. In addition, the Company is developing a suite of applications called SMSAccess, which will enable remote access, diagnosis and repair of disabled systems. The Company was incorporated in California in 1983. The Company's executive officers are located at 777 East Middlefield Road, Mountain View, California 94043, and its telephone number is (415) 968-4433. Award's home page can be located on the World Wide Web at http://www.award.com. Information contained in the Company's web site shall not be deemed to be a part of this Prospectus. 4 7 THE OFFERING The 2,000,000 shares of Common Stock initially being offered is referred to herein as the "Offering." COMMON STOCK OFFERED: By the Company(1)................................... 1,250,000 shares By the Selling Shareholders......................... 750,000 shares TOTAL OFFERING(1)................................... 2,000,000 shares COMMON STOCK TO BE OUTSTANDING AFTER THE OFFERING(1)......................................... 6,207,127 shares USE OF PROCEEDS BY THE COMPANY........................ Product development, working capital and other general corporate purposes, including possible acquisitions of complementary products and technologies. See "Use of Proceeds." PROPOSED NASDAQ NATIONAL MARKET SYMBOL................ "AWRD"
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
-------------------------------------------------------------------- PREDECESSOR PREDECESSOR THE COMPANY ---------------- AND THE ----------------------------------- COMPANY THREE MONTHS ----------- ENDED YEARS ENDED DECEMBER 31, ------------------------------------------------ 1991 MARCH 31, ------ --------------- Dollars in thousands, except per share data 1992 1993(2) 1994 1995 1995 1996 ------- ----------- ------ ------ ------ ------ (UNAUDITED) (UNAUDITED) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: Software and engineering services $6,487 $ 5,698 $ 3,820 $5,746 $7,228 $1,601 $2,306 Related parties -- -- 50 972 1,902 455 506 ------ ------- ----------- ------ ------ ------ ------ Total revenues 6,487 5,698 3,870 6,718 9,130 2,056 2,812 Gross profit 5,673 5,182 3,662 6,127 8,494 1,971 2,524 Net income (loss) $ (72) $ (296) $(1,833) $1,258 $1,165 $ 316 $ 386 Net income per share(3) $ 0.20 $ 0.18 $ 0.05 $ 0.06 Weighted average common and common equivalent shares in thousands(3) 6,307 6,500 6,622 6,047
----------------------------- THE COMPANY ----------------------------- MARCH 31, 1996 ----------------------------- Dollars in thousands ACTUAL AS ADJUSTED(4) ------- --------------- (UNAUDITED) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents $10,591 $ Working capital 11,315 Total assets 14,238 Total shareholders' equity 12,068
- --------------- (1) Assumes no exercise of the underwriters' over-allotment option. Excludes an aggregate of 1,250,000 shares reserved for issuance under the Company's 1995 Stock Option Plan, of which 951,113 shares were subject to outstanding options as of May 31, 1996, and 595,727 shares of Common Stock issuable upon exercise of outstanding warrants. See "Capitalization," "Management-Stock Option Plan," "Certain Transactions" and Note 7 of Notes to Consolidated Financial Statements. (2) Includes the combined results of operations for the Company and its predecessor, Award Software, Inc. (the "Predecessor"). The Company was acquired in July 1993, which resulted in a new historical accounting basis for the Company. The results of operations for the Predecessor for the period January 1, 1993 through July 1, 1993 and the Company for the period July 2, 1993 through December 31, 1993 have been combined to facilitate presentation of the results of operations on a calendar year basis. See Consolidated Financial Statements. (3) For an explanation of the determination of the weighted average number of shares used in computing net income per share, see Note 2 of Notes to Consolidated Financial Statements. (4) As adjusted to reflect the sale of 1,250,000 shares of Common Stock offered by the Company hereby, assuming an initial public offering price of $ per share, after deducting underwriting discounts and estimated offering expenses payable by the Company. 5 8 RISK FACTORS In addition to the other information in this Prospectus, the following risk factors should be considered carefully by potential investors in evaluating an investment in the Common Stock offered hereby. This Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21A of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below. FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY The Company has experienced and expects to continue to experience fluctuations in its quarterly results of operations. The Company's revenues are affected by a number of factors, including the demand for PCs and embedded devices, timing of new product introductions, product mix, volume and timing of customer orders, activities of competitors and the ability of the Company to penetrate new markets. The Company's business is seasonal with revenues generally increasing in the fourth quarter as the result of increased PC shipments during the holiday season. Consequently, during the three quarters ending in March, June and September, the Company has historically not been as profitable as in the quarter ending in December. In addition, the Company's revenues and profits have historically decreased in the first quarter of each year as compared with the fourth quarter of the previous year. The Company generally ships orders as they are received and, as a result, has little or no backlog. Quarterly revenues and results of operations therefore depend on the volume and timing of orders received during the quarter, which are difficult to forecast. Because the Company's staffing and other operating expenses are based on anticipated revenues, delays in the receipt of orders can cause significant variations in results of operations from quarter to quarter. The Company also may choose to reduce prices or to increase spending in response to competition or to pursue new market opportunities, which may adversely affect the Company's results of operations. Therefore, the Company believes that period-to-period comparisons of its revenues and operating results are not necessarily meaningful and should not be relied upon as indicators of future performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Due to all of the foregoing factors, it is likely that in some future quarters the Company's operating results will be below the expectations of public market analysts and investors. Regardless of the general outlook for the Company's business, the announcement of quarterly results of operations below analyst and investor expectations is likely to result in a decline in the trading price of the Company's Common Stock. DEPENDENCE UPON THE UNDERLYING PC INDUSTRY; DEPENDENCE ON CURRENT PC INDUSTRY STANDARDS The demand for the Company's system management software depends principally on (i) PC manufacturers and other customers licensing the Company's software rather than developing their own system management software, (ii) the market acceptance of the products, which incorporate the Company's software, sold by the Company's original equipment manufacturer ("OEM") customers, (iii) the emergence of new PC technologies that require system management software solutions to provide functionality, user value and performance, and (iv) the technological competence of the Company's core products. Sales of PCs fluctuate substantially from time to time based on numerous factors, including general economic conditions in the markets for the Company's customers' products, new hardware and software product introductions, demand for new applications and shortages of key components. Further, the markets in the PC industry are extremely competitive and characterized by rapid and frequent price reductions. The introduction of new hardware architectures, microprocessors, peripheral equipment and operating systems within the PC industry has increased the complexity, time to market and cost to develop PCs. A number of computer manufacturers, including IBM Corporation ("IBM") and Compaq Computer Corporation ("Compaq"), develop their own BIOS products to achieve compatibility with and integrate new technologies into their products. While the Company believes that price and time-to-market pressures will continue to foster a trend among its customers and potential customers to outsource system management software requirements to third parties, there can be no assurance that this trend will continue or will not reverse itself, which would have a material adverse effect on the business and results of operations of the Company. See "Business -- Industry Background" and "-- Award Strategy." The Company's software to date has been primarily based on central processing units ("CPUs") designed by or compatible with those of Intel Corporation ("Intel") and operating system software designed by Microsoft Corp. ("Microsoft"). If the market for Intel and Intel-compatible CPUs with x86 architecture is materially diminished or if another CPU, such as the Motorola, Inc.'s "PowerPC," achieves a high degree of success, demand for the Company's current software would be reduced. In addition, most of the Company's software has been installed on computers using Microsoft's MS/DOS or Windows operating systems. If Microsoft's operating systems, cease to be the dominant operating system 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. 6 9 CONCENTRATION OF REVENUES FROM DESKTOP BIOS The Company depends on sales of desktop BIOS for a substantial majority of its revenues. The Company has not generated substantial revenues from the sale of other products to date, including sales of mobile PC products. If sales of the Company's desktop BIOS decline for any reason, the Company's financial condition and results of operations would be adversely affected, unless the Company is able to replace those sales with increased sales of other products. Sales of desktop BIOS could decline for a number of reasons, including a shift in the market for PCs away from desktop PCs in favor of mobile PCs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." COMPETITION The markets for the Company's software are highly competitive. The Company faces competition primarily from other system management software companies, including American Megatrends, Inc., Phoenix Technologies Ltd. and SystemSoft Corporation, as well as in-house software development staffs of current and prospective customers. Certain of the companies with which the Company competes or may in the future compete have substantially greater financial, marketing, sales and support resources and greater brand-name and technology leadership recognition than the Company. There can be no assurance that the Company will be able to develop software comparable or superior to software offered by its competitors. In addition, the PC market experiences intense price competition and the Company expects that, in order to remain competitive, it may have to decrease unit prices on some or all of its software products. Any such decrease would have a material adverse effect on the Company's business and results of operations. The Company believes that interdependencies may develop between system management software companies and their customers, which would need to be overcome in order to replace an entrenched competitor. While 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 or increase market presence, particularly in the mobile PC market, where competitors may already have strong relationships with certain mobile PC manufacturers. Intel has entered into formal agreements with, and become a significant shareholder in, Phoenix Technologies Ltd. and SystemSoft Corporation. In addition, SystemSoft Corporation has entered into agreements with Microsoft, IBM and Compaq to license its PC Card software. Operating system software vendors may in the future enter the Company's primary markets as direct competitors or incorporate enough features into their products so as to reduce the need for the Company's products. For example, Microsoft's Windows 95 operating system incorporates certain basic PC Card and Plug and Play software; the primary customer of the Company's PC Card software has indicated that it will rely on this operating system rather than continue to license the Company's PC Card software. As software developers provide greater functionality and features, user value and performance in their products that eliminate or reduce the need for the Company's system management software, the market for the Company's products could be materially diminished. In addition, chipset manufacturers, including Intel, may increase their presence in the motherboard manufacturing market, which may have an adverse effect on the Company's OEM customers. There can be no assurance that other participants in the PC industry will not develop products and solutions that reduce the demand or obviate the need for the Company's products. See "Business -- Competition." ABILITY TO RESPOND TO RAPID TECHNOLOGICAL CHANGE The market for system management software is characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. The general trend in the PC industry is toward shorter product life cycles, resulting in rapid product and technology obsolescence. The life cycle of the Company's products is highly dependent on the life cycles of the products sold by its customers, who are primarily in the desktop PC industry. Although the Company's core products, specifically, the desktop and embedded device BIOS and PC Card software, may have a life cycle as long as several years, specific customized adaptations of the Company's core products are generally expected to have a life cycle of six months to one year. The Company's future success will depend upon its ability to enhance its core software and to develop and introduce new software which keeps pace with technological developments and evolving industry standards as well as to respond to its customers' and end-users' demand for greater features and functionality. The Company is currently developing certain technologies that it will need to remain competitive, particularly system management software that supports USB. If the Company fails to introduce such products by the time USB becomes an industry standard, the Company's business and results of operations will be adversely affected. There can be no assurance that the Company will be successful in developing such enhancements and new software, or, if successful, that it will not experience delays in achieving such developments. Any failure or delay by the Company to develop such enhancements or new software or the failure of its software to achieve market acceptance, would adversely affect the Company's business, financial condition and results of operations. In addition, there can be no assurance that products or technologies developed by others will not render the Company's software or technologies non-competitive or obsolete. See "Business -- Industry Background" and "-- Product Development." 7 10 UNCERTAIN ACCEPTANCE IN NEW AND DEVELOPING MARKETS The Company's future success is dependent on customer acceptance of new products and penetration of markets outside the desktop PC market. There can be no assurance that the Company will be able to expand its products and technologies into the mobile PC, embedded device and network computing and Internet markets or that the Company will be able to increase its market presence in the desktop PC market. Expansion of the Company's software and technology into the mobile PC market will depend primarily on the Company's ability to replace entrenched competitors. Penetration of markets outside the desktop PC market, such as the embedded device market, will depend upon the development and availability of system management software providing the necessary functionality and customer acceptance for 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 such products will not be developed by others rendering the Company's products obsolete or noncompetitive. 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 that if it does, the Company will be able to design system management software that will address the unique requirements of the embedded device market. Further, since the Company's experience and expertise are based on Intel x86 architecture, the Company's success in the embedded device market is significantly dependent on Intel's continued commitment to, and the increased presence of x86 architecture in, this market. No assurance can be given that Intel will not de-emphasize or withdraw its support of the embedded device market or that the trend toward x86 architecture in the embedded device market will continue, any of which could result in a material adverse effect on the Company's growth strategies, financial condition and results of operations. Certain of the markets for the Company's existing and future products, such as the Internet and private internet protocol networks ("Intranet"), have only recently begun to develop and are rapidly evolving. Demand and market acceptance for recently introduced or developing products are subject to a high level of uncertainty and risk. Critical issues concerning the commercial use of the Internet remain unresolved and could adversely affect the growth of Internet use. There can be no assurance that commerce and communication over the Internet or Intranet will become widespread, or that the Company's planned products addressing the Internet and Intranet markets will become widely accepted. Because these markets for the Company's existing and developing products are new and rapidly emerging, it is difficult to predict the future growth rate, if any, and size of these markets. There can be no assurance that such markets for the Company's existing and developing products and technology will develop or that such products will be accepted. If these markets fail to develop, develop more slowly than anticipated or become saturated with competitors, or if the Company's products do not obtain customer acceptance, the Company's business, operating results and financial condition could be materially adversely affected. See "Business -- Award Strategy." DEPENDENCE ON KEY CUSTOMER RELATIONSHIPS; CONCENTRATION OF CREDIT RISK The Company believes that its success to date has been largely due to its relationship with participants in the desktop PC industry, particularly OEMs in the desktop PC market. The Company works closely with its customers to provide quick response to their product design needs and assists them in evaluating new technological developments as they affect future products and enhancements to be sold by the Company's customers. The loss of any one of these strategic relationships or any other significant customer in the PC industry could adversely affect the Company's product development efforts, business, financial condition and results of operations. In the year ended December 31, 1995, Vobis and Toshiba Europa (I.E.) GmbH ("Toshiba") accounted for approximately 13% and 14%, respectively, of the Company's total revenues. In the quarter ended March 31, 1996, Vobis and Toshiba accounted for approximately 18% and 13%, respectively, of the Company's total revenues. The loss of any key customer or the inability of the Company to replace revenues provided by a key customer would have a material adverse effect on the Company's business, financial condition and results of operations. Toshiba recently indicated that it intends to discontinue licensing the Company's PC Card software, and, therefore, the Company does not currently expect to receive material revenues from this customer during the second half of 1996. Further, the Company's customer base consists primarily of OEMs in the desktop PC market, and as a result the Company maintains individually significant receivable balances from major OEMs. If these OEMs fail to satisfy their payment obligations, the Company's financial condition and results of operations would be adversely affected. DEPENDENCE ON KEY PERSONNEL; ABILITY TO ATTRACT AND RETAIN KEY TECHNICAL EMPLOYEES The Company's success to date has depended to a significant extent upon a number of key management and technical employees. The loss of services of one or more of these key employees, particularly George C. Huang, the Company's Chairman of the Board, President and Chief Executive Officer; Lyon T. Lin, General Manager, Taiwan and President, Award Software Hong Kong Limited, Taiwan Branch; and Maurice W. Bizzarri, the Company's Vice President, Engineering and Product Marketing, could have a material adverse effect on the Company's business and financial condition. Except for the Company's employees in Germany, none of the Company's employees is party to an employment agreement with the Company. The Company believes that its future success will also depend in 8 11 large part upon its ability to attract and retain highly skilled technical, management and sales and marketing personnel. Moreover, because the development of the Company's software requires knowledge of computer hardware, operating system software, system management software and application software, key technical personnel must be proficient in a number of disciplines. Competition for such technical personnel is intense, and the failure of the Company to hire and retain talented technical personnel or the loss of one or more key employees could have an adverse effect on the Company's business and results of operations. Future growth, if any, of the Company will require additional engineering, sales and marketing, financial and administrative personnel, to expand customer services and support and to expand operational and financial systems. There can be no assurance that the Company will be able to attract and retain the necessary personnel to accomplish its growth strategies or that it will not experience constraints that will adversely affect its ability to satisfy customer demand in a timely fashion. If the Company's management is unable to manage growth effectively, the Company's business and financial condition could be adversely affected. MANAGEMENT OF GROWTH The growth of the Company's business and, in particular, the Company's customer base, has placed, and is expected to continue to place, a strain on the Company's management systems and resources. The Company's ability to compete effectively and manage future growth, if any, will require the Company to continue to improve its financial and management controls, reporting systems and procedures on a timely basis and expand, train and manage its work force. There can be no assurance that the Company will be able to do so successfully, and the failure to do so would have a material adverse effect upon the Company's business, operating results and financial condition. 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 in public companies in their current roles. INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS; INTERNATIONAL UNREST The Company operates on a multinational basis, and a significant portion of its business is conducted in currencies other than the U.S. Dollar. As a result, the Company is subject to various risks, including exposure to currency fluctuations, greater difficulty in administering its business globally, multiple regulatory requirements and other risks associated with international sales, such as import and export licenses, political and economic instability, overlapping or differing tax structures, trade restrictions, changes in tariff rates, different legal regimes and difficulty in protecting intellectual property, enforcing agreements and collecting accounts receivable. Although amounts have been immaterial to date, fluctuations of foreign currencies in relation to the U.S. Dollar could affect the Company's 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 financial condition or results of operations. In addition, recent events such as the elections in Taiwan and the military maneuvers conducted by the Peoples Republic of China in the Straits of Taiwan have increased tensions in that area. In the event that actual hostilities erupted between the two countries, the operations of the Company's customers might be interrupted for an indeterminate period of time, which would have a material adverse effect on the Company's business and financial condition. 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 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. The Company has patent applications pending in the U.S. and/or abroad on six inventions, three of which are owned jointly with a third party. Despite these precautions, 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 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 countries, 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 rights to determine the scope of the proprietary rights of others or to defend against claims of infringement. Moreover, although the Company is not currently involved in any litigation with respect to intellectual property rights, in the past there have been allegations that certain portions of the Company's core BIOS infringed on a third party's copyrights. In response, the Company rewrote certain software routines in a "clean room" procedure and is upgrading its customers to the new version of such software routines in order to avoid any further allegations of infringement. The Company believes that its software does not presently infringe the copyrights of any third parties. However, there can be no assurance that other parties will not make allegations of infringement in the future. Such assertions could require the Company 9 12 to discontinue the use of certain software codes or processes, to cease the manufacture, use and sale of infringing products, to incur significant litigation costs and expenses and to develop non-infringing technology or to obtain licenses to the alleged infringing technology. Although the Company has been able to acquire licenses from third parties in the past, there can be no assurance that the Company would be able to develop alternative technologies or to obtain such licenses or, if a license were obtainable, that the terms would be commercially acceptable to the Company in the event such assertions are made in the future. CONTROL BY MANAGEMENT SHAREHOLDERS Upon completion of the Offering, the directors and executive officers of the Company as a group will beneficially own approximately 48% of the outstanding Common Stock, excluding the exercise of the Underwriters' over-allotment option. As a result, such persons will have the ability to control the business and affairs of the Company. Such concentration of ownership may have the effect of delaying or preventing a change in control of the Company. See "Management" and "Principal and Selling Shareholders." SIGNIFICANT UNALLOCATED NET PROCEEDS The principal purposes of the Offering are to create a public market for the Company's Common Stock, facilitate future access to capital markets and enhance the Company's ability to use its Common Stock as consideration for acquisitions and as a means of attracting and retaining key employees. The Company intends to use the net proceeds for general corporate purposes, including working capital and product development. The Company may use a portion of the net proceeds to acquire technologies or products complementary to the Company's business and growth strategy. The Company has no other specific uses of the proceeds of the Offering, and the exact uses of such proceeds will be subject to the discretion of management. See "Use of Proceeds." SHARES ELIGIBLE FOR FUTURE SALE Sales of a substantial number of shares of Common Stock in the public market following this offering could adversely affect the market price for the Company's Common Stock. Upon completion of this offering, the Company will have outstanding 6,207,127 shares of Common Stock, assuming no exercise of the Underwriters' over-allotment option and no exercise of outstanding options and warrants. Of these shares, the 2,000,000 shares sold in the Offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended (the "Securities Act"). The remaining 4,207,127 shares of Common Stock held by existing shareholders are "restricted securities" as such term is defined in Rule 144 under the Securities Act (the "Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 or Regulation S promulgated under the Securities Act. The Company, all directors and executive officers and certain shareholders of the Company have agreed not to sell or otherwise dispose of any shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of J.P. Morgan Securities Inc. As a result of contractual restrictions and the provisions of Rules 144 and 701 and Regulation S, additional shares will be available for sale in the public market as follows: (i) no Restricted Shares will be eligible for immediate sale on the date of this Prospectus, (ii) 5,000 Restricted Shares and 324,727 shares of Common Stock issuable upon exercise of currently outstanding options will be eligible for sale beginning 90 days after the date of this Prospectus and (iii) 4,202,157 Restricted Shares, 44,214 additional shares of Common Stock issuable upon exercise of currently outstanding options and 595,727 shares of Common Stock issuable upon exercise of currently outstanding warrants will be eligible for sale 180 days after the date of this Prospectus upon expiration of lock-up agreements. The Restricted Shares will be eligible for sale from time to time after completion of this offering. After the Offering, the holders of approximately 1,735,699 shares of Common Stock will be entitled to certain demand and piggyback rights with respect to registration of such shares under the Securities Act. If such holders, by exercising their demand rights, cause a large number of securities to be registered and sold in the public market, such sales could have an adverse effect on the market price for the Company's Common Stock. If such holders, by exercising their piggyback registration rights, cause a large number of their shares to be included in a public offering by the Company, the obligation to include such shares could have an adverse effect on the market price for the Company's Common Stock or on the Company's ability to raise capital. See "Underwriting" and "Shares Eligible for Future Sale." NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offering, there has not been any public market for the Company's Common Stock, and there cannot be any assurance that an active trading market will develop or be sustained after the Offering. The initial public offering price for the Common Stock to be sold by the Company and the Selling Shareholders will be determined by negotiation among representatives of the Company, the Selling Shareholders and the representatives of the Underwriters and may not be indicative of the future market price. The trading price of the Common Stock could be subject to wide fluctuations in response to quarter-to-quarter variations in operating results, changes in earnings estimates by analysts, announcement of technological innovations or new products by the Company or its competitors, general conditions in the system management software and PC industries and other events or factors. In addition, in recent years the stock market in general, and the shares of technology companies in particular, have experienced extreme price fluctuations. These broad market fluctuations may adversely affect the market price of the Common Stock. See "Underwriting." In addition, there has been significant volatility in the market price of securities of technology-based companies similar in size to the Company. Factors such as announcements of technological developments or new products by the Company or its competitors, variations in the Company's 10 13 quarterly operating results, or general economic or stock market conditions unrelated to the Company's operating performance may adversely affect the market price of the Company's Common Stock. DILUTION Purchasers of shares of Common Stock offered hereby will suffer an immediate and substantial dilution of $ in the net tangible book value per share of the Common Stock, assuming an initial public offering price of $ per share. In the event the Company raises additional funds through the issuance of equity securities, the investors participating in the Offering may experience further dilution. To the extent outstanding options, warrants and other rights to purchase shares of Common Stock are exercised, there will be further dilution. See "Dilution," "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources," "Certain Transactions" and "Capitalization." 11 14 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered by the Company hereby are estimated to be approximately $ ($ if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $ . The Company will not receive any of the net proceeds from the sale of shares by the Selling Shareholders. The principal purposes of the Offering are to create a public market for the Company's Common Stock, facilitate future access to capital markets and enhance the Company's ability to use its Common Stock as consideration for acquisitions and as a means of attracting and retaining key employees. The Company intends to use the net proceeds for working capital and general corporate purposes, including an increase in the Company's internal product development, staffing in connection with new product introductions and other related product development expenditures. A portion of the proceeds may also be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, the Company evaluates potential acquisitions of such businesses, products or technologies. The Company has no present understandings, commitments or agreements with respect to any material acquisitions of other businesses, products or technologies. Pending use of the net proceeds for the above purposes, the Company intends to invest such funds in short-term, interest-bearing, investment-grade securities. DIVIDEND POLICY The Company does not pay any cash dividends on its capital stock. The Company currently intends to retain any future earnings to finance the growth and development of its business and therefore does not anticipate paying any cash dividends in the foreseeable future. Any future determination relating to dividend policy will be made at the discretion of the Board of Directors of the Company and will depend on a number of factors, including the future earnings, capital requirements, financial condition and future prospects of the Company and such other factors as the Board of Directors may deem relevant. CAPITALIZATION The following table sets forth (i) the actual capitalization of the Company as of March 31, 1996, and (ii) the pro forma capitalization as adjusted to reflect the sale by the Company of 1,250,000 shares in the Offering (assuming an initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and offering expenses) and the application of the estimated net proceeds therefrom:
------------------------- MARCH 31, 1996 ------------------------- ACTUAL ---------- AS Dollars in thousands ADJUSTED ---------- (UNAUDITED) Shareholders' equity Preferred Stock, no par value, 5,000,000 shares authorized; no shares issued or outstanding $ -- $ -- Common Stock, no par value, 40,000,000 shares authorized; 4,957,127 shares issued and outstanding, actual 6,207,127 shares issued and outstanding, as adjusted(1) 10,726 Deferred stock compensation (236) (236) Retained earnings 1,631 1,631 Cumulative translation adjustment (53) (53) ---------- ---------- Total shareholders' equity 12,068 ---------- ---------- Total capitalization $12,068 $ ========== ==========
- --------------- (1) Excludes 1,250,000 shares of Common Stock reserved for issuance upon exercise of stock options, of which 951,113 shares were subject to outstanding options at May 31, 1996, and 595,727 shares issuable upon the exercise of Common Stock warrants outstanding as of May 31, 1996. See "Management -- Stock Option Plan" and "Certain Transactions." 12 15 DILUTION The net tangible book value of the Company at March 31, 1996, was $11,864,000, or approximately $2.39 per share of Common Stock. Net tangible book value per share represents the amount of total tangible assets of the Company less total liabilities divided by the number of shares of the Company's outstanding Common Stock. See "Risk Factors -- Dilution." Net tangible book value dilution per share represents the difference between the amount per share paid by purchasers of Common Stock in the Offering and the pro forma net tangible book value per share of the Common Stock immediately after completion of the Offering. After giving effect to the sale of 1,250,000 shares of Common Stock in the Offering (assuming an initial public offering price of $ per share and after deducting estimated underwriting discounts and offering expenses), the pro forma net tangible book value of the Company at March 31, 1996 would have been $ or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing shareholders and an immediate dilution in net tangible book value of $ per share to purchasers of Common Stock in the Offering, as illustrated by in the following table: Assumed initial public offering price per share $ Net tangible book value per share at March 31, 1996 $2.39 Increase per share attributable to new shareholders ---------- Pro forma net tangible book value per share as of March 31, 1996 after the Offering ---------- Dilution per share to new investors $ ==========
The following table summarizes, as of March 31, 1996, the total consideration paid and the average price per share paid by the existing shareholders and by new investors (at an assumed initial public offering price of $ per share and before deduction of underwriting discounts and commissions and estimated offering expenses):
-------------------------------------------------------------- SHARES PURCHASED ------------------- TOTAL CONSIDERATION -------------------- AVERAGE PRICE NUMBER PERCENT PERCENT PER SHARE --------- ------- ------- ------------- AMOUNT ---------- Existing shareholders(1) 4,957,127 80% $9,363,000 % $ 1.89 New investors(1) 1,250,000 20% % --------- ------- ---------- ------- ------------- Total 6,207,127 100% $ 100% $ ========= ====== ========== ====== ==========
- --------------- (1) The foregoing table computations assume no exercise of the Underwriters' over-allotment option or outstanding stock options or warrants. At May 31, 1996, there were outstanding options to purchase an aggregate of 951,113 shares at an average exercise price of $3.81 per share and outstanding warrants to purchase an aggregate 595,727 shares at an average exercise price of $6.16 per share. If certain of these options and warrants are exercised, there will be further dilution to new investors. See "Risk Factors -- Dilution," "Management -- Stock Option Plan," "Certain Transactions" and "Description of Capital Stock." Sales by selling shareholders in the Offering will reduce the number of shares of Common Stock held by existing shareholders to 4,207,127 or 68% of the total number of shares of Common Stock outstanding immediately after the Offering, and will increase the number of shares of Common Stock held by new investors to 2,000,000 or 32% of the total number of shares of Common Stock outstanding immediately after the Offering. See "Principal and Selling Shareholders." 13 16 SELECTED CONSOLIDATED FINANCIAL INFORMATION The selected consolidated financial information set forth below should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. The consolidated financial information as of December 31, 1994 and 1995 and for the six months ended July 1, 1993 and December 31, 1993, and the years ended December 31, 1994 and 1995, have been derived from the Consolidated Financial Statements of the Company and the Predecessor, audited by Price Waterhouse LLP and are included elsewhere in this Prospectus. The consolidated financial information for the years ended December 31, 1991 and 1992 and the three months ended March 31, 1995 and 1996 have been derived from the unaudited consolidated financial statements of the Predecessor and the Company, respectively, which in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information set forth therein. The results for the three months ended March 31, 1996 are not necessarily indicative of the results that may be expected for the full year or for any future period.
--------------------------------------------------------------------------------- PREDECESSOR ---------------------------- YEAR ENDED DECEMBER 31, THE COMPANY THREE MONTHS --------------- ------------------------------------------------ 1991 YEAR ENDED ENDED ------ SIX MONTHS SIX MONTHS DECEMBER 31, MARCH 31, Dollars in thousands, except ENDED ENDED --------------- --------------- per share data 1992 JULY 1, DECEMBER 31, 1995 1996 ------ ---------- ------------ ------ ------ 1994 1993 1993 ------ 1995 ---------- ------------ ------ (UNAUDITED) (UNAUDITED) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: Software and engineering services $6,487 $5,698 $1,810 $ 2,010 $5,746 $7,228 $1,601 $2,306 Related parties -- -- -- 50 972 1,902 455 506 ------ ------ ---------- ------------ ------ ------ ------ ------ Total revenues 6,487 5,698 1,810 2,060 6,718 9,130 2,056 2,812 ------ ------ ---------- ------------ ------ ------ ------ ------ Cost of revenues: Software and engineering services 814 516 91 105 558 490 50 79 Related parties -- -- -- 12 33 146 35 209 ------ ------ ---------- ------------ ------ ------ ------ ------ Total cost of revenues 814 516 91 117 591 636 85 288 ------ ------ ---------- ------------ ------ ------ ------ ------ Gross profit 5,673 5,182 1,719 1,943 6,127 8,494 1,971 2,524 ------ ------ ---------- ------------ ------ ------ ------ ------ Operating expenses: Research and development 1,003 836 887 2,071 1,601 2,751 593 855 Sales and marketing 2,557 1,040 845 647 1,537 2,282 425 560 General and administrative 2,129 3,505 615 350 932 1,600 415 590 ------ ------ ---------- ------------ ------ ------ ------ ------ Total operating expenses 5,689 5,381 2,347 3,068 4,070 6,633 1,433 2,005 ------ ------ ---------- ------------ ------ ------ ------ ------ Income (loss) from operations (16) (199) (628) (1,125) 2,057 1,861 538 519 Interest expense (56) (83) (27) (54) (19) (9) (10) -- Interest and other income -- 1 -- 1 4 105 2 84 ------ ------ ---------- ------------ ------ ------ ------ ------ Income (loss) before income taxes (72) (281) (655) (1,178) 2,042 1,957 530 603 Provision for income taxes -- 15 -- -- 784 792 214 217 ------ ------ ---------- ------------ ------ ------ ------ ------ Net income (loss) $ (72) $ (296) $ (655) $ (1,178) $1,258 $1,165 $ 316 $ 386 ====== ====== ======== =========== ====== ====== ====== ====== Net income (loss) per share(1) $ (0.19) $ 0.20 $ 0.18 $ 0.05 $ 0.06 =========== ====== ====== ====== ====== Weighted average common and common equivalent shares in thousands 6,307 6,307 6,500 6,622 6,047
------------------------------------------------------------------------- PREDECESSOR ----------------------------- THE COMPANY JULY 1, --------------------------------------- DECEMBER 31, ------- ----------------- 1991 1993 DECEMBER 31, ------ ------- ------------------------- MARCH 31, Dollars in thousands 1992 1994 1995 ----------- ------ ------ ------ 1996 1993 ----------- ------- (UNAUDITED) (UNAUDITED) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents $ 452 $ 313 $ 156 $ 280 $1,374 $6,498 $10,591 Working capital (deficit) (44) (461) (1,189) (1,113) 1,173 6,642 11,315 Total assets 1,596 1,085 1,088 1,807 3,119 9,083 14,238 Shareholders' equity (deficit) (177) (453) (1,099) (468) 1,695 7,169 12,068
- --------------- (1) For an explanation of the number of shares used to compute net income (loss) per share, see Note 2 of Notes to Consolidated Financial Statements. 14 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company was founded in 1983 to design, develop and market a suite of Basic Input/Output System software ("BIOS") for the system management software market. During the mid- and late-1980s, the Company established a significant market presence by providing BIOS for the 286/386 PC markets and achieved early market success as a BIOS supplier to the Taiwanese motherboard market. The Company was acquired in July 1993 by GCH Systems, Inc. ("GCH"), an independent developer of microcomputers and application-specific integrated circuits, and operated as a wholly owned subsidiary. By 1994, the Company further established itself in the system management software market with the successful introduction of enhanced system management software products including its Green BIOS and PCI BIOS. In December 1994, all of the Common Stock of the Company was distributed to the existing GCH shareholders on a pro rata basis in a spin-off transaction to allow the Company to focus exclusively on its system management software business and facilitate the Company's access to future financing, including the public capital markets. The Company markets and licenses its products and services worldwide and is a leading provider of system management software to the PC motherboard market in Asia, which accounts for approximately 40% of worldwide motherboard production. More recently, the Company has been focusing on expanding its core desktop product line by developing a suite of system management software products for the mobile and network computing markets. In addition, the Company is developing a suite of applications called SMSAccess which will enable remote access, diagnosis and repair of disabled systems. The Company's strategy is to strengthen its presence in Taiwan while pursuing additional opportunities on a worldwide basis. In November 1993, the Company entered a joint development agreement with Vobis, a leading PC manufacturer in Europe. This collaboration resulted in the development of a specialized desktop BIOS for Vobis for which the Company and Vobis have three joint patents pending. In January 1996, Vobis acquired 570,033 shares of the Company's Common Stock and warrants to purchase an additional 272,394 shares. The Company believes that this relationship will enable it to further penetrate the European market. See "Risk Factors -- International Operations; Currency Fluctuations; International Unrest" and "Certain Transactions." The Company has historically generated the substantial majority of its revenues from the licensing of desktop system management software, primarily to OEMs. Sales from international operations, particularly to customers in Taiwan, comprise a substantial portion of the Company's total revenues. Software license fees are recognized upon delivery of the product, fulfillment of acceptance terms, if any, and satisfaction of significant support obligations, if any. Engineering services revenues generally consist of amounts charged for customization of the software prior to delivery and are generally recognized as the services are performed. Related parties revenues include software license fees and non-recurring engineering services provided to a Common Stock shareholder and a Common Stock warrant holder. The Company believes that its business is subject to seasonal fluctuation, with shipments in the fourth calendar quarter being somewhat higher due to higher levels of PC shipments in that time period. The Company plans to increase the number and scope of system management software products it offers in order to add features and functionality to existing products and to address new market opportunities. For example, the Company is developing products to support remote system access, including remote diagnosis and repair, network-related system management software products, and enhanced versions of its core BIOS. The Company also plans to expand its presence in the mobile PC and embedded device system management software markets, which the Company believes provide an opportunity for greater revenue per unit than the desktop PC market. There can be no assurance that the Company will be successful in implementing these plans or that price competition will not lead to price decreases in one or more of these markets, adversely affecting the Company's financial condition and results of operations. The Company has an established international presence and consequently generates a significant portion of its revenues and expenses in currencies other than the U.S. Dollar, primarily the German Mark and New Taiwan Dollar. As a result, any appreciation or depreciation in the U.S. Dollar against these currencies could adversely affect the Company's business, financial condition, results of operations and cashflows. In addition, foreign currency transaction gains and losses arising from normal business operations are credited to or charged against earnings in the period incurred. During the three years in the period ended December 31, 1995, fluctuations in the value of currencies in which the Company conducts its business relative to the U.S. Dollar have not been significant on an annual basis. This Prospectus contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors." 15 18 RESULTS OF OPERATIONS The following tables set forth, for the periods indicated, certain consolidated statement of operations information, as well as the percentage of the Company's total revenues represented by each item. The results of operations for the Predecessor for the period January 1, 1993 through July 1, 1993 and the Company for the period July 2, 1993 through December 31, 1993 have been combined to facilitate presentation of the results of operations on a calendar year basis. The Company's historical results are not necessarily indicative of results in any future period.
------------------------------------------------------------------ PREDECESSOR AND THE COMPANY COMBINED ------------ THE COMPANY YEAR ENDED ------------------------------------------------- DECEMBER 31, ------------ 1993 YEAR ENDED THREE MONTHS ENDED ------------ DECEMBER 31, MARCH 31, Dollars in thousands, except per share ----------------- --------------------------- amounts 1995 1996 ------ ----------- 1995 1994 ----------- ------ (UNAUDITED) Revenues: Software and engineering services $ 3,820 $5,746 $7,228 $ 1,601 $ 2,306 Related parties 50 972 1,902 455 506 ------------ ------ ------ ----------- ----------- Total revenues 3,870 6,718 9,130 2,056 2,812 ------------ ------ ------ ----------- ----------- Cost of revenues: Software and engineering services 196 558 490 50 79 Related parties 12 33 146 35 209 ------------ ------ ------ ----------- ----------- Total cost of revenues 208 591 636 85 288 ------------ ------ ------ ----------- ----------- Gross profit 3,662 6,127 8,494 1,971 2,524 ------------ ------ ------ ----------- ----------- Operating expenses: Research and development 2,958 1,601 2,751 593 855 Sales and marketing 1,492 1,537 2,282 425 560 General and administrative 965 932 1,600 415 590 ------------ ------ ------ ----------- ----------- Total operating expenses 5,415 4,070 6,633 1,433 2,005 ------------ ------ ------ ----------- ----------- Income (loss) from operations (1,753) 2,057 1,861 538 519 Interest expense (81) (19) (9) (10) -- Interest and other income 1 4 105 2 84 ------------ ------ ------ ----------- ----------- Income (loss) before income taxes (1,833) 2,042 1,957 530 603 Provision for income taxes -- 784 792 214 217 ------------ ------ ------ ----------- ----------- Net income (loss) $ (1,833) $1,258 $1,165 $ 316 $ 386 =========== ====== ====== ========= ========= Net income per share $ 0.20 $ 0.18 $ 0.05 $ 0.06 ====== ====== ========= ========= Weighted average common and common equivalent shares in thousands 6,307 6,500 6,622 6,047
16 19
------------------------------------------------------------------ PREDECESSOR AND THE COMPANY COMBINED ------------ THE COMPANY ------------------------------------------------- YEAR ENDED DECEMBER 31, ------------ YEARS ENDED THREE MONTHS ENDED 1993 DECEMBER 31, MARCH 31, ------------ ----------------- --------------------------- As a percentage of total revenues 1995 1996 ------ ----------- 1994 1995 ------ ----------- (UNAUDITED) Revenues: Software and engineering services 99% 86% 79% 78% 82% Related parties 1 14 21 22 18 ------------ ------ ------ ----------- ----------- Total revenues 100 100 100 100 100 ------------ ------ ------ ----------- ----------- Cost of revenues: Software and engineering services 5 8 5 2 3 Related parties -- 1 2 2 7 ------------ ------ ------ ----------- ----------- Total cost of revenues 5 9 7 4 10 ------------ ------ ------ ----------- ----------- Gross profit 95 91 93 96 90 ------------ ------ ------ ----------- ----------- Operating expenses: Research and development 76 24 30 29 30 Sales and marketing 39 23 25 21 20 General and administrative 25 14 17 20 21 ------------ ------ ------ ----------- ----------- Total operating expenses 140 61 72 70 71 ------------ ------ ------ ----------- ----------- Income (loss) from operations (45) 30 21 26 19 Interest expense 2 -- -- -- -- Interest and other income -- -- 1 -- 3 ------------ ------ ------ ----------- ----------- Income (loss) before income taxes (47) 30 22 26 22 Provision for income taxes -- 12 9 10 8 ------------ ------ ------ ----------- ----------- Net income (loss) (47)% 18% 13% 16% 14% =========== ====== ====== ========= =========
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1995 AND MARCH 31, 1996 Revenues. The Company's revenues consist of software license fees and engineering services. Revenues increased 37% from $2.1 million to $2.8 million in the three months ended March 31, 1995 and March 31, 1996, respectively. Software license fees and engineering services revenues increased 44% from $1.6 million to $2.3 million in the three months ended March 31, 1995 and March 31, 1996, respectively. This increase was primarily due to higher software license fees from the Company's existing Taiwanese OEM customers, and to a lesser degree from existing U.S. PC and embedded system customers. This increase was partially offset by a decrease in software license fees from one European customer. A significant customer, which accounted for 13% of total revenues for the three months ended March 31, 1996, recently indicated that it intends to discontinue licensing the Company's PC Card software. Accordingly, the Company does not currently expect to receive material revenues from that customer during the second half of 1996. Related parties revenues increased 11% from $455,000 to $506,000 in the three months ended March 31, 1995 and March 31, 1996, respectively. The increase was primarily due to higher engineering services offset by lower software license fees provided to related parties. Revenues derived from international operations represented 68% and 65% of the Company's revenues for the three months ended March 31, 1995 and March 31, 1996, respectively. Fluctuations in foreign currency exchange rates did not have a material effect on total revenues in the periods presented. However, there can be no assurance that future fluctuations in foreign currency exchange rates will not have a material adverse effect on the Company's future revenues and results of operations. Cost of Revenues. Cost of revenues consists primarily of the cost of materials and freight expenses associated with software license fees and direct costs associated with engineering services revenues. Cost of revenues increased from $85,000, or 4% of revenues, to $288,000, or 10% of revenues, in the three months ended March 31, 1995 and March 31, 1996, respectively. Cost of software license fees and engineering services revenues increased from $50,000 to $79,000 in the three months ended March 31, 1995 and March 31, 1996, respectively. Cost of related parties revenues increased from $35,000 to $209,000 in the three months ended March 31, 1995 and March 31, 1996, respectively. This increase was primarily due to a higher proportion of project related engineering services, which have a higher labor-related cost component. Research and Development. Research and development expenses consist primarily of engineering personnel and related expenses and equipment costs. Research and development expenses increased 44% from $593,000, or 29% of revenues, to $855,000, or 30% of 17 20 revenues, in the three months ended March 31, 1995 and March 31, 1996, respectively. This increase was primarily due to the hiring of engineering personnel to develop new software products, such as mobile BIOS and the SMSAccess product suite. The Company anticipates that it will continue to devote substantial resources to product research and development and that such expenses will continue to increase in absolute dollars over time. Sales and Marketing. Sales and marketing expenses consist primarily of personnel and related expenses, sales commissions and travel costs. Sales and marketing expenses increased 32% from $425,000, or 21% of revenues, to $560,000, or 20% of revenues, in the three months ended March 31, 1995 and March 31, 1996, respectively. This increase in expenses was primarily due to higher sales commissions paid to the Company's sales force for increased revenues and increased participation in industry standards groups and trade shows. General and Administrative. General and administrative expenses consist primarily of personnel and related expenses, professional services and facilities costs. General and administrative expenses increased 42%, from $415,000, or 20% of revenues, to $590,000, or 21% of revenues, in the three months ended March 31, 1995 and March 31, 1996, respectively. This increase was primarily due to a one-time employee severance cost of $90,000 in the Company's European operations. In addition, during the second half of 1995, the Company recorded $297,000 of deferred stock compensation related to the difference between the exercise price of certain Common Stock options and the deemed fair market value of the Common Stock on the date of grant. Amortization of deferred compensation expense of $19,000 is included in general and administrative expense for the three months ended March 31, 1996. Interest Expense. Interest expense associated with short-term borrowings decreased from $10,000 to $0 in the three months ended March 31, 1995 and March 31, 1996, respectively, due to a decrease in short-term borrowings. Interest and Other Income. Interest income consists primarily of interest income on cash and cash equivalents. Interest income increased from $2,000 to $84,000 in the three months ended March 31, 1995 and March 31, 1996, respectively, due to an increase in interest income earned on higher cash balances. Provision for Income Taxes. The Company's effective tax rate decreased from 41% to 36% for the three months ended March 31, 1995 and March 31, 1996, respectively. This decrease was primarily due to an increase in income taxable in Taiwan at rates lower than the applicable statutory rates in the U.S. and Germany. COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1995 Revenues. The Company's revenues increased 36% from $6.7 million to $9.1 million in 1994 and 1995, respectively. Software license fees and engineering services revenues increased 26% from $5.7 million to $7.2 million in 1994 and 1995, respectively. This increase was primarily due to increased software license fees resulting from the introduction of PCI and other enhanced features. A significant customer, which accounted for 14% of total revenues for the year ended December 31, 1995, recently indicated that it intends to discontinue licensing the Company's PC Card software; accordingly the Company does not currently expect to receive material revenues from that customer during the second half of 1996. Related parties revenues increased 96% from $1.0 million to $1.9 million in 1994 and 1995, respectively. This increase was primarily due to the growth in software license fees. Revenues derived from international operations were 75% and 68% of the Company's revenues in 1994 and 1995, respectively. Fluctuations in foreign currency exchange rates did not have a material impact on total revenues in 1994 or 1995. However, there can be no assurance that future fluctuations in foreign currency exchange rates will not have a material adverse effect on the Company's future revenues and results of operations. Cost of Revenues. Cost of revenues increased 8% from $591,000, or 9% of revenues, to $636,000, or 7% of revenues, in 1994 and 1995, respectively. Cost of software license fees and engineering services revenues decreased 12% from $558,000 to $490,000 in 1994 and 1995, respectively. This decrease was primarily due to the phasing out of a lower gross margin product during the course of the year, offset by a one-time royalty payment of $200,000 to a third party. Cost of related parties revenues increased from $33,000 to $146,000 in 1994 and 1995, respectively. This increase was primarily due to direct costs associated with engineering services. Research and Development. Research and development expenses increased 72% from $1.6 million, or 24% of revenues, to $2.8 million, or 30% of revenues, in 1994 and 1995, respectively. This increase was primarily due to the growth in research and development personnel from 33 to 45 individuals during the year. These additional personnel were hired as part of the effort to assist customers in certifying their products for Windows 95, as well as to develop mobile BIOS and SMSAccess. Sales and Marketing. Sales and marketing expenses increased 48% from $1.5 million, or 23% of revenues, to $2.3 million, or 25% of revenues, in 1994 and 1995, respectively. This increase was primarily due to non-recurring charges of $283,000 related to the recognition of warrants issued to a related party and $36,000 related to warrants issued to a shareholder in exchange for marketing services. In addition, higher payroll and related expenses, including sales commissions, increased travel related to the improvement of customer relations, and increased participation in industry trade shows and user conferences accounted for the remainder of the increase. See "Certain Transactions." 18 21 General and Administrative. General and administrative expenses increased 72% from $932,000, or 14% of revenues, to $1.6 million, or 17% of revenues, in 1994 and 1995, respectively. The increase was primarily due to increased employee compensation and office facilities cost, as well as higher professional service fees. In addition, during the second half of 1995, the Company recorded $297,000 of deferred stock compensation for the difference between the exercise price of certain Common Stock options and the deemed fair market value of the Common Stock on the date of grant. The deferred compensation expense will be recognized over the four-year vesting period of the options. Amortization of deferred compensation expense of $42,000 is included in general and administrative expense for the year ended December 31, 1995. Interest Expense. Interest expense decreased from $19,000 to $9,000 in 1994 and 1995, respectively, due to a decrease in short-term borrowings. Interest and Other Income. Interest and other income increased from $4,000 to $105,000 in 1994 and 1995, respectively, primarily due to higher interest income earned on higher cash balances during the period. Provision for Income Taxes. Provision for income taxes increased from $784,000 to $792,000 in 1994 and 1995, respectively, representing effective tax rates of 38% and 41%, respectively. This increase was primarily due to an increase in income. The higher effective income tax rate for 1995 was primarily due to one-time non-deductible sales and marketing charges of $373,000 associated with warrants issued offset by the recognition of $117,000 of deferred tax assets which were previously reserved based on a reevaluation of the realizability of future tax benefits based on the income earned in 1995. COMPARISON OF YEARS ENDED DECEMBER 31, 1993 AND DECEMBER 31, 1994 The results of operations for the Predecessor for the period January 1, 1993 through July 1, 1993 and the Company for the period July 2, 1993 through December 31, 1993 have been determined based upon the historical cost basis of the Predecessor and the Company and have been combined to facilitate presentation of the results of operations on a calendar year basis. Revenues. The Company's revenues increased 74% from $3.9 million to $6.7 million in 1993 and 1994, respectively. Software license fees and engineering services revenues increased 50% from $3.8 million to $5.7 million in 1993 and 1994, respectively. This increase was primarily due to higher software license fees resulting from the introduction of the Company's Green BIOS and CardWare. Related parties revenues increased from $50,000 to $1.0 million in 1993 and 1994, respectively. This increase was primarily due to an increase in software license fees provided to a related party. Revenues derived from international operations were 78% and 75% of the Company's revenues in 1993 and 1994, respectively. Fluctuations in foreign currency exchange rates did not have a material impact on total revenues in 1993 or 1994. However, there can be no assurance that future fluctuations in foreign currency exchange rates will not have a material adverse effect on the Company's future revenues and results of operations. Cost of Revenues. Cost of revenues increased from $208,000, or 5% of revenues, to $591,000, or 9% of revenues, in 1993 and 1994, respectively. Cost of software license fees and engineering services revenues increased from $196,000 to $558,000 in 1993 and 1994, respectively. This increase was primarily due to higher sales of a lower margin product which the Company bundled with its desktop BIOS product. Cost of related parties revenues increased from $12,000 to $33,000 in 1993 and 1994, respectively. Research and Development. Research and development expenses decreased 46%, from $3.0 million, or 76% of revenues, to $1.6 million, or 24% of revenues, in 1993 and 1994, respectively. This decrease was primarily due to a one-time charge of $1.0 million recorded in 1993 for in-process research and development purchased as part of the acquisition of the Company by GCH. At the acquisition date, the in-process technology was not yet technologically feasible and had no alternative future use. Sales and Marketing. Sales and marketing expenses increased 3% from $1.5 million, or 39% of revenues, to $1.6 million, or 23% of revenues, in 1993 and 1994, respectively. This increase was primarily due to increased expenses related to sales commissions and participation in trade shows. General and Administrative. General and administrative expenses decreased 3% from $1.0 million, or 25% of revenues, to $932,000, or 14% of revenues, in 1993 and 1994, respectively. This decrease was primarily due to a reduction in payroll expenses resulting from a change in management, which was partially offset by an increase in professional service fees. Interest Expense. Interest expense decreased from $81,000 to $19,000 in 1993 and 1994, respectively, due to a decrease in short-term borrowings. Interest and Other Income. Interest and other income increased from $1,000 to $4,000 in 1993 and 1994, respectively, due to an increase in interest income earned on higher cash balances. Provision for Income Taxes. For the period from July 2, 1993 through December 3, 1994, Award was included in GCH's consolidated federal and California state income tax returns. Under a tax sharing arrangement with GCH, the Company was allocated a proportionate share of GCH's consolidated income tax liability. The provision for income taxes was calculated using the separate return methodology in accordance with SFAS No. 109. The provision for income taxes was $0 and $784,000 in 1993 and 1994, respectively. The Company incurred a net operating loss in 1993 and consequently paid no federal, state or foreign income taxes. The Company's effective income tax rate was 38% for the year ended December 31, 1994. 19 22 QUARTERLY RESULTS OF OPERATIONS The following table sets forth certain unaudited results of operations for each of the quarters in the years ended December 31, 1994 and 1995 and for the quarter ended March 31, 1996, in both absolute dollars and as a percentage of the Company's total revenues. In the opinion of management, this information has been prepared on a basis consistent with the Company's audited Consolidated Financial Statements, which appear elsewhere in this Prospectus, and includes all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary to present fairly the information for the periods presented when read in conjunction with the Consolidated Financial Statements of the Company and Notes thereto. The operating results for any quarter are not necessarily indicative of the results for the full year or any future quarter. The Company's revenues significantly increased in the fourth quarters of 1994 and 1995, reflecting the seasonality of the Company's business. In addition, the Company's revenues and profits decreased in the first quarter of 1995 and 1996 as compared with the fourth quarter of the previous year. Quarterly fluctuations in cost of revenues are due to the mix and volume of software licenses and engineering services. Cost of revenues in the three months ended December 31, 1995 increased to $315,000 and was attributable primarily to a one-time royalty payment of $200,000 to a third party. Sales and marketing expenses in the three months ended September 30, 1995 increased to $757,000. This increase was attributable primarily to a non-recurring $283,000 charge related to the recognition of warrants issued to a related party. The Company has experienced and expects to continue to experience fluctuations in its quarterly results. The Company's revenues are affected by a number of factors, including the demand for PCs and other microprocessor-based devices, timing of new product introductions, product mix, volume and timing of customer orders, activities of competitors and the ability of the Company to penetrate new markets. See "Risk Factors -- Fluctuations in Quarterly Operating Results; Seasonality."
