<PAGE> 1
As filed with the Securities and Exchange Commission on July 16, 1997.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PHOENIX INTERNATIONAL LTD., INC.
(Exact name of registrant as specified in its charter)
Florida 7372 59-3171810
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
500 International Parkway, Heathrow, Florida 32746
(407) 548-5100
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Bahram Yusefzadeh
Chief Executive Officer
Phoenix International Ltd., Inc.
500 International Parkway
Heathrow, Florida 32746
(407) 548-5100
(407) 548-5296 (Fax)
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------------
Copies to:
Glenn W. Sturm, Esq. M. Hill Jeffries, Esq.
Jon H. Klapper, Esq. R. Brandon Asbill, Esq.
Susan L. Spencer, Esq. Susan L. Wright, Esq.
Nelson Mullins Riley & Scarborough, Alston & Bird LLP
L.L.P. One Atlantic Center
First Union Plaza, Suite 1400 1201 West Peachtree Street
999 Peachtree Street, N.E. Atlanta, Georgia 30309-3424
Atlanta, Georgia 30309 (404) 881-7000
(404) 817-6000 (404) 881-7777 (Fax)
(404) 817-6050 (Fax)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
Proposed
Maximum Proposed
Offering Maximum
Title of Each Class of Amount Price Aggregate
Securities to be to be Per Share Offering Amount of
Registered Registered (1) (2) Price(2) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par value... 1,748,000 $20.75 $36,271,000 $10,992
================================================================================================================================
</TABLE>
(1) Includes 228,000 shares which the Underwriters have the option to purchase
from the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933.
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 16, 1997
PROSPECTUS
1,520,000 SHARES
[PHOENIX INTERNATIONAL LOGO]
COMMON STOCK
Of the 1,520,000 shares of Common Stock, par value $0.01 per share (the
"Common Stock"), offered hereby (the "Offering"), 1,254,000 shares are being
sold by Phoenix International Ltd., Inc. ("Phoenix" or the "Company") and
266,000 shares are being sold by certain shareholders of the Company (the
"Selling Shareholders"). See "Principal and Selling Shareholders." The Company
will not receive any proceeds from the sale of shares by the Selling
Shareholders.
The Common Stock is traded on The Nasdaq Stock Market's National Market (the
"Nasdaq National Market") under the symbol "PHXX." On July 15, 1997, the last
reported sale price of the Common Stock on the Nasdaq National Market was $21.00
per share. See "Price Range of Common Stock and Dividend Policy."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===============================================================================================================================
Proceeds to
Price To Underwriting Proceeds to Selling
Public Discount(1) Company(2) Shareholders(2)
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<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
- -------------------------------------------------------------------------------------------------------------------------------
Total(3).................. $ $ $ $
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</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated offering expenses of approximately $1,100,000
payable by the Company.
(3) The Company has granted the Underwriters a 30-day over-allotment option
to purchase up to 228,000 additional shares of Common Stock on the same
terms and conditions as set forth above. If all such shares are purchased by
the Underwriters, the total Price to Public will be $ , the total
Underwriting Discount will be $ , the total Proceeds to Company
will be $ and the total Proceeds to Selling Shareholders will be
$ . See "Principal and Selling Shareholders" and "Underwriting."
----------------------
The shares of Common Stock are offered subject to receipt and acceptance by
the Underwriters, to prior sale and to the Underwriters' right to reject orders
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that certificates for the shares of Common Stock will be
available for delivery on or about , 1997.
----------------------
J.C. BRADFORD & CO.
WHEAT FIRST BUTCHER SINGER
ADVEST, INC.
, 1997
<PAGE> 3
[INSERT ARTWORK AS DETERMINED BY COMPANY AND UNDERWRITERS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO
COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Prospective investors should carefully
consider the matters set forth under "Risk Factors" herein. Unless the context
otherwise indicates, (i) the information in this Prospectus assumes no exercise
of the Underwriters' over-allotment option and (ii) all share and per share data
has been restated to reflect a 2.3231-for-one stock split in the form of a 132%
stock dividend on all shares of capital stock outstanding on May 6, 1996 and a
recapitalization of the Company's capital stock in July 1996. All references to
"Phoenix" or the "Company" include Phoenix International Ltd., Inc. and its
subsidiaries.
THE COMPANY
Phoenix International Ltd., Inc. ("Phoenix" or the "Company") is a
leading provider of highly adaptable, enterprise-wide client/server application
software to the financial services industry. The Company's primary market focus
in the United States is on middle market financial institutions and
internationally is on those retail-oriented institutions located within Africa,
Asia-Pacific, Europe, Latin America/Caribbean and the Middle East that have up
to 300 branches and/or one million accounts ("Tier 2 Banks"). Phoenix has
combined (i) its management's extensive experience with banking and banking
software systems, (ii) input from a consortium of financial institutions (the
"U.S. Bank Partners") concerning bank operational and flexibility needs, and
(iii) the most recent advances in client/server technology to design and develop
an innovative new banking software system (the "Phoenix System").
The Phoenix System addresses many of the deficiencies of the mainframe
and mid-range legacy computer systems on which most banks currently operate by
allowing financial institutions to integrate data into a comprehensive
management information network. Like legacy systems, the Phoenix System supports
core areas of bank data processing, including system administration, account
processing of loans and deposits, nightly processing, general ledger, budgeting,
teller functions and holding company accounting. Unlike legacy systems, the
Phoenix System is a fully integrated system that provides significant advantages
in three critical areas: (i) customer relationship management; (ii) management
decision support; and (iii) financial product development. In addition, the
Phoenix System is flexible and scalable, it stores dates and performs
calculations using codes written in four-digit years and it allows financial
institutions to take advantage of emerging technologies through its open
architecture technology and advanced software systems. As a result of the
Company's recent acquisition of Hampton Resources Limited and its operating
subsidiaries, Priority Solutions Limited and Priority Solutions International
Limited (collectively, "Priority Solutions"), a New Zealand-based provider of
banking software products, the Company also offers stand-alone trade finance and
global payments software products as part of its international banking software
applications.
As of June 1, 1997, the Phoenix System supported the core processing
needs of 33 institutions with 157 branch locations worldwide. For the fiscal
years ended December 31, 1995 and 1996 and for the three months ended March 31,
1997, the Company had total revenues of $5.0 million, $10.4 million and $3.7
million, and net income per share of $0.17, $0.59 and $0.24, respectively.
The Company's Chairman of the Board and Chief Executive Officer, Bahram
Yusefzadeh, has over 28 years of experience in the banking software industry. In
addition, the Company's senior management team has over 145 years of experience
in the retail banking and software industries and 45 years of trade finance and
wholesale banking experience. In the 1970s, Mr. Yusefzadeh co-founded Nu-Comp
Systems, Inc. and led the development of one of the first integrated legacy core
banking systems, the Liberty Banking System, which at one time was used by over
260 banks. Mr. Yusefzadeh founded Phoenix for the purpose of developing and
marketing a new generation of integrated banking software applications using
client/server technology that would replace less flexible and technologically
dated legacy systems. The Phoenix System's development was the result of a joint
effort among the Company's management, Hewlett-Packard Company
("Hewlett-Packard") and the U.S. Bank Partners. In addition, the U.S. Bank
Partners provided a substantial portion of the Company's initial capital and
continues to contribute to the Company's strategic planning and product
development.
-3-
<PAGE> 5
Since the 1970s, financial institutions have used legacy computer systems
which were originally developed for large mainframe and mid-range computer
environments. These legacy computer systems, which the Company believes
currently account for roughly 85-90% of the installed base of core applications
software systems used by the financial services industry, were designed to
process transactions rather than to support management decision-making and did
not interface with other applications across the enterprise. Today, the
competitive landscape has changed dramatically and banks now compete directly
with diversified non-bank financial service providers. In order to stay
competitive, these institutions now face an increased need for detailed, easily
accessible information about their institutions and customers in order to
develop and market profitable products and services more effectively and to
expand customer relationships.
The Phoenix System allows financial institutions to integrate data into a
comprehensive management information network that is readily accessible
throughout the entire institution, flexible with shared information and easily
interfaced. The Company designed the Phoenix System to be easy to use and simple
to learn, which enables a financial institution to provide higher quality
customer service with reduced operating and training costs. Phoenix believes
that few financial institutions have fully realized the benefits offered by
client/server technology and that the Phoenix System is well-positioned to meet
the sophisticated demands of financial institutions.
The Company's primary objective is to advance its position as a leading
supplier of enterprise-wide client/server application software for the financial
services industry worldwide by pursuing the following strategies:
- Maintain Technology Leadership and Enhance Product Functionality.
Phoenix intends to maintain its technology leadership position by
continuing to integrate new technologies, add new applications,
enhance existing applications and expand functionality to
incorporate innovative products and enhancements to address the
changing needs of it customers. Since the Company's initial public
offering in July 1996, the Company has developed two major
releases of the Phoenix System, which included numerous system
enhancements; has introduced and installed a version of the
Phoenix System which operates in a Microsoft Windows NT
environment (the "NT Version"); has implemented an enterprise-wide
integrated Intranet system for two client institutions; and has
installed a custom database-driven Internet web site in one client
institution.
- Expand Domestic Distribution. The Company plans to continue to
expand its domestic distribution by increasing its direct sales
and implementation forces in key geographic locations, by
strengthening its current sales and marketing relationships with
value added resellers ("VARs") and agents and by seeking
additional strategic sales and marketing relationships
particularly with organizations that will market the Phoenix
System primarily to smaller financial institutions within
specified territories. The Company also intends to form strategic
relationships with several small to medium size service bureaus
looking to replace their current legacy systems with open system
alternatives.
- Expand International Distribution. The Company plans to continue
to expand its global distribution and market penetration by
increasing its international direct sales and implementation
forces, by enlarging its international offices, by opening
additional sales and marketing offices in strategically located
cities worldwide, by leveraging its strategic alliances with VARs
and agents and by seeking additional strategic sales, marketing
and distribution relationships. Phoenix designed its software to
incorporate numerous international features, has acquired
additional international capabilities and intends to continue to
develop and/or acquire additional international functionality and
to integrate new technologies.
- Leverage Existing Customer Base. The Company intends to continue
to leverage its implemented customer base by (i) maximizing
recurring revenues from its customers, (ii) offering complementary
products and services to existing customers and licensing
additional subsidiaries of existing bank holding companies, (iii)
obtaining favorable references from existing customers in the
course of developing new customer relationships, and (iv)
consulting with existing customers in the development of new
products and product enhancements.
-4-
<PAGE> 6
- Broaden Primary Markets. The Phoenix System runs on a UNIX
operating system platform and in a Microsoft Windows NT
environment. The Company believes that the NT Version, which was
completed in the first quarter of 1997, will be attractive to a
wide group of institutions because of the lower overall costs
related to operating in a Microsoft Windows NT environment. The
Company believes that as Microsoft expands its marketing of the
Windows NT product and enhances the capabilities of this product,
more financial institutions, regardless of asset size, will choose
to use the Windows NT operating system rather than the UNIX
operating platform. The Company intends to take advantage of
improvements made to both UNIX and NT operating systems to expand
the processing capabilities and functionality of the Phoenix
System to address the needs of financial institutions with larger
asset sizes or more complex branch networks.
- Pursue Complementary Acquisitions. Phoenix intends to pursue
strategic acquisitions of providers of complementary technologies,
products and services in order to more rapidly (i) optimize the
package of software applications and solutions offered by the
Company, (ii) expand the Company's customer base by converting the
customers of the acquired companies to the Phoenix System, (iii)
maximize existing channels of distribution and add new channels of
distribution, and (iv) gain experienced personnel with specialized
knowledge of the domestic and international financial services
industries. Phoenix also intends to invest in companies with
complementary technologies and products in order to enhance the
functionality of the Phoenix System. See "Recent Developments,"
"Risk Factors-- Risks Associated with Acquisitions" and "Use of
Proceeds."
The Company was incorporated in Florida in January 1993. The Company's
principal offices are located at 500 International Parkway, Heathrow, Florida
32746, and its telephone number is (407) 548-5100. The Company maintains a site
on the Internet's World Wide Web. Information contained in the Company's web
site shall not be deemed to be part of this Prospectus.
-5-
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................................ 1,254,000 shares
Common Stock offered by the Selling
Shareholders....................................................... 266,000 shares
Common Stock to be outstanding after the
Offering........................................................... 5,198,692 shares(1)
Use of Proceeds.................................................... To fund product development; to
expand sales and marketing
resources; to pay certain
license fees and increase its
investment in a provider of
complementary technologies; and
for general corporate purposes,
including the possible
acquisition of complementary
technologies, products and
services and companies which
provide these technologies,
products and services. See
"Use of Proceeds."
Nasdaq National Market symbol...................................... PHXX
</TABLE>
- ------------
(1) Excludes 826,476 shares of Common Stock issuable upon exercise of
stock options outstanding as of May 31, 1997 at exercise prices
ranging from $4.30 to $21.13 per share.
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully a number of factors that could
affect the Company's operations and financial results. See "Risk Factors"
beginning on page 9 for a discussion of such factors.
This Prospectus contains statements which constitute forward-looking
statements, including statements regarding the intent, belief or current
expectations of the Company, its directors or its officers with respect to,
among other things: (i) the use of the proceeds of the Offering, (ii) the
Company's financing plans, (iii) trends affecting the Company's financial
condition or results of operations, (iv) the Company's growth strategy and
operating strategy, and (v) the declaration and payment of dividends. The words
"may," "should," "expect," "anticipate," "intend," "plan," "continue,"
"believe," "seek," "estimate," and similar expressions used in this Prospectus
that do not relate to historical facts are intended to identify forward-looking
statements. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors. The
information contained in this Prospectus, including without limitation the
information set forth under the headings "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," identifies important factors that could cause such differences.
-6-
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
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ELEVEN
FISCAL YEARS ENDED MONTHS THREE MONTHS
-------------------------- ENDED YEAR ENDED ENDED MARCH 31,
JANUARY 31, JANUARY 31, DECEMBER 31, DECEMBER 31, ---------------------------
1994 1995 1995(1) 1996 1996 1997
------------ ------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $ 30,000 $ 427,487 $ 5,023,711 $ 10,405,547 $ 1,781,330 $ 3,713,724
Operating expenses................. 1,048,560 3,341,085 4,318,946 7,907,662 1,514,370 2,602,114
------------ ------------ ------------- ------------- ------------ ------------
Operating income................ (1,018,560) (2,913,598) 704,765 2,497,885 266,960 1,111,610
Interest income (expense), net..... 3,603 7,244 109,755 204,317 27,566 69,399
Other income (expense), net........ 1,815 75,989 (4,252) (2,242) -- --
------------ ------------ ------------- ------------- ------------ ------------
Income (loss) before income taxes.. (1,013,142) (2,830,365) 810,268 2,699,960 294,526 1,181,009
Income tax expense................. -- -- 255,999 481,666 153,000 167,713
------------ ------------ ------------- ------------- ------------ ------------
Net income (loss)............... $ (1,013,142) $ (2,830,365) $ 554,269 $ 2,218,294 $ 141,526 $ 1,013,296
============ ============ ============= ============= ============ ============
Net income (loss) per share(2).. $ (0.51) $ (1.11) $ 0.17 $ 0.59 $ 0.04 $ 0.24
============ ============ ============= ============= ============ ============
Weighted average shares
outstanding(2)................... 1,971,573 2,560,151 3,235,532 3,760,680 3,298,444 4,286,640
OTHER DATA:
Total product development
expenditures(3).................. $ 621,373 $ 1,455,781 $ 1,788,172 $ 2,966,515 $ 612,346 $ 915,503
Number of installations(4)......... - 2 12 27 14 29
Total personnel(5)................. 23 48 87 124 93 149
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997
-----------------
ACTUAL AS ADJUSTED(6)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................................................... $ 6,539,885 $ 30,325,515
Total assets....................................................................................... 13,764,384 37,550,014
Long-term liabilities(7)........................................................................... 785,219 785,219
Total shareholders' equity......................................................................... 10,748,081 34,533,711
</TABLE>
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(1) During 1995, the Company changed its fiscal year end from January 31 to
December 31. Accordingly, the consolidated financial statements for the
period ended December 31, 1995 include only eleven months of operations.
