EXHIBIT 10.64
March 6, 2000
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Chairman, President and Chief Executive Officer
Touchstone Software Corporation
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Dear Pierre:
This letter sets forth certain understandings and agreements among
Phoenix Technologies Ltd. ("Phoenix"), Touchstone Software Corporation
("Touchstone"), Unicore Software, Inc. and ▇▇▇▇▇▇▇▇.▇▇▇, Inc. (each a wholly
owned subsidiary of Touchstone and collectively, the "Subsidiaries"), with
respect to Phoenix's proposed acquisition of all of Touchstone's and the
Subsidiaries' respective assets related to the development and licensing of
Personal Computer ("PC") software utility packages, system level software
packages (including BIOS software), hardware diagnostic software, Internet
access optimization software, Internet diagnostic and online software and PC
to PC file transfer software (the "Business"), and the assumption of the
liabilities of Touchstone and the Subsidiaries related to the Business, on
the terms and subject to the conditions set forth below (the "Acquisition").
The Acquisition will be subject to the execution of a definitive
asset purchase agreement and such other agreements and documents as may be
necessary or appropriate and containing, among other things, such
representations, warranties, conditions, covenants, and indemnities customary
in transactions of this kind (the "Agreement"). The following numbered
paragraphs summarize our understanding with respect to the matters described
in them, but do not, except as otherwise expressly stated in this letter,
constitute a legally binding or enforceable agreement or commitment on the
part of Touchstone, the Subsidiaries or Phoenix with respect to the matters
described therein or impose on either Touchstone, the Subsidiaries or Phoenix
an enforceable duty or obligation to negotiate towards or conclude any such
agreement or commitment.
1. Purchase of Assets
a. Phoenix will purchase, at the closing ("Closing") specified
in the Agreement, (i) all of the assets and properties of Touchstone and the
Subsidiaries related to the Business, and
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(ii) the number of shares of Touchstone's single class of preferred
securities, subject to the terms and conditions of such preferred securities
and convertible into shares of Touchstone's common securities (the "Preferred
Shares"), equivalent in value to the difference between $9,000,000 and 85% of
Touchstone's audited FY 1999 consolidated revenues derived from operations
(collectively, the "Assets"). The number of Preferred Shares shall be subject
to adjustment at the Closing pursuant to the same formula used to adjust the
number of Common Shares to be delivered by Phoenix at the Closing. Subject to
the foregoing, the Assets will be substantially the same as the present
assets and properties of Touchstone and the Subsidiaries, except for any
agreed-upon changes contemplated by the Agreement. The following shall not
constitute Assets:
(i) Shares or securities issued by third parties, and
partnership and other ownership interests of entities
not issuing shares or securities, in each case owned
by Touchstone for investment purposes and reflected
on Touchstone's balance sheet as of the date of
Closing;
(ii) All office furniture, personal computers, file
cabinets, office supplies and similar property
presently used by Touchstone's president, his
personal assistant and Touchstone's chief financial
officer, and all files and records unrelated to the
Business; and
(iii) All cash, certificates of deposit, notes receivable
and like instruments, but excluding all accounts
receivable relating to the Business, reflected on
Touchstone's balance sheet as of the Closing.
b. At the Closing, Phoenix will (i) assume all of the
liabilities of Touchstone and the Subsidiaries relating to the Business and
reflected on Touchstone's audited balance sheet as of December 31, 1999 and
any disclosed liabilities of Touchstone and the Subsidiaries incurred in the
ordinary course of the Business between December 31, 1999 and the Closing,
but shall specifically exclude all extraordinary items (as defined in the
Agreement) and liabilities incurred other than in the regular and ordinary
course of the Business ("Liabilities"), subject to the establishment of the
escrow described in Section 2.c, and (ii) pay Touchstone a purchase price
composed of (x) $4,500,000 in immediately available funds (subject to
adjustment pursuant to Section 1.c below) and (y) the number of shares of
Phoenix common stock ("Common Shares") determined pursuant to Section 1.d
below subject to the registration schedule set forth in Section 1.e below.