---------------------------------------------------------------------------------------- QUARTERS ENDED -------------------------------------------------------------------------------------------- 1994 1995 1996 Dollars in thousands --------------------------------------- --------------------------------------- -------- except per share data MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 -------- ------- -------- ------- -------- ------- -------- ------- -------- (UNAUDITED) Revenues: Software and engineering services $1,335 $1,437 $1,548 $1,426 $1,601 $1,671 $1,723 $2,233 $2,306 Related parties 119 45 140 668 455 310 535 602 506 -------- ------- -------- ------- -------- ------- -------- ------- -------- Total revenues 1,454 1,482 1,688 2,094 2,056 1,981 2,258 2,835 2,812 -------- ------- -------- ------- -------- ------- -------- ------- -------- Cost of revenues: Software and engineering services 261 144 81 72 50 104 71 265 79 Related parties -- -- -- 33 35 33 28 50 209 -------- ------- -------- ------- -------- ------- -------- ------- -------- Total cost of revenues 261 144 81 105 85 137 99 315 288 -------- ------- -------- ------- -------- ------- -------- ------- -------- Gross profit 1,193 1,338 1,607 1,989 1,971 1,844 2,159 2,520 2,524 -------- ------- -------- ------- -------- ------- -------- ------- -------- Operating expenses: Research and development 351 332 475 443 593 681 674 803 855 Sales and marketing 327 374 360 476 425 612 757 488 560 General and administrative 150 208 189 385 415 437 371 377 590 -------- ------- -------- ------- -------- ------- -------- ------- -------- Total operating expenses 828 914 1,024 1,304 1,433 1,730 1,802 1,668 2,005 -------- ------- -------- ------- -------- ------- -------- ------- -------- Income from operations 365 424 583 685 538 114 357 852 519 Interest expense (income), net 8 3 7 (3 ) 8 5 (13) (96 ) (84) -------- ------- -------- ------- -------- ------- -------- ------- -------- Income before income taxes 357 421 576 688 530 109 370 948 603 Provision for income taxes 138 163 224 259 214 44 150 384 217 -------- ------- -------- ------- -------- ------- -------- ------- -------- Net income $ 219 $ 258 $ 352 $ 429 $ 316 $ 65 $ 220 $ 564 $ 386 ========= ======== ======== ======= ========= ======== ======== ======= ========= Net income per share $ 0.03 $ 0.04 $ 0.06 $ 0.07 $ 0.05 $ 0.01 $ 0.03 $ 0.09 $ 0.06 ========= ======== ======== ======= ========= ======== ======== ======= ========= Weighted average common and common equivalent shares in thousands 6,307 6,307 6,307 6,307 6,622 6,689 6,363 6,328 6,047
20 23
---------------------------------------------------------------------------------------- QUARTERS ENDED -------------------------------------------------------------------------------------------- 1994 --------------------------------------- MARCH 31 1995 -------- --------------------------------------- 1996 As a percentage of total revenues JUNE 30 SEPT. 30 DEC. 31 JUNE 30 SEPT. 30 DEC. 31 -------- ------- -------- ------- ------- -------- ------- MARCH 31 MARCH 31 -------- -------- (UNAUDITED) Revenues: Software and engineering services 92% 97% 92% 68% 78% 84% 76% 79% 82% Related parties 8 3 8 32 22 16 24 21 18 --- ------- --- ------- --- ------- --- ------- --- Total revenues 100 100 100 100 100 100 100 100 100 Cost of revenues: Software and engineering services 18 10 5 3 2 5 3 9 3 Related parties -- -- -- 2 2 2 1 2 7 --- ------- --- ------- --- ------- --- ------- --- Total cost of revenues 18 10 5 5 4 7 4 11 10 --- ------- --- ------- --- ------- --- ------- --- Gross profit 82 90 95 95 96 93 96 89 90 --- ------- --- ------- --- ------- --- ------- --- Operating expenses: Research and development 24 23 28 21 29 34 30 28 30 Sales and marketing 22 25 22 23 21 31 34 17 20 General and administrative 10 14 11 18 20 22 16 13 21 --- ------- --- ------- --- ------- --- ------- --- Total operating expenses 56 62 61 62 70 87 80 58 71 --- ------- --- ------- --- ------- --- ------- --- Income from operations 26 28 34 33 26 6 16 31 19 Interest expense (income), net 1 -- -- -- -- -- (1) (3) (3) --- ------- --- ------- --- ------- --- ------- --- Income before income taxes 25 28 34 33 26 6 17 34 22 Provision for income taxes 10 11 13 12 10 3 7 14 8 --- ------- --- ------- --- ------- --- ------- --- Net income 15% 17% 21% 21% 16% 3% 10% 20% 14% ========= ======== ======== ======= ========= ======== ======== ======= =========
LIQUIDITY AND CAPITAL RESOURCES Since its acquisition by GCH, the Company has funded its operations primarily through the private sale of equity securities and from cash generated from operations. As of March 31, 1996, the Company had cash and cash equivalents of $10.6 million and working capital of $11.3 million. Net cash used in operating activities was $676,000 in 1993 and was primarily due to a net loss and acquired in-process research and development. Net cash provided by operating activities was $1.9 million in 1994 and was primarily due to net income and a noncash charge for income taxes. Net cash provided by operating activities was $2.1 million in 1995 and was primarily due to net income and increases in accrued liabilities. Net cash provided by operating activities was $679,000 for the three months ended March 31, 1995 and was primarily due to net income and increases in accrued liabilities. Net cash used in operating activities was $166,000 for the three months ended March 31, 1996 and was primarily due to higher accounts receivable partially offset by net income and accrued liabilities. Net cash used in investing activities was $659,000 in 1993 and was primarily due to the acquisition of the Company from the Predecessor. Net cash used in investing activities was $75,000 in 1994 and was primarily due to the purchase of general equipment. Net cash used in investing activities was $147,000, $34,000 and $233,000 in 1995 and for the three months ended March 31, 1995 and 1996, respectively, and was primarily due to the purchase and upgrade of the Company's computer hardware. Net cash provided by financing activities was $1.6 million in 1993 and was primarily due to proceeds from Common Stock issuance and borrowings from GCH. Net cash used by financing activities was $781,000 in 1994 and was primarily due to advances and repayments to GCH and principal payments under unaffiliated third-party note obligations. Net cash provided by financing activities was $3.1 million in 1995. In 1995 and the three months ended March 31, 1996, the net cash provided by financing activities was primarily due to proceeds from private equity sales. For the three months ended March 31, 1995 and 1996, cash used by financing activities was $811,000 and cash provided by financing activities was $4.5 million, respectively. The Company believes that the net proceeds from the sale of Common Stock offered hereby, together with anticipated cash flow from operations and existing cash balances, will satisfy the Company's projected expenditures through 1997 for working capital and general corporate purposes, including an increase in the Company's internal product development, staffing in connection with new product introductions and other related product development expenditures. From time to time, in the ordinary course of business, the Company enters into strategic relationships with its customers or other participants in the PC industry. Such strategic relationships may include equity investments in the Company. If additional funds are raised through the issuance of equity securities, the percentage ownership of the shareholders of the Company will be reduced, shareholders may experience additional dilution, or such equity securities may have rights, preferences or privileges senior to those of the holders of the Company's Common Stock. The Company has no current commitments or agreements with respect to any strategic relationships, including any equity investments. See "Risk Factors -- Dilution" and "Dilution." 21 24 BUSINESS Award designs, develops and markets system management software for the global computing market. System management software is one of the fundamental layers in PC architecture and provides an essential interface between a PC's operating system software and hardware. The Company's principal system management software products include a suite of Basic Input/Output System software ("BIOS"). Award's customers include designers and manufacturers of motherboards, PC systems and other microprocessor-based (or "embedded") devices. The Company believes that its products and engineering services enable customers to rapidly develop new motherboard designs for state-of-the-art computer systems. The Company markets and licenses its products and services worldwide, and has established itself as a leading provider of desktop system management software in Asia, which accounts for approximately 40% of worldwide desktop motherboard production. The BIOS, which is the software initially executed after the system is turned on, tests and initializes hardware components, initiates the operating system and then provides advanced interface functions. Award's desktop BIOS products enable a PC to support a number of key advanced technologies, including Plug and Play, PCI, DMI and APM. The Company is currently developing further enhancements to its BIOS, including support for USB. The Company's embedded device BIOS provides customized features to address the specialized needs of its customers in this market. In addition to the Company's proprietary suite of system management software products, Award offers PC Card software that enables PCs and other electronic devices to recognize, install, configure and operate peripheral devices, such as network or modem cards. The Company currently services more than 100 customers worldwide, including many of the world's leading original equipment and embedded device manufacturers. In response to its customers' need to develop and integrate new technologies rapidly, the Company has developed its business with a particular emphasis on providing local engineering service and support in each of its major target regions: Asia, especially Taiwan, North America and Europe. The Company is increasing its presence in Europe through a strategic relationship with Vobis, pursuant to which the Company and Vobis are jointly developing BIOS and utilities for the desktop PC and embedded device markets. As part of this relationship, Vobis has purchased approximately 12% of the Company's Common Stock. The Company is leveraging its existing customer relationships and desktop expertise to develop system management software for the mobile and network computing markets. The Company anticipates that leading Taiwanese desktop system and motherboard manufacturers, many of which are Award customers, will enter the mobile PC market, and, in response, the Company is developing enhanced system management software for mobile PCs. In addition, the Company is developing a suite of applications called SMSAccess, which will enable remote access to, and diagnosis and repair of disabled systems. INDUSTRY BACKGROUND [GRAPHIC] PC systems consist of four layers: the hardware, the BIOS, the operating system and the application software. The computer's primary hardware component, the motherboard, is connected to peripheral hardware devices, such as a keyboard, hard disk drive and mouse. The BIOS is stored in a non-volatile memory chip on the motherboard while the operating system and application software are stored on the hard disk drive. The BIOS, which is the software initially executed after the system is turned on, tests and initializes hardware components and initiates the operating system. After the BIOS completes the start up or "booting" of the system, it serves as the interface between the computer hardware and the operating system. By acting as the bridge between the operating system and the computer hardware, the BIOS makes it possible to develop hardware and software independently. As a result, the pace of innovation for 22 25 hardware products in the PC industry, where the typical life cycle of a hardware design is six to twelve months, has not been constrained by the slower pace of operating system development, where generational advances can take several years to develop. Enhanced BIOS and other system management software have been developed to support implementation of new industry standards and technologies, such as Plug and Play, PC Card, DMI, "hot-docking" and APM. Improved versions of BIOS are currently being developed to support USB and the latest PC industry standards. Many of these new technologies will play an important part in the development of PCs and embedded devices for the Internet and other network computing environments. Several important trends are currently affecting the system management software industry: Outsourcing of System Management Software Development. The rapid pace of technological innovation in recent years has required system makers to adapt to short production cycles and operate in an environment of continuous innovation. As PC and motherboard designers and manufacturers continuously improve their hardware products, they must ensure the compatibility of these new designs with existing operating systems through a customized BIOS. While some PC and motherboard manufacturers develop system management software internally, increasingly complex technology, demand for compatibility and competitive market pressures are driving many manufacturers to rely on dedicated system management software providers. These manufacturers demand high levels of support at all stages of product development, making it necessary for system management software vendors to provide effective localized engineering support during the production process. Outsourcing of Motherboard Production. Competitive pressures in the PC market have also caused system manufacturers to outsource PC motherboard production to reduce cost and stay current with advancing technologies. Manufacturers in Taiwan have taken advantage of this trend to become significant participants in the world desktop system and motherboard production market. Further, their role has expanded to include design decisions, such as the selection of the BIOS and other system management software. To rapidly integrate new motherboard designs into the overall PC system, these manufacturers require locally based system management software engineering resources. Proliferation of x86 Architecture in the Embedded Device Market. Traditional PC architecture, which is based on the x86 design, is being adopted for use in the embedded computer market. The implementation of x86 architecture permits the development of open systems that can employ standard software, development tools and peripheral hardware products. Embedded devices perform a single or limited number of complex applications for a dedicated purpose. These embedded devices require advanced capabilities for data analysis, communication, control and ease-of-use and depend upon highly customized system management software solutions to ensure performance, reliability and functionality. Demands for Product Support Solutions. As PC use by less technically sophisticated home and business users has grown, PC system manufacturers have been searching for cost-effective solutions to provide technical customer support services. The emerging network computing environment potentially provides system manufacturers with the ability to access the hardware and operating systems in order to ascertain the problems of the user and to make repairs. Additionally, manufacturers of embedded systems are searching for cost-effective ways to maintain and support their products, which are broadly distributed and sometimes installed in remote locations that cannot be directly accessed by support personnel. To address this opportunity, providers of system management software are beginning to work closely with system manufacturers to develop products with remote access, diagnostic and repair capabilities. AWARD STRATEGY The Company's objective is to become the leading designer, developer and marketer of system management software by providing innovative solutions to the desktop PC, embedded device, mobile PC and network computing markets. The Company's strategy includes the following key elements: Build Upon Desktop Leadership in Asia. Award is currently a leading provider of system management software to the Asian desktop motherboard market and will attempt to increase market share in this important region. The Company believes that PC manufacturers worldwide increasingly outsource PC design decisions, including the selection of system management software, to the original equipment manufacturers ("OEMs") and original design manufacturers in Taiwan that form the core of the Company's client base. Award further believes its longstanding focus on Asia positions it to take advantage of this market growth, and the Company plans to maintain a high level of engineering and management resources in this region. Leverage Existing Customer Relationships and Desktop Expertise to Pursue the Mobile and Embedded Markets. The Company believes that it can leverage its desktop system management software expertise to design and develop products for the mobile PC and embedded device markets. To complement its mobile BIOS products, the Company also offers system management software to support the PC Card standard, which is broadly implemented in the mobile PC market. The Company believes that the leading Taiwanese desktop system and motherboard manufacturers, many of which are Award customers, will enter the mobile PC market and provide the Company with opportunities to license its mobile BIOS products. In addition, the Company is establishing a full service 23 26 operation in Tokyo to design, develop and market system management software to the mobile PC manufacturers in Japan, which are significant participants in the mobile PC market. The Company is also pursuing opportunities with manufacturers of embedded devices, a market characterized by relatively long product life cycles, often from three to seven years. Provide Innovative Products for the Emerging Network and Internet Computing Marketplace. The Company is designing and developing a number of products for the emerging network computing market. For example, Award is developing its RPBAccess software, which will allow an end-user to obtain diagnostic and repair system support service through a modem or the Internet without a functional operating system or operational hard disk. In addition, Award's SMSAccess software suite will allow a network administrator to access and retrieve system management information, either locally or remotely. The Company's WWWAccess software will provide embedded devices, such as point-of-sale systems, set-top boxes and personal digital assistants ("PDAs"), with Internet capabilities. There can be no assurance, however, that the Company will successfully develop and market such software. Provide Localized Customer Service in Key Markets. The Company provides responsive and competitive system management software engineering and support by maintaining engineering, marketing and sales staff in three key PC design centers around the world: Taiwan, the U.S. and Germany. For many of its customers, Award serves as an important source of research and development, providing customized solutions within the tight timeframes required in the competitive motherboard market. In addition, the Company's local service centers allow it to act as an important conduit between the technology centers in the U.S. and key PC design centers. Easy accessibility, frequent communication and localized interaction are crucial to the selection and implementation of Award system management software. The Company believes that its emphasis on local service enables it to perform high quality, reliable and timely engineering and support services and provides it with a competitive advantage. PRODUCTS -- SYSTEM MANAGEMENT SOFTWARE AWARD SYSTEM BIOS The Company's Award System BIOS consists of core software code that can be combined with additional software modules to add specific functions and features, including Plug and Play, PCI, APM and DMI. The Company is currently testing additional modules that support the USB standard. The Company integrates the core software code with some or all of these software modules to create a product that meets the needs of its three principal markets: desktop PCs, embedded devices and mobile PCs. To date, the majority of the Company's software licensing revenues have been derived from sales in the desktop PC market. Desktop BIOS integrates the core software code with modules that support the following technological advancements: - Plug and Play permits the BIOS and operating system software to automatically recognize and configure PC hardware and peripherals, such as printers, network cards and multimedia accessories. A variation of this technology, known as "hot" Plug and Play, allows for the installation, recognition and removal of peripherals while power is on. - PCI was developed by a consortium led by Intel and provides an automatically configured interface between high-speed peripheral components and PC systems. - APM reduces power consumption by continuously monitoring system activity, sensing idle time and powering down or powering off components. - DMI is a new industry standard that allows the desktop configuration data to be easily accessed locally or over a network. This software is capable of detecting and storing configuration information from devices and systems that comply with the industry standard Desktop Management Task Force specification. The Company is currently developing a module to support USB. USB is a new Plug and Play interface under development by Microsoft and Intel, which is designed to provide an easy connection for slow and medium speed peripherals to a PC by supplying a uniform connector to make installing a peripheral as simple as plugging in a telephone. Embedded Device BIOS integrates the core software code with selected modules and additional custom features. Award works closely with embedded device customers to incorporate BIOS into design intensive embedded hardware. Unlike PC products, which typically experience short product cycles, a typical embedded device solution has a relatively long product life, with most designs lasting through the life cycles of the products into which they are integrated, often three to seven or more years. Mobile PC BIOS is a new customized BIOS solution for use in notebook and other portable PCs, which will integrate the core software code with modules that support Plug and Play, PC, APM and DMI. In addition, this new product will support the hardware associated with mobile PCs, such as chipsets and keyboard controllers, as well as other advanced technologies. For example, "hot docking" allows users to connect to and disconnect from their mobile PCs to desktop docking stations without turning off their machines. The Company is also developing smart battery support which ensures compatibility and monitors diagnostic information for the advanced batteries found in mobile PCs. 24 27 PC Card Software The Personal Computer Memory Card International Association ("PCMCIA") was formed to enact standards for credit card size computer memory and peripheral add-on products called "PC Cards." Award supplies software to enable PCs and other electronic devices to recognize, install, configure and operate peripheral devices that comply with PCMCIA standards. Award's PC Card software, CardWare and CardControl, provides a number of benefits over traditional PC Card software, including the efficient use of system memory, greater portability, ease of maintenance, and a more modular design. CardWare consists of several software components: CardWare Socket Services, which works with the hardware to recognize PC Card socket status and report that status to other PC Card software; CardWare Card Services, which provides resource management as well as the industry standard programming interface and allows the user to hot-swap multiple PC Cards in the system; and a suite of software drivers, which handle recognition and configuration of CardWare Socket Services and CardWare Card Services. CardControl is a software program that operates under Windows and allows a user to review or configure a PC Card. In addition, this software contains two unique advisory modes, which automatically configure a card for optimal performance or suggest available configurations. SMSAccess The Company is currently developing the SMSAccess suite of applications, which includes significant enhancements to traditional system management software products: DMIAccess is a Windows application that allows a user to view hardware specific information without physically looking in the computer or reading the system start-up messages. Such information includes RAM configuration, system serial number, motherboard serial number, and hard drive options. In conjunction with third party software, DMIAccess provides a complete solution which network administrators can use to remotely access data provided by DMI-compliant hardware. BIOSAccess is a Windows application, currently under development, that will allow a user to view and change system setup information, such as power management, display, security, sound, keyboard, and serial/parallel port options. The application also will allow the user to view basic system parameters such as RAM size, hard disk size, processor type, and BIOS version. BIOSAccess is expected to replace traditional, less user-friendly character-based utilities. RPBAccess is a patent-pending product, currently under development, that will allow technical support personnel to remotely access a disabled PC via a modem, network or Internet connection. The Company believes that this software is unique because it operates without a functioning hard drive or operating system and thus can solve a greater number of system problems. RPBAccess allows an expert system or technical support person to run BIOS setup, see error messages, upload and download files (if the hard disk functions), and upload and download diagnostic software. Consequently, the system is efficiently diagnosed and potentially repaired without the usual user telephone relay or site visit. RPBAccess will benefit PC system manufacturers because it can reduce both the time and expense to diagnose and repair the system. USBAccess is a Windows application the Company plans to develop that will display the type and status of all connected USB devices, providing the user with access to such USB options as bandwidth allocation and power management. In conjunction with third party software, USBAccess will provide a complete solution which network administrators can use to remotely access data provided by USB-complaint hardware. CUSTOMERS The Company services over 100 customers worldwide, including designers and manufacturers of desktop PC motherboards, PC systems and notebooks and hardware component and embedded device manufacturers. From time to time, the Company has worked with selected customers to co-develop certain products and expects to pursue additional co-development opportunities in the future. For example, the Company is currently working with Vobis to develop custom products for certain embedded applications. The following is a list of customers of the Company who individually accounted for at least $50,000 in revenues in the year ended December 31, 1995, representing, in the aggregate, approximately 74% of the Company's revenues. These customers have licensed the Company's software, and certain of such customers have contracted for the Company to provide non-recurring engineering ("NRE") services, in the categories in which they are listed below. 25 28 PC Motherboard Designers and Manufacturers Ansoon BCM Advanced Research, Inc. Chaintech Diamond Flower International Inc. Elitegroup Computer Systems Inc. First International Computer Inc. Full Yes Gemlight GigaByte Technology Co., Ltd. Hsing Tech Holco J. Bond Computer Systems Corp. Ocean Powertech, Inc. President Spring Sukjung Rectron Vector Vtech Industries, Inc. PC System and Notebook Manufacturers Kapok Mitac Electronics Group Maxdata Computer GmbH Siemens Components, Inc. Synnex Information Technologies, Inc. Toshiba Europa (I.E.) GmbH Vobis Microcomputer AG Hardware Component and Embedded Manufacturers Advanced Micro Devices, Inc. Quadrus Helix Magnetics, Inc. RadiSys Corporation In the year ended December 31, 1994, Siemens and Toshiba accounted for approximately 17% and 12% of the Company's revenues, respectively, and in the year ended December 31, 1995, Vobis and Toshiba accounted for approximately 13% and 14% of the Company's revenues, respectively. In the quarter ended March 31, 1996, Vobis and Toshiba accounted for approximately 18% and 13% of the Company's revenues, respectively. Toshiba recently indicated that it would discontinue licensing the Company's PC Card software during the third quarter of 1996, relying instead upon the PC Card and Plug and Play software incorporated in Windows 95. See "Risk Factors -- Competition" and "-- Dependence on Key Customer Relationships; Concentration of Credit Risk." See Note 9 of Notes to Consolidated Financial Statements for geographic segment information. SALES AND MARKETING The Company markets its products directly and through independent sales representatives. In North America, Award sales managers operate from the Company's headquarters in Mountain View, California. The Company complements its sales force in the U.S. with an independent sales representative in Southern California. In Asia, the Company operates from its office in Taipei, Taiwan, and through independent sales representatives in Korea and Japan. In Europe, the Company markets through its office in Munich, Germany. The Company supports its sales efforts with marketing programs that include exhibiting at trade shows, industry association participation, technical seminars and hardware reference platforms from chipset manufacturers. The Company believes that customer service and technical support are important competitive factors in the system management software market. Accordingly, the Company provides local service and support for its customers in the U.S., Europe and Asia. In addition, the Company provides worldwide technical support from the U.S. for end-users of its products through dial-in telephone services, facsimile, e-mail and the Company's home page on the World Wide Web at http://www.award.com. Information contained in the Company's home page shall not be deemed to be a part of this Prospectus. Award believes that close contact with its customers not only improves its customers' level of satisfaction, but also provides early access to its customers' new product plans and requirements. PRODUCT DEVELOPMENT Award's research and development efforts consist of new product development, product enhancements and product customization for individual customers. The Company develops new products in response to emerging standards such as DMI and to address perceived opportunities in related markets such as mobile computing and remote diagnostics. Award's engineers actively participate in a number of relevant industry standard groups, such as the Personal Computer Memory Card International Association, the Desktop Management Task Force and the Peripheral Component Interconnect Special Interest Group, which help guide the Company's product planning. Software is developed in a modular fashion to facilitate changes and updates as needed to meet customer requirements and rapid development of new products. An important function of the Company's engineering group is to perform the customization of the BIOS for each new motherboard. The Company works closely with the customer's engineers to ensure that the final motherboard design and the Award BIOS are developed 26 29 efficiently. The turnaround time for customizing a BIOS for a customer (from receipt of motherboard and engineering to quality assurance and product release) can be as short as one week. Customization of a BIOS can be done either in the U.S., Taiwan or Europe, depending on resource availability and customer needs. Because the development of the Company's software products requires knowledge of computer hardware, operating system software, system management software and application software, key technical personnel must be proficient in a number of disciplines. Competition to attract and retain such personnel is intense, and the failure of the Company to hire and retain talented technical personnel or the loss of one or more key technical employees could have an adverse effect on the Company's business and operations. See "Risk Factors -- Dependence on Key Personnel; Ability to Attract and Retain Key Technical Employees." COMPETITION The markets for the Company's products are highly competitive. The principal competitive factors affecting the markets for the Company's software include technological excellence, timeliness of product introduction, responsiveness to customer requirements, customer relationships, industry relationships, engineering services, ease of use, ease of integration and price. Due to its technological competence, large customer base in the desktop PC market, and strong relationships with industry participants, the Company believes it competes favorably with respect to these factors. Further, part of the Company's strategy is to develop innovative software product solutions to address the emerging trends in the PC and embedded device markets. There can be no assurance that such products or technologies will be successfully developed by the Company or that such products will not be developed by others, rendering the Company's software or technologies non-competitive or obsolete. Failure to successfully implement this strategy could have a material adverse effect upon the Company's business and financial condition. See "Business -- Industry Background" and "-- Product Development." The Company faces competition primarily from other systems management software companies, including American Megatrends, Inc., Phoenix Technologies Ltd. and SystemSoft Corporation, and also from the in-house software development staffs of current and prospective customers. Certain of the companies with which the Company competes or may in the future compete have substantially greater financial, marketing, sales and support resources and greater brand-name and technological leadership recognition than the Company. There can be no assurance that the Company will be able to develop software comparable or superior to software offered by its competitors. In addition, the PC market experiences intense price competition and the Company expects that, in order to remain competitive, it may have to decrease unit prices on some or all of its software products. Any such decrease would have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes that interdependencies may develop between system management software companies and their customers, which would need to be overcome in order to replace an entrenched competitor. While Award believes such entrenchment may benefit the Company in its existing relationships with key participants in the PC market, especially with its customers in Taiwan, customer entrenchment may make it more difficult for the Company to displace competitors or increase market presence, particularly in the mobile PC market, where competitors may have strong relationships with certain mobile PC manufacturers. Intel, for example, has entered into formal agreements with, and become a significant shareholder in, Phoenix Technologies Ltd. and SystemSoft Corporation. In addition, SystemSoft Corporation has entered into agreements with Microsoft, IBM and Compaq to license its PC Card software. The Company believes that competitive pressures in the system management software market may increase as (i) microprocessor manufacturers continue to enter the motherboard manufacturing market and (ii) operating software system vendors incorporate more system management software into their products. The entrance or expansion of microprocessor manufacturers who are not customers of the Company into the motherboard manufacturing markets may have an adverse effect on the Company's motherboard manufacturing customers. Further, as software manufacturers provide greater functionality and features, user value and performance to their products that eliminate or encroach upon the need for the Company's software products, the market for such products could be materially diminished. Microsoft includes basic PC Card software in its Windows 95 operating system and has announced the inclusion of full PC Card software support in its next generation Windows 9x and Windows NT operating systems. Currently, the Company is developing PC Card software for Microsoft's Windows NT. If end-users of Microsoft's version of the basic PC Card and Plug and Play software included in its operating systems perceive such software as being adequate for their computing needs, Award's revenues from PC Card software would be adversely affected. While the Company believes that the trend in the PC industry toward greater complexity will continue and that the Company's products offer a technologically proven, timely and cost-effective solution to this need, there can be no assurance that other participants in the PC industry will not develop products and solutions that encroach upon the demand, or obviate the need, for the Company's products. See "Risk Factors -- Dependence on Key Customer Relationships; Concentration of Credit Risk." 27 30 INTELLECTUAL PROPERTY The Company's success depends in significant part on the development, maintenance and protection of its intellectual property. The Company regards 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. The Company has patent applications pending in the U.S. and/or abroad on six inventions, three of which are owned jointly with a third party. Despite these precautions, 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 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 countries, 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 rights to determine the scope of the proprietary rights of others or to defend against claims of infringement. Moreover, although the Company is not currently involved in any litigation with respect to intellectual property rights, in the past there have been allegations that certain portions of the Company's core BIOS infringed on a third party's copyrights. In response, the Company rewrote certain software routines in a "clean room" procedure and is upgrading its customers to the new version of such software routines in order to avoid any further allegations of infringement. The Company believes that its software does not presently infringe the copyrights of any third parties. However, there can be no assurance that other parties will not make allegations of infringement in the future. Such assertions could require the Company to discontinue the use of certain software routines, to cease the manufacture, use and sale of infringing products, to incur significant litigation costs and expenses and to develop non-infringing technology or to obtain licenses to the alleged infringing technology. Although the Company has been able to acquire licenses from third parties in the past, there can be no assurance that the Company would be able to develop alternative technologies or to obtain such licenses or, if a license is obtainable, that the terms would be commercially acceptable to the Company in the event such assertions are made in the future. EMPLOYEES As of April 30, 1996, the Company had 89 full-time employees, of whom 45 are engaged in engineering and technical positions, 24 in sales and marketing, and 20 in finance, operations and administration. Except for its employees in Germany, none of the Company's employees is subject to an employment agreement with the Company. No employee of the Company is represented by a labor union or is subject to a collective bargaining agreement. The Company has never experienced a work stoppage due to labor difficulties and believes that its employee relations are good. LEGAL PROCEEDINGS The Company is not currently engaged in any material litigation or legal proceedings. FACILITIES The Company's headquarters are located in Mountain View, California. The Company subleases approximately 20,000 square feet in this facility under a lease agreement that expires on December 31, 1996 and may be renewed on a yearly basis thereafter. The Company also leases office space in Taipei, Taiwan and Munich, Germany. These offices provide sales and technical support to its customers in Asia and Europe, respectively. The Company believes that its facilities are adequate to support operations for the next twelve months. In the event that additional space is needed, the Company believes that suitable additional or alternative space adequate to serve its needs will be readily available on commercially reasonable terms. See "Certain Transactions." 28 31 MANAGEMENT The executive officers and directors of Award and their ages as of May 31, 1996 are as follows:
NAME AGE POSITION - -------------------- --- ---------------------------------------------------------------------- George C. Huang 54 Chairman of the Board, President, Chief Executive Officer and Director Reza Afghan 35 Vice President, Operations Kevin J. Berry 46 Vice President, Finance, Chief Financial Officer and Secretary Maurice W. Bizzarri 40 Vice President, Engineering and Product Marketing Lyon T. Lin 43 General Manager, Taiwan; President, Award Software Hong Kong Limited Ann P. Shen 55 Vice President, Sales and Marketing Cheng Ming Lee 53 Director David S. Lee(1)(2) 58 Director Theodor L. Lieven 44 Director Masami Maeda 61 Director Anthony Sun(1) 43 Director William P. Tai(1)(2) 34 Director
- --------------- (1) Member of Compensation Committee (2) Member of Audit Committee GEORGE C. HUANG has served as Chairman of the Board of Directors, President, Chief Executive Officer and Director of the Company since July 1993. From January 1984 to the present, Dr. Huang has served as Chairman of the Board of Directors of GCH Systems, Inc. ("GCH"), a company that develops and markets embedded controllers, Application Specific Integrated Circuits and PC systems, and from January 1984 until November 1994, he also served as Chief Executive Officer of GCH. From February 1987 to the present Dr. Huang has served as a Director of GCH-Sun Systems Company Ltd. ("GSS"), a subsidiary of GCH. From January 1990 to May 1996, Dr. Huang served as a Director of Fidelity Venture Capital Corporation ("FVCC"), a shareholder of GCH. Dr. Huang received a B.S. from the National Taiwan University, an M.S. from Washington State University, and a Ph.D. in Electrical Engineering from University of Washington. REZA AFGHAN has served as Vice President, Operations since January 1994. From November 1987 to January 1994, Mr. Afghan served as Vice President, Sales and Operations of GCH. He received his B.S. in Electrical Engineering from Oregon State University. KEVIN J. BERRY has served as Vice President, Finance, Chief Financial Officer and Treasurer since June 1995 and Secretary since October 1995. From December 1988 to May 1995, Mr. Berry served as Vice President, Finance for the CMX and Aurora divisions of Chyron Corporation, a developer and manufacturer of software and systems for the video marketplace. Mr. Berry received a B.S. in Finance and an M.B.A. from New York University. MAURICE W. BIZZARRI has served as Vice President, Engineering and Product Marketing since July 1995. From June 1992 to July 1995, Mr. Bizzarri consulted in the systems software industry. From November 1990 to June 1992, he served as Vice President, Research and Development of Connective Strategies, Inc., a hardware/software company. LYON T. LIN has served as General Manager, Taiwan, and President, Award Software Hong Kong Limited since July 1993. From January 1984 to June 1993, Mr. Lin served as Vice President of GCH. Mr. Lin is also a director of GSS. Mr. Lin received a B.S. in Electrical Engineering from National Chiao-Tung University and an M.S. in Electrical Engineering from Santa Clara University. Mr. Lin is the brother-in-law of George C. Huang. ANN P. SHEN has served as Vice President, Sales and Marketing since December 1994. From June 1994 to December 1994, she served as Vice President, Engineering and Marketing and from August 1993 to June 1994 she served as Vice President, Engineering. Dr. Shen served as Vice President, Engineering at GCH from October 1992 to June 1994. From March 1990 to August 1992, Dr. Shen served as Vice President, Engineering and Manufacturing Director of OPTA, a digital camera and high-end graphic/video card company. Dr. Shen received a B.S. in Physics from National Taiwan University, an M.S. in Physics from the University of California, Los Angeles and a Ph.D. in Solid State Physics from New York Polytechnical University. CHENG MING LEE has served as a director since July 1993. From April 1987 to the present, Dr. Lee has served as the President and Chief Executive Officer of Taiwan Venture Capital Corporation and Fidelity Venture Capital Corporation. Dr. Lee serves on the Board of Directors of Taiwan Opportunities Fund Limited and CNET Technology Corp. Dr. Lee received a B.S. from National Taiwan University, M.S. from Stanford University and a Ph.D. in Chemical Engineering from the University of Houston. 29 32 DAVID S. LEE has served as a director since December 1994. From May 1995 to the present, Mr. Lee has served as the Chairman of CMC Industries, Inc., a contract manufacturing company. From November 1985 to August 1994, Mr. Lee served as the President and Chief Executive Officer of DTC Data Technology Corporation (formerly Qume Corporation), a manufacturer of disk controller and communication peripherals. Mr. Lee serves on the Board of Directors of Linear Technology Corporation and Photonics Corporation. In addition, Mr. Lee is a member of the Board of Regents of the University of California. Mr. Lee holds an Honorary Doctorate of Engineering and B.S. in Mechanical Engineering from Montana State University and an M.S. in Mechanical Engineering from North Dakota State University. THEODOR L. LIEVEN has served as a director since January 1996. From January 1975 to the present, Mr. Lieven has served as Chief Executive Officer of Vobis Microcomputer AG, a computer and peripherals retailing and production company which he co-founded in 1975. For a description of the voting agreement relating to Mr. Lieven and Vobis, see "Certain Transactions." MASAMI MAEDA has served as a director since January 1995. From April 1971 to the present, Mr. Maeda has served as President and Chief Executive Officer of Sun Electronics Corporation, a manufacturer of electronic devices. He is also a member of the Board of Directors of GCH and GSS. ANTHONY SUN has served as a director since October 1995. From August 1979 to the present, he has been a general partner of Venrock Associates, a venture capital partnership. Mr. Sun serves on the Board of Directors of Cognex Corporation, Conductus, Inc., Centura Software Corporation, Fractal Design Corporation, Inference Corporation, Komag, Inc., Photonics Corporation, StrataCom, Inc. and World Talk Communications Corp. Mr. Sun holds S.B.E.E. and S.M.E.E. degrees from Massachusetts Institute of Technology and an M.B.A. from Harvard University. WILLIAM P. TAI has served as a director since June 1995. From September 1991 to the present, Mr. Tai has been a general partner of the Walden Group of Venture Capital Funds. Concurrently, from August 1995 to the present, he has been Chairman and Chief Executive Officer of AUNET Corporation, an Asia-based affiliate of UUNET Technologies, Inc. From August 1987 to September 1991, Mr. Tai served as Vice President of Alex. Brown & Sons Inc., where he was responsible for the firm's efforts in the semiconductor industry. Mr. Tai also serves on the Board of Directors of Network Peripherals Inc. Mr. Tai holds a B.S. with Honors in Electrical Engineering from the University of Illinois and an M.B.A. from Harvard University. COMMITTEES OF THE BOARD OF DIRECTORS The Company's Board of Directors has established a Compensation Committee and an Audit Committee. The Compensation Committee establishes salaries, incentives and other forms of compensation for directors, executive officers and employees of the Company and administers various incentive compensation and benefit plans. The Audit Committee oversees the work performed by the Company's independent accountants and reviews the Company's internal controls. COMPENSATION OF THE BOARD OF DIRECTORS The Company's directors do not currently receive any cash compensation for service on the Board of Directors or any committee thereof, but directors may be reimbursed for certain expenses in connection with attendance at Board and committee meetings. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee consists of Messrs. David S. Lee, Sun and Tai. No member of the Compensation Committee of the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee. For a description of transactions and relationships involving the Company and members of the Compensation Committee, see "Certain Transactions." 30 33 EXECUTIVE COMPENSATION The following table sets forth certain compensation of the Company's Chief Executive Officer and the three highest paid executive officers of the Company who earned more than $100,000 in the fiscal year ended December 31, 1995 (collectively, the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