(2) See Note 1 of Notes to Consolidated Financial Statements and Note 2 of
Notes to Unaudited Condensed Consolidated Financial Statements.
(3) The total of capitalized software development costs and product
development expenses for the period.
(4) The total number of separately processed financial institutions or
organizations using the Phoenix System to support daily operations at the
end of the period.
(5) The total number of personnel, including contract workers and part-time
employees at the end of the period.
(6) Adjusted to reflect the sale of 1,254,000 shares of Common Stock offered
by the Company hereby at an assumed public offering price of $21.00 per
share, and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds."
(7) Long-term liabilities includes the long-term portion of capitalized lease
obligations and deferred revenue.
-7-
<PAGE> 9
RECENT DEVELOPMENTS
PRIORITY SOLUTIONS ACQUISITION
In May 1997, the Company completed the merger of Priority Solutions
into Phoenix's wholly-owned subsidiary, Phoenix International A.P. Limited, a
New Zealand corporation ("Phoenix A.P. Limited"). Phoenix A.P. Limited is a
Wellington, New Zealand-based provider of international banking software
products which has developed and markets TradeWindTM, a trade finance system,
and TradeCentre, a global payments system, and supports customers using
TradeMark, a traditional treasury banking system. The Phoenix System,
TradeWind(TM) and TradeCentre software products all use a relational database
technology provided by Sybase, Inc. ("Sybase") and incorporate Microsoft Windows
NT technology. In addition, TradeWind(TM) and TradeCentre incorporate SQL
Windows from Centura Software Corporation ("Centura").
Management believes the Phoenix A.P. Limited acquisition advances the
Company's growth strategies, including maintaining its technological leadership
position, expanding its international distribution, broadening its primary
markets and pursuing complementary acquisitions. In addition, Phoenix A.P.
Limited's senior management, who are experienced in wholesale banking software
solutions for treasury, trade finance and international payments processing,
will provide the Company with additional management expertise.
The Phoenix A.P. Limited acquisition has been accounted for as a
pooling of interests. The Company believes that the historical results of
operations and other financial information of Priority Solutions are not
material in relation to the Company's results of operations and other financial
information. The Company will not, therefore, restate its historical financial
statements but will include the results of Phoenix A.P. Limited's ongoing
operations in the Company's financial statements starting April 1, 1997.
STRATEGIC ALLIANCES
In April 1997, Phoenix and Advanced Financial Systems, Inc. ("AFS")
entered into a cooperative marketing agreement whereby AFS markets the Phoenix
System on a non-exclusive basis to financial institutions with assets of less
than $150 million located in Colorado, Idaho, Montana, North Dakota, South
Dakota, Utah and Wyoming. AFS is a distributor of in-house computer processing
systems, including hardware, software and ancillary equipment, primarily to
financial institutions located within these states. AFS and its predecessors
have serviced the community banking market in this territory for over 15 years
and have sold more than 30 in-house software systems.
In June 1997, the Company and Seimens Nixdorf Informationssysteme AG
("SNI") entered into a cooperative marketing, license and distribution agreement
whereby SNI will non-exclusively market, sublicense and distribute the Phoenix
System to financial institutions located in those countries in Africa,
Asia-Pacific, Europe and the Middle East that are not a part of other VARs'
exclusive territories. SNI is a major international distributor of hardware and
software solutions for the financial services industry and has offices in
several major banking center cities around the world.
The Company believes that the AFS and SNI relationships represent key
steps in its strategy to increase domestic and international sales and
strengthen its position as a leading global supplier of software solutions for
the financial services industry.
SUMMARY OF RECENT OPERATING RESULTS
The Company recently completed its second quarter ended June 30, 1997.
Total revenues increased 123.9% to $4.7 million in the quarter ended June 30,
1997 from $2.1 million in the quarter ended June 30, 1996. Net income
increased 117.3% to $764,000, or $0.17 per share, from $351,000, or $0.10 per
share, respectively, for the same periods. These figures give effect to the
Phoenix A.P. Limited acquisition, effective April 1, 1997. Excluding
nonrecurring acquisition expense of approximately $274,000 related to the
Phoenix A.P. Limited acquisition, net income and net income per share for the
quarter ended June 30, 1997 would have been $1.0 million and $0.24,
respectively.
Total revenues increased 116.8% to $8.4 million for the six months
ended June 30, 1997 from $3.9 million for the six months ended June 30, 1996.
Net income increased 260.5% to $1.8 million, or $0.41 per share, from $493,000,
or $0.14 per share, respectively, for the same periods. Excluding nonrecurring
acquisition expense related to the Phoenix A.P. Limited acquisition, net
income and net income per share for the six months ended June 30, 1997 would
have been $2.1 million and $0.47, respectively. In the opinion of management,
these results contain all adjustments necessary for a fair presentation of the
unaudited results of operations for the interim periods presented.
-8-
<PAGE> 10
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors in evaluating an
investment in the Common Stock offered hereby.
ABILITY TO CONTINUE AND MANAGE GROWTH; RELIANCE ON SIGNIFICANT NEW CUSTOMERS
Phoenix has experienced significant growth in its operations. The
Company's success will depend upon its ability to continue product development;
provide a high level of customer service; upgrade its technologies and
commercialize products and services utilizing such technologies; respond to
competitive developments; expand its sales, marketing and implementation forces;
enter into sales agency and reseller agreements for both the United States and
international markets; manage its international operations; and attract, train,
motivate, manage and retain management and technical personnel on a timely
basis. The Company's growth will also require the Company to continue to improve
its financial and management controls and its reporting systems and procedures.
The Company's failure to achieve any of the objectives outlined in this
paragraph could have a material adverse effect upon its business, operating
results and financial condition. See "Business."
The Company historically has relied upon and expects to continue to rely
upon fees from significant new customers for a substantial portion of its
revenues. When a customer enters into a license agreement with the Company, a
significant portion of the fees for the Phoenix System and related services
generally are payable within the first twelve months of the term of the license
agreement, although customer and software support fees are generally payable
over the life of the license agreement. The amount of revenues derived from any
given customer during a given period of time may vary significantly, and the
Company expects that the identity of customers accounting for large portions of
revenues will change from year to year. The inability of the Company to license
the Phoenix System to a significant number of new customers would have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business - Product Pricing."
FACTORS AFFECTING OPERATING RESULTS; FLUCTUATIONS IN QUARTERLY RESULTS
The Company's future success depends on a number of factors, some of
which are beyond the Company's control. These factors include: market acceptance
of new and enhanced versions of the Company's products and services; growth of
the asset size or number of branches of the Company's customers; increased
competition; the introduction of alternative technologies; changes in
legislation, regulation and foreign currency exchange rates and other general
economic factors; capital expenditures and other costs related to the
development of new products and enhancements and the expansion of operations;
the ability of the Company to successfully assimilate the business and
operations of Phoenix A.P. Limited; changes in the Company's pricing policies
and those of its competitors; changes in operating expenses, including expenses
related to acquisitions; changes in the Company's strategy; personnel changes
and the effect of potential acquisitions. In addition, the Company's results of
operations will be adversely affected by an increase in its projected effective
tax rate if legislation re-enacting certain research and development tax credits
which expired on May 31, 1997 is not passed by the United States Congress. In
addition, at December 31, 1996, the Company had available net operating loss
carryforwards of approximately $5.7 million. Once the net operating loss
carryforwards are utilized or expire, the Company's projected effective tax rate
will increase which will adversely affect the Company's business, operating
results and financial condition.
The Company's quarterly operating results have varied significantly in
the past and may vary significantly in the future. Factors that may cause the
Company's future operating results to vary include, without limitation: the size
and timing of significant orders; the mix of direct and indirect sales; the mix
and timing of U.S. and international sales; the timing of new product
announcements and changes in pricing policies by the Company and its
competitors; and the timing of the development, implementation and release of
the Company's products and product enhancements. Product revenues are difficult
to forecast because the market for client/server application software products
is an emerging market, and the Company's sales cycle varies substantially from
customer to customer. Furthermore, the Company typically records a substantial
portion of its revenues during the last month of each quarter. Due to all of the
foregoing factors, it is likely that in some future quarter the Company's
operating results will be below the expectations of public market analysts and
investors. In such an
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event, the price of the Common Stock would likely be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and the related
notes thereto appearing elsewhere in this Prospectus.
DEPENDENCE ON NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE; RISK OF PRODUCT
ERRORS
The client/server application software market is characterized by rapid
technological change, frequent new product introductions and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
unmarketable in short periods of time. The Company expects new products and
services, and enhancements to existing products and services, to be developed
and introduced by others, which will compete with the products and services
offered by the Company. The life cycles of the Company's products are difficult
to estimate. The Company's future success will depend upon its ability to
enhance its current products and to develop and introduce new products that keep
pace with technological developments and emerging industry standards and address
the increasingly sophisticated needs of its customers. There can be no assurance
that Phoenix will be successful in developing and marketing new products or
product enhancements that meet these changing demands, that Phoenix will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products or that its new products and
product enhancements will adequately meet the demands of the marketplace and
achieve market acceptance.
Historically, the Company's product development efforts have been limited
due to the Company's limited financial resources. The introduction and
continuing development of leading technology like Version 2.0 of the Phoenix
System and other new products or enhancements that Phoenix plans to introduce
and market will be subject to significant technical risks. In the past, Phoenix
has experienced delays in the commencement of commercial shipments of new
products and enhancements. If Phoenix is unable to deliver Version 2.0 or
develop and introduce new products or product enhancements in a timely manner,
or if such new releases and enhancements of the Phoenix System or a new product
do not achieve market acceptance, the Company's business, operating results and
financial condition will likely be materially adversely affected.
Software products as complex as those offered by Phoenix may contain
undetected errors or failures when first introduced or when new versions are
released. Phoenix previously has discovered software errors in certain of its
new products and enhancements after their introduction and has experienced
delays, some customer dissatisfaction and lost revenues during the periods
required to correct these errors. There can be no assurance that errors will not
be found in Version 2.0 or other new products or releases after commencement of
commercial shipments, resulting in loss or delay in market acceptance, which
could have a material adverse effect upon the Company's business, operating
results and financial condition. See "Business -- Strategy" and "-- Product
Development and New Products."
INTENSE COMPETITION
The financial services software market is intensely competitive, rapidly
evolving and subject to rapid technological change. Competitors vary in size and
in the scope and breadth of the products and services offered. Phoenix
encounters competition in the U.S. from a number of sources, all of which offer
core retail software systems to the financial services industry. In the
international market, Phoenix competes with several companies. The Company
expects additional competition from other established and emerging companies as
the client/server application software market continues to develop and expand.
Phoenix also expects that competition will increase as a result of software
industry consolidation including particularly the acquisition of any of its
competitors or any of the client/server based retail banking system providers by
one of the larger service providers to the financial services industry. Some of
the Company's current, and many of the Company's potential, competitors have
longer operating histories, greater name recognition, larger customer bases and
significantly greater financial, engineering, technical, marketing and other
resources than the Company. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the development, promotion and sale of their
products than the Company. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address the needs of
the Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among
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competitors may emerge and rapidly acquire significant market share. The Company
expects that the financial institutions software market will continue to attract
new competitors and new technologies, possibly involving alternative
technologies that are more sophisticated and cost effective than the Company's
technology. There can be no assurance that Phoenix will be able to compete
successfully against current or future competitors or that competitive pressures
faced by Phoenix will not materially adversely affect its business, operating
results and financial condition. See "Business -- Competition."
LIMITED OPERATING HISTORY
Phoenix was incorporated in January 1993 but did not begin shipping
nondevelopment versions of its product until June 1995. The Company's limited
operating history makes it difficult to predict future operating results. The
Company's expense levels are based, in part, on its expectations of future
revenues. If revenue levels are below expectations or if the Company is unable
or unwilling to reduce expenses proportionately, operating results, cash flows
and liquidity will be adversely affected. Therefore, there can be no assurance
that Phoenix will be profitable on a quarterly or annual basis. The Company's
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and the related notes thereto appearing
elsewhere in this Prospectus.
CONSOLIDATION IN THE FINANCIAL INSTITUTIONS INDUSTRY
Merger and acquisition activity has been widespread in the financial
institutions industry in recent years and is expected to continue in future
years. As a result, the industry has experienced consolidation on a large scale,
and this consolidation has had and will continue to have the effect of reducing
the number of potential customers of the Company. Any significant increase in
the level of such consolidation could adversely affect the Company's business,
operating results and financial condition. See "Business -- Strategy" and "--
Target Markets."
EXPANSION OF SALES FORCE, IMPLEMENTATION FORCE AND INDIRECT DISTRIBUTION
CHANNELS
Phoenix will be required to hire additional sales, customer service and
implementation personnel in 1997 and beyond if Phoenix is to achieve revenue
growth in the future. Competition for such personnel is intense, and there can
be no assurance that Phoenix will be able to retain its existing sales and
implementation personnel or to attract, assimilate or retain additional highly
qualified sales or implementation personnel in the future. If Phoenix is unable
to hire such personnel on a timely basis, the Company's business, operating
results and financial condition could be materially adversely affected.
An integral part of the Company's strategy is to develop the marketing
channel of VARs and agents and to increase the proportion of the Company's
customers licensed through these channels, which will enable the Company to
offer its services to a larger customer base than the Company could otherwise
reach through its direct marketing efforts. Consequently, the Company's success
depends in part on the ultimate success of these sales relationships and on the
ability of these VARs and agents to market effectively the Company's products.
Although 81% of the Company's revenues in 1996 came from direct sales channels,
the Company is currently investing, and intends to continue to invest,
significant resources to develop indirect distribution channels. There can be no
assurances that Phoenix will be able to attract or retain VARs and agents that
will be able to market the Company's products effectively and that will be
qualified to provide timely and cost-effective customer support and service. In
addition, the Company's current agreements with VARs and agents may not be
exclusive and may be terminated under certain circumstances by either party
without cause, and certain of the Company's VARs and agents may offer competing
product lines. Therefore, there can be no assurance that any VAR or agent will
continue to represent the Company's products or to represent the Company's
products effectively. Gross margins and composition of revenues and expenses may
vary depending on whether a sale was made directly by the Company or by a VAR or
agent. The inability to recruit or retain important VARs or agents or any gross
margin erosion as a result of dealing with such third parties could materially
adversely affect the Company's business, operating results and financial
condition. See "Business -- Strategy" and "-- Sales and Marketing."
