UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

Filed by the Registrant þ

Filed by a party other than the Registrant o

Check the appropriate box:

þ		Preliminary Proxy Statement.
o		Confidential, for use of the Commission Only (as Permitted by Rule 14a-6(e)(2)).
o		Definitive Proxy Statement.
o		Definitive Additional Materials.
o		Soliciting Material Pursuant to § 240.14a-12.

PHOENIX TECHNOLOGIES LTD.

Payment of Filing Fee (Check the appropriate box):

o		No fee required.
þ		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1)		Title of each class of securities to which transaction applies:
		Common Stock, par value $0.001 par value per share, of Phoenix Technologies Ltd. (the “Common Stock”)
(2)		Aggregate number of securities to which transaction applies:
		35,223,157 shares of Common Stock outstanding, 2,006,039 shares of Common Stock subject to options, 356,250 shares of Common Stock subject to restricted stock awards.
(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
		The maximum aggregate value was determined based upon the sum of (A) 35,223,157 shares of Common Stock outstanding, multiplied by $3.85 per share, (B) 2,006,039 shares of Common Stock subject to options with exercise prices less than $3.85 per share multiplied by $0.94 per share (which is the difference between $3.85 per share and the weighted average exercise price per share of such options), and (C) 356,250 shares of Common Stock subject to restricted stock awards, multiplied by $3.85 per share. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying $0.00007130 by the sum described in the preceding sentence.
(4)		Proposed maximum aggregate value of transaction:
		$138,866,394
(5)		Total fee paid:
		$9,901
o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

 

915 Murphy Ranch Road
Milpitas, CA 95035

 

          , 2010

 

Dear Stockholder:

 

You are cordially invited to attend a special meeting of stockholders of Phoenix Technologies Ltd. (the “Company”) to be held on          , at   a.m., local time, at          .

 

At the meeting, you will be asked to consider and vote on a proposal to adopt the Agreement and Plan of Merger (the “Merger Agreement”), dated as of August 17, 2010, by and among the Company, Pharaoh Acquisition Corp., a Delaware corporation (“Parent”) and Pharaoh Merger Sub Corp., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), each an affiliate of Marlin Equity Partners, and, solely for purposes of providing a guarantee of the obligations of the Parent and Merger Sub, Marlin Equity II, L.P., a Delaware limited partnership (“Marlin II”) and Marlin Equity III, L.P., a Delaware limited partnership (“Marlin III”).

 

If our stockholders adopt the Merger Agreement and the merger is completed, you will be entitled to receive $3.85 in cash, without interest and less any applicable withholding taxes, for each share of our common stock that you own immediately prior to completion of the merger. Upon completion of the merger, the Company will become a wholly-owned subsidiary of Parent and an indirect subsidiary of Marlin III.

 

Our board of directors has unanimously approved the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement and determined that the merger is fair and advisable to, and in the best interests of, the Company and its stockholders. Accordingly, our board of directors unanimously recommends that you vote “FOR” the adoption of the Merger Agreement.

 

Your vote is very important, regardless of the number of shares you own. Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the enclosed prepaid envelope, or submit your proxy through the Internet or by telephone by following the instructions described in the enclosed proxy statement. If you have Internet access, we encourage you to record your vote through the Internet.

 

The enclosed proxy statement provides you with information about the special meeting, the Merger Agreement, the merger and other related matters. A copy of the Merger Agreement is attached as Annex A to the proxy statement. We encourage you to read the proxy statement and the Merger Agreement carefully and in their entirety prior to voting your shares.

 

On behalf of our board of directors, I thank you for your support and urge you to vote in favor of the adoption of the Merger Agreement.

 

Sincerely,

 

 

Tom Lacey

Chief Executive Officer

 

The proxy statement is dated          , 2010, and is first being mailed to stockholders of the Company on or about          , 2010

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held on          , 2010

 

TO THE STOCKHOLDERS OF PHOENIX TECHNOLOGIES LTD.:

 

Notice is hereby given that a special meeting of the stockholders of Phoenix Technologies Ltd., a Delaware corporation (the “Company”), will be held on          , 2010, at   a.m., local time, at          , for the following purposes:

 

1. to consider and vote on a proposal to adopt the Agreement and Plan of Merger (the “Merger Agreement”), dated as of August 17, 2010, by and among the Company, Pharaoh Acquisition Corp. (“Parent”) and Pharaoh Merger Sub Corp., a wholly-owned subsidiary of Parent (“Merger Sub”), each an affiliate of Marlin Equity Partners, and solely for purposes of providing a guarantee of the obligations of the Parent and Merger Sub, Marlin Equity II, L.P. (“Marlin II”) and Marlin Equity III, L.P. (“Marlin III”), pursuant to which each share of the Company’s common stock outstanding at the effective time of the merger will be converted into the right to receive $3.85 in cash, and the Company will become a wholly-owned subsidiary of Parent and indirect subsidiary of Marlin III;

 

2. to consider and vote on a proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement.

 

Our board of directors has fixed the close of business on          , 2010 as the record date for the determination of stockholders entitled to notice of, and to vote at, this special meeting and any adjournment thereof. Only holders of the Company’s common stock at the close of business on the record date are entitled to vote at the special meeting.

 

Our board of directors has unanimously approved the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement and determined that the merger is fair and advisable to, and in the best interests of, the Company and its stockholders.

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT.

 

Your vote is very important, regardless of the number of shares you own. The adoption of the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock. If you abstain or do not vote on the adoption of the Merger Agreement, it will have the same effect as a vote by you against the adoption of the Merger Agreement. Approval of the proposal to adjourn the special meeting, if necessary, to solicit additional proxies requires the affirmative vote of a majority of the shares of our common stock represented and voting at the special meeting.

 

Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the enclosed prepaid envelope, or submit your proxy through the Internet or by telephone. If you have Internet access, we encourage you to submit your proxy through the Internet. Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the adoption of the Merger Agreement.

 

If your shares are held in “street name,” which means through a brokerage firm, bank or other nominee, you should instruct your broker, bank or other nominee how to vote your shares using the voting instruction form furnished by your broker, bank or other nominee. If you do not instruct your broker, bank or other nominee how to vote, your shares will not be voted on any proposal on which your broker, bank or other nominee does not have discretionary authority to vote. This is called a “broker non-vote.” In these cases, the broker, bank or other nominee can register your shares as being present at the meeting for the purposes of determining the presence of a quorum but will not be able to vote on matters for which specific authorization is required. If you do not instruct

your broker, bank or other nominee how to vote, it will have the same effect as a vote against the adoption of the Merger Agreement, but it will not have an effect on the proposal to adjourn the special meeting.

 

If you attend the special meeting, you may revoke your proxy and vote in person, even if you have previously returned your proxy card or submitted your proxy through the Internet or by telephone. If you hold your shares in “street name,” you must obtain a legal proxy from your broker, bank or other nominee in order to vote in person at the special meeting. Please contact your broker, bank or other nominee for instructions on how to obtain such a legal proxy. If your shares are held by a broker, bank or other nominee, and you plan to attend the special meeting, please also bring to the special meeting this legal proxy and your statement evidencing your beneficial ownership of our common stock. Please carefully review the instructions in the enclosed proxy statement and the enclosed proxy card or the information forwarded by your broker, bank or other nominee regarding each of these options.

 

Stockholders who do not vote in favor of the adoption of the Merger Agreement may have the right to demand appraisal of the fair market value of their shares of our common stock, as determined by the Delaware Court of Chancery, if the merger is completed, but only if they perfect their appraisal rights and the other requirements of the Delaware General Corporation Law are satisfied. A copy of the Delaware statutory provisions relating to appraisal rights is attached as Annex D to the enclosed proxy statement, and a summary of these provisions can be found under “Appraisal Rights” on page 34 in the enclosed proxy statement.

 

The enclosed proxy statement provides you with information about the special meeting, the Merger Agreement, the merger and other related matters. A copy of the Merger Agreement is attached as Annex A to the proxy statement. We encourage you to read the proxy statement and the Merger Agreement carefully and in their entirety prior to voting your shares.

 

You should not send any certificates representing shares of our common stock with your proxy card. Upon completion of the merger, we will send instructions to you regarding the procedure for exchanging your stock certificates for the cash merger consideration.

 

By order of the Board of Directors,

 

 

Timothy Chu

Vice President, General Counsel and Secretary

 

Milpitas, California

          , 2010

 

TABLE OF CONTENTS

 

 

The following questions and answers are intended to address briefly some commonly asked questions about the merger, the merger agreement and the special meeting. These questions and answers may not address all questions that are important to you as a stockholder of Phoenix Technologies Ltd. Please refer to the “Summary Term Sheet” and the more detailed information contained elsewhere in this proxy statement, including in its annexes, all of which you should read carefully. See also “Where You Can Find More Information” beginning on page 53.

 

Throughout this proxy statement, all references to the “Company,” “Phoenix,” “Phoenix Technologies,” “we,” “us,” and “our” refer to Phoenix Technologies Ltd. and its subsidiaries, unless otherwise indicated or the context otherwise requires.

 

 

 

 

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger agreement or the transactions contemplated thereby, including the proposed merger, or passed upon the adequacy or accuracy of the information contained in this document. Any representation to the contrary is a criminal offense.

 

This summary term sheet highlights selected information from this document and may not contain all of the information that is important to you. Phoenix encourages you to read carefully the remainder of this document, including the attached annexes and the other documents to which we have referred you, because this section does not provide all the information that might be important to you with respect to the merger and the other matters being considered at the special meeting of stockholders. See also “Where You Can Find More Information” on page 53 of this document. We have included references to other portions of this document to direct you to a more complete description of the topics presented in this summary.

 

Phoenix and affiliates of Marlin Equity Partners (“Marlin”) have agreed to the merger of Phoenix and Marlin under the terms of the merger agreement described in this document. We have attached the merger agreement as Annex A to this document. We encourage you to read the merger agreement carefully because it is the legal document that governs the merger and related matters.

 

Under the terms of the merger agreement, Pharaoh Merger Sub Corp. (“Merger Sub”), a wholly-owned subsidiary of Pharaoh Acquisition Corp. (“Parent”), will merge with and into Phoenix and the separate corporate existence of Merger Sub will cease and Phoenix will be the surviving corporation. Upon completion of the merger, Phoenix will be a wholly-owned subsidiary of Parent and an indirect subsidiary of Marlin Equity III, L.P. (“Marlin III”). Marlin Equity II, L.P. (“Marlin II”) and Marlin III have agreed to guarantee the performance of the obligations of Parent and Merger Sub under the merger agreement.

 

The merger is subject to customary closing conditions, including adoption of the merger agreement and approval of the merger by the stockholders of Phoenix.

 

Upon completion of the merger, the capital stock and other securities of Phoenix will be treated as follows:

 

 

After careful consideration and consultation with its financial and legal advisors, our board of directors has determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, that it is in the best interests of Phoenix and its stockholders that Phoenix enter into the merger

agreement and consummate the merger, and that the merger agreement is fair to Phoenix and its stockholders. Our board of directors recommends that Phoenix stockholders vote FOR the proposal to adopt the merger agreement.

 

For the factors considered by Phoenix’s board of directors in reaching its decision to approve and adopt the merger agreement and the merger, see “The Merger — Recommendations of Phoenix’s Board of Directors” beginning on page 19 of this document and “The Merger — Phoenix’s Reasons for the Merger” beginning on page 20 of this document.

 

In connection with the evaluation of the proposed merger by Phoenix’s board of directors, the board’s financial advisor, RBC Capital Markets Corporation (“RBC”) rendered a written opinion to the board of directors on August 17, 2010 that, as of that date and subject to the assumptions, qualifications and limitations set forth in its opinion, the merger consideration of $3.85 in cash, without interest, per share of Phoenix’s common stock specified in the merger agreement was fair, from a financial point of view, to the Phoenix stockholders. The full text of RBC’s written opinion dated August 17, 2010 is attached to this proxy statement as Annex B. Phoenix urges you to read this opinion carefully in its entirety for a description of the procedures followed, assumptions made, matters considered and limitations on the review undertaken by RBC. RBC’s opinion was addressed to Phoenix’s board of directors and does not constitute a recommendation to Phoenix stockholders as to how you should vote with respect to the merger.

 

The merger agreement does not contain any financing condition. Marlin II and Marlin III have committed to purchase equity interests in Parent in an amount equal to the aggregate merger consideration on the terms and conditions set forth in equity commitment letters dated August 17, 2010. Pursuant to the merger agreement, Marlin II and Marlin III have also provided a guarantee in favor of Phoenix, which, subject to the terms and conditions contained in the merger agreement, guarantees the performance of the obligations of Parent and Merger Sub under the merger agreement. Phoenix is a third party beneficiary of the equity commitment letters and has the right to enforce the obligations of Marlin II and Marlin III under the equity commitment letter.

 

The special meeting of the Phoenix stockholders will be held on          , at   a.m., local time, at          . At the Phoenix special meeting of stockholders, Phoenix stockholders will be asked to vote on a proposal to adopt the merger agreement and approve the merger and, if necessary, to approve an adjournment of the special meeting for the purpose of soliciting additional proxies if there are not sufficient votes to approve the merger proposal.

 

Adoption of the merger agreement and approval of the merger require the affirmative vote of the holders of at least a majority of the outstanding shares of Phoenix common stock. If Phoenix stockholders do not adopt the merger agreement and approve the merger, the merger will not be completed.

 

Completion of the merger depends upon the satisfaction or waiver, where permitted by the merger agreement, of a number of conditions, including the following (some of which are conditions to the closing obligations of both parties, and others of which are conditions to the closing obligations of only one party):

 

 

 

For the definition of “material adverse effect,” see “The Merger Agreement — Representations and Warranties” on page 42 of this document.

 

The merger agreement contains restrictions on the ability of Phoenix to solicit or engage in discussions or negotiations with a third party with respect to a proposal to acquire a significant interest in Phoenix, with certain exceptions.

 

Parent and Phoenix can mutually agree to terminate the merger agreement without completing the merger. In addition, Parent and Phoenix can each terminate the merger agreement under the circumstances set forth in the merger agreement and described in this document.

 

The merger agreement provides that, under specified circumstances, Phoenix may be required to pay Parent a termination fee equal to $4,150,000 if the merger agreement is terminated.

 

The executive officers of Phoenix and the members of the Phoenix board of directors have certain interests in the merger that are different from, or in addition to, the interests of stockholders generally.

 

Tom Lacey, Robert Andersen, David Gibbs and Timothy Chu, executive officers of Phoenix, each have a Severance and Change of Control Agreement with Phoenix that will entitle them to receive cash payments and other benefits if they experience a qualifying termination under certain circumstances within a designated period prior to or after the merger.

 

In addition, certain executive officers and certain directors of Phoenix hold Phoenix stock options and restricted stock awards that, as a result of the merger, will vest immediately prior to the closing of the merger. Certain executive officers are also entitled to receive a cash bonus under the Special Acquisition Bonus Plan.

 

Under the merger agreement, Phoenix, as the surviving corporation in the merger, has agreed to indemnify the directors and officers of Phoenix to the full extent permitted by law following the merger. Phoenix has also agreed to honor Phoenix’s obligations under the indemnification agreements between Phoenix and its officers and directors in effect before the merger and any indemnification provisions of Phoenix’s certificate of incorporation and bylaws.

 

Under the merger agreement, Phoenix will maintain for a period of six years an insurance policy covering persons who were directors or officers of Phoenix prior to the merger for the actions taken by such directors and officers in their capacities as directors and officers of Phoenix prior to the merger on terms with respect to coverage and amount no less favorable than those of such policy currently in effect, provided, however, that Phoenix will not

be required to expend in excess of 200% of the current annual premium paid by Phoenix for such policies currently maintained by Phoenix.

 

The Phoenix board of directors was aware of and discussed and considered these interests when it approved the merger.

 

Parent and Phoenix have made the required filings concerning the merger with the Antitrust Division of the U.S. Department of Justice and the U.S. Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 on August 31, 2010.