------------------------------------------------ ANNUAL COMPENSATION ------------------ LONG TERM SALARY COMPENSATION -------- AWARDS ------------ ALL OTHER NAME AND PRINCIPAL POSITION SECURITIES COMPENSATION - ------------------------------------------------------------ BONUS UNDERLYING ------------ EARNED OPTIONS ------- ------------ George C. Huang $ 92,986 $ -- -- $ -- Chairman of the Board, President and Chief Executive Officer Lyon T. Lin 110,618 62,703(1) -- -- General Manager, Taiwan; President, Award Software Hong Kong Limited Ann P. Shen 85,000 32,090(1) -- -- Vice President, Sales and Marketing Cornelia Schumann(2) 79,930 23,367(1) -- 4,400(3) General Manager, Munich
- --------------- (1) Represents sales commissions earned. (2) Resigned from the Company effective March 31, 1996. (3) Allowance for automobile. STOCK OPTION PLAN The Company's 1995 Stock Option Plan (the "Option Plan") was adopted by the Board of Directors in December 1994 and amended in November 1995. The purpose of the Option Plan is to attract and retain qualified personnel, to provide additional incentives to employees, including officers, directors and consultants of the Company, and to promote the success of the Company's business. Pursuant to the Option Plan, the Company may grant or issue incentive stock options to employees and officers and nonstatutory stock options to consultants, employees, and directors. A total of 1,250,000 shares of Common Stock has been reserved for issuance under the Option Plan. At May 31, 1996, options to purchase 28,333 shares of Common Stock had been exercised under the Option Plan and the Company had outstanding options to purchase 951,113 shares of Common Stock at a weighted average per share exercise price of $3.81. A total of 270,554 shares of Common Stock is available for future issuance under the Option Plan. Although no vesting schedule is required under the Option Plan, options previously granted under the Option Plan generally have become exercisable one year after date of grant and vest over a maximum period of five years following the date of grant. The maximum term of a stock option under the Option Plan is ten years, but if the optionee at the time of grant has voting power over more than 10% of the Company's outstanding capital stock, the maximum term of incentive stock option is five years. The exercise price of incentive stock options granted under the Option Plan must be at least equal to 100%, or 110% with respect to holders of 10% of the voting power of the Company's outstanding capital stock, of the fair market value of the stock subject to the option on the date of grant. The exercise price of nonstatutory stock options granted under the Option Plan must be at least equal to 85% of the fair market value of the stock subject to the option on the date of the grant. No executive officer or director shall be eligible to be granted options covering more than 500,000 shares of the Company's Common Stock in any twelve-month period. The Option Plan may be amended at any time by the Board, although certain amendments require shareholder approval. The Option Plan will terminate in January 2005 unless earlier terminated by the Board. 31 34 In April 1996, the following Named Executive Officers received grants of options to purchase shares of Common Stock in the amounts stated below at a weighted average per share exercise price of $10.56:
---------------- NUMBER OF SHARES OFFICER SUBJECT TO OPTIONS - ---------------------------------------------------------------------------------------- ------------------- George C. Huang 35,000 Lyon T. Lin 20,000 Ann P. Shen 7,500
OPTIONS GRANTED IN LAST FISCAL YEAR No options were granted during the year ended December 31, 1995 to the Named Executive Officers. OPTIONS EXERCISED IN LAST FISCAL YEAR No options were exercised during the year ended December 31, 1995 by the Named Executive Officers. EXECUTIVE COMPENSATION PLAN In April 1996, the Company adopted an Executive Compensation Plan, pursuant to the terms of which the Company's senior management, including the Named Executive Officers, will receive at the end of 1996 cash bonuses based on the Company's performance in 1996. EMPLOYEE STOCK PURCHASE PLAN In May 1996, the Company's Board of Directors approved the 1996 Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of 150,000 shares of Common Stock. The Purchase Plan is to become effective upon the effectiveness of the Offering. The Purchase Plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Code. Under the Purchase Plan, the Board of Directors may authorize participation by eligible employees, including officers, in periodic offerings following the adoption of the Purchase Plan. The offering period for any offering will be no more than 27 months. Employees are eligible to participate if they are employed by the Company or an affiliate of the Company designated by the Board of Directors. Employees who participate in an offering can have up to 15% of their earnings withheld pursuant to the Purchase Plan and applied, on specified dates determined by the Board of Directors, to the purchase of shares of Common Stock. The price of Common Stock purchased under the Purchase Plan will be equal to 85% of the lower of the fair market value of the Common Stock on the commencement date of each offering period or the relevant purchase date. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically on termination of employment with the Company. In the event of certain changes of control, the Company and the Board of Directors have discretion to provide that each right to purchase Common Stock will be assumed or an equivalent right substituted by the successor corporation, or the Board may shorten the offering period and provide for all sums collected by payroll deductions to be applied to purchase stock immediately prior to the change in control. The Purchase Plan will terminate at the Board's direction. 401(K) PLAN In January 1995, the Company adopted a tax-qualified employee savings and retirement plan (the "401(k) Plan") covering all of the Company's employees. Pursuant to the 401(k) Plan, employees may elect to reduce their current compensation by up to the lesser of 15% of eligible compensation or the statutorily prescribed annual limit ($9,500 in 1996) and have the amount of such reduction contributed to the 401(k) Plan. The trustee under the 401(k) Plan, at the direction of each participant, invests the assets of the 401(k) Plan in any of several designated investment options. The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue Code so that contributions by employees to the 401(k) Plan, and income earned on plan contributions, are not taxable to employees until withdrawn, and so that the contributions by employees will be deductible by the Company when made. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Bylaws provide that the Company will indemnify its directors, and may indemnify its officers, employees and other agents, to the fullest extent not prohibited by California law. The Company is also empowered under its Bylaws to enter into indemnification agreements with its directors, officers, employees and other agents and to purchase insurance on behalf of any person whom it is required or permitted to indemnify. Pursuant to this provision, the Company will enter into indemnity agreements with each of its directors and executive officers. 32 35 In addition, the Company's Amended and Restated Articles of Incorporation provide that, to the fullest extent permitted by California law, the Company's directors will not be liable for monetary damages for breach of the directors' fiduciary duty of care to the Company and its shareholders. This provision in the Amended and Restated Articles of Incorporation does not eliminate the duty of care, and in appropriate circumstances, equitable remedies such as an injunction or other forms of non-monetary relief would remain available under California law. Each director will continue to be subject to liability for breach of the director's duty of loyalty to the Company for acts or omissions not in good faith or involving intentional misconduct or knowing or culpable violations of law that the director believes to be contrary to the best interests of the Company or its shareholders, for acts or omissions involving a reckless disregard for the director's duty to the Company or its shareholders when the director was aware or should have been aware of a risk of serious injury to the Company or its shareholders, or an unexcused pattern of inattention that amounts to an abdication of the director's duty to the Company or its shareholders, for improper transactions between the director and the Company or for improper distributions to shareholders and loans to directors and officers, or for acts or omissions by the director as an officer. This provision also does not affect a director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. At the present time, there is no pending litigation or proceeding involving a director, officer, employee or other agent of the Company in which indemnification would be required or permitted. The Company is not aware of any pending or threatened litigation or proceeding which may result in a claim for such indemnification by any director, officer, employee or other agent. CERTAIN TRANSACTIONS FINANCINGS In January 1996, Vobis purchased 570,033 shares of Common Stock at $12.28 per share and warrants (the "Vobis Warrant") at $.02 per warrant share to purchase 272,394 shares of Common Stock with an exercise price of $12.28 per share. Vobis is entitled to purchase (i) up to 96,000 shares of Common Stock at the per share price sold to the public in the Offering and (ii) up to 31,948 shares of Common Stock at $ per share (assuming a per share price to the public of $ ) pursuant to that certain Investors' Rights Agreement, dated as of January 12, 1996, among the Company, Vobis and the other parties thereto (the "Investors' Rights Agreement"). In the event Vobis elects to exercise its purchase options and participate in the Offering, the Underwriters have indicated to the Company that they intend to include Vobis as part of the directed shares program. The balance of such shares would be purchased directly from the Company. Assuming exercise of its warrants and consummation of such purchases, Vobis will own 954,401 shares of the Company's Common Stock, or approximately 14% of the Company's outstanding shares, subsequent to the Offering. See "Principal and Selling Shareholders." In addition, Vobis is entitled to certain rights with respect to registration of its shares of Common Stock under the Securities Act. See "Description of Capital Stock -- Registration Rights." In 1994, 1995 and the three months ended March 31, 1996, Vobis accounted for revenues of $622,000, $1,227,000 and $506,000, or approximately 9%, 14% and 18% of the Company's revenues, respectively. Theodor L. Lieven, a director of the Company, is the Chief Executive Officer of Vobis, which owns approximately 12% of the Company's outstanding shares of Common Stock prior to the Offering. See "Principal and Selling Shareholders." In September 1995, Walden Capital Partners II, L.P. and Walden Technology Ventures II, L.P. (collectively "Walden") purchased 72,917 and 10,416 shares of the Company's Common Stock at $6.00 per share and warrants (the "Walden Warrants") at $.02 per warrant to purchase 35,000 and 5,000 shares of the Company's Common Stock with an exercise price of $1.00 per share, respectively. William P. Tai, a director of the Company, is a general partner of Walden Capital Partners II, L.P. and Walden Technology Ventures II, L.P. In May 1995, the Company issued Mr. Tai options to purchase 25,000 shares of Common Stock with an exercise price of $1.00 per share. In September 1995, Venrock Associates and Venrock Associates II, L.P. (collectively "Venrock") purchased 229,302 and 104,031 shares of Common Stock at a purchase price of $6.00 per share and warrants (the "Venrock Warrants") at $.02 per warrant share to purchase 57,325 and 26,008 shares of the Company's Common Stock with an exercise price of $1.00 per share, respectively. Anthony Sun, a director of the Company, is a general partner of Venrock Associates and Venrock Associates II, L.P. In October 1995, Mr. Sun received options to purchase 32,105 shares of Common Stock with an exercise price of $5.00. The Company granted Vobis, Walden and Venrock the right to convert their shares of Common Stock into shares of preferred stock of the Company in the event the Company fails to effect a registration of its Common Stock under the Securities Act on or before June 30, 1996. Such rights to convert have been waived until December 31, 1996 and expire upon consummation of the Offering. In addition, Walden and Venrock are entitled to certain rights with respect to the registration of their shares of Common Stock under the Securities Act. See "Description of Capital Stock -- Registration Rights." In connection with Vobis' investment, the Company entered into a voting agreement with Vobis, Walden, Venrock and the Company's chief executive officer pursuant to which such shareholders agreed not to reduce the number of directors on the Board of Directors below five and to elect a person designated by Vobis to the Company's Board of Directors. This agreement will terminate upon the 33 36 earlier of (i) January 12, 1999, (ii) a change of control of the Company, (iii) the date Vobis owns less than 8% of the Company's outstanding shares of Common Stock on a fully diluted basis, or (iv) an offering of shares of the Company's Common Stock under the Securities Act with an aggregate offering price to the public of at least $10,000,000 and a per share price of at least $13.60. The Vobis, Walden and Venrock Warrants contain a net exercise provision and expire upon the earlier of (i) September 30, 2001 or (ii) an offering of shares of Common Stock under the Securities Act with an aggregate offering price to the public of at least $10,000,000 on a per share price of at least $13.60. The holders of these warrants are entitled to certain rights with respect to the registration of the shares of Common Stock issuable upon exercise thereof under the Securities Act. See "Description of Capital Stock -- Registration Rights." In December 1994, the Company authorized the issuance of, and in June 1995 issued TVCC, an affiliate of Dr. Lee, and Dr. Lee warrants to purchase 30,000 and 20,000 shares of Common Stock, respectively, with an exercise price of $1.00 per share in consideration of certain marketing services performed for the Company. Taiwan Venture Capital Corporation ("TVCC") and FVCC intend to sell 25,000 and 75,000 shares of Common Stock, respectively, as Selling Shareholders in the Offering. In December 1994, the Company authorized the issuance of, and in June 1995 issued FVCC, an affiliate of Dr. Cheng Ming Lee, warrants to purchase 50,000 shares of Common Stock with an exercise price of $1.00 per share in consideration of certain marketing services performed for the Company. In October 1994, the Company issued Synnex Information Technologies, Inc., a California corporation ("Synnex") a warrant (the "Synnex Warrant") to purchase up to 200,000 shares of Common Stock. Synnex has agreed to exercise the Synnex Warrant with respect to 47,500 shares and sell such shares in the Offering as a Selling Shareholder. The Synnex Warrant contains a net exercise provision and expires six months after consummation of the Offering. The holder of the Synnex Warrant is entitled to certain rights with respect to the registration of the shares of Common Stock issuable upon exercise thereof under the Securities Act. See "Description of Capital Stock -- Registration Rights." REPURCHASES In July 1995 and August 1995, the Company repurchased 33,493 shares of Common Stock owned by GCH for an aggregate amount of $200,958, or $6.00 per share, which shares were acquired by GCH from several of its existing shareholders, including Dr. Huang and Mr. Lin, who transferred 14,110 and 2,604 shares, respectively. In July 1995 and August 1995, the Company repurchased 207,628 shares and 112,504 shares, respectively, of Common Stock for an aggregate amount of $899,781 and $675,027, or $6.00 per share, from certain relatives of George C. Huang, Chairman of the Board, President and Chief Executive Officer of the Company. In January 1996 and February 1996, the Company repurchased 55,165 shares and 2,500 shares, respectively, of Common Stock for an aggregate amount of $551,650 and $25,000, or $10.00 per share, from certain relatives of Dr. Huang. Dr. Huang disclaims beneficial ownership of any of such shares held by his relatives. In July 1995 and August 1995, the Company repurchased 139,963 shares and 152,504 shares, respectively, of Common Stock for an aggregate amount of $839,781 and $915,027, or $6.00 per share, from certain relatives of Lyon T. Lin, General Manager, Taiwan; President, Award Software Hong Kong Limited, Taiwan Branch. In January 1996, the Company repurchased 24,392 shares of Common Stock for an aggregate amount of $243,925, or $10.00 per share, from certain relatives of Mr. Lin. Mr. Lin disclaims beneficial ownership of any of such shares held by his relatives. In January 1996, the Company repurchased 123,549 shares of the Company's Common Stock for an aggregate amount of $1,235,495, or $10.00 per share, from Intra Electronics Co., Ltd. ("Intra Electronics"), an affiliate of FVCC, TVCC and Dr. Lee. Cheng Ming Lee, a director of the Company, was a director of Intra Electronics at the time of repurchase. Dr. Lee disclaims beneficial ownership of any such shares held by Intra Electronics. SELLING SHAREHOLDERS Certain of the Selling Shareholders who are relatives of Dr. Huang intend to sell 47,500 shares of Common Stock in the Offering. Dr. Huang disclaims beneficial ownership of any of such shares held by his relatives. Certain of the Selling Shareholders who are relatives of Mr. Lin intend to sell 22,500 shares of Common Stock in the Offering. Mr. Lin disclaims beneficial ownership of any of such shares held by his relatives. MISCELLANEOUS In July 1993, GCH purchased all of the issued and outstanding shares of the Company's Common Stock, after which the Company was operated as a wholly owned subsidiary until December 1994. On December 31, 1994, GCH effected a spin-off of the Company by distributing all of the outstanding shares of Common Stock of the Company to the existing shareholders of GCH on a pro rata basis. Dr. George C. Huang, the Chairman of the Board, Chief Executive Officer, President and director of the Company, is a director, 34 37 executive officer and shareholder of GCH. Masami Maeda, a director of the Company, is a director and shareholder of GCH. Dr. Cheng Ming Lee, a director of the Company, is a shareholder of GCH and President and Chief Executive Officer of TVCC and FVCC, each of which is a shareholder of GCH and the Company. The Company subleases its headquarters facilities from GCH. In 1993, 1994, 1995 and for the three months ended March 31, 1996, the Company made lease payments to GCH of $123,000, $221,000, $273,000 and $79,000, respectively. From time to time in the past, the Company and GCH have made non-interest bearing inter-company cash advances to each other for working capital purposes. In 1993, 1994, 1995 and for the three months ended March 31, 1996, GCH, and its affiliates, advanced to (or borrowed from) the Company a maximum amount of $723,000/$(19,000), $1,104,000/$(263,000), $616,354/$(1,474,000) and $(272,000), respectively, with an outstanding balance of $816,000, $413,000, $(282,000) and $(258,000) at the end of such periods, respectively. The Company leases its office space in Taipei, Taiwan, from Sun Corporation, an affiliate of Sun Electronics Corporation ("Sun"), of which Mr. Maeda, a director of the Company, is President, Chief Executive Officer, director and majority shareholder, and GSS, an affiliate of Dr. George C. Huang, Dr. Cheng Ming Lee, Masami Maeda and Lyon T. Lin. In 1993, 1994, 1995 and as of March 31, 1996, the Company made lease payments to Sun Corporation of $19,700, $15,100, $58,900 and $15,800, respectively. During the three months ended March 31, 1996, the Company made lease payments to GSS of $13,500. Sun intends to sell 47,500 shares of Common Stock as a Selling Shareholder in the Offering. The Company believes that the foregoing transactions were in its best interests. As a matter of policy, all future transactions between the Company and any of its officers, directors or principal shareholders will be approved by a majority of the independent and disinterested members of the Board of Directors, will be on terms no less favorable to the Company than could be obtained from unaffiliated third parties and will be in connection with bona fide business purposes of the Company. 35 38 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock as of May 31, 1996 and as adjusted to reflect the sale of the Common Stock being offered hereby (assuming no exercise of the Underwriters' over-allotment option) by (i) each person (or group of affiliated persons) who is known by the Company to own beneficially more than 5% of the Common Stock, (ii) each of the Company's directors, (iii) each of the Named Executive Officers, and (iv) all directors and executive officers of the Company as a group.
--------------------------------------------------------------------- SHARES BENEFICIALLY SHARES TO BE OWNED PRIOR BENEFICIALLY OWNED TO OFFERING(1) NUMBER OF AFTER OFFERING(1)(2) ------------------------- SHARES BEING -------------------------- BENEFICIAL OWNERS NUMBER PERCENT OFFERED NUMBER PERCENT(2) - -------------------------------------------------- ------------ ------- ------------ ---------- ---------- Vobis Microcomputer AG (3) 842,427 16.1% -- 842,427 13.0% Theodor L. Lieven Carlo-Schmid-Str. 12 D-52146 Wurselen Germany George C. Huang (4) 522,659 10.5 -- 522,659 8.4 c/o Award Software International, Inc. 777 East Middlefield Road Mountain View, CA 94043 Sun Electronics Corporation 472,297 9.5 47,500 424,797 6.8 Masami Maeda 250 Asahi Kochino-Cho Konan City, Aichi Prefecture 483 Japan Venrock Associates (5) 416,666 8.3 -- 416,666 6.6 Anthony Sun 30 Rockfeller Plaza, #5508 New York, NY 10112 Taiwan Venture Capital Corporation 375,285 7.6 25,000 350,285 6.6 Cheng Ming Lee 6F, 305 Ming-Shen E. Rd. Taipei, Taiwan Fidelity Venture Capital Corporation 318,445 6.4 75,000 243,445 3.9 Cheng Ming Lee 6F, 305 Ming-Shen E. Rd. Taipei, Taiwan John Miao(6) 286,750 5.8 27,200 9,550 * 39 Alley 669 Tun Hua S. Rd. Taipei, Taiwan Wan Tsai Tsai(7) 251,662 5.1 -- 251,662 4.0 2F, 237 Sec. 1 Chien-Kuo S. Rd. Taipei, Taiwan Hung Lien Investment Corporation 250,000 5.0 -- 250,000 4.0 2/F No.76 Tunhwa Road Sec. 2 Taipei, Taiwan HanTech Venture Capital Corporation 250,000 5.0 250,000 -- -- International Trade Building No. 333 Keeling Road, Sec. 1, Suite 3201 Taipei 10545, Taiwan Chailease Venture Capital Co., Ltd. 250,000 5.0 95,000 155,000 2.5 and affiliated entities (8) 5th Fl., No. 420 Fu-Shin N. Rd. Taipei, Taiwan Theodor L. Lieven (9) 842,427 16.1 -- 842,427 13.0 Cheng Ming Lee (10) 761,349 15.4 -- 661,349 10.7 Masami Maeda (11) 486,359 9.8 -- 438,859 7.1 Anthony Sun (5) 416,666 8.3 -- 416,666 6.6 Lyon T. Lin (12) 133,424 2.7 -- 133,424 2.1 William P. Tai (13) 130,103 2.6 -- 130,103 2.1 David S. Lee (14) 73,500 1.5 -- 73,500 1.2 Ann P. Shen (15) 23,723 * -- 23,723 * All directors and executive officers as a group (12 persons)(10)(11)(16) 3,422,397 62.0 -- 3,258,397 48.1
36 39
--------------------------------------------------------------------- SHARES BENEFICIALLY SHARES TO BE OWNED PRIOR BENEFICIALLY OWNED TO OFFERING(1) NUMBER OF AFTER OFFERING(1)(2) ------------------------- SHARES BEING -------------------------- NUMBER PERCENT OFFERED NUMBER PERCENT(2) ------------ ------- ------------ ---------- ---------- OTHER SELLING SHAREHOLDERS Synnex Information Technologies, Inc.(17)......... 200,000 3.9% 47,500 152,500 2.4% Hsiang Kang & Chao Yeh(18)........................ 133,041 2.7 10,000 123,041 2.0 John Chao-Piao Huang (19)......................... 109,165 2.2 7,500 101,665 1.6 Pin-Wei Chen (20)................................. 87,760 1.8 3,000 84,760 1.4 James R. McGowan.................................. 73,439 1.5 15,000 58,439 * Other Selling Shareholders, each holding less than 1% of the shares outstanding prior to the Offering (16 172,369 3.4 79,770 92,599 1.5 persons) (21)...................................
- --------------- * Less than one percent. (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. Percentage of beneficial ownership is based on 4,957,127 shares of Common Stock outstanding as of May 31, 1996 and 6,207,127 shares of Common Stock outstanding after completion of the Offering. (2) Assumes no exercise of the Underwriters' over-allotment option to purchase up to an aggregate of 300,000 shares of Common Stock of the Company. (3) Includes 272,394 shares issuable pursuant to a warrant exercisable within 60 days of May 31, 1996. Mr. Lieven, a director of the Company, is the Chief Executive Officer of Vobis Microcomputer AG. Excludes the right to purchase up to 127,948 shares pursuant to certain purchase options exercisable in connection with the Offering which if exercised would reflect the beneficial ownership of 970,375 shares or 14.7%. See "Certain Transactions." Mr. Lieven disclaims beneficial ownership of shares held by such entity. (4) Includes (i) 13,609 shares held by Margaret Huang and (ii) 14,727 shares held by Dwight Huang, Dr. Huang's wife and son, respectively. Also includes 22,500 and 7,500 shares issuable pursuant to options exercisable within 60 days of May 31, 1996 by Dr. Huang and his wife. Dr. Huang disclaims beneficial ownership of shares held by his wife and son. (5) Includes (i) 229,302 shares held by Venrock Associates, (ii) 104,031 shares held by Venrock Associates II, L.P. and (iii) 57,325 shares and 26,008 shares issuable pursuant to warrants exercisable within 60 days of May 31, 1996 by Venrock Associates and Venrock Associates II, L.P., respectively. Mr. Sun, a director of the Company, is a general partner of Venrock Associates. Mr. Sun disclaims beneficial ownership of shares held by such entities, except to the extent of his pecuniary interest therein. (6) Includes (i) 250,000 shares held by HanTech Venture Capital Corporation ("HanTech") and (ii) 9,550 shares held by Min Chun Chang, Mr. Miao's wife. Mr. Miao is deemed to have voting power over the shares held by HanTech. He disclaims beneficial ownership over the shares held by HanTech and his wife. (7) Includes an aggregate of 22,280 shares held by Ming Hsing Tsai, Ming Chung Tsai and Ming Mei Tsai, Mr. Tsai's children. Mr. Tsai disclaims beneficial ownership over shares held by his children. (8) Includes (i) 166,500 shares held by Chinatrust Venture Capital Co., Ltd. and (ii) 166,500 shares held by Koos Venture Capital Co., Ltd. (9) Includes (i) 570,033 shares held by Vobis Microcomputer AG and (ii) 272,394 shares issuable pursuant to a warrant exercisable within 60 days of May 31, 1996. Excludes the right to purchase up to 127,948 shares pursuant to certain purchase options exercisable in connection with the Offering which if exercised would reflect the beneficial ownership of 970,375 shares or 14.7%. See "Certain Transactions." Mr. Lieven disclaims beneficial ownership of shares held by such entity. (10) Includes (i) 375,285 shares held by TVCC, (ii) 318,445 shares held by FVCC, (iii) 29,920 shares held by South Orient Capital Corporation and (iv) 14,211 shares held by Hwaxing Capital Corporation. Dr. Lee, a director of the Company, is deemed to have voting power over the shares held by such entities; however, he disclaims beneficial ownership of the shares. (11) Includes (i) 472,297 shares held by Sun Electronics Corporation and (ii) 14,062 shares issuable pursuant to options exercisable within 60 days of May 31, 1996. Mr. Maeda, a director of the Company, is President, Chief Executive Officer and majority shareholder of Sun Electronics Corporation. (12) Includes (i) 6,500 shares held by Anne Lin, Mr. Lin's wife, (ii) 10,000 shares held by Christine and Eric Lin, Mr. Lin's children and (iii) 18,750 and 2,812 shares issuable pursuant to options exercisable within 60 days of May 31, 1996, by Mr. Lin and his wife, respectively. Mr. Lin disclaims beneficial ownership of shares held by his wife and children. 37 40 (13) Includes (i) 72,917 shares held by Walden Capital Partners II, L.P., (ii) 10,416 shares held by Walden Technology Ventures II, L.P. and (iii) 35,000 and 5,000 shares issuable pursuant to warrants exercisable within 60 days of May 31, 1996. Also includes 6,770 shares issuable pursuant to options exercisable within 60 days of May 31, 1996. Mr. Tai, a director of the Company, is a general partner of The Walden Group. Mr. Tai disclaims beneficial ownership of shares held by such entities, except to the extent of his pecuniary interest therein. (14) Includes 73,500 shares issuable pursuant to options exercisable within 60 days of May 31, 1996. (15) Includes 9,768 shares issuable pursuant to options exercisable within 60 days of May 31, 1996. (16) Includes 167,849 shares issuable pursuant to options held by officers and directors exercisable within 60 days of May 31, 1996. (17) Includes 200,000 shares issuable pursuant to warrants exercisable within 60 days of May 31, 1996. David S. Lee, a director of the Company, is a director of Synnex Information Technologies, Inc. Mr. Lee disclaims beneficial ownership of shares held by such entity. (18) Mr. Yeh is a board member of GCH and the brother-in-law of Dr. Huang. Dr. Huang disclaims beneficial ownership of shares held by this person. (19) Includes 1,500 shares issuable pursuant to options exercisable within 60 days of May 31, 1996. Mr. Huang is the brother of Dr. Huang. Dr. Huang disclaims beneficial ownership of shares held by his brother. (20) Includes 1,875 shares issuable pursuant to options exercisable within 60 days of May 31, 1996. Pin-Wei Chen is the former Secretary and, until May 5, 1995, a director of the Company. Mr. Chen is the brother-in-law of Dr. Huang. Dr. Huang disclaims beneficial ownership of shares held by his brother-in-law. (21) Includes 10,000 shares issuable pursuant to options exercisable within 60 days of May 31, 1996. Certain selling shareholders are relatives of Dr. Huang and Mr. Lin. Dr. Huang and Mr. Lin disclaim beneficial ownership of shares held by these persons. 38 41 DESCRIPTION OF CAPITAL STOCK The following description of the capital stock of the Company and certain provisions of the Company's Articles of Incorporation and Bylaws is a summary that will be in effect at the time of the Offering and is qualified in its entirety by the provisions of the Certificate of Incorporation and Bylaws, which have been filed as exhibits to the Company's Registration Statement, of which this Prospectus is a part. Upon the closing of the offering the authorized capital stock of the Company will consist of 40,000,000 shares of Common Stock, without par value ("Common Stock"), and 5,000,000 shares of Preferred Stock, without par value ("Preferred Stock"). COMMON STOCK As of May 31, 1996, there were 4,957,127 shares of Common Stock outstanding held by 100 holders of record. The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders. The holders of Common Stock are not entitled to cumulative voting rights with respect to the election of directors, and as a consequence, minority shareholders will not be able to elect directors on the basis of their votes alone. Subject to preferences that may be applicable to any shares of Preferred Stock issued by the Company in the future, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, holders of the Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding Preferred Stock. Holders of Common Stock have no preemptive rights and no right to convert their Common Stock into any other securities. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are, and all shares of Common Stock to be outstanding upon completion of the Offering will be, fully paid and nonassessable. PREFERRED STOCK The Board of Directors has the authority, without further action by the shareholders, to issue up to 5,000,000 shares of Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, without any further vote or action by shareholders. The issuance of Preferred Stock could adversely affect the voting power of holders of Common Stock and the likelihood that such holders will receive dividend payments and payments upon liquidation and could have the effect of delaying, deferring or preventing a change in control of the Company. The Company has no present plan to issue any shares of Preferred Stock. WARRANTS The Company has outstanding warrants to purchase 595,727 shares of Common Stock as of May 31, 1996. For a description of such warrants see "Certain Transactions." REGISTRATION RIGHTS After the Offering, the holders of 1,735,699 shares of Common Stock and warrants to purchase 595,727 shares of Common Stock will be entitled to certain rights with respect to the registration of such shares under the Securities Act, pursuant to the Investors' Rights Agreement among such holders and the Company, dated January 12, 1996 (the "Investors' Rights Agreement"). Under the terms of the Investors' Rights Agreement, if the Company proposes to register any of its securities under the Securities Act either for its own account or for the account of other security holders exercising registration rights, such holders are entitled to notice of such registration and are entitled, subject to certain limitations, to include shares therein. The holders may also require the Company to file a registration statement under the Securities Act with respect to their shares, subject to certain limitations. Further, the holders may require the Company to register their shares on Form S-3 when use of such form becomes available to the Company. The Company is required to bear all registration expenses in connection with all subsequent registrations, except that any Form S-3 registration expenses incurred after the first two registrations shall be borne by the selling shareholders on a pro rata basis in proportion to the number of shares sold by each. The selling shareholders in each subsequent registration are required to bear all selling expenses on a pro rata basis in proportion to the number of shares sold by each. These rights are subject to certain conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares included in such registration. CERTAIN ANTI-TAKEOVER CHARTER PROVISIONS The Company's Bylaws (i) provide that only a majority of the members of the Board of Directors in office, although less than a quorum, may elect directors to fill vacancies created either by resignation, death, disqualification, removal or by an increase in the size of the 39 42 Board of Directors and (ii) require advance notice by a shareholder of a proposal or director nomination that such shareholder desires to present at the annual meeting. In addition, the Company's Amended and Restated Articles of Incorporation (i) prohibit shareholder actions by written consent, (ii) eliminate automatically on and after the Company becomes a "listed corporation" as defined in Section 301.5 of the California Corporations Code the ability of the shareholders to cumulate votes in the election of directors and (iii) provide that the Bylaws of the Company may only be amended by the Board of Directors or holders of two-thirds of the Company's outstanding voting stock. These provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of the Company. TRANSFER AGENT AND REGISTRAR First National Bank of Boston has been appointed as the transfer agent and registrar for the Company's Common Stock. Its telephone number is (617) 575-2900. 40 43 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offering, the Company will have outstanding 6,207,127 shares of Common Stock, assuming no exercise of the Underwriters' over-allotment option and no exercise of outstanding options and warrants. Of these shares, 2,000,000 shares sold in the Offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended (the "Securities Act"). The remaining 4,207,127 shares of Common Stock held by existing shareholders are "restricted securities" as the term is defined in Rule 144 under the Securities Act (the "Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 or Regulation S promulgated under the Securities Act. As a result of contractual restrictions and the provisions of Rule 144 and 701 or Regulation S, additional shares will be available for sale in the public market as follows: (i) no Restricted Shares will be eligible for immediate sale on the date of this Prospectus, (ii) 5,000 Restricted Shares and 324,727 shares of Common Stock issuable upon exercise of currently outstanding options will be eligible for sale beginning 90 days after the date of this Prospectus and (iii) 4,202,157 Restricted Shares, 44,214 additional shares of Common Stock issuable upon exercise of currently outstanding options and 595,727 shares of Common Stock issuable upon exercise of currently outstanding warrants will be eligible for sale beginning 180 days after the date of this Prospectus upon expiration of lock-up agreements. The Restricted Shares will be eligible for sale from time to time after completion of the Offering. The Company, directors, all executive officers and certain shareholders of the Company and certain holders of options to acquire Common Stock have agreed with the representatives of the Underwriters for a period of 180 days after the effective date of this Prospectus (the "Lock-Up Period"), subject to certain exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of Common Stock, any options or warrants to purchase any shares of Common Stock, or any securities convertible into or exchangeable for shares of Common Stock owned as of the date of this Prospectus or thereafter acquired directly by such holders or with respect to which they have or hereafter acquire the power of disposition, without the prior written consent of J.P. Morgan Securities Inc. However, J.P. Morgan Securities Inc. may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements. In addition, the Company has agreed that during the Lock-Up Period, the Company will not, without the prior written consent of J.P. Morgan Securities Inc., subject to certain exceptions, issue, sell, contract to sell, or otherwise dispose of, any shares of Common Stock, any options or warrants to purchase any shares of Common Stock or any securities convertible into, exercisable for or exchangeable for shares of Common Stock other than the Company's sale of shares in the Offering, the issuance of Common Stock upon the exercise of outstanding options, the Company's sale of shares in the Offering, and the Company's issuance of options and shares under existing employee stock option and stock purchase plans. As of May 31, 1996 there were 951,113 shares of Common Stock subject to outstanding options. The Company intends to file registration statements under the Securities Act to register shares of Common Stock reserved for issuance under the Option Plan and the Purchase Plan, thus permitting the sale of such shares by non-affiliates in the public market without restriction under the Securities Act. Such registration statements will become effective immediately upon filing. Upon effectiveness of such registration statements, holders of vested options to purchase approximately 261,033 shares will be entitled to exercise such options and immediately sell such shares. Holders of all of these option shares have also entered into agreements not to offer to sell, contract to sell, or otherwise sell, dispose, loan, pledge or grant any rights with respect to any shares of Common Stock, any options or warrants to purchase any shares of Common Stock, or any securities convertible into or exchangeable for shares of Common Stock owned as of the date of this Prospectus or thereafter acquired directly by such holders or with respect to which they have or hereafter acquire the power of disposition, during the Lock-Up Period without the prior written consent of J.P. Morgan Securities Inc. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, an Affiliate of the Company, or person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least two years, will be entitled to sell in any three-month period a number of shares that does not exceed the greater of (i) 1% of then outstanding shares of the Company's Common Stock (approximately 69,571 shares immediately after the Offering) or (ii) the average weekly trading volume of the Company's Common Stock in the Nasdaq National Market during the four calendar weeks immediately preceding the date on which notice of the sale is filed with the Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to certain requirements relating to manner of sale, notice and availability of current public information about the Company. A person (or person whose shares are aggregated) who is not deemed to have been an Affiliate of the Company at any time during the 90 days immediately preceding the sale and who has beneficially owned Restricted Shares for at least three years is entitled to sell such shares pursuant to Rule 144(k) without regard to the limitations described above. In general, under Regulation S as currently in effect, a person who purchased equity securities pursuant to Regulation S and has owned such equity securities for at least one year, assuming no other restrictions on resale, will be able to sell such securities in the United States on the date public trading begins in the U.S. market in which the Company's Common Stock is traded. 41 44 An employee, officer or director of or consultant to the Company who purchased or was awarded shares or options to purchase shares pursuant to a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701 under the Securities Act, which permits Affiliates and non-Affiliates to sell their Rule 701 shares without having to comply with Rule 144's holding period restrictions, in each case commencing 90 days after the date of this Prospectus. In addition, non-Affiliates may sell Rule 701 shares without complying with the public information, volume and notice provisions of Rule 144. Prior to the Offering, there has been no public market for the Company's Common Stock, and there can be no assurance that an active public market for the Common Stock will develop or will continue after the Offering or that the market price of the Common Stock will not decline below the initial public offering price. Future sales of substantial amounts of Common Stock in the public market could adversely affect market prices prevailing from time to time. As described herein, only a limited number of shares will be available for sale shortly after the Offering because of certain contractual and legal restrictions on resale. Sales of substantial amounts of Common Stock of the Company in the public market after the restrictions lapse could adversely affect the prevailing market price and the ability of the Company to raise equity capital in the future. 42 45 UNDERWRITING The Underwriters named below (the "Underwriters"), for whom J.P. Morgan Securities Inc., Prudential Securities Incorporated, and Needham & Company, Inc. are acting as representatives (the "Representatives"), have severally agreed, subject to the terms and conditions set forth in the underwriting agreement among the Company, the Selling Shareholders and the Representatives (the "Underwriting Agreement"), to purchase from the Company and Selling Shareholders, and the Company and the Selling Shareholders have agreed to sell to the Underwriters, the respective numbers of shares of Common Stock set forth opposite their names:
---------------- UNDERWRITERS NUMBER OF SHARES - ----------------------------------------------------------------------------------------- ---------------- J.P. Morgan Securities Inc. Prudential Securities Incorporated Needham & Company, Inc. --------- Total 2,000,000 =========
The nature of the Underwriters' obligations under the Underwriting Agreement is such that all of the Common Stock being offered, excluding shares covered by the over-allotment option granted to the Underwriters, must be purchased if any are purchased. The Representatives have advised the Company and the Selling Shareholders that the several Underwriters propose to offer the Common Stock to the public initially at the public offering price set forth on the cover page of this Prospectus and may offer the Common Stock to selected dealers at such price less a concession not to exceed $ per share. The Underwriters may allow, and such dealers may reallow, a concession to other dealers not in excess of $ per share. After the public offering of the Common Stock, the public offering price and other selling terms may be changed by the Representatives. The Company has granted the Underwriters an option, exercisable within 30 days after the date of this Prospectus, to purchase up to 300,000 additional shares of Common Stock from the Company at the same price per share to be paid by the Underwriters for the other shares offered hereby. If the Underwriters purchase any such additional shares pursuant to the option, each of the Underwriters will be committed to purchase such additional shares in approximately the same proportion as set forth in the above table. The Underwriters may exercise the option only to cover over-allotments, if any, made in connection with the distribution of Common Stock offered hereby. Prior to the Offering, there has been no public market for the Common Stock. The initial public offering price will be determined by negotiations among the Company, the Selling Shareholders and the Representatives. The factors to be considered in determining the initial offering price include the prevailing market conditions, the market valuations of certain publicly traded companies, revenue and earnings of the Company and comparable companies in recent periods, estimates of the business potential and prospects of the Company, the experience of the Company's management and the position of the Company in its industry. The Representatives have informed the Company and the Selling Shareholders that the Underwriters will not confirm, without customer authorization, sales to their customer accounts as to which they have discretionary trading power. The Company, all directors and executive officers and certain shareholders have agreed not to offer, sell or otherwise dispose of, any Common Stock or any securities convertible into Common Stock or register for sale under the Securities Act any Common Stock, for a period of 180 days after the date of this Prospectus without the prior written consent of the Representatives. See "Shares Eligible for Future Sale." The Company and certain of the Selling Shareholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Cooley Godward Castro Huddleson & Tatum, Palo Alto, California. Certain legal matters will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California. EXPERTS The consolidated financial statements as of December 31, 1994 and 1995 and for the six-month periods ended July 1, 1993 and December 31, 1993 and for each of the two years in the period ended December 31, 1995, included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 43 46 ADDITIONAL INFORMATION A Registration Statement on Form S-1, including amendments thereto, relating to the Common Stock offered hereby has been filed by the Company with the Securities and Exchange Commission, Washington, D.C. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. For further information with respect to the Company and the Common Stock offered hereby, reference is made to such Registration Statement, exhibits and schedules. A copy of the Registration Statement may be inspected by anyone without charge at the Commission's principal office in Washington, D.C., and copies of all or any part thereof may be obtained from the Commission upon the payment of certain fees prescribed by the Commission. 44 47 AWARD SOFTWARE INTERNATIONAL, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Price Waterhouse LLP, Independent Accountants........................................... F-2 Consolidated Balance Sheet........................................................................ F-3 Consolidated Statement of Operations.............................................................. F-4 Consolidated Statement of Shareholders' Equity.................................................... F-5 Consolidated Statement of Cash Flows.............................................................. F-6 Notes to Consolidated Financial Statements........................................................ F-7