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EXPANSION OF INTERNATIONAL SALES
International sales represented approximately $5.6 million and $2.2
million in revenues for the year ended December 31, 1996 and the three months
ended March 31, 1997, respectively. Phoenix believes that its continued growth
and profitability will require expansion of its international distribution
capabilities. Accordingly, Phoenix intends to aggressively expand its
international activities, including its strategic alliances, and to enter
additional foreign markets, which will require significant management attention
and financial resources. This strategy has certain inherent risks which the
Company believes are unique to the financial services software industry which
arise from, among other things, the nature of the institutions which the Company
targets in these areas. To date, the Company has only limited experience in
marketing and distributing its products and services internationally. When the
Company enters a new international market and begins to develop new customer and
agent relationships, the Company's initial performance and market perception are
critical to its future prospects in that new market. In order to successfully
expand international sales in 1997 and subsequent periods, Phoenix must
successfully implement its strategic alliances with its existing international
VARs and agents, hire additional sales and implementation personnel, recruit
additional international VARs and agents, and develop and maintain customer
satisfaction with its products and services. To the extent that Phoenix is
unable to do so, the Company's growth in international sales will be limited,
and the Company's business, operating results and financial condition could be
materially adversely affected. In addition, there can be no assurance that
Phoenix will be able to maintain or increase international market demand for the
Company's products.
A substantial majority of the Company's international sales are currently
denominated in United States dollars. An increase in the value of the United
States dollar relative to foreign currencies could make the Company's products
more expensive and, therefore, potentially less competitive in those markets.
Additionally, risks inherent in the Company's international business activities
generally include unexpected changes in regulatory requirements, tariffs and
other trade barriers, currency risks, costs of localizing products for foreign
countries, lack of acceptance of localized products in foreign countries, longer
accounts receivable payment cycles, difficulties in managing international
operations, political instability, potentially adverse tax consequences,
restrictions on the repatriation of earnings and the burdens of complying with a
wide variety of foreign laws and regulations. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights to as great an
extent as do the laws of the United States. There can be no assurance that such
factors will not have a material adverse effect on the Company's future
international sales and, consequently, the Company's business, operating results
and financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business -- Strategy" and "-- Sales and
Marketing."
DEPENDENCE ON SINGLE PRODUCT LINE
The Company's revenues are derived from two primary sources: (i) license
fees for software products and other revenues and commissions from the sale and
delivery of software and hardware products of third party vendors; and (ii) fees
for a full range of services complementing its products, including
implementation, programming, conversion, training and installation services,
interface services for tying the Phoenix System to third-party applications,
customer and software support services, disaster recovery services and
Internet/Intranet consulting services. Substantially all of these fees are
attributable to licenses of the Company's principal product, the Phoenix System.
Increased acceptance of the Phoenix System by middle market financial
institutions and Tier 2 Banks is critical to the Company's future success. In
addition, the Company's future financial performance will depend in part on the
successful development, introduction and customer acceptance of new and enhanced
versions of the Phoenix System and other products. A decline in demand for, or
failure to achieve broad market acceptance of, the Phoenix System or any
enhanced version as a result of competition, technological change or otherwise,
will have a material adverse effect on the business, operating results and
financial condition of the Company. See "Business."
LIMITED HISTORY OF PROFITABILITY; PRIOR LOSSES
Although the Company generated net income for the year ended December 31,
1996 and the eleven months ended December 31, 1995, there can be no assurance
that the Company will continue to be profitable. Prior to the eleven months
ended December 31, 1995, during which period the Phoenix System became
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<PAGE> 14
technologically feasible, the Company sustained net losses in each of its fiscal
years. See Consolidated Financial Statements and the related notes thereto
appearing elsewhere in this Prospectus.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends in significant part upon the
continued service of its executive and senior management and key technical,
implementation and sales personnel. The loss of the services of Mr. Yusefzadeh
or Ralph H. Reichard, the Company's President and Chief Operating Officer, or
one or more of the Company's other senior officers or key technical,
implementation or sales personnel could have a material adverse effect on the
Company's business, operating results and financial condition. The Company's
future success also depends on its continuing ability to attract and retain
highly qualified managerial, technical, implementation and sales personnel
capable of developing, expanding and managing the Company's business and
products, both in the U.S. and internationally. Competition for such personnel
is intense, and there can be no assurance that Phoenix will be able to retain
its key managerial, technical, implementation and sales employees or to attract,
assimilate or retain other highly qualified managerial, technical,
implementation and sales personnel in the future. The Company has entered into
employment agreements with substantially all of its executive and senior
management. In addition, the Company maintains $1.0 million in key man life
insurance on Mr. Yusefzadeh. See "Business -- Sales and Marketing" and
"Management -- Employment Agreements."
DEPENDENCE ON THIRD-PARTY TECHNOLOGY
The Phoenix System incorporates technology developed and owned by third
parties. Consequently, Phoenix must rely upon third parties to develop and
introduce technologies that enhance the Company's current products and enable
Phoenix, in turn, to develop its own products on a timely and cost-effective
basis to meet changing customer needs and technological trends in the financial
services software industry. The Phoenix System uses a relational database
technology that the Company licenses from Sybase. The license between Sybase and
the Company is nonexclusive, and this technology has been licensed to numerous
other companies. Any impairment or termination of the Company's relationship
with any licensor of third-party technology would force Phoenix to find other
developers on a timely basis or develop its own technology and could have a
material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that Phoenix will be able to
obtain the third-party technology necessary to continue to develop and introduce
new and enhanced products, that Phoenix will obtain third-party technology on
commercially reasonable terms or that Phoenix will be able to replace
third-party technology in the event such technology becomes unavailable,
obsolete or incompatible with future versions of the Company's products. See
"Business -- Technology."
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
The Company's success is dependent upon the Phoenix System's architecture
and design. Phoenix relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. Phoenix seeks to protect its software,
documentation and other written materials under trade secret and copyright laws.
Phoenix presently has no patents or patent applications pending. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that Phoenix regards as proprietary. Policing unauthorized use of
the Company's products is difficult, and while Phoenix is unable to determine
the extent to which piracy of its software products occurs, such piracy can be
expected to be a persistent problem, particularly in foreign countries, where
the laws do not protect the Company's proprietary rights to as great an extent
as do the laws of the United States. There can be no assurance that the
Company's means of protecting its proprietary rights will be adequate or that
the Company's competitors will not develop similar technology independently.
Phoenix is not aware that any of its products infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim infringement by Phoenix with respect to current or future
products. Phoenix expects that software product developers will increasingly be
subject to infringement claims. Any such claims, with or without merit, could be
time-consuming for the Company's management, result in costly litigation or a
judgment awarding substantial damages to the parties making such claims, cause
product shipment delays or require Phoenix to enter into royalty or license
agreements or cause the Company to
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discontinue the use of the challenged tradename, service mark or technology at
potentially significant expense to the Company associated with the marketing of
a new name or the development or purchase of replacement technology, all of
which could have a material adverse effect on the Company. Such royalty or
license agreements, if required, may not be available on terms acceptable to the
Company, or at all, which could have a material adverse effect upon the
Company's business, operating results and financial condition. See "Business --
Intellectual Property and Other Proprietary Rights."
DEPENDENCE ON GROWTH IN THE CLIENT/SERVER MARKET
Substantially all of the Company's revenues have been attributable to
licenses of the Phoenix System, which is utilized in client/server computing
environments. This product is currently expected to account for substantially
all of the Company's future revenues. Although the use of client/server
technology has grown in recent years, the client/server market is still an
emerging market. Moreover, financial institutions historically have been slow to
adapt to and accept new technologies, including client/server systems. The
Company's future financial performance will depend in large part on continued
growth in the number of financial institutions installing client/server
technology. If the client/server market fails to grow or grows more slowly than
Phoenix currently anticipates, the Company's business, operating results and
financial condition will be materially adversely affected. See "Business --
Industry Background."
RISKS ASSOCIATED WITH ACQUISITIONS
As part of its business strategy, Phoenix acquired Priority Solutions
through Phoenix A.P. Limited in May 1997 and in the future the Company intends
to acquire additional complementary technologies, products and services to more
rapidly optimize its software applications, expand its customer base and
distribution channels and gain experienced personnel. The acquisition of
Priority Solutions is, and any such future acquisition would be, accompanied by
risks commonly encountered in acquisitions of companies. Such risks include,
among other things: the difficulty of assimilating the operations and personnel
of the acquired companies; potential disruption of Phoenix's ongoing business;
inability to incorporate successfully acquired technologies and rights into
Phoenix's products; maintenance of uniform standards, controls, procedures and
policies; risks of entering markets in which Phoenix has little or no direct
prior experience; and impairments of relationships with employees and
subscribers of the acquired business as a result of changes in management. There
can be no assurance that Phoenix would be successful in making any acquisitions
or overcoming the risks or any other problems encountered in connection with
such acquisitions. In addition, any such acquisitions could materially adversely
affect the Company's operating results due to dilutive issuances of equity
securities, the incurrence of additional debt, and the amortization of expenses
related to goodwill and other intangible assets, if any. The Company does not
have any other acquisition agreements or commitments in place but does intend to
continue to evaluate potential strategic acquisitions. See "Recent Developments"
and "Business -- Strategy."
PRODUCT LIABILITY
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. The agreements generally contain provisions such as
disclaimers of warranties and limitations on liability for special,
consequential and incidental damages. In addition, the Company's license
agreements generally limit the amounts recoverable for damages to the amounts
paid by the licensee to the Company for the product or service giving rise to
the damages claimed. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements may not be effective as
a result of existing or future federal, state or local laws or ordinances or
unfavorable judicial decisions. Although Phoenix has not experienced any product
liability claims to date, the sale and support of products by Phoenix may entail
the risk of such claims. The Company currently does not have product liability
insurance. A successful product liability claim brought against the Company
could have a material adverse effect upon the Company's business, operating
results and financial condition.
CONCENTRATION OF STOCK OWNERSHIP
Upon completion of the Offering, the present directors, executive
officers and their respective affiliates will beneficially own 2,034,008 shares
(approximately 36.5%) of the outstanding Common Stock. In addition
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to the shares and options included in the calculation of beneficial ownership,
the present directors, executive officers and their respective affiliates hold
options to acquire an additional 198,535 shares of Common Stock, at exercise
prices ranging from $4.30 to $21.13 per share, which are not exercisable within
60 days of the date of this Prospectus. These additional shares, together with
shares currently beneficially owned by such persons would represent
approximately 38.7% of the Common Stock outstanding after consummation of the
Offering, after giving effect to the exercise of those options. As a result, if
these shareholders were to vote as a group, they would be able to exercise
significant influence over all matters requiring shareholder approval, including
the election of directors and approval of significant corporate transactions.
However, on the closing date of the Offering (the "Closing Date"), there will
be, to management's knowledge, no agreements or understandings in effect whereby
these shareholders are bound to vote as a group. Such concentration of ownership
may also have the effect of delaying or preventing a change in control of the
Company. See "Principal and Selling Shareholders" and "Description of Capital
Stock."
ANTI-TAKEOVER EFFECTS OF THE ARTICLES OF INCORPORATION, THE BYLAWS AND THE
FLORIDA ACT; EMPLOYMENT AGREEMENTS
The Board of Directors has the authority to issue up to 10,000,000 shares
of preferred stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares, without any further
vote or action by the shareholders. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. The Company has no current plans to issue shares of
preferred stock. Further, certain provisions of the Company's Amended and
Restated Articles of Incorporation (the "Articles of Incorporation"), the
Company's Amended and Restated Bylaws (the "Bylaws") and the Florida Business
Corporation Act (the "Florida Act") could delay or make more difficult a merger,
tender offer or proxy contest involving the Company. For example, the Articles
of Incorporation and Bylaws contain provisions that limit the rights of
shareholders to call special shareholder meetings and require shareholders to
follow an advance notification procedure for director nominations. Furthermore,
the Company's Board of Directors is divided into three classes with only one
class being elected each year, and directors may only be removed for cause. In
addition, all of the Company's executive and senior management have entered into
employment agreements with the Company which contain change in control
provisions. These change in control provisions may hinder, delay, deter or
prevent a tender offer, proxy contest or other attempted takeover because the
covered employees can terminate their employment (with adequate justification
required in certain circumstances), demand severance pay equal to the salary and
bonus that they would receive for the remaining term of their respective
agreements and thereafter compete with the Company. See "Management --
Employment Agreements" and "Description of Capital Stock."
VOLATILITY OF STOCK PRICE
During the period in which the Common Stock has been publicly traded, the
market price of the Common Stock has fluctuated over a wide range and may
continue to do so in the future. The market price of the Common Stock could be
subject to significant fluctuations in response to various factors and events,
including, among other things, the depth and liquidity of the trading market of
the Common Stock, quarterly variations between actual and anticipated operating
results, growth rates, changes in estimates by analysts, market conditions in
the industry, announcements by competitors, regulatory actions and general
economic conditions. In addition, the stock market has from time to time
experienced significant price and volume fluctuations, which have particularly
affected the market prices of the stocks of high technology companies, and which
may be unrelated to the operating performance of particular companies. Any such
event would likely result in a material adverse effect on the price of the
Common Stock. See "Price Range of Common Stock and Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Future sales of substantial amounts of the Common Stock could adversely
affect the market price of the Common Stock. Several of the Company's principal
shareholders hold a significant portion of the outstanding Common Stock, and a
decision by one or more of these shareholders to sell their shares could
adversely affect
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the market price of the Common Stock. In addition to the shares of Common Stock
which are already publicly traded, the shares of Common Stock offered hereby
(plus any shares issued upon exercise of the Underwriters' over-allotment
option) will be freely tradeable without restriction. All of the Company's
executive officers, directors, and certain of its shareholders, optionholders
and warrantholders have agreed to enter into contractual agreements with the
Underwriters (the "Lock-up Agreements") generally providing that for a period of
180 days after the date of this Prospectus, they will not, except in connection
with the Offering, directly or indirectly, offer, sell, loan, pledge or
otherwise dispose of, or grant any options or other rights with respect to, any
shares of Common Stock or any securities that are convertible into or
exchangeable or exercisable for Common Stock owned by them without the prior
written consent of J.C. Bradford & Co. As a result, notwithstanding possible
earlier eligibility for sale pursuant to the Company's registration statement on
Form S-8 as filed with the Securities and Exchange Commission (the "Commission")
on December 31, 1996 (the "S-8 Registration Statement") or under the provisions
of Rule 144 and Rule 701 under the Securities Act, shares subject to the Lock-up
Agreements will not be eligible for sale until the Lock-up Agreements expire or
their terms are waived by J.C. Bradford & Co. If a shareholder should request
J.C. Bradford & Co. to waive the 180-day lock-up period, J.C. Bradford & Co.,
consistent with past practice with regard to other issuing companies, would take
into consideration the number of shares as to which such request relates, the
identity of the requesting shareholder, the relative demand for additional
shares of Common Stock in the market, the period of time since the completion of
the Offering, and the average trading volume and price performance of the Common
Stock during such period. Assuming J.C. Bradford & Co. does not release any
shareholders from the Lock-up Agreements, the following shares will be eligible
for sale in the public market at the following times: beginning on the date of
this Prospectus, approximately _________ shares will be immediately available
for sale in the public market; and beginning _______ days following the date of
this Prospectus, approximately shares will be eligible for sale pursuant to the
S-8 Registration Statement, Rule 144 and Rule 701. See "Shares Eligible for
Future Sale" and "Underwriting."
