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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE , 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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)
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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)
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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
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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. / /
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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.
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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.
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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
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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
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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.
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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
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Per Share $ $ $ $
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Total(3) $ $ $ $
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(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
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(COLOR ART WORK)
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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.
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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.
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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
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PREDECESSOR PREDECESSOR THE COMPANY
---------------- AND THE -----------------------------------
COMPANY THREE MONTHS
----------- ENDED
YEARS ENDED DECEMBER 31,
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1991 MARCH 31,
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Dollars in thousands, except per
share data 1992 1993(2) 1994 1995 1995 1996
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(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
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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
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THE COMPANY
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MARCH 31, 1996
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Dollars in thousands ACTUAL AS ADJUSTED(4)
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(UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents $10,591 $
Working capital 11,315
Total assets 14,238
Total shareholders' equity 12,068
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(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.
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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.
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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."
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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
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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
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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
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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."
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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."
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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."
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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.
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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."
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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.
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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."
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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
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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.
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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.
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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
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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."
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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."
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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.
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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."
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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.
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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.
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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,
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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.
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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
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---------------------------------------------------------------------
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.
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(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
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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.
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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,
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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.
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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
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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.
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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) $ --
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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.
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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.