F-1 48 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Award Software International, Inc. The recapitalization and reverse stock split described in the first paragraph of Note 11 to the consolidated financial statements have not been consummated at June 3, 1996. When it has been consummated, we will be in a position to furnish the following report: "In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Award Software International, Inc. and its subsidiary at December 31, 1994 and 1995, and the results of their operations and their cash flows for the six month periods ended July 1, 1993 and December 31, 1993, and the years ended December 31, 1994 and 1995 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above." PRICE WATERHOUSE LLP San Jose, California May 29, 1996 except for Note 11 which is as of June 3, 1996 F-2 49 AWARD SOFTWARE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET
---------------------------------------- DECEMBER 31, ------------------------- 1994 MARCH 31, ---------- 1996 Dollars in thousands, except share data 1995 ---------- ---------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 1,374 $ 6,498 $ 10,591 Accounts receivable, net 953 992 1,475 Accounts receivable from related parties 75 568 915 Receivable from GCH Systems, Inc. -- 282 258 Other current assets 195 216 246 ---------- ---------- ---------- Total current assets 2,597 8,556 13,485 Property and equipment, net 204 276 465 Other assets 318 251 288 ---------- ---------- ---------- $ 3,119 $ 9,083 $ 14,238 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 138 $ 191 $ 130 Accrued liabilities 873 1,723 2,040 Payable to GCH Systems, Inc. 413 -- -- ---------- ---------- ---------- Total current liabilities 1,424 1,914 2,170 ---------- ---------- ---------- Commitments (Note 10) Shareholders' equity: Preferred stock, 5,000,000 shares authorized; no par value; no shares issued or outstanding -- -- -- Common stock, 40,000,000 shares authorized; no par value; 3,841,801, 4,586,283 and 4,957,127 shares issued and outstanding 1,627 6,215 10,726 Deferred stock compensation -- (255) (236) Retained earnings 80 1,245 1,631 Cumulative translation adjustment (12) (36) (53) ---------- ---------- ---------- Total shareholders' equity 1,695 7,169 12,068 ---------- ---------- ---------- $ 3,119 $ 9,083 $ 14,238 ========== ========== ==========
The accompanying notes are an integral part of these Consolidated Financial Statements. F-3 50 AWARD SOFTWARE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF OPERATIONS
---------------------------------------------------------------------------- PREDECESSOR ---------- SIX MONTHS ENDED JULY 1, ---------- THE COMPANY --------------------------------------------------------------- 1993 THREE MONTHS ENDED ---------- SIX MONTHS YEAR ENDED DECEMBER 31, MARCH 31, Dollars in thousands, except ENDED ----------------------- ----------------------- share data DECEMBER 1995 1996 31, ---------- ---------- ----------- 1994 1995 ---------- ---------- 1993 ----------- (UNAUDITED) Revenues: Software and engineering services $ 1,810 $ 2,010 $ 5,746 $ 7,228 $ 1,601 $ 2,306 Related parties -- 50 972 1,902 455 506 ---------- ----------- ---------- ---------- ---------- ---------- Total revenues 1,810 2,060 6,718 9,130 2,056 2,812 ---------- ----------- ---------- ---------- ---------- ---------- Cost of revenues: Software and engineering services 91 105 558 490 50 79 Related parties -- 12 33 146 35 209 ---------- ----------- ---------- ---------- ---------- ---------- Total cost of revenues 91 117 591 636 85 288 ---------- ----------- ---------- ---------- ---------- ---------- Gross profit 1,719 1,943 6,127 8,494 1,971 2,524 ---------- ----------- ---------- ---------- ---------- ---------- Operating expenses: Research and development 887 2,071 1,601 2,751 593 855 Sales and marketing 845 647 1,537 2,282 425 560 General and administrative 615 350 932 1,600 415 590 ---------- ----------- ---------- ---------- ---------- ---------- Total operating expenses 2,347 3,068 4,070 6,633 1,433 2,005 ---------- ----------- ---------- ---------- ---------- ---------- Income (loss) from operations (628) (1,125) 2,057 1,861 538 519 Interest expense (27) (54) (19) (9) (10) -- Interest and other income -- 1 4 105 2 84 ---------- ----------- ---------- ---------- ---------- ---------- Income (loss) before income taxes (655) (1,178) 2,042 1,957 530 603 Provision for income taxes -- -- 784 792 214 217 ---------- ----------- ---------- ---------- ---------- ---------- Net income (loss) $ (655) $ (1,178) $ 1,258 $ 1,165 $ 316 $ 386 ========== =========== ========== ========== ========== ========== Net income (loss) per share $ (0.19) $ 0.20 $ 0.18 $ 0.05 $ 0.06 =========== ========== ========== ========== ========== Weighted average common and common equivalent shares in thousands 6,307 6,307 6,500 6,622 6,047 =========== ========== ========== ========== ==========
The accompanying notes are an integral part of these Consolidated Financial Statements. F-4 51 AWARD SOFTWARE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------------- COMMON STOCK ------------------------- RETAINED SHARES DEFERRED EARNINGS CUMULATIVE TOTAL ----------- STOCK (ACCUMULATED TRANSLATION SHAREHOLDERS' Dollars in thousands AMOUNT COMPENSATION DEFICIT) ADJUSTMENT EQUITY ----------- ------------ ------------ ----------- ----------- PREDECESSOR: Balance at December 31, 1992 450,000.... $ 1 $ -- $ (359) $ (93) $ (451) Cumulative translation adjustment -- -- -- -- 7 7 Net loss -- -- -- (655) -- (655) ----------- ----------- ------------ ------------ ----------- ----------- Balance at July 1, 1993 450,000 $ 1 -- $ (1,014) $ (86) $ (1,099) ============ ============ ============= ============= ============ ============ ----------------------------------------------------------------------------------- THE COMPANY: Issuance of Common Stock 3,841,801 $ 725 $ -- -- -- $ 725 Cumulative translation adjustment -- -- -- -- (15) (15) Net loss -- -- -- (1,178) -- (1,178) ----------- ----------- ------------ ------------ ----------- ----------- Balance at December 31, 1993 3,841,801 725 -- (1,178) (15) (468) Capital contribution -- 902 -- -- -- 902 Cumulative translation adjustment -- -- -- -- 3 3 Net income -- -- -- 1,258 -- 1,258 ----------- ----------- ------------ ------------ ----------- ----------- Balance at December 31, 1994 3,841,801 1,627 -- 80 (12) 1,695 Issuance of Common Stock and related warrants, net of issuance costs of $165 1,166,669 6,837 -- -- -- 6,837 Repurchase of Common Stock (499,687) (2,998) -- -- -- (2,998) Exercise of Common Stock options 7,500 8 -- -- -- 8 Exercise of Common Stock warrants 70,000 70 -- -- -- 70 Warrants issued for services -- 374 -- -- -- 374 Deferred stock compensation -- 297 (297) -- -- -- Amortization of deferred stock compensation -- -- 42 -- -- 42 Cumulative translation adjustment -- -- -- -- (24) (24) Net income -- -- -- 1,165 -- 1,165 ----------- ----------- ------------ ------------ ----------- ----------- Balance at December 31, 1995 4,586,283 6,215 (255) 1,245 (36) 7,169 Issuance of Common Stock and related warrants, net of issuance costs of $45 (Unaudited) 570,011 6,960 -- -- -- 6,960 Repurchase of Common Stock (Unaudited) (250,000) (2,500) -- -- -- (2,500) Exercise of Common Stock options (Unaudited) 20,833 21 -- -- -- 21 Exercise of Common Stock warrants (Unaudited) 30,000 30 -- -- -- 30 Amortization of deferred stock compensation -- -- 19 -- -- 19 Cumulative translation adjustment (Unaudited) -- -- -- -- (17) (17) Net income (Unaudited) -- -- -- 386 -- 386 ----------- ----------- ------------ ------------ ----------- ----------- Balance at March 31, 1996 (Unaudited) 4,957,127 $ 10,726 $ (236) $ 1,631 $ (53) $ 12,068 ============ ============ ============= ============= ============ ============
The accompanying notes are an integral part of these Consolidated Financial Statements. F-5 52 AWARD SOFTWARE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
---------------------------------------------------------------------------- PREDECESSOR ---------- SIX MONTHS ENDED JULY 1, THE COMPANY ---------- --------------------------------------------------------------- THREE MONTHS ENDED 1993 SIX MONTHS YEAR ENDED DECEMBER 31, MARCH 31, ---------- ENDED ----------------------- ----------------------- Dollars in thousands DECEMBER 1995 1996 31, ---------- ---------- ----------- 1994 ---------- 1995 1993 ---------- ----------- (UNAUDITED) Cash flows from operating activities: Net income (loss) $ (655) $ (1,178) $ 1,258 $ 1,165 $ 316 $ 386 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Acquired in-process research and development -- 1,092 -- -- -- -- Noncash charge for income taxes -- -- 902 -- -- -- Depreciation and amortization 39 135 269 132 55 53 Warrants issued for services -- -- -- 374 -- -- Deferred stock compensation -- -- -- 42 -- 19 Changes in assets and liabilities, net of acquisition: Accounts receivable, net 168 (213) (240) (40) (25) (428) Accounts receivable from related parties -- -- (75) (510) 85 (347) Other current assets (193) (8) (11) (5) 33 (64) Other assets (28) 67 (7) 24 49 (52) Accounts payable 309 (334) (131) 49 (16) (58) Accrued liabilities (71) 194 (44) 899 182 325 ---------- ----------- ---------- ---------- ---------- ---------- Net cash provided by (used in) operating activities (431) (245) 1,921 2,130 679 (166) ---------- ----------- ---------- ---------- ---------- ---------- Cash flows from investing activities: Acquisition of predecessor company, net of cash acquired -- (569) -- -- -- -- Purchase of property and equipment (86) (4) (75) (147) (34) (233) ---------- ----------- ---------- ---------- ---------- ---------- Net cash used in investing activities (86) (573) (75) (147) (34) (233) ---------- ----------- ---------- ---------- ---------- ---------- Cash flows from financing activities: Proceeds from common stock issuance -- 725 -- 3,917 -- 4,511 Advances from GCH 546 272 -- 651 -- 24 Repayments to GCH -- -- (476) (1,346) (778) -- Payments under capital leases (4) (13) (24) -- -- -- Proceeds under note obligations -- 120 -- -- -- -- Payments under note obligations (29) (26) (281) (73) (33) -- ---------- ----------- ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities 513 1,078 (781) 3,149 (811) 4,535 ---------- ----------- ---------- ---------- ---------- ---------- Effect of exchange rate changes on cash (4) 20 29 (8) 98 (43) ---------- ----------- ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents (8) 280 1,094 5,124 (68) 4,093 Cash and cash equivalents at beginning of period 164 -- 280 1,374 1,374 6,498 ---------- ----------- ---------- ---------- ---------- ---------- Cash and cash equivalents at end of period $ 156 $ 280 $ 1,374 $ 6,498 $ 1,306 $ 10,591 ========== =========== ========== ========== ========== ========== Supplemental cash flow information: Cash paid for interest $ 27 $ 20 $ 3 $ 10 $ 2 $ -- Cash paid for income taxes $ 37 $ 17 $ 41 $ 282 $ 6 $ --
The accompanying notes are an integral part of these Consolidated Financial Statements. F-6 53 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) NOTE 1 -- ORGANIZATION AND BUSINESS The Company Award Software International, Inc. ("Award" or the "Company") designs, develops and markets system management software for the global computing market. System management software is one of the fundamental layers in personal computer ("PC") architecture and provides an essential interface between a PC's operating system software and its hardware. The Company's principal system management software products include a suite of Basic Input/Output System software ("BIOS"). Award's customers include designers and manufacturers of motherboards, PC systems and other microprocessor-based (or "embedded") devices. The Company was incorporated in California, in 1983, and operates in one business segment through its headquarters facility in Mountain View, California, a branch office in Munich, Germany, and a wholly-owned subsidiary in Hong Kong with a branch office in Taipei, Taiwan. GCH Acquisition On July 2, 1993, GCH Systems, Inc. ("GCH"), an independent developer of microcomputers and application specific integrated circuits, acquired 100 percent of Award's outstanding Common Stock for $1,905 consisting of $725 in cash and the assumption of $1,180 in liabilities. The transaction was accounted for as a purchase and established a new accounting basis for Award. The purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed on the basis of their fair values at the acquisition date. The purchase price exceeded the fair value of Award's net assets by approximately $265, which was assigned to goodwill. In addition, $1,092 of the purchase price was allocated to in-process research and development. Because such in-process technology had not reached the stage of technological feasibility and had no alternative future use, the amount was immediately charged to operations. From the acquisition date through December 30, 1994, Award operated as a wholly-owned subsidiary of GCH. On December 31, 1994, Award and GCH became separate companies through a spin-off of 100 percent of Award's Common Stock to GCH. Award and GCH have certain common members on their Boards of Directors. Award and GCH, from time to time have made non-interest bearing cash advances to each other for working capital purposes. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition The Company's revenues are derived primarily from software license fees and also from non-recurring engineering services. Software license fees are recognized upon delivery of the product, fulfillment of acceptance terms, if any, and satisfaction of any significant support obligations. Payments received in advance of revenue recognition are recorded as deferred revenue. Engineering services revenue generally consist of amounts charged for customization of the software prior to delivery and are generally recognized as the services are performed. Related parties revenues include software licenses and non-recurring engineering services to a holder of the Company's Common Stock and Common Stock warrants. The Company does not offer separate post contract customer support contracts, and due to the nature of the Company's product offerings has not incurred any significant post-sale warranty or support obligations. Allowances for uncollectible amounts, returns and credits are recorded in the same period as the related revenues based upon the Company's historical experience. Cash and Cash Equivalents The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist principally of short-term time deposits and money-market deposit accounts that are stated at cost, which approximates fair value. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets, which range from three to five years. F-7 54 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Software Development Costs Costs incurred in the research and development of new products and enhancements to existing products are charged to expense as incurred until the technological feasibility of the product or enhancement has been established. After establishing technological feasibility, any additional development costs incurred through the date the product is available for general release, if any, are capitalized and amortized over the estimated product life, generally three years. Capitalized software development costs are included in other assets in the accompanying financial statements. Amortization expense on capitalized software development costs totaled $0, $12, $18, $18, $5 and $5 for the six month periods ended July 1, 1993 and December 31, 1993, the years ended December 31, 1994 and 1995, and the three months ended March 31, 1995 and 1996, respectively. Intangible Assets Goodwill and a covenant not to compete resulting from the acquisition of Award Common Stock by GCH are included in other assets at December 31, 1995 and are being amortized using the straight line method over five years and two years, respectively. Income Taxes The provision for income taxes is calculated in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, a current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current period. A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences between the carrying amount and tax bases of other assets and liabilities and for tax carryforwards. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. For the period from July 2, 1993 through December 31, 1994, Award was included in GCH's consolidated federal and California state income tax returns. Under a tax sharing arrangement with GCH, Award was allocated a proportionate share of GCH's consolidated income tax liability. The provision for income taxes has been calculated using the separate return methodology in accordance with SFAS No. 109. The difference between the allocated amount and the separate return provision totaled $902 and has been reflected as a capital contribution. Foreign Currency Translation The Company has a subsidiary in Hong Kong and branch operations in Taiwan and Germany. The functional currencies of these entities are the local currencies. Accordingly, all assets and liabilities of these entities are translated at the current exchange rate in effect at the balance sheet date and revenues and expenses are translated at the average exchange rates in effect during the reporting period. Gains and losses resulting from foreign currency translation are recorded directly into a separate component of shareholders' equity. Foreign currency transaction gains and losses were immaterial for all periods presented. Net Income (Loss) per Share Net income (loss) per share is computed using the weighted average number of common and common equivalent shares, when dilutive, from stock options and warrants (using the treasury stock method). Pursuant to a Securities and Exchange Commission Staff Accounting Bulletin, common and common equivalent shares (using the treasury stock method and the assumed public offering price) issued within 12 months prior to the Company's initial public offering by the Company have been included in the calculation as if they were outstanding for all periods presented. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Interim Financial Information (Unaudited) The accompanying consolidated balance sheet as of March 31, 1996 and the consolidated statements of operations and of cash flows for the three months ended March 31, 1995 and 1996 and the consolidated statement of shareholders' equity for the three months ended March 31, 1996, are unaudited. In the opinion of management, these statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair F-8 55 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) presentation of the results of the interim periods. The financial and other data disclosed in these notes to the consolidated financial statements for these periods are also unaudited. NOTE 3 -- CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of bank deposits and accounts receivable. The Company places its cash and cash equivalents in checking and market rate accounts with major financial institutions and has not incurred any losses related to these investments. The Company markets its products to original equipment manufacturers ("OEMs") in the personal computer market, designers of motherboards and other microprocessor-based or embedded systems manufacturers and, as a result, maintains individually significant receivable balances from major customers located throughout the world. The Company performs ongoing credit evaluations of its customers' financial condition and maintains an allowance for uncollectible accounts receivable based upon the expected collectibility of all accounts receivable. The following table summarizes the net accounts receivable from customers located in the United States, Asia Pacific and Europe:
------------------------------------ DECEMBER 31, MARCH 31, ----------------------- ---------- 1994 1995 ---------- ---------- 1996 ---------- (UNAUDITED) United States $ 87 $ 20 $ 180 Asia Pacific 424 663 934 Europe 442 309 361 ---------- ---------- ---------- $ 953 $ 992 $ 1,475 ========== ========== ==========
All related party receivables are from United States customers. No individual customer accounted for 10% or more of accounts receivable at December 31, 1994. One customer accounted for 28.8% of accounts receivable at December 31, 1995. Two customers accounted for 18.2% and 18.8%, respectively, of accounts receivable at March 31, 1996. NOTE 4 -- NONCASH INVESTING AND FINANCING ACTIVITIES On July 2, 1993, GCH acquired all of the capital stock of the Company for $725. In connection with the acquisition, liabilities were assumed as follows:
---------- LIABILITIES ASSUMED ---------- Tangible assets, including cash of $156 $ 348 Goodwill 265 Covenant not to compete 200 In-process research and development 1,092 Cash paid for common stock (725) ---------- Liabilities assumed $ 1,180 ==========
NOTE 5 -- BALANCE SHEET COMPONENTS
------------------------------------ DECEMBER 31, MARCH 31, ----------------------- ---------- 1994 1995 ---------- ---------- 1996 ---------- (UNAUDITED) Accounts receivable: Accounts receivable $ 991 $ 1,071 $ 1,564 Less: allowance for doubtful accounts (38) (79) (89) ---------- ---------- ---------- $ 953 $ 992 $ 1,475 ========== ========== ==========
F-9 56 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
------------------------------------ DECEMBER 31, MARCH 31, ----------------------- ---------- 1995 ---------- 1996 1994 ---------- ---------- (UNAUDITED) Property and equipment: Computer equipment $ 201 $ 310 $ 500 Office equipment 63 82 82 Furniture and fixtures 39 62 75 ---------- ---------- ---------- 303 454 657 Less accumulated depreciation (99) (178) (192) ---------- ---------- ---------- $ 204 $ 276 $ 465 ========== ========== ========== Other assets: Goodwill $ 265 $ 265 $ 265 Covenant not to compete 200 200 200 Capitalized software 90 139 139 Other 23 28 84 ---------- ---------- ---------- 578 632 688 Less accumulated amortization: Goodwill (80) (133) (146) Covenant not to compete (150) (200) (200) Capitalized software (30) (48) (54) ---------- ---------- ---------- $ 318 $ 251 $ 288 ========== ========== ========== Accrued liabilities: Salaries and benefits $ 232 $ 401 $ 286 Royalties 325 476 276 Income taxes payable 53 542 773 Deferred revenue 62 54 251 Other 201 250 454 ---------- ---------- ---------- $ 873 $ 1,723 $ 2,040 ========== ========== ==========
NOTE 6 -- SHAREHOLDERS' EQUITY The Company is authorized to issue 40,000,000 shares of Common Stock. In connection with the issuance of Common Stock during 1995, the Company agreed that, in the event that an initial public offering was not completed by June 30, 1996, 416,666 of the common shares may be exchanged for convertible Preferred Stock of the Company. The convertible Preferred Stock would have certain rights, preferences and restrictions with respect to conversion, liquidation, voting, dividends and redemption. In May 1996, the shareholders waived their conversion rights with respect to these shares through December 31, 1996. In October 1994, the Company granted 200,000 Common Stock warrants to a customer under a software licensing agreement. The warrants were deemed to have a nominal value on the date of grant. The warrants have an exercise price of $1.00 per share and are exercisable any time up to March 31, 1998. During the period from October 1994 through June 1995, the customer earned 45,500 of the Common Stock warrants based on purchasing volumes. In July 1995, to solidify the Company's long-term relationship with the customer, the Company vested the remaining 154,500 warrants to the customer and recorded the difference between the estimated fair market value and the exercise price of the warrants of approximately $283 as sales and marketing expense. In December 1994, the Company granted 80,000 Common Stock warrants with an exercise price of $1.00 per share to holders of approximately 16.7% of the Company's Common Stock at December 31, 1995, in exchange for marketing services. The warrants had a nominal value when granted and were exercised in November 1995. F-10 57 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In June 1995, the Company granted 20,000 Common Stock warrants with an exercise price of $1.00 per share to a holder of approximately 0.4% of the Company's Common Stock, respectively, at the time of grant in exchange for marketing services. The warrants are exercisable at any time up to the later of (i) June 15, 1998 or (ii) the six month anniversary of the closing of an initial public offering. The Company recorded the difference between the estimated fair market value and the exercise price of the warrants of approximately $36 as sales and marketing expense. The warrants were exercised in December 1995. In connection with the issuance of shares of Common Stock in 1995, the Company issued 123,333 Common Stock warrants with an exercise price of $1.00 per share for $0.02 per share. The warrants are exercisable at any time up to the earlier of (i) the closing of the Company's initial public offering of its Common Stock, of which the aggregate offering price is at least $10,000 and the per share price to the public is $13.60, or (ii) September 30, 2000. No proceeds were separately allocated to the warrants. NOTE 7 -- STOCK OPTIONS PLAN During 1994, the Company adopted the 1995 Stock Option Plan (the "Plan"), under which 1,250,000 shares of Common Stock are reserved for issuance to eligible employees, directors and consultants upon exercise of the stock options. Stock options are granted at prices determined by Board of Directors and generally may not be less than 100% and 85%, for incentive and nonstatutory options, respectively, of the estimated fair value of the related shares on the date of grant. Options granted under the Plan are for periods not to exceed ten years, are exercisable generally one year after date of grant and vest over a maximum period of five years following the date of grant. For options expired or canceled, the stock not purchased under such options shall revert to and again become available for re-issuance under the plan. The Plan provides for an unvested share repurchase option on behalf of the Company. In the event an optionee ceases to be eligible under the Plan for any reason, shares acquired on the exercise of an option which have not yet vested may be repurchased by the Company at the optionee's original cost per share. At December 31, 1995, no shares were subject to repurchase. A summary of the stock option activity under the Plan for the years ended December 31, 1994 and 1995 and the three month period ended March 31, 1996, is as follows:
--------------------------------------- SHARES SUBJECT TO OUTSTANDING OPTIONS OPTIONS ----------------------- AVAILABLE FOR PRICE PER GRANT SHARE ------------- ----------- NUMBER OF SHARES --------- Options authorized 1,250,000 -- -- Granted (564,050) 564,050 $ 1.00 ------------- --------- ----------- Balance at December 31, 1994 685,950 564,050 1.00 Granted (191,105) 191,105 1.00-6.00 Exercised -- (7,500) 1.00 Canceled 1,500 (1,500) 1.00 ------------- --------- ----------- Balance at December 31, 1995 496,345 746,155 1.00-6.00 Granted (Unaudited) -- -- -- Exercised (Unaudited) -- (20,833) 1.00 Canceled (Unaudited) 43,584 (43,584) 1.00 ------------- --------- ----------- Balance at March 31, 1996 (Unaudited) 539,929 681,738 $1.00-$6.00 ========== ======== ===========
During 1995, the Company recorded $297 of deferred stock compensation for the excess of the deemed fair market value over the exercise price at the date of grant related to certain options granted in 1995. The compensation expense will be recognized over the option vesting period of four years. Compensation expense recognized in 1995 aggregated $42. In April 1996, the Company granted options to purchase an aggregate of 273,000 shares of common stock at exercise prices of $10.00 to $11.00 per share. Options on 106,500 shares of common stock were exercisable at December 31, 1995. F-11 58 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 8 -- INCOME TAXES Income (loss) before income taxes was subject to tax in the following jurisdictions:
------------------------------------------------------- PREDECESSOR ---------- SIX MONTHS THE COMPANY ENDED JULY ---------------------------------------- 1, YEAR ENDED DECEMBER 31, ---------- SIX MONTHS ------------------------- 1993 ENDED 1995 ---------- DECEMBER ---------- 31, ---------- 1994 ---------- 1993 ---------- United States $ (427) $ (1,266) $ 1,638 $ 464 Foreign (228) 88 404 1,493 ---------- ---------- ---------- ---------- $ (655) $ (1,178) $ 2,042 $ 1,957 ========== ========== ========== ==========
The provision (benefit) for income taxes is comprised of the following:
------------------------- YEAR ENDED DECEMBER 31, ------------------------- 1994 1995 ---------- ---------- Current: Federal $ 674 $ 484 State 185 46 Foreign 43 405 ---------- ---------- Total current 902 935 ---------- ---------- Deferred: Federal (98) (133) State (20) (10) Foreign -- -- ---------- ---------- Total deferred (118) (143) ---------- ---------- $ 784 $ 792 ========== ==========
Significant components of the Company's deferred tax assets (liabilities) were as follows:
------------------------- DECEMBER 31, ------------------------- 1994 1995 ---------- ---------- Deferred tax liabilities: Capitalized software $ (24) $ (17) ---- ---- Deferred tax assets: Accrued liabilities 116 191 Depreciation 20 19 Allowance for doubtful accounts 15 31 State tax deduction 63 7 Other 45 30 ---- ---- 259 278 ---- ---- Net deferred tax assets 235 261 Deferred tax assets valuation allowance (117) -- ---- ---- $ 118 $ 261 ==== ====
The Company provides a valuation allowance for deferred tax assets when it is more likely than not, based on available evidence, that some portion or all of the deferred tax assets will not be realized. Based on an evaluation of the realizability of future tax benefits based on income earned in 1995, the Company reversed all previously established valuation allowances during 1995. F-12 59 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income (loss) before income taxes as follows:
------------------------------------------------------- THE COMPANY ---------------------------------------- PREDECESSOR ---------- SIX MONTHS ENDED SIX MONTHS DECEMBER ENDED 31, JULY 1, ---------- YEAR ENDED DECEMBER 31, ---------- ------------------------- 1993 1993 1995 ---------- ---------- ---------- 1994 ---------- Tax provision (benefit) at the U.S. federal statutory rate of 34% $ (219) $ (398) $ 694 $ 666 Foreign income taxes at different rates -- -- (27) (77) State and local taxes, net of federal benefit (40) (72) 123 117 Net operating loss carryforwards 259 470 -- -- Release of valuation allowance -- -- (62) (117) Nondeductible charges and accruals -- -- -- 166 Other -- -- 56 37 ----- ----- ---- ----- Provision for income taxes $ -- $ -- $ 784 $ 792 ===== ===== ==== ===== Effective tax rates -- -- 38% 41% ===== ===== ==== =====
NOTE 9 -- SIGNIFICANT CUSTOMERS AND GEOGRAPHIC SEGMENT INFORMATION Revenues from customers representing 10% or more of consolidated revenues were as follows:
---------------------------------------------------------------- PREDECESSOR ----------- THE COMPANY SIX MONTHS ------------------------------------------------ ENDED YEAR ENDED JULY 1, DECEMBER 31, THREE MONTHS ----------- ------------- ENDED 1993 SIX MONTHS 1995 MARCH 31, ----------- ENDED ---- ------------- DECEMBER 31, ------------ 1996 1994 ------------- 1993 ---- ------------ (UNAUDITED) Customer A -- -- 11.6% 13.9% 12.5% Customer B -- Related party -- -- -- 13.4% 18.0% Customer C -- 34.2% 16.5% -- --
F-13 60 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a summary of the Company's geographic operations:
----------------------------------------------------------- UNITED ASIA STATES EUROPE PACIFIC ELIMINATIONS CONSOLIDATED ------- ------ ------- ------------ ------------ PREDECESSOR: Six months ended July 1, 1993 Revenues $ 494 $ 741 $ 575 $ -- $ 1,810 Income (loss) from operations (400) 61 (289) -- (628) Identifiable assets 696 321 485 (414) 1,088 THE COMPANY: Six months ended December 31, 1993 Revenues from unaffiliated customers $ 404 $ 921 $ 685 $ -- $ 2,010 Revenue from related parties 50 -- -- -- 50 Income (loss) from operations (1,215) (36) 126 -- (1,125) Identifiable assets 1,604 631 644 (1,072) 1,807 Year ended December 31, 1994 Revenues from unaffiliated customers $ 700 $2,273 $ 2,773 $ -- $ 5,746 Revenue from related parties 972 -- -- -- 972 Income from operations 1,664 214 179 -- 2,057 Identifiable assets 2,166 1,100 1,891 (2,038) 3,119 Year ended December 31, 1995 Revenues from unaffiliated customers $ 1,017 $2,216 $ 3,995 $ -- $ 7,228 Revenue from related parties 1,902 -- -- -- 1,902 Income from operations 393 59 1,409 -- 1,861 Identifiable assets 6,907 976 2,764 (1,564) 9,083
NOTE 10 -- COMMITMENTS The Company leases its facilities in California, Taiwan and Germany. Future minimum payments under noncancelable operating leases are as follows:
YEAR ENDING DECEMBER 31, ---------- 1996 $ 227 1997 87 1998 45 ---------- Total $ 359 ==========
Under an agreement that extends through 1996, the Company shares GCH office facilities in Mountain View, California and is charged a pro rata portion of actual rent and utilities expense incurred by GCH. Total rent expense, including amounts allocated from GCH, was $101, $123, $221, $273 and $79 for the six month periods ended July 1, 1993 and December 31, 1993, the years ended December 31, 1994 and 1995, and the three months ended March 31, 1996, respectively. NOTE 11 -- SUBSEQUENT EVENTS Recapitalization and Reverse Stock Split In May 1996, the Board of Directors approved an increase in the number of common shares authorized to 40,000,000, authorized 5,000,000 shares of Preferred Stock and approved a 1-for-2 reverse stock split of the Company's Common Stock, subject to shareholders' approval, to be effected before the closing of the Company's initial public offering. All references to the number of common shares and per share amounts have been retroactively restated in the accompanying consolidated financial statements to reflect the stock split. F-14 61 AWARD SOFTWARE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Equity transactions In January 1996, the Company issued 570,033 shares of Common Stock at a price of $12.28 per share. In connection with the issuance, the Company agreed that in the event that an initial public offering is not completed by December 31, 1996, the shares issued may be exchanged for the Company's convertible Preferred Stock. The convertible Preferred Stock has certain rights, preferences and restrictions with respect to conversion, liquidation, voting, cumulative dividends and redemption. In connection with the issuance and sale of the shares, the Company issued 272,394 Common Stock warrants with an exercise price of $12.28 per share for $0.02 per warrant. The warrants are exercisable at any time up to the earlier of (i) the closing of the Company's initial public offering of its Common Stock, of which the aggregate offering price and per share price to the public are at least $10,000 and $13.60 per share, respectively, or (ii) September 30, 2000. No proceeds were separately allocated to the warrants. During January and February 1996, the Company repurchased 250,000 shares of common stock from existing shareholders at a price of $10.00 per share. Employee Stock Purchase Plan In May 1996, the Board of Directors adopted the Employee Stock Purchase Plan (the "Purchase Plan"), which provides for the issuance of a maximum of 150,000 shares of Common Stock. Eligible employees may have up to 15% of their earnings withheld, to be used to purchase shares of the Common Stock on specified dates determined by the Board of Directors. The price of Common Stock purchased under the Purchase Plan will be equal to 85% of the lower of the fair market value of the Common Stock on the commencement date of each offering period or the specified purchase date. 401(k) Plan In January 1995, the Board of Directors adopted an employee savings and retirement plan (the "401(k) Plan") covering substantially all of the Company's employees. Pursuant to the 401(k) Plan, eligible employees may elect to reduce their current compensation by up to the statutory prescribed limit and have the amount of such reduction contributed to the 401(k) Plan. The Company may make contributions to the 401(k) Plan on behalf of eligible employees. The Company made no contributions to the 401(k) Plan in 1994 or 1995. F-15 62 LOGO 63 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the sale of the Common Stock being registered. All the amounts shown are estimates except for the registration fee and the NASD filing fee. Registration fee $ 11,897 NASD filing fee 3,950 Nasdaq application fee 1,000 Blue sky qualification fee and expenses * Printing and engraving expenses * Legal fees and expenses * Accounting fees and expenses * Transfer agent and registrar fees * Custodian fees * Miscellaneous * ======== Total $ * ========
- --------------- * To be provided by amendment ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Section 317 of the California Corporations Code ("CCC") provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any proceeding or may procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. Section 204 of the CCC provides that a corporation's articles of incorporation may set forth a provision authorizing, whether by bylaw, agreement, or otherwise, the indemnification of agents in excess of that expressly permitted by Section 317 for those agents of the corporation for breach of duty to the corporation and its stockholders, provided, however, that the provision may not provide for indemnification of any agent for any acts or omissions or transactions from which a director may not be relieved of liability, including (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the corporation or its shareholders, (v) for acts or omissions that constitute an executed pattern of inattention that amounts to an abdication of the director's duty to the corporation or its shareholders, (vi) under Section 310 of the CCC requiring that a director who has a contract or other transaction with the corporation or has a material financial interest in a contract or other transaction between the corporation and another corporation, obtain approval of such contract or transaction by the shareholders or the board of directors, or (vii) under Section 316 of the CCC subjecting a director to joint and several liability for making any improper distribution, loan or guarantee. Section 204 further provides that no such indemnification provision may eliminate or limit the liability of (i) a director for any act or omission occurring prior to the date when the provision becomes effective, or (ii) an officer for any act or omission as an officer, notwithstanding that the officer is also a director or that his or her action, if negligent or improper, has been ratified by the directors. Article V of the Registrant's Amended and Restated Articles of Incorporation provides that the corporation is authorized to provide indemnification of agents through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the CCC, subject only to the applicable limits on such excess indemnification set forth in Section 204 of the CCC. Article V of the Registrant's Amended and Restated Articles of Incorporation further provides that any repeal or modification of Article V shall only be prospective and shall not affect the rights under Article V in effect at the time of the alleged occurrence of any act or omission to act giving rise to indemnification. Section 63 of the Registrant's Bylaws provides that the corporation shall indemnify its directors to the fullest extent not prohibited by the California General Corporation Law; provided, however, that the corporation may limit the extent of such indemnification by individual II-1 64 contracts with its directors; and, provided, further, that the corporation shall not be required to indemnify any director in connection with any proceeding (or part thereof) initiated by such person or any proceeding by such person against the corporation or its directors, officers, employees or other agents unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the board of directors of the corporation or (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the California General Corporation Law. Section 63 of the Registrant's Bylaws further provides that the corporation shall have power to indemnify its officers, employees and other agents as set forth in the California General Corporation Law. Under the form of Underwriting Agreement filed as Exhibit 1.1 hereto, the Underwriters are obligated, under certain circumstances, to indemnify directors and officers of the Registrant against certain liabilities, including liabilities under the Securities Act of 1933, as amended. The Company intends to purchase a general liability insurance policy which covers certain liabilities of directors and officers of the Registrant arising out of claims based on acts or omissions in their capacity as directors or officers. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. In July 1993, GCH Systems, Inc. ("GCH") acquired all of the capital stock of the Registrant. Since July 1993, the Registrant has sold and issued the following unregistered securities (share and dollar amounts reflect a 1-for-2 reverse stock split): (1) In October 1994, the Registrant issued a warrant exercisable for up to 200,000 shares of Common Stock to an accredited investor at an exercise price of $1.00 per share. (2) In December 1994, GCH distributed all of the Registrant's outstanding 3,841,801 shares of Common Stock, all of the Registrant's capital stock, to GCH's existing shareholders on a pro rata basis for no consideration. (3) In June 1995, the Registrant issued warrants exercisable for an aggregate of 200,000 shares of Common Stock to an accredited group of investors at an exercise price of $1.00 per share. (4) In July 1995, the Registrant sold an aggregate of 750,000 shares of Common Stock to a group of accredited investors for cash in the aggregate amount of $4,500,000. (5) In September 1995, the Registrant sold an aggregate of 416,667 shares for an aggregate purchase price of $2,500,000 and warrants for a purchase price of $2,467 exercisable for 123,333 shares of Common Stock with an exercise price of $1.00 per share. (6) In January 1996, the Registrant sold 570,033 shares of Common Stock for an aggregate purchase price of $7,000,005 and issued a warrant for $10,896 exercisable for 272,394 shares of Common Stock at an exercise price of $12.28 per share to an accredited investor. (7) From December 1994 to May 1996, the Registrant granted incentive stock options and nonstatutory stock options to employees, directors and consultants under its 1995 Stock Option Plan covering an aggregate of 1,028,155 shares of the Registrant's Common Stock, at an average exercise price of $3.60 per share. Options to purchase 48,709 shares of Common Stock have been canceled or have lapsed without being exercised. The Registrant has sold 28,333 shares of its Common Stock to employees, directors and consultants of the Registrant pursuant to exercise of stock options granted under the 1995 Stock Option Plan. The sales and issuances of securities in the transactions described in paragraph (7) above were deemed to be exempt from registration under the Securities Act by virtue of Rule 701 promulgated thereunder in that they were offered and sold either pursuant to written compensatory benefit plans or pursuant to a written contract relating to compensation, as provided by Rule 701. The sales and issuances of securities in the transactions described in paragraphs (1) through (6) above were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) and/or Regulation D promulgated under the Securities Act. The purchasers in each case represented their intention to acquire the securities for investment only and not with a view to the distribution thereof. Appropriate legends are affixed to the stock certificates issued in such transactions. Similar legends were imposed in connection with any subsequent sales of any such securities. All recipients either received adequate information about the Registrant or had access, through employment or other relationships, to such information. II-2 65 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ---------------------------------------------------------------------------------------------- 1.1* -- Form of Underwriting Agreement. 3.1 -- Amended and Restated Articles of Incorporation of the Registrant. 3.1.1* -- Form of Amended and Restated Articles of Incorporation of the Registrant, to be effective upon the completion of Offering. 3.2 -- Bylaws of the Registrant. 3.2.1* -- Form of Bylaws of the Registrant, to be effective upon the completion of the Offering. 4.1 -- Reference is made to Exhibits 3.1 through 3.2. 4.5* -- Specimen stock certificate. 5.1* -- Opinion of Cooley Godward Castro Huddleson & Tatum. 10.1 -- Form of Indemnity Agreement to be entered into between the Registrant and its directors and officers, with related schedule. 10.2 -- Registrant's 1995 Stock Option Plan, as amended (the "Option Plan"). 10.3 -- Form of Incentive Stock Option under the Option Plan. 10.4 -- Form of Nonstatutory Stock Option under the Option Plan. 10.5* -- Registrant's 1996 Employee Stock Purchase Plan. 10.6 -- Registrant's Executive Compensation Plan. 10.7 -- Lease, dated January 1, 1996, between GCH Systems, Inc. and the Registrant. 10.8 -- Summary of Leases, dated March 1, 1996, between Sun Corporation, GSS Corporation and the Registrant. 10.9 -- Voting Agreement, dated January 12, 1996, between the Registrant and certain persons named therein. 10.10 -- Investors' Rights Agreement among the Registrant and certain other persons named therein, dated as of January 12, 1996. 10.11 -- Warrant issued to Synnex Information Technologies, Inc. 10.12 -- Warrant issued to Vobis Microcomputer AG. 10.13 -- Warrant issued to Venrock Associates. 10.14 -- Warrant issued to Venrock Associates II, L.P. 10.15 -- Warrant issued to Walden Capital Partners II, L.P. 10.16 -- Warrant issued to Walden Technology Ventures II, L.P. 11.1 -- Statement regarding calculation of net income (loss) per share. 23.1 -- Consent of Price Waterhouse LLP. 23.2* -- Consent of Cooley Godward Castro Huddleson & Tatum. Reference is made to Exhibit 5.1. 24.1 -- Power of Attorney. Reference is made to page II-5. 27 -- Financial Data Schedule
- --------------- * To be filed by amendment. (B) FINANCIAL STATEMENT SCHEDULES.