Upon expiration of the Lock-up Agreements, if his employment is
terminated for any reason or if he is no longer a director of the Company, Mr.
Yusefzadeh, who will beneficially hold approximately 891,678 shares of Common
Stock after the Offering, will be entitled to certain demand registration rights
with respect to such shares. If Mr. Yusefzadeh, by exercising his demand
registration rights, causes a large number of shares to be registered and sold
in the public market, such sales could have a material adverse effect on the
market price for the Common Stock. See "Shares Eligible for Future Sale --
Registration Rights."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The Company intends to use the net proceeds from the Offering for product
development, expansion of its sales and marketing resources, payment of certain
license fees, increasing its equity interest in a provider of complementary
technologies, working capital, capital expenditures and general corporate
purposes. In addition, a portion of the net proceeds may be used to make
acquisitions of providers of complementary technologies, products and services.
Accordingly, the specific uses for the net proceeds of the Offering will be at
the complete discretion of the Board of Directors of the Company and may be
allocated based upon circumstances arising from time to time in the future. See
"Use of Proceeds."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
This Prospectus contains forward looking statements, including statements
regarding, among other items, the Company's future plans and growth strategies
and anticipated trends in the industry in which the Company operates. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, many of which are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements as a result of the factors described herein,
including, among others, regulatory or economic influences. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
information contained in this Prospectus will in fact transpire or prove to be
accurate.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,254,000 shares of
Common Stock offered by the Company hereby at an assumed price of $21.00 per
share are estimated to be approximately $23.8 million (approximately $28.3
million if the Underwriters' over-allotment option is exercised in full) after
deducting the underwriting discount and estimated offering expenses payable by
the Company. The Company will not receive any proceeds from the sale of Common
Stock offered hereby by the Selling Shareholders.
The Company expects to use the estimated net proceeds from the Offering
as follows: (i) approximately $10.1 million to fund development of future
products and applications, such as interfaces of products from Phoenix A.P.
Limited and third parties to the Phoenix System, and to enhance the processing
capabilities of the Phoenix System to accommodate a larger number of branches,
accounts and transactions; (ii) approximately $5.3 million to expand its sales
and marketing resources, which will primarily consist of increased personnel and
related expenses; and (iii) approximately $800,000 to make certain license fee
payments to, and to exercise an option it holds to increase to 10% its equity
interest in Dyad Corporation ("Dyad"), a company located in Norcross, Georgia
which is in the process of developing certain automated loan and mortgage
products. See "Certain Transactions." The remainder of the net proceeds of the
Offering will be used for general corporate purposes, including the possible
acquisition of complementary technologies, products and services and the
expansion of implementation services and personnel. The Company does not have
any present agreements or commitments in place but does intend to continue to
evaluate potential strategic acquisitions. The Company estimates that its cash
and financing needs through 1998 will be met by the net proceeds from the
Offering, and from its investments and cash flow from operations. However, any
increases in the Company's anticipated growth rate, shortfalls in anticipated
revenues, increases in anticipated expenses or significant acquisition
opportunities could have the effect of significantly reducing the Company's
liquidity and capital resources and would require the Company to slow its growth
or to raise additional capital from public or private equity or debt sources in
order to finance anticipated growth and contemplated capital expenditures. There
can be no assurance that the Company will be able to raise any such capital on
terms acceptable to the Company or at all. Pending any such expenditures, the
Company plans to invest the net proceeds of the Offering in investment grade,
interest-bearing securities.
-17-
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 and on an as adjusted basis to reflect the sale by the Company of
1,254,000 shares of Common Stock offered hereby at an assumed price of $21.00
per share and the application of the estimated net proceeds therefrom. See "Use
of Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------
ACTUAL AS ADJUSTED
------------ ------------
(UNAUDITED)
<S> <C> <C>
Long-term liabilities(1) ............................................. $ 785,219 $ 785,219
Shareholders' equity:
Preferred Stock, $1.00 par value,
10,000,000 shares authorized, none issued ......................... $ -- $ --
Common Stock, $0.01 par value, 20,000,000 shares authorized:
3,864,374 shares issued and outstanding, actual; 5,118,374
shares issued and outstanding, as adjusted(2)(3) .................. 38,644 51,184
Additional paid-in capital .......................................... 10,850,528 34,623,618
Stock subscription receivables ...................................... (83,443) (83,443)
Accumulated deficit ................................................. (57,648) (57,648)
------------ ------------
Total shareholders' equity ........................................ 10,748,081 34,533,711
------------ ------------
Total capitalization .............................................. $ 11,533,300 $ 35,318,930
============ ============
</TABLE>
- ---------------
(1) Long-term liabilities includes the long-term portion of capitalized lease
obligations and deferred revenue.
(2) Excludes 650,394 shares of Common Stock issuable upon exercise of stock
options outstanding at exercise prices ranging from $4.30 to $17.50 per
share and 724,521 shares of Common Stock reserved for grant of future
options or direct issuances under the Company's stock option plans, as of
March 31, 1997. See "Management -- Stock Option Plans" and Note 5 of
Notes to Consolidated Financial Statements.
(3) At the May 1997 Annual Meeting of Shareholders, the number of shares of
Common Stock authorized for issuance was increased to 50,000,000.
-18-
<PAGE> 20
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Since its initial public offering (at $12.00 per share) on July 1, 1996,
the Common Stock has traded on the Nasdaq National Market under the symbol
"PHXX." The following table sets forth for the periods indicated the high and
low sale prices per share of the Common Stock as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ---------- ----------
<S> <C> <C>
Third Quarter................................................. $ 17.50 $ 12.25
Fourth Quarter................................................ 21.50 16.50
1997
First Quarter................................................. $ 26.75 $ 17.00
Second Quarter................................................ 25.00 19.00
Third Quarter (through July 15, 1997)......................... 23.00 20.25
</TABLE>
On July 15, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $21.00 per share. As of May 31, 1997, there were
approximately 1,050 beneficial holders of the Common Stock.
Phoenix has never paid any cash dividends on its Common Stock and does not
expect to pay cash dividends in the foreseeable future. Future declaration and
payment of dividends, if any, will be determined in light of the then-current
conditions, including the Company's earnings, operations, capital requirements,
financial condition, restrictions in financing agreements and other factors
deemed relevant by the Board of Directors.
-19-
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial and
operating data for the periods indicated. The statement of operations data for
the fiscal years ended January 31, 1994 and 1995, for the eleven months ended
December 31, 1995 and for the year ended December 31, 1996 and the balance sheet
data as of January 31, 1994 and 1995, and December 31, 1995 and 1996 were
derived from the consolidated financial statements of the Company, which have
been audited by Ernst & Young LLP. The selected consolidated financial data as
of March 31, 1996 and 1997 and for the three months ended March 31, 1996 and
1997 have been derived from the unaudited condensed consolidated financial
statements of the Company which include all adjustments, consisting of only
normal recurring adjustments, which the Company considers necessary for a fair
presentation of results of operations for these periods. Other data for all
periods presented were derived from the Company's records. The following data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and the related notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ELEVEN
FISCAL YEARS ENDED MONTHS THREE MONTHS
--------------------------- ENDED YEAR ENDED ENDED MARCH 31,
JANUARY 31, JANUARY 31, DECEMBER 31, DECEMBER 31, --------------------------
1994 1995 1995(1) 1996 1996 1997
----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees and other ................ $ 30,000 $ 57,776 $ 3,467,547 $ 6,827,699 $ 1,127,607 $ 2,268,406
Implementation, customer and software
support and other service fees ...... -- 369,711 1,556,164 3,577,848 653,723 1,445,318
----------- ----------- ----------- ------------ ----------- -----------
Total revenues ................. 30,000 427,487 5,023,711 10,405,547 1,781,330 3,713,724
Expenses:
Costs of license fees and other ....... -- -- 375,783 674,037 131,029 219,737
Costs of implementation, customer and
software support and other service
fees ................................ 104,818 637,427 1,246,886 2,272,710 457,196 831,633
Sales and marketing ................... 96,911 358,948 983,290 1,377,353 268,818 560,997
General and administrative ............ 225,458 981,930 1,058,190 1,822,871 358,260 436,607
Product development ................... 621,373 1,362,780 654,797 1,760,691 299,067 553,140
----------- ----------- ----------- ------------ ----------- -----------
Total expenses ................. 1,048,560 3,341,085 4,318,946 7,907,662 1,514,370 2,602,114
Other income (expense):
Interest income ....................... 3,603 26,610 121,815 223,548 28,647 74,788
Interest expense ...................... -- (19,366) (12,060) (19,231) (1,081) (5,389)
Other income (expense) ................ 1,815 75,989 (4,252) (2,242) -- --
----------- ----------- ----------- ------------ ----------- -----------
Income (loss) before income taxes ....... (1,013,142) (2,830,365) 810,268 2,699,960 294,526 1,181,009
Income tax expense ...................... -- -- 255,999 481,666 153,000 167,713
----------- ----------- ----------- ------------ ----------- -----------
Net income (loss) ....................... $(1,013,142) $(2,830,365) $ 554,269 $ 2,218,294 $ 141,526 $ 1,013,296
=========== =========== =========== ============ =========== ===========
Net income (loss) per share(2) .......... $ (0.51) $ (1.11) $ 0.17 $ 0.59 $ 0.04 $ 0.24
=========== =========== =========== ============ =========== ===========
Weighted average shares
outstanding(2) ........................ 1,971,573 2,560,151 3,235,532 3,760,680 3,298,444 4,286,640
OTHER DATA:
Total product development
expenditures(3) ....................... $ 621,373 $ 1,455,781 $ 1,788,172 $ 2,966,515 $ 612,346 $ 915,503
Number of installations(4) .............. -- 2 12 27 14 29
Total personnel(5) ...................... 23 48 87 124 93 149
</TABLE>
-20-
<PAGE> 22
<TABLE>
<CAPTION>
AT
---------------------------------------------------------------------------------------------
JANUARY 31, JANUARY 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1994 1995 1995 1996 1996 1997
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) ...... $(393,335) $(2,156,814) $(2,263,338) $ 6,864,961 $(2,338,673) $ 6,539,885
Total assets ................... 311,322 1,726,511 3,228,289 12,083,167 3,495,641 13,764,384
Long-term liabilities(6) ....... -- -- -- -- -- 785,219
Total shareholders' equity ..... (226,456) (1,619,412) (568,102) 9,584,017 (376,576) 10,748,081
</TABLE>
- ---------------
(1) During 1995, the Company changed its fiscal year end from January 31 to
December 31. Accordingly, the consolidated financial statements for the
period ended December 31, 1995 include only eleven months of operations.
(2) See Note 1 of Notes to Consolidated Financial Statements and Note 2 of
Notes to Unaudited Condensed Consolidated Financial Statements.
(3) The total of capitalized software development costs and product
development expenses for the period.
(4) The total number of separately processed financial institutions or
organizations using the Phoenix System to support daily operations at the
end of the period.
(5) The total number of personnel, including contract workers and part-time
employees at the end of the period.
(6) Long-term liabilities includes the long-term portion of capitalized lease
obligations and deferred revenue.
-21-
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the
Consolidated Financial Statements and the Notes thereto appearing elsewhere in
this Prospectus. The financial statements for 1996 include the 12 months of
operations ended December 31, 1996. Effective December 31, 1995, Phoenix changed
its fiscal year end from January 31 to December 31. For purposes hereof, the
Company defines the fiscal year ended January 31, 1995 as "Fiscal 1994," and the
11 months ended December 31, 1995 as "Fiscal 1995." Dollar amounts are rounded.
This Prospectus contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
The Company derives its revenues from two primary sources: (i) license
fees for software products and other revenues and commissions from the sale and
delivery of software and hardware products of third party vendors; and (ii) fees
for a full range of services complementing its products, including
implementation, programming, conversion, training and installation services,
interface services for tying the Phoenix System to third-party applications,
customer and software support services, disaster recovery services and
Internet/Intranet consulting services. Fees for the Company's software products
are charged separately from fees for the Company's services and are recognized
upon delivery, when no significant vendor obligations remain and collection of
the resulting receivables is deemed probable. Revenues for implementation,
conversion, installation, training, interface and consulting services are
recognized when the services are performed. Service revenues for ongoing
customer and software support, product updates and disaster recovery services
provide recurring revenues as they are recognized ratably over each year of the
license agreement, the term of which is typically five years. Costs incurred
internally to develop a computer software product are charged to product
development expense when incurred until technological feasibility has been
established for the product. Thereafter, all software production costs are
capitalized and recorded at the lower of unamortized cost or net realizable
value. Capitalization ceases upon general release of the software to customers.
After general release, capitalized costs are amortized using the straight-line
method over the estimated useful life of the related product (currently five
years).
The Company intends to maintain its marketing focus in the United States
on middle market financial institutions, which the Company defines as commercial
banks and savings institutions with asset sizes ranging from $150 million to $2
billion. In addition, Phoenix plans to continue to expand its presence in the
international market by focusing its marketing efforts on retail-oriented Tier 2
Banks. The Company intends to pursue both markets by increasing its direct sales
forces and indirect distribution channels. Since its inception, Phoenix
primarily has used a direct sales force to market the Phoenix System. Phoenix
believes that, in the future, revenues from products sold through strategic
alliances and other indirect channels may become an increasingly significant
source of the Company's total revenues, particularly in the international
market. Gross margins and composition of revenue and expenses will vary
depending on whether a sale was made directly by the Company or by a VAR or
agent. However, the Company believes that the difference in the margins obtained
from direct and indirect sales should not have a material adverse effect on the
Company's business, operating results and financial condition.
The Company expects increased competition and intends to continue to
invest significantly in product development and other aspects of its business.
Management believes that the banking software market for middle market financial
institutions is diffuse with medium-to-high barriers to entry, including costs
of entry and time to market. Management believes that client/server technology
in the financial services industry is early in its life cycle and will continue
to gain market share for the next five to ten years as it displaces legacy
hardware and software. Although client/server technology is characterized by
rapidly evolving developments, the open architecture design and attributes of
the Phoenix System facilitate rapid adaptation to evolving
-22-
<PAGE> 24
technological changes. Phoenix intends to maintain its leadership position by
integrating new technologies, adding new applications, enhancing existing
applications and increasing product functionality.
The Company's quarterly operating results have varied significantly in
the past and may vary significantly in the future. Factors that may cause the
Company's future operating results to vary include, without limitation: the size
and timing of significant orders; the mix of direct and indirect sales; the mix
and timing of foreign and domestic sales; the timing of new product
announcements and changes in pricing policies by the Company and its
competitors; the timing of the development, implementation and release of the
Company's products and enhancements; changes in the Company's strategy and
operating expenses and general economic factors. Product revenues are difficult
to forecast because the market for client/server application software products
is rapidly evolving, and the Company's sales cycle generally covers an extended
period but varies substantially from customer to customer. Phoenix believes that
quarter to quarter comparisons of its results of operations should not be relied
upon as indications of future performance. See "Risk Factors - Factors Affecting
Operating Results; Fluctuations in Quarterly Results."
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenues
represented by certain line items in the Company's statement of operations for
the periods indicated.