The Liabilities assumed will include the assumption of approximately $530,000
of long-term indebtedness recorded on Touchstone's balance sheet as of the
date of this letter.
c. The amount payable at Closing in immediately available
funds is based on Touchstone's consolidated revenues derived from its
operations ("Consolidated Revenues") as reported on a pro forma basis for its
fiscal year 1999 ending December 31st. In the event the total of Touchstone's
audited fiscal year 1999 Consolidated Revenues differ by more than ten (10%)
percent (the "Threshold") from the pro forma total for the same period, the
amount of
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immediately available funds payable at the Closing will be adjusted upward or
downward, on a dollar for dollar basis, by the amount of the difference,
above the Threshold, between the statements of pro forma and audited
Consolidated Revenues.
d. The number of Phoenix Common Shares delivered at the
Closing shall be calculated by dividing $4.5 million by the average closing
share price of the Common Shares for the 30 consecutive trading days (the "30
Day Trailing Average") immediately prior to the date of the Closing as
reported on NASDAQ; provided however, that if the 30 Day Trailing Average
determined as of three (3) trading days prior to the Closing:
(i) is at least 115% of the closing share price on the
first day of such 30 Day Trailing Average (the "First
Day Share Price"), then the number of Common Shares
to be delivered shall be calculated by dividing $4.5
million by the First Day Share Price and multiplying
the result by the product of dividing 115% of the
First Day Share Price by the 30 Day Trailing Average;
or
(ii) is no greater than 85% of the First Day Share Price,
then the number of Common Shares to be delivered
shall be calculated by dividing $4.5 million by the
First Day Share Price and multiplying the result by
the product of dividing 85% of the First Day Share
Price by the 30 Day Trailing Average.
e. At the Closing, 50% of the Common Shares will be delivered
in registered, unrestricted form, and 50% shall be delivered in unregistered,
restricted form. Not later than 180 days after the date of the Closing,
Phoenix, at its expense and in accordance with applicable securities laws,
will register the Common Shares that were delivered in restricted form, and
remove or cancel any restrictions applicable to such Common Shares.
2. Other Provisions
a. In accordance with a Lockup Agreement to be entered into at
the Closing by and between Phoenix and Touchstone, (i) Phoenix will not sell
any Preferred Shares during the two (2) years after the Closing, after which
time Phoenix will have the right to sell up to 50% of the Preferred Shares
without restriction. Four (4) years after the Closing, Phoenix will have the
right to sell the balance of the Preferred Shares without restriction. Any
sale of Preferred Shares or Common Shares resulting from the transactions
contemplated hereby shall be in compliance with applicable securities laws.
b. Phoenix's obligation to close shall be conditioned on,
among other things, Touchstone and its president entering into a
noncompetition agreement with Phoenix on terms satisfactory to Phoenix,
Touchstone and its president; provided, however that: (i) the term of the
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non-compete shall be two (2) years from the date of the Closing; (ii) the
scope of the non-compete shall be limited to the Business, and shall include
a prohibition on the direct or indirect (x) solicitation or hiring of any
former Touchstone or any Subsidiary's employees identifiable to, and hired by
Phoenix in connection with, the Business, as identified by Phoenix to
Touchstone on the date of the Closing, and (y) solicitation of any business
relationship with customers of the Business existing as of the date of
Closing, but shall exclude from its scope the acquisition by Touchstone
during the non-compete term of an ownership interest of five (5) percent or
less in any publicly traded direct competitor of Phoenix and (iii) as
consideration for his agreement to, and full and faithful performance of, the
provisions of the noncompetition agreement, at the Closing, Phoenix shall
forgive the outstanding promissory note executed by the president of
Touchstone in Phoenix's favor and any accrued and unpaid interest thereon.
During the second year of the non-compete term, the president of Touchstone
may engage in activities that would otherwise be prohibited by the terms of
the noncompetition agreement, upon obtaining the advance written consent of
Phoenix, which consent shall not be unreasonably withheld or delayed. It is
expressly stated that the terms and conditions of section 2(f) of this letter
shall be excluded from the non-competition obligations contained herein.
c. The Agreement will contain provisions for the escrow of ten
percent (10%) of the purchase price for a period of one year after the
Closing to secure Phoenix against undisclosed liabilities, misrepresentations
and breaches of warranties, covenants, and agreements by Touchstone and the
Subsidiaries (collectively, "Losses"); provided, however, that the deposit of
the escrow shall be in kind (on a proportionate basis) with respect to the
cash and stock portions of the purchase price; and provided further that,
with respect to any Loss arising during the escrow period, the value of the
Common Shares held in escrow and available for payment of the Loss shall be
the average closing share price of the Common Shares as reported on NASDAQ
for the trading day immediately prior to date of the Closing, and provided
further that (i) no Losses shall be paid until the aggregate Losses exceed
$125,000 (the "Basket"), at which time all Losses shall be paid in full
without deduction, (ii) no individual Loss of less than $5,000 shall be
applied to meeting the Basket and (iii) at the option of Touchstone,
Touchstone may satisfy any such Loss with the cash portion of the escrow in
lieu of the Common Shares. During the escrow period, the escrow shall be held
and maintained by an independent escrow agent, with the cost and expense of
said escrow agent to be the sole responsibility of Phoenix. During the escrow
period, Touchstone shall be entitled to receive any interest earned on the
cash portion of the purchase price held in escrow or any increase in the
value of the Common Stock held in escrow. Touchstone shall further be
entitled to all dividends and voting rights with respect to the shares of the
Common Stock held in escrow during the escrow period.