NUMBER DESCRIPTION ------------------------------------------------- ---------------------------------------------- Schedule II Valuation and Qualifying Accounts
All other schedules are omitted because they are not required, are not applicable, or the information is included in the consolidated financial statements or notes thereto. ITEM 17. UNDERTAKINGS. The Registrant hereby undertakes to provide the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the provisions described in Item 14 or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, II-3 66 or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant undertakes that: (1) for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus as filed as part of the registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective, and (2) for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 67 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mountain View, County of Santa Clara, State of California, on the third day of June 1996. AWARD SOFTWARE INTERNATIONAL, INC. By: /s/ GEORGE C. HUANG ------------------------------------------ George C. Huang Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints George C. Huang and Kevin J. Berry his true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to the Registration Statement on Form S-1, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------------ ------------------------------------------------- ------------- /s/ GEORGE C. HUANG Chairman of the Board, President, Chief Executive June 3, 1996 - ------------------------------------------ Officer and Director (Principal Executive George C. Huang Officer) /s/ KEVIN J. BERRY Vice President, Finance, Chief Financial Officer June 3, 1996 - ------------------------------------------ and Secretary (Principal Financial and Accounting Kevin J. Berry Officer) /s/ CHENG MING LEE Director June 3, 1996 - ------------------------------------------ Cheng Ming Lee /s/ DAVID S. LEE Director June 3, 1996 - ------------------------------------------ David S. Lee - ------------------------------------------ Director Theodor L. Lieven Director - ------------------------------------------ Masami Maeda /s/ ANTHONY SUN Director June 3, 1996 - ------------------------------------------ Anthony Sun /s/ WILLIAM P. TAI Director June 3, 1996 - ------------------------------------------ William P. Tai
II-5 68 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated May 29, 1996, except as to the recapitalization and reverse stock split described in Note 11 which is as of June 3, 1996, relating to the consolidated financial statements of Award Software International, Inc. in such Prospectus. We also consent to the application of such report to the Financial Statement Schedules for the three years ended December 31, 1995 listed under Item 16(b) of this Registration Statement when such schedules are read in conjunction with the financial statements referred to in our report. The audits referred to in such report also included these schedules. We also consent to the references to us under the headings "Experts" and "Selected Financial Information" in such Prospectus. However, it should be noted that Price Waterhouse LLP has not prepared or certified such "Selected Financial Information." PRICE WATERHOUSE LLP San Jose, California June 3, 1996. II-6 69 SCHEDULE II AWARD SOFTWARE INTERNATIONAL, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Balance at Balance at beginning end of in thousands of period Provision Write-off period ---------- --------- --------- ---------- Allowance for doubtful accounts 1993........................................................ $ 45 31 (38) $ 38 1994........................................................ $ 38 -- -- $ 38 1995........................................................ $ 38 50 (9) $ 79 Deferred tax asset valuation allowance 1993........................................................ $152 27 -- $179 1994........................................................ $179 -- (62) $117 1995........................................................ $117 -- (117) $ --
S-1 70 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ---------------------------------------------------------------------------------------------- 1.1* -- Form of Underwriting Agreement. 3.1 -- Amended and Restated Articles of Incorporation of the Registrant. 3.1.1* -- Form of Amended and Restated Articles of Incorporation of the Registrant, to be effective upon the completion of Offering. 3.2 -- Bylaws of the Registrant. 3.2.1* -- Form of Bylaws of the Registrant, to be effective upon the completion of the Offering. 4.1 -- Reference is made to Exhibits 3.1 through 3.2. 4.5* -- Specimen stock certificate. 5.1* -- Opinion of Cooley Godward Castro Huddleson & Tatum. 10.1 -- Form of Indemnity Agreement to be entered into between the Registrant and its directors and officers, with related schedule. 10.2 -- Registrant's 1995 Stock Option Plan, as amended (the "Option Plan"). 10.3 -- Form of Incentive Stock Option under the Option Plan. 10.4 -- Form of Nonstatutory Stock Option under the Option Plan. 10.5* -- Registrant's 1996 Employee Stock Purchase Plan. 10.6 -- Registrant's Executive Compensation Plan. 10.7 -- Lease, dated January 1, 1996, between GCH Systems, Inc. and the Registrant. 10.8 -- Summary of Leases, dated March 1, 1996, between Sun Corporation, GSS Corporation and the Registrant. 10.9 -- Voting Agreement, dated January 12, 1996, between the Registrant and certain persons named therein. 10.10 -- Investors' Rights Agreement among the Registrant and certain other persons named therein, dated as of January 12, 1996. 10.11 -- Warrant issued to Synnex Information Technologies, Inc. 10.12 -- Warrant issued to Vobis Microcomputer AG. 10.13 -- Warrant issued to Venrock Associates. 10.14 -- Warrant issued to Venrock Associates II, L.P. 10.15 -- Warrant issued to Walden Capital Partners II, L.P. 10.16 -- Warrant issued to Walden Technology Ventures II, L.P. 11.1 -- Statement regarding calculation of net income (loss) per share. 23.1 -- Consent of Price Waterhouse LLP. 23.2* -- Consent of Cooley Godward Castro Huddleson & Tatum. Reference is made to Exhibit 5.1. 24.1 -- Power of Attorney. Reference is made to page II-5. 27 -- Financial Data Schedule
- --------------- * To be filed by amendment. 71 APPENDIX -- DESCRIPTION OF GRAPHICS OUTSIDE FRONT COVER Graphic: Award logo. Graphic caption: Award Software International(R), Inc.; Asia, North America, Europe. INSIDE FRONT COVER Graphic: Uses of Award's System Management Software. This graphic depicts a PC motherboard which contains a non-volatile memory device bearing the Company's logo. The PC motherboard is surrounded by four exemplary uses of the Company's system management software: a personal digital assistant, a client-server tower, a laptop computer and a symbolic depiction of the Internet/Intranet depicting the Earth and the words "Internet" and "Intranet." Bordering the corners of the page are the words "Desktop," "Embedded," "Mobile BIOS," "PCI," "DMI," "USB," "Hot Docking," "PC Card" and "[PROAccess]." Graphic Caption: Award Software International(R), Inc.; http://www.award.com; [PROAccess], USBAccess and support for USB are under development and not commercially available. PAGE 19 Graphic: a cube depicted in three dimensions and divided into four equal horizontal layers bearing the labels, in order from bottom to top, "Hardware," "BIOS," "Operating System" and "Application Software." Graphic caption: Award Software International(R), Inc. BACK COVER Graphic: Award logo. Graphic caption: Award Software International(R), Inc.; Asia, North America, Europe. EX-3.1 2 AMENDED AND RESTATED ARTICLES OF INCORPORATION 1 EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF AWARD SOFTWARE, INTERNATIONAL, INC. The undersigned, George C. Huang and Pin-Wei Chen certify that: 1. They are the duly elected and acting president and secretary, respectively, of Award Software International, Inc., a California corporation (the "Corporation"). 2. The Articles of Incorporation of the Corporation are hereby amended and restated to read in full as follows: I. The name of this Corporation is AWARD SOFTWARE INTERNATIONAL, INC. II. The purpose of this Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. 2 III. This Corporation is authorized to issue only one class of stock which shall be designated "Common Stock". The total number of shares which the Corporation is authorized to issue is twenty million (20,000,000) shares. IV. (a) The liability of the directors of this Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. (b) This Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) for breach of duty to the Corporation and its shareholders through bylaw provisions or through agreements with the agents, or through shareholder resolutions, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the Corporations Code, subject to the limits on such excess indemnification set forth in Section 204 of the Corporations Code. (c) Any repeal or modification of this Article shall only be prospective and shall not affect the rights under this Article in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification. V. The name and address in the State of California of this Corporation's agent for service of process is: California 2. 3 3. The foregoing amendment and restatement of the Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment and restatement of the Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with paragraph 902 of the Corporations Code. The total number of outstanding shares of Common Stock of the Corporation is four hundred fifty thousand (450,000). The vote to approve the amendment and restatement was unanimous. We further declare under penalty of perjury under the laws of the State of California that the matters set forth above are true and correct of our own knowledge. Executed at Mountain View, California, this day of December, 1994. /s/ George C. Huang -------------------------- George C. Huang, President /s/ Pin-Wei Chen -------------------------- Pin-Wei Chen, Secretary 3. EX-3.2 3 BYLAWS OF AWARD SOFTWARE INTERNATIONAL, INC. 1 EXHIBIT 3.2 BYLAWS OF AWARD SOFTWARE INTERNATIONAL, INC. (A CALIFORNIA CORPORATION) 2 BYLAWS OF AWARD SOFTWARE INTERNATIONAL, INC. (A CALIFORNIA CORPORATION) ARTICLE I OFFICES SECTION 1. PRINCIPAL OFFICE. The principal executive office of the corporation shall be located at such place as the Board of Directors may from time to time authorize. If the principal executive office is located outside this state, and the corporation has one or more business offices in this state, the Board of Directors shall fix and designate a principal business office in the State of California. SECTION 2. OTHER OFFICES. Additional offices of the corporation shall be located at such place or places, within or outside the State of California, as the Board of Directors may from time to time authorize. ARTICLE II CORPORATE SEAL SECTION 3. CORPORATE SEAL. If the Board of Directors adopts a corporate seal such seal shall have inscribed thereon the name of the corporation and the state and date of its incorporation. If and when a seal is adopted by the Board of Directors, such seal may be engraved, lithographed, printed, stamped, impressed upon, or affixed to any contract, conveyance, certificate for shares, or other instrument executed by the corporation. ARTICLE III SHAREHOLDERS' MEETINGS AND VOTING RIGHTS SECTION 4. PLACE OF MEETINGS. Meetings of shareholders shall be held at the principal executive office of the corporation, or at any other place, within or outside the State of California, which may be fixed either by the Board of Directors or by the written consent of all 1. 3 persons entitled to vote at such meeting, given either before or after the meeting and filed with the Secretary of the Corporation. SECTION 5. ANNUAL MEETING. The annual meeting of the shareholders of the corporation shall be held on any date and time which may from time to time be designated by the Board of Directors. At such annual meeting, directors shall be elected and any other business may be transacted which may properly come before the meeting. SECTION 6. POSTPONEMENT OF ANNUAL MEETING. The Board of Directors and the President shall each have authority to hold at an earlier date and/or time, or to postpone to a later date and/or time, the annual meeting of shareholders. SECTION 7. SPECIAL MEETINGS. (A) Special meetings of the shareholders, for any purpose or purposes, may be called by the Board of Directors, the Chairman of the Board of Directors, the President, or the holders of shares entitled to cast not less than ten percent (10%) of the votes at the meeting. (B) Upon written request to the Chairman of the Board of Directors, the President, any vice president or the Secretary of the corporation by any person or persons (other than the Board of Directors) entitled to call a special meeting of the shareholders, such officer forthwith shall cause notice to be given to the shareholders entitled to vote, that a meeting will be held at a time requested by the person or persons calling the meeting, such time to be not less than thirty-five (35) nor more than sixty (60) days after receipt of such request. If such notice is not given within twenty (20) days after receipt of such request, the person or persons calling the meeting may give notice thereof in the manner provided by law or in these bylaws. Nothing contained in this Section 7 shall be construed as limiting, fixing or affecting the time or date when a meeting of shareholders called by action of the Board of Directors may be held. SECTION 8. NOTICE OF MEETINGS. Except as otherwise may be required by law and subject to subsection 7(b) above, written notice of each meeting of shareholders shall be given to each shareholder entitled to vote at that meeting (see Section 15 below), by the Secretary, assistant secretary or other person charged with that duty, not less than ten (10) (or, if sent by third class mail, thirty (30)) nor more than sixty (60) days before such meeting. Notice of any meeting of shareholders shall state the date, place and hour of the meeting and, (A) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted at such meeting; (B) in the case of an annual meeting, the general nature of matters which the Board of Directors, at the time the notice is given, intends to present for action by the shareholders; 2. 4 (C) in the case of any meeting at which directors are to be elected, the names of the nominees intended at the time of the notice to be presented by management for election; and (D) in the case of any meeting, if action is to be taken on any of the following proposals, the general nature of such proposal: (1) a proposal to approve a transaction within the provisions of California Corporations Code, Section 310 (relating to certain transactions in which a director has a direct or indirect financial interest); (2) a proposal to approve a transaction within the provisions of California Corporations Code, Section 902 (relating to amending the Articles of Incorporation of the corporation); (3) a proposal to approve a transaction within the provisions of California Corporations Code, Sections 181 and 1201 (relating to reorganization); (4) a proposal to approve a transaction within the provisions of California Corporations Code, Section 1900 (winding up and dissolution); (5) a proposal to approve a plan of distribution within the provisions of California Corporations Code, Section 2007 (relating to certain plans providing for distribution not in accordance with the liquidation rights of preferred shares, if any). At a special meeting, notice of which has been given in accordance with this Section, action may not be taken with respect to business, the general nature of which has not been stated in such notice. At an annual meeting, action may be taken with respect to business stated in the notice of such meeting, given in accordance with this Section, and, subject to subsection 8(d) above, with respect to any other business as may properly come before the meeting. SECTION 9. MANNER OF GIVING NOTICE. Notice of any meeting of shareholders shall be given either personally or by first-class mail, or, if the corporation has outstanding shares held of record by 500 or more persons (determined as provided in California Corporations Code Section 605) on the record date for such meeting, third-class mail, or telegraphic or other written communication, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. 3. 5 If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices shall be deemed to have been duly given without further mailing if these shall be available to the shareholder on written demand by the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice. An affidavit of mailing of any notice or report in accordance with the provisions of this Section 9, executed by the Secretary, Assistant Secretary or any transfer agent, shall be prima facie evidence of the giving of the notice. SECTION 10. QUORUM AND TRANSACTION OF BUSINESS. (A) At any meeting of the shareholders, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum. If a quorum is present, the affirmative vote of the majority of shares represented at the meeting and entitled to vote on any matter shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by law or by the Articles of Incorporation, and except as provided in subsection (b) below. (B) The shareholders present at a duly called or held meeting of the shareholders at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, provided that any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. (C) In the absence of a quorum, no business other than adjournment may be transacted, except as described in subsection (b) above. SECTION 11. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of shareholders may be adjourned from time to time, whether or not a quorum is present, by the affirmative vote of a majority of shares represented at such meeting either in person or by proxy and entitled to vote at such meeting. In the event any meeting is adjourned, it shall not be necessary to give notice of the time and place of such adjourned meeting pursuant to Sections 8 and 9 of these bylaws; provided that if any of the following three events occur, such notice must be given: (A) announcement of the adjourned meeting's time and place is not made at the original meeting which it continues or (B) such meeting is adjourned for more than forty- five (45) days from the date set for the original meeting or 4. 6 (C) a new record date is fixed for the adjourned meeting. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. SECTION 12. WAIVER OF NOTICE, CONSENT TO MEETING OR APPROVAL OF MINUTES. (A) Subject to subsection (b) of this Section, the transactions of any meeting of shareholders, however called and noticed, and wherever held, shall be as valid as though made at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote but not present in person or by proxy signs a written waiver of notice or a consent to holding of the meeting or an approval of the minutes thereof. (B) A waiver of notice, consent to the holding of a meeting or approval of the minutes thereof need not specify the business to be transacted or transacted at nor the purpose of the meeting; provided that in the case of proposals described in subsection (d) of Section 8 of these bylaws, the general nature of such proposals must be described in any such waiver of notice and such proposals can only be approved by waiver of notice, not by consent to holding of the meeting or approval of the minutes. (C) All waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. (D) A person's attendance at a meeting shall constitute waiver of notice of and presence at such meeting, except when such person objects at the beginning of the meeting to transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters which are required by law or these bylaws to be in such notice (including those matters described in subsection (d) of Section 8 of these bylaws), but are not so included if such person expressly objects to consideration of such matter or matters at any time during the meeting. SECTION 13. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action which may be taken at any meeting of shareholders may be taken without a meeting and without prior notice if written consents setting forth the action so taken are signed by the holders of the outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors; provided that any vacancy on the Board of Directors (other than a vacancy created by removal) which has not been filled by the board of directors may be filled by the written consent of a majority of outstanding shares entitled to vote for the election of directors. 5. 7 Any written consent may be revoked pursuant to California Corporations Code Section 603(c) prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary. Such revocation must be in writing and will be effective upon its receipt by the Secretary. If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders shall not have been received, the Secretary shall give prompt notice of any corporate action approved by the shareholders without a meeting to those shareholders entitled to vote on such matters who have not consented thereto in writing. This notice shall be given in the manner specified in Section 9 of these bylaws. In the case of approval of (i) a transaction within the provisions of California Corporations Code, Section 310 (relating to certain transactions in which a director has an interest), (ii) a transaction within the provisions of California Corporations Code, Section 317 (relating to indemnification of agents of the corporation), (iii) a transaction within the provisions of California Corporations Code, Sections 181 and 1201 (relating to reorganization), and (iv) a plan of distribution within the provisions of California Corporations Code, Section 2007 (relating to certain plans providing for distribution not in accordance with the liquidation rights of preferred shares, if any), the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. SECTION 14. VOTING. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 15 of these bylaws, subject to the provisions of Sections 702 through 704 of the California Corporations Code (relating to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership). Voting at any meeting of shareholders need not be by ballot; provided, however, that elections for directors must be by ballot if balloting is demanded by a shareholder at the meeting and before the voting begins. Every person entitled to vote at an election for directors may cumulate the votes to which such person is entitled, i.e., such person may cast a total number of votes equal to the number of directors to be elected multiplied by the number of votes to which such person's shares are entitled, and may cast said total number of votes for one or more candidates in such proportions as such person thinks fit; provided, however, no shareholder shall be entitled to so cumulate such shareholder's votes unless the candidates for which such shareholder is voting have been placed in nomination prior to the voting and a shareholder has given notice at the meeting, prior to the vote, of an intention to cumulate votes. In any election of directors, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected. Except as may be otherwise provided in the Articles of Incorporation or by law, and subject to the foregoing provisions regarding the cumulation of votes, each shareholder shall be entitled to one vote for each share held. Any shareholder may vote part of such shareholder's shares in favor of a proposal and refrain from voting the remaining shares or vote them against the proposal, other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting 6. 8 affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. No shareholder approval, other than unanimous approval of those entitled to vote, will be valid as to proposals described in subsection 8(d) of these bylaws unless the general nature of such business was stated in the notice of meeting or in any written waiver of notice. SECTION 15. PERSONS ENTITLED TO VOTE OR CONSENT. The Board of Directors may fix a record date pursuant to Section 60 of these bylaws to determine which shareholders are entitled to notice of and to vote at a meeting or consent to corporate actions, as provided in Sections 13 and 14 of these bylaws. Only persons in whose name shares otherwise entitled to vote stand on the stock records of the corporation on such date shall be entitled to vote or consent. If no record date is fixed: (A) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; (B) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given; (C) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting; provided, however, that the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting. Shares of the corporation held by its subsidiary or subsidiaries (as defined in California Corporations Code, Section 189(b)) are not entitled to vote in any matter. SECTION 16. PROXIES. Every person entitled to vote or execute consents may do so either in person or by one or more agents authorized to act by a written proxy executed by the person or such person's duly authorized agent and filed with the Secretary of the corporation; provided that no such proxy shall be valid after the expiration of eleven (11) months from the date of its execution unless otherwise provided in the proxy. The manner of execution, suspension, revocation, exercise and effect of proxies is governed by law. 7. 9 SECTION 17. INSPECTORS OF ELECTION. Before any meeting of shareholders, the Board of Directors may appoint any persons, other than nominees for office, to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or proxy shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. These inspectors shall: (A) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (B) Receive votes, ballots, or consents; (C) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (D) Count and tabulate all votes or consents; (E) Determine when the polls shall close; (F) Determine the result; and (G) Do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE IV BOARD OF DIRECTORS SECTION 18. POWERS. Subject to the provisions of law or any limitations in the Articles of Incorporation or these bylaws, as to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised, by or under the direction of the Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. 8. 10 SECTION 19. NUMBER OF DIRECTORS. The authorized number of directors of the corporation shall be not less than a minimum of five (5) nor more than a maximum of nine (9) (which maximum number in no case shall be greater than two times said minimum, minus one) and the number of directors presently authorized is [five (5)]. The exact number of directors shall be set within these limits from time to time (a) by approval of the Board of Directors, or (b) by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by the written consent of shareholders pursuant to Section 13 hereinabove. Any amendment of these bylaws changing the maximum or minimum number of directors may be adopted only by the affirmative vote of a majority of the outstanding shares entitled to vote; provided, an amendment reducing the minimum number of directors to less than five (5), cannot be adopted if votes cast against its adoption at a meeting or the shares not consenting to it in the case of action by written consent are equal to more than 16-2/3 percent of the outstanding shares entitled to vote. No reduction of the authorized number of directors shall remove any director prior to the expiration of such director's term of office. SECTION 20. ELECTION OF DIRECTORS, TERM, QUALIFICATIONS. The directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting. Each director, including a director elected or appointed to fill a vacancy, shall hold office either until the expiration of the term for which elected or appointed and until a successor has been elected and qualified, or until his death, resignation or removal. Directors need not be shareholders of the corporation. SECTION 21. RESIGNATIONS. Any director of the corporation may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation specifies effectiveness at a future time, a successor may be elected pursuant to Section 23 of these bylaws to take office on the date that the resignation becomes effective. SECTION 22. REMOVAL. The Board of Directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or who has been convicted of a felony. The entire Board of Directors or any individual director may be removed from office without cause by the affirmative vote of a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election at which the same total number of votes cast were cast (or, if such action is taken by 9. 11 written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director's most recent election were then being elected. SECTION 23. VACANCIES. A vacancy or vacancies on the Board of Directors shall be deemed to exist in case of the death, resignation or removal of any director, or upon increase in the authorized number of directors or if shareholders fail to elect the full authorized number of directors at an annual meeting of shareholders or if, for whatever reason, there are fewer directors on the Board of Directors, than the full number authorized. Such vacancy or vacancies may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director. The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Any such election by written consent, other than to fill a vacancy created by removal, requires the consent of a majority of the outstanding shares entitled to vote. Any such election by written consent to fill a vacancy created by removal requires the consent of all of the outstanding shares entitled to vote. If, after the filling of any vacancy by the directors, the directors then in office who have been elected by the shareholders constitute less than a majority of the directors then in office, any holder or holders of an aggregate of five percent (5%) or more of the shares outstanding at that time and having the right to vote for such directors may call a special meeting of shareholders to be held to elect the entire Board of Directors. The term of office of any director shall terminate upon such election of a successor. SECTION 24. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such times, places and dates as fixed in these bylaws or by the Board of Directors; provided, however, that if the date for such a meeting falls on a legal holiday, then the meeting shall be held at the same time on the next succeeding full business day. Regular meetings of the Board of Directors held pursuant to this Section 24 may be held without notice. SECTION 25. PARTICIPATION BY TELEPHONE. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Such participation constitutes presence in person at such meeting. SECTION 26. SPECIAL MEETINGS. Special meetings of the Board of Directors for any purpose may be called by the Chairman of the Board or the President or any vice president or the Secretary of the corporation or any two (2) directors. SECTION 27. NOTICE OF MEETINGS. Notice of the date, time and place of all meetings of the Board of Directors, other than regular meetings held pursuant to Section 24 above shall be delivered personally, orally or in writing, or by telephone or telegraph to each director, at least forty-eight (48) hours before the meeting, or sent in writing to each director by first-class mail, charges prepaid, at least four (4) days before the meeting. Such notice may be given by the Secretary of the corporation or by the person or persons who called a meeting. Such notice need not specify the purpose of the meeting. Notice of any meeting of the Board of Directors need not be given to any director who signs a waiver of notice of such meeting, or a consent to 10. 12 holding the meeting or an approval of the minutes thereof, either before or after the meeting, or who attends the meeting without protesting prior thereto or at its commencement such director's lack of notice. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. SECTION 28. PLACE OF MEETINGS. Meetings of the Board of Directors may be held at any place within or without the state which has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, designated in the bylaws or by resolution of the Board of Directors. SECTION 29. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board of Directors individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. SECTION 30. QUORUM AND TRANSACTION OF BUSINESS. A majority of the authorized number of directors shall constitute a quorum for the transaction of business. Every act or decision done or made by a majority of the authorized number of directors present at a meeting duly held at which a quorum is present shall be the act of the Board of Directors, unless the law, the Articles of Incorporation or these bylaws specifically require a greater number. A meeting at which a quorum is initially present may continue to transact business, notwithstanding withdrawal of directors, if any action taken is approved by at least a majority of the number of directors constituting a quorum for such meeting. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present may adjourn the meeting, as provided in Section 31 of these bylaws. SECTION 31. ADJOURNMENT. Any meeting of the Board of Directors, whether or not a quorum is present, may be adjourned to another time and place by the affirmative vote of a majority of the directors present. If the meeting is adjourned for more than twenty-four (24) hours, notice of such adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. SECTION 32. ORGANIZATION. The Chairman of the Board shall preside at every meeting of the Board of Directors, if present. If there is no Chairman of the Board or if the Chairman is not present, a Chairman chosen by a majority of the directors present shall act as chairman. The Secretary of the corporation or, in the absence of the Secretary, any person appointed by the Chairman shall act as secretary of the meeting. SECTION 33. COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board of Directors. 11. 13 SECTION 34. COMMITTEES. The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two (2) or more directors, to serve at the pleasure of the Board of Directors. The Board of Directors, by a vote of the majority of authorized directors, may designate one or more directors as alternate members of any committee, to replace any absent member at any meeting of such committee. Any such committee shall have authority to act in the manner and to the extent provided in the resolution of the Board of Directors, and may have all the authority of the Board of Directors in the management of the business and affairs of the corporation, except with respect to: (A) the approval of any action for which shareholders' approval or approval of the outstanding shares also is required by the California Corporations Code; (B) the filling of vacancies on the Board of Directors or any of its committees; (C) the fixing of compensation of directors for serving on the Board of Directors or any of its committees; (D) the adoption, amendment or repeal of these bylaws; (E) the amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable; (F) a distribution to shareholders, except at a rate or in a periodic amount or within a price range determined by the Board of Directors; or (G) the appointment of other committees of the Board of Directors or the members thereof. Any committee may from time to time provide by resolution for regular meetings at specified times and places. If the date of such a meeting falls on a legal holiday, then the meeting shall be held at the same time on the next succeeding full business day. No notice of such a meeting need be given. Such regular meetings need not be held if the committee shall so determine at any time before or after the time when such meeting would otherwise have taken place. Special meetings may be called at any time in the same manner and by the same persons as stated in Sections 26 and 27 of these bylaws for meetings of the Board of Directors. The provisions of Sections 25, 28, 29, 30, 31 and 32 of these bylaws shall apply to committees, committee members and committee meetings as if the words "committee" and "committee member" were substituted for the word "Board of Directors", and "director", respectively, throughout such sections. 12. 14 ARTICLE V OFFICERS SECTION 35. OFFICERS. The corporation shall have a Chairman of the Board or a President or both, a Secretary, a Chief Financial Officer and such other officers with such titles and duties as the Board of Directors may determine. Any two or more offices may be held by the same person. SECTION 36. APPOINTMENT. All officers shall be chosen and appointed by the Board of Directors; provided, however, the Board of Directors may empower the chief executive officer of the corporation to appoint such officers, other than Chairman of the Board, President, Secretary or Chief Financial Officer, as the business of the corporation may require. All officers shall serve at the pleasure of the Board of Directors, subject to the rights, if any, of an officer under a contract of employment. SECTION 37. INABILITY TO ACT. In the case of absence or inability to act of any officer of the corporation or of any person authorized by these bylaws to act in such officer's place, the Board of Directors may from time to time delegate the powers or duties of such officer to any other officer, or any director or other person whom it may select, for such period of time as the Board of Directors deems necessary. SECTION 38. RESIGNATIONS. Any officer may resign at any time upon written notice to the corporation, without prejudice to the rights, if any, of the corporation under any contract to which such officer is a party. Such resignation shall be effective upon its receipt by the Chairman of the Board, the President, the Secretary or the Board of Directors, unless a different time is specified in the notice for effectiveness of such resignation. The acceptance of any such resignation shall not be necessary to make it effective unless otherwise specified in such notice. SECTION 39. REMOVAL. Any officer may be removed from office at any time, with or without cause, but subject to the rights, if any, of such officer under any contract of employment, by the Board of Directors or by any committee to whom such power of removal has been duly delegated, or, with regard to any officer who has been appointed by the chief executive officer pursuant to Section 36 above, by the chief executive officer or any other officer upon whom such power of removal may be conferred by the Board of Directors. SECTION 40. VACANCIES. A vacancy occurring in any office for any cause may be filled by the Board of Directors, in the manner prescribed by this Article of the bylaws for initial appointment to such office. SECTION 41. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there be such an officer, shall, if present, preside at all meetings of the Board of Directors and shall exercise and perform such other powers and duties as may be assigned from time to time by the Board of Directors or prescribed by these bylaws. If no President is appointed, the Chairman of the 13. 15 Board is the general manager and chief executive officer of the corporation, and shall exercise all powers of the President described in Section 42 below. SECTION 42. PRESIDENT. Subject to such powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the general manager and chief executive officer of the corporation and shall have general supervision, direction, and control over the business and affairs of the corporation, subject to the control of the Board of Directors. The President may sign and execute, in the name of the corporation, any instrument authorized by the Board of Directors, except when the signing and execution thereof shall have been expressly delegated by the Board of Directors or by these bylaws to some other officer or agent of the corporation. The President shall have all the general powers and duties of management usually vested in the president of a corporation, and shall have such other powers and duties as may be prescribed from time to time by the Board of Directors or these bylaws. The President shall have discretion to prescribe the duties of other officers and employees of the corporation in a manner not inconsistent with the provisions of these bylaws and the directions of the Board of Directors. SECTION 43. VICE PRESIDENTS. In the absence or disability of the President, in the event of a vacancy in the office of President, or in the event such officer refuses to act, the Vice President shall perform all the duties of the President and, when so acting, shall have all the powers of, and be subject to all the restrictions on, the President. If at any such time the corporation has more than one vice president, the duties and powers of the President shall pass to each vice president in order of such vice president's rank as fixed by the Board of Directors or, if the vice presidents are not so ranked, to the vice president designated by the Board of Directors. The vice presidents shall have such other powers and perform such other duties as may be prescribed for them from time to time by the Board of Directors or pursuant to Sections 35 and 36 of these bylaws or otherwise pursuant to these bylaws. SECTION 44. SECRETARY. The Secretary shall: (A) Keep, or cause to be kept, minutes of all meetings of the corporation's shareholders, Board of Directors, and committees of the Board of Directors, if any. Such minutes shall be kept in written form. (B) Keep, or cause to be kept, at the principal executive office of the corporation, or at the office of its transfer agent or registrar, if any, a record of the corporation's shareholders, showing the names and addresses of all shareholders, and the number and classes of shares held by each. Such records shall be kept in written form or any other form capable of being converted into written form. (C) Keep, or cause to be kept, at the principal executive office of the corporation, or if the principal executive office is not in California, at its principal business office in California, an original or copy of these bylaws, as amended. 14. 16 (D) Give, or cause to be given, notice of all meetings of shareholders, directors and committees of the Board of Directors, as required by law or by these bylaws. (E) Keep the seal of the corporation, if any, in safe custody. (F) Exercise such powers and perform such duties as are usually vested in the office of secretary of a corporation, and exercise such other powers and perform such other duties as may be prescribed from time to time by the Board of Directors or these bylaws. If any assistant secretaries are appointed, the assistant secretary, or one of the assistant secretaries in the order of their rank as fixed by the Board of Directors or, if they are not so ranked, the assistant secretary designated by the Board of Directors, in the absence or disability of the Secretary or in the event of such officer's refusal to act or if a vacancy exists in the office of Secretary, shall perform the duties and exercise the powers of the Secretary and discharge such duties as may be assigned from time to time pursuant to these bylaws or by the Board of Directors. SECTION 45. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall: (A) Be responsible for all functions and duties of the treasurer of the corporation. (B) Keep and maintain, or cause to be kept and maintained, adequate and correct books and records of account for the corporation. (C) Receive or be responsible for receipt of all monies due and payable to the corporation from any source whatsoever; have charge and custody of, and be responsible for, all monies and other valuables of the corporation and be responsible for deposit of all such monies in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors or a duly appointed and authorized committee of the Board of Directors. (D) Disburse or be responsible for the disbursement of the funds of the corporation as may be ordered by the Board of Directors or a duly appointed and authorized committee of the Board of Directors. (E) Render to the chief executive officer and the Board of Directors a statement of the financial condition of the corporation if called upon to do so. (F) Exercise such powers and perform such duties as are usually vested in the office of chief financial officer of a corporation, and exercise such other powers and perform such other duties as may be prescribed by the Board of Directors or these bylaws. If any assistant financial officer is appointed, the assistant financial officer, or one of the assistant financial officers, if there are more than one, in the order of their rank as fixed by the 15. 17 Board of Directors or, if they are not so ranked, the assistant financial officer designated by the Board of Directors, shall, in the absence or disability of the Chief Financial Officer or in the event of such officer's refusal to act, perform the duties and exercise the powers of the Chief Financial Officer, and shall have such powers and discharge such duties as may be assigned from time to time pursuant to these bylaws or by the Board of Directors. SECTION 46. COMPENSATION. The compensation of the officers shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such compensation by reason of the fact that such officer is also a director of the corporation. ARTICLE VI CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS SECTION 47. EXECUTION OF CONTRACTS AND OTHER INSTRUMENTS. Except as these bylaws may otherwise provide, the Board of Directors or its duly appointed and authorized committee may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authorization may be general or confined to specific instances. Except as so authorized or otherwise expressly provided in these bylaws, no officer, agent, or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. SECTION 48. LOANS. No loans shall be contracted on behalf of the corporation and no negotiable paper shall be issued in its name, unless and except as authorized by the Board of Directors or its duly appointed and authorized committee. When so authorized by the Board of Directors or such committee, any officer or agent of the corporation may effect loans and advances at any time for the corporation from any bank, trust company, or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other evidences of indebtedness of the corporation and, when authorized as aforesaid, may mortgage, pledge, hypothecate or transfer any and all stocks, securities and other property, real or personal, at any time held by the corporation, and to that end endorse, assign and deliver the same as security for the payment of any and all loans, advances, indebtedness, and liabilities of the corporation. Such authorization may be general or confined to specific instances. SECTION 49. BANK ACCOUNTS. The Board of Directors or its duly appointed and authorized committee from time to time may authorize the opening and keeping of general and/or special bank accounts with such banks, trust companies, or other depositaries as may be selected by the Board of Directors, its duly appointed and authorized committee or by any officer or officers, agent or agents, of the corporation to whom such power may be delegated from time to time by the Board of Directors. The Board of Directors or its duly appointed and authorized committee may make such rules and regulations with respect to said bank accounts, not inconsistent with the provisions of these bylaws, as are deemed advisable. 16. 18 SECTION 50. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes, acceptances or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents, of the corporation, and in such manner, as shall be determined from time to time by resolution of the Board of Directors or its duly appointed and authorized committee. Endorsements for deposit to the credit of the corporation in any of its duly authorized depositaries may be made, without counter-signature, by the President or any vice president or the Chief Financial Officer or any assistant financial officer or by any other officer or agent of the corporation to whom the Board of Directors or its duly appointed and authorized committee, by resolution, shall have delegated such power or by hand-stamped impression in the name of the corporation. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 51. CERTIFICATE FOR SHARES. Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the Chairman or Vice Chairman of the Board or the President or a Vice President and by the Chief Financial Officer or an assistant financial officer or by the Secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. In the event that the corporation shall issue any shares as only partly paid, the certificate issued to represent such partly paid shares shall have stated thereon the total consideration to be paid for such shares and the amount paid thereon. SECTION 52. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or transfer agent (if any) of the corporation of a certificate for shares of the corporation duly endorsed, with reasonable assurance that the endorsement is genuine and effective, or accompanied by proper evidence of succession, assignment or authority to transfer and upon compliance with applicable federal and state securities laws and if the corporation has no statutory duty to inquire into adverse claims or has discharged any such duty and if any applicable law relating to the collection of taxes has been complied with, it shall be the duty of the corporation, by its Secretary or transfer agent, to cancel the old certificate, to issue a new certificate to the person entitled thereto and to record the transaction on the books of the corporation. SECTION 53. LOST, DESTROYED AND STOLEN CERTIFICATES. The holder of any certificate for shares of the corporation alleged to have been lost, destroyed or stolen shall notify the corporation by making a written affidavit or affirmation of such fact. Upon receipt of said affidavit or affirmation the Board of Directors, or its duly appointed and authorized committee 17. 19 or any officer or officers authorized by the Board so to do, may order the issuance of a new certificate for shares in the place of any certificate previously issued by the corporation and which is alleged to have been lost, destroyed or stolen. However, the Board of Directors or such authorized committee, officer or officers may require the owner of the allegedly lost, destroyed or stolen certificate, or such owner's legal representative, to give the corporation a bond or other adequate security sufficient to indemnify the corporation and its transfer agent and/or registrar, if any, against any claim that may be made against it or them on account of such allegedly lost, destroyed or stolen certificate or the replacement thereof. Said bond or other security shall be in such amount, on such terms and conditions and, in the case of a bond, with such surety or sureties as may be acceptable to the Board of Directors or to its duly appointed and authorized committee or any officer or officers authorized by the Board of Directors to determine the sufficiency thereof. The requirement of a bond or other security may be waived in particular cases at the discretion of the Board of Directors or its duly appointed and authorized committee or any officer or officers authorized by the Board of Directors so to do. SECTION 54. ISSUANCE, TRANSFER AND REGISTRATION OF SHARES. The Board of Directors may make such rules and regulations, not inconsistent with law or with these bylaws, as it may deem advisable concerning the issuance, transfer and registration of certificates for shares of the capital stock of the corporation. The Board of Directors may appoint a transfer agent or registrar of transfers, or both, and may require all certificates for shares of the corporation to bear the signature of either or both. ARTICLE VIII INSPECTION OF CORPORATE RECORDS SECTION 55. INSPECTION BY DIRECTORS. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records, and documents of every kind of the corporation and any of its subsidiaries and to inspect the physical properties of the corporation and any of its subsidiaries. Such inspection may be made by the director in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. ARTICLE IX MISCELLANEOUS SECTION 56. FISCAL YEAR. Unless otherwise fixed by resolution of the Board of Directors, the fiscal year of the corporation shall end on the 31st day of December in each calendar year. SECTION 57. RECORD DATE. The Board of Directors may fix a time in the future as a record date for the determination of the shareholders entitled to notice of or to vote at any meeting or entitled to receive payment of any dividend or other distribution or allotment of any 18. 20 rights or entitled to exercise any rights in respect of any change, conversion or exchange of shares or entitled to exercise any rights in respect of any other lawful action. The record date so fixed shall not be more than sixty (60) days nor less than ten (10) days prior to the date of the meeting nor more than sixty (60) days prior to any other action or event for the purpose of which it is fixed. If no record date is fixed, the provisions of Section 15 of these bylaws shall apply with respect to notice of meetings, votes, and consents and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolutions relating thereto, or the sixtieth (60th) day prior to the date of such other action or event, whichever is later. Only shareholders of record at the close of business on the record date shall be entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation, by agreement or by law. SECTION 58. BYLAW AMENDMENTS. Except as otherwise provided by law or Section 19 of these bylaws, these bylaws may be amended or repealed by the Board of Directors or by the affirmative vote of a majority of the outstanding shares entitled to vote, including, if applicable, the affirmative vote of a majority of the outstanding shares of each class or series entitled by law or the Articles of Incorporation to vote as a class or series on the amendment or repeal or adoption of any bylaw or bylaws; provided, however, after issuance of shares, a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa may only be adopted by approval of the outstanding shares as provided herein. SECTION 59. CONSTRUCTION AND DEFINITION. Unless the context requires otherwise, the general provisions, rules of construction, and definitions contained in the California Corporations Code shall govern the construction of these bylaws. Without limiting the foregoing, "shall" is mandatory and "may" is permissive. ARTICLE X INDEMNIFICATION SECTION 60. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS. (A) DIRECTORS. The corporation shall indemnify its directors to the fullest extent not prohibited by the California General Corporation Law; provided, however, that the corporation may limit the extent of such indemnification by individual contracts with its directors; and, provided, further, that the corporation shall not be required to indemnify any director in connection with any proceeding (or part thereof) initiated by such person or any proceeding by such person against the corporation or its directors, officers, employees or other 19. 21 agents unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the board of directors of the corporation or (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the California General Corporation Law. (B) OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall have power to indemnify its officers, employees and other agents as set forth in the California General Corporation Law. (C) DETERMINATION BY THE CORPORATION. Promptly after receipt of a request for indemnification hereunder (and in any event within 90 days thereof) a reasonable, good faith determination as to whether indemnification of the director is proper under the circumstances because each director has met the applicable standard of care shall be made by: (1) a majority vote of a quorum consisting of directors who are not parties to such proceeding; (2) if such quorum is not obtainable, by independent legal counsel in a written opinion; or (3) approval or ratification by the affirmative vote of a majority of the shares of this corporation represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by written consent of a majority of the outstanding shares entitled to vote; where in each case the shares owned by the person to be indemnified shall not be considered entitled to vote thereon. (D) GOOD FAITH. (1) For purposes of any determination under this bylaw, a director shall be deemed to have acted in good faith and in a manner he reasonably believed to be in the best interests of the corporation and its shareholders, and, with respect to any criminal action or proceeding, to have had no reasonable cause to believe that his conduct was unlawful, if his action is based on information, opinions, reports and statements, including financial statements and other financial data, in each case prepared or presented by: (I) one or more officers or employees of the corporation whom the director believed to be reliable and competent in the matters presented; (II) counsel, independent accountants or other persons as to matters which the director believed to be within such person's professional competence; and (III) a committee of the Board upon which such director does not serve, as to matters within such committee's designated authority, which committee the 20. 22 director believes to merit confidence; so long as, in each case, the director acts without knowledge that would cause such reliance to be unwarranted. (2) The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in the best interests of the corporation and its shareholders or that he had reasonable cause to believe that his conduct was unlawful. (3) The provisions of this paragraph (d) shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth by the California General Corporation Law. (E) EXPENSES. The corporation shall advance, prior to the final disposition of any proceeding, promptly following request therefor, all expenses incurred by any director in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it shall be determined ultimately that such person is not entitled to be indemnified under this bylaw or otherwise. (F) ENFORCEMENT. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors under this bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director. Any right to indemnification or advances granted by this bylaw to a director shall be enforceable by or on behalf of the person holding such right in the forum in which the proceeding is or was pending or, if such forum is not available or a determination is made that such forum is not convenient, in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. The corporation shall be entitled to raise as a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any proceeding in advance of its final disposition when the required undertaking has been tendered to the corporation) that the claimant has not met the standards of conduct that make it permissible under the California General Corporation Law for the corporation to indemnify the claimant for the amount claimed. Neither the failure of the corporation (including its board of directors, independent legal counsel or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the California General Corporation Law, nor an actual determination by the corporation (including its board of directors, independent legal counsel or its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. 21. 23 (G) NON-EXCLUSIVITY OF RIGHTS. To the fullest extent permitted by the corporation's Articles of Incorporation and the California General Corporation Law, the rights conferred on any person by this bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, bylaws, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent permitted by the California General Corporation Law and the corporation's Articles of Incorporation. (H) SURVIVAL OF RIGHTS. The rights conferred on any person by this bylaw shall continue as to a person who has ceased to be a director and shall inure to the benefit of the heirs, executors and administrators of such a person. (I) INSURANCE. The corporation, upon approval by the board of directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this bylaw. (J) AMENDMENTS. Any repeal or modification of this bylaw shall only be prospective and shall not affect the rights under this bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (K) EMPLOYEE BENEFIT PLANS. The corporation shall indemnify the directors and officers of the corporation who serve at the request of the corporation as trustees, investment managers or other fiduciaries of employee benefit plans to the fullest extent permitted by the California General Corporation Law. (L) SAVING CLAUSE. If this bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director to the fullest extent permitted by any applicable portion of this bylaw that shall not have been invalidated, or by any other applicable law. (M) CERTAIN DEFINITIONS. For the purposes of this bylaw, the following definitions shall apply: (1) The term "PROCEEDING" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement and appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative. (2) The term "EXPENSES" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with 22. 24 any proceeding, including expenses of establishing a right to indemnification under this bylaw or any applicable law. (3) The term the "CORPORATION" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (4) References to a "DIRECTOR," "OFFICER," "EMPLOYEE," or "AGENT" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. ARTICLE XI RESALE RESTRICTION SECTION 61. RESALE RESTRICTION. Prior to December 31, 1997, the right to sell, assign, pledge, or in any manner transfer any of the shares of stock of the corporation or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, shall be subject to the terms of any lockup agreement that may be entered into by the corporation, with the approval of the Board of Directors, with the underwriter(s) in connection with the first underwritten public offering of stock by the corporation. 23. EX-10.1 4 FORM OF INDEMNITY AGREEMENT 1 EXHIBIT 10.1 AWARD SOFTWARE INTERNATIONAL, INC. INDEMNITY AGREEMENT THIS AGREEMENT is made and entered into as of the ____ day of ________ 1996 by and between Award Software International, Inc., a California corporation (the "Corporation"), and _______________ (the "Indemnified Person"). RECITALS WHEREAS, the Indemnified Person performs a valuable service to the Corporation in such person's capacity as ____________ of the Corporation; WHEREAS, the shareholders of the Corporation have adopted provisions in the Articles of Incorporation (the "Articles") and the bylaws (the "Bylaws") providing for the indemnification of the directors, officers, employees and other agents of the Corporation, including persons serving at the request of the Corporation in such capacities with other corporations or enterprises, as authorized by the California General Corporation Law (the "Code"); WHEREAS, the Articles, the Bylaws and the Code, by their nonexclusive nature, permit contracts between the Corporation and its directors, officers, employees and other agents with respect to indemnification of such persons; and WHEREAS, in order to induce the Indemnified Person to continue to serve as ___________ of the Corporation, the Corporation has determined and agreed to enter into this Agreement with the Indemnified Person; NOW, THEREFORE, in consideration of the Indemnified Person's continued service as ___________ after the date hereof, the parties hereto agree as follows: AGREEMENT 1. SERVICES TO THE CORPORATION. The Indemnified Person will serve, at the will of the Corporation or under separate contract, if any such contract exists, as ____________ of the Corporation or as a director, officer or other fiduciary of an affiliate of the Corporation (including any employee benefit plan of the Corporation) faithfully and to the best of the Indemnified Person's ability so long as the Indemnified Person is duly elected and qualified in accordance with the provisions of the Bylaws or other applicable charter documents of the Corporation or such affiliate; provided, however, that the Indemnified Person may at any time and for any reason resign from such position (subject to any contractual obligation that the Indemnified Person may have assumed apart from this Agreement) and that the Corporation or any affiliate shall have no obligation under this Agreement to continue the Indemnified Person in any such position. 1. 2 2. INDEMNITY. The Corporation hereby agrees to hold harmless and indemnify the Indemnified Person to the fullest extent authorized or permitted by the provisions of the Bylaws and the Code, as the same may be amended from time to time, (but only to the extent that any such amendment permits the Corporation to provide broader indemnification rights than the Bylaws or the Code permitted prior to adoption of any such amendment). 3. ADDITIONAL INDEMNITY. Subject to a determination pursuant to Section 9 hereof, the Corporation hereby agrees to hold harmless and indemnify the Indemnified Person: (a) against any and all expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that the Indemnified Person becomes legally obligated to pay because of any claim or claims made against or by such person in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitral, administrative or investigative (including an action by or in the right of the Corporation) to which the Indemnified Person is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that the Indemnified Person is, was or at any time becomes a director, officer, employee or other agent of Corporation, or is or was serving or at any time serves at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; and (b) otherwise to the fullest extent not prohibited by the Articles, the Bylaws or the Code. 4. LIMITATIONS ON ADDITIONAL INDEMNITY. To the extent that any of the matters set forth in subsections (a) through (l) of this Section 4 are successfully established by the Corporation as defenses in accordance with the provisions of Section 9 hereof, no indemnity pursuant to Sections 2 or 3 hereof will be payable by the Corporation: (a) on account of any claim against the Indemnified Person for an accounting of profits made from the purchase or sale by the Indemnified Person of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (b) on account of the Indemnified Person's conduct from which the Indemnified Person derived an improper personal benefit; (c) on account of the Indemnified Person's conduct that he or she believed to be contrary to the best interests of the Corporation or its shareholders or that involved the absence of good faith on the part of the Indemnified Person; (d) on account of the Indemnified Person's conduct that constituted intentional misconduct or a knowing and culpable violation of law; 2. 