 

Generally, the receipt of cash in exchange for Phoenix common stock pursuant to the merger will be a taxable transaction to holders of Phoenix common stock for U.S. federal income tax purposes. A U.S. holder of Phoenix common stock receiving cash in the merger generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash received (before reduction for any applicable withholding taxes) and the holder’s adjusted tax basis in the Phoenix common stock surrendered. A non-U.S. holder of Phoenix common stock generally will not be subject to U.S. federal income tax unless the gain on the exchange is effectively connected with the conduct of a trade or business in the United States or the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable year of the merger and certain other conditions are met.

 

The tax consequences to you may vary depending on your particular circumstances. Due to the individual nature of tax consequences, you are urged to consult your own tax advisor as to the specific tax consequences to you of the merger, including the effects of any applicable state, local, foreign or other tax laws.

 

Under Delaware law, if a Phoenix stockholder does not vote for approval of the merger and complies with the other statutory requirements of the Delaware General Corporation Law, the stockholder may elect to receive, in cash, the judicially determined fair value of the stockholder’s shares of Phoenix common stock.

 

If the merger is completed, Phoenix’s common stock will be delisted from The NASDAQ Global Market and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Thereafter, the provisions of the Exchange Act will no longer apply to us, including the requirements to file periodic reports with the SEC and to furnish a proxy or information statement to our stockholders in connection with meetings of our stockholders.

 

On August 24, 2010, August 25, 2010 and August 26, 2010, three separate and substantially identical shareholder class action complaints were filed in the Superior Court of the State of California, County of Santa Clara, naming Phoenix, certain executive officers of Phoenix, members of Phoenix’s board of directors, Marlin Equity Partners and Ramius LLC as defendants. Althogh the specific defendants vary by complaint, plaintiffs in these complaints generally allege that, in connection with approving the Merger, Phoenix directors and Ramius LLC breached their fiduciary duties owed to Phoenix stockholders, and that Marlin Equity Partners and Phoenix’s executive officers knowingly aided and abetted the Phoenix directors’ breach of fiduciary duties. The complaints seek, among other things, certification of the cases as class actions, a declaration that Phoenix directors have breached their fiduciary duties, an injunction precluding consummation of the merger, and an award of fees, expenses and costs to plaintiffs and their attorneys. The complaint filed on August 25, 2010 also seeks compensatory damages against the defendants.

 

Phoenix intends to defend these lawsuits vigorously.

 

This proxy statement, and the documents to which we refer you in this proxy statement, contain “forward-looking statements,” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that reflect our current views as to future events and financial performance with respect to our operations, the expected completion and timing of the merger and other information relating to the merger. These statements can be identified by the fact that they do not relate strictly to historical or current facts. There are forward-looking statements throughout this proxy statement, including, among others, under the headings “Summary Term Sheet,” “The Merger,” “The Merger — Opinion of the Financial Advisor to Phoenix’s Board of Directors” and in statements containing words such as “anticipate,” “estimate,” “expect,” “will be,” “will continue,” “likely to become,” “intend,” “plan,” “believe” and other similar expressions. You should be aware that forward-looking statements involve known and unknown risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on our business or operations or on the merger and related transactions. These forward-looking statements speak only as of the date on which the statements were made and we undertake no obligation to update or revise any forward-looking statements made in this proxy statement or elsewhere as a result of new information, future events or otherwise, except as required by law. In addition to other factors and matters contained in or incorporated by reference in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

 

 

and other risks detailed in our current filings with the SEC, including our most recent filings on Forms 10-K, 10-Q and 8-K. You can obtain copies of our Forms 10-K, 10-Q and 8-K and other filings for free at the SEC website at www.sec.gov or from commercial document retrieval services.

 

The terms “Phoenix SecureCore Tiano” and “Embedded BIOS” used in this document are trademarks of Phoenix.

 

The accompanying proxy is solicited by the board of directors of Phoenix for use at the special meeting of stockholders to be held on          , 2010 at   a.m., local time, at          .

 

These proxy solicitation materials were mailed on or about          , 2010 to all stockholders entitled to vote at the meeting.

 

The Phoenix board of directors has fixed the close of business on          , 2010 as the record date for determining the stockholders of Phoenix entitled to notice of, and to vote at, the special meeting of stockholders or any adjournment thereof. Only Phoenix stockholders of record at the close of business on the record date will be entitled to notice of, and to vote at, the special meeting of stockholders or any adjournments thereof. Phoenix stockholders will have one vote for each share of Phoenix common stock that they owned on the record date.

 

At the close of business on the record date, there were           shares of Phoenix common stock issued and outstanding and entitled to vote at the Phoenix special meeting of stockholders.

 

At the special meeting of stockholders, stockholders will be asked to:

 

1. Consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of August 17, 2010, by and among the Company, Pharaoh Acquisition Corp. (“Parent”) and Pharaoh Merger Sub Corp., a wholly-owned subsidiary of Parent (“Merger Sub”), each an affiliate of Marlin Equity Partners, and solely for purposes of providing a guarantee of the obligations of the Parent and Merger Sub, Marlin Equity II, L.P. (“Marlin II”) and Marlin Equity III, L.P., pursuant to which each share of the Company’s common stock outstanding at the effective time of the merger will be converted into the right to receive $3.85 in cash, and the Company will become a wholly-owned subsidiary of Parent and indirect subsidiary of Marlin III; and

 

2. Consider and vote on a proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement.

 

There must be a quorum for the special meeting of stockholders to be held. The holders of a majority of the issued and outstanding Phoenix common stock entitled to vote, present in person or represented by a properly executed and delivered proxy, will constitute a quorum for the purpose of transacting business at the special meeting of stockholders. Only Phoenix stockholders of record on the record date will be entitled to vote at the special meeting of stockholders. All shares of Phoenix common stock represented at the special meeting of stockholders, but not voting, including broker non-votes and abstentions, will be counted as present for purpose of determining the presence or absence of a quorum but will not be counted as having been voted on any proposal. Broker non-votes result from shares held of record by brokers, banks or nominees which are not voted due to the failure of the beneficial owners of those shares to provide voting instructions as to certain non-routine matters, such as a merger proposal, as to which such brokers, banks or nominees may not vote on a discretionary basis. Consequently, an abstention from voting or a broker non-vote will have the effect of a vote against the merger proposal but will not have any effect on the proposal to adjourn the special meeting.

 

Approval of the proposal for adoption of the merger agreement and approval of the merger requires the affirmative vote of a majority of the outstanding shares of Phoenix common stock. The merger will not be completed unless Phoenix stockholders approve the merger proposal.

 

If necessary, the affirmative vote of the holders of a majority of the shares of Phoenix common stock present and voting at the special meeting, whether or not a quorum is present, is required to adjourn the special meeting for the purpose of soliciting additional proxies in favor of the merger proposal.

 

This solicitation is made on behalf of Phoenix’s board of directors, and Phoenix will pay the costs of soliciting and obtaining the proxies, including the cost of reimbursing banks, brokers and other custodians, nominees and fiduciaries, for forwarding proxy materials to their principals. Proxies may be solicited, without extra compensation, by Phoenix’s officers, directors and employees by mail, telephone, fax, personal interviews or other methods

of communication. Phoenix has engaged           to assist it in the distribution and solicitation of proxies. Phoenix estimates that it will pay           approximately $      for its services and will reimburse          for reasonable out-of-pocket expenses.

 

You may vote in person or by proxy at the special meeting. If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that, if your shares are held in “street name,” which means your shares are held of record by a broker, bank or other nominee, and you wish to vote in person at the special meeting, you must bring to the special meeting (a) a legal proxy from the record holder of the shares (your broker, bank or nominee) authorizing you to vote at the special meeting and (b) your statement evidencing your beneficial ownership of our common stock.

 

If you do not wish to attend the special meeting and you are a record holder, you may submit your proxy by completing, dating, signing and returning the enclosed proxy card in the enclosed postage-paid envelope or otherwise mail it to Phoenix or its solicitor. In addition, you may submit your proxy by telephone by calling 1-800-690-6903 or through the Internet at www.proxyvote.com. You must have the enclosed proxy card available, and follow the instructions on the proxy card, in order to submit a proxy by the Internet or telephone. If you submit a proxy through the Internet, by telephone or by returning a signed proxy card by mail, your shares will be voted at the special meeting as you indicate on your proxy card or by such other method. If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the adoption of the merger agreement and “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to adopt the merger agreement.

 

If you do not wish to attend the special meeting and your shares are held in “street name,” you should instruct your broker, bank or other nominee how to vote your shares using the voting instruction form furnished by your broker, bank or other nominee.

 

Proxies received at any time before the special meeting and not revoked or superseded before being voted will be voted at the special meeting. If you submit your proxy through the Internet, by telephone or by mail, you may revoke your proxy at any time before the vote is taken at the special meeting in any of the following ways:

 

 

Your attendance at the special meeting does not alone automatically revoke your proxy. If you have instructed your broker, bank or other nominee how to vote your shares, the above-described options for revoking your proxy do not apply. Instead, you must follow the directions provided by your broker, bank or other nominee to change your vote.

 

As a condition and inducement to the willingness of the Parent and Merger Sub to enter into the merger agreement, Ramius LLC, a Delaware limited liability company (“Ramius”) executed and delivered a Voting Agreement dated August 17, 2010 (the “Voting Agreement”) whereby Ramius has agreed to vote its shares of the Company’s common stock in favor of the Merger. A copy of the Voting Agreement is attached as Annex C to this proxy statement. See “The Merger — Voting Agreement” beginning on page 49 for a more detailed discussion of the Voting Agreement.

 

After careful consideration and consultation with its financial and legal advisors, our board of directors has determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, that it is in the best interests of Phoenix and its stockholders that Phoenix enter into the merger agreement and consummate the merger, and that the merger agreement is fair to Phoenix and its stockholders. Our board of directors recommends that Phoenix stockholders vote FOR the proposal to adopt the merger agreement and approve the merger and FOR the adjournment proposal, if necessary. See “Recommendations of Phoenix’s Board of Directors” beginning on page 19 of this document for a more detailed discussion of the recommendation of Phoenix’s board of directors,

 

Your vote is important. Accordingly, please sign, date and return the enclosed proxy card
whether or not you plan to attend the Phoenix special meeting of stockholders in person.

 

This section of the document describes the principal aspects of the proposed merger. While Phoenix believes that this description covers the material terms of the merger and the related transactions, this summary may not contain all of the information that is important to Phoenix stockholders. You can obtain a more complete understanding of the merger by reading the merger agreement, a copy of which is attached to this document as Annex A. You are encouraged to read the merger agreement and the other annexes to this document carefully and in their entirety.

 

Phoenix Technologies Ltd., a leader in core systems software products, services and embedded technologies, pioneers open standards and delivers innovative solutions that enable the PC industry’s top system builders and specifiers to differentiate their systems, reduce time-to-market and increase their revenues. Phoenix’s flagship products — Phoenix SecureCore Tiano and Embedded BIOS — are revolutionizing the PC user experience by delivering unprecedented performance, security, reliability, continuity, and ease-of-use. Phoenix established industry leadership and created the PC clone industry with its original BIOS product in 1983. Phoenix has over 200 technology patents issued and pending, and has shipped firmware in over one billion systems. Phoenix is headquartered in Milpitas, California with offices worldwide. Its principal executive offices are located at 915 Murphy Ranch Road, Milpitas, CA 95035, Tel: 1-800-677-7305. For more information, visit http://www.phoenix.com.

 

Pharaoh Acquisition Corp., a Delaware corporation (“Parent”), was formed solely for the purpose of entering into the merger agreement and completing the transactions contemplated thereby. Parent has not conducted any unrelated activities since its organization. Parent’s principal executive offices are located at c/o Marlin Equity Partners, 2121 Rosecrans Avenue, Suite 4325, El Segundo, CA 90245, Tel: (310) 364-0100.

 

Pharaoh Merger Sub Corp., a Delaware corporation (“Merger Sub”), was formed solely for the purpose of entering into the merger agreement and completing the transactions contemplated thereby. Merger Sub has not conducted any unrelated activities since its organization. Upon completion of the merger, the separate corporate existence of Merger Sub will cease. Merger Sub’s principal executive offices are located at c/o Marlin Equity Partners, 2121 Rosecrans Avenue, Suite 4325, El Segundo, CA 90245, Tel: (310) 364-0100.

 

Parent and Merger Sub are indirect wholly-owned subsidiaries of funds affiliated with Marlin Equity Partners.

 

Marlin Equity II, L.P., a Delaware limited partnership (“Marlin II”), and Marlin Equity III, L.P., a Delaware limited partnership (“Marlin III”), have entered into the merger agreement solely for purposes of providing a guarantee of the obligations of the Parent and Merger Sub under the merger agreement. See “Merger — Equity Commitment and Guarantee by Marlin” for a more detailed discussion of the equity commitment and guarantee by Marlin II and Marlin III. The principal executive offices of Marlin II and Marlin III are located at c/o Marlin Equity Partners, 2121 Rosecrans Avenue, Suite 4325, El Segundo, CA 90245, Tel: (310) 364-0100.

 

Marlin II and Marlin III are investment funds established by Marlin Equity Partners (“Marlin”), a Los Angeles-based private investment firm with over $1 billion of capital under management. Marlin is focused on providing corporate parents, shareholders and other stakeholders with tailored solutions that meet their business and liquidity needs. Marlin invests in businesses across multiple industries that are in the process of undergoing operational, financial or market-driven change where Marlin’s capital, industry relationships and extensive operational capabilities significantly strengthens a company’s outlook and enhances value. Since its inception, Marlin, through its group of funds and related companies, has successfully completed over 35 acquisitions. For more information, please visit www.marlinequity.com.

 

As part of the ongoing evaluation of Phoenix’s business, the board of directors and management regularly consider a variety of strategic alternatives for the company. As part of this process, Phoenix’s board of directors and management have evaluated, independently and with financial advisors, various alternatives for expanding its business, improving Phoenix’s competitive position through focusing on its core business, and enhancing stockholder value, including the advisability of entering into a merger or sale of the company.

 

On January 5, 2010 Phoenix issued a press release stating that as part of its strategic initiative to re-focus Phoenix on the core systems software solutions business, it had retained GrowthPoint Technology Partners to explore the potential sale of various product lines that Phoenix deemed as non-core products, including FailSafe, HyperSpace and eSupport.

 

In connection with its strategic initiative, the board of directors established a Strategic Development Committee (“Committee”) to assist the board in evaluating and reviewing potential transactions relating to both the sale of various non-core product lines as well as exploring other strategic alternatives.

 

On February 2, 2010, a third party (“Company A”) submitted an unsolicited non-binding letter to Phoenix expressing its interest in a potential acquisition of Phoenix at a preliminary proposed price of $4.00 per share. The proposal contained in the letter was conditioned on, among other things, successful completion of due diligence and the negotiation of a definitive agreement.

 

At a meeting of the board of directors held on February 3, 2010, the board reviewed the terms of the letter and discussed the potential business combination described in Company A’s proposal with Phoenix’s management and Phoenix’s legal counsel, Morgan, Lewis & Bockius LLP (“Morgan Lewis”). The board determined that it should obtain further information regarding the Phoenix’s opportunities and the alternatives that might be available to it, and that Phoenix should engage in a process that would allow the board to obtain such information as well as assist in the board’s evaluation of the proposal contained in the letter from Company A. A representative of Phoenix contacted Company A to respond to the proposal and indicate that Phoenix would contact Company A to engage in further discussions relating to its proposal as the board reviewed Phoenix’s strategic alternatives.

 

On February 18, 2010, following an earnings announcement by Phoenix on February 4, 2010 in which Phoenix reported, among other things, a decline in revenue in the first quarter of 2010 compared to the first quarter of 2009, Company A submitted a revised letter to Phoenix which was similar in form to the February 2nd letter, but with a lower proposed price of $3.70 per share. The revised proposal continued to be conditioned on, among other things, successful completion of due diligence and the negotiation of a definitive agreement.

 

On February 25, 2010, the board appointed Tom Lacey as Phoenix’s President and Chief Executive Officer and to serve as a member of Phoenix’s board of directors.