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUES
--------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED
FISCAL FISCAL DECEMBER 31, --------------------
1994 1995(1) 1996 MARCH 31, MARCH 31,
------ ------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
License fees and other .................... 13.5% 69.0% 65.6% 63.3% 61.1%
Implementation, customer and software
support and other service fees .......... 86.5 31.0 34.4 36.7 38.9
----- ----- ----- ----- -----
Total revenues ........................ 100.0 100.0 100.0 100.0 100.0
Expenses:
Costs of license fees and other ........... -- 7.5 6.5 7.4 5.9
Costs of implementation, customer and
software support and other service
fees .................................... 149.1 24.8 21.8 25.7 22.4
Sales and marketing ....................... 84.0 19.6 13.2 15.1 15.1
General and administrative ................ 229.7 21.1 17.5 20.1 11.8
Product development ....................... 318.8 13.0 16.9 16.8 14.9
----- ----- ----- ----- -----
Total expenses ........................ 781.6 86.0 75.9 85.1 70.1
Other income (expense):
Interest income ........................... 6.2 2.4 2.1 1.6 2.0
Interest expense .......................... (4.5) (0.2) (0.2) (0.1) (0.1)
Other income (expense) .................... 17.8 (0.1) -- -- --
----- ----- ----- ----- -----
Income (loss) before income taxes ........... (662.1) 16.1 26.0 16.4 31.8
Income tax expense .......................... -- 5.1 4.6 8.6 4.5
----- ----- ----- ----- -----
Net income (loss) ........................... (662.1)% 11.0% 21.4% 7.8% 27.3%
===== ===== ===== ===== =====
</TABLE>
- -------------------------------
(1) During 1995, the Company changed its fiscal year end from January 31 to
December 31. Accordingly, the information presented above for Fiscal
1995 consists of only eleven months of operations.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 TO THE THREE MONTHS ENDED
MARCH 31, 1996
Revenues. Total revenues increased 108.5% to $3.7 million in the
quarter ended March 31, 1997 from $1.8 million in the quarter ended March 31,
1996. License fees and other revenues increased 101.2% to $2.3 million from $1.1
million due to an increased number of customers. International sales accounted
for approximately 60% and 50% of total revenues in the quarters ended March 31,
1997 and 1996, respectively. Implementation, customer and software support and
other service fees increased 121.1% to $1.4 million in the
-23-
<PAGE> 25
quarter ended March 31, 1997 from $654,000 in the quarter ended March 31, 1996
primarily due to increased programming, support and consulting revenues.
Expenses. The Company's operating expenses increased 71.8% to $2.6
million in the quarter ended March 31, 1997 from $1.5 million in the quarter
ended March 31, 1996 due primarily to increased staffing and personnel related
costs.
Cost of license fees and other increased 67.7% to $220,000 from
$131,000 in the quarters ended March 31, 1997 and 1996, respectively. These
costs increased as a result of higher amortization of capitalized software
development costs and higher third party software royalties.
Cost of implementation, customer and software support and other service
fees increased 81.9% to $832,000 in the quarter ended March 31, 1997 from
$457,000 in the quarter ended March 31, 1996 because of additional personnel
costs related to increased Phoenix System implementation activity. Cost of
implementation, customer and software support and other service fees consists
primarily of personnel related costs incurred in providing implementation,
conversion and installation services, training and customer support.
Sales and marketing expenses increased 108.7% to $561,000 in the
quarter ended March 31, 1997 from $269,000 in the quarter ended March 31, 1996.
This increase was primarily the result of additional expenses incurred in
connection with increased staffing and personnel related costs and from the
opening of a new sales office in London, England in December 1996.
General and administrative expenses increased 21.9% to $437,000 in the
quarter ended March 31, 1997 from $358,000 in the quarter ended March 31, 1996.
This increase was primarily the result of increased public company related
expenses, and the addition of personnel and related costs.
Product development expenses increased 85.0% to $553,000 in the quarter
ended March 31, 1997 from $299,000 in the quarter ended March 31, 1996. Product
development expenses increased as a result of increased contract labor and
personnel related costs.
Other Income (Expense). Interest income was $75,000 and $29,000 in the
quarters ended March 31, 1997 and 1996, respectively. Interest income increased
primarily due to the increase in the interest-bearing funds resulting from the
investment of the proceeds from the initial public offering of the Company's
Common Stock in July 1996.
Income Tax Expense. Income tax expense was $168,000 and $153,000 in the
quarters ended March 31, 1997 and 1996, respectively. These income tax expenses
represent withholding taxes which are related to the licensing of the Company's
products to foreign customers and which are contractually payable by those
customers, and include $24,000 in the quarter ended March 31, 1997 for
alternative minimum tax.
Net Income. Net income increased $872,000 to $1.0 million in the
quarter ended March 31, 1997 from $142,000 in the quarter ended March 31, 1996
primarily as a result of increased revenues.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO FISCAL 1995
Revenues. Total revenues increased 107.1% to $10.4 million in the year
ended December 31, 1996 from $5.0 million in Fiscal 1995. License fees and other
revenues increased 96.9% to $6.8 million in the year ended December 31, 1996
from $3.5 million in Fiscal 1995. Revenues during the year ended December 31,
1996 and Fiscal 1995 include $482,000 and $256,000, respectively, in foreign tax
withholdings which are contractually paid by foreign customers, and such amount
is also recorded as an income tax expense. The completion of a commercially
viable version of the Phoenix System and the delivery of software to an
increased number of customers in both the United States and international
markets were major factors in the increase in license fees during the year ended
December 31, 1996 compared to Fiscal 1995.
-24-
<PAGE> 26
For the year ended December 31, 1996, two international customers
accounted for approximately 32% of Phoenix's total revenues (each accounting for
approximately 16% of total revenues). One of these customers contributed 19% of
total revenues in Fiscal 1995 and in Fiscal 1995 another customer contributed
approximately 43% of Phoenix's total revenues. Revenue from one of these
customers during the year ended December 31, 1996 represents license fees to a
reseller which the reseller may apply to future sales of the Phoenix System.
During the year ended December 31, 1996, approximately 53% of the Company's
revenues were derived from its foreign sales activities as compared to
approximately 70% of the Company's revenues in Fiscal 1995. Management believes
that international sales will continue to constitute over one-half of total
annual revenues in the near future.
Implementation, customer and software support and other service fees
increased 129.9% to $3.6 million in the year ended December 31, 1996 from $1.6
million in Fiscal 1995. This growth was primarily due to increased
implementation and development fees and services, which resulted from increased
licensing activity.
Expenses. The Company's operating expenses increased 83.1% to $7.9
million in the year ended December 31, 1996 from $4.3 million in Fiscal 1995.
The growth in expenses was primarily due to increased personnel related costs
resulting from higher staffing levels.
Cost of license fees and other increased 79.4% to $674,000 in the year
ended December 31, 1996 from $376,000 in Fiscal 1995. These costs consisted
primarily of amortization of capitalized software development costs and third
party software royalties which related to software which is sold and installed
with the Company's products. Amortization of software development costs
increased in the year ended December 31, 1996 compared to Fiscal 1995 because:
(i) amortization costs were only first recorded in June 1995 after general
release of the Phoenix System; and (ii) the amount of monthly amortization
increased as the Company capitalized additional software development costs.
Third party royalties increased in the year ended December 31, 1996 from Fiscal
1995 due to higher sales of third party software licenses.
Cost of implementation, customer and software support and other
services increased 82.3% to $2.3 million in the year ended December 31, 1996
from $1.2 million in Fiscal 1995 because of increased personnel related costs.
Sales and marketing expenses increased 40.1% to $1.4 million in the
year ended December 31, 1996 from $983,000 in Fiscal 1995. This increase was
primarily due to the expansion of sales and marketing staffing and increased
marketing activities.
General and administrative expenses increased 72.3% to $1.8 million in
the year ended December 31, 1996 from $1.1 million in Fiscal 1995. The increase
was primarily the result of increased personnel costs, professional services and
public company related expenses.
Product development expenses increased 168.9% to $1.8 million in the
year ended December 31, 1996 from $655,000 in Fiscal 1995. This increase was
primarily due to the continued development of the Phoenix System. Capitalized
software development costs increased to $1.2 million in the year ended December
31, 1996 from $1.1 million in Fiscal 1995. The total of product development
expenses and capitalized software development costs ("Total Product Development
Expenditures") increased to $3.0 million during the year ended December 31, 1996
from $1.8 million during Fiscal 1995. The increase in Total Product Development
Expenditures was primarily attributable to increased staffing required to expand
and enhance the Company's product line.
Other Income (Expense). Interest income was $224,000 and $122,000 in
the year ended December 31, 1996 and Fiscal 1995, respectively. Interest income
increased in the year ended December 31, 1996 as a result of interest from the
investment of funds received by the Company in the third quarter of 1996 from
the initial public offering of the Company's Common Stock. Interest expense
increased to $19,000 in the year ended December 31, 1996 from $12,000 in Fiscal
1995 as a result of increased interest from bank equipment and line of credit
loans in the year ended December 31, 1996.
-25-
<PAGE> 27
Income Tax Expense. Income tax expense was $482,000 and $256,000 in the
year ended December 31, 1996 and Fiscal 1995, respectively. These income tax
expenses represent withholding taxes which relate to the licensing of the
Company's products to foreign customers and which are contractually payable by
those customers.
As a result of the Company's start-up losses, the Company has a net
operating loss carryforward. At December 31, 1996, Phoenix had available net
operating loss carryforwards of $5.7 million that expire in years 2008 through
2011 to offset future taxable income for federal income tax purposes. In
addition, Phoenix has available research and development tax credit
carryforwards of $198,000 that expire in years 2008 through 2011 and foreign tax
credit carryforwards of $738,000 that expire in years 2000 through 2003.
Utilization of these carryforwards to reduce future income taxes will depend on
the Company's ability to generate sufficient taxable income prior to the
expiration of the carryforwards. As a result of an ownership change, as defined
by the Internal Revenue Code of 1986, as amended (the "Code"), the annual amount
of net operating loss carryforwards and tax credit available to offset taxable
income may be limited under the provisions of the Code. A valuation allowance of
$2.4 million against deferred tax assets resulting from the net operating loss
and tax credit carryforwards and other tax benefits has been recorded because
management believes it is more likely than not that the deferred tax assets for
which the valuation allowance has been recorded will not be realized. See Note 9
to the Notes to Consolidated Financial Statements.
Net Income. Net income increased $1.7 million to $2.2 million for the
year ended December 31, 1996 from $554,000 for Fiscal 1995 primarily as a result
of increased revenues.
COMPARISON OF FISCAL 1995 TO FISCAL 1994
Revenues. Total revenues increased to $5.0 million in Fiscal 1995 from
$427,000 in Fiscal 1994. License fees and other revenues increased to $3.5
million in Fiscal 1995 from $58,000 in Fiscal 1994. The completion of a
commercially viable version of the Phoenix System and commencement of licensing
of the Phoenix System in both the United States and international markets were
major factors in the increase in license fees during Fiscal 1995. The Company
did not recognize revenues from the licensing of its software during Fiscal 1994
because Phoenix was in the process of developing its products. However, Phoenix
recognized $58,000 of revenue in Fiscal 1994 from commissions earned from the
sale and delivery of third party products. International sales accounted for
approximately 70% and 33% of total revenues in Fiscal 1995 and Fiscal 1994,
respectively.
Implementation, customer and software support and other service fees
increased 320.9% to $1.6 million in Fiscal 1995 from $370,000 in Fiscal 1994.
This growth was primarily due to increased implementation and other service
fees, which resulted from increased licensing activity.
Expenses. The Company's operating expenses increased 29.3% to $4.3
million in Fiscal 1995 from $3.3 million in Fiscal 1994. The growth in expenses
was primarily due to increases in personnel related costs resulting from higher
staffing levels.
Cost of license fees and other of $376,000 in Fiscal 1995, consisting
primarily of amortization of capitalized software development costs and software
royalties to third parties, was recognized after general release of the Phoenix
System.
Cost of implementation, customer and software support and other service
fees increased 95.6% to $1.2 million in Fiscal 1995 from $637,000 in Fiscal
1994. This increase was due to increased implementation costs related to the
Company's initial installations and the release of its software and increased
personnel related costs.
Sales and marketing expenses increased 173.9% to $983,000 in Fiscal
1995 from $359,000 in Fiscal 1994. This increase was primarily due to the
expansion of sales and marketing staffing and increased marketing activities.
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General and administrative expenses increased 7.8% to $1.1 million in
Fiscal 1995 from $982,000 in Fiscal 1994. The increase was primarily the result
of increased staffing and associated expenses necessary to manage and support
the Company's growth.
Product development expenses decreased 52.0% to $655,000 in Fiscal 1995
from $1.4 million in Fiscal 1994. Technological feasibility of the Phoenix
System was established during Fiscal 1994, and, therefore, certain expenditures
were capitalized during Fiscal 1994 and Fiscal 1995. Product development
expenses decreased during Fiscal 1995 due to the capitalization of certain
software development costs. Capitalized software development costs increased to
$1.1 million in Fiscal 1995 from $93,000 in Fiscal 1994. Product Development
Expenditures increased to $1.8 million in Fiscal 1995 from $1.5 million in
Fiscal 1994 due to increased staffing required to expand and enhance the
Company's product line.
Other Income (Expense). Interest income was $122,000 and $27,000 in
Fiscal 1995 and Fiscal 1994, respectively. Interest income increased in Fiscal
1995 as a result of interest accrued on a related party stock subscriptions
receivable. Interest expense decreased to $12,000 in Fiscal 1995 from $19,000 in
Fiscal 1994 as a result of repayment of a note payable during Fiscal 1995. Other
income of $76,000 in Fiscal 1994 consisted principally of the fair market value
of computer equipment given to Phoenix by a computer company to enable Phoenix
to develop and test the Phoenix System on such company's equipment.
Income Tax Expense. The Company did not recognize income tax expense
for federal income tax in Fiscal 1994 and Fiscal 1995 due to the net operating
losses incurred in the fiscal year ended January 31, 1994 and Fiscal 1994.
Income tax expense in Fiscal 1995 of $256,000 represented foreign withholding
taxes related to revenue from customers in certain foreign countries, which
taxes are contractually payable by those customers.
Net Income (Loss). Net income increased $3.4 million to $554,000 for
Fiscal 1995 from a loss of $2.8 million for Fiscal 1994 primarily as a result of
increased revenues from the commercial introduction and licensing of the Phoenix
System.
BACKLOG
Backlog, defined as the contract value of executed license and service
agreements minus revenue recognized from those contracts, totaled $3.1 million,
$7.3 million, $6.8 million and $8.2 million for Fiscal 1994, Fiscal 1995 and the
year ended December 31, 1996, and for the quarter ended March 31, 1997,
respectively. Backlog for the year ended December 31, 1996 consisted of $39,000
for software licenses, $1.1 million for implementation and $5.7 million for
five-year customer support service agreements. Backlog for the quarter ended
March 31, 1997 consisted of $143,000 for software licenses, $740,000 for
implementation and services and $7.3 million for five-year customer support
service agreements. Backlog of software license and implementation revenue is
expected to be realized within a period of approximately one year, and customer
support and disaster recovery services backlog is expected to be realized within
a period of approximately five years.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its cash needs through existing cash and investment
balances, interest on investments and, to a lesser extent, through cash flow
from operations, without relying on lines of credit or other borrowings.