3 (e) on account of the Indemnified Person's conduct that showed a reckless disregard for the Indemnified Person's duty to the Corporation or its shareholders in circumstances in which the Indemnified Person was aware, or should have been aware, in the ordinary course of performing his or her duties, of a risk of serious injury to the Corporation or its shareholders; (f) on account of the Indemnified Person's conduct that constituted an unexcused pattern of inattention that amounted to an abdication of the Indemnified Person's duty to the Corporation or its shareholders; (g) on account of the Indemnified Person's conduct which constituted a violation of the Indemnified Person's duties under Section 310 (interested party transactions) or Section 316 (distributions, loans or guarantees) of the Code; (h) for which payment is actually made to the Indemnified Person under a valid and collectible insurance policy or under a valid and enforceable indemnity clause, bylaw or agreement, except in respect of any excess beyond payment under such insurance, clause, bylaw or agreement; (i) if indemnification is not lawful (and, in this respect, both the Corporation and the Indemnified Person have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication); in connection with any proceeding (or part thereof) initiated by the Indemnified Person, or any proceeding by the Indemnified Person against the Corporation or its directors, officers, employees or other agents, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the Corporation, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the Code, or (iv) the proceeding is initiated pursuant to Section 9 hereof; (j) with respect to any action by or in the right of the Corporation: (i) if the Indemnified Person is adjudged to be liable to the Corporation in performance of the Indemnified Person's duty to the Corporation and its shareholders, unless and only to the extent that the court in which such action is or was pending shall determine upon application that, in view of all of the circumstances of the case, the Indemnified Person is fairly and reasonably entitled to indemnity for expenses, and then only to the extent that the court shall determine; (ii) for expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval; or 3. 4 (iii) for amounts paid in settling or otherwise disposing of a pending action without court approval; and (k) to the extent, and only to the extent, that indemnification with respect to such action (i) would be inconsistent with the Articles of Incorporation or Bylaws, or a resolution of the shareholders or agreement of the Corporation prohibiting or otherwise limiting such indemnification and in effect at the time of the accrual of the action or (ii) would be inconsistent with any condition expressly imposed by a court in approving a settlement, unless the Indemnified Person has been successful on the merits or unless the indemnification has been approved by the shareholders of the corporation in accordance with Section 153 of the Code (with the shares of the Indemnified Person not being entitled to vote thereon). 5. CONTINUATION OF INDEMNITY. All agreements and obligations of the Corporation contained herein shall continue during the period the Indemnified Person is a director, officer, employee or other agent of the Corporation (or is serving or has served at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and shall continue thereafter so long as the Indemnified Person shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitral, administrative or investigative, by reason of the fact that the Indemnified Person had served in the capacity referred to herein. 6. PARTIAL INDEMNIFICATION. The Indemnified Person shall be entitled under this Agreement to indemnification by the Corporation for a portion of the expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that the Indemnified Person becomes legally obligated to pay in connection with any action, suit or proceeding referred to in Section 3 hereof even if not entitled hereunder to indemnification for the total amount thereof, and the Corporation shall indemnify the Indemnified Person for the portion thereof to which the Indemnified Person is entitled. 7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days after receipt by the Indemnified Person of notice of the commencement of any action, suit or proceeding, the Indemnified Person will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the omission so to notify the Corporation will not relieve it from any liability which it may have to the Indemnified Person otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Agent notifies the Corporation of the commencement thereof: (a) the Corporation will be entitled to participate therein at its own expense; (b) except as otherwise provided below, the Corporation may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense, assume the defense thereof, with counsel reasonably satisfactory to the Indemnified Person. After notice from the Corporation to the Indemnified Person of its election to assume the defense thereof, the Corporation will not be liable to the Indemnified Person under this Agreement for 4. 5 any legal or other expenses subsequently incurred by the Indemnified Person in connection with the defense thereof except for reasonable costs of investigation or otherwise as provided below. The Indemnified Person shall have the right to employ separate counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnified Person unless (i) the employment of counsel by the Indemnified Person has been authorized by the Corporation, (ii) the Indemnified Person shall have reasonably concluded that there may be a conflict of interest between the Corporation and the Indemnified Person in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of the Indemnified Person's separate counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation or as to which the Indemnified Person shall have made the conclusion provided for in clause (ii) above; and (c) the Corporation shall not be liable to indemnify the Indemnified Person under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent, which shall not be unreasonably withheld. The Corporation shall be permitted to settle any action except that it shall not settle any action or claim in any manner which would impose any penalty or limitation on the Indemnified Person without the Indemnified Person's written consent, which may be given or withheld in the Indemnified Person's sole discretion. 8. EXPENSES. The Corporation shall advance, prior to the final disposition of any proceeding, within 20 days after request therefor, all expenses incurred by the Indemnified Person in connection with such proceeding upon receipt of an undertaking by or on behalf of the Indemnified Person to repay said amounts if it shall be determined ultimately that the Indemnified Person is not entitled to be indemnified under the provisions of this Agreement, the Bylaws, the Articles, the Code or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to Section 9, no advance shall be made by the corporation if within 20 days after a request for such advance a reasonable determination is made by the Board of Directors by a majority vote of a quorum consisting of directors who are not parties to the proceeding (or, if no such quorum exists, by independent legal counsel in a written opinion) that the facts known to the decision making party at the time such determination is made clearly and convincingly demonstrate that such person acted in bad faith or in a manner that such person did not believe to be in the best interests of the Corporation and its shareholders. 9. DETERMINATION BY THE CORPORATION. To the extent required by the Code, promptly after receipt of a request for indemnification hereunder made by the Indemnified Person (and in any event within 90 days), the Corporation shall make a reasonable, good faith determination as to whether indemnification of the Indemnified Person is proper under the Code by means of: (a) A majority vote of a quorum consisting of directors who are not parties to such proceeding; 5. 6 (b) If such quorum is not obtainable, by independent legal counsel in a written opinion; or (c) Approval or ratification by the affirmative vote of a majority of the shares of the Corporation represented and voting at a duly held meeting in which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by written consent of a majority of the outstanding shares entitled to vote, where in each case the shares owned by the person to be indemnified shall not be considered entitled to vote thereon. Such determination shall be reasonably made in good faith by the decision making party based upon the facts known to the decision making party at the time such determination is made. 10. ENFORCEMENT. Any right to indemnification or advances granted by this Agreement to the Indemnified Person shall be enforceable by or on behalf of the Indemnified Person in the forum in which the proceeding is or was pending, or, if such forum is not available or a determination is made that such forum is not convenient, in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The Indemnified Person, in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his or her claim. The Corporation shall be entitled to raise by pleading as an affirmative defense to any action for which a claim for indemnification is made under Sections 2 or 3 hereof that the Indemnified Person is not entitled to indemnification because of the limitations set forth in Section 4 hereof. Neither the failure of the Corporation (including its Board of Directors, its shareholders or independent legal counsel) to have made a determination prior to the commencement of such enforcement action that indemnification of the Indemnified Person is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors, its shareholders or independent legal counsel) that such indemnification is improper shall be a defense to the action or create a presumption that the Indemnified Person is not entitled to indemnification under this Agreement or otherwise. 11. SUBROGATION. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnified Person, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights. 12. NONEXCLUSIVITY OF RIGHTS. The rights conferred on the Indemnified Person by this Agreement shall not be exclusive of any other right which the Indemnified Person may have or hereafter acquire under any statute, provision of the Articles or Bylaws, agreement, vote of shareholders or directors, or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding office. 6. 7 13. SURVIVAL OF RIGHTS. (a) The rights conferred on the Indemnified Person by this Agreement shall continue after the Indemnified Person has ceased to be a director, officer, employee or other agent of the Corporation or to serve at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise and shall inure to the benefit of the Indemnified Person's heirs, executors and administrators. (b) The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. 14. SEPARABILITY. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. Furthermore, if this Agreement shall be invalidated in its entirety on any ground, then the Corporation shall nevertheless indemnify the Indemnified Person to the fullest extent provided by the Articles, the Bylaws, the Code or any other applicable law. 15. GOVERNING LAW. This Agreement shall be interpreted and enforced in accordance with the laws of the State of California, without giving effect to principles of conflict of laws. 16. AMENDMENT AND TERMINATION. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. 17. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute but one and the same Agreement. Only one such counterpart need be produced to evidence the existence of this Agreement. 18. HEADINGS. The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. 19. NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) upon delivery if delivered by hand to the party to whom such communication was directed or (ii) upon the third business day after the date on which such communication was mailed if mailed by certified or registered mail with postage prepaid: 7. 8 (a) If to the Indemnified Person, at the address indicated below such person's signature hereunder. If to the Corporation, to Award Software International, Inc. 777 East Middlefield Rd. Mountain View, CA 94043 or to such other address as may have been furnished to the Indemnified Person by the Corporation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. CORPORATION: AWARD SOFTWARE INTERNATIONAL, INC. By: ------------------------------ Title: --------------------------- INDEMNIFIED PERSON: --------------------------------- Name: ---------------------------- Address: ------------------------- --------------------------------- --------------------------------- 8. EX-10.2 5 REGISTRANT'S 1995 STOCK OPTION PLAN 1 EXHIBIT 10.2 AWARD SOFTWARE INTERNATIONAL, INC. 1995 STOCK OPTION PLAN ADOPTED DECEMBER 15, 1994 AMENDED NOVEMBER 29, 1995 1. PURPOSES. (a) The purpose of the Plan is to provide a means by which selected Employees and Directors of and Consultants to the Company, and its Affiliates, may be given an opportunity to purchase stock of the Company. (b) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees or Directors of or Consultants to the Company or its Affiliates, to secure and retain the services of new Employees, Directors and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. (c) The Company intends that the Options issued under the Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of the Plan has been delegated pursuant to subsection 3(c), be either Incentive Stock Options or Nonstatutory Stock Options. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and in such form as issued pursuant to Section 6, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. 1. 2 2. DEFINITIONS. (a) "AFFILIATE" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code. (b) "BOARD" means the Board of Directors of the Company. (c) "CODE" means the Internal Revenue Code of 1986, as amended. (d) "COMMITTEE" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan. (e) "COMPANY" means Award Software International, Inc., a California corporation. (f) "CONSULTANT" means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. (g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the employment or relationship as a Director or Consultant is not interrupted or terminated. The Board, in its sole discretion, may determine whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave; or (ii) transfers between locations of the Company or between the Company, Affiliates or their successors. (h) "COVERED EMPLOYEE" means the Chief Executive Officer and the four (4) other highest compensated officers of the Company. (i) "DIRECTOR" means a member of the Board. 2. 3 (j) "DISINTERESTED PERSON" means a Director who either (i) was not during the one year prior to service as an administrator of the Plan granted or awarded equity securities pursuant to the Plan or any other plan of the Company or any of its affiliates entitling the participants therein to acquire equity securities of the Company or any of its affiliates except as permitted by Rule 16b-3(c)(2)(i); or (ii) is otherwise considered to be a "disinterested person" in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules, regulations or interpretations of the Securities and Exchange Commission. (k) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (m) "FAIR MARKET VALUE" means the value of the common stock as determined in good faith by the Board and in a manner consistent with Section 260.140.50 of Title 10 of the California Code of Regulations. (n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (p) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (q) "OPTION" means a stock option granted pursuant to the Plan. 3. 4 (r) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (s) "OPTIONEE" means an Employee, Director or Consultant who holds an outstanding Option. (t) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (as defined in the Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an affiliated corporation receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an affiliated corporation at any time, and is not currently receiving compensation for personal services in any capacity other than as a Director, or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. (u) "PLAN" means this 1995 Stock Option Plan. (v) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. 3. ADMINISTRATION. (a) The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted Options; when and how each Option shall be granted; whether an Option 4. 5 will be an Incentive Stock Option or a Nonstatutory Stock Option; the provisions of each Option granted (which need not be identical), including the time or times such Option may be exercised in whole or in part; and the number of shares for which an Option shall be granted to each such person. (2) To construe and interpret the Plan and Options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Option Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3) To amend the Plan as provided in Section 11. (c) The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members (the "Committee"), all of the members of which Committee shall be Disinterested Persons and may also be, in the discretion of the Board, Outside Directors. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board (and references in this Plan to the Board shall thereafter be to the Committee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Additionally, prior to the date of the first registration of an equity security of the Company under Section 12 of the Exchange Act, and notwithstanding anything to the contrary contained herein, the Board may delegate administration of the Plan to any person or persons and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. Notwithstanding anything in this Section 3 to the contrary, 5. 6 the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant Options to eligible persons who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Option, or (ii) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code. (d) Any requirement that an administrator of the Plan be a Disinterested Person shall not apply (i) prior to the date of the first registration of an equity security of the Company under Section 12 of the Exchange Act, or (ii) if the Board or the Committee expressly declares that such requirement shall not apply. Any Disinterested Person shall otherwise comply with the requirements of Rule 16b-3. 4. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of Section 10 relating to adjustments upon changes in stock, the stock that may be sold pursuant to Options shall not exceed in the aggregate two million five hundred thousand (2,500,000) shares of the Company's common stock. If any Option shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not purchased under such Option shall revert to and again become available for issuance under the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. ELIGIBILITY. (a) Incentive Stock Options may be granted only to Employees. Nonstatutory Stock Options may be granted only to Employees, Directors or Consultants. 6. 7 (b) A Director shall in no event be eligible for the benefits of the Plan unless at the time discretion is exercised in the selection of the Director as a person to whom Options may be granted, or in the determination of the number of shares which may be covered by Options granted to the Director: (i) the Board has delegated its discretionary authority over the Plan to a Committee which consists solely of Disinterested Persons; or (ii) the Plan otherwise complies with the requirements of Rule 16b-3. The Board shall otherwise comply with the requirements of Rule 16b-3. This subsection 5(b) shall not apply (i) prior to the date of the first registration of an equity security of the Company under Section 12 of the Exchange Act, or (ii) if the Board or Committee expressly declares that it shall not apply. (c) No person shall be eligible for the grant of an Option if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. (d) Subject to the provisions of Section 10 relating to adjustments upon changes in stock, no person shall be eligible to be granted Options covering more than five hundred thousand (500,000) shares of the Company's common stock in any twelve (12) month period. 6. OPTION PROVISIONS. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but 7. 8 each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (a) TERM. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. (b) PRICE. The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. The exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. (c) CONSIDERATION. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, either at the time of the grant or exercise of the Option, (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. 8. 9 (d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Incentive Stock Option is granted only by such person. A Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order satisfying the requirements of Rule 16b-3 and the rules thereunder (a "QDRO"), and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person or any transferee pursuant to a QDRO. The person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. (e) VESTING. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary but in each case will provide for vesting of at least twenty percent (20%) per year of the total number of shares subject to the Option. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. 9. 10 (f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee, or any person to whom an Option is transferred under subsection 6(d), as a condition of exercising any such Option, (1) to give written assurances satisfactory to the Company as to the Optionee's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Option for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the Option has been registered under a then currently effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months after the 10. 11 termination of the Optionee's Continuous Status as an Employee, Director or Consultant (or such longer or shorter period, which in no event shall be less than thirty (30) days, specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates as a result of the Optionee's disability, the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period, which in no event shall be less than six (6) months, specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (i) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or within a period specified in the Option after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant, the Option may be exercised (to the extent the Optionee was entitled to exercise the Option at the date of death) by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to 11. 12 exercise the option upon the Optionee's death pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period, which in no event shall be less than six (6) months, specified in the Option Agreement), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (j) EARLY EXERCISE. The Option may, but need not, include a provision whereby the Optionee may elect at any time while an Employee, Director or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased shall be subject to a repurchase right in favor of the Company, with the repurchase price to be equal to the original purchase price of the stock, or to any other restriction the Board determines to be appropriate; provided, however, that (i) the right to repurchase at the original purchase price shall lapse at a minimum rate of twenty percent (20%) per year over five (5) years from the date the Option was granted, and (ii) such right shall be exercisable only within (A) the ninety (90) day period following the termination of employment or the relationship as a Director or Consultant, or (B) such longer period as may be agreed to by the Company and the Optionee (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code (regarding "qualified small business stock")), and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares. Should the right of repurchase be assigned by the Company, the 12. 13 assignee shall pay the Company cash equal to the difference between the original purchase price and the stock's Fair Market Value if the original purchase price is less than the stock's Fair Market Value. (k) WITHHOLDING. To the extent provided by the terms of an Option Agreement, the Optionee may satisfy any federal, state or local tax withholding obligation relating to the exercise of such Option by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the common stock otherwise issuable to the participant as a result of the exercise of the Option; or (3) delivering to the Company owned and unencumbered shares of the common stock of the Company. 7. COVENANTS OF THE COMPANY. (a) During the terms of the Options, the Company shall keep available at all times the number of shares of stock required to satisfy such Options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the Options; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any Option or any stock issued or issuable pursuant to any such Option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Options unless and until such authority is obtained. 13. 14 8. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to Options shall constitute general funds of the Company. 9. MISCELLANEOUS. (a) Neither an Optionee nor any person to whom an Option is transferred under subsection 6(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option unless and until such person has satisfied all requirements for exercise of the Option pursuant to its terms. (b) Throughout the term of any Option, the Company shall deliver to the holder of such Option, not later than one hundred twenty (120) days after the close of each of the Company's fiscal years during the Option term, a balance sheet and an income statement. This section shall not apply when issuance is limited to key employees whose duties in connection with the Company assure them access to equivalent information. (c) Nothing in the Plan or any instrument executed or Option granted pursuant thereto shall confer upon any Employee, Director, Consultant or Optionee any right to continue in the employ of the Company or any Affiliate (or to continue acting as a Director or Consultant) or shall affect the right of the Company or any Affiliate to terminate the employment or relationship as a Director or Consultant of any Employee, Director, Consultant or Optionee with or without cause. (d) To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options granted after 1986 are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof 14. 15 which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. (e) (1) The Board or the Committee shall have the authority to effect, at any time and from time to time (i) the repricing of any outstanding Options under the Plan and/or (ii) with the consent of the affected holders of Options, the cancellation of any outstanding Options and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of shares of Common Stock, but having an exercise price per share not less than eighty-five percent (85%) of the Fair Market Value (one hundred percent (100%) of the Fair Market Value in the case of an Incentive Stock Option or, in the case of a ten percent (10%) stockholder (as defined in subsection 5(c)), not less than one hundred and ten percent (110%) of the Fair Market Value) per share of Common Stock on the new grant date. (2) Shares subject to an Option canceled under this subsection 9(e) shall continue to be counted against the maximum award of Options permitted to be granted pursuant to subsection 5(d) of the Plan. The repricing of an Option under this subsection 9(e), resulting in a reduction of the exercise price, shall be deemed to be a cancellation of the original Option and the grant of a substitute Option; in the event of such repricing, both the original and the substituted Options shall be counted against the maximum awards of Options permitted to be granted pursuant to subsection 5(d) of the Plan. The provisions of this subsection 9(e) shall be applicable only to the extent required by Section 162(m) of the Code. 10. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any Option (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of 15. 16 shares, change in corporate structure or otherwise), the Plan will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan pursuant to subsection 4(a) and the maximum number of shares subject to award to any person during any twelve (12) month period pursuant to subsection 5(d), and the outstanding Options will be appropriately adjusted in the class(es) and number of shares and price per share of stock subject to such outstanding Options. (b) In the event of: (1) a merger or consolidation in which the Company is not the surviving corporation or (2) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise then to the extent permitted by applicable law: (i) any surviving corporation shall assume any Options outstanding under the Plan or shall substitute similar Options for those outstanding under the Plan, or (ii) such Options shall continue in full force and effect. In the event any surviving corporation refuses to assume or continue such Options, or to substitute similar options for those outstanding under the Plan, then such Options shall be terminated if not exercised prior to such event. In the event of a dissolution or liquidation of the Company, any Options outstanding under the Plan shall terminate if not exercised prior to such event. 11. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (1) Increase the number of shares reserved for Options under the Plan; 16. 17 (2) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code); or (3) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code or to comply with the requirements of Rule 16b-3. (b) The Board may in its sole discretion submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (c) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide Optionees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (d) Rights and obligations under any Option granted before amendment of the Plan shall not be altered or impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Option was granted and (ii) such person consents in writing. 12. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on January 10, 2005, which shall be within ten (10) years 17. 18 from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Option granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom the Option was granted. 13. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no Options granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board, and, if required, an appropriate permit has been issued by the Commissioner of Corporations of the State of California. 18. EX-10.3 6 FORM OF INCENTIVE STOCK OPTION UNDER OPTION PLAN 1 EXHIBIT 10.3 IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. INCENTIVE STOCK OPTION 1-, Optionee: AWARD SOFTWARE INTERNATIONAL, INC. (the "Company"), pursuant to its 1995 Stock Option Plan (the "Plan"), has this day granted to you, the optionee named above, an option to purchase shares of the common stock of the Company ("Common Stock"). This option is intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The grant hereunder is in connection with and in furtherance of the Company's compensatory benefit plan for participation of the Company's employees (including officers), directors and consultants and is intended to comply with the provisions of Rule 701 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"). The details of your option are as follows: 1. The total number of shares of Common Stock subject to this option is 3-. Subject to the limitations contained herein, this option shall be exercisable with respect to each installment shown below on or after the date of vesting applicable to such installment, as follows:
NUMBER OF SHARES (INSTALLMENT) DATE OF EARLIEST EXERCISE (VESTING) 25% First day of the month following a full calendar year from the date of this Option. 2.0833% Thereafter on the first day of each succeeding month for the following 36 months.
1. 2 2. (a) The exercise price of this option is 5 - per share, being not less than the fair market value of the Common Stock on the date of grant of this option. (b) Payment of the exercise price per share is due in full upon exercise of all or any part of each installment which has accrued to you. You may elect, to the extent permitted by applicable statutes and regulations, to make payment of the exercise price under one of the following alternatives: (i) Payment of the exercise price per share in cash (including check) at the time of exercise; (ii) Payment pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which results in the receipt of cash (or check) by the Company prior to the issuance of Common Stock; (iii) Provided that at the time of exercise the Company's Common Stock is publicly traded and quoted regularly in the Wall Street Journal, payment by delivery of already-owned shares of Common Stock, held for the period required to avoid a charge to the Company's reported earnings, and owned free and clear of any liens, claims, encumbrances or security interests, which Common Stock shall be valued at its fair market value on the date of exercise; (iv) Payment by a combination of the methods of payment permitted by subparagraph 2(b)(i) through 2(b)(iii) above. 3. This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares. 4. Notwithstanding anything to the contrary contained herein, this option may not be exercised unless the shares issuable upon exercise of this option are then registered under the Securities Act of 1933, as amended (the "Act"), or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Act. 5. The term of this option commences on the date hereof and, unless sooner terminated as set forth below or in the Plan, terminates on 2 - (which date shall be no more than ten (10) years from date this option is granted). In no event may this option be exercised on or after the date on which it terminates. This option shall terminate prior to the expiration of its term as follows: three (3) months after the termination of your employment with the Company or an affiliate of the Company (as defined in the Plan) for any reason or for no reason unless (a) such termination of employment is due to your disability, in which event the option shall terminate on the earlier of the termination date set forth above or twelve (12) months following such termination of employment; or 2. 3 (b) such termination of employment is due to your death, in which event the option shall terminate on the earlier of the termination date set forth above or eighteen (18) months after your death; or (c) during any part of such three (3) month period the option is not exercisable solely because of the condition set forth in paragraph 4 above, in which event the option shall not terminate until the earlier of the termination date set forth above or until it shall have been exercisable for an aggregate period of three (3) months after the termination of employment; or (d) exercise of the option within three (3) months after termination of your employment with the Company or with an affiliate would result in liability under section 16(b) of the Securities Exchange Act of 1934, in which case the option will terminate on the earlier of (i) the tenth (10th) day after the last date upon which exercise would result in such liability or (ii) six (6) months and ten (10) days after the termination of your employment with the Company or an affiliate. However this option may be exercised following termination of employment only as to that number of shares as to which it was exercisable on the date of termination of employment under the provisions of paragraph 1 of this option. 6. (a) This option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to subparagraph 6(f) of the Plan. (b) By exercising this option you agree that: (i) the Company may require you to enter an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (3) the disposition of shares acquired upon such exercise; (ii) you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of this option that occurs within two (2) years after the date of this option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of this option; and (iii) the Company (or a representative of the underwriters) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Act, require that you not sell or otherwise transfer or dispose of any shares of Common Stock or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date (the "Effective Date") of the registration 3. 4 statement of the Company filed under the Act as may be requested by the Company or the representative of the underwriters. For purposes of this restriction you will be deemed to own securities which (i) are owned directly or indirectly by you, including securities held for your benefit by nominees, custodians, brokers or pledgees; (ii) may be acquired by you within sixty (60) days of the Effective Date; (iii) are owned directly or indirectly, by or for your brothers or sisters (whether by whole or half blood) spouse, ancestors and lineal descendants; or (iv) are owned, directly or indirectly, by or for a corporation, partnership, estate or trust of which you are a shareholder, partner or beneficiary, but only to the extent of your proportionate interest therein as a shareholder, partner or beneficiary thereof. You further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period. 7. This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. By delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise this option. 8. This option is not an employment contract and nothing in this option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company, or of the Company to continue your employment with the Company. 9. Any notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company. 10. This option is subject to all the provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without limitation the provisions of paragraph 6 of the Plan relating to option provisions, and is further subject to all 4. 5 interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control. Dated the 4 -. Very truly yours, AWARD SOFTWARE INTERNATIONAL, INC. By______________________________________ Duly authorized on behalf of the Board of Directors ATTACHMENTS: 1995 Stock Option Plan Regulation 260.141.11 Notice of Exercise 5. 6 The undersigned: (a) Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; and (b) Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned optionee and the Company and its affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of (i) the options previously granted and delivered to the undersigned under stock option plans of the Company, and (ii) the following agreements only: NONE __________________ (Initial) OTHER ____________________________________ ____________________________________ (c) Acknowledges receipt of a copy of Section 260.141.11 of Title 10 of the California Code of Regulations. ___________________________________ 1 - Address: _________________________ _________________________ 6. 7 NOTICE OF EXERCISE Award Software International, Inc. 777 E. Middlefield Road Mountain View, CA 94043 Date of Exercise: __________ Ladies and Gentlemen: This constitutes notice under my stock option that I elect to purchase the number of shares for the price set forth below. Type of option (check one): Incentive / / Nonstatutory / / Stock option dated: ____________________ Number of shares as to which option is exercised: ____________________ Certificates to be issued in name of: Total exercise price: $___________________ Cash payment delivered herewith: $___________________ Value of ______ shares of ______________ common stock delivered herewith(1): $____________________ ____________________ (1) Shares must meet the public trading requirements set forth in the option. Shares must be valued in accordance with the terms of the option being exercised, must have been owned for the minimum period required in the option, and must be owned free and clear of any liens, claims, encumbrances or security interests. Certificates must be endorsed or accompanied by an executed assignment separate from certificate. 7. 8 By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the Award Software International, Inc. 1995 Stock Option Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise relates to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option. I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the "Shares"), which are being acquired by me for my own account upon exercise of the Option as set forth above: I acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the "Act"), and are deemed to constitute "restricted securities" under Rule 701 and "control securities" under Rule 144 promulgated under the Act. I warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Act and any applicable state securities laws. I further acknowledge that I will not be able to resell the Shares for at least ninety days after the stock of the Company becomes publicly traded (i.e., subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144. I further acknowledge that all certificates representing any of the Shares subject to the provisions of the Option shall have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Company's Articles of Incorporation, Bylaws and/or applicable securities laws. I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Act, I will not sell or otherwise transfer or dispose of any shares of Common Stock or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Act (the "Effective Date") as may be requested by the Company or the representative of the underwriters. For purposes of this restriction I will be deemed to own securities that (i) are owned directly or indirectly by me, including securities held for my benefit by nominees, custodians, brokers or pledgees; (ii) may be acquired by me within sixty (60) days of the Effective Date; (iii) are owned directly or indirectly, by or for my brothers or sisters (whether by whole or half blood), spouse, ancestors and lineal descendants; or (iv) are owned, directly or indirectly, by or for a corporation, partnership, estate or trust of which I am a 8. 9 shareholder, partner or beneficiary, but only to the extent of my proportionate interest therein as a shareholder, partner or beneficiary thereof. I further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period. Very truly yours, 1 - 9. 10 STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE TITLE 10. Investment - Chapter 3. Commissioner of Corporations 260.141.11: RESTRICTION ON TRANSFER. (a) The issuer of any security upon which a restriction on transfer has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be delivered to each issuee or transferee of such security at the time the certificate evidencing the security is delivered to the issuee or transferee. (b) It is unlawful for the holder of any such security to consummate a sale or transfer of such security, or any interest therein, without the prior written consent of the Commissioner (until this condition is removed pursuant to Section 260.141.12 of these rules), except: (A) to the issuer; (B) pursuant to the order or process of any court; (C) to any person described in subdivision (i) of Section 25102 of the Code or Section 260.105.14 of these rules; (D) to the transferor's ancestors, descendants or spouse, or any custodian or trustee for the account of the transferor or the transferor's ancestors, descendants, or spouse; or to a transferee by a trustee or custodian for the account of the transferee or the transferee's ancestors, descendants or spouse; (E) to holders of securities of the same class of the same issuer; (F) by way of gift or donation inter vivos or on death; (G) by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the knowledge of the broker-dealer, nor actually present in this state if the sale of such securities is not in violation of any securities law of the foreign state, territory or country concerned; (H) to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or a member of an underwriting syndicate or selling group; (I) if the interest sold or transferred is a pledge or other lien given by the purchaser to the seller upon a sale of the security for which the Commissioner's written consent is obtained or under this rule not required; (J) by way of a sale qualified under Sections 25111, 25112, 25113, or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to such qualification; (K) by a corporation to a wholly owned subsidiary of such corporation, or by a wholly owned subsidiary of a corporation to such corporation; (L) by way of an exchange qualified under Section 25111, 25112 or 25113 of the Code, provided that no order under Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to such qualification; (M) between residents of foreign states, territories or countries who are neither domiciled nor actually present in this state; (N) to the State Controller pursuant to the Unclaimed Property Law or to the administrator of the unclaimed property law of another state; or (O) by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential purchasers at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each purchaser a copy of this rule, and (iii) advises the Commissioner of the name of each purchaser; (P) by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities; (Q) by way of an offer and sale of outstanding securities in an issuer transaction that is subject to the qualification requirement of Section 25110 of the Code but exempt from that qualification requirement by subdivision (f) of Section 25102; provided that any such transfer is on the condition that any certificate evidencing the security issued to such transferee shall contain the legend required by this section. (c) The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows: "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES." EX-10.4 7 FORM OF NONSTATUTORY STOCK OPTION 1 EXHIBIT 10.4 IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. NONSTATUTORY STOCK OPTION 1-, Optionee: AWARD SOFTWARE INTERNATIONAL, INC. (the "Company"), pursuant to its 1995 Stock Option Plan (the "Plan") has this day granted to you, the optionee named above, an option to purchase shares of the common stock of the Company ("Common Stock"). This option is not intended to qualify as and will not be treated as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The grant hereunder is in connection with and in furtherance of the Company's compensatory benefit plan for participation of the Company's employees (including officers), directors or consultants and is intended to comply with the provisions of Rule 701 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"). The details of your option are as follows: 1. The total number of shares of Common Stock subject to this option is 2-. Subject to the limitations contained herein, this option shall be exercisable with respect to each installment shown below on or after the date of vesting applicable to such installment, as follows:
NUMBER OF SHARES (INSTALLMENT) DATE OF EARLIEST EXERCISE (VESTING) 25% First day of the month following a full calendar year from the date of this Option. 2.0833% Thereafter on the first day of each succeeding month for the following 36 months.
1. 2 2. (a) The exercise price of this option is 4 - per share, being not less than 85% of the fair market value of the Common Stock on the date of grant of this option. (b) Payment of the exercise price per share is due in full upon exercise of all or any part of each installment which has accrued to you. You may elect, to the extent permitted by applicable statutes and regulations, to make payment of the exercise price under one of the following alternatives: (i) Payment of the exercise price per share in cash (including check) at the time of exercise; (ii) Payment pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which results in the receipt of cash (or check) by the Company prior to the issuance of Common Stock; (iii) Provided that at the time of exercise the Company's Common Stock is publicly traded and quoted regularly in the Wall Street Journal, payment by delivery of already-owned shares of Common Stock, held for the period required to avoid a charge to the Company's reported earnings, and owned free and clear of any liens, claims, encumbrances or security interests, which Common Stock shall be valued at its fair market value on the date of exercise; (iv) Payment by a combination of the methods of payment permitted by subparagraph 2(b)(i) through 2(b)(iii) above. 3. This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares. 4. Notwithstanding anything to the contrary contained herein, this option may not be exercised unless the shares issuable upon exercise of this option are then registered under the Act or, if such Shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Act. 5. The term of this option commences on the date hereof and, unless sooner terminated as set forth below or in the Plan, terminates on 5 - (which date shall be no more than ten (10) years from the date this option is granted). In no event may this option be exercised on or after the date on which it terminates. This option shall terminate prior to the expiration of its term as follows: three (3) months after the termination of your employment with the Company or an affiliate of the Company (as defined in the Plan) for any reason or for no reason unless: (a) such termination of employment is due to your disability, in which event the option shall terminate on the earlier of the termination date set forth above or twelve (12) months following such termination of employment; or 2. 3 (b) such termination of employment is due to your death, in which event the option shall terminate on the earlier of the termination date set forth above or eighteen (18) months after your death; or (c) during any part of such three (3) month period the option is not exercisable solely because of the condition set forth in paragraph 4 above, in which event the option shall not terminate until the earlier of the termination date set forth above or until it shall have been exercisable for an aggregate period of three (3) months after the termination of employment; or (d) exercise of the option within three (3) months after termination of your employment with the Company or with an affiliate would result in liability under section 16(b) of the Securities Exchange Act of 1934, in which case the option will terminate on the earlier of (i) the termination date set forth above, (ii) the tenth (10th) day after the last date upon which exercise would result in such liability or (iii) six (6) months and ten (10) days after the termination of your employment with the Company or an affiliate. However, this option may be exercised following termination of employment only as to that number of shares as to which it was exercisable on the date of termination of employment under the provisions of paragraph 1 of this option. 6. (a) This option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to subparagraph 6(f) of the Plan. (b) By exercising this option you agree that: (i) the Company may require you to enter an arrangement providing for the cash payment by you to the Company of any tax withholding obligation of the Company arising by reason of: (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (3) the disposition of shares acquired upon such exercise; and (ii) the Company (or a representative of the underwriters) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Act, require that you not sell or otherwise transfer or dispose of any shares of Common Stock or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date (the "Effective Date") of the registration statement of the Company filed under the Act as may be requested by the Company or the representative of the underwriters. For purposes of this restriction you will be deemed to own securities which (i) are owned directly or indirectly by you, including securities held for your benefit by nominees, custodians, brokers or pledgees; (ii) may be acquired by you within sixty (60) days of the Effective Date; (iii) are owned directly or indirectly, by or for your brothers or sisters (whether by whole or half blood) spouse, ancestors and lineal descendants; or (iv) are 3. 4 owned, directly or indirectly, by or for a corporation, partnership, estate or trust of which you are a shareholder, partner or beneficiary, but only to the extent of your proportionate interest therein as a shareholder, partner or beneficiary thereof. You further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period. 7. This option is not transferable, except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act (a "QDRO"), and is exercisable during your life only by you or a transferee pursuant to a QDRO. By delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise this option. 8. This option is not an employment contract and nothing in this option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company, or of the Company to continue your employment with the Company. In the event that this option is granted to you in connection with the performance of services as a consultant or director, references to employment, employee and similar terms shall be deemed to include the performance of services as a consultant or a director, as the case may be, provided, however, that no rights as an employee shall arise by reason of the use of such terms. 9. Any notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company. 4. 5 10. This option is subject to all the provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without limitation the provisions of paragraph 6 of the Plan relating to option provisions, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control. Dated the 3 -. Very truly yours, AWARD SOFTWARE INTERNATIONAL, INC. By_____________________________________ Duly authorized on behalf of the Board of Directors ATTACHMENTS: 1995 Stock Option Plan Regulation 260.141.11 Notice of Exercise 5. 6 The undersigned: (a) Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; and (b) Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned optionee and the Company and its affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of (i) the options previously granted and delivered to the undersigned under stock option plans of the Company, and (ii) the following agreements only: NONE __________________ (Initial) OTHER ___________________________________ ___________________________________ ___________________________________ (c) Acknowledges receipt of a copy of Section 260.141.11 of Title 10 of the California Code of Regulations. ____________________________________ 1 - Address: __________________________ __________________________ 6. 7 NOTICE OF EXERCISE Award Software International, Inc. 777 E. Middlefield Road Mountain View, CA 94043 Date of Exercise:_________________ Ladies and Gentlemen: This constitutes notice under my stock option that I elect to purchase the number of shares for the price set forth below. Type of option (check one): Incentive / / Nonstatutory / / Stock option dated: ____________________ Number of shares as to which option is exercised: ____________________ Certificates to be issued in name of: ____________________ Total exercise price: $___________________ Cash payment delivered herewith: $___________________ Value of ______ shares of ______________ common stock delivered herewith(1): $___________________ ___________ (1) Shares must meet the public trading requirements set forth in the option. Shares must be valued in accordance with the terms of the option being exercised, must have been owned for the minimum period required in the option, and must be owned free and clear of any liens, claims, encumbrances or security interests. Certificates must be endorsed or accompanied by an executed assignment separate from certificate. 7. 8 By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the Award Software International, Inc. 1995 Stock Option Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise relates to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option. I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the "Shares"), which are being acquired by me for my own account upon exercise of the Option as set forth above: I acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the "Act"), and are deemed to constitute "restricted securities" under Rule 701 and "control securities" under Rule 144 promulgated under the Act. I warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Act and any applicable state securities laws. I further acknowledge that I will not be able to resell the Shares for at least ninety days after the stock of the Company becomes publicly traded (i.e., subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144. I further acknowledge that all certificates representing any of the Shares subject to the provisions of the Option shall have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Company's Articles of Incorporation, Bylaws and/or applicable securities laws. I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Act, I will not sell or otherwise transfer or dispose of any shares of Common Stock or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Act (the "Effective Date") as may be requested by the Company or the representative of the underwriters. For purposes of this restriction I will be deemed to own securities that (i) are owned directly or indirectly by me, including securities held for my benefit by nominees, custodians, brokers or pledgees; (ii) may be acquired by me within sixty (60) days of the Effective Date; (iii) are owned directly or indirectly, by or for my brothers or sisters (whether by whole or half blood), spouse, ancestors and lineal descendants; or (iv) are owned, directly or indirectly, by or for a corporation, partnership, estate or trust of which I am a 8. 9 shareholder, partner or beneficiary, but only to the extent of my proportionate interest therein as a shareholder, partner or beneficiary thereof. I further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period. Very truly yours, 1 - 9. 10 STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE TITLE 10. Investment - Chapter 3. Commissioner of Corporations 260.141.11: RESTRICTION ON TRANSFER. (a) The issuer of any security upon which a restriction on transfer has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be delivered to each issuee or transferee of such security at the time the certificate evidencing the security is delivered to the issuee or transferee. (b) It is unlawful for the holder of any such security to consummate a sale or transfer of such security, or any interest therein, without the prior written consent of the Commissioner (until this condition is removed pursuant to Section 260.141.12 of these rules), except: (A) to the issuer; (B) pursuant to the order or process of any court; (C) to any person described in subdivision (i) of Section 25102 of the Code or Section 260.105.14 of these rules; (D) to the transferor's ancestors, descendants or spouse, or any custodian or trustee for the account of the transferor or the transferor's ancestors, descendants, or spouse; or to a transferee by a trustee or custodian for the account of the transferee or the transferee's ancestors, descendants or spouse; (E) to holders of securities of the same class of the same issuer; (F) by way of gift or donation inter vivos or on death; (G) by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the knowledge of the broker-dealer, nor actually present in this state if the sale of such securities is not in violation of any securities law of the foreign state, territory or country concerned; (H) to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or a member of an underwriting syndicate or selling group; (I) if the interest sold or transferred is a pledge or other lien given by the purchaser to the seller upon a sale of the security for which the Commissioner's written consent is obtained or under this rule not required; (J) by way of a sale qualified under Sections 25111, 25112, 25113, or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to such qualification; (K) by a corporation to a wholly owned subsidiary of such corporation, or by a wholly owned subsidiary of a corporation to such corporation; (L) by way of an exchange qualified under Section 25111, 25112 or 25113 of the Code, provided that no order under Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to such qualification; (M) between residents of foreign states, territories or countries who are neither domiciled nor actually present in this state; (N) to the State Controller pursuant to the Unclaimed Property Law or to the administrator of the unclaimed property law of another state; or (O) by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential purchasers at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each purchaser a copy of this rule, and (iii) advises the Commissioner of the name of each purchaser; (P) by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities; (Q) by way of an offer and sale of outstanding securities in an issuer transaction that is subject to the qualification requirement of Section 25110 of the Code but exempt from that qualification requirement by subdivision (f) of Section 25102; provided that any such transfer is on the condition that any certificate evidencing the security issued to such transferee shall contain the legend required by this section. (c) The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows: "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES." EX-10.6 8 REGISTRANT'S EXECUTIVE COMPENSATION PLAN 1 EXHIBIT 10.6 COMPENSATION PLAN 1. Corporate Structure- This Plan covers the compensation details for corporate top managers - Vice Presidents and above, at Award Software International. Award Software currently is organized into three groups: Headquarters in Mountain View, Taiwan Office in Taipei and European Office in Munich. This organization supports the local business needs worldwide. The General Managers in Taiwan and Europe have P/L responsibilities for the regions under their management. The top managers in the headquarters have the responsibilities for US operating P/L, corporate marketing, R/D, and financial management. The overall corporate financial performance responsibility resides with the CEO, who is assisted by senior staff. 2. Performance Goals- The business plan for Award Software calls for continued profitability with a goal of operating income of 28% on revenue. The revenue is planned to grow to $14M, 56% over 1995 ($9M), which means that an operating income of $4M for 1996. The longer term goal for Award Software is to dominate selected areas of system management software. Certain acquisition targets are being investigated and expansion into Internet business is being pursued. Revenue-wise Award Software should target to become a $100M company as soon as possible, preferably in the next 4 years. Currently, there is an adequate group of senior managers to achieve near term goals. But an experienced VP of Marketing should be hired and a COO or President should also be recruited to assist the CEO to accomplish the long term goals. 2 3. Compensation Components- The compensation philosophy is based on the theory that job reward comes from the feeling of accomplishment, ownership in the company and cash income. The compensation package for a senior manager typically consists of Base Salary, Performance Bonus and Stock Option. The sales bonuses (commissions) are set between 1% to 3% on revenue. The performance bonuses are calculated by the following formula: Performance Bonus = [operating income as a percentage of target - 70%] x base salary. 4. Stock Option- Currently, the management group has approximately 17% stock ownership and one million shares of employee stock option. Another one million shares of stock option has been added for the current and future employees. The following table (TABLE I) summarizes the compensation packages for all top managers. All those packages should be revised and approved by the Compensation Committee from time to time. EX-10.7 9 LEASE BETWEEN GCH SYSTEMS, INC. AND THE REGISTRANT 1 EXHIBIT 10.7 GCH [letterhead] SYSTEMS, INC. Award Software International, Inc. 777 East Middlefield Road Mountain View, California 94043-4023 RE: SCHEDULE OF RENTAL PAYMENTS Gentlemen: This Agreement is entered into between GCH Systems, Inc. (hereafter known as GCH) located at 777 East Middlefield Road, Mountain View, CA 94043-4023 and Award Software International, Inc. (hereafter known as ASI) located at 777 East Middlefield Road, Mountain View, CA 94043-4023. GCH agrees to sub-lease space in the building at the above address to ASI from January 1, 1996 through December 31, 1996 at $13,400 per month including utilities. All payments to be made on or before seven (7) days of the beginning of each month. This Agreement will be renewed for 1997 and years that follow. Executed this 1st day of January 1, 1996. GCH Systems Incorporated Award Software International, Inc. /s/ Reza Afghan /s/ George C. Huang - ------------------------ ---------------------------------- Signature Signature Vice President Chairman CEO - ------------------------ ---------------------------------- Title Title Jan. 1, 1996 Jan. 1, 1996 - ------------------------ ---------------------------------- Date Date EX-10.8 10 SUMMARY OF LEASES DATED MARCH 1,1996 1 EXHIBIT 10.8 Summary of Award Taiwan Office Lease Agreement (1) Address: 9F-1, 17 Sec. 1 Cheng Te Road, Taipei Taiwan Rent: NT$165,532/Mo. (Equivalent to US$6,131) Deposit: NT$331,368 (Equivalent to US$12,273) Space: Approx. 3,560 Square feet Commencing: March 1, 1996 Expiring: February 28, 1997 Landlord: Sun Corporation Tenant: Award Association fee: NT$12,111/Mo., overtime electricity and air conditioner usage are extra charge Utilities: Not included Property Tax: Covered by Landlord (2) Address: 9F-6, 17 Sec. 1 Cheng Te Road, Taipei Taiwan Rent: NT$352,400/Mo. (Equivalent to US$13,052) Deposit: NT$952,000 (Equivalent to US$35,259) Space: Approx. 