d. Except as may otherwise be provided in this letter,
Phoenix, Touchstone and the Subsidiaries will each be solely responsible for
and bear all of their own respective expenses, including, without limitation,
expenses of legal counsel, accountants, and other advisers, incurred at any
time in connection with pursuing or consummating the Agreement and the
transactions contemplated thereby; provided however, that if Closing occurs,
Phoenix will reimburse
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March 6, 2000
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Touchstone at the Closing for up to $50,000 of directly related expenses
incurred by Touchstone and the Subsidiaries.
e. Phoenix will develop at its expense a retention plan to
identify Touchstone and Subsidiary employees with critical skills, and will
make employment offers to such individuals, which offers will include stock
option grants that take into consideration the option grant practices
observed by Touchstone, to the extent such practices are consistent with
Phoenix's currently effective option plan. Touchstone and the Subsidiaries
will terminate all of such employees' employment simultaneously with the
Closing and pay all accrued salaries, vacation and other benefits to such
employees at such time, subject to reimbursement by Phoenix at the Closing of
up to $150,000 of such incurred expenses. In addition, Phoenix will offer
employment to ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇ for a period of two (2) years following the
Closing pursuant to the provisions of a mutually satisfactory agreement of
employment.
f. During the period in which Phoenix owns the Preferred
Shares, if Phoenix agrees to invest in any third party in furtherance of its
PhoenixNet business strategy and funding, in addition to the kinds and
amounts Phoenix is willing to provide is necessary or advisable, Phoenix will
use its best efforts to refer such party and the investment opportunity to
Touchstone for direct negotiations. During the same period, if Phoenix is
presented with and declines an investment proposal by a party with whom
Phoenix has a business relationship related to PhoenixNet (a "PhoenixNet
Partner"), Phoenix will refer the PhoenixNet Partner and its proposal to
Touchstone, to the extent referral is consistent with any applicable
confidentiality obligation assumed by Phoenix in connection with its
consideration of the proposal.
g. The Closing will take place at a location mutually
acceptable to the parties hereto, or by mail, if the parties so agree, within
30 days of the last to occur of:
(i) the execution and delivery of the Agreement;
(ii) if required, compliance with the requirements of the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act (the
"Act"); and
(ii) the approval of the respective Boards of Directors of
the parties and, to the extent required, the approval
of their respective shareholders.
h. If any filing under the Act is required, Phoenix,
Touchstone and the Subsidiaries will cooperate with one another and proceed,
as promptly as is reasonably practicable, to prepare and file the
notifications required by the Act, to seek to obtain all necessary consents
and approvals from lenders and landlords, and to endeavor to comply with all
other legal or contractual requirements for or preconditions to the execution
and consummation of the Agreement including, without limitation bulk sales or
similar laws.
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i. During the term of this letter, Touchstone and each
Subsidiary grant Phoenix and its representatives full and free access to
Touchstone's and each Subsidiary's respective properties, employees,
facilities, books, records, financial and operating data, contracts and other
documents, subject to the terms and conditions of the Confidentiality and
Non-Disclosure Agreement previously executed between the parties and dated as
of February 14, 2000. Notwithstanding the foregoing, neither Phoenix nor its
agents will contact, directly or indirectly, any of Touchstone's or a
Subsidiary's customers, vendors, suppliers or employees without first
obtaining the consent of Touchstone or each Subsidiary, which consent shall
not be delayed or unreasonably withheld. Touchstone and each Subsidiary shall
cooperate with Phoenix in arranging contacts and communications with such
customers, vendors, suppliers and employees.