While the discussions with Company A did not ultimately result in a proposal from Company A that was acceptable to the board of Phoenix, the receipt of the proposal and subsequent discussions with Company A contributed to the board’s decision to evaluate other strategic alternatives that might be available to Phoenix, including remaining as an independent company with growth funded from the divestiture of its noncore businesses. In connection with this evaluation, the board of directors authorized the engagement of RBC as its financial advisor in connection with the comprehensive review of Phoenix’s strategic alternatives. RBC was engaged as the financial advisor to Phoenix on the terms and conditions set forth in a letter agreement dated March 8, 2010.

 

At a meeting of the board of directors on March 12, 2010, the board discussed with representatives of RBC and management the interest expressed by Company A, and instructed management and RBC to further evaluate the strategic alternatives available to Phoenix, including Phoenix’s continued operation as an independent company and the potential for a business combination with Company A or other potential parties. The board of directors also discussed with management and representatives of RBC the process by which Phoenix might explore and evaluate strategic transactions, including opportunities for Phoenix to combine with, or be acquired by, another company, and the identity of the parties to be contacted. In addition, a representative of Morgan Lewis reviewed with the board of directors its fiduciary duties in connection with its consideration of such alternatives. At the conclusion of these discussions, the board instructed RBC to contact certain parties that might be interested in a potential acquisition of, or combination with, Phoenix. The board also instructed RBC to provide additional financial analyses regarding other strategic alternatives, including Phoenix remaining as an independent business.

 

Beginning on March 15, 2010, representatives of RBC confidentially contacted 56 companies, including both strategic buyers and financial sponsors, regarding a potential transaction with Phoenix. These companies included Company A, Marlin Capital Partners (“Marlin”) and three other companies that are referred to as “Company B”, “Company C” and “Company D”. Phoenix subsequently entered into nondisclosure agreements with fifteen of the companies contacted (including with Marlin on March 22, 2010 and with Company A, Company B, Company C and Company D). Phoenix’s management gave presentations to eleven of these companies regarding Phoenix’s business and operations, and Phoenix made certain information available to these parties in connection with their review of Phoenix’s business. On April 16, 2010, a representative of Marlin called a representative of RBC to advise him that Marlin had decided not to pursue a business combination with Phoenix at that time.

 

Also during this process, the board of directors held numerous meetings to evaluate the process and to obtain updates on the status of the discussions with various companies. At this time, the Phoenix board of directors also instructed RBC to provide analysis of certain strategic alternatives, including continued operation as an independent company and entering into a strategic business combination or the sale of the company. The board of directors also instructed management to develop for presentation to the board of directors at subsequent meetings detailed strategic plans for continued operation of the business as an independent company.

 

On April 8, 2010, Phoenix announced that Absolute Software Corporation had acquired certain assets associated with the FailSafe product line. The closing of the transaction yielded approximately $6.9 million in cash for Phoenix.

 

At a meeting of the Strategic Development Committee held on April 23, 2010, representatives of RBC updated the Committee on the status of discussions regarding a potential business combination, and discussed the next steps in the process, including the distribution of bid instruction letters to those parties who continued to show interest in a potential transaction. The Committee reviewed a draft bid instruction letter and authorized RBC to send bid instruction letters to interested parties requesting, among other things, that such parties submit initial indications of interest to RBC on or prior to May 11, 2010. In accordance with the Committee’s instructions, representatives of RBC subsequently sent bid instruction letters to the eleven parties that had signed confidentiality agreements and were continuing to express interest in a potential transaction with Phoenix.

 

At the same meeting, the Committee also discussed the amount of time that management was committing to the process, including management’s presentations to interested parties, as well as the potential effect on Phoenix if certain members of management did not continue to be employed by Phoenix through the completion of any potential transaction. The Committee discussed the necessity of implementing an incentive plan to ensure that key employees would continue their employment through the consummation of a transaction, and instructed RBC to

include certain anticipated expenses associated with such incentive plan in the financial information provided to interested parties.

 

Prior to the May 11, 2010 deadline for submitting proposals, Company D informed RBC that it would only be interested in performing further due diligence if Phoenix would accept a “below market” offer price per share. After reviewing this information with certain members of the Committee, RBC subsequently informed Company D that it would not be granted further access to Phoenix’s confidential information unless Company D indicated its willingness to propose an increased price. Following such discussions, Company D did not make any proposals or indicate a willingness to increase the proposed price until Company D made a written non-binding proposal on August 25, 2010, following the public announcement of Phoenix’s merger with Marlin, as described below.

 

At a meeting of the board of directors on May 13, 2010, the board reviewed the proposals submitted by interested parties and discussed the potential business combinations described in the proposals with Phoenix’s management, representatives of RBC and Morgan Lewis. As of that time, Phoenix had received three proposals. Company A provided a verbal, non-binding proposal at an “at market” offer price per share (Phoenix’s closing share price on May 11, 2010 was $3.29). Company B submitted a written, non-binding proposal of $4.00 per share. Company C submitted a written non-binding proposal of $2.70 — $2.90 per share. Each of the proposals was conditioned upon the satisfaction of due diligence and the negotiation of definitive agreements. None of the remaining seven parties subsequently submitted a proposal.

 

The board instructed RBC to invite Company B into a second stage of due diligence, and to enter into negotiations with Company A and Company C in an attempt to have such companies raise the price in their respective proposals. The board instructed RBC to inform Company A and Company C that, as outlined in the bid instruction letter previously sent to such companies, they would not be able to continue in Phoenix’s process unless they raised their respective offer prices. As instructed by the board, RBC subsequently contacted each company and invited Company B to continue due diligence activities with Phoenix. Neither Company A nor Company C subsequently improved their proposals.

 

At a meeting of the board of directors held on May 18, 2010, the board further discussed the potential business combinations described in the three proposals. In addition, certain members of management presented to the board the strategic plans for continued operation of the business, potential areas of value in the company and the opportunities and risks associated with executing Phoenix’s business plan as an independent company. In addition, the board discussed with RBC various valuation models and the assumptions contained in such analyses. At the conclusion of the meeting, the board authorized RBC and management to continue discussions with the interested parties.

 

On May 25, 2010, Company D contacted a representative of RBC and indicated that it was interested in re-engaging with Phoenix to explore a potential transaction. Given Company D’s renewed interest, Phoenix provided Company D with access to the same due diligence information that was provided to the other interested parties prior to the May 11 bid deadline and RBC requested that Company D submit a written proposal as soon as possible. On June 4, 2010, after reviewing the information, Company D informed RBC that it was no longer interested in pursuing a potential transaction with Phoenix at that time.

 

On May 28, 2010, a representative of Marlin contacted a representative of RBC to inquire whether it could re-engage with Phoenix to explore a potential transaction. Phoenix provided Marlin with access to the same due diligence information that was provided to the other interested parties prior to the May 11th bid deadline and asked Marlin for a proposal as soon as possible. After evaluating this additional material, on June 2, 2010, Marlin submitted a written non-binding proposal for $3.97 per share. The proposal was conditioned upon completing further diligence and the negotiation of a definitive agreement. Following receipt of the proposal from Marlin, the board instructed RBC to include Marlin in the second stage of the due diligence process. A representative of RBC subsequently informed Marlin that it would be allowed to continue in its due diligence process with Phoenix.

 

Beginning in May 2010 and continuing through June 24, 2010, representatives of Marlin and Company B conducted comprehensive due diligence investigations of Phoenix and held various meetings with members of Phoenix’s management. In addition, in June 2010, management of Phoenix engaged in discussions with two other companies regarding the potential sale of certain intellectual property owned by Phoenix and those companies were

provided with diligence information relating to the intellectual property. Although both of these companies indicated that they were interested in pursuing a transaction, neither company submitted a proposal with respect to the transfer of Phoenix’s intellectual property.

 

On June 16, 2010, Phoenix announced it had completed the sale of the assets related to its HyperSpace product to Hewlett Packard for total consideration of $12.0 million, of which approximately $9.8 million was paid to Phoenix at the closing, after deducting certain fees and costs relating to the transaction, and $2.0 million was placed into escrow to cover certain potential indemnification obligations.

 

On June 17, 2010, Phoenix announced the sale of its eSupport business assets to eSupport.com, Inc., a newly-formed private entity, for an upfront cash payment of $1.0 million and an aggregate of $0.6 million in licensing fees to be paid annually over the next three years. Combined with the previously-announced asset sales of FailSafe and HyperSpace, the sale of eSupport marked Phoenix’s third and final non-core asset divestiture. In total, Phoenix received $20.3 million in consideration from these transactions: $17.7 million in cash and $2.6 million in escrowed amounts and future licensing fees.

 

At a meeting of the board of directors held on June 18, 2010, representatives of RBC updated the board on the status of discussions with Marlin and Company B, and discussed sending further bid instruction letters to the two parties. The instruction letters would request “best and final” bids, and instruct the two parties to provide comments to a proposed merger agreement in order to permit the board to ascertain the terms under which the two parties were willing to proceed. Representatives of Morgan Lewis reviewed with the board the terms of the draft merger agreement to be provided to Marlin and Company B, which draft had been previously provided to the board, and the board discussed the proposed terms. Following such review, the board authorized RBC to send bid instruction letters, together with the draft merger agreement, to the two parties requesting, among other things, that the parties submit proposals to RBC on or prior to June 24, 2010.

 

On June 24, 2010, RBC received acquisition proposals for Phoenix from both Marlin and Company B. Company B submitted a non-binding proposal at a price of $3.35 per share, and Marlin submitted a non-binding proposal at a price of $4.20 per share.

 

Both proposals contained a condition that Phoenix grant a period of exclusivity in order to permit the completion of due diligence and negotiation of the merger agreement. Also, as requested, Marlin provided a revised draft of the proposed merger agreement indicating its proposed changes to the terms of the transaction. Company B did not provide a revised draft of the merger agreement.

 

At a meeting of the board of directors held on June 25, 2010, the board reviewed and discussed the terms of the proposals with representatives of RBC and Morgan Lewis. Following such review and discussion, the board instructed RBC to request that both Company B and Marlin improve the terms of their proposals. In addition, the board authorized the Committee to grant exclusivity to Marlin under certain conditions. As instructed, representatives of RBC engaged in negotiations with both Company B and Marlin and requested that each company improve its terms. Company B declined to improve the terms of its proposal. On June 28, 2010, Marlin submitted a revised proposal with a price of $4.38 per share less the anticipated cost of Phoenix’s retention plan that had been discussed with Marlin. On June 29, 2010, RBC discussed the proposal with Marlin, including the anticipated costs associated with the retention plan, and requested that Marlin clarify and improve the terms of its proposal. Following such discussion, Marlin submitted a revised proposal with a price of $4.30 per share and improved certain other terms.

 

At a meeting of the Strategic Development Committee held on June 30, 2010, the Committee reviewed and discussed with representatives of RBC and Morgan Lewis the latest proposals and proposed next steps with each interested party. In particular, representatives of RBC reviewed the status of negotiations with the two interested parties and noted that Marlin had improved the terms of its proposal. In addition, representatives of Morgan Lewis also reviewed with the directors their legal obligations, including fiduciary duties, and summarized the material terms and conditions of the most recent draft of the merger agreement with Marlin, which had been negotiated with Marlin and further revised since Marlin’s prior proposal. The Committee also discussed with management and its advisors the terms of the proposed exclusivity agreement with Marlin, and the unwillingness of Marlin to proceed without such exclusivity. After further discussions, the Committee authorized Phoenix to enter into an agreement with Marlin providing for exclusivity, authorized management to continue due diligence with Marlin and to

negotiate the terms of the merger agreement. On July 1, 2010 Phoenix entered into a 30-day exclusivity period with Marlin to permit further due diligence and the negotiation of the merger agreement.

 

From July 1, 2010 through July 31, 2010, representatives of Marlin conducted due diligence investigations of Phoenix. During that time, at the direction of the board, certain members of management and representatives of RBC met with representatives of Marlin to discuss the operations of Phoenix and its financial condition. Also, during this time, representatives of Phoenix and Morgan Lewis discussed Marlin’s legal due diligence and as part of those diligence investigations, reviewed legal, financial and operations data relating to Phoenix. Also during this time the parties and their legal and financial advisors engaged in extensive negotiations regarding the terms and conditions of the merger agreement relating to the proposed merger.

 

At a meeting of the board of directors held on July 19, 2010 which was also attended by representatives of RBC and Morgan Lewis, the board reviewed the status of discussions with Marlin and the terms of the proposed transaction. A representative of Morgan Lewis summarized the terms contained in the most recent draft of the merger agreement and reviewed with the board their fiduciary duties in connection with the proposed transaction. In addition, Phoenix’s management reviewed Phoenix’s financial performance, including the outlook for the next quarter and fiscal year. The board discussed the assumptions contained in management’s presentation, as well as the risks and opportunities associated with executing Phoenix’s business plan. In addition, the board discussed the risks associated with completing a transaction with Marlin, including the possibility of losing employees as a result of the announcement of the transaction and generally the risks of satisfying the closing conditions in such a transaction. The board noted that Marlin had not engaged in any discussions with management regarding their future employment with the company and had indicated that it did not intend to do so prior to the announcement of a transaction. In connection with such discussion, the board discussed the necessity of implementing a retention plan to ensure that certain key employees would remain employed by Phoenix following announcement of a transaction. The board requested additional information from management relating to such retention plan. Also, in determining the size of the retention plan, both in absolute and percentage terms, the board used a matrix which contemplated a variety of potential acquisition prices. The matrix contemplated that if a transaction occurred at a price higher (or lower) than the one embodied in the proposal from Marlin, then the size of the retention plan would increase (or decrease) both in dollar amount and as a percentage of the overall transaction value, pursuant to that matrix.

 

During the initial exclusivity period, Marlin requested that exclusivity be extended for an additional week to allow Marlin to complete its due diligence and finalize the negotiations of the merger agreement.

 

At a meeting of the board of directors held on July 29, 2010, the board discussed the request by Marlin with management and its advisors and, in particular, discussed the causes for the delay in the completion of diligence and the timing of the delivery of diligence materials to Marlin. After further discussions regarding the fact that Phoenix had not been able to provide some diligence materials in the time frame requested by Marlin, the board approved the extension of exclusivity with Marlin to August 6, 2010.

 

During the week of July 30th, representatives of RBC and management of Phoenix engaged in extensive discussions with Marlin regarding outstanding diligence matters. In addition, representatives of Morgan Lewis negotiated terms of the proposed merger agreement with Marlin’s counsel. During this time, Marlin indicated that it would need additional time to complete certain additional due diligence and re-confirm the price that it had previously proposed. Marlin requested that the exclusivity period be extended until August 9, 2010.

 

Following the receipt of such request, at a meeting of the board of directors held on August 6, 2010, the board determined that Phoenix should not extend the exclusivity period until Marlin re-affirmed its proposed price.

 

On August 9, 2010, Marlin contacted a representative of RBC and indicated that, based on its recent due diligence review, Marlin was prepared to acquire Phoenix at a price of $3.85 per share. Marlin also indicated that it would need two more weeks to complete its diligence review and would require exclusivity during that time period. Also on August 9, 2010, at the direction of the board, certain members of management had further discussions with two companies regarding the potential sale of certain intellectual property of Phoenix. The two companies indicated that they were interested in pursuing such a transaction, but neither company submitted a proposal to Phoenix.

 

At a meeting of the board of directors on August 9, 2010, the board reviewed Marlin’s revised proposal and discussed with representatives of RBC and management the diligence issues that had been identified by Marlin in

their revised proposal. The board instructed RBC to negotiate with Marlin to improve the price of its proposal. Following the meeting, a representative of RBC contacted Marlin and attempted to negotiate a higher price; however, Marlin responded that it would not increase the price in its proposal.

 

Following the meeting, Jeff Smith, Chairman of the Board of Directors of Phoenix, also had discussions with a representative of Marlin regarding the proposed purchase price and the timing of the transaction. Marlin indicated that they were not willing to increase the proposed price, although Marlin told Mr. Smith that it would be prepared to sign a merger agreement on August 16, 2010 provided that Phoenix enter into an exclusivity agreement with Marlin during that period.