At March 31, 1997, cash and cash equivalents and investments were $4.8
million. Cash and cash equivalents include $190,000 which is restricted securing
a letter of credit to a government municipality until such funds are earned
under an economic development grant. For the quarter ended March 31, 1997, cash
used by operations was $547,000. An increase in accounts receivable of $767,000,
an increase in unbilled accounts receivable of $389,000, and a decrease in
accrued expenses of $412,000 were significant uses of cash in operating
activities. Investing activities provided cash of $1.4 million including $2.7
million from the sale of
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short term investments. Purchases of property and equipment were $385,000.
Increases in other assets which include minority investments in other companies
and non-current prepaid royalties (See Note 3 of Notes to Unaudited Condensed
Consolidated Financial Statements) used $266,000 of cash. Increases in
capitalized software costs, including $311,000 of purchased software, used
$673,000 of cash. Financing activities provided $141,000 in cash, including
$124,000 from the issuance of common stock pursuant to the exercise of stock
options. In addition, the Company entered into a capital lease obligation of
$727,000 for furniture when it moved into its new corporate offices in March
1997.
At December 31, 1996, cash and cash equivalents and investments were
$6.5 million, including $190,000 which is restricted. For the year ended
December 31, 1996, cash used by operations was $165,000. Reduction of deferred
revenue and increases in accounts receivable and unbilled accounts receivable in
the year ended December 31, 1996 were a significant use of cash in operating
activities. Deferred revenue balances declined as license fee and service
revenues were recognized during the year ended December 31, 1996. Investing
activities used cash of $4.5 million, including $572,000 for property and
equipment, $1.2 million for capitalized software development costs and $2.7
million for short-term investments. Financing activities provided $8.0 million
in cash, including $6.4 million in net proceeds from the initial public offering
of the Company's Common Stock in July 1996 and $1.3 million from the payment of
stock subscriptions receivable.
Working capital was $6.5 million as of March 31, 1997 and excluding
deferred revenue, which represents advance payments for license fees and
services, adjusted working capital was $7.4 million at March 31, 1997. Working
capital increased to $6.9 million at December 31, 1996 from a deficit of $2.3
million at December 31, 1995. Excluding deferred revenue, which represents
advance payments for license fees and services, and related deferred tax assets,
adjusted working capital was $7.9 million at December 31, 1996 and $423,000 at
December 31, 1995.
The Company believes its cash balances, investments and cash flow from
operations, together with the net proceeds of the Offering will be sufficient to
meet its working capital, capital expenditure and capitalized software
development requirements through 1998. Cash flows from operating activities are
dependent on continued advance payments from customers, and there is no
assurance that the Company will continue to receive these payments from
customers or that it will continue to receive these payments in advance on the
same terms as it has in the past. The Company anticipates that its operating and
investing activities may use cash in the future, particularly from growth in
operations and development activities. Consequently, any such future growth,
including acquisitions, may require the Company to obtain additional equity or
debt financing.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"), which will change the current method of computing earnings per share.
SFAS 128 requires presentation of "basic earnings per share" and "diluted
earnings per share" amounts, as defined. See Note 5 of Notes to Unaudited
Condensed Consolidated Financial Statements. SFAS 128 will be effective for the
Company's quarter and year ending December 31, 1997, and all prior-period
earnings per share data presented will be restated to conform with the
provisions of the new pronouncement. Application earlier than the Company's
quarter ending December 31, 1997 is not permitted.
INFLATION
The effects of inflation on the Company's operations were not
significant during the periods presented in the financial statements. Generally,
throughout the periods discussed above, the increases in revenue have resulted
primarily from higher volumes, rather than price increases.
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BUSINESS
The Company is a leading provider of highly adaptable, enterprise-wide
client/server application software to the financial services industry. The
Company's primary market focus in the United States is on middle market
financial institutions and internationally is on those retail-oriented
institutions located within Africa, Asia-Pacific, Europe, Latin
America/Caribbean and the Middle East that have up to 300 branches and/or one
million accounts ("Tier 2 Banks"). Phoenix has combined (i) its management's
extensive experience with banking and banking software systems, (ii) input from
the U.S. Bank Partners concerning bank operational and flexibility needs, and
(iii) the most recent advances in client/server technology to design and develop
an innovative new banking software system, the Phoenix System. To address the
increasingly sophisticated needs of its customers, the Company intends to
continue to introduce enhancements to existing products, such as the release of
Version 2.0 of the Phoenix System scheduled for the end of the summer of 1997,
and develop new products in order to provide improved performance, additional
flexibility and increased functionality.
The Phoenix System, through its client/server technology, addresses
many of the deficiencies of the mainframe and mid-range legacy computer systems
on which most banks currently operate by allowing financial institutions to
integrate data into a comprehensive management information network. Like legacy
systems, the Phoenix System supports core areas of bank data processing,
including system administration, account processing of loans and deposits,
nightly processing, general ledger, budgeting, teller functions and holding
company accounting. Unlike legacy systems, the Phoenix System is a fully
integrated system that provides significant advantages in three critical areas:
(i) customer relationship management; (ii) management decision support; and
(iii) financial product development. In addition, the Phoenix System is flexible
and scalable, it stores dates and performs calculations using codes written in
four-digit years and it allows financial institutions to take advantage of
emerging technologies through its open architecture technology and advanced
software systems. Through Phoenix A.P. Limited, the Company also offers
stand-alone trade finance and global payments software products as part of its
international banking software applications.
As of June 1, 1997, the Phoenix System supported the core processing
needs of 33 institutions with 157 branch locations worldwide. For the fiscal
years ended December 31, 1995 and 1996 and for the three months ended March 31,
1997, the Company had total revenues of $5.0 million, $10.4 million and $3.7
million, and net income per share of $0.17, $0.59 and $0.24, respectively.
The Company's Chairman of the Board and Chief Executive Officer, Bahram
Yusefzadeh, has over 28 years of experience in the banking software industry. In
addition, the Company's senior management team has over 145 years of experience
in the retail banking and software industries and 45 years of trade finance and
wholesale banking experience. In the 1970s, Mr. Yusefzadeh co-founded Nu-Comp
Systems, Inc. and led the development of one of the first integrated legacy core
banking systems, the Liberty Banking System, which at one time was used by over
260 banks. Mr. Yusefzadeh founded Phoenix for the purpose of developing and
marketing a new generation of integrated banking software applications using
client/server technology that would replace less flexible and technologically
dated legacy systems. The Phoenix System's development was the result of a joint
effort among the Company's management, Hewlett-Packard and the U.S. Bank
Partners. In addition, the U.S. Bank Partners provided a substantial portion of
the Company's initial capital and continues to contribute to the Company's
strategic planning and product development.
INDUSTRY BACKGROUND
Since the 1970s, financial institutions have used legacy computer
systems which were originally developed for large mainframe and mid-range
computer environments. These legacy computer systems, which the Company believes
currently account for roughly 85-90% of the installed base of core applications
software systems used by the financial services industry, were designed to
process transactions rather than to support management decision-making and did
not interface with other applications across the enterprise. Today, the
competitive landscape has changed dramatically and banks now compete directly
with diversified non-bank financial service providers. In order to stay
competitive, these institutions now face an increased need for
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detailed, easily accessible information about their institutions and customers
in order to develop and market profitable products and services more effectively
and to expand customer relationships.
In response to this changing environment, the industry has developed
software that allows data to be extracted from legacy systems and transported to
personal computer application systems. However, such modified legacy systems
generally are written for mainframes and mid-range computers, are difficult and
expensive to maintain and support, require substantial training costs and are
limited in their ability to interact with other information systems. In
addition, many of these modified legacy systems do not yet resolve the year 2000
data rollover problem because these systems generally store dates and process
data using codes which are written only in two-digit years. Information systems
that do not adequately address year 2000 data rollover may produce inaccurate
information and may even become inoperable at the turn of the century. Although
some modified legacy systems offer graphical user interfaces for ease of use and
have introduced database technologies to provide increased data storage and more
flexible access to data, these systems generally are limited because they are
based on decades-old architecture which does not permit full integration of
data. Without full integration of data, the information provided by these
modified legacy systems generally is neither complete nor readily accessible,
and, thus, Phoenix believes that financial institutions using legacy systems are
at a competitive disadvantage.
In the 1990s, the emergence of client/server computing is making
possible the development of powerful applications which are capable of
addressing enterprise-wide business problems in a flexible and cost-effective
manner. The client/server model consists of personal computer workstation
"clients" connected on enterprise-wide networks to "servers" that provide data
storage and update capabilities. The client/server architecture allocates
processing tasks between the client and the server to allow the client to handle
the user interface and local data manipulation and to allow the server to
perform computing intensive functions. Because of this allocation, a
client/server system is scalable such that responsiveness and capacity can be
increased by upgrading the server or replacing it with a more powerful model.
Furthermore, the client/server architecture design minimizes network traffic.
Client/server systems also offer the level of data integrity and security that
financial institutions require because access to information can be controlled
by server-based relational database management systems. In addition, the
development of the Microsoft Windows NT operating system in the mid-90s has
increased the cost-competitiveness of client/server systems.
Phoenix believes that very few financial institutions have fully
realized the benefits offered by client/server technology due to the small
number of vendors currently offering true client/server applications to such
institutions. However, management believes that due to the recent and rapid
developments in banking software technology, an increasing number of U.S. and
international financial institutions are recognizing the aged and outdated
functionality of their current software and hardware systems and are evaluating
the data processing alternatives available to improve performance and increase
flexibility and functionality. In addition, the Company believes that an
increasing number of financial institutions are considering replacements for
their existing modified legacy systems because many of these systems do not yet
readily accommodate year 2000 data rollover.
THE PHOENIX SOLUTION
The Phoenix System allows financial institutions to integrate data into
a comprehensive management information network that is readily accessible
throughout the entire institution, flexible with shared information and easily
interfaced. The Company believes that the Phoenix System is easy to use and
simple to learn, which enables a financial institution to provide higher quality
customer service with reduced operating and training costs. Unlike legacy
systems, the Phoenix System is a fully integrated system that provides
significant advantages in three critical areas: (i) customer relationship
management; (ii) management decision support; and (iii) financial product
development. The Phoenix System's open architecture also allows financial
institutions to take advantage of emerging technologies.
Customer Relationship Management. The Phoenix System places a
structural emphasis on managing customer relationships, which allows an
institution to pursue a more personalized and profitable approach to its
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products and services. The Relationship Information Management ("RIM") module
integrates a customer's account data, transaction activity, financial data from
third party financial applications, marketing information, relationships with
other customers and other accounts, financial statements and other types of
information required to view a customer's total relationship record. The RIM
module benefits an institution by providing its management with critical
assistance in managing, tracking and analyzing the financial condition,
profitability, creditworthiness and overall relationships with customers and
related groups of customers.
Management Decision Support. The Phoenix System is focused on providing
an institution's executives with the following real-time capabilities: (i) a
fully integrated general ledger; (ii) a broad suite of standard reports
augmented by an ad hoc reporting capability; (iii) an integrated set of
budgeting templates; and (iv) customer and account profitability analysis.
Through its Executive Information System ("EIS"), the Phoenix System allows
senior executives to track performance and business trends and to model the
effect of business strategies and changes in market conditions on their
financial institution. In addition, the EIS provides an institution with
statistical measures of product penetration, profitability and performance.
Financial Product Development. The Phoenix System provides the
capability to quickly develop, deliver and process financial products and
services that can be as simple or as sophisticated as an institution's customers
and competition demand. New financial products can be developed rapidly and do
not typically require programming or the support of technical personnel. In
addition, the Phoenix System allows institutions to analyze the profitability of
individual loans and customer relationships, as well as broad categories of
customers, and to perform "what if" calculations to model the financial impact
of new products and services based upon information maintained on the Phoenix
System.
Emerging Technologies. The Phoenix System operates on an integrated
"open systems" environment that uses a graphical user interface, modern
relational database technology and nonproprietary hardware and software
components. The core applications of the Phoenix System include: (i) deposit and
loan processing which can be tailored to an institution's products and services;
(ii) a self-balancing multi-currency general ledger system that supports both
batch and on-line, real-time transaction processing functions; (iii) full
on-line transaction processing capabilities which permit users to post on-line
transactions to any account in the Phoenix System; (iv) a comprehensive set of
controls for maintaining account and transaction safeguards, enhancing system
security and tracking employee actions for audit purposes; and (v) integrated
connections to an interactive on-line help system. Furthermore, the Phoenix
System resolves the year 2000 data rollover problem that many legacy systems
face because it stores all dates with four-digit years, performs all
calculations to four digits and incorporates both front-end and back-end system
code which has four-digit year support for dates.
To address the increasingly sophisticated needs of its customers, the
Company intends to continue to enhance its current products and services and to
develop and introduce additional products and services that keep pace with
technological developments and emerging industry standards. For example, the
Company has developed an enhancement to the Phoenix System that will allow the
Company's client institutions to provide customized on-line home and commercial
banking services through the Internet, and offers complementary enterprise-wide
integrated Intranet and custom database driven Internet web site services. The
Company also plans to deliver additional features, products and services such as
cash management and automated loan kiosk systems to enable its customers to take
advantage of alternate channels of electronic commerce. Consistent with the
Company's original plan, Phoenix designed its software to incorporate numerous
international features, such as multi- currency capabilities and a
language-independent engine. Phoenix has acquired additional international
capabilities, such as a trade finance system, and intends to continue to
incorporate additional international functionality and to integrate new
technologies. See "-- Product Development and New Products."
STRATEGY
The Company's primary objective is to advance its position as a leading
supplier of enterprise-wide client/server application software for the financial
services industry worldwide by pursuing the following strategies:
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Maintain Technology Leadership and Enhance Product Functionality. The
Company believes that the Phoenix System is the most advanced client/server
computing solution for financial institutions. Phoenix intends to maintain its
leadership position by continuing to integrate new technologies, add new
applications, enhance existing applications and expand functionality. Since the
Company's initial public offering in July 1996, the Company has developed two
major releases of the Phoenix System, which included numerous system
enhancements; has introduced and installed the NT Version in four client
institutions; has implemented an enterprise-wide integrated Intranet system for
two client institutions; and has installed a custom database-driven Internet web
site in one client institution. The Company intends to continue to commit
substantial resources to maintain and extend its technological leadership.
Expand Domestic Distribution. The Company plans to continue to expand
its domestic distribution by increasing its direct sales and implementation
forces in key geographic locations and by seeking additional strategic sales and
marketing relationships. Since its initial public offering in July 1996, the
Company has increased its direct sales and implementation forces from 30 to 49
persons and has entered into agreements with four strategic marketing
organizations to broaden its domestic distribution efforts. The Company intends
to continue focusing its direct sales efforts in the U.S. on middle market
financial institutions with asset sizes ranging from $150 million to $2 billion,
which the Company believes are technologically sophisticated, seek software
applications that support their strategic objectives and have the resources to
finance and use advanced technological solutions effectively. The Company plans
to establish additional arrangements whereby other organizations will market the
Phoenix System primarily to smaller financial institutions within specified
territories. In addition, many financial institutions that have elected not to
maintain in-house core processing systems use service bureau organizations to
handle their core processing and other functions and, thus, the Company intends
to form strategic relationships with several small to medium size service
bureaus that are looking to replace their current legacy systems with open
system alternatives.