▇. ▇▇▇▇▇▇▇▇▇▇ and each Subsidiary agree that, from and after
the execution of this letter of intent until the termination hereof in
accordance with paragraph 3 below, no director, officer, employee, agent or
representative of Touchstone or either Subsidiary will, directly or
indirectly, initiate contact with, solicit or encourage any inquiries or
proposals by, or participate in any discussions or negotiations with, or
afford any access to its properties, books, and records to, any corporation,
person or other entity regarding the sale, transfer or other disposition of
the Business, or regarding any other business combination, which would be
inconsistent with the intent of the parties as set forth in this letter.
Touchstone will provide Phoenix with immediate written notice in the event of
any solicitation, inquiry or expression of interest made by any third party
to any of the foregoing persons.
k. Phoenix, Touchstone and the Subsidiaries each agree not to
disclose to any person or entity (excluding any stockholder of any entity
specified herein) or to make any public statement of this proposed
transaction or of this letter of intent without the prior written consent of
the other party hereto, except any disclosure required by law, prior to
Closing. However, Phoenix, Touchstone and the Subsidiaries understand that
certain disclosures regarding this proposed transaction may be made to (a)
their employees and agents on a need-to-know basis, and (b) any entity whose
consent or approval may be required in connection with this proposed
transaction, provided that prior to any such disclosure pursuant to (b)
above, the disclosing party will use its best efforts to provide the other
party with reasonable notice, the opportunity to comment thereon, and, if the
notice is in writing, a draft of it.
3. Termination
The obligations of the parties under Sections 2.h through 2.k
inclusive of this letter of intent will terminate on the earlier of (i)
Touchstone's notice of its election not to proceed with or consummate the
Acquisition, but only if given to Phoenix within three (3) business days of
any proposal by Phoenix to reduce or modify the purchase price or restructure
any of the material terms or conditions of the Acquisition, (ii) March 31,
2000, or (iii) the execution of the Agreement, provided however, that such
termination shall not relieve any party of liability for its breach of any
obligation occurring prior to such termination.
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4. Miscellaneous
a. In the event that the Closing does not occur and the
Acquisition is not consummated for any reason, neither Phoenix, nor any
Phoenix subsidiary, shall, directly or indirectly for a period of two (2)
years after the date of execution of this letter, employ, hire, cause to be
employed or hired away, entice away, solicit or establish a business with any
then current officer, employee, or director of Touchstone or either
Subsidiary. Solicitation or employment of such officers, employees and
directors resulting from general advertisements on the Internet, in
newspapers or other mass media shall not constitute a breach or violation of
this Section 4.a, provided that within three (3) days of extending an offer
of employment to such officer, employee or director of Touchstone or either
Subsidiary, Phoenix shall give written notice to Touchstone thereof.
b. The consummation of the Acquisition is conditioned (i) upon
Touchstone's satisfaction of the federal income tax treatment of the
Acquisition, with respect to Touchstone and each Subsidiary; and (ii) Phoenix
making certain representations, warranties and covenants relating to the
Common Shares.
c. This letter shall be governed by, and construed in
accordance with the laws of the State of California, excluding its choice of
law principles. Except as otherwise provided herein, this letter may not be
amended, terminated, waived or rescinded except pursuant to a written
agreement duly executed by the parties hereto. This letter may be signed in
facsimile counterparts, each of which will constitute an original but all of
which shall constitute one and the same instrument.
Upon the execution of counterparts of this letter on behalf of
Touchstone and the Subsidiaries, Sections 2.h through 2.k inclusive and
Sections 3 and 4.a will constitute legally binding agreements which are
enforceable against the respective party or parties, regardless of whether
the parties later execute or fail to execute the Agreement. Except as to the
foregoing provisions, the statements of intent or understandings expressed in
this letter are not deemed to constitute an offer, acceptance or legally
binding agreement, and do not create any rights or obligations for or on the
part of Phoenix, Touchstone or the respective Subsidiaries.
Please indicate your agreement to the terms summarized above by
signing and returning a copy of this letter to the undersigned. Following
receipt, our due diligence will proceed, and we will begin preparation of the
definitive asset purchase agreement pursuant to which our
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respective obligations with respect to the Acquisition will arise.
Very truly yours,
PHOENIX TECHNOLOGIES LTD.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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Chairman, President & Chief Executive Officer
Acknowledged And Agreed To
this 6th day of March 2000
TOUCHSTONE SOFTWARE CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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President
Date: March 6, 2000
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▇▇▇▇▇▇▇▇.▇▇▇, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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President
Date: March 6, 2000
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UNICORE SOFTWARE, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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President
Date: March 6, 2000
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