 

At a meeting of the board of directors on August 11, 2010, Mr. Smith and RBC updated the board on their discussions with Marlin. In light of the shorter time period and the insistence by Marlin that Phoenix enter into an exclusivity agreement during that period, the board authorized Phoenix to enter into an exclusivity agreement for the period ending August 16, 2010.

 

Prior to entering into the exclusivity agreement, management of Phoenix engaged in further discussions with two companies regarding the possible sale of certain intellectual property. No proposals were received from these companies for such a transaction.

 

In the afternoon of August 12, 2010, Phoenix entered into an exclusivity agreement with Marlin providing for an exclusivity period through August 16, 2010.

 

From August 12, 2010 through August 16, 2010, representatives of Marlin conducted further due diligence of the operations of Phoenix. Also during this time the parties and their legal and financial advisors engaged in extensive negotiations regarding the terms and conditions of the merger agreement relating to the proposed merger.

 

On August 16, 2010, the board of directors held a meeting to consider the terms and conditions of the proposed transaction with Marlin. Management and representatives of RBC and Morgan Lewis provided an update on the status of negotiations with Marlin, including the fact that Marlin was finalizing its diligence review of Phoenix, as well as a review of other discussions that had occurred with interested parties regarding a transfer of certain intellectual property of Phoenix. The directors noted that the discussions relating to the intellectual property had not resulted in the receipt of a proposal from either of the interested parties. Representatives of RBC then provided an update to its financial analyses with respect to the proposed transaction from a financial point of view. Representatives of Morgan Lewis reviewed with the board of directors its fiduciary duties in connection with its consideration of the transaction with Marlin and gave a detailed overview of the terms, conditions, contingencies, risks and other aspects of the potential transaction. After considering the advice of its advisors, the Phoenix board of directors evaluated the proposed business combination as well as continuing to operate the business as an independent company. The board authorized its advisors to continue discussions with Marlin to finalize the terms of the proposed transaction and to confirm that Marlin had completed its diligence review of Phoenix.

 

At a meeting of the board of directors on August 17, 2010, representatives of RBC and Morgan Lewis advised the board that Marlin had completed its diligence and was prepared to sign the merger agreement. Representatives of RBC then updated RBC’s analyses of the financial aspects of the transaction and discussed any changes from the presentation RBC gave to the board the previous day. RBC then delivered its oral opinion, subsequently confirmed in writing, to the effect that, based upon and subject to certain assumptions made, matters considered and limitations set forth in its opinion, the offer by Marlin of $3.85 per share in cash to be received by holders of Phoenix’s common stock pursuant to the merger agreement was fair, from a financial point of view, to the holders of shares of Phoenix’s common stock. See “The Merger — Opinion of Financial Advisor to Phoenix’s Board of Directors” beginning on page 21 of this document and a copy of the opinion attached as Annex B to this document. In addition, representatives of Morgan Lewis summarized the changes in the merger agreement from the previous day.

 

Following the presentations and after further discussions and deliberations among the directors, management and financial and legal advisors, the board of directors unanimously determined that the merger agreement, the merger and other the transactions contemplated by the merger agreement, were fair to, advisable, and in the best interest of Phoenix and its stockholders, unanimously adopted and approved the merger agreement, the merger and the other transactions contemplated by the merger agreement, and unanimously recommended that its stockholders adopt the merger agreement.

A telephone call was held on the afternoon of August 17, 2010 following the approvals of the merger and related transactions by the board of directors, during which the respective legal counsel of Marlin and Phoenix met by telephone conference to finalize the transaction. Phoenix and affiliates of Marlin then executed the merger agreement on August 17, 2010, as well as the commitment letters from Marlin, and a voting agreement was executed by Phoenix’s largest stockholder. Ramius LLC.

 

Later in the day on August 17, 2010, Phoenix publicly announced the transaction through the issuance of a press release.

 

On August 25, 2010, Phoenix received an unsolicited non-binding proposal from Company D to acquire all of the securities of Phoenix for cash consideration of $150 million. The merger with Marlin is valued at approximately $139 million. The non-binding proposal was subject to satisfactory completion of due diligence by Company D and the negotiation of definitive agreements. According to the proposal, Company D anticipates that the other terms of the transaction would not materially differ from the merger with Marlin, except that the minimum cash balance that Phoenix is required to maintain at closing would be reduced from $30 million to $25.85 million, with the difference being equal to the $4.15 million termination fee payable under the merger agreement if Phoenix were to terminate the Merger Agreement with Marlin under certain circumstances.

 

On August 26, 2010, the board of directors carefully reviewed the terms of the unsolicited proposal and, after consulting with representatives of RBC and Morgan Lewis, determined that the unsolicited proposal satisfies the conditions contained in the merger agreement with Marlin that permit Phoenix, in order for the board to comply with its fiduciary duties under applicable law, to enter into discussions and negotiations with Company D with respect to the proposal and to share information about Phoenix with Company D. Phoenix has commenced such discussions in accordance with the terms of the merger agreement.

 

On August 31, 2010, Phoenix received a communication from Company D that specified that the price per share in Company D’s proposal would be $4.15. Company D also delivered a draft merger agreement. The merger agreement contemplated a tender offer structure and contained a closing condition reflecting the reduced minimum cash position described in Company D’s proposal. Other than with respect to the foregoing, the merger agreement contained terms that were not materially different than the terms in the merger agreement with Marlin.

 

Company D’s non-binding proposal continues to be subject to satisfactory completion of due diligence by Company D and the negotiation of definitive agreements. There is no assurance that the proposal from Company D will not be withdrawn, or will result in an offer that is acceptable to the board of directors or that a definitive agreement will be executed.

 

Phoenix is continuing to comply with its obligations under its merger agreement with Marlin, which remains in effect. As previously announced, the board of directors has approved the merger with Marlin and continues to support its recommendation that Phoenix’s stockholders adopt the merger agreement and approve the merger with Marlin.

 

After careful consideration and consultation with its financial and legal advisors, Phoenix’s board of directors has determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, that it is in the best interests of Phoenix and its stockholders that Phoenix enter into the merger agreement and consummate the merger, and that the merger agreement is fair to Phoenix and its stockholders. Our board of directors recommends that Phoenix stockholders vote FOR the proposal to adopt the merger agreement and approve the merger and FOR the adjournment proposal, if necessary.

 

In considering the recommendation of Phoenix’s board of directors with respect to the merger agreement, you should be aware that certain directors and executive officers of Phoenix have interests in the merger that are different from, or are in addition to, the interests of Phoenix stockholders. Please see the section entitled “The Merger — Interests of Phoenix Directors and Executive Officers in the Merger” beginning on page 28 of this document.

 

Phoenix’s board of directors has determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, that it is in the best interests of Phoenix and its stockholders that Phoenix enter into the merger agreement and consummate the merger, and that the merger agreement is fair to Phoenix and its stockholders.

 

In reaching its decision to approve the merger agreement and to recommend that Phoenix stockholders vote to adopt the merger agreement and approve the merger, Phoenix’s board of directors considered a number of factors, including the following:

 

 

Phoenix’s board of directors also considered a number of potentially negative factors in its deliberations concerning the merger. The potentially negative factors considered by Phoenix’s board of directors included:

 

 

After considering the risks, Phoenix’s board of directors concluded that the potential benefits of the merger outweighed these risks.

 

The foregoing discussion, information and factors considered by Phoenix’s board of directors is not intended to be exhaustive but is believed to include all material factors considered by Phoenix’s board of directors. In view of the wide variety of factors considered by Phoenix’s board of directors, as well as the complexity of these matters, Phoenix’s board of directors did not find it practical to quantify or otherwise assign relative weight to the specific factors considered. In addition, Phoenix’s board of directors did not reach any specific conclusions on each factor considered, or any aspect of any particular factor, and individual members of the board of directors may have given different weights to different factors. In making its determinations and recommendations, the board of directors as a whole viewed its determinations and recommendations based on the totality of the information presented to and considered by it. However, after taking into account all of the factors set forth above, Phoenix’s board of directors unanimously agreed that the merger agreement and the merger were fair to, and in the best interests of Phoenix and its stockholders and that Phoenix should proceed with the merger.

 

On August 17, 2010, as financial advisor to the Company’s board of directors, RBC rendered its written opinion to the Company’s board of directors that, as of that date and subject to the assumptions, qualifications and limitations set forth in its opinion, the merger consideration of $3.85 in cash, without interest, for each share of the Company’s Common Stock specified in the merger agreement (the “Merger Agreement”) was fair, from a financial point of view, to the Company’s stockholders. The full text of RBC’s written opinion dated August 17, 2010 is attached to this proxy statement as Annex B. RBC’s opinion was approved by the RBC M&A Fairness Opinion Committee. This summary of RBC’s opinion is qualified in its entirety by reference to the full text of the opinion. The Company urges you to read this opinion carefully in its entirety for a description of the procedures followed, assumptions made, matters considered and limitations on the review undertaken by RBC.

RBC’s opinion was provided for the information and assistance of the Company’s board of directors in connection with their consideration of the Merger. RBC’s opinion did not address the Company’s underlying business decision to engage in the Merger or the relative merits of the Merger compared to any alternative business strategy or transaction in which the Company might engage. RBC’s opinion and the analyses performed by RBC in connection with its opinion and reviewed by the Company’s board of directors were only two of many factors taken into consideration by the Company’s board of directors in connection with its evaluation of the Merger. RBC’s opinion does not constitute a recommendation to the Company’s stockholders as to how you should vote with respect to the Merger.

 

RBC’s opinion addressed solely the fairness of the per share price payable in the Merger, from a financial point of view, to the Company’s stockholders and did not in any way address other terms or arrangements of the Merger or the Merger Agreement, including, without limitation, the financial or other terms of any other agreement contemplated by, or to be entered into in connection with, the Merger Agreement. Further, in rendering its opinion, RBC expressed no opinion about the fairness of the amount or nature of the compensation to any of the Company’s officers, directors, or employees, or class of such persons, relative to the compensation to the Company’s public stockholders.

 

In rendering its opinion, RBC assumed and relied upon the accuracy and completeness of all information that was publicly available to RBC and all of the financial, legal, tax, operating, and other information provided to or discussed with it by the Company, including, without limitation, the Company’s financial statements and related notes thereto. RBC did not assume responsibility for independently verifying, and did not independently verify, this information. RBC assumed that the financial estimates, projections and forecasts of Phoenix prepared by the Company’s management and reviewed by RBC were reasonably prepared reflecting the best currently available estimates and good faith judgments of the future financial performance of Phoenix, as a standalone entity, as of the time such financial estimates, projects and forecasts were made. RBC expressed no opinion as to those financial estimates, projections and forecasts or the assumptions on which they were based. RBC did not assume any responsibility to perform, and did not perform, an independent evaluation or appraisal of any of the assets or liabilities of Phoenix, and RBC was not furnished with any such valuations or appraisals. In addition, RBC did not assume any obligation to conduct, and did not conduct, any physical inspection of the property or facilities of Phoenix. Additionally, RBC was not asked to, and did not consider, the possible effects of any litigation or other claims affecting Phoenix. RBC did not investigate and made no assumption regarding the solvency of Phoenix, Parent or Merger Subsidiary nor the impact (if any) on such solvency of the financing for the Merger contemplated by the commitment letters or the debt financing.

 

In rendering its opinion, RBC assumed, in all respects material to its analysis, that all conditions to the consummation of the Merger would be timely satisfied without waiver. RBC further assumed that the executed version of the Merger Agreement would not differ, in any respect material to its opinion, from the latest draft RBC received on August 16, 2010.

 

RBC’s opinion spoke only as of the date it was rendered, was based on the conditions as they existed and information with which RBC was supplied as of such date, and was without regard to any market, economic, financial, legal or other circumstances or events of any kind or nature which may exist or occur after such date. RBC has not undertaken to reaffirm or revise its opinion or otherwise comment on events occurring after the date of its opinion and does not have an obligation to update, revise or reaffirm its opinion. Unless otherwise noted, all analyses were performed based on market information available as of August 16, 2010.

 

In connection with its review of the Merger and the preparation and rendering of its opinion, RBC undertook the review and inquiries it deemed necessary and appropriate under the circumstances, including:

 

 

 

In arriving at its opinion, in addition to reviewing the matters listed above, RBC performed the following analyses:

 

 

In connection with the rendering of its opinion to the Company’s board of directors, RBC reviewed with the Company’s board of directors the analyses listed above and other information material to the opinion. RBC informed the Company’s board of directors that it did not perform a discounted cash flow analysis because the Company does not prepare sufficiently long-term financial projections to facilitate such an analysis and that in its professional judgment RBC did not believe that a discounted cash flow analysis was a reliable method for determining the value of Phoenix due to the particular difficulty of forecasting the long-term future results of smaller companies. Set forth below is a summary of the analyses used by RBC, including information presented in tabular format. To fully understand the summary of the analyses used by RBC, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the analysis.

 

Comparable Public Company Analysis.  RBC prepared a comparable company analysis of certain of the Company’s implied transaction multiples relative to a group of publicly-traded companies that RBC deemed, in its professional judgment for purposes of its analysis, to be comparable to the Company. In selecting publicly-traded companies, RBC considered enterprise software companies that at the time of the first board meeting on March 10, 2010 had market capitalizations less than $500 million.

 

 

In this analysis, RBC compared the Company’s enterprise value (“EV”) implied by per share price payable in the Merger, expressed as a multiple of the Company’s actual calendar year 2009, projected calendar year 2010 and projected Phoenix fiscal year 2011 revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”), to the respective multiples of calendar year 2009, projected calendar year 2010 and projected Phoenix fiscal year 2011 EV-to-revenue and to EV-to-EBITDA of the comparable companies implied by the public trading prices of their common stock. Projected revenue and EBITDA were based on internal management projections and

Wall Street research in the case of the Company and, in the case of the comparable companies, SEC and other public filings, press releases, FactSet, Thomson ONE, RBC institutional research and other Wall Street sources.

 

To adjust for the sale and disposition of Non-Core product lines, financial results used in RBC’s analysis for CY2010E for Wall Street consensus results represent: (a) pro forma financial results prepared by management that exclude revenue and costs from Non-Core product lines for the first two quarters of CY2010 and (b) Wall Street research estimates for the last two quarters of CY2010 published after the announcement of the disposition of the Non-Core product lines.

 

The following table presents the Company’s implied EV-to-revenue and EV-to-EBITDA, and the corresponding multiples for the comparable companies, for the periods reviewed by RBC in connection with its analysis:

 

 

 

 

RBC noted that: (1) the Company’s EV-to-revenue multiples implied by the per share price payable in the Merger for the actual calendar year 2009, the projected calendar year 2010 and the projected Phoenix fiscal year 2011 were within the observed range of multiples and were greater than the median and mean multiples of the comparable companies analyzed; and (2) the Company’s EV-to-EBITDA multiple implied by the per share price payable in the Merger for the actual calendar year 2009 were within the observed range of multiples and below the median and mean multiples of the comparable companies analyzed; the Company’s EV-to-EBITDA multiple implied by the per share price payable in the Merger for the projected calendar year 2010 were within the observed range of multiples and greater than or equal to the median and mean multiples of the comparable companies analyzed; and its EV-to-EBITDA multiple implied by the per share price payable in the Merger for the projected Phoenix projected fiscal year 2011 was, based on consensus estimates, within the observed range of multiples and above the median and mean multiples of the comparable companies analyzed and, based on management estimates, below the observed range of multiples and median and mean multiples of the comparable companies analyzed.

 

Comparable Precedent Transaction Analysis.  RBC prepared a comparable precedent transaction analysis of the Company’s implied transaction multiples relative to a group of publicly-announced merger and acquisition transactions that RBC deemed, in its professional judgment, for purposes of its analysis, to be comparable to the Merger. In selecting comparable precedent transactions, RBC considered mergers and acquisitions publicly announced since January 1, 2008 in the enterprise software industry in which the publicly-traded target company had an enterprise value between $20 and $500 million. For all purposes of its analyses summarized in this section,

RBC defined enterprise value (“EV”) as equity value plus total debt, preferred stock and minority interest less cash, cash equivalents and marketable securities.

