Phoenix Technologies Acquires Virtual Chips, The Leading Supplier In Major New Market For Interconnect Technologies; $20M Acquisition Leverages Phoenix's System Software Business and Innovative USB Agreement with Compaq.

SANTA CLARA, Calif.--(BUSINESS WIRE)--July 17, 1996--Phoenix Technologies Ltd. (NASDAQ: PTEC), a leading supplier of standards-based compatibility software for the PC industry, today announced it has entered into a definitive agreement to acquire Virtual Chips, Inc., the leading supplier of synthesizable cores -- key chip building blocks for computer and communications interconnect standards. Phoenix will transfer approximately 1,390,000 shares of newly issued common stock, valued at approximately $20 million to complete the agreement. Virtual Chips, Inc. is a privately held company based in San Jose, California. This acquisition agreement is subject to the approval of Virtual Chips' stockholders. Virtual Chips will become part of Phoenix's Special Products Division, which supplies products and services enabling computer interconnect standards and special purpose system devices.

Virtual Chips' technology is broadly accepted with customers including Fujitsu, Hitachi, IBM, NEC, Oki, Rambus, Scientific Atlanta, Siemens Nixdorf, Silicon Graphics, Sony, Sun Microsystems and Texas Instruments. Its synthesizable cores are reusable semiconductor process-independent circuit descriptions that engineers use as building blocks for key interconnect standards, such as PCI (Peripheral Component Interconnect) and USB (Universal Serial Bus), in complex integrated circuit designs. These synthesizable cores are ideally suited for product areas that are driven by market requirements for reduced design cycles, narrow market windows and shorter product life cycles. This includes a wide range of PCs, PC peripherals, workstations, servers and a broad array of consumer appliances such as digital cameras, telephony devices, and PDAs. Phoenix's new Virtual Chips product group will support additional industry standards in the future, including the IEEE 1394 interconnect standard and Accelerated Graphics Port (AGP).

This acquisition marks a major milestone in Phoenix's strategy to expand its business beyond PCs. It enables Phoenix to solve, for the first time, a key problem facing a broad array of computer system, computer peripheral, communications, consumer electronics and semiconductor manufacturers. That problem is assuring interconnect software and silicon inter-operability under rapidly evolving new interconnect standards. Now, designers in all these industries can reduce development costs and time to market using Phoenix's system software and synthesizable cores that have been designed and tested for compatibility. This unprecedented level of compatibility will enable more rapid adoption of current interconnect standards such as PCI, and major emerging standards such as USB and IEEE 1394. This will speed the market entry of easier to use Plug and Play personal systems, peripherals, and intelligent devices of all kinds.

The acquisition of Virtual Chips is also a major milestone in Phoenix's strategy to provide the industry with the most comprehensive solution for USB, and other emerging interconnect standards. Phoenix initiated this strategy with the formation of the Special Products Division in April. Also in April, Phoenix announced an innovative agreement with Compaq Computer Corporation to speed the adoption and development of USB. Under that agreement, Compaq licensed Phoenix to market, enhance, and support its host controller design that implements the USB Open HCI specification, as authored by Compaq, Microsoft and National Semiconductor.

"As cost and system performance pressures increase and integrated circuit designs become even more complex, there will be a strong increase in the use of synthesizable cores to implement interconnect standards such as PCI and USB," said Jack Kay, president and CEO of Phoenix Technologies. "These standards are essential in an ever increasing number of intelligent devices, including virtually all personal computers and computer peripherals by next year. Phoenix estimates that over 25 percent of new chip designs will include reusable building blocks for major interconnect standards by 1999. Based on industry projections, by 1999, the number of systems and peripherals that will incorporate the new USB interconnect standard alone will exceed 500 million units per year."

"I am very pleased to bring the industry's leading synthesizable core technology together with the industry's leading system-level software," said Raj Raghavan, president and CEO of Virtual Chips. "For the first time, PC, communications, and intelligent device suppliers will have access to Virtual Chips' system hardware design experience and leadership in interconnect standards combined with Phoenix's proven ability to ensure compatibility at the system software level. This will shorten design and verification cycles by months and increase customers' assurance that their products will work."

This new union brings together two key technology leaders in today's predominant interconnect standard, PCI. Phoenix is the largest supplier of PCI-compatible system-level software. Virtual Chips is the largest supplier of PCI synthesizable cores, used in chips for PCs, servers, and add-in cards such as graphics accelerators. Originally specified by Intel Corporation, PCI has become the industry's de-facto standard for high-speed interconnect. It is an essential component for Plug and Play, developed for Windows 95 by Microsoft, Intel, Compaq and Phoenix.

Virtual Chips is the leading supplier of synthesizable cores for PC and computer industry standards. Synthesizable cores are pre-packaged circuit descriptions used as building blocks for SLI chips (System Level Integration). Written in the hardware description languages Verilog and VHDL for technology independence and reusability, synthesizable cores are used by chip designers to speed development of complex system level integrated circuits. Virtual Chips is a founding member of the newly formed RAPID (Reusable, Application-specific, Intellectual property Developers) Association. Information on Virtual Chips products is available on the World Wide Web at: http://www.vchips.com.

Phoenix Technologies Ltd. is the world's largest supplier of standards-based compatibility software to the personal computer industry. The company's system-level software products, such as PhoenixBIOS for desktops, NoteBIOS for portables, and ServerBIOS for servers, allow PC manufacturers to increase product differentiation, reduce product development time to market as well as cut internal engineering costs. Phoenix provides a line of products and services for Special Purpose PCs and interconnect standards including PC Cards/CardBus, Universal Serial Bus and other emerging interfaces. Phoenix has also developed an expanding family of software products for consumers such as Phoenix Telephony Suite and Phoenix MUSE, that increase personal computer functionality and make PCs easier to use. Information on all Phoenix Technologies products is available on the World Wide Web at: http://www.ptltd.com. -0-

Note to Editors: The Phoenix logo is a registered trademark and PhoenixPICO, PhoenixBIOS, NoteBIOS, PhoenixCard Manager, Phoenix Telephony Suite, and Phoenix MUSE are trademarks of Phoenix Technologies Ltd. Virtual Chips is a trademark of Virtual Chips, Inc. Other trademarks are the property of their respective owners.

CONTACT: Phoenix Technologies Ltd.

Jack Kay, 408/654-9000

[e-mail]

or

Virtual Chips, Inc.

Raj Raghavan, 408/452-1600

[e-mail]

or

The Benjamin Group

Ellen Roeckl, 408/559-6090

[e-mail]

or

KJ Communications

Kella Knack, 415/508-0371