Expand International Distribution. The Company plans to continue to
expand its global distribution and market penetration by increasing its
international direct sales and implementation forces, by enlarging its
international offices, by opening additional sales and marketing offices in
strategically located cities worldwide, by leveraging its strategic alliances
with its VARs and agents and by seeking additional strategic sales, marketing
and distribution relationships. Since its initial public offering in July 1996,
the Company has more than doubled its direct international sales and
implementation forces from 6 to 13 persons and has opened a sales and marketing
office in London, England to focus on direct sales of the Company's products in
the United Kingdom and Europe. In addition, Phoenix has maintained or entered
into agreements with Unisys Corporation ("Unisys"), Computer Systems Associates
(Nigeria) Limited ("CSA"), ITS and SNI to increase global distribution efforts
to cover countries in Africa, Asia-Pacific, Europe, Latin America/Caribbean and
the Middle East and has established local representation arrangements in Russia,
Turkey, Greece and Ireland. Phoenix intends to continue focusing its direct
sales efforts on Tier 2 Banks which the Company believes are seeking technology
as a means to offer a broader array of financial products and services to meet
the sophisticated demands of the international market. Consistent with the
Company's original plan, Phoenix designed its software to incorporate numerous
international features, such as multi-currency capabilities and a
language-independent engine. Phoenix has acquired additional international
capabilities, such as a trade finance system, and intends to continue to
incorporate additional international functionality and to integrate new
technologies.
Leverage Existing Customer Base. The Company intends to continue to
leverage its implemented customer base by (i) maximizing recurring revenues from
its customers, (ii) offering complementary products and services to existing
customers and licensing additional subsidiaries of existing bank holding
companies, (iii) obtaining favorable references from existing customers in the
course of developing new customer relationships, and (iv) consulting with
existing customers in the development of new products and product enhancements.
Phoenix generates recurring revenues by signing its customers generally to
five-year license agreements and by charging annual service fees for the term of
the license. As the asset size of an institution increases or as branches are
added, or as added-revenue producing products and services are delivered by the
Company, customers pay additional incremental license fees and increased annual
service fees over the life of the license agreement. The Company's disaster
recovery, networking support, bank-wide integrated Intranet, custom
database-driven Internet web site services and its licensed ATM system are
added-revenue producing
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services and products that generate additional license fees and recurring
revenues. The Company plans to continue to develop and provide new added-revenue
products and services, including its cash management and automated loan kiosk
system modules, as well as enhancements to existing products and services. The
Company also intends to continue involving its customers in its marketing and
product development efforts, obtaining references from existing customers to new
bank customers and receiving valuable guidance and support in the development of
new technologies.
Broaden Primary Markets. The Phoenix System runs on a UNIX operating
system platform and in a Microsoft Windows NT environment. The Company believes
that the NT Version, which was completed in the first quarter of 1997, will be
attractive to a wide group of institutions because of the lower overall costs
related to operating in a Microsoft Windows NT environment. The Company believes
that as Microsoft expands its marketing of the Windows NT product and enhances
the capabilities of this product, more financial institutions, regardless of
asset size, will choose to use the Windows NT operating system rather than the
UNIX operating platform. The Company intends to take advantage of improvements
made to both UNIX and NT operating systems to expand the processing and
functionality capabilities of the Phoenix System to address the needs of
financial institutions with larger asset sizes or more complex branch networks
than the Company's current primary markets. In addition, the Company intends to
capitalize on its strategic relationships with VARs and agents to more rapidly
expand the processing capabilities and functionality of the Phoenix System to
address the specific needs of financial institutions with larger asset sizes or
more complex branch networks.
Pursue Complementary Acquisitions. Phoenix intends to pursue strategic
acquisitions of providers of complementary technologies, products and services
in order to more rapidly (i) optimize the package of software applications and
solutions offered by the Company, (ii) expand the Company's customer base by
converting the customers of the acquired companies to the Phoenix System, (iii)
maximize existing channels of distribution and add new channels of distribution,
and (iv) add experienced personnel with specialized knowledge of the domestic
and international financial services industries. The Company believes such
strategic acquisitions will permit Phoenix to enter new markets, increase market
penetration, expand its expertise, strengthen its strategic relationships,
provide outsourcing alternatives and obtain and develop additional products and
applications to meet the demands of its customers both in the U.S. and
internationally. Phoenix also intends to invest in companies with complementary
technologies and products in order to enhance the functionality of the Phoenix
System. See "Recent Developments," "Risk Factors -- Risks Associated with
Acquisitions" and "Use of Proceeds."
THE PHOENIX SYSTEM
The Phoenix System allows financial institutions to integrate data into
a comprehensive management information network that is readily accessible
throughout the entire institution, flexible with shared information and easily
interfaced. The Phoenix System gives financial institution personnel immediate
access to a broad range of customer information including balances,
transactions, personal financial statements, contact history, photo
identification, signature verification, related accounts and demographic data.
The Company believes that the Phoenix System is easy to use and simple to learn,
which enables a financial institution to provide higher quality customer service
with reduced operating and training costs. In addition, the Company intends to
continue to develop and introduce new products and enhancements to existing
products, such as Version 2.0 of the Phoenix System, in order to provide
improved performance, additional flexibility and increased functionality to its
customers. The following are some of the important capabilities included in the
Phoenix System:
Customer Relationship Management. The Phoenix System places a
structural emphasis on managing customer relationships which allows an
institution to pursue a more personalized and profitable approach to its
products and services. The Relationship Information Management ("RIM") module
integrates a customer's account data, transactional activity, financial data
from third party financial applications, marketing information, relationships
with other customers and other accounts, financial statements and other types of
information required to view a customer's total relationship record. The RIM
module benefits an institution by providing its management with critical
assistance in managing, tracking and analyzing the financial condition,
profitability, creditworthiness and overall relationships with customers and
related groups of customers. The customer relationship management features
include:
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- Marketing and Other Personal Information. The RIM module
tracks a range of personal information, such as employment
history, home ownership status, other credit providers and
other bank accounts.
- On-line Financial Statements and Portfolios. The RIM module
maintains information regarding a customer's assets,
liabilities, income and expenses in a unified file.
- Extensive Customer Relationship Tracking. The RIM module can
track relationships between customers, groups of customers and
accounts.
- Customer-Based Statements. Combined customer statements can be
customized to contain an unlimited number of accounts and each
statement can be configured to show only summary information
or both summary information and detailed account information.
- Integrated Signature, Photograph and Document Imaging. The RIM
module maintains on-line images of a customer's signature card
and personal photograph and can store and display images
including images of loan collateral and other assets, Social
Security cards and drivers' licenses.
- Flexible Inquiry Capability. The Phoenix System enables users
to progress through increasingly detailed levels of display
data which allows for thorough and quick research of customer
inquiries, without having to enter arcane codes or search
through voluminous printed reports.
- Third Party Information. The Company anticipates that in late
1997 the Phoenix System will be able to integrate data from
third party software services, including information on
brokerage, insurance and credit card accounts, with existing
RIM information.
Management Decision Support. The Phoenix System is focused on providing
an institution's executives with the following real-time capabilities: (i) a
fully integrated general ledger; (ii) a broad suite of standard reports
augmented by an ad hoc reporting capability; (iii) an integrated set of
budgeting templates; and (iv) customer and account profitability analysis.
Through the Phoenix EIS, the Phoenix System allows senior executives to track
performance and model the effect of business strategies and changes in market
conditions on their financial institution. Unlike the reporting facilities of
legacy systems, the Phoenix EIS draws upon real-time data to present financial
institutions with graphical displays that highlight important business trends
and facilitate rapid interpretation and analysis. Recent enhancements to the
Phoenix System have made the EIS more user-friendly and efficient, making it a
more attractive feature for an institution's management. The EIS takes into
account both the relationship of a particular indicator to other related
categories of information, as well as the trends for that indicator over time.
In addition, the EIS provides an institution with statistical measures of
product penetration, profitability and performance.
Financial Product Development. The Phoenix System provides the
capability to quickly develop, deliver and process financial products and
services that can be as simple or as sophisticated as an institution's customers
and competition demand. Because all financial product development is
parameter-driven, institutions can design products and services by simply
selecting product features from a variety of options. New financial products can
be developed rapidly and do not require programming or the support of technical
personnel. In addition, the Phoenix System allows institutions to analyze the
profitability of individual loans and customer relationships, as well as broad
categories of customers, and to perform "what if" calculations to model the
financial impact of new products and services based upon information maintained
on the Phoenix System.
Emerging Technologies. The Phoenix System operates in an integrated
"open systems" environment that uses a graphical user interface, modern
relational database technology and nonproprietary hardware and software
components. The Phoenix System divides core processing functions among seven
discrete, but fully integrated, software modules: (i) system administration;
(ii) account processing; (iii) nightly processing; (iv) teller system; (v)
holding company financial statements; (vi) EIS; and (vii) budgeting. The core
applications of the Phoenix
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System include: (a) deposit and loan processing which can be customized to
implement an analysis-based approach tailored to an institution's products and
services; (b) a self-balancing multi-currency general ledger system that
supports both batch and on-line, real-time transaction processing functions; (c)
full on-line transaction processing capabilities which permit users to post
on-line transactions to any account in the Phoenix System; (d) a comprehensive
set of controls for restricting access to different levels of information, for
limiting transactional amounts that employees are permitted to post to accounts
and for tracking employee actions for audit purposes; and (e) integrated
connections to an interactive on-line help system. Furthermore, the Phoenix
System resolves the year 2000 data rollover problem because it stores all dates
with four-digit years, all calculations are performed to four digits, and all
system code has four-digit year support for dates.
To address the increasingly sophisticated needs of its customers, the
Company intends to continue to enhance its current products and to develop and
introduce additional products that keep pace with technological developments and
emerging industry standards. For example, the Company has developed an
enhancement to the Phoenix System that will allow the Company's client
institutions to provide customized on-line banking services through the
Internet, and offers complementary enterprise-wide integrated Intranet and
custom database driven Internet web site services to its customers. The Company
also plans to deliver additional features, products and services such as
automated loan and mortgage kiosk systems, to enable its customers to take
advantage of emerging channels of distribution. See "-- Product Development and
New Products."
In addition, in order to increase the appeal of the Phoenix System in
the international market, Phoenix has developed and/or is developing the
following core international applications:
- Multi-language enhancements. Phoenix has designed a unique
language independent engine that will allow the Company's core
product to be rapidly localized into any single-byte character
set language. This engine was used to implement a Spanish
version of the Phoenix System which the Company released in
the third quarter of 1996.
- Trade finance processing. Phoenix currently offers Phoenix
TradeWind(TM), a stand-alone trade finance software system,
which performs back-office processing for all types of trade
finance functions. The Company plans to deliver an integrated
version of Phoenix TradeWind(TM), called Phoenix TradeFinance,
as part of the Phoenix System in late 1997.
- Global payments system. Phoenix also currently offers
TradeCentre, a stand-alone global payments software system,
which provides for data capture and automated processing for
customer and financial institution payments to retail-oriented
international financial institutions with more than 300
branches and/or one million accounts ("Tier 1 Banks"). The
Company is studying the feasibility of integrating TradeCentre
into the Phoenix System for use by Tier 2 Banks.
- Multi-currency enhancements. Phoenix has designed a multi-
currency enhancement to the Phoenix System which supports the
world currencies formatted in accordance with the standards
established by the International Standards Organization. The
Company plans to release this enhancement during the summer of
1997 as part of Version 2.0 of the Phoenix System.
TECHNOLOGY
Phoenix has partnered with leading hardware manufacturers, and tools
and relational database vendors in the client/server community, such as Hewlett-
Packard, Centura and Sybase to produce software based on leading-edge
technological developments. Using these tools, the Company has created a product
that enables the Company's customers to utilize what the Company believes is the
most current technology in the financial services software industry.
Centralized Relational Database Management System ("RDBMS"). An
advantage of the Phoenix System as compared to legacy or modified legacy systems
is that the Phoenix System stores and maintains data in a
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relational database rather than in a proprietary file format. As a result, this
data can be easily accessed and integrated by many different third-party query
and report writing tools which are currently available commercially. In
addition, with a structured query language ("SQL") relational database, it is
easy to expand and change the structures of the tables and manipulate data
stored and maintained in the Phoenix System.
The Phoenix System, TradeWind(TM), and TradeCentre use a relational
database technology provided by Sybase. Sybase System 11.0 has been integrated
into the NT Version and the Company currently anticipates to move from Sybase
System 10.0 to Sybase's System 11.0 on the UNIX version of the Phoenix System by
the end of 1997. The Phoenix System, TradeWind(TM) and TradeCentre can run on
platforms from Hewlett-Packard, International Business Machines Corp. ("IBM"),
NCR Corporation ("NCR"), Sun Microsystems, Inc. ("Sun"), Unisys and all others
which are UNIX or Microsoft Windows NT compliant.
Replication and Distributed Data Processing. Phoenix has leveraged the
open architecture of the Phoenix System to implement an advanced distributed
database for support of its off-line teller system. The off-line teller system
uses a local database on each branch server to maintain normal processing in the
event of hardware or network failure at the central server. Off-line branches
are supported using Centura's SQL Base for either Novell NetWare or Microsoft
Windows NT.
Open Protocols for Data Communication. Phoenix uses the industry
standard TCP/IP protocol for communicating with the relational database server
and either IPX/SPX or TCP/IP for communicating with the local area network file
server. This allows the Company's customers implementing either Windows NT or
Novell Netware networks to implement a broad array of local area network and
wide area network topologies and configurations. In addition, customers that
have an existing network infrastructure in place that supports TCP/IP do not
have to reinvest in new technology simply to run the Company's products.
32-bit Application Support. Version 2.0 of the Phoenix System, which
the Company intends to release to its customers by the end of the summer of
1997, is a native 32-bit application which will enable the Company's customers
to take further advantage of the latest client operating systems from Microsoft
(Windows 95 and Windows NT Workstation). These systems offer the Company's
customers substantial benefits in the areas of fault tolerance, ability to
support more complex transaction processing, enhanced performance and advanced
security.
TARGET MARKETS
The United States Market. Phoenix currently divides commercial banks
and savings institutions in the United States market into three groups based on
asset-size: (i) institutions with assets less than $150 million (approximately
8,400 institutions); (ii) institutions with assets between $150 million and $2
billion (approximately 2,700 institutions) and (iii) institutions with assets
over $2 billion (approximately 300 institutions).
The Company primarily focuses its direct sales efforts in the U.S. on
middle market financial institutions which the Company defines as commercial
banks and savings institutions with asset sizes ranging between $150 million and
$2 billion. The Company estimates that each year approximately 20% of banks
evaluate data processing alternatives because their current contracts expire.
Management believes that recently an increasing number of institutions have
renewed their service contracts for shorter periods in order to maintain the
flexibility to change software companies due to rapid developments in banking
software technology. Moreover, the Company believes that an increasing number of
institutions are evaluating data processing alternatives due to, among other
things, the acquisition of their software providers and servicers by other
software companies, the inability of many of their current systems to readily
accommodate the year 2000 data rollover and the age of their current software
and hardware solutions.
The Phoenix System runs on a UNIX operating system platform and in a
Microsoft Windows NT environment. The Company believes that the NT Version is
attractive to a wide group of institutions because of the lower overall costs
(including hardware) related to operating in a Microsoft Windows NT environment.
Furthermore, as Microsoft expands its marketing of the Windows NT product and
enhances the capabilities of
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this product, the Company believes that more financial institutions, regardless
of asset size, will choose to use the Windows NT operating system rather than
the UNIX operating platform. The Company intends to take advantage of
improvements made to both UNIX and NT operating systems to expand the
capabilities of the Phoenix System to address the needs of institutions with
larger numbers of branches, accounts and transactions to process.