 

 

For the purpose of RBC’s analysis with respect to Phoenix’s last-twelve-months (“LTM”) results ending June 30, 2010, RBC analyzed both actual results for the final two quarters of 2009 and the first two quarters of 2010.

 

RBC compared EV-to-LTM pro forma revenue and EV-to-LTM pro forma EBITDA multiples relating to the Merger with corresponding multiples in the comparable precedent transactions. Pro forma financials exclude revenue and costs from “Non-Core” product lines, all of which were sold or wound-down in 2010. Non-Core product lines are the BeInSync, eSupport, FailSafe and HyperSpace product lines.

For the purpose of calculating the multiples for the comparable precedent transactions, multiples of LTM revenue and LTM EBITDA were derived from the actual revenue and EBITDA (adjusted to exclude non-cash and one-time charges) of the target companies in the last twelve months prior to the announcement of the transaction. Financial data regarding the precedent transactions was taken from filings with the SEC, press releases, Dealogic and FactSet.

 

The following table compares the selected implied transaction multiples for the Merger with the corresponding multiples for the selected precedent transactions:

 

 

RBC noted that the Company’s multiple for EV-to-LTM revenue implied by the per share price payable in the Merger was within the range of the selected precedent transactions and was above both the mean and median multiples found in those transactions analyzed. RBC noted that the Company’s multiple for EV-to-LTM EBITDA implied by the per share price payable in the Merger was within the range of the selected precedent transactions but was below the median and mean multiples found in those transactions analyzed.

 

Premiums Paid Analysis (Premiums to Price).  RBC compared the premiums implied by the per share price payable in the Merger to the premiums paid in selected precedent publicly-announced merger and acquisition transactions in the U.S. technology industry. In selecting precedent transactions for the Premiums Paid Analysis, RBC considered comparable transactions in the enterprise software industry announced since January 1, 2008 with public targets in which the enterprise values were between $20 million and $500 million, listed above. RBC performed this analysis taking into account the trading prices of the Company’s Common Stock during periods it considered relevant ending on August 16, 2010, the last trading day prior to the publicly announced offer of Marlin Equity Partners to purchase the Company for $3.85 per share on August 17, 2010.

 

RBC compared the unaffected premiums implied by dividing the per share price payable in the Merger by (x) Phoenix’s “spot” stock price one day, one week and one month prior to August 16, 2010 and (y) Phoenix’s average closing stock price for the one week, one month and six month periods prior to August 16, 2010. The precedent transaction premiums were sourced from SEC and other public filings and FactSet. The following tables summarize this analysis:

 

 

RBC noted that during the measuring period ending August 16, 2010 for the spot one day, one week and one month unaffected premiums and the one week, one month and six month average unaffected premiums, the premiums implied by the per share price payable in the Merger were within the observed range and below the median and mean of the transactions premiums analyzed.

 

Overview of Analyses; Other Considerations.  In reaching its opinion, RBC did not assign any particular weight to any one analysis or the results yielded by that analysis. Rather, having reviewed these results in the aggregate, RBC exercised its professional judgment in determining that, based on the aggregate of the analyses used and the results they yielded, the per share price payable in the Merger was fair, from a financial point of view, to the Company’s stockholders. RBC believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the analyses and, accordingly, also made qualitative judgments concerning differences between the characteristics of Phoenix and the Merger and the data selected for use in its analyses, as further discussed below.

 

No single company or transaction used in the above analyses as a comparison is identical to Phoenix or the Merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, businesses, or transactions analyzed. The analyses were prepared solely for purposes of RBC providing an opinion as to the fairness of the per share price payable in the Merger, from a financial point of view, to the Company’s stockholders and do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold, which are inherently subject to uncertainty.

 

The opinion of RBC as to the fairness of the merger consideration per share payable in the Merger, from a financial point of view, to the Company’s stockholders was necessarily based upon market, economic, and other conditions that existed as of the date of its opinion and on information available to RBC as of that date.

 

The preparation of a fairness opinion is a complex process that involves the application of subjective business judgment in determining the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Several analytical methodologies were used by RBC and no one method of analysis should be regarded as critical to the overall conclusion reached. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. The overall conclusions of RBC were based on all the analyses and factors presented herein taken as a whole and also on application of RBC’s own experience and judgment. Such conclusions may involve significant elements of subjective judgment and qualitative analysis. RBC therefore believes that its analyses must be considered as a whole and that selecting portions of the analyses and of the factors considered, without considering all factors and analyses, could create an incomplete or misleading view of the processes underlying its opinion.

 

In connection with its analyses, RBC made, and was provided by the Company’s management with, numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the Company’s control. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of Phoenix or its advisors, none of Phoenix, RBC or any other person assumes responsibility if future results or actual values are materially different from these forecasts or assumptions.

 

The Company’s board of directors selected RBC to render its opinion based on RBC’s familiarity with the markets in which the Company competes and RBC’s experience advising similarly sized public companies. RBC has advised on numerous acquisitions of unaffiliated third parties in the enterprise software market. RBC is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, corporate restructurings, underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and other purposes. In the ordinary course of business, RBC may act as a market maker and broker in the publicly-traded securities of Phoenix and receive customary compensation, and may also actively trade securities of Phoenix for its own account and the

accounts of its customers, and, accordingly, RBC and its affiliates may hold a long or short position in such securities.

 

Under its engagement agreement with the Company dated March 8, 2010, RBC became entitled to receive a fee of $250,000 upon the delivery of its August 17, 2010 opinion to the Company’s board of directors regarding the fairness to the Company’s stockholders, from a financial point of view, of the per share price payable in the Merger, without regard to whether RBC’s opinion was accepted or the Merger is consummated. In addition, for its services as financial advisor to Phoenix in connection with the Merger, if the Merger is successfully completed RBC will receive an additional, larger transaction fee of approximately $1.5 million. In the event that RBC is requested to, and does, render to the Company’s board of directors any additional opinions with respect to the fairness, from a financial point of view, to the Company’s stockholders of the consideration offered in any alternative transactions considered by the Company’s board of directors as permitted by the Merger Agreement, RBC would be entitled to receive an additional fee of $250,000 for each such opinion upon its delivery, without regard to whether the Merger or any such alternative transaction were consummated. Unlike the fee payable for RBC’s August 17, 2010 opinion described in this section, this fee would be credited against the transaction fee payable to RBC were the Merger or any such alternative transaction consummated. Further, in the event that the Merger is not completed and Phoenix consummates at any time thereafter, pursuant to a definitive agreement, entered into during the term of RBC’s engagement or (unless RBC has terminated its engagement) during the 6 months following such term or during the 12 months following March 8, 2010, the commencement of RBC’s engagement, another “Transaction”, RBC will be entitled to a specified Transaction fee based on the “Aggregate Transaction Value” of such other “Transaction.” If such Transaction constitutes a change in control of Phoenix or a disposition of an interest in a material amount of Phoenix’s assets, RBC will be entitled to a specified Transaction fee based on the “Aggregate Transaction Value” of such other Transaction. In addition, whether or not the Merger closes, or another Transaction occurs, the Company has agreed to indemnify RBC for certain liabilities that may arise out of RBC’s engagement, including, without limitation, liabilities arising under the federal securities laws, and to reimburse the reasonable out-of-pocket expenses incurred by RBC in performing its services (subject to a limit which may not be exceeded without the Company’s approval). The terms of RBC’s engagement letter were negotiated at arm’s-length between Phoenix and RBC, and the Company’s board of directors was aware of this fee arrangement at the time they reviewed and approved the Merger Agreement.

 

In the past two years, RBC has not provided any other investment banking and financial advisory services to Phoenix outside of its services as financial advisor to the board of directors in connection with the Merger. RBC and its affiliates do not hold passive investments in any of the investment funds managed by Marlin Equity Partners.

 

The Merger Agreement does not contain any financing condition. Marlin II and Marlin III have committed to purchase equity interests in Parent in an amount equal to the aggregate merger consideration on the terms and conditions set forth in equity commitment letters dated August 17, 2010. Pursuant to the Merger Agreement, Marlin II and Marlin III have also provided a guarantee in favor of Phoenix, which, subject to the terms and conditions contained in the Merger Agreement, guarantees the performance of the obligations of Parent and the Merger Sub under the Merger Agreement. Phoenix is a third party beneficiary of the equity commitment letters and has the right to enforce the obligations of Marlin II and Marlin III under the equity commitment letters.

 

Certain executive officers of Phoenix and members of Phoenix’s board of directors may be deemed to have interests in the merger that are different from or in addition to the interests of Phoenix stockholders generally. Phoenix’s board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement and the merger. Described below are the interests of the current executive officers of Phoenix’s management and members of Phoenix’s board of directors. Messrs. Woodson Hobbs, Richard Arnold and Gaurav Banga, Phoenix executive officers who were terminated on February 25, 2010, March 5, 2010, April 15, 2010, respectively, do not have any interests in the merger that are different from or in addition to the interests of Phoenix stockholders generally.

Accelerated Vesting of Equity Awards

 

Each of Phoenix’s executive officers holds stock options and certain executive officers also hold restricted stock awards. As described above, in connection with the merger, the vesting of all outstanding stock options and restricted stock awards will accelerate in full so that such stock options and awards will become fully vested immediately prior to the closing of the merger. Depending on the terms of the applicable Equity Plan, such vested options will either be (i) cancelled in exchange for a cash payment equal to the excess, if any, of $3.85 per share over the exercise price of such stock option, (ii) exercised with each resulting share being converted into the right to receive $3.85 per share, or (iii) cancelled if not cashed-out or exercised in accordance with clause (i) or (ii). However, outstanding stock options with a per share exercise price of $3.85 or higher will be cancelled after the effective time of the merger.

 

Stock Options

 

The following table sets forth, for each of Phoenix’s executive officers, the number of vested and unvested shares of Phoenix’s common stock underlying stock options with exercise prices below $3.85 per share which would be outstanding as of October 31, 2010 (assuming no options are exercised prior to such date), the weighted average exercise price of the unvested portion of such outstanding stock options and the expected cash payment that each officer will receive with respect to the unvested options in connection with the merger.

 

 

 

 

 

Restricted Stock Awards

 

The following table sets forth, for each of Phoenix’s executive officers, the number of vested shares issued under and unvested shares subject to restricted stock awards as of October 31, 2010 and the expected cash payment that each officer will receive with respect to the shares that will vest in connection with the merger.

 

Severance and Change of Control Agreements

 

Phoenix has entered into Severance and Change of Control Agreements with each of its executive officers as described below that provide certain cash payments and benefits to such executive officer in the event such individual’s employment is terminated under certain circumstances in connection with the merger.

 

Phoenix and Mr. Lacey entered into a Severance and Change of Control Agreement dated February 25, 2010 in connection with his appointment as President and Chief Executive Officer, which provides that if Phoenix terminates Mr. Lacey’s employment for any reason other than cause, death or disability, or if he resigns for good reason during the period beginning two months prior to and ending twelve months following a change of control, he will receive the following payments and benefits subject to signing a release of claims: (i) salary continuation for six months at his then-current monthly base salary (or, if he resigns for good reason in connection with a reduction of his base salary, then his severance payment will be based on his monthly base salary prior to such reduction), (ii) 50% of his target bonus for the fiscal year of termination (or, if he resigns for good reason in connection with a reduction of his target bonus, then his pro rated payment will be based on his target bonus prior to such reduction), (iii) continuation of health, dental and vision benefits for himself and his eligible dependents for six months, (iv) vesting in full of any unvested portion of Mr. Lacey’s stock options and restricted shares, and (v) in the event that payments to Mr. Lacey in connection with a change of control constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code (the “Code”) and would subject Mr. Lacey to the excise tax under Section 4999 of the Code, an additional gross-up payment in an amount to fully cover such excise tax, after payment of all taxes on such gross-up payment. Phoenix does not expect that any 280G gross-up payment will be payable to Mr. Lacey in connection with the merger.

 

Phoenix and Robert Andersen entered into an amended and restated Severance and Change of Control Agreement on June 21, 2010, which provides that if Phoenix terminates Mr. Andersen’s employment for any reason other than for cause, disability, or death, or if he resigns for good reason during the period beginning two months prior to and ending twelve months following a change of control, he will receive the following payments and benefits subject to signing a release of claims: (i) salary continuation for six months at his then-current monthly base salary (or, if he resigns for good reason, in connection with a reduction of his base salary, then his salary continuation will be based on his monthly base salary prior to such reduction), (ii) continuation of health, dental and vision benefits for himself and his eligible dependents for six months, and (iii) vesting in full of 50% of the unvested portion of Mr. Andersen’s stock options and restricted shares. However, in accordance with the terms of the merger as described above, if Mr. Andersen continues in service through the effective date of the merger, all of his stock options and restricted shares shall vest in full immediately prior to the merger.

 

Phoenix and David Gibbs entered into an amended and restated Severance and Change of Control Agreement on November 16, 2009, which provides that if Phoenix terminates Mr. Gibbs’ employment for any reason other than for cause, disability, or death, or if he resigns for good reason during the period beginning two months prior to and ending twelve months following a change of control, he will receive the following payments and benefits subject to signing a release of claims: (i) salary continuation for twelve months at his then-current monthly base salary (or, if he resigns for good reason in connection with a reduction of his base salary, then his salary continuation will be based on his monthly base salary prior to such reduction); provided, however, if Mr. Gibbs has not secured reemployment during such twelve month period, he will continue to receive such severance payments for up to an additional six months, (ii) continuation of health, dental and vision benefits for six months, and (iii) vesting in full of 50% of the unvested portion of Mr. Gibbs’ stock options and restricted shares. However, in accordance with the terms of the merger as described above, if Mr. Gibbs continues in service through the effective date of the merger, all of his stock options and restricted shares shall vest in full immediately prior to the merger.

 

Phoenix and Timothy Chu entered into an amended and restated Severance and Change of Control Agreement on December 11, 2009, which provides that if Phoenix terminates Mr. Chu’s employment for any reason other than for cause, disability, or death, or if he resigns for good reason during the period beginning two months prior to and ending twelve months following a change in control, he will receive the following payments and benefits subject to signing a release: (i) salary continuation benefits for six months at his then-current monthly base salary (or, if he resigns for good reason, in connection with a reduction of his base salary, then his salary continuation will be based on his monthly base salary prior to such reduction), (ii) continuation of health, dental and vision benefits for himself

and his eligible dependents for six months, and (iii) vesting in full of 50% of the unvested portion of Mr. Chu’s stock options and restricted shares. However, in accordance with the terms of the merger as described above, if Mr. Chu continues in service through the effective date of the merger, all of his stock options and restricted shares shall vest in full immediately prior to the merger.

 

If any payments to an executive officer (other than Mr. Lacey) pursuant to any of the agreements described above are considered “excess parachute payments” as defined in Section 280G of the Internal Revenue Code, the payments will be reduced to the extent necessary to maximize the executive officer’s net after-tax benefits. None of such executive officers is expected to have excess parachute payments in connection with the merger.

 

For purposes of all of our Severance and Change of Control Agreements, good reason is generally defined as a material reduction in the individual’s title, authority, status or responsibilities unless the individual is provided with a comparable position, the reduction of the individual’s base salary or target bonus or a relocation of the individual’s employment by more than 50 miles.

 

Special Acquisition Bonus

 

Our executive officers are entitled to receive a bonus under the Special Acquisition Bonus Program (the “Program”) established by Phoenix’s board of directors on August 17, 2010. The Program was designed to aid in the retention of Phoenix’s executive officers and other key employees and reward such employees for their continued efforts in connection with a qualifying acquisition of Phoenix. The merger is a qualifying acquisition under the Program.