7,141 Square feet Commencing: March 1, 1996 Expiring: February 28, 1997 Landlord: GSS Corporation Tenant: Award Association fee: NT$20,623/Mo., overtime electricity and air conditioner usage are extra charge Utilities: Not included Property Tax: Covered by Landlord EX-10.9 11 VOTING AGREEMENT DATED JANUARY 12,1996 1 EXHIBIT 10.9 VOTING AGREEMENT This Voting Agreement (this "Agreement") is made and entered into as of January 12, 1996 (the "Effective Date") by and among Award Software International, Inc., a California corporation (the "Company"), Vobis Microcomputer AG, a company organized under the laws of the Federal Republic of Germany (the "Investor"), and the parties listed on Exhibit A attached hereto (the "Shareholders"). The Investor and the Shareholders are sometimes hereinafter collectively referred to herein as the "Holders". RECITALS WHEREAS, concurrently herewith, the Investor is purchasing from the Company shares of its Common Stock and a warrant to purchase its Common Stock (collectively, the "Securities") pursuant to a Securities Purchase Agreement dated of even date herewith between the Company and the Investor (the "Purchase Agreement"); WHEREAS, as an inducement to Vobis to purchase the Securities pursuant to the Purchase Agreement, the Investor, the Shareholders and the Company desire to enter into this Agreement to set forth their agreements and understandings with respect to how shares of the Company's capital stock held by them will be voted on certain matters; NOW, THEREFORE, in consideration of the above recitals and the mutual covenants made herein, the parties hereby agree as follows: 1. Size of Board of Directors. During the term of this Agreement, each Holder agrees to vote all shares of capital stock of the Company now or hereafter directly or indirectly owned (of record or beneficially) by such Holder to maintain the authorized number of members of the Board of Directors of the Company (the "Board") at no less than five (5) directors, and to oppose any effort by any party to change the authorized number of directors of the Company to less than five (5) directors. In addition, the Company agrees to maintain the authorized number of members of the Board at no less than five (5) directors. 2. Election of Board of Directors. 2..1 Voting; Board Composition. During the term of this Agreement, each Holder agrees to vote all shares of capital stock of the Company now or hereafter directly or indirectly owned (of record or beneficially) by such Holder, in such manner as may be necessary to elect (and maintain in office) as a members of the Board an individual designated by the Investor who is reasonably agreeable to the Company (the "Investor Designee"). 2.2 Initial Board Members. As of the Effective Date, the initial Vobis Designee shall be Theo Lieven. 2 2.3 Changes in Board Designees. From time to time during the term of this Agreement, the Investor may, in its sole discretion; (a) elect to remove from the Board any incumbent Investor Designee who occupies a Board seat for which the Investor is entitled to designate the Investor Designee under Section 2.1; and/or (b) designate a new Investor Designee for election to a Board seat for which the Investor is entitled to designate the Investor Designee under Section 2.1 (whether to replace a prior Investor Designee or to fill a vacancy in such Board seat); provided such removal and/or designation of the Investor Designee is approved in a writing signed by the Investor, in which case such election to remove the Investor Designee and/or elect a new Investor Designee will be binding on the Investor. In the event of such removal and/or designation of the Investor Designee under this Section 2.3, the Holders shall vote their shares of the Company's capital stock as provided in Section 2.1 to cause: (a) he removal from the Board of the Investor Designee so designated for removal by the Investor; and (b) the election to the Board of any new Investor Designee so designated for election to the Board by the Investor. 2.4 Notice; Cumulative Voting. The Company shall promptly give each of the Holders written notice of any change in composition of the Board and of any proposal by the Investor to remove or elect a new Investor Designee. In any election of directors pursuant to this Section 2, the Holders shall vote their shares in a manner sufficient to elect to the board the individuals to be elected thereto as provided in this Section 2, utilizing cumulative voting, if and to the extent necessary to do so. 3. Further Assurances. Each of the Holders and the Company agree not to vote any shares of the Company's capital stock, or to take any other actions, that would in any manner defeat, impair, be inconsistent with or adversely affect he stated intentions of the parties under Sections 1 and 2 of this Agreement. 4. Transferees; Legends on Certificates. 4.1 Effect on Transferees. Each and every transferee or assignee of any shares of capital stock of the Company from any Holder which or who is Affiliate (as defined below) of such Holder shall be bound by and subject to the terms and conditions of this Agreement that are applicable to such transferee's transferor or assignor, and the Company shall require, as a condition precedent to the transfer of any shares of capital stock of the Company subject to this Agreement, that the transferee agrees in writing to be bound by, and subject to, all the terms and conditions of this Agreement. For purposes of this Agreement, "Affiliate" shall mean as to any Holder: (a) any other person directly or indirectly controlling, controlled by or under common control with such Holder; (b) any other person owning or controlling 10% or more of the outstanding voting securities of such Holder; (c) any officer, director or partner of such Holder; (d) any business entity for which Holder acts as an officer, director or partner; 2 3 (e) the spouse or any relative of such Holder; and (f) any trust or other estate in which such Holder or any other person covered by items (a) through (e) has a beneficial interest or as to which such Holder serves as trustee or in a similar capacity. 4.2 Legend. The Holders agree that all Company share certificates now or hereafter held by them that represent shares of capital stock of the Company subject to this Agreement will be stamped or otherwise imprinted with a legend to read as follows: THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AGREEMENTS AND RESTRICTIONS WITH REGARD TO THE VOTING OF SUCH SHARES AND THEIR TRANSFER, AS PROVIDED IN THE PROVISIONS OF A VOTING AGREEMENT, A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE SECRETARY OF THE CORPORATION. 5. Enforcement of Agreement. Each of the Holders acknowledge and agree that any breach of any of them of this Agreement shall cause the Investor irreparable harm which may not be adequately compensable by money damages. Accordingly, in the event of a breach or threatened breach by a Holder of any provision of this Agreement, the Company and the Investor shall each be entitled to the remedies of specific performance, injunction or other preliminary or equitable relief, including the right to compel any such breaching Holder, as appropriate, to vote such Holder's shares of capital stock of the Company in accordance with the provisions of this Agreement, in addition to such other rights remedies as may be available to the Company or the Investor for any such breach or threatened breach, including but not limited to the recovery of money damages. 6. Term. This Agreement shall commence on the Effective Date and shall terminate upon the first to occur of the following: (a) The date that is three (3) years from the Effective Date; (b) The consummation of the sale of securities of the Company to the public pursuant to an effective registration statement filed by the Company under the Securities Act of 1933, as amended, pursuant to which the aggregate offering price to the public is at least $10,000,000.00 and the price per share is at least $6.80. (c) Immediately prior to the closing of (i) any consolidation or merger of the Company with or into any other corporation or corporations in which the holders of the Company's outstanding shares immediately before such consolidation or merger do not, immediately after such consolidation or merger, retain stock representing a majority of the voting power of the surviving corporation of such consolidation or merger or stock representing a majority of the voting power of a corporation that wholly owns, directly or indirectly, the surviving corporation or such consolidation or merger; (ii) the sale, transfer or assignment of securities of the Company representing a majority of the 3 4 voting power of all the Company's outstanding voting securities by the holders thereof to an acquiring party in a single transaction or series of related transactions; (iii) any other sale, transfer or assignment of securities of the Company representing over fifty percent (50%) of the voting power of the Company's then outstanding voting securities by the holders thereof to an acquiring party;' or (iv) the sale of all or substantially all the Company's assets; or (d) The date that the aggregate percentage ownership interest in the Company of the Investor and any wholly-owned subsidiaries of the Investor collectively equals less than eight percent (8%), as determined in accordance with Section 3.1 of that certain Investor's Rights Agreement dated as of even date herewith among the Company, the Investor and certain shareholders of the Company. 7. Miscellaneous. 7.1 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California applicable to contracts made among residents of, and wholly to be performed within, the State of California, without reference to principles of conflict of laws or choice of laws. 7.2 Further Instruments. From time to time, each party hereto shall execute and deliver such instruments and documents as may be reasonably necessary to carry out the purposes and intent of this Agreement. 7.3 Successors. This Agreement shall be binding upon and shall inure to the benefit of the executors, administrators, legal representatives, heirs, successors, and assigns of the parties hereto; provided, however, that any transferee of any shares of stock of the Company affected by this Agreement which or who is an Affiliate of the transferring Holder of such shares shall be required, as a condition precedent to acquiring such shares, to first agree in writing to be bound by all the terms and conditions of this Agreement applicable to such transferee's transferor; and provided further that no rights under this Agreement may be assigned apart from the related shares of the Company's capital stock. 7.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.5 Entire Agreement. This document constitutes and contains the entire agreement and understanding of the parties regarding the subject matter of this Agreement and supersedes any and all prior negotiations, correspondence, understandings and agreements among the parties respecting the subject matter hereof. 7.6 Amendments and Waivers. Any terms of this Agreement may be amended and the observance of any term of the Agreement may be waived (either 4 5 generally or in a particular instance and either retroactively or prospectively) with the written consent of the Company and the Investor. Any amendment or waiver effected in accordance with this Section shall be binding upon the Company, all the Holders and their permitted transferees and assignees. IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. COMPANY: INVESTOR: Name: Name: ------------------------------ ------------------------------- By: By: -------------------------------- --------------------------------- Title: Title: ----------------------------- ------------------------------ SHAREHOLDERS: Name: ------------------------------ By: -------------------------------- Title: ----------------------------- 5 6 IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. COMPANY: INVESTOR: Name: Name: ------------------------------ ------------------------------- By: By: -------------------------------- --------------------------------- Title: Title: ----------------------------- ------------------------------ SHAREHOLDERS: Name: ------------------------------ By: -------------------------------- Title: ----------------------------- [Signature Page to Voting Agreement] 6 7 IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. COMPANY: INVESTOR: Name: Name: ------------------------------ ------------------------------- By: By: -------------------------------- --------------------------------- Title: Title: ----------------------------- ------------------------------ SHAREHOLDERS: Name: Name: ------------------------------ ------------------------------- By: By: -------------------------------- --------------------------------- Title: Title: ----------------------------- ------------------------------ 7 8 WALDEN CAPITAL PARTNERS II, L.P. By: ------------------------------------ Title: --------------------------------- Address: 750 Battery Street Floor 7 San Francisco, CA 94111-1523 WALDEN TECHNOLOGY VENTURES II, L.P. By: ------------------------------------ Title: --------------------------------- Address: 750 Battery Street Floor 7 San Francisco, CA 94111-1523 8 EX-10.10 12 INVESTORS' RIGHTS AGREEMENT DATED JANUARY 12,1996 1 EXHIBIT 10.10 AWARD SOFTWARE INTERNATIONAL, INC. INVESTORS' RIGHTS AGREEMENT 2 TABLE OF CONTENTS PAGE I. GENERAL.......................................................... 1. 1.1 Definitions............................................. 1. II. REGISTRATION; RESTRICTIONS ON TRANSFER........................... 3. 2.1 Restrictions on Transfer................................ 3. 2.2 Demand Registration..................................... 4. 2.3 Piggyback Registrations................................. 5. 2.4 Form S-3 Registration................................... 6. 2.5 Expenses of Registration................................ 7. 2.6 Obligations of the Company.............................. 8. 2.7 Delay of Registration; Furnishing Information........... 9. 2.8 Indemnification......................................... 9. 2.9 Assignment of Registration Rights....................... 11. 2.10 Amendment of Registration Rights........................ 11. 2.11 Limitation on Subsequent Registration Rights............ 12. 2.12 "Market Stand-Off" Agreement............................ 12. 2.13 Rule 144 Reporting...................................... 12. III. RIGHTS OF FIRST REFUSAL.......................................... 13. 3.1 Subsequent Offerings.................................... 13. 3.2 Exercise of Rights...................................... 13. 3.3 Issuance of Equity Securities to Other Persons.......... 13. 3.4 Termination of Rights of First Refusal.................. 14. 3.5 Transfer of Rights of First Refusal..................... 14. 3.6 Excluded Securities..................................... 14. 3.7 Catch-up Rights......................................... 14. IV. MISCELLANEOUS.................................................... 15. 4.1 Governing Law........................................... 15. 4.2 Survival................................................ 15. 4.3 Successors and Assigns.................................. 15. 4.4 Severability............................................ 16. 4.5 Amendment and Waiver.................................... 16. 4.6 Delays or Omissions..................................... 16. 4.7 Notices................................................. 16. 4.8 Attorneys' Fees......................................... 16. 4.9 Titles and Subtitles.................................... 16. 4.10 Counterparts............................................ 17. 4.11 Termination Of Prior Agreements......................... 17. i. 3 INVESTORS' RIGHTS AGREEMENT THIS INVESTORS' RIGHTS AGREEMENT (this "Agreement") is entered into as of January __, 1996, by and among AWARD SOFTWARE INTERNATIONAL, INC., a California corporation (the "Company"), and the persons and entities set forth on Exhibit A (collectively referred to hereinafter as the "Investors" and each individually as an "Investor"). RECITALS WHEREAS, the Company proposes to sell and issue up to 1,140,066 shares of its Common Stock and a warrant to purchase up to 544,788 shares of its Common Stock to Vobis Microcomputer AG ("Vobis") pursuant to that certain Securities Purchase Agreement of even date herewith (the "Purchase Agreement"); WHEREAS, certain of the Investors are parties to either that certain Common Stock Purchase Agreement, dated as of July 17, 1995, or that certain Investors' Rights Agreement, dated as of September 30, 1995 (together, the "Prior Agreements"), which provide such Investors with registration rights; WHEREAS, such Investors desire to supersede those rights set forth in such agreements with the rights set forth in this Agreement; and WHEREAS, it is a condition precedent of entering into the Purchase Agreement that the Company and all the Investors to enter into this Agreement. NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement and in the Purchase Agreement, the parties mutually agree as follows: I. GENERAL. 1.1 DEFINITIONS. As used in this Agreement the following terms shall have the following respective meanings: "COMMON STOCK" means the Company's common stock, no par value. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FORM S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. "HOLDER" means any person owning of record Registrable Securities that have not been sold to the public or any assignee of record of such Registrable Securities in accordance with Section 2.10 hereof. 4 "INITIAL OFFERING" means the Company's first firm commitment underwritten public offering of its Common Stock registered under the Securities Act. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document. "REGISTRABLE SECURITIES" means (i) the Shares; (ii) the Underlying Shares and (iii) any Common Stock of the Company now or hereafter held by the Investors. Notwithstanding the foregoing, Registrable Securities shall not include any securities sold by a person to the public either pursuant to a registration statement or Rule 144 or sold in a private transaction in which the transferror's rights under Article II of this Agreement are not assigned. "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of shares determined by calculating the total number of shares of the Company's Common Stock that are Registrable Securities and either (1) are then issued and outstanding or (2) are issuable pursuant to then exercisable or convertible securities. "REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements not to exceed Twenty Thousand Dollars ($20,000) of a single special counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SELLING EXPENSES" shall mean all underwriting discounts and selling commissions applicable to the sale. "SHARES" shall mean shares of the Company's Common Stock issued pursuant to or covered by the Purchase Agreement or the Prior Agreements, including the Underlying Shares. "SEC" or "COMMISSION" means the Securities and Exchange Commission. "UNDERLYING SHARES" shall mean the shares of the Company's Common Stock issuable upon exercise of the Warrants. "WARRANTS" shall mean the Warrants issued pursuant to or in connection with the Purchase Agreement and the Prior Agreements to purchase shares of the Company's Common Stock. 2. 5 II. REGISTRATION; RESTRICTIONS ON TRANSFER. 2.1 RESTRICTIONS ON TRANSFER. (a) Each Holder agrees not to make any disposition of all or any portion of the Shares or Registrable Securities unless and until: (i) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (ii) (A) The transferee has agreed in writing to be bound by this Section 2.1, (B) Such Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (C) if reasonably requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances. (iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for a transfer by a Holder which is (A) a partnership to its partners or former partners in accordance with partnership interests, (B) a corporation to its shareholders in accordance with their interest in the corporation, (C) a limited liability company to its members or former members in accordance with their interest in the limited liability company, or (D) to the Holder's family member or trust for the benefit of an individual Holder, provided the transferee will be subject to the terms of this Section 2.1 to the same extent as if he were an original Holder hereunder. (b) Each certificate representing Shares or Registrable Securities shall (unless otherwise permitted by the provisions of the Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws or as provided elsewhere in this Agreement): THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. or THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND FOR A 3. 6 PERIOD OF TWELVE MONTHS FROM THE DATE OF ISSUANCE MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES, ITS TERRITORIES AND POSSESSIONS OR ANY AREA SUBJECT TO ITS JURISDICTION OR TO ANY PERSON WHO IS A NATIONAL THEREOF OR RESIDENT THEREIN (INCLUDING ANY ESTATE OF SUCH PERSON) OR ANY CORPORATION, PARTNERSHIP OR OTHER ENTITY CREATED OR ORGANIZED THEREIN WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. (c) The Company shall be obligated to reissue promptly unlegended certificates at the request of any holder thereof if the holder shall have obtained an opinion of counsel (which counsel may be counsel to the Company) reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration, qualification or legend, including, without limitation, pursuant to an exemption under Rule 144 and Regulation S promulgated under the Securities Act. (d) Any legend endorsed on an instrument pursuant to applicable state securities laws and the stop-transfer instructions with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal. 2.2 DEMAND REGISTRATION. 2.2.1 Subject to the conditions of this Section 2.2, if the Company shall receive a written request from the Holders of more than a majority of the Registrable Securities then outstanding (the "Initiating Holders") that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities having an aggregate offering price to the public of at least $10,000,000 and a per share price which is at least $6.80 (as adjusted for stock splits, stock dividends and the like) (a "Qualified Public Offering"), then the Company shall, within thirty (30) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 2.2, effect, as soon as practicable, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered. 2.2.2 If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2.2 and the Company shall include such information in the written notice referred to in Section 2.2.1. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders (which underwriter or underwriters shall be 4. 7 reasonably acceptable to the Company). Notwithstanding any other provision of this Section 2.2, if the underwriter advises the Company that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities) then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities on a pro rata basis based on the number of Registrable Securities held by all such Holders (including the Initiating Holders). Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. 2.2.3 The Company shall not be required to effect a registration pursuant to this Section 2.2: (i) prior to earlier of the third anniversary of the date of this Agreement or the date six months after the effective date of its Initial Offering; or (ii) after the Company has effected a registration pursuant to this Section 2.2, and such registration has been declared or ordered effective; or (iii) during the period starting with the date of filing of, and ending on the date one hundred eighty (180) days following the effective date of the registration statement pertaining to the Initial Offering, provided that the Company is making reasonable and good faith efforts to cause such registration statement to become effective; or (iv) if within thirty (30) days of receipt of a written request from Initiating Holders pursuant to Section 2.2.1, the Company gives notice to the Holders of the Company's intention to make its Initial Offering within ninety (90) days; or (v) if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 2.2, a certificate signed by the Chairman of the Board stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided that such right to delay a request shall be exercised by the Company no more than twice in any one-year period. 2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of Registrable Securities in writing at least thirty (30) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act) and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within fifteen (15) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Registrable Securities 5. 8 by such Holder. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent such registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. 2.3.1 UNDERWRITING. If the registration statement under which the Company gives notice under this Section 2.3 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Holders on a pro rata basis based on the total number of Registrable Securities held by the Holders; and third, to any shareholder of the Company (other than a Holder) on a pro rata basis. No such reduction shall reduce the securities being offered by the Company for its own account to be included in the registration and underwriting, and in no event shall the amount of securities of the selling Holders included in the registration be reduced below twenty-five percent (25%) of the total amount of securities included in such registration, unless such offering is the Initial Offering and such registration does not include shares of any other selling shareholders, in which event any or all of the Registrable Securities of the Holders may be excluded in accordance with the immediately preceding sentence. In no event will shares of any other selling shareholder be included in such registration which would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than a majority of the Registrable Securities proposed to be sold in the offering. 2.3.2 RIGHT TO TERMINATE REGISTRATION. The Company shall have the right to terminate or withdraw any registration initiated or withdraw any registration initiated by it under this Section 2.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.5 hereof. 2.4 FORM S-3 REGISTRATION. In case the Company shall receive from any Holder or Holders of Registrable Securities a written request or requests that the Company effect a registration on Form S-3 (or any successor to Form S-3) or any similar short-form registration statement and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: 2.4.1 promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders of Registrable Securities; and 6. 9 2.4.2 as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.4: (i) if Form S-3 (or any successor or similar form) is not available for such offering by the Holders, or (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than $500,000, or (iii) if the Company shall furnish to the Holders a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.4: provided, that such right to delay a request shall be exercised by the Company nor more than twice in any one-year period, or (iv) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two (2) registrations on Form S-3 for the Holders pursuant to this Section 2.4, or (v) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. 2.4.3 Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. All such Registration Expenses incurred in connection with registrations requested pursuant to this Section 2.4 after the first two (2) registrations shall be paid by the selling Holders pro rata in proportion to the number of shares sold by each. 2.5 EXPENSES OF REGISTRATION. Except as specifically provided herein, all Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 2.2 or any registration under Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder, shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. The Company shall not, however, be required to pay for expenses of any registration proceeding begun pursuant to Section 2.2 or 2.4, the request of which has been 7. 10 subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is based upon material adverse information concerning the Company of which the Initiating Holders were not aware at the time of such request or (b) the Holders of a majority of Registrable Securities agree to forfeit their right to one requested registration pursuant to Section 2.2 or Section 2.4, as applicable, in which event such right shall be forfeited by all Holders). If the Holders are required to pay the Registration Expenses, such expenses shall be borne by the holders of securities (including Registrable Securities) requesting such registration in proportion to the number of shares for which registration was requested. If the Company is required to pay the Registration Expenses of a withdrawn offering pursuant to clause (a) above, then the Holders shall not forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand registration. 2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: 2.6.1 Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to ninety (90) days (except in the case of a registration statement prepared pursuant to Section 2.4 (Form S-3) keep effective for up to twelve (12) months) or, if earlier, until the Holder or Holders have completed the distribution related thereto. 2.6.2 Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. 2.6.3 Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. 2.6.4 Use all reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 2.6.5 In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. 2.6.6 Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits 8. 11 to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 2.6.7 Furnish, at the request of a majority of the Holders participating in the registration, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and if permitted by applicable accounting standards, to the Holders requesting registration of Registrable Securities. 2.7 DELAY OF REGISTRATION; FURNISHING INFORMATION. 2.7.1 No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Article II. 2.7.2 It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. 2.8 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under Sections 2.2, 2.3 or 2.4: 2.8.1 To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers, directors and legal counsel of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation") by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation 9. 12 promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and the Company will reimburse each such Holder, partner, officer or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this Section 2.8.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder. 2.8.2 To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers, and legal counsel and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder under an instrument duly executed by such Holder and stated to be specifically for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this Section 2.8.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further, that in no event shall any indemnity under this Section 2.8 exceed the proceeds from the offering received by such Holder. 2.8.3 Promptly after receipt by an indemnified party under this Section 2.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel 10. 13 retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.8. 2.8.4 If the indemnification provided for in this Section 2.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Holder hereunder exceed the proceeds from the offering received by such Holder. 2.8.5 The obligations of the Company and Holders under this Section 2.8 shall survive completion of any offering of Registrable Securities in a registration statement. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 2.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Article II may be assigned by a Holder to a transferee or assignee of Registrable Securities which (i) is a subsidiary, parent, general partner, limited partner or retired partner of a Holder, (ii) is a Holder's family member or trust for the benefit of an individual Holder, or (iii) acquires at least eighty-three thousand (83,000) shares of Registrable Securities (as adjusted for stock splits and combinations); provided, however, (A) the transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (B) such transferee shall agree to be subject to all restrictions set forth in this Agreement. 2.10 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Article II may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders of at least a majority of the Registrable Securities. Any amendment or waiver effected 11. 14 in accordance with this Section 2.11 shall be binding upon each Holder and the Company. By acceptance of any benefits under this Article II, Holders of Registrable Securities hereby agree to be bound by the provisions hereunder. 2.11 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company that would grant such holder registration rights senior to those granted to the Holders hereunder. 2.12 "MARKET STAND-OFF" AGREEMENT. If requested by the Company as the representative of the underwriters of Common Stock (or other securities) of the Company, each Holder shall not sell or otherwise transfer or dispose of any Shares Common Stock (or other securities) of the Company held by such each Holder (other than those included in the registration) for a period specified by the representative of the underwriters not to exceed one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act, provided that: (i) such agreement shall apply only to the Company's Initial Offering; and (ii) all officers and directors of the Company shall enter into similar agreements. The obligations described in this Section 2.12 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty (180) day period. 2.13 RULE 144 REPORTING. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public; (b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; (c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent 12. 15 annual or quarterly report of the Company; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. III. RIGHTS OF FIRST REFUSAL. 3.1 SUBSEQUENT OFFERINGS. Each Investor shall have a right of first refusal to purchase its pro rata share of all Equity Securities, as defined below, that the Company may, from time to time, propose to sell and issue after the date of this Agreement, other than the Equity Securities excluded by Section 3.6 hereof. Each Investor's pro rata share is equal to the ratio of (A) the number of shares of the Company's Common Stock that are held by such Investor plus the number of shares of Common Stock issuable upon exercise of any Warrant held by such Investor immediately prior to the issuance of such Equity Securities to (B) the total number of shares of the Company's Common Stock outstanding plus the number of shares of Common Stock issuable upon exercise of the Warrants immediately prior to the issuance of the Equity Securities. The term "Equity Securities" shall mean (i) any Common Stock, Preferred Stock or other security of the Company, (ii) any security convertible, with or without consideration, into any Common Stock, Preferred Stock or other security (including any option to purchase such a convertible security), (iii) any security carrying any warrant or right to subscribe to or purchase any Common Stock, Preferred Stock or other security or (iv) any such warrant or right. 3.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity Securities, it shall give each Investor written notice of its intention, describing the Equity Securities, the price and the terms and conditions upon which the Company proposes to issue the same. Each Investor shall have fifteen (15) days from the giving of such notice to agree to purchase up to its pro rata share of the Equity Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the Company and stating therein the quantity of Equity Securities to be purchased. Notwithstanding the foregoing, the Company shall not be required to offer or sell such Equity Securities to any Investor who would cause the Company to be in violation of applicable federal securities laws by virtue of such offer or sale. 3.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If not all of the Investors elect to purchase their pro rata share of the Equity Securities, then the Company shall promptly notify in writing the Investors who do so elect and shall offer such Investors the right to acquire such unsubscribed shares. The Investors shall have five (5) days after receipt of such notice to notify the Company of its election to purchase all or a portion thereof of the unsubscribed shares. If the Investors fail to exercise in full the rights of first refusal, the Company shall have ninety (90) days thereafter to sell the Equity Securities in respect of which the Investor's rights were not exercised, at a price and upon general terms and conditions materially no more favorable to the purchasers thereof than specified in the Company's notice to the Investors pursuant to Section 3.2 hereof. If the Company has not sold such Equity Securities within days of the notice provided pursuant to Section 3.2, the Company shall not thereafter issue or sell any Equity Securities, without first offering such securities to the Investors in the manner provided above. 13. 16 3.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of first refusal set forth in Sections 3.1, 3.2 and 3.3 above shall terminate upon the closing date of the registration statement pertaining to a Qualified Public Offering. 3.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first refusal of each Investor under this Article III may be transferred to the same parties, subject to the same restrictions, as any transfer of registration rights pursuant to Section 2.9. 3.6 EXCLUDED SECURITIES. The rights of first refusal established by this Article III shall have no application to any of the following Equity Securities: 3.6.1 shares of Common Stock (and/or options, warrants or other Common Stock purchase rights issued pursuant to such options, warrants or other rights) issued or to be issued to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary, pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board of Directors; 3.6.2 stock issued pursuant to any rights or agreements outstanding as of the date of this Agreement, options and warrants (other than options, warrants or other Common Stock purchase rights covered by Section 3.6.1 above) outstanding as of the date of this Agreement; and stock issued pursuant to any such rights or agreements granted after the date of this Agreement, provided that the rights of first refusal established by this Article III applied with respect to the initial sale or grant by the Company of such rights or agreements; 3.6.3 any Equity Securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination; 3.6.4 shares of Common Stock issued in connection with any stock split, stock dividend or recapitalization by the Company; 3.6.5 any Equity Securities issued pursuant to any equipment leasing arrangement, or bank financing; 3.6.6 any Equity Securities that are issued by the Company pursuant to a registration statement filed under the Securities Act; and 3.6.7 shares of the Company's Common Stock or Preferred Stock issued in connection with strategic transactions involving the Company and other entities, including (A) joint ventures, manufacturing, marketing or distribution arrangements or (B) technology transfer or development arrangements; provided that such strategic transactions and the issuance of shares therein, has been approved by the Company's Board of Directors. 3.7 CATCH-UP RIGHTS. In the event the Company (a) issues any shares of Common Stock and/or grants any options, warrants or other Common Stock purchase rights exercisable for Common Stock in a transaction that is not subject to the right of first refusal established by this Article III by reason of Section 3.6.1 and after such transaction the Employee Stock Pool, as hereinafter defined, is greater than 1,500,000 (as adjusted appropriately for any stock splits, 14. 17 stock dividends or other such changes in the capitalization of the Company) or (b) issues any Equity Securities in a transaction that is not subject to the right of first refusal established by this Article III by reason of Sections 3.6.3, 3.6.5, 3.6.6 (unless such offering is for a Qualified Public Offering) or 3.6.7, the Company will give Vobis written notice of such grant or issuance not later that ten (10) days after it has occurred, providing relevant details of the transaction including the purchase price of the Equity Securities issued and the Vobis Purchase Price (as defined below). For purposes hereof, the Employee Stock Pool, as of a given date, shall be the sum of (i) the number of shares of Common Stock issuable upon exercise of options, warrants or other Common Stock purchase rights granted to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary ("Employee Rights") and then outstanding and (ii) the number of shares of Common Stock previously issued upon exercise of Employee Rights outstanding at any time after the date of this Agreement, minus the number of any such shares of Common Stock as to which Vobis has previously been given notice in respect of its rights hereunder (all such numbers having been adjusted appropriately for any stock splits, stock dividends or other such changes in the capitalization of the Company). For purposes of this Section 3.7, the "Vobis Purchase Price" shall mean the purchase price for which the Vobis Group (as defined below) may exercise its rights under this Section 3.7 to purchase securities from the Company which shall equal: (i) in the case of direct issuances of Common Stock under (a) above, the fair market value of the Common Stock on the date of issuance; (ii) in the case of the issuances of Employee Rights under (a) above, the fair market of the underlying Common Stock on the date of grant of such Employee Right; (iii) in the case of any Equity Securities covered by (b) above, the actual price paid or payable with respect to such Equity Securities; and (iv) in the event the consideration for the Equity Securities issued by the Company under (a) or (b) above was other than cash, the fair market value of such consideration as reasonably determined in good faith by the Board of Directors of the Company as of the date of issuance of such Equity Securities; provided, however, that notwithstanding the above, if the fair market value as determined in (i) or (ii) above is higher than the price paid or payable in connection with any issuances under (i) or (ii) above, then the Vobis Purchase Price shall equal the average of such fair market value and such actual purchase price paid or payable for such issuance. Vobis and any of its wholly-owned subsidiaries holding Registrable Securities (collectively, the "Vobis Group") shall have the right, exercisable at any time within thirty (30) days after such notice is given, to purchase from the Company at the Vobis Purchase Price specified that number of Equity Securities (which shall be Common Stock in the case of any Employee Rights) as is necessary to restore its percentage ownership interest (determined in accordance with Section 3.1) to the percentage ownership interest of the Vobis Group immediately prior to such issuance, but in no event to greater than seventeen and one-half percent (17.5%). Notwithstanding the foregoing, in the case of transactions involving the issuance of Common Stock and Employee Rights representing less than three and one-half percent (3.5%) of the Common Stock outstanding immediately prior to the first of such transactions, the Company may at its election defer giving such notice until issuances in that and any subsequent transactions as to which notice has been deferred hereunder, constitute in the aggregate three and one-half percent (3.5%) or more of the Common Stock outstanding. In such case, the notice given by the Company shall specify the information called for herein with respect to each such transaction, and the right of the Vobis Group to purchase with respect to all such transactions shall be at the Vobis Purchase Price applicable to the shares of Common Stock sold or issuable upon exercise of Employee Rights granted in such transactions. The rights granted to the Vobis Group under this Section 3.7 shall terminate and be of no further force or effect on the earlier of (A) the 15. 18 closing date of a Qualified Public Offering or (B) on the day prior to a transaction (or the first of a series of transactions to be covered by a deferred notice) to which this Section 3.7 would otherwise apply, if on such date the percentage ownership interest of the Vobis Group (determined in accordance with Section 3.1) is less than eight percent (8%). Notwithstanding the foregoing, in the event of a Qualified Public Offering in which the Company offers in excess of 1,500,000 shares, as presently constituted (including any shares to be offered under any overallotment option), the Company agrees to give the Vobis Group the opportunity to purchase in a single transaction up to twelve percent (12.0%) of such excess in such offering. Any right to purchase Equity Securities under this Section 3.7 may be allocated among the members of the Vobis Group on such basis as Vobis may determine. IV. MISCELLANEOUS. 4.1 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 4.2 SURVIVAL. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Holder and the closing of the transactions contemplated hereby. 4.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities from time to time; provided, however, that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price. 4.4 SEVERABILITY. In case any provision of the Agreement shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 4.5 AMENDMENT AND WAIVER. Except as otherwise expressly provided, this Agreement may be amended or modified, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only upon the written consent of the Company and the holders of at least a majority of the Registrable Securities; provided, however, only Vobis may waive or amend the rights granted under Section 3.7. 4.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further 16. 19 agreed that any waiver, permit, consent, or approval of any kind or character on any Holder's part of any breach, default or noncompliance under the Agreement or any waiver on such Holder's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not alternative. 4.7 NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) if to an Investor located in the United States, five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) if to an Investor located in the United States, one (1) day, and if to an Investor located outside of the United States, four (4) business days, after deposit with an internationally recognized overnight courier, specifying express delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the signature pages hereof or Exhibit A hereto or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. 4.8 ATTORNEYS' FEES. In the event that any dispute among the parties to this Agreement should result in litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 4.9 TITLES AND SUBTITLES. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 4.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 4.11 TERMINATION OF PRIOR AGREEMENTS. The Investors hereby agree to the termination of (i) that certain Investors' Rights Agreement, dated as of September 30, 1995 (the "Rights Agreement") and (ii) Sections 6 and 7 of that certain Common Stock Purchase Agreement, dated as of July 17, 1995 (the "Prior Agreement"), and hereby agree that the Company shall have no further obligations under the Rights Agreement and Sections 6 and 7 of the Prior Agreement and that the rights granted hereunder are in lieu thereof. As required by Section 4.5 of the Rights Agreement and Section 8.4 of the Prior Agreement, the undersigned represent at least two-thirds (66 2/3%) of the Registrable Securities and all of the Purchasers, respectively, thereunder. Notwithstanding anything herein to the contrary, unless otherwise amended or modified by this Section 4.11, the rights and obligations of the parties under the Prior Agreement (excluding Sections 6 and 7 thereof) shall remain in full force and effect. 17. 20 18. 21 [THIS SPACE INTENTIONALLY LEFT BLANK] 19. 22 IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights Agreement as of the date set forth in the first paragraph hereof. COMPANY INVESTORS AWARD SOFTWARE INTERNATIONAL, INC. VENROCK ASSOCIATES By: By: ------------------------------- ------------------------------------ Title: Title: ---------------------------- --------------------------------- Address: 777 East Middlefield Road Address: 30 Rockefeller Plaza, Rm 5508 Mountain View, CA 94043 New York, NY 10112 VENROCK ASSOCIATES II, L.P. By: ------------------------------------ Title: --------------------------------- Address: 30 Rockefeller Plaza, Rm 5508 New York, NY 10112 INVESTORS' RIGHTS AGREEMENT 23 WALDEN CAPITAL PARTNERS II, L.P. By: ----------------------------------- Title: -------------------------------- Address: 750 Battery Street Floor 7 San Francisco, CA 94111-1523 WALDEN TECHNOLOGY VENTURES II, L.P. By: ----------------------------------- Title: -------------------------------- Address: 750 Battery Street Floor 7 San Francisco, CA 94111-1523 INVESTORS' RIGHTS AGREEMENT 24 VOBIS MICROCOMPUTER AG By: --------------------------------- Title: ------------------------------ Address: Carlo-Schmid-Str. 12 D-52146 Wurselen Germany INVESTORS' RIGHTS AGREEMENT 25 CHAILEASE VENTURE CAPITAL CO., LTD. By: ------------------------------------------ Title: --------------------------------------- Address: 5th Fl., No. 420 Fu-Hsin N. Rd. Taipei, Taiwan KOOS VENTURE CAPITAL CO., LTD. By: ------------------------------------------ Title: --------------------------------------- Address: 5th Fl., No. 420 Fu-Hsin N. Rd. Taipei, Taiwan CHINATRUST VENTURE CAPITAL CO., LTD. By: ------------------------------------------ Title: --------------------------------------- Address: 5th Fl., No. 420 Fu-Hsin N. Rd. Taipei, Taiwan INVESTORS' RIGHTS AGREEMENT 26 HANTECH VENTURE CAPITAL CO., LTD. By: ----------------------------------------- Title: -------------------------------------- Address: Suite 3201, 32F, International Trade Building No. 333, Keelung Road, Sec. 1 Taipei Taiwan INVESTORS' RIGHTS AGREEMENT 27 HUNG LIEN INVESTMENT By: ------------------------ Title: --------------------- Address: ------------------- ------------------- ------------------- INVESTORS' RIGHTS AGREEMENT 28 EXHIBIT A SCHEDULE OF INVESTORS Venrock Associates Venrock Associates II, L.P. Walden Capital Partners II, L.P. Walden Technology Ventures II, L.P. Vobis Microcomputer AG Chailease Venture Capital Co., Ltd. Koos Venture Capital Co., Ltd. Chinatrust Venture Capital Co., Ltd. Hantech Venture Capital Co., Ltd. Hung Lien Investment EX-10.11 13 WARRANT ISSUED TO SYNNEX INFORMATION TECHNOLOGIES 1 EXHIBIT 10.11 THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS AND HAS BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF. IT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND QUALIFICATION WITHOUT, EXCEPT UNDER CERTAIN SPECIFIC LIMITED CIRCUMSTANCES, AN OPINION OF COUNSEL FOR HOLDER, CONCURRED IN BY COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED. AWARD SOFTWARE INTERNATIONAL, INC. WARRANT TO PURCHASE SHARES OF COMMON STOCK This certifies that as of the 14th day of October, 1994, Synnex Information Technologies ("Synnex"), for value received, is entitled to purchase from Award Software International, Inc., a California corporation (the "Company"), the number of shares of fully paid and nonassessable Common Stock of the Company, determined in accordance with paragraph 1 hereof, up to a maximum of Four Hundred Thousand (400,000) shares, at a price of Fifty Cents ($0.50) per share (the "Exercise Price"), subject to the provisions and upon the terms and conditions hereinafter set forth. This Warrant is subject to the following additional terms and conditions: 1. NUMBER OF SHARES. The number of shares of Common Stock as to which this Warrant may be exercised shall be equal to the U.S. dollar value (i.e., aggregate dollars divided by one) of all BIOS licenses purchased by Synnex or its affiliate, Mitac, during the period commencing on the date hereof and ending on the earlier of October 1, 1996 or termination of this Warrant. 2. TERMINATION. This Warrant and all rights to exercise this Warrant in whole or in part, shall immediately terminate at 5:00 p.m., Pacific Time, on the later of (a) March 31, 1998 and (b) the first to occur of (i) the day preceding the closing of the sale of all or substantially all of the assets of the Company or the acquisition of the Company by another entity by means of a merger or consolidation or sale of stock resulting in the exchange of more than 50% of the outstanding shares of the Company for securities or consideration issued, or caused to be issued, by the acquiring entity (a "Sale of the Company") or (ii) the six month anniversary of the closing of the first registered public offering of any equity securities of the Company (an "IPO"). 1. 2 3. RESERVATION OF COMMON STOCK. The Company agrees at all times to reserve a sufficient number of shares of authorized but unissued Common Stock when and as required for the purpose of complying with the terms of this Warrant. 4. RIGHTS OF SHAREHOLDERS. Nothing contained in this Warrant shall be construed as conferring upon the holder hereof or any other person the right to vote or to consent or to receive notice as a shareholder in respect of meetings of shareholders for the election of directors of the Company or any other matter or any rights whatsoever as a shareholder of the Company; and no dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. 5. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to Section 2 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part, by the surrender of this Warrant (with a duly executed notice of exercise in the form attached hereto as Exhibit A) at the principal office of the Company and by the payment to the Company, by check, or cancellation of Company indebtedness, of an amount equal to the then applicable Exercise Price per share multiplied by the number of shares then being purchased. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be in the name of, and delivered to, the holder hereof, or as such holder may direct (subject to the restrictions upon transfer contained herein and upon payment by such holder hereof of any applicable transfer taxes). Such delivery shall be made within ten (10) days after exercise of the Warrant and at the Company's expense and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the number of shares of Common Stock, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof within ten (10) days after exercise of the Warrant. 6. EXCHANGE OF WARRANT FOR COMMON STOCK. Upon receipt of notice from the Company, pursuant to Section 11 below, of a proposed IPO, the holder of this Warrant may elect to exchange all but not part of the Warrant for that number of shares of Common Stock determined by dividing the Inherent Value (as hereinafter defined) of the Warrant by the Fair Market Value (as hereinafter defined). The "Inherent Value" of the Warrant shall be (a) the Fair Market Value (as defined below) of the number of shares of Common Stock of the Company issuable upon exercise of the Warrant at the time of the IPO, less (b) the total Exercise Price of the Warrant. The "Fair Market Value" of the Common Stock shall equal the actual offering price of such shares of Common Stock in such IPO. 7. EXCHANGE OF WARRANT FOR OTHER WARRANTS. This Warrant, with or without similar Warrants, when surrendered properly endorsed at the principal offices of the Company may be exchanged for another Warrant or Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of shares of Common Stock of the Company. 2. 3 8. TRANSFERABILITY. Subject to such restrictions on transfer as may be contained in this Warrant, this Warrant is transferable on the books of the Company at its principal office by the above named holder of record in person or by duly authorized attorney, upon surrender of this Warrant properly endorsed. The Company may treat the holder of record of this Warrant as the absolute owner hereof for all purposes and shall not be affected by any notice to the contrary. 9. ADJUSTMENT OF EXERCISE PRICE. In the event of changes in the outstanding Common Stock of the Company by reason of stock dividends, split-ups, recapitalizations, reclassifications, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of shares available under the Warrant in the aggregate and the Exercise Price shall be correspondingly adjusted to give the holder of the Warrant, on exercise for the same aggregate Exercise Price, the total number, class, and kind of shares as the holder would have owned had the Warrant been exercised prior to the event and had the holder continued to hold such shares until after the event requiring adjustment. 10. FRACTIONAL SHARES. No fractional share shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of exercise (as determined in good faith by the Board of Directors of the Company). 11. NOTICE OF CERTAIN ACTIONS. In the event of (i) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any reclassification or recapitalization of the capital stock of the Company, and Sale of the Company, any IPO, or any voluntary or involuntary dissolution, liquidation, or winding up of the Company, the Company shall mail to the holder of this Warrant at least fifteen (15) days prior to the record date specified therein, a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such reclassification, recapitalization, Sale of the Company, IPO, dissolution, liquidation, or winding up is expected to become effective, and (C) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reclassification, recapitalization, Sale of the Company, IPO, dissolution, liquidation, or winding up. 12. GOVERNING LAW. This Warrant is issued in and shall be governed by the laws of the State of California, as applied to contracts entered into between California residents and to be performed entirely within the State of California. 3. 4 IN WITNESS WHEREOF the Company has caused this Warrant to be duly executed by its officers thereunto duly authorized as of the date first written above. AWARD SOFTWARE INTERNATIONAL, INC. By: GEORGE HUANG ---------------------------------- George Huang Chairman and CEO 4. 5 FORM OF SUBSCRIPTION -------------------- (To be signed only upon exercise of Warrant) To ____________________: The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, __________________________________ (______________) shares of Common Stock of AWARD SOFTWARE INTERNATIONAL, INC. and herewith makes payment of _______________________________ DOLLARS ($______) therefor, and requests the certificates for such shares be issued in the name of, and delivered to, _______________________________________________________________, whose address is ___________________________________________________________ The undersigned represents that it is acquiring such Common Stock for its own account for investment and not with a view to or for sale in connection with any distribution thereof. DATED: _________________ By: _______________________ Title: _____________________ Address: ___________________ ____________________________ Exhibit A EX-10.12 14 WARRANT ISSUED TO VOBIS MICROCOMPUTER AG 1 EXHIBIT 10.12 No.W-5 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE A MAXIMUM OF 544,788 SHARES OF COMMON STOCK OF AWARD SOFTWARE INTERNATIONAL, INC. (Void after September 30, 2000) This certifies that VOBIS MICROCOMPUTER AG (the "Holder"), or assigns, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, is entitled to purchase from AWARD SOFTWARE INTERNATIONAL, INC., a California corporation (the "Company"), having a place of business at 777 East Middlefield Road, Mountain View, CA 94043-4023, a maximum of Five Hundred Forty-Four Thousand, Seven Hundred Eighty-Eight (544,788) fully paid and nonassessable shares of the Company's Common Stock ("Common Stock") for cash at a price of six dollars fourteen cents ($6.14) per share (the "Stock Purchase Price") at any time or from time to time up to and including the earlier of (i) the closing of the Company's initial public offering of its Common Stock of which the aggregate offering price and per share price to the public are at least $10,000,000 and $6.80, respectively (a "Qualified Public Offering"), pursuant to a registration statement under the Securities Act of 1933, as amended, if the warrants covering 246,664 shares of Common Stock currently held by the Walden and Venrock investor groups terminate at the closing of a Qualified Public Offering; provided, the Holder has received at least ten (10) business days prior notice that such warrants will so terminate, or (ii) 5:00 p.m. (Pacific time) on September 30, 2000, such earlier day being referred to herein as the "Expiration Date", upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and, if applicable, upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant. 1. 2 This Warrant is subject to the following terms and conditions: 1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. 1.1 GENERAL. This Warrant is exercisable at the option of the holder of record hereof, at any time or from time to time, up to the Expiration Date for all or any part of the shares of Common Stock (but not for a fraction of a share) which may be purchased hereunder. The Company agrees that the shares of Common Stock purchased under this Warrant shall be and are deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered, properly endorsed, the completed, executed Form of Subscription delivered and payment made for such shares. Certificates for the shares of Common Stock so purchased, together with any other securities or property to which the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. In case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Common Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder. 1.2 NET ISSUE EXERCISE. Notwithstanding any provisions herein to the contrary, in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Form of Subscription and notice of such election in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X=Y(A-B) ------ A WHERE X= the number of shares of Common Stock to be issued to the Holder Y= the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation) A= the fair market value of one share of the Company's Common Stock (at the date of such calculation) B= Stock Purchase Price (as adjusted to the date of such calculation) 2. 3 For purposes of the above calculation, fair market value of one share of Common Stock shall be determined by the Company's Board of Directors in good faith; provided, however, that in the event the Company makes an initial public offering of its Common Stock the fair market value per share shall be the average of the closing prices of such security's sales on all domestic securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day such security is not quoted in the NASDAQ system, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporation, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "fair market value" is being determined and the 20 consecutive business days prior to such day; provided that if such security is listed on any domestic securities exchange the term "business days" as used in this sentence means business days on which such exchange is open for trading; provided, further, that if the Warrant is exercised at or immediately prior to the Qualified Public Offering of its Common Stock, the fair market value per share be the per share offering price to the public of such Qualified Public Offering. 2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and agrees that all shares of Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Common Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Common Stock may be listed; provided, however, that the Company shall not be required to effect a registration under Federal or state securities laws with respect to such exercise. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as defined in Section 3 hereof) (i) if the total number of shares of Common Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Common Stock then authorized by the Company's Articles of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Common Stock, together with all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all such shares of Common Stock, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding 3. 4 would exceed the total number of shares of Common Stock then authorized by the Company's Articles of Incorporation. 3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment. 3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased. 3.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY, RECLASSIFICATION. If at any time or from time to time the Holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, (A) Common Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, (B) any cash paid or payable otherwise than as a cash dividend, or (C) Common Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than (i) shares of Common Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 3.1 above or (ii) an event for which adjustment is otherwise made pursuant to Section 3.4 below), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (B) and (C) above) which such Holder would hold on the date of such exercise had he been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property. 4. 5 3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby. In any reorganization described above, appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 3.4 OTHER NOTICES. If at any time: (1) the Company shall declare any cash dividend upon its Common Stock; (2) the Company shall declare any dividend upon its Common Stock payable in stock or make any special dividend or other distribution to the holders of its Common Stock; (3) the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (4) there shall be any capital reorganization or reclassification of the capital stock of the Company; or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; (5) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or (6) there shall be an initial public offering of Company securities; 5. 6 then, in any one or more of said cases, the Company shall give written notice to the Holder of this Warrant at the address of such Holder as shown on the books of the Company, (a) at least thirty (30) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or public offering, at least thirty (30) days' prior written notice of the date when the same shall take place; provided, however, that the Holder shall make a best efforts attempt to respond to such notice as early as possible after the receipt thereof. Any notice given in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up, conversion or public offering, as the case may be. 3.5 CERTAIN EVENTS. If any change in the outstanding Common Stock of the Company or any other event occurs as to which the other provisions of this Section 3 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment. 4. ISSUE TAX. The issuance of certificates for shares of Common Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax (other than any applicable income taxes) in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 5. CLOSING OF BOOKS. The Company will at no time close its transfer books against the transfer of any warrant or of any shares of Common Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant. 6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing contained in this Warrant shall be construed as conferring upon the holder hereof the right to vote or to consent or to receive notice as a shareholder of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares 6. 