The International Market. Phoenix currently divides international
financial institutions into two groups based upon the number of branches and
accounts: (i) Tier 1 Banks; and (ii) Tier 2 Banks. The Company primarily focuses
its sales and marketing efforts on Tier 2 Banks located in countries within
Africa, Asia-Pacific, Europe, Latin America/Caribbean and the Middle East.
Phoenix believes that there are approximately 4,000 Tier 2 Banks in this
international market that are prospects for the Phoenix System.
The Company believes the international market offers significant
opportunity because economic expansion and other market factors have increased
the demand for sophisticated wholesale and retail banking services.
Sophisticated international financial institutions offer a broad array of
financial products and services and demand technology that is open, powerful and
economical. The Company also believes that these technology-minded institutions
are looking for software solutions that will last at least 10 to 15 years and,
therefore, these institutions can appreciate the flexibility and functionality
of client/server technology. Furthermore, management believes that a significant
number of international financial institutions have accepted, to a greater
degree than institutions located in the United States, that technology should be
used as a competitive tool and not just as a service delivery vehicle.
SALES AND MARKETING
The Company markets its software and services directly through its
sales and marketing personnel and through VARs and agents that are involved in
providing products and services to the financial services industry. As of May
31, 1997, the Company's sales and marketing department, including administrative
staff, consisted of: nine individuals located at the Company's offices in
Florida and one sales person located in each of (i) Oklahoma City, Oklahoma,
(ii) Philadelphia, Pennsylvania, (iii) Los Angeles, California, (iv) London,
England, and (v) Wellington, New Zealand. In addition, the Company has
established non-exclusive local representation relationships with individuals
located in Russia, Turkey, Greece and Ireland who introduce potential customers
for the Phoenix System to the Company's sales personnel.
The Company's direct sales and marketing personnel and consultants are
experienced in the sales process for banking software products and generate
leads through a marketing program which includes direct mail, networking,
telemarketing, seminars and trade shows, and provide white papers and other
sales support literature and ongoing customer communications. Phoenix also
actively markets its products and services through its Internet web site from
which prospects can read or download product information, access online product
presentations, and register to receive information by mail. For the three-month
period ended June 13, 1997, the Company experienced approximately 138,000 online
contacts which resulted in approximately 7,000 visits to informational pages
within its web site. In addition, the Phoenix A.P. Limited acquisition was
initiated by Priority Solutions personnel contacting the Company after their
review of the Company's web site. The Company believes that an increasing number
of future customers will initially learn about the Company and its products and
services through its Internet web site.
The Company's direct sales and marketing force is complemented,
particularly in the international market, by various indirect distribution
channels, including a growing network of VARs and agents. Some VARs and agents
also provide implementation, training, support and other services to the
end-user. In all cases, the Phoenix System software remains the sole property of
the Company, and if the Company terminates its relationship with any VAR or
agent, customers sold by that VAR or agent will continue to pay support fees to
the Company. The Company intends to expand its network for indirect distribution
primarily on a non-exclusive basis and anticipates that the percentage of its
total revenues derived from indirect sales will increase in the future.
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In the United States market, Phoenix has established marketing agency
agreements with The NetComm Group, Inc. ("NetComm"), ISC Financial Systems, Inc.
("ISC"), AFS and ERAS JV ("ERAS") whereby NetComm, ISC, AFS and ERAS market the
Phoenix System to certain financial institutions within their respective
territories. NetComm, ISC and AFS have non-exclusive rights to market the
Phoenix System within their territories, which include Colorado, Idaho, Indiana,
Kentucky, Michigan, Montana, North Dakota, Ohio, western Pennsylvania, South
Dakota, Utah, West Virginia and Wyoming. ERAS has non-exclusive rights to market
the Phoenix System within its territory, which consists of five counties in
southeastern Florida.
In the international market, Unisys exclusively markets the Phoenix
System to financial institutions in Latin America/Caribbean; CSA exclusively
markets the Phoenix System to financial institutions in certain countries of
Africa and non-exclusively markets the Phoenix System to institutions in the
Republic of South Africa; ITS exclusively markets the Phoenix System to
financial institutions in certain countries in the Middle East; and SNI non-
exclusively markets, sublicenses and distributes the Phoenix System to financial
institutions located in those countries in Africa, Asia-Pacific, Europe and the
Middle East that are not a part of ITS' and CSA's exclusive territories. Unisys
has guaranteed a minimum number of sublicenses and each of ITS and CSA has
guaranteed a minimum dollar amount of sales to retain its exclusive rights in
their respective territories.
PRODUCT PRICING
The Company prices the Phoenix System and related services in two
components: (i) license fees for software products and other revenues and
commissions from the sale and delivery of software and hardware products of
third party vendors; and (ii) fees for a full range of services complementing
its products, including implementation, programming services, conversion
training and installation services, interface services for tying the Phoenix
System to third-party applications, customer and software support services,
disaster recovery services and Internet/Intranet consulting services. License
fees are recognized as revenue upon delivery of the software. When a customer
enters into a license agreement with the Company, which generally is
non-cancelable for an initial period of five years, the license agreement
includes a service agreement for the same term. Implementation, conversion,
training and installation fees and interface fees are paid at the beginning of
the license agreement or when the service is performed. Customer and software
support fees are earned over the life of the license agreement. In the event
that a customer fails to pay its service fees, the license reverts to the
Company. Unless either party cancels or fails to renew a license contract after
the initial term, the license is perpetual, and the service fees are recurring
revenue.
In the United States, license fees are based on the asset size of the
institution. Internationally, each institution is charged a base license fee and
an incremental license fee determined by the number of branches for such
financial institution. Implementation, conversion, training and interface fees
vary based on the complexity of a particular project. Customer and software
support fees are paid annually or quarterly and are generally calculated as a
percentage of the total license fees. As the asset size of the institution
increases or as branches are added, customers pay an additional incremental
license fee and increased service fees over the life of the license agreement.
The Company's VARs and agents license the Company's products at a
discount for relicensing. Under many of these agreements, it is anticipated that
primary responsibility for implementation and training services will shift to
the VARs and agents after a certain number of installations are completed
successfully with Company supervision. Under these relicensing arrangements, the
VARs and agents will retain a greater percentage of the implementation,
conversion and training service fees as more of the responsibility for these
services is transitioned to the VAR or agent. The Company believes, however,
that the difference in the margins obtained from direct and indirect sales
should not have a material adverse effect on the Company's business, operating
results and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "--Implementation and
Training Services."
IMPLEMENTATION AND TRAINING SERVICES
The Company provides comprehensive implementation services to customers
converting to the Phoenix System. Phoenix assigns each customer an
implementation team of experts which works with the customer
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through all phases of the project, including project management, data
conversion, software installation and network certification, education and
training and consulting. Each implementation team can work on multiple projects
at the same time. As of May 31, 1997, the Company had 49 people assigned to the
implementation and training department. The Company intends to hire additional
people and add resources as necessary.
Project Management and Coordination. Phoenix provides extensive project
planning and coordination as part of the implementation process. Phoenix assigns
a full-time project manager who guides the customer through the installation
process and to coordinate all conversion and implementation activities.
Data Conversion. Application analysts and conversion programmers map
and convert a bank's current account data to the Phoenix System. Data conversion
activities include data mapping, program development, extensive testing,
detailed data auditing and a complete trial conversion prior to the final
implementation date.
Software Installation and Network Certification. Phoenix provides
network engineers to install software and certify the customer's network prior
to installation of the Phoenix System. This on-site service ensures that all
hardware and software is installed correctly and that the proper network
security is in place.
Education and Training. Phoenix offers a comprehensive education and
training program to customers. The Company offers training classes for product
set-up at the Company's headquarters in Florida. Phoenix also provides hands-on
application training services at the customer site prior to installation.
Additional on-site training for ancillary products is available upon request.
Consulting/Development Services. The Company's consultants are
available to work closely with customers. These consulting services generally
consist of assisting customers who are planning large implementations, who are
engaged in operational reorganizations or who wish to customize the Phoenix
System to their unique needs, including customer specified programming features,
reports or regulatory requirements.
Fees for project management and coordination, data conversion, and
software installation, network certification and basic education and consulting
are included in the cost of implementation. Generally, the Company charges
additional fees for education and consulting requested by customers.
The Company's arrangements with its VARs and agents provide for the
transition of primary responsibility for implementation services to the VAR or
agent. To date, no VAR or agent has had primary responsibility for installation,
training or conversion of new customers. To ensure quality control, the Company
plans to educate its VARs and agents by controlling the first installation and
thereafter diminishing its direct involvement in implementation, training and
conversion services. By the end of the first few installations, it is
anticipated that the VAR or agent will assume direct responsibility for
substantially all of these services; however, Phoenix intends to continue to
provide the resources and support needed to maintain customer satisfaction and
quality assurances.
CUSTOMER SERVICE AND SUPPORT
The Company believes that maintaining a high level of support and
service is imperative to customer satisfaction because of the critical nature of
the Phoenix System to a bank's day-to-day operations. The Company's customer
service and support personnel assist banks in the use of the Phoenix System and
with the maintenance of their network and technology infrastructures. As of May
31, 1997, the Company had 16 people in its technology services group that
primarily provide customer service and support. Customer service and support
personnel provide service 24 hours a day, seven days a week, and have pagers,
cellular phones and laptop computers which enable them to answer a customer's
question from any location. The Company has an ongoing training program which is
designed to enable its existing and future VARs and agents to provide the first
line of customer support.
Product Support Services. Phoenix delivers product support services
through all traditional avenues, including telephone, Internet, electronic mail
and facsimile. Due to the unique nature of client/server computing
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systems, many critical customer support activities can also be performed through
high speed telecommunication lines connected directly to a customer's location.
Phoenix support personnel have the ability to connect quickly to a server at a
customer site and to perform work as if they were physically at the customer's
site. Using this approach, Phoenix is able to offer effective and direct support
to its customers without the traditional expense associated with on-site visits.
Networking Support Services. Phoenix offers a full range of networking
support services upon request. Phoenix performs on-site network certification
for all customers during their initial software installation, and network
engineers are available for ongoing support by telephone. Networking support and
on-site consulting are available upon request for an additional fee.
Internet/Intranet Services. Phoenix also offers Internet Consulting
Service ("ICS"), which provides both Internet and Intranet services to client
institutions. ICS allows client institutions to establish a presence on the
World Wide Web through home pages and web sites. ICS can also provide client
institutions with the services to create an internal web environment, known as
an Intranet, which enables the institution to improve productivity without
additional hardware and infrastructure costs.
Disaster Recovery Service. Phoenix also offers a disaster recovery
service that provides customers with assistance in reestablishing the Phoenix
System's processing capacity within 24 hours if a disaster occurs. The disaster
recovery service is a separate five-year contract which has an initial
implementation fee and annual service fees. This added-cost service satisfies
current United States bank regulatory obligations to maintain and annually test
a disaster recovery plan and allows Phoenix to generate additional recurring
revenue from its implemented customer base.
SupportNet. Phoenix also administers SupportNet, part of the Company's
World Wide Web site, which provides an additional vehicle of support for client
banks. SupportNet is a free service which allows users with Internet access to
obtain support through features such as (i) an online discussion forum, (ii)
online support documents for the Phoenix System, (iii) online software bug
recording, (iv) online enhancement requests and (v) online file transfers from
the Company. By the end of 1997, the Company expects to add a feature to
SupportNet called "knowledge base" which will provide a first level of
resolution for troubleshooting issues with the Phoenix System and will include
answers to the most frequently asked questions regarding use of the Phoenix
System.
PRODUCT DEVELOPMENT AND NEW PRODUCTS
Phoenix was founded in January 1993 for the purpose of developing and
marketing a new generation of integrated banking software applications that
would replace less flexible and technologically dated legacy systems. From the
Company's inception through December 31, 1996, product development expenditures
(the total of product development expense and capitalized software development
costs) represented approximately 43% of the Company's aggregate revenues.
Hewlett-Packard provided developmental-stage assistance to the Company by
supplying computer hardware to the Company for development and testing of the
Company's products. Early in the Company's history, each of the U.S. Bank
Partners participated in the Company's joint application development program
under which end-users were involved in product development and testing. The
joint application development program helped reduce the development cycle by
increasing the efficiency with which design problems were identified and
corrected. The U.S. Bank Partners continues to contribute to plans for new
products and enhancements as part of the Phoenix User Group ("PUG").
Phoenix believes that its future success will depend in large part on
its ability to maintain and enhance its current product and service offerings
and to develop, acquire or integrate and introduce new products and features
that will keep pace with technological advances and satisfy evolving customer
requirements. As of May 31, 1997, the technology services group consisted of 61
individuals in addition to 16 customer service and support personnel. Phoenix
develops and adjusts product direction in response to two core trend areas: (i)
developments within the financial services industry and (ii) developments within
the technology arena.
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Product Development Cycle. Phoenix develops plans for new products and
enhancements following extensive discussions with the PUG, which consists of all
current domestic and international users of the Phoenix System and from specific
requests from new customers. The PUG meets approximately twice a year with the
Company to offer recommendations and to help prioritize product development and
enhancement projects. In addition, during 1997 management intends to expand the
customers' role in product development by forming and working with operational
and executive advisory boards, each supported by focus groups consisting of
members of customer institutions' management teams appointed by the advisory
boards. These advisory boards and their focus groups are intended to assist the
Company in its strategic development and to provide additional technical
guidance and support for the creation and implementation of new products and
enhancements. Moreover, the Company's product development personnel continually
develop new product ideas and enhancements. Once a product idea has been
formalized, the Company uses an internal review process to: (i) determine
whether to develop the product or enhancement; (ii) set a development schedule
and (iii) develop a budget for the product or enhancement.
Development Methodology. Development tools, such as 4GL programming
tools, enable rapid prototyping and have dramatically reduced development
cycles. Enhancements developed in client/server environments take significantly
less time to complete than in a legacy system environment. Phoenix believes that
the efficiencies of its product architecture and development methodology allow
it to move products from planning to delivery more quickly than its legacy
system-based competitors.
Product Plans. The Company's product development efforts are currently
focused on enhancing the functionality of the Phoenix System so that it will be
attractive to a broader range of customers both in the U.S. and abroad. Phoenix
believes that it will be able to improve its competitive position by
successfully completing, licensing, acquiring or delivering to client
institutions (in Version 2.0 or otherwise) the following new products and
enhancements, among others, primarily during the second half of 1997:
- Multi-currency enhancements. Phoenix has designed
multi-currency enhancement to the Phoenix System which will
support the world currencies formatted in accordance with the
standards established by the International Standards
Organization.
- Trade finance processing. Phoenix is developing the interfaces
to the customer account and general ledger modules of the
Phoenix System which are required to integrate TradeWind(TM),
a trade finance software system, into the Phoenix System for
eventual delivery to the international market.
- International treasury system. Phoenix is currently studying
the development or possible acquisition of an international
treasury software system, including risk management, which can
be interfaced with and integrated into the Phoenix System for
delivery to the international market. Phoenix believes that
such enhancements will broaden the array of features that can
be offered to and increase the Company's success in marketing
to international institutions.
- Secondary marketing and other enhancements. Significant
enhancements for the United States market are focused on the
loan processing area, such as investor reporting for secondary
mortgage marketing including reports required by the Federal
Home Loan Mortgage Corporation and