 

In accordance with the Program, each participating employee has been granted units allowing that individual to share in the bonus pool resulting from the merger. The maximum number of units which can be granted under the Program is 100,000. Upon closing of the merger, Phoenix will establish a bonus pool equal to 0.625% of the sum of (i) the aggregate merger consideration and (ii) the liability triggered by the Program . The base value of each unit outstanding on the effective date of the merger will be determined by dividing the resulting bonus pool by the total number of units outstanding at that time. Each participant in the Program will be entitled to receive a bonus equal to the product of such participant’s number of units outstanding and the base value of each unit if such individual continues in Phoenix’s employ through the 30th day following the effective date of the merger (or is terminated by Phoenix without cause during such 30-day period) (the “Service Completion Date”). Payment of such bonus will be made within 10 days following the Service Completion Date.

 

The following chart sets forth the number of units issued to our executive officers pursuant to the Program.

 

 

Ten other individuals have also been awarded units under the Program.

 

Potential Change of Control and Severance Benefits

 

The following table sets forth for each of our executive officers the estimated amount of payments and benefits under the arrangements described above that would be received by each such executive officer assuming the merger closes and the executive officer’s employment is terminated without cause or for good reason on October 31, 2010.

The table does not reflect any amounts required by law and Phoenix’s policies to be paid upon a termination such as earned but unpaid salary, accrued but unused vacation and any expense reimbursements.

 

 

 

 

 

 

 

Interest of Directors

 

Each of Phoenix’s directors holds stock options. As described above, the vesting of all stock options will accelerate immediately prior to the closing of the merger and such vested options shall either be cashed-out, exercised with the acquired share converting into the right to receive merger consideration, or cancelled. The following table sets forth the number of vested and unvested shares of our common stock underlying stock options with exercise prices below $3.85 per share to be held by Phoenix’s directors (other than Mr. Lacey, whose additional payments are disclosed above as he is also an executive officer of Phoenix) as of October 31, 2010 assuming no options are exercised prior to such date, the weighted average exercise price of the unvested portion of such

outstanding stock options and the expected cash payment that each director will receive with respect to the unvested option.

 

 

 

 

 

Indemnification and Directors’ and Officers’ Liability Insurance

 

Under the merger agreement, Phoenix, as the surviving corporation in the merger, has agreed to indemnify the directors and officers of Phoenix to the full extent permitted by law following the merger. Phoenix has also agreed to honor Phoenix’s obligations under the indemnification agreements between Phoenix and its officers and directors in effect before the merger and any indemnification provisions of Phoenix’s certificate of incorporation and bylaws.

 

Under the merger agreement, Phoenix will maintain for a period of six years an insurance policy covering persons who were directors or officers of Phoenix prior to the merger for the actions taken by such directors and officers in their capacities as directors and officers of Phoenix prior to the merger on terms with respect to coverage and amount no less favorable than those of such policy currently in effect, provided, however, that Phoenix will not be required to expend in excess of 200% of the current annual premium paid by Phoenix for such policies currently maintained by Phoenix. Alternatively, prior to effectiveness of the merger, the surviving corporation may obtain a six year prepaid “tail policy” on terms and conditions providing substantially equivalent benefits as the current policies of directors’ and officers’ liability insurance currently maintained by Phoenix with respect to matters arising on or before the completion of the merger; provided that the cost of such tail policy shall not exceed 200% of the last annual premium paid by Phoenix prior to the date of the merger agreement in respect of the coverage required to be obtained.

 

Under the Delaware General Corporation Law, holders of Phoenix common stock have the right to demand appraisal of shares of common stock in connection with the merger and to receive, in lieu of the merger consideration, payment in cash for the fair value of your shares, together with a fair rate of interest, as determined by the Delaware Court of Chancery (the “Chancery Court”). Stockholders electing to exercise appraisal rights must comply with the provisions of Section 262 in order to perfect their rights. Phoenix will require strict compliance with the statutory procedures.

 

The following is intended as a brief summary of the material provisions of the Delaware statutory procedures required to be followed by a stockholder in order to demand and perfect appraisal rights. This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Section 262, the full text of which appears in Annex D to this proxy statement.

 

Section 262 requires that stockholders be notified that appraisal rights will be available not less than 20 days before the special meeting. A copy of Section 262 must be included with such notice. This proxy statement constitutes our notice to stockholders of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262.

 

If you elect to demand appraisal of your shares, you must satisfy each of the following conditions:

 

 

If you fail to comply with any of these conditions and the merger is consummated, you will be entitled to receive the cash payment for your shares of common stock as provided for in the merger agreement if you are the holder of record at the effective time, but you will have no appraisal rights with respect to your shares of common stock. A proxy card which is signed and does not contain voting instructions will, unless revoked, be voted “FOR” the adoption of the merger agreement, will constitute a waiver of your right of appraisal and will nullify any previous written demand for appraisal.

 

All demands for appraisal should be addressed to the Corporate Secretary of the company at 915 Murphy Ranch Road, Milpitas, CA 95035, Attention: Corporate Secretary, and must be delivered before the vote to adopt the merger agreement is taken at the special meeting, and should be executed by, or on behalf of, the record holder of the shares in respect of which appraisal is being demanded. The demand must reasonably inform us of the identity of the stockholder and the intention of the stockholder to demand appraisal of his, her or its shares.

 

To be effective, a demand for appraisal by a holder of common stock must be made by, or on behalf of, such record stockholder. The demand should set forth, fully and correctly, the record stockholder’s name as it appears on his or her stock certificate(s). The demand must state that the stockholder intends thereby to demand appraisal of such holder’s shares in connection with the merger. Beneficial owners who do not also hold the shares of record may not directly make appraisal demands to the company. The beneficial holder must, in such cases, have the record holder (often a broker, bank or other nominee) submit the required demand in respect of those shares.

 

If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made in that capacity; and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal

for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, who holds shares as a nominee for others, may exercise the right of appraisal with respect to the shares held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record owner.

 

If you hold your shares of common stock in a brokerage account or in other nominee form and you wish to exercise appraisal rights, you should consult with your broker or the other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee.

 

Within 10 days after the effective time, the surviving corporation must give written notice that the merger has become effective to each stockholder who has properly submitted a written demand for appraisal and who did not vote in favor of the merger agreement. At any time within 60 days after the effective time, any stockholder who has not commenced an appraisal proceeding or joined such a proceeding as a named party has the right to withdraw the demand and to accept the cash payment specified by the merger agreement for such stockholder’s shares of common stock. Within 120 days after the effective time, either the surviving corporation or any stockholder who has complied with the requirements of Section 262 may file a petition in the Chancery Court, with a copy served on the surviving corporation in the case of a petition filed by a stockholder, demanding a determination of the fair value of the shares held by all stockholders entitled to appraisal. The surviving corporation has no obligation and presently has no intention to file such a petition in the event there are stockholders who demand appraisal of their shares, and stockholders seeking to exercise appraisal rights should not assume that the surviving corporation will file such a petition or initiate any negotiations with respect to the fair value of such shares. Accordingly, stockholders who desire to have their shares appraised should initiate all necessary action to perfect their appraisal rights within the time prescribed in Section 262. The failure of a stockholder to file such a petition within the period specified could nullify the stockholder’s previous written demand for appraisal.

 

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then be obligated, within 20 days after receiving service of a copy of the petition, to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached. Within 120 days after the effective time, any stockholder who has complied with the applicable provisions of Section 262 will be entitled, upon written request, to receive from the surviving corporation a statement setting forth the aggregate number of shares of common stock not voted in favor of adoption of the merger agreement and with respect to which demands for appraisal were received by the company and the number of holders of such shares. Such statement must be mailed to the stockholder within 10 days after the written request has been received by the surviving corporation or within 10 days after expiration of the period for delivery of appraisal demands, whichever is later. A person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file an appraisal petition or request from us the statement described in this paragraph.

 

After notice to the stockholders seeking appraisal rights as required by the Chancery Court, the Chancery Court is empowered to conduct a hearing upon the petition, and determine which stockholders have complied with Section 262 and have thereby become entitled to the appraisal rights. The Chancery Court may require the stockholders who have demanded appraisal for their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that direction, the Chancery Court may dismiss the proceedings as to that stockholder.

 

After determination of the stockholders entitled to appraisal of their shares of common stock, the Chancery Court will appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest to be paid upon the amount determined to be the fair value. Unless the Chancery Court in its discretion determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of

the judgment. When the value is determined, the Chancery Court will direct the payment of such value, with interest thereon accrued during the pendency of the proceeding, if the Chancery Court so determines, to the stockholders entitled to receive the same, upon surrender by such holders of the certificates representing those shares.

 

In determining fair value and, if applicable, a fair rate of interest, the Chancery Court is required to take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods that are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “fair price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court has stated that, in making this determination of fair value, the court must consider “market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the merger that throw any light on future prospects of the merged corporation.” Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Supreme Court of Delaware also stated that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.” In determining fair value for appraisal purposes under Section 262, the Chancery Court might, or might not, employ some or all of the valuation analyses utilized by the company’s financial advisors as described in summary fashion under the headings “The Merger — Opinion of the Financial Advisor to Phoenix’s Board of Directors,” beginning on page 21 of this document. Although Phoenix believes that the merger consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Chancery Court, and you should be aware that the fair value of your shares as determined under Section 262 could be more, the same, or less than the value that you are entitled to receive under the terms of the merger agreement. Moreover, the surviving corporation does not currently anticipate offering more than the value that you are entitled to receive under the terms of the merger agreement to any stockholder exercising appraisal rights and reserves the right to assert, in any appraisal proceeding, that, for purposes of Section 262, the “fair value” of a share of common stock is less than the merger consideration.

 

Costs of the appraisal proceeding may be imposed upon the surviving corporation and/or the stockholders participating in the appraisal proceeding by the Chancery Court as the Chancery Court deems equitable in the circumstances. Upon the application of a stockholder, the Chancery Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. Any stockholder who has demanded appraisal rights will not, after the effective time, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payments becoming due prior to the effective time; however, if no petition for appraisal is filed within 120 days after the effective time, or if the stockholder delivers a written withdrawal of such stockholder’s demand for appraisal and an acceptance of the terms of the merger within 60 days after the effective time, then the right of that stockholder to appraisal will cease and that stockholder will be entitled to receive the cash payment for shares of his, her or its common stock pursuant to the merger agreement. Any withdrawal of a demand for appraisal made more than 60 days after the effective time may only be made with the written approval of the surviving corporation. Once a petition for appraisal has been filed, the appraisal proceeding may not be dismissed as to any stockholder without the approval of the Chancery Court.

 

Failure to comply with all of the procedures set forth in Section 262 will result in the loss of a stockholder’s statutory appraisal rights.

 

If you have any questions regarding your right to exercise appraisal rights, you are strongly encouraged to seek the advice of legal counsel.

 

The following is a summary of the material U.S. federal income tax consequences of the merger to holders of Phoenix common stock who exchange their shares for cash in the merger. This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury Regulations promulgated thereunder, judicial pronouncements, and administrative rulings, all as currently in effect. All of these authorities are subject to change, possibly with retroactive effect. Any such change could alter the tax consequences described below. This summary does not address all of the U.S. federal income tax consequences that may be applicable to a particular holder of Phoenix common stock. In addition, this summary does not address the U.S. federal income tax consequences of the merger to holders of Phoenix common stock who are subject to special treatment under U.S. federal income tax law, including, for example, banks and other financial institutions, insurance companies, mutual funds, tax-exempt investors, S corporations, controlled foreign corporations, passive foreign investment companies, holders that are classified as “partnerships” for U.S. federal income tax purposes and their partners or members, dealers in securities, traders in securities who have elected to be taxed in the same manner as dealers, holders who hold their common stock as part of a hedge, straddle or conversion transaction, holders whose functional currency is not the U.S. dollar, holders who acquired common stock through the exercise of employee stock options or other compensatory arrangements, holders whose shares of common stock constitute qualified small business stock within the meaning of Section 1202 of the Code, holders who are subject to the alternative minimum tax provisions of the Code, holders who do not hold their shares of common stock as “capital assets” within the meaning of Section 1221 of the Code, and holders who receive cash pursuant to the exercise of appraisal rights. Furthermore, this summary does not address the tax consequences under any state, local or foreign tax laws.

 

If a partnership (or other entity taxed as a partnership for U.S. federal income tax purposes) holds Phoenix common stock, the tax treatment of a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. If you are a partner in a partnership that holds shares of Phoenix common stock you should consult your own tax advisor regarding the tax consequences to you of the merger.

 

Holders of Phoenix common stock should consult their independent tax advisors as to the particular tax consequences of the merger to them, including the application and effect of any state, local, foreign or other tax laws.

 

For purposes of this summary, the term “U.S. holder” means a beneficial owner of Phoenix common stock that is, for U.S. federal income tax purposes: (i) an individual citizen or resident of the United States; (ii) a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) organized or created in or under the laws of the United States, any state thereof or the District of Columbia; (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source; or (iv) a trust if (a) its administration is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) it has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes. The term “non-U.S. holder” means a beneficial owner other than a partnership (or other entity taxed as a partnership for U.S. federal income tax purposes) of Phoenix common stock that is not a U.S. holder.

 

Exchange of Phoenix Common Stock for Cash by U.S. Holders

 

Generally, the receipt of cash in exchange for Phoenix common stock pursuant to the merger will be a taxable transaction to U.S. holders of Phoenix common stock for U.S. federal income tax purposes. A U.S. holder of Phoenix common stock receiving cash in the merger generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash received (before reduction for any applicable withholding taxes) and the holder’s adjusted tax basis in the Phoenix common stock surrendered. The gain or loss recognized generally will be capital gain or loss. Gain or loss will be determined separately for each block of common stock (i.e., common stock acquired at the same cost in a single transaction) exchanged in the merger. Any capital gain or loss will be taxed as long-term capital gain or loss if the U.S. holder has held the Phoenix common stock for more than one year prior to the effective time of the merger. If the U.S. holder has held the Phoenix common stock for one year or less prior to the effective time of the merger, any capital gain or loss will be taxed as short-term capital gain or loss. The deductibility of capital losses is subject to certain limitations.

Backup Withholding for U.S. Holders

 

A U.S. holder may be subject to backup withholding with respect to certain reportable payments including the receipt of cash proceeds in exchange for such holder’s shares of Phoenix common stock pursuant to the merger. Backup withholding will generally not apply, however, to a U.S. holder who furnishes the paying representative with a correct taxpayer identification number on a properly completed IRS Form W-9 (and who does not subsequently become subject to backup withholding) or who otherwise establishes a basis for exemption from backup withholding (such as a corporation). Each U.S. holder should properly complete and sign an IRS Form W-9 in order to provide the information and certification necessary to avoid the imposition of backup withholding, unless an exemption otherwise applies and is established in a manner satisfactory to the paying representative. U.S. holders who fail to provide their correct taxpayer identification numbers and the appropriate certifications, or to establish an exemption as described above, will be subject to backup withholding on any payments they receive pursuant to the merger (currently at a rate of 28%). Any amounts withheld from payments to a U.S. holder under the backup withholding rules generally will be allowed as a credit against such holder’s U.S. federal income tax liability. If the paying representative withholds on a payment to a U.S. holder and such withholding results in an overpayment of taxes by such holder, a refund may be obtained from the Internal Revenue Service. In general, information returns will be filed with the Internal Revenue Service in connection with payments to a U.S. holder pursuant to the merger.

 

Exchange of Phoenix Common Stock for Cash by non-U.S. Holders

 

Generally, any gain recognized upon the receipt of cash in exchange for Phoenix common stock pursuant to the merger by a non-U.S. holder will not be subject to U.S. federal income tax unless (i) the gain is effectively connected with the conduct by a non-U.S. holder of a trade or business in the United States (and, if required by an applicable income tax treaty, such gain is attributable to a permanent establishment, or in the case of an individual, a fixed base in the United States maintained by such non-U.S. holder), in which case the non-U.S. holder generally will be subject to tax on such gain in the same manner as a U.S. holder and, if the non-U.S. holder is a foreign corporation, such corporation may also be subject to the branch profits tax at a rate of 30% (or such lower rate as may be specified by an applicable U.S. income tax treaty) or (ii) the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable year of the sale or exchange and certain other conditions are met, in which case the non-U.S. holder generally will be subject to a 30% tax on the non-U.S. holder’s net gain realized from the sale or exchange of Phoenix common stock, which may be offset by U.S. source capital losses of the non-U.S. holder, if any.