7 purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Stock Purchase Price or as a shareholder of the Company, whether such liability is asserted by the Company or by its creditors. 7. REGISTRATION RIGHTS AGREEMENT. The registration rights of the Holder (including Holders' successors) with respect to the stock underlying this Warrant will be the same as granted to the holders of the Company's Common Stock under that certain Investors' Rights Agreement of even date herewith (the "Investors' Rights Agreement"). 8. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal and state securities laws and the transfer restrictions set forth in the Investors' Rights Agreement, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed and compliance with the provisions of the Investors' Rights Agreement. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company, at the Company's option, and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered owner hereof as the owner for all purposes. 9. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Common Stock issued upon exercise of this Warrant, referred to in Sections 7 and 8 shall survive the exercise of this Warrant. 10. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 11. NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, or (iii) four (4) business days, after deposit with an internationally recognized overnight courier, specifying express delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as shown on the books of the Company or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. 12. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. All of the obligations of the Company relating to the 7. 8 Common Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 13. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California without giving effect to principles of conflicts of law. 14. LOST WARRANTS. The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant. 8. 9 15. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this 12 day of January, 1996. AWARD SOFTWARE INTERNATIONAL, INC. a California corporation By: ----------------------------------------- Title: -------------------------------------- ATTEST: - ----------------------------- Secretary 10 EXHIBIT A SUBSCRIPTION FORM Date: 19 ------------------------, -- Award Software International, Inc. - --------------------------------- - --------------------------------- Attn: President Gentlemen: / / The undersigned hereby elects to exercise the warrant issued to it by Award Software International, Inc. (the "Company") and dated January , 1996 -- Warrant No. W- (the "Warrant") and to purchase thereunder -------- --------------- shares of the Common Stock of the Company (the "Shares") at a purchase price of Six Dollars Fourteen Cents ($6.14) per Share or an aggregate purchase price of Dollars ($ )(the "Purchase Price"). - ------------------------ ---------- / / The undersigned hereby elects to convert percent ----------------------- ( %) of the value of the Warrant pursuant to the provisions of Section ------- 1.2 of the Warrant. Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. The undersigned also makes the representations set forth on the attached Exhibit B of the Warrant. Very truly yours, --------------------------------------- By: ------------------------------------ Title: --------------------------------- 11 EXHIBIT B INVESTMENT REPRESENTATIONS THIS AGREEMENT MUST BE COMPLETED, SIGNED, AND RETURNED TO --------------------- ALONG WITH THE SUBSCRIPTION FORM BEFORE THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANT CERTIFICATE DATED JANUARY , 1996, WILL BE ISSUED. 19 ---------------------, -- Award Software International, Inc. [Address] - --------------------------------- - --------------------------------- Attention: President The undersigned, ("Purchaser"), intends to -------------------------- acquire up to shares of the Common Stock (the "Common Stock") of --------------- Award Software International, Inc. (the "Company") from the Company pursuant to the exercise or conversion of certain Warrants to purchase Common Stock held by Purchaser. The Common Stock will be issued to Purchaser in a transaction not involving a public offering and pursuant to an exemption from registration under the Securities Act of 1933, as amended, (the "1933 Act") and applicable state securities laws. In connection with such purchase and in order to comply with the exemptions from registration relied upon by the Company, Purchaser represents, warrants and agrees as follows: Purchaser is acquiring the Common Stock for its own account, to hold for investment, and Purchaser shall not make any sale, transfer or other disposition of the Common Stock in violation of the 1933 Act or the General Rules and Regulations promulgated thereunder by the Securities and Exchange Commission (the "SEC") or in violation of any applicable state securities law. Purchaser has been advised that the Common Stock has not been registered under the 1933 Act or state securities laws on the ground that this transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on Purchaser's representations set forth in this letter. Purchaser has been informed that under the 1933 Act, the Common Stock must be held indefinitely unless it is subsequently registered under the 1933 Act or unless an exemption from such registration (such as Rule 144) is available with respect to any proposed transfer or disposition by Purchaser of the Common Stock. Purchaser further agrees that the Company may refuse to permit Purchaser to sell, transfer or dispose of the Common Stock (except as permitted 1. 12 under Rule 144) unless there is in effect a registration statement under the 1933 Act and any applicable state securities laws covering such transfer, or unless Purchaser furnishes an opinion of counsel reasonably satisfactory to counsel for the Company, to the effect that such registration is not required. Purchaser also understands and agrees that there will be placed on the certificate(s) for the Common Stock, or any substitutions therefor, a legend stating in substance: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. These shares have been acquired for investment and may not be sold or otherwise transferred in the absence of an effective registration statement for these shares under the Securities Act and applicable state securities laws, or an opinion of counsel satisfactory to the Company that registration is not required and that an applicable exemption is available." Purchaser has carefully read this letter and has discussed its requirements and other applicable limitations upon Purchaser's resale of the Common Stock with Purchaser's counsel. Very truly yours, ------------------------------ By: ---------------------------- EX-10.13 15 WARRANT ISSUED TO VENROCK ASSOCIATES 1 EXHIBIT 10.13 No. W-6 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE A MAXIMUM OF 114,651 SHARES OF COMMON STOCK OF AWARD SOFTWARE INTERNATIONAL, INC. (Void after September 30, 2000) This certifies that VENROCK ASSOCIATES (the "Holder"), or assigns, for payment of one cent ($0.01), is entitled to purchase from AWARD SOFTWARE INTERNATIONAL, INC., a California corporation (the "Company"), having a place of business at 777 East Middlefield Road, Mountain View, CA 94043-4023, a maximum of One Hundred Fourteen Thousand, Six Hundred Fifty-One (114,651) fully paid and nonassessable shares of the Company's Common Stock ("Common Stock") for cash at a price of fifty cents ($0.50) per share (the "Stock Purchase Price") at any time or from time to time up to and including the earlier of (i) the closing of the Company's initial public offering of its Common Stock, of which the aggregate offering price and per share price to the public are at least $10,000,000 and $6.80, respectively, pursuant to a registration statement under the Securities Act of 1933, as amended, or (ii) 5:00 p.m. (Pacific time) on September 30, 2000, such earlier day being referred to herein as the "Expiration Date", upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and, if applicable, upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant. This Warrant is subject to the following terms and conditions: 1. Exercise; Issuance of Certificates; Payment for Shares. 1.1 General. This Warrant is exercisable at the option of the holder of record hereof, at any time or from time to time, up to the Expiration Date for all or any part of the shares of Common Stock (but not for a fraction of a share) which may be purchased hereunder. The Company agrees that the shares of Common Stock purchased under this Warrant shall be 1. 2 and are deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered, properly endorsed, the completed, executed Form of Subscription delivered and payment made for such shares. Certificates for the shares of Common Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. In case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Common Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder. 1.2 Net Issue Exercise. Notwithstanding any provisions herein to the contrary, in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Form of Subscription and notice of such election in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) ------- A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation) A = the fair market value of one share of the Company's Common Stock (at the date of such calculation) B = Stock Purchase Price (as adjusted to the date of such calculation) For purposes of the above calculation, fair market value of one share of Common Stock shall be determined by the Company's Board of Directors in good faith; provided, however, that in the event the Company makes an initial public offering of its Common Stock the fair market value per share shall be the average of the closing prices of such security's sales on all domestic securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day such security is not quoted in the 2. 3 NASDAQ system, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporation, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "fair market value" is being determined and the 20 consecutive business days prior to such day; provided that if such security is listed on any domestic securities exchange the term "business days" as used in this sentence means business days on which such exchange is open for trading. 2. Shares to be Fully Paid; Reservation of Shares. The Company covenants and agrees that all shares of Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Common Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Common Stock may be listed; provided, however, that the Company shall not be required to effect a registration under Federal or State securities laws with respect to such exercise. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as defined in Section 3 hereof) (i) if the total number of shares of Common Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Common Stock then authorized by the Company's Articles of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Common Stock, together with all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all such shares of Common Stock, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Company's Articles of Incorporation. 3. Adjustment of Stock Purchase Price and Number of Shares. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior 3. 4 to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment. 3.1 Subdivision or Combination of Stock. In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased. 3.2 Dividends in Common Stock, Other Stock, Property, Reclassification. If at any time or from time to time the Holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, (A) Common Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, (B) any cash paid or payable otherwise than as a cash dividend, or (C) Common Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than (i) shares of Common Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 3.1 above or (ii) an event for which adjustment is otherwise made pursuant to Section 3.4 below), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (B) and (C) above) which such Holder would hold on the date of such exercise had he been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property. 3.3 Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a 4. 5 number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby. In any reorganization described above, appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 3.4 Other Notices. If at any time: (1) the Company shall declare any cash dividend upon its Common Stock; (2) the Company shall declare any dividend upon its Common Stock payable in stock or make any special dividend or other distribution to the holders of its Common Stock; (3) the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (4) there shall be any capital reorganization or reclassification of the capital stock of the Company; or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; (5) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or (6) there shall be an initial public offering of Company securities; then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to the Holder of this Warrant at the address of such Holder as shown on the books of the Company, (a) at least thirty (30) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or public offering, at least thirty (30) days' prior written notice of the date when the same shall take place; provided, however, that the Holder shall make a best 5. 6 efforts attempt to respond to such notice as early as possible after the receipt thereof. Any notice given in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up, conversion or public offering, as the case may be. 3.5 Certain Events. If any change in the outstanding Common Stock of the Company or any other event occurs as to which the other provisions of this Section 3 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment. 4. Issue Tax. The issuance of certificates for shares of Common Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax (other than any applicable income taxes) in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 5. Closing of Books. The Company will at no time close its transfer books against the transfer of any warrant or of any shares of Common Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant. 6. No Voting or Dividend Rights; Limitation of Liability. Nothing contained in this Warrant shall be construed as conferring upon the holder hereof the right to vote or to consent or to receive notice as a shareholder of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Stock Purchase Price or as a shareholder of the Company, whether such liability is asserted by the Company or by its creditors. 7. Registration Rights Agreement. The registration rights of the Holder (including Holders' successors) with respect to the stock underlying this Warrant will be the same as 6. 7 granted to the holders of the Company's Common Stock under that certain Investors' Rights Agreement of even date herewith (the "Investors' Rights Agreement"). 8. Warrants Transferable. Subject to compliance with applicable federal and state securities laws and the transfer restrictions set forth in the Investors' Rights Agreement, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed and compliance with the provisions of the Investors' Rights Agreement. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company, at the Company's option, and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered owner hereof as the owner for all purposes. 9. Rights and Obligations Survive Exercise of Warrant. The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Common Stock issued upon exercise of this Warrant, referred to in Sections 7 and 8 shall survive the exercise of this Warrant. 10. Modification and Waiver. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 11. Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered or shall be sent by certified mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant or such other address as either may from time to time provide to the other. 12. Binding Effect on Successors. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. All of the obligations of the Company relating to the Common Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 13. Descriptive Headings and Governing Law. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California. 14. Lost Warrants. The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, 7. 8 or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant. 15. Fractional Shares. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price. 8. 9 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this 30th day of September, 1995. AWARD SOFTWARE INTERNATIONAL, INC. a California corporation By:_____________________________________ Title:__________________________________ ATTEST: ______________________________________ Secretary 9. 10 EXHIBIT A SUBSCRIPTION FORM Date: _________________, 19___ Award Software International, Inc. _____________________________ _____________________________ Attn: President Gentlemen: / / The undersigned hereby elects to exercise the warrant issued to it by Award Software International, Inc. (the "Company") and dated September 30, 1995 Warrant No. W-___ (the "Warrant") and to purchase thereunder __________________________________ shares of the Common Stock of the Company (the "Shares") at a purchase price of Fifty Cents ($.50) per Share or an aggregate purchase price of __________________________________ Dollars ($__________) (the "Purchase Price"). / / The undersigned hereby elects to convert _______________________ percent (____%) of the value of the Warrant pursuant to the provisions of Section 1.2 of the Warrant. Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. The undersigned also makes the representations set forth on the attached Exhibit B of the Warrant. Very truly yours, ________________________________________ By:_____________________________________ Title:__________________________________ 1. 11 EXHIBIT B INVESTMENT REPRESENTATIONS THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO _______________ ALONG WITH THE SUBSCRIPTION FORM BEFORE THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANT CERTIFICATE DATED SEPTEMBER 30, 1995, WILL BE ISSUED. _____________________, 19__ Award Software International, Inc. [ADDRESS] _____________________________ _____________________________ Attention: President The undersigned, _________________________ ("Purchaser"), intends to acquire up to ______________ shares of the Common Stock (the "Common Stock") of Award Software International, Inc. (the "Company") from the Company pursuant to the exercise or conversion of certain Warrants to purchase Common Stock held by Purchaser. The Common Stock will be issued to Purchaser in a transaction not involving a public offering and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "1933 Act") and applicable state securities laws. In connection with such purchase and in order to comply with the exemptions from registration relied upon by the Company, Purchaser represents, warrants and agrees as follows: Purchaser is acquiring the Common Stock for its own account, to hold for investment, and Purchaser shall not make any sale, transfer or other disposition of the Common Stock in violation of the 1933 Act or the General Rules and Regulations promulgated thereunder by the Securities and Exchange Commission (the "SEC") or in violation of any applicable state securities law. Purchaser has been advised that the Common Stock has not been registered under the 1933 Act or state securities laws on the ground that this transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on Purchaser's representations set forth in this letter. Purchaser has been informed that under the 1933 Act, the Common Stock must be held indefinitely unless it is subsequently registered under the 1933 Act or unless an exemption from such registration (such as Rule 144) is available with respect to any proposed transfer or disposition by Purchaser of the Common Stock. Purchaser further agrees that the Company may refuse to permit Purchaser to sell, transfer or dispose of the Common Stock (except as permitted 12 under Rule 144) unless there is in effect a registration statement under the 1933 Act and any applicable state securities laws covering such transfer, or unless Purchaser furnishes an opinion of counsel reasonably satisfactory to counsel for the Company, to the effect that such registration is not required. Purchaser also understands and agrees that there will be placed on the certificate(s) for the Common Stock, or any substitutions therefor, a legend stating in substance: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. These shares have been acquired for investment and may not be sold or otherwise transferred in the absence of an effective registration statement for these shares under the Securities Act and applicable state securities laws, or an opinion of counsel satisfactory to the Company that registration is not required and that an applicable exemption is available." Purchaser has carefully read this letter and has discussed its requirements and other applicable limitations upon Purchaser's resale of the Common Stock with Purchaser's counsel. Very truly yours, _______________________________ By:_____________________________________ 2. EX-10.14 16 WARRANT ISSUED TO VENROCK ASSOCIATES II, L.P. 1 EXHIBIT 10.14 No. W-7 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE A MAXIMUM OF 52,016 SHARES OF COMMON STOCK OF AWARD SOFTWARE INTERNATIONAL, INC. (Void after September 30, 2000) This certifies that VENROCK ASSOCIATES II, L.P. (the "Holder"), or assigns, for payment of one cent ($0.01), is entitled to purchase from AWARD SOFTWARE INTERNATIONAL, INC., a California corporation (the "Company"), having a place of business at 777 East Middlefield Road, Mountain View, CA 94043-4023, a maximum of Fifty-Two Thousand Sixteen (52,016) fully paid and nonassessable shares of the Company's Common Stock ("Common Stock") for cash at a price of fifty cents ($0.50) per share (the "Stock Purchase Price") at any time or from time to time up to and including the earlier of (i) the closing of the Company's initial public offering of its Common Stock, of which the aggregate offering price and per share price to the public are at least $10,000,000 and $6.80, respectively, pursuant to a registration statement under the Securities Act of 1933, as amended, or (ii) 5:00 p.m. (Pacific time) on September 30, 2000, such earlier day being referred to herein as the "Expiration Date", upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and, if applicable, upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant. This Warrant is subject to the following terms and conditions: 1. Exercise; Issuance of Certificates; Payment for Shares. 1.1 General. This Warrant is exercisable at the option of the holder of record hereof, at any time or from time to time, up to the Expiration Date for all or any part of the shares of Common Stock (but not for a fraction of a share) which may be purchased hereunder. The Company agrees that the shares of Common Stock purchased under this Warrant shall be 1. 2 and are deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered, properly endorsed, the completed, executed Form of Subscription delivered and payment made for such shares. Certificates for the shares of Common Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. In case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Common Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder. 1.2 Net Issue Exercise. Notwithstanding any provisions herein to the contrary, in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Form of Subscription and notice of such election in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) ------- A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation) A = the fair market value of one share of the Company's Common Stock (at the date of such calculation) B = Stock Purchase Price (as adjusted to the date of such calculation) For purposes of the above calculation, fair market value of one share of Common Stock shall be determined by the Company's Board of Directors in good faith; provided, however, that in the event the Company makes an initial public offering of its Common Stock the fair market value per share shall be the average of the closing prices of such security's sales on all domestic securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day such security is not quoted in the 2. 3 NASDAQ system, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporation, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "fair market value" is being determined and the 20 consecutive business days prior to such day; provided that if such security is listed on any domestic securities exchange the term "business days" as used in this sentence means business days on which such exchange is open for trading. 2. Shares to be Fully Paid; Reservation of Shares. The Company covenants and agrees that all shares of Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Common Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Common Stock may be listed; provided, however, that the Company shall not be required to effect a registration under Federal or State securities laws with respect to such exercise. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as defined in Section 3 hereof) (i) if the total number of shares of Common Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Common Stock then authorized by the Company's Articles of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Common Stock, together with all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all such shares of Common Stock, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Company's Articles of Incorporation. 3. Adjustment of Stock Purchase Price and Number of Shares. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior 3. 4 to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment. 3.1 Subdivision or Combination of Stock. In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased. 3.2 Dividends in Common Stock, Other Stock, Property, Reclassification. If at any time or from time to time the Holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, (A) Common Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, (B) any cash paid or payable otherwise than as a cash dividend, or (C) Common Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than (i) shares of Common Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 3.1 above or (ii) an event for which adjustment is otherwise made pursuant to Section 3.4 below), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (B) and (C) above) which such Holder would hold on the date of such exercise had he been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property. 3.3 Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a 4. 5 number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby. In any reorganization described above, appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 3.4 Other Notices. If at any time: (1) the Company shall declare any cash dividend upon its Common Stock; (2) the Company shall declare any dividend upon its Common Stock payable in stock or make any special dividend or other distribution to the holders of its Common Stock; (3) the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (4) there shall be any capital reorganization or reclassification of the capital stock of the Company; or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; (5) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or (6) there shall be an initial public offering of Company securities; then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to the Holder of this Warrant at the address of such Holder as shown on the books of the Company, (a) at least thirty (30) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or public offering, at least thirty (30) days' prior written notice of the date when the same shall take place; provided, however, that the Holder shall make a best 5. 6 efforts attempt to respond to such notice as early as possible after the receipt thereof. Any notice given in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up, conversion or public offering, as the case may be. 3.5 Certain Events. If any change in the outstanding Common Stock of the Company or any other event occurs as to which the other provisions of this Section 3 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment. 4. Issue Tax. The issuance of certificates for shares of Common Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax (other than any applicable income taxes) in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 5. Closing of Books. The Company will at no time close its transfer books against the transfer of any warrant or of any shares of Common Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant. 6. No Voting or Dividend Rights; Limitation of Liability. Nothing contained in this Warrant shall be construed as conferring upon the holder hereof the right to vote or to consent or to receive notice as a shareholder of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Stock Purchase Price or as a shareholder of the Company, whether such liability is asserted by the Company or by its creditors. 7. Registration Rights Agreement. The registration rights of the Holder (including Holders' successors) with respect to the stock underlying this Warrant will be the same as 6. 7 granted to the holders of the Company's Common Stock under that certain Investors' Rights Agreement of even date herewith (the "Investors' Rights Agreement"). 8. Warrants Transferable. Subject to compliance with applicable federal and state securities laws and the transfer restrictions set forth in the Investors' Rights Agreement, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed and compliance with the provisions of the Investors' Rights Agreement. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company, at the Company's option, and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered owner hereof as the owner for all purposes. 9. Rights and Obligations Survive Exercise of Warrant. The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Common Stock issued upon exercise of this Warrant, referred to in Sections 7 and 8 shall survive the exercise of this Warrant. 10. Modification and Waiver. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 11. Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered or shall be sent by certified mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant or such other address as either may from time to time provide to the other. 12. Binding Effect on Successors. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. All of the obligations of the Company relating to the Common Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 13. Descriptive Headings and Governing Law. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California. 14. Lost Warrants. The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, 7. 8 or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant. 15. Fractional Shares. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price. 8. 9 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this 30th day of September, 1995. AWARD SOFTWARE INTERNATIONAL, INC. a California corporation By:_____________________________________ Title:__________________________________ ATTEST: ______________________________________ Secretary 9. 10 EXHIBIT A SUBSCRIPTION FORM Date: _________________, 19___ Award Software International, Inc. _____________________________ _____________________________ Attn: President Gentlemen: / / The undersigned hereby elects to exercise the warrant issued to it by Award Software International, Inc. (the "Company") and dated September 30, 1995 Warrant No. W-___ (the "Warrant") and to purchase thereunder __________________________________ shares of the Common Stock of the Company (the "Shares") at a purchase price of Fifty Cents ($.50) per Share or an aggregate purchase price of __________________________________ Dollars ($__________) (the "Purchase Price"). / / The undersigned hereby elects to convert _______________________ percent (____%) of the value of the Warrant pursuant to the provisions of Section 1.2 of the Warrant. Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. The undersigned also makes the representations set forth on the attached Exhibit B of the Warrant. Very truly yours, ________________________________________ By:_____________________________________ Title:__________________________________ 1. 11 EXHIBIT B INVESTMENT REPRESENTATIONS THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO _______________ ALONG WITH THE SUBSCRIPTION FORM BEFORE THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANT CERTIFICATE DATED SEPTEMBER 30, 1995, WILL BE ISSUED. _____________________, 19__ Award Software International, Inc. [ADDRESS] _____________________________ _____________________________ Attention: President The undersigned, _________________________ ("Purchaser"), intends to acquire up to ______________ shares of the Common Stock (the "Common Stock") of Award Software International, Inc. (the "Company") from the Company pursuant to the exercise or conversion of certain Warrants to purchase Common Stock held by Purchaser. The Common Stock will be issued to Purchaser in a transaction not involving a public offering and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "1933 Act") and applicable state securities laws. In connection with such purchase and in order to comply with the exemptions from registration relied upon by the Company, Purchaser represents, warrants and agrees as follows: Purchaser is acquiring the Common Stock for its own account, to hold for investment, and Purchaser shall not make any sale, transfer or other disposition of the Common Stock in violation of the 1933 Act or the General Rules and Regulations promulgated thereunder by the Securities and Exchange Commission (the "SEC") or in violation of any applicable state securities law. Purchaser has been advised that the Common Stock has not been registered under the 1933 Act or state securities laws on the ground that this transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on Purchaser's representations set forth in this letter. Purchaser has been informed that under the 1933 Act, the Common Stock must be held indefinitely unless it is subsequently registered under the 1933 Act or unless an exemption from such registration (such as Rule 144) is available with respect to any proposed transfer or disposition by Purchaser of the Common Stock. Purchaser further agrees that the Company may refuse to permit Purchaser to sell, transfer or dispose of the Common Stock (except as permitted 12 under Rule 144) unless there is in effect a registration statement under the 1933 Act and any applicable state securities laws covering such transfer, or unless Purchaser furnishes an opinion of counsel reasonably satisfactory to counsel for the Company, to the effect that such registration is not required. Purchaser also understands and agrees that there will be placed on the certificate(s) for the Common Stock, or any substitutions therefor, a legend stating in substance: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. These shares have been acquired for investment and may not be sold or otherwise transferred in the absence of an effective registration statement for these shares under the Securities Act and applicable state securities laws, or an opinion of counsel satisfactory to the Company that registration is not required and that an applicable exemption is available." Purchaser has carefully read this letter and has discussed its requirements and other applicable limitations upon Purchaser's resale of the Common Stock with Purchaser's counsel. Very truly yours, _______________________________ By:_____________________________________ 2. EX-10.15 17 WARRANT ISSUED TO WALDEN CAPITAL PARTNERS II, L.P. 1 EXHIBIT 10.15 No. W-8 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE A MAXIMUM OF 70,000 SHARES OF COMMON STOCK OF AWARD SOFTWARE INTERNATIONAL, INC. (Void after September 30, 2000) This certifies that WALDEN CAPITAL PARTNERS II, L.P. (the "Holder"), or assigns, for payment of one cent ($0.01), is entitled to purchase from AWARD SOFTWARE INTERNATIONAL, INC., a California corporation (the "Company"), having a place of business at 777 East Middlefield Road, Mountain View, CA 94043-4023, a maximum of Seventy Thousand (70,000) fully paid and nonassessable shares of the Company's Common Stock ("Common Stock") for cash at a price of fifty cents ($0.50) per share (the "Stock Purchase Price") at any time or from time to time up to and including the earlier of (i) the closing of the Company's initial public offering of its Common Stock, of which the aggregate offering price and per share price to the public are at least $10,000,000 and $6.80, respectively, pursuant to a registration statement under the Securities Act of 1933, as amended, or (ii) 5:00 p.m. (Pacific time) on September 30, 2000, such earlier day being referred to herein as the "Expiration Date", upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and, if applicable, upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant. This Warrant is subject to the following terms and conditions: 1. Exercise; Issuance of Certificates; Payment for Shares. 1.1 General. This Warrant is exercisable at the option of the holder of record hereof, at any time or from time to time, up to the Expiration Date for all or any part of the shares of Common Stock (but not for a fraction of a share) which may be purchased hereunder. The Company agrees that the shares of Common Stock purchased under this Warrant shall be and are deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered, properly endorsed, the completed, executed Form of Subscription delivered and payment made for such 1. 2 shares. Certificates for the shares of Common Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. In case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Common Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder. 1.2 Net Issue Exercise. Notwithstanding any provisions herein to the contrary, in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Form of Subscription and notice of such election in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) ------- A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation) A = the fair market value of one share of the Company's Common Stock (at the date of such calculation) B = Stock Purchase Price (as adjusted to the date of such calculation) For purposes of the above calculation, fair market value of one share of Common Stock shall be determined by the Company's Board of Directors in good faith; provided, however, that in the event the Company makes an initial public offering of its Common Stock the fair market value per share shall be the average of the closing prices of such security's sales on all domestic securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day such security is not quoted in the NASDAQ system, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporation, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "fair market value" is being determined and the 20 consecutive 2. 3 business days prior to such day; provided that if such security is listed on any domestic securities exchange the term "business days" as used in this sentence means business days on which such exchange is open for trading. 2. Shares to be Fully Paid; Reservation of Shares. The Company covenants and agrees that all shares of Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Common Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Common Stock may be listed; provided, however, that the Company shall not be required to effect a registration under Federal or State securities laws with respect to such exercise. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as defined in Section 3 hereof) (i) if the total number of shares of Common Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Common Stock then authorized by the Company's Articles of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Common Stock, together with all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all such shares of Common Stock, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Company's Articles of Incorporation. 3. Adjustment of Stock Purchase Price and Number of Shares. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment. 3.1 Subdivision or Combination of Stock. In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately 3. 4 reduced, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased. 3.2 Dividends in Common Stock, Other Stock, Property, Reclassification. If at any time or from time to time the Holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, (A) Common Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, (B) any cash paid or payable otherwise than as a cash dividend, or (C) Common Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than (i) shares of Common Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 3.1 above or (ii) an event for which adjustment is otherwise made pursuant to Section 3.4 below), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (B) and (C) above) which such Holder would hold on the date of such exercise had he been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property. 3.3 Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby. In any reorganization described above, appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities 4. 5 or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 3.4 Other Notices. If at any time: (1) the Company shall declare any cash dividend upon its Common Stock; (2) the Company shall declare any dividend upon its Common Stock payable in stock or make any special dividend or other distribution to the holders of its Common Stock; (3) the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (4) there shall be any capital reorganization or reclassification of the capital stock of the Company; or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; (5) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or (6) there shall be an initial public offering of Company securities; then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to the Holder of this Warrant at the address of such Holder as shown on the books of the Company, (a) at least thirty (30) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or public offering, at least thirty (30) days' prior written notice of the date when the same shall take place; provided, however, that the Holder shall make a best efforts attempt to respond to such notice as early as possible after the receipt thereof. Any notice given in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up, conversion or public offering, as the case may be. 5. 6 3.5 Certain Events. If any change in the outstanding Common Stock of the Company or any other event occurs as to which the other provisions of this Section 3 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment. 4. Issue Tax. The issuance of certificates for shares of Common Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax (other than any applicable income taxes) in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 5. Closing of Books. The Company will at no time close its transfer books against the transfer of any warrant or of any shares of Common Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant. 6. No Voting or Dividend Rights; Limitation of Liability. Nothing contained in this Warrant shall be construed as conferring upon the holder hereof the right to vote or to consent or to receive notice as a shareholder of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Stock Purchase Price or as a shareholder of the Company, whether such liability is asserted by the Company or by its creditors. 7. Registration Rights Agreement. The registration rights of the Holder (including Holders' successors) with respect to the stock underlying this Warrant will be the same as granted to the holders of the Company's Common Stock under that certain Investors' Rights Agreement of even date herewith (the "Investors' Rights Agreement"). 8. Warrants Transferable. Subject to compliance with applicable federal and state securities laws and the transfer restrictions set forth in the Investors' Rights Agreement, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed and compliance with the provisions of the Investors' Rights Agreement. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company, at the Company's option, and all 6. 7 other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered owner hereof as the owner for all purposes. 9. Rights and Obligations Survive Exercise of Warrant. The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Common Stock issued upon exercise of this Warrant, referred to in Sections 7 and 8 shall survive the exercise of this Warrant. 10. Modification and Waiver. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 11. Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered or shall be sent by certified mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant or such other address as either may from time to time provide to the other. 12. Binding Effect on Successors. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. All of the obligations of the Company relating to the Common Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 13. Descriptive Headings and Governing Law. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California. 14. Lost Warrants. The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant. 15. Fractional Shares. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price. 7. 8 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this 30th day of September, 1995. AWARD SOFTWARE INTERNATIONAL, INC. a California corporation By:_____________________________________ Title:__________________________________ ATTEST: ______________________________________ Secretary 8. 9 EXHIBIT A SUBSCRIPTION FORM Date: _________________, 19___ Award Software International, Inc. _____________________________ _____________________________ Attn: President Gentlemen: / / The undersigned hereby elects to exercise the warrant issued to it by Award Software International, Inc. (the "Company") and dated September 30, 1995 Warrant No. W-___ (the "Warrant") and to purchase thereunder __________________________________ shares of the Common Stock of the Company (the "Shares") at a purchase price of Fifty Cents ($.50) per Share or an aggregate purchase price of __________________________________ Dollars ($__________) (the "Purchase Price"). / / The undersigned hereby elects to convert _______________________ percent (____%) of the value of the Warrant pursuant to the provisions of Section 1.2 of the Warrant. Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. The undersigned also makes the representations set forth on the attached Exhibit B of the Warrant. Very truly yours, ________________________________________ By:_____________________________________ Title:__________________________________ 1. 10 EXHIBIT B INVESTMENT REPRESENTATIONS THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO _______________ ALONG WITH THE SUBSCRIPTION FORM BEFORE THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANT CERTIFICATE DATED SEPTEMBER 30, 1995, WILL BE ISSUED. _____________________, 19__ Award Software International, Inc. [ADDRESS] _____________________________ _____________________________ Attention: President The undersigned, _________________________ ("Purchaser"), intends to acquire up to ______________ shares of the Common Stock (the "Common Stock") of Award Software International, Inc. (the "Company") from the Company pursuant to the exercise or conversion of certain Warrants to purchase Common Stock held by Purchaser. The Common Stock will be issued to Purchaser in a transaction not involving a public offering and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "1933 Act") and applicable state securities laws. In connection with such purchase and in order to comply with the exemptions from registration relied upon by the Company, Purchaser represents, warrants and agrees as follows: Purchaser is acquiring the Common Stock for its own account, to hold for investment, and Purchaser shall not make any sale, transfer or other disposition of the Common Stock in violation of the 1933 Act or the General Rules and Regulations promulgated thereunder by the Securities and Exchange Commission (the "SEC") or in violation of any applicable state securities law. Purchaser has been advised that the Common Stock has not been registered under the 1933 Act or state securities laws on the ground that this transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on Purchaser's representations set forth in this letter. Purchaser has been informed that under the 1933 Act, the Common Stock must be held indefinitely unless it is subsequently registered under the 1933 Act or unless an exemption from such registration (such as Rule 144) is available with respect to any proposed transfer or disposition by Purchaser of the Common Stock. Purchaser further agrees that the Company may refuse to permit Purchaser to sell, transfer or dispose of the Common Stock (except as permitted under Rule 144) unless there is in effect a registration statement under the 1933 Act and any 11 applicable state securities laws covering such transfer, or unless Purchaser furnishes an opinion of counsel reasonably satisfactory to counsel for the Company, to the effect that such registration is not required. Purchaser also understands and agrees that there will be placed on the certificate(s) for the Common Stock, or any substitutions therefor, a legend stating in substance: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. These shares have been acquired for investment and may not be sold or otherwise transferred in the absence of an effective registration statement for these shares under the Securities Act and applicable state securities laws, or an opinion of counsel satisfactory to the Company that registration is not required and that an applicable exemption is available." Purchaser has carefully read this letter and has discussed its requirements and other applicable limitations upon Purchaser's resale of the Common Stock with Purchaser's counsel. Very truly yours, _______________________________ By:_____________________________________ 2. EX-10.16 18 WARRANT ISSUED TO WALDEN TECH. VENTURES II, L.P. 1 EXHIBIT 10.16 No. W-9 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE A MAXIMUM OF 10,000 SHARES OF COMMON STOCK OF AWARD SOFTWARE INTERNATIONAL, INC. (Void after September 30, 2000) This certifies that WALDEN TECHNOLOGY VENTURES II, L.P. (the "Holder"), or assigns, for payment of one cent ($0.01), is entitled to purchase from AWARD SOFTWARE INTERNATIONAL, INC., a California corporation (the "Company"), having a place of business at 777 East Middlefield Road, Mountain View, CA 94043-4023, a maximum of Ten Thousand (10,000) fully paid and nonassessable shares of the Company's Common Stock ("Common Stock") for cash at a price of fifty cents ($0.50) per share (the "Stock Purchase Price") at any time or from time to time up to and including the earlier of (i) the closing of the Company's initial public offering of its Common Stock, of which the aggregate offering price and per share price to the public are at least $10,000,000 and $6.80, respectively, pursuant to a registration statement under the Securities Act of 1933, as amended, or (ii) 5:00 p.m. (Pacific time) on September 30, 2000, such earlier day being referred to herein as the "Expiration Date", upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and, if applicable, upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant. This Warrant is subject to the following terms and conditions: 1. Exercise; Issuance of Certificates; Payment for Shares. 1.1 General. This Warrant is exercisable at the option of the holder of record hereof, at any time or from time to time, up to the Expiration Date for all or any part of the shares of Common Stock (but not for a fraction of a share) which may be purchased hereunder. The Company agrees that the shares of Common Stock purchased under this Warrant shall be and are deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered, properly 1. 2 endorsed, the completed, executed Form of Subscription delivered and payment made for such shares. Certificates for the shares of Common Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. In case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Common Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder. 1.2 Net Issue Exercise. Notwithstanding any provisions herein to the contrary, in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Form of Subscription and notice of such election in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) ------- A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation) A = the fair market value of one share of the Company's Common Stock (at the date of such calculation) B = Stock Purchase Price (as adjusted to the date of such calculation) For purposes of the above calculation, fair market value of one share of Common Stock shall be determined by the Company's Board of Directors in good faith; provided, however, that in the event the Company makes an initial public offering of its Common Stock the fair market value per share shall be the average of the closing prices of such security's sales on all domestic securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day such security is not quoted in the NASDAQ system, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporation, or any similar successor organization, in each such case averaged over a period of 21 days 2. 3 consisting of the day as of which "fair market value" is being determined and the 20 consecutive business days prior to such day; provided that if such security is listed on any domestic securities exchange the term "business days" as used in this sentence means business days on which such exchange is open for trading. 2. Shares to be Fully Paid; Reservation of Shares. The Company covenants and agrees that all shares of Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Common Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Common Stock may be listed; provided, however, that the Company shall not be required to effect a registration under Federal or State securities laws with respect to such exercise. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as defined in Section 3 hereof) (i) if the total number of shares of Common Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Common Stock then authorized by the Company's Articles of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Common Stock, together with all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all such shares of Common Stock, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Company's Articles of Incorporation. 3. Adjustment of Stock Purchase Price and Number of Shares. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment. 3.1 Subdivision or Combination of Stock. In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the 3. 4 Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased. 3.2 Dividends in Common Stock, Other Stock, Property, Reclassification. If at any time or from time to time the Holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, (A) Common Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, (B) any cash paid or payable otherwise than as a cash dividend, or (C) Common Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than (i) shares of Common Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 3.1 above or (ii) an event for which adjustment is otherwise made pursuant to Section 3.4 below), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (B) and (C) above) which such Holder would hold on the date of such exercise had he been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property. 3.3 Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby. In any reorganization described above, appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) 4. 5 shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 3.4 Other Notices. If at any time: (1) the Company shall declare any cash dividend upon its Common Stock; (2) the Company shall declare any dividend upon its Common Stock payable in stock or make any special dividend or other distribution to the holders of its Common Stock; (3) the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (4) there shall be any capital reorganization or reclassification of the capital stock of the Company; or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; (5) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or (6) there shall be an initial public offering of Company securities; then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to the Holder of this Warrant at the address of such Holder as shown on the books of the Company, (a) at least thirty (30) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or public offering, at least thirty (30) days' prior written notice of the date when the same shall take place; provided, however, that the Holder shall make a best efforts attempt to respond to such notice as early as possible after the receipt thereof. Any notice given in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange 5. 6 their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up, conversion or public offering, as the case may be. 3.5 Certain Events. If any change in the outstanding Common Stock of the Company or any other event occurs as to which the other provisions of this Section 3 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment. 4. Issue Tax. The issuance of certificates for shares of Common Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax (other than any applicable income taxes) in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 5. Closing of Books. The Company will at no time close its transfer books against the transfer of any warrant or of any shares of Common Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant. 6. No Voting or Dividend Rights; Limitation of Liability. Nothing contained in this Warrant shall be construed as conferring upon the holder hereof the right to vote or to consent or to receive notice as a shareholder of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Stock Purchase Price or as a shareholder of the Company, whether such liability is asserted by the Company or by its creditors. 7. Registration Rights Agreement. The registration rights of the Holder (including Holders' successors) with respect to the stock underlying this Warrant will be the same as granted to the holders of the Company's Common Stock under that certain Investors' Rights Agreement of even date herewith (the "Investors' Rights Agreement"). 8. Warrants Transferable. Subject to compliance with applicable federal and state securities laws and the transfer restrictions set forth in the Investors' Rights Agreement, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed and 6. 7 compliance with the provisions of the Investors' Rights Agreement. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company, at the Company's option, and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered owner hereof as the owner for all purposes. 9. Rights and Obligations Survive Exercise of Warrant. The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Common Stock issued upon exercise of this Warrant, referred to in Sections 7 and 8 shall survive the exercise of this Warrant. 10. Modification and Waiver. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 11. Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered or shall be sent by certified mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant or such other address as either may from time to time provide to the other. 12. Binding Effect on Successors. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. All of the obligations of the Company relating to the Common Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 13. Descriptive Headings and Governing Law. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California. 14. Lost Warrants. The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant. 7. 8 15. Fractional Shares. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price. 8. 9 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this 30th day of September, 1995. AWARD SOFTWARE INTERNATIONAL, INC. a California corporation By: --------------------------------- Title: ------------------------------ ATTEST: - ----------------------------------- Secretary 9. 10 EXHIBIT A SUBSCRIPTION FORM Date: , 19 Award Software International, Inc. - ---------------------------------- - ---------------------------------- Attn: President Gentlemen: / / The undersigned hereby elects to exercise the warrant issued to it by Award Software International, Inc. (the "Company") and dated September 30, 1995 Warrant No. W- (the "Warrant") and to purchase thereunder shares of the Common Stock of the Company (the "Shares") at a purchase price of Fifty Cents ($.50) per Share or an aggregate purchase price of Dollars ($ ) (the "Purchase Price"). / / The undersigned hereby elects to convert percent ( %) of the value of the Warrant pursuant to the provisions of Section 1.2 of the Warrant. Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. The undersigned also makes the representations set forth on the attached Exhibit B of the Warrant. Very truly yours, ------------------------------------ By --------------------------------- Title ------------------------------- 1. 11 EXHIBIT B INVESTMENT REPRESENTATIONS THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO ALONG WITH THE SUBSCRIPTION FORM BEFORE THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANT CERTIFICATE DATED SEPTEMBER 30, 1995, WILL BE ISSUED. , 19 Award Software International, Inc. [ADDRESS] - ---------------------------------- - ---------------------------------- Attention: President The undersigned, ("Purchaser"), intends to acquire up to shares of the Common Stock (the "Common Stock") of Award Software International, Inc. (the "Company") from the Company pursuant to the exercise or conversion of certain Warrants to purchase Common Stock held by Purchaser. The Common Stock will be issued to Purchaser in a transaction not involving a public offering and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "1933 Act") and applicable state securities laws. In connection with such purchase and in order to comply with the exemptions from registration relied upon by the Company, Purchaser represents, warrants and agrees as follows: Purchaser is acquiring the Common Stock for its own account, to hold for investment, and Purchaser shall not make any sale, transfer or other disposition of the Common Stock in violation of the 1933 Act or the General Rules and Regulations promulgated thereunder by the Securities and Exchange Commission (the "SEC") or in violation of any applicable state securities law. Purchaser has been advised that the Common Stock has not been registered under the 1933 Act or state securities laws on the ground that this transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on Purchaser's representations set forth in this letter. Purchaser has been informed that under the 1933 Act, the Common Stock must be held indefinitely unless it is subsequently registered under the 1933 Act or unless an exemption from such registration (such as Rule 144) is available with respect to any proposed transfer or disposition by Purchaser of the Common Stock. Purchaser further agrees that the Company may refuse to permit Purchaser to sell, transfer or dispose of the Common Stock (except as permitted under Rule 144) unless there is in effect a registration statement under the 1933 Act and any 12 applicable state securities laws covering such transfer, or unless Purchaser furnishes an opinion of counsel reasonably satisfactory to counsel for the Company, to the effect that such registration is not required. Purchaser also understands and agrees that there will be placed on the certificate(s) for the Common Stock, or any substitutions therefor, a legend stating in substance: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. These shares have been acquired for investment and may not be sold or otherwise transferred in the absence of an effective registration statement for these shares under the Securities Act and applicable state securities laws, or an opinion of counsel satisfactory to the Company that registration is not required and that an applicable exemption is available." Purchaser has carefully read this letter and has discussed its requirements and other applicable limitations upon Purchaser's resale of the Common Stock with Purchaser's counsel. Very truly yours, ------------------------------------ By: --------------------------------- 2. EX-11.1 19 STMT REGARDING CALCULATION OF NET INCOME/LOSS 1 EXHIBIT 11.1 AWARD SOFTWARE INTERNATIONAL, INC. STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
--------------------------------------------------------------------- THREE MONTH YEAR ENDED PERIOD ENDED DECEMBER 31, MARCH 31, 1995 THREE MONTH SIX MONTHS ENDED --------------- -------------- PERIOD ENDED In thousands, except per share data DECEMBER 31, 1993 1994 1995 MARCH 31, 1996 ----------------- ------ ------ -------------- (Unaudited) Net income (loss) $(1,178) $1,258 $1,165 $ 316 $ 386 ----------------- ------ ------ -------------- -------------- Weighted average number of shares of common stock outstanding Common stock 3,841 3,841 3,611 3,841 3,097 Number of common stock equivalents as a result of stock options/warrants outstanding using the treasury stock method -- -- 423 315 484 Number of common stock issued and stock options and warrants granted in accordance with SAB No. 83 2,466 2,466 2,466 2,466 2,466 ----------------- ------ ------ -------------- -------------- Total 6,307 6,307 6,500 6,622 6,047 ================= ====== ====== ============== ============== Net income (loss) per share $ (0.19) $ 0.20 $ 0.18 $ 0.05 $ 0.06 ================= ====== ====== ============== ==============
Net Income (Loss) per Share Net income (loss) per share is computed using the weighted average number of common and common equivalent shares, when dilutive, from stock options and warrants (using the treasury stock method). Pursuant to a Securities and Exchange Commission Staff Accounting Bulletin, common and common equivalent shares (using the treasury stock method and the assumed public offering price) issued by the Company within 12 months prior to the Company's initial public offering have been included in the calculation as if they were outstanding for all periods presented. EX-27 20 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1995 DEC-31-1995 $6,498,000 0 1,921,000 (79,000) 0 8,556,000 454,000 (178,000) 9,083,000 1,914,000 0 0 0 6,215,000 954,000 9,083,000 9,130,000 9,130,000 636,000 636,000 6,633,000 0 9,000 1,957,000 792,000 1,165,000 0 0 0 1,165,000 $0.18 0
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