 

Backup Withholding for non-U.S. Holders

 

In general, a non-U.S. holder will not be subject backup withholding with respect to the cash received by such holder pursuant to the merger if such non-U.S. holder provides the paying representative with a properly completed IRS Form W-8BEN (or, if applicable, an other version of Form W-8). If a non-U.S. holder fails to provide the properly completed forms or fails to otherwise establish an exemption from backup withholding, such non-U.S. holder will be subject to backup withholding (currently at a rate of 28%) on the cash received pursuant to the merger. Each non-U.S. holder should properly complete and sign the applicable IRS Form W-8 in order to provide the information and certification necessary to avoid the imposition of backup withholding, unless an exemption otherwise applies and is established in a manner satisfactory to the paying representative. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be refunded or credited against a non-U.S. holder’s U.S. federal income tax liability, if any.

 

The U.S. federal income tax summary set forth above is included for general information only and is not a complete analysis or discussion of all potential tax consequences relevant to our stockholders. The tax consequences to you may vary depending on your particular circumstances. Due to the individual nature of tax consequences, you are urged to consult your own tax advisor as to the specific tax consequences to you of the merger, including the effects of any applicable state, local, foreign or other tax laws.

 

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the rules that have been promulgated under the HSR Act, acquisitions of a sufficient size may not be completed unless information has been furnished to the Antitrust Division of the U.S. Department of Justice and to the U.S. Federal Trade Commission and applicable waiting period requirements have been satisfied or early termination of the waiting period has been granted. The merger between Phoenix and affiliates of Marlin is subject to the provisions of the HSR Act. As a closing condition to the merger, the waiting period (and any extension thereof) applicable to the merger under the HSR Act.

 

Parent and Phoenix have made the required filings concerning the merger with the Antitrust Division of the U.S. Department of Justice and the U.S. Federal Trade Commission under the HSR Act on August 31, 2010. The 30-day waiting period will expire on September 30, 2010 unless early termination of the waiting period is granted giving the Parties HSR Act clearance prior to expiration of the initial 30-day waiting period.

 

Marlin and Phoenix conduct operations in a number of foreign countries, some of which have antitrust or competition law notification requirements applicable to mergers of this kind. Marlin and Phoenix, however, have determined that no such notifications are required in this transaction.

 

At any time before or after the completion of the merger, notwithstanding that the applicable waiting period has ended or approval has been granted, any state, foreign country, or private individual could take action to enjoin the merger under the antitrust laws of the United States or a foreign jurisdiction as it deems necessary or desirable in the public interest or any private party could seek to enjoin the merger on anti-competitive grounds.

 

While there can be no assurance that the merger will not be challenged by any governmental authority or private party in the United States or in any foreign jurisdiction, Phoenix, based on a review of information provided by Marlin relating to the businesses in which it and its affiliates are engaged, believes the merger can be consummated in compliance with all applicable antitrust laws and no remedy will be required.

 

If the merger is completed, Phoenix’s common stock will be delisted from The NASDAQ Global Market and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Thereafter, the provisions of the Exchange Act will no longer apply to us, including the requirements to file periodic reports with the SEC and to furnish a proxy or information statement to our stockholders in connection with meetings of our stockholders.

 

On August 24, 2010, August 25, 2010 and August 26, 2010, three separate and substantially identical shareholder class action complaints were filed in the Superior Court of the State of California, County of Santa Clara, naming Phoenix, certain executive officers of Phoenix, members of Phoenix’s board of directors, Marlin Equity Partners and Ramius LLC as defendants. Although the specific defendants vary by complaint, plaintiffs in these complaints generally allege that, in connection with approving the Merger, Phoenix directors and Ramius LLC breached their fiduciary duties owed to Phoenix stockholders, and that Marlin Equity Partners and Phoenix’s executive officers knowingly aided and abetted the Phoenix directors’ breach of fiduciary duties. The complaints seek, among other things, certification of the cases as class actions, a declaration that Phoenix directors have breached their fiduciary duties, an injunction precluding consummation of the merger, and an award of fees, expenses and costs to plaintiffs and their attorneys. The complaint filed on August 25, 2010 also seeks compensatory damages against the defendants.

 

Phoenix intends to defend these lawsuits vigorously.

 

 

The following summary describes the material provisions of the merger agreement. This summary may not contain all of the information about the merger agreement that is important to you. The merger agreement is attached to this document as Annex A and is incorporated by reference into this document, and we encourage you to read it carefully in its entirety for a more complete understanding of the merger agreement, because it is the legal document that governs the merger.

 

The merger agreement has been included to provide investors and our stockholders with information regarding its terms. It is not intended to provide to any person not a party thereto any other factual information about the Company. The merger agreement contains representations and warranties of the Company, Merger Sub and Parent, negotiated between the parties and made as of specific dates solely for purposes of the merger agreement, including setting forth the respective rights of the parties with respect to their obligations to complete the Merger. This description of the representations and warranties is not intended to provide any other factual information about the Company. The representations, warranties and covenants contained in the merger agreement were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of the merger agreement. The representations and warranties may have been made for the purposes of allocating contractual risk between the parties to the agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. As a result, no person should rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of the Company, Parent or Merger Sub or any of their respective subsidiaries or affiliates.

 

Generally

 

The merger agreement provides that at the closing of the merger, Pharaoh Merger Sub Corp., a wholly-owned subsidiary of Pharaoh Acquisition Corp., will be merged with and into the Company. Upon completion of the merger, the Company will continue as the surviving corporation and will be a wholly-owned subsidiary of Pharaoh Acquisition Corp.

 

Directors and Officers of the Surviving Corporation after the Merger

 

The directors and officers of the surviving corporation will be the directors and officers of Pharaoh Merger Sub Corp. immediately prior to the effective time of the merger.

 

Manner and Basis of Converting Shares of Phoenix common stock into the Merger Consideration

 

Under the terms of the merger agreement, upon completion of the merger, each share of Phoenix common stock will be converted into the right to receive $3.85 in cash, without interest.

 

Completion and Effectiveness of the Merger

 

We intend to complete the merger no later than two (2) business days after all of the conditions to completion of the merger contained in the merger agreement described in the section entitled “The Merger Agreement — Conditions to Completion of the Merger” beginning on page 46 of this document are satisfied or waived, including adoption of the merger agreement and approval of the merger by the stockholders of Phoenix. The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware, or such later time as Parent and Phoenix agree and set forth in the certificate of merger.

We are working to complete the merger as quickly as possible. We currently plan to complete the merger during the fourth quarter of calendar year 2010. However, we cannot predict the exact timing because completion of the merger is subject to governmental and regulatory approvals and other conditions.

 

Under the terms of the merger agreement, Parent and Phoenix have agreed that each share of Phoenix common stock will be converted into the right to receive $3.85 in cash, without interest.

 

In connection with the merger, Phoenix’s capital stock will be affected as follows:

 

 

General

 

Promptly following completion of the merger, the exchange agent for the merger will mail to each holder of Phoenix common stock on the record date a letter of transmittal and instructions for surrendering the record holder’s stock certificates in exchange for the merger consideration. Only those holders of Phoenix common stock who properly surrender their Phoenix stock certificates in accordance with the exchange agent’s instructions will receive the merger consideration. The surrendered certificates representing Phoenix common stock will be canceled. After the effective time of the merger, each certificate representing shares of Phoenix common stock that has not been surrendered will represent only the right to receive the merger consideration. Following the completion of the merger, Phoenix will not register any transfers of Phoenix common stock on its stock transfer books.

 

Holders of Phoenix common stock should not send in their Phoenix stock certificates until they receive a letter of transmittal from the exchange agent for the merger, with instructions for the surrender of Phoenix stock certificates.

 

Transfers of Ownership and Lost Stock Certificates

 

Parent will only pay the merger consideration to someone other than the name in which a surrendered Phoenix stock certificate is registered, if the person requesting such payment presents to the exchange agent all documents required to show and effect the unrecorded transfer of ownership and to show that such person paid any applicable

stock transfer taxes. If a Phoenix stock certificate is lost, stolen or destroyed, the owner of the shares represented by such certificate may need to deliver an affidavit and/or bond prior to receiving the merger consideration.

 

Phoenix makes a number of customary representations and warranties in the merger agreement regarding aspects of its business, financial condition and structure, as well as other facts pertinent to the merger. These representations and warranties relate to the following subject matters:

 

 

The merger agreement contains limited customary representations and warranties made by Parent, including with respect to the availability of financing and the receipt of financing commitment letters from affiliates of Marlin to finance under certain circumstances the merger consideration. However, receipt of financing by Parent is not a condition to the consummation of the merger.

 

The representations and warranties of Parent and Phoenix contained in the merger agreement expire upon completion of the merger. The representations and warranties in the merger agreement are complicated, are not identical as between Phoenix and Parent and not easily summarized. You are urged to carefully read Articles 3 and 4 of the merger agreement entitled “Representations and Warranties of the Company” and “Representations and Warranties of Parent.”

 

Any reference to a “material adverse effect” on Phoenix means any event, occurrence, fact, condition or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to (1) the business, results of operations, condition (financial or otherwise) or assets (including intangible assets) of Phoenix and its subsidiaries taken as a whole or (2) the ability of Phoenix to consummate the merger or any of the other transactions contemplated by the merger agreement. However, to the extent there is no disproportionately greater effect in any material respect on the Company and its subsidiaries compared to other participants in the industries in which the Company and its subsidiaries operate, in no event shall any of the following be taken into account in determining whether a “material adverse effect” has occurred or likely or expected to occur:

 

 

Under the merger agreement, Phoenix has agreed on behalf of itself and its subsidiaries that, until the earlier of the completion of the merger or termination of the merger agreement, or unless Parent consents in writing, it will operate its business in the ordinary course, substantially in accordance with the manner previously conducted prior to entering into the merger agreement.

 

Under the merger agreement, Phoenix has also agreed that, except as otherwise expressly provided in the merger agreement or as consented to by Parent (which consent shall not be unreasonably withheld or delayed), Phoenix will not, and will not cause any of its subsidiaries to, until the earlier of the completion of the merger or termination of the merger agreement:

 

 

 

Under the terms of the merger agreement, subject to certain exceptions described below, Phoenix has agreed that it and its subsidiaries will not, nor will they authorize or permit any of their respective directors, officers, or employees or any financial advisor, attorney, accountant or other advisor or representative retained by any of them, to, directly or indirectly:

 

 

 

As defined in the merger agreement, an “acquisition proposal” is any bona fide proposal or offer from any person relating to any direct or indirect acquisition, in one transaction or series of transactions, including any merger, consolidation, tender offer, exchange offer, stock acquisition, asset acquisition, binding share exchange, business combination, recapitalization, liquidation, dissolution, joint venture or similar transaction, with respect to Phoenix that would result in any of the following:

 

 

Under the merger agreement, Phoenix agreed to cease all existing discussions or negotiations with any parties conducted prior to that date with respect to any acquisition proposal. Further, Phoenix agreed, except as otherwise permitted under the merger agreement and described below, that its board of directors could not propose to withdraw, amend, change or modify its recommendation of the merger agreement and the merger, or to approve or recommend, or propose to publicly approve or recommend an acquisition proposal.

 

Notwithstanding the prohibitions described above, if prior to obtaining Phoenix’s stockholder adoption of the merger agreement, Phoenix receives an unsolicited acquisition proposal, and (1) Phoenix’s board of directors determines that the acquisition proposal constitutes or is reasonably likely to lead to a “superior proposal” and (2) failure to take any of the following actions would be inconsistent with the fiduciary duties of Phoenix’s board of directors, then Phoenix may:

 

 

For the purposes of the foregoing, an acquisition proposal is a “superior proposal” if Phoenix’s board of directors determines in good faith, after consultation with its outside independent financial advisors of nationally recognized reputation, is more favorable to Phoenix’s stockholders from a financial point of view than the merger with Parent, taking into account all the terms and conditions of such proposal, the likelihood of completion of such transaction, and the financial, regulatory, legal and any other aspects of such proposal.

 

Following the completion of the merger and for a period of twelve (12) months, Parent agreed to provide Phoenix employees who become employees of the surviving corporation compensation and benefits that are, in the aggregate, substantially comparable to the compensation and benefits being provided to such employees immediately prior to the effective time of the merger. The surviving corporation shall (i) cause Phoenix employees to receive credit for purposes of eligibility to participate and vesting (but not for accrual purposes, except for vacation and severance, if applicable) under any benefit plan of the surviving company which such employee is eligible to participate in, (ii) use commercially reasonable efforts to cause Phoenix employees to be granted coverage for pre-existing health conditions and prior credit for service, to the same extent waived under a comparable benefit plan in which such employee participated immediately prior to the effective time of the merger and (iii) provide credit to such continuing employees for any co-payments, deductibles and out of pocket expenses paid during the relevant plan year.

 

Under the merger agreement, Phoenix will maintain for a period of six years an insurance policy covering persons who were directors or officers of Phoenix prior to the merger for the actions taken by such directors and officers in their capacities as directors and officers of Phoenix prior to the merger on terms with respect to coverage and amount no less favorable than those of such policy currently in effect, provided, however, that Phoenix will not be required to expend in excess of 200% of the current annual premium paid by Phoenix for such policies currently maintained by Phoenix. Alternatively, prior to effectiveness of the merger, the surviving corporation may obtain a six year prepaid “tail policy” on terms and conditions providing substantially equivalent benefits as the current policies of directors’ and officers’ liability insurance currently maintained by Phoenix with respect to matters arising on or before the completion of the merger; provided that the cost of such tail policy shall not exceed 200% of the last annual premium paid by Phoenix prior to the date of the merger agreement in respect of the coverage required to be obtained.

 

The respective obligations of Parent and Merger Sub, on the one hand, and Phoenix, on the other, to complete the merger and the other transactions contemplated by the merger agreement are subject to the satisfaction or waiver of each of the following conditions:

 

 

Phoenix’s obligation to complete the merger is also subject to the satisfaction or waiver of each of the following conditions:

 

 

Parent’s and Merger Sub’s obligation to complete the merger is also subject to the satisfaction or waiver of each of the following conditions:

 

 

 

The merger agreement may be terminated and the merger may be abandoned prior to completion of the merger, whether before or after the adoption of the merger agreement by Phoenix stockholders:

 

 

 

 

 

 

 

Under the terms of the merger agreement, except as set forth below, all fees, costs and expenses incurred in connection with the merger, the merger agreement and the consummation of the transactions contemplated by the merger agreement, but not including the termination fee described below, shall be paid by the party incurring the fees, costs and expenses; provided, that Parent has agreed to pay the filing costs for the HSR Act filings and any other applicable antitrust or competition law filings.

 

In addition, Phoenix has agreed to pay to Parent a cash termination fee of $4,150,000 if the merger agreement is terminated:

 

 

This termination fee must be paid, in the first case, within two (2) business days of termination of the merger agreement, in the second case concurrently with such termination and, in the third case, on or prior to the date Phoenix enters into or consummates the acquisition proposal.

 

Parent and Phoenix may amend the merger agreement before completion of the merger by mutual written consent, except that after Phoenix’s stockholders adopt the merger agreement, no further amendment may be made without Phoenix stockholder approval if such approval would be required by applicable law.

 

Either Parent or Phoenix may, to the extent legally allowed, extend the other’s time for the performance of any of the obligations or other acts under the merger agreement, waive any inaccuracies in the other’s representations and warranties and, subject to the preceding paragraph, waive compliance by the other with any of the agreements or conditions contained in the merger agreement.

 

The following is a description of the material terms of the voting agreement. The complete voting agreement is attached as Annex C to this document and is incorporated into this document by reference. All Phoenix stockholders are urged to read the voting agreement carefully and in its entirety.

 

As a condition and inducement to the willingness of the Parent and Merger Sub to enter into the merger agreement, Ramius LLC, a Delaware limited liability company (“Ramius”) executed and delivered a Voting Agreement dated August 17, 2010 (the “Voting Agreement”).

 

Under the Voting Agreement, Ramius agreed to vote their shares of Phoenix common stock (including any newly acquired shares):

 

 

Ramius also agreed not to, and will not permit any entity under its control to, directly or indirectly, sell, transfer, exchange or otherwise encumber or dispose of any of Phoenix’s securities or options owned by Ramius, except for certain permitted transfers.

 

The voting agreements terminate upon the earlier of (i) the consummation of the merger; (ii) the valid termination of the merger agreement according to its terms; (iii) execution of written agreement by the parties to terminate the voting agreement; (iv) any material amendment to the merger agreement; and (iv) December 31, 2010.

 

The following tables present information regarding the beneficial ownership of the shares of our common stock (the “Common Stock”) as of August 31, 2010 with respect to (i) each of our directors; (ii) our chief executive officer, chief financial officer and the two other most highly compensated executive officers for fiscal 2009, to whom we refer in this proxy statement as the “named executive officers”; (iii) all current directors and executive officers as a group; and (iv) persons beneficially owning more than 5% of the Common Stock. Except as otherwise indicated in the table, the address of each person listed in the table is c/o Phoenix Technologies Ltd., 915 Murphy Ranch Road, Milpitas, California 95035

 

Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that each stockholder identified in the table possesses sole voting and sole dispositive power over all shares of Common Stock shown as beneficially owned by the stockholder. Shares of Common Stock subject to options that are currently exercisable or will become exercisable within 60 days of August 31, 2010, and restricted stock units that are expected to vest within 60 days of August 31, 2010 are considered outstanding and beneficially owned by the person holding the options or restricted stock units.

 

 

 

 

 

 

If the merger has been completed, Phoenix does not expect to hold a 2011 annual meeting of stockholders because Phoenix will not be a public company at that time.

 

If the merger is not consummated and Phoenix holds its 2011 annual meeting of stockholders, then a Phoenix stockholder who wishes to submit a proposal at such meeting must provide that proposal to Phoenix on a timely basis and satisfy the other conditions set forth in applicable SEC rules and Phoenix’s bylaws. In order to be timely, notice of stockholder nominations or other business to be presented to be made at an annual stockholder meeting must be received by the corporate secretary of Phoenix not less than thirty (30) days prior to the first anniversary date of initial notice given to the stockholders by Phoenix for previous year’s annual meeting, or December 1, 2010, provided, however, that such notice shall not be required to be given more than fifty (50) days prior to an annual meeting of stockholders. Stockholders are also advised to review our bylaws, which contain additional requirements with respect to advance notice of shareholder proposals and director nominations

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that we file with the SEC at the SEC public reference room at the following location: Public Reference Room, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. These SEC filings are also available to the public from commercial document retrieval services and at the website maintained by the SEC at www.sec.gov.

 

The SEC allows us to “incorporate by reference” information into this proxy statement, which means that we can disclose important information to you by referring you to other documents filed separately with the SEC. The information incorporated by reference is deemed to be part of this proxy statement, except for any information superseded by information in this proxy statement or incorporated by reference subsequent to the date of this proxy statement. This proxy statement incorporates by reference the documents set forth below that we have previously filed with the SEC. These documents contain important information about our company and our financial condition and are incorporated by reference into this proxy statement.

 

The following Phoenix filings with the SEC are incorporated by reference in this proxy statement:

 

 

We also incorporate by reference into this proxy statement additional documents that we may file with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this proxy statement and the earlier of the date of the special meeting or the termination of the merger agreement. These documents deemed incorporated by reference include periodic reports, such as Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, as well as Current Reports on Form 8-K and proxy and information statements. You may obtain any of

the documents we file with the SEC, without charge, by requesting them in writing or by telephone from us at the following:

 

Phoenix Technologies Ltd.
915 Murphy Ranch Road
Milpitas, CA 95035
Attention: Investors Relations
Telephone: 1-800-677-7305

 

* * *

 

You should rely only on the information contained in this proxy statement. We have not authorized anyone to provide you with information that is different from what is contained in this proxy statement. This proxy statement is dated          , 2010. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date. Neither the mailing of this proxy statement to stockholders nor the issuance of cash in the merger creates any implication to the contrary.

 

Annex A

 

 

AGREEMENT AND PLAN OF MERGER

 

by and among

 

Pharaoh Acquisition Corp.,

 

Pharaoh Merger Sub Corp.

 

and

 

Phoenix Technologies Ltd.

 

dated as of August 17, 2010

 

TABLE OF CONTENTS

 

 

TABLE OF CONTENTS
(continued)

 

 

TABLE OF CONTENTS
(continued)

 

 

INDEX OF EXHIBITS

 

AGREEMENT AND PLAN OF MERGER

 

AGREEMENT AND PLAN OF MERGER (this “Agreement”) dated as of August 17, 2010 by and among Pharaoh Acquisition Corp., a Delaware corporation (“Parent”), Pharaoh Merger Sub Corp., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Subsidiary”), and Phoenix Technologies Ltd., a Delaware corporation (the “Company”). Marlin Equity II, L.P., a Delaware limited partnership (“Marlin II”), and Marlin Equity III, L.P., a Delaware limited partnership (“Marlin III”), are also executing this agreement solely for the purpose of agreeing to Section 10.14 hereof and shall be considered to be parties to this Agreement solely for the purpose of such section.

 

WHEREAS, upon the terms and subject to the conditions of this Agreement and in accordance with the Delaware General Corporation Law (“DGCL”), Parent, Merger Subsidiary and the Company will enter into a business combination transaction pursuant to which Merger Subsidiary will merge with and into the Company (the “Merger”);

 

WHEREAS, the Board of Directors of the Company has, on the terms and subject to the conditions set forth herein, (i) determined that the transactions contemplated by this Agreement are in the best interests of the stockholders of the Company, (ii) approved and declared advisable this Agreement and the transactions contemplated hereby, including the Merger, in accordance with the DGCL, and (iii) determined to recommend that the Company’s stockholders adopt this Agreement;

 

WHEREAS, the Board of Directors of Merger Subsidiary has, on the terms and subject to the conditions set forth herein, approved and declared advisable this Agreement and the transactions contemplated hereby, including the Merger, and Parent (as the sole stockholder of Merger Subsidiary) has adopted this Agreement in accordance with the DGCL;

 

WHEREAS, concurrently with the execution and delivery of this Agreement, and as a condition and inducement to the willingness of the Parent and Merger Subsidiary to enter into this Agreement, Ramius LLC, a Delaware limited liability company (“Voting Stockholder”), has executed and delivered a voting agreement pursuant to which the Voting Stockholder agrees to vote in favor of the Merger, substantially in the form attached hereto as Exhibit A (together with an irrevocable proxy in favor of Parent); and

 

WHEREAS, concurrently with the execution of this Agreement, and as a condition of the willingness of the Company to enter into this Agreement, Marlin II and Marlin III (collectively, the “Equity Providers”) are providing an Equity Funding Letter (as defined below), subject to the terms and conditions of this Agreement;

 

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, the parties hereto agree as follows:

 

ARTICLE 1

 

The Merger

 

Section 1.01.  The Closing.  Upon the terms and subject to the conditions set forth herein, the closing of the Merger (the “Closing”) will take place at 10:00 a.m., San Francisco time, as soon as practicable (and, in any event, within two (2) Business Days) after satisfaction or, to the extent permitted hereunder, waiver of all conditions to the Merger set forth in Article 8 (excluding conditions that, by their terms, are satisfied at the Closing, but subject to the satisfaction or waiver (to the extent permitted hereunder) of such conditions), unless this Agreement has been terminated pursuant to its terms or unless another time or date is agreed to in writing by the parties hereto. The Closing shall be held at the offices of Morgan, Lewis & Bockius LLP, Two Palo Alto Square, 3000 El Camino Real, Palo Alto, California 94306, unless another place is agreed to by the parties hereto.

 

Section 1.02.  The Merger.  (a) As soon as practicable after satisfaction or, to the extent permitted hereunder, waiver of all conditions to the Merger, the Company and Merger Subsidiary shall cause the Merger to be consummated by filing a certificate of merger (the “Certificate of Merger”) with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with, the relevant provisions of the DGCL (the date and time of the filing of the Certificate of Merger with the Secretary of State of the State of

Delaware, or such later time as is specified in the Certificate of Merger and as is agreed to by the parties hereto, being hereinafter referred to as the “Effective Time”) and shall make all other filings or recordings required under the DGCL in connection with the Merger.

 

(b) At the Effective Time, Merger Subsidiary shall be merged with and into the Company in accordance with the DGCL, whereupon the separate existence of Merger Subsidiary shall cease, and the Company shall be the surviving corporation (the “Surviving Corporation”). From and after the Effective Time, the Surviving Corporation shall possess all the properties, rights, privileges and franchises and be subject to all of the debts, obligations and liabilities of the Company and Merger Subsidiary, all as provided under the DGCL.

 

Section 1.03.  Conversion of Shares.  At the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof:

 

(a) except as otherwise provided in Sections 1.03(b) or 1.05, each share (“Company Share”) of Company Common Stock issued and outstanding immediately prior to the Effective Time shall be converted into and represent the right to receive $3.85 in cash, without interest (the “Merger Consideration”);

 

(b) each Company Share held by the Company as treasury stock or owned by Parent or Merger Subsidiary immediately prior to the Effective Time shall be canceled, returned and cease to exist, and no payment shall be made with respect thereto; and

 

(c) each share of common stock of Merger Subsidiary issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and non-assessable share of common stock, par value $.001 per share, of the Surviving Corporation with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation.

 

Section 1.04.  Surrender and Payment.  (a) Prior to the Effective Time, Parent shall appoint an exchange agent (the “Exchange Agent”) for the purpose of exchanging for the Merger Consideration (i) certificates representing Company Shares (the “Certificates”) and (ii) uncertificated Company Shares (the “Uncertificated Shares”). Parent shall pay to the Exchange Agent, on the Closing Date and prior to the filing of the Certificate of Merger, the Merger Consideration to be paid in respect of the Certificates and the Uncertificated Shares. Promptly after the Effective Time and, in any event, not later than the third Business Day following the Closing Date, Parent shall send, or shall instruct the Exchange Agent to send, to each record holder of Company Shares at the Effective Time a letter of transmittal and instructions (which shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the Certificates or transfer of the Uncertificated Shares to the Exchange Agent) for use in such exchange.

 

(b) Each holder of Company Shares that have been converted into the right to receive the Merger Consideration shall be entitled to receive the Merger Consideration in respect of the Company Common Stock represented by a Certificate or Uncertificated Share, upon (i) surrender to the Exchange Agent of a Certificate, together with a properly completed letter of transmittal, or (ii) receipt of an “agent’s message” by the Exchange Agent (or such other evidence, if any, of transfer as the Exchange Agent may reasonably request) in the case of a book-entry transfer of Uncertificated Shares. Until so surrendered or transferred, as the case may be, each such Certificate or Uncertificated Share shall represent after the Effective Time for all purposes only the right to receive such Merger Consideration.

 

(c) If any portion of the Merger Consideration is to be paid to a Person other than the Person in whose name the surrendered Certificate or the transferred Uncertificated Share is registered, it shall be a condition to such payment that (i) either such Certificate shall be properly endorsed or shall otherwise be in proper form for transfer or such Uncertificated Share shall be properly transferred, and (ii) the Person requesting such payment shall pay to the Exchange Agent any transfer or other similar Tax required as a result of such payment to a Person other than the registered holder of such Certificate or Uncertificated Share or establish to the satisfaction of the Exchange Agent that such Tax has been paid or is not payable.

 

(d) The payment of the Merger Consideration upon the surrender of Certificates or Uncertificated Shares in accordance with the terms hereof shall be deemed to have been payment in full satisfaction of all rights pertaining to

the Company Common Stock formerly represented by such Certificate or Uncertificated Shares. From and after the Effective Time, there shall be no further registration of transfers of Company Shares on the stock transfer books of the Surviving Corporation. If, after the Effective Time, Certificates or Uncertificated Shares are presented to the Surviving Corporation, they shall be canceled and exchanged for the Merger Consideration provided for, and in accordance with the procedures set forth, in this Article 1.

 

(e) Any portion of the Merger Consideration paid to the Exchange Agent pursuant to Section 1.04(a) (and any interest or other income earned thereon) that remains unclaimed by holders of Company Shares one year after the Effective Time shall be returned to Parent, upon demand, and any such holder who has not exchanged such Company Shares for the Merger Consideration in accordance with this Section 1.04 prior to that time shall thereafter look only to Parent only as general creditors thereof with respect to any Merger Consideration in respect of such Company Shares without any interest thereon. Notwithstanding the foregoing, Parent shall not be liable to any holder of Company Shares for any amounts paid to a public official pursuant to applicable abandoned property, escheat or similar laws. Any amounts remaining unclaimed by holders of Company Shares for two (2) years after the Effective Time (or such earlier date, immediately prior to such time when the amounts would otherwise escheat to or become property of any Governmental Authority) shall become, to the extent permitted by Applicable Law, the property of Parent free and clear of any claims or interest of any Person previously entitled thereto.

 

(f) To the extent that Parent or the Company makes any payment in respect of any Appraisal Shares, a portion of the Merger Consideration made available to Exchange Agent in respect of such Appraisal Shares shall be returned to Parent.

 

Section 1.05.  Appraisal Rights.  Notwithstanding anything in this Agreement to the contrary, shares of Company Common Stock issued and outstanding immediately prior to the Effective Time that are held by any holder who (i) has not voted such shares of Company Common Stock in favor of the Merger at the Stockholder Meeting, (ii) is entitled to demand and properly demands appraisal of such shares pursuant to Section 262 of the DGCL (“Section 262”) and complies in all respects with the provisions of Section 262, and (iii) has not effectively withdrawn, forfeited or otherwise lost the right to demand relief as a dissenting stockholder under the DGCL as of the Effective Time (the “Appraisal Shares”), shall not be converted into the right to receive the Merger Consideration as provided in Section 1.03(a), but instead such holder of Appraisal Shares shall only be entitled to payment of the fair value of such shares in accordance with the provisions of Section 262. At the Effective Time, all Appraisal Shares shall automatically be cancelled and shall cease to exist or be outstanding, and each holder of Appraisal Shares shall cease to have any rights with respect thereto, except such rights as are granted under Section 262. Notwithstanding the foregoing, if any such holder shall fail to perfect or otherwise shall waive, withdraw or lose the right to appraisal under Section 262, or a court of competent jurisdiction shall determine that such holder is not entitled to the relief provided by Section 262, then the rights of such holder under Section 262 shall cease to exist and such Appraisal Shares shall be deemed to have been converted at the Effective Time into, and shall have become, the right to receive such holder’s Merger Consideration as provided in Section 1.03(a). The Company shall provide prompt written notice to Parent of any demands for appraisal of any shares of Company Common Stock, any withdrawal of any such demand and any other demand, notice or instrument delivered to the Company prior to the Effective Time pursuant to the DGCL that relates to such demand, and Parent shall have the opportunity and right to direct all negotiations and proceedings with respect to such demands. The Company shall not, without the prior written consent of Parent, make any payment with respect to, or settle or offer to settle or otherwise negotiate, any such demands, or agree to do any of the foregoing.

 

Section 1.06.  Company Stock Options; Company Restricted Stock Awards.

 

(a) As soon as practicable following the date of this Agreement, the Board of Directors (or, if appropriate, any committee thereof administering the Company Stock Plans) shall adopt such resolutions and take such other actions (including adopting any plan amendments) as are required to provide that, except as otherwise agreed between Parent and any holder thereof: (i) each then outstanding Company Stock Option granted under any Company Stock Plan shall, immediately prior to the Closing Date, vest in full and become exercisable for all the shares of Company Common Stock at the time subject to such option as fully-vested shares of Company Common Stock and each then outstanding Company Restricted Stock Award shall vest in full immediately prior to the Closing Date; (ii) each then-outstanding Company Stock Option as so fully vested and exercisable shall be either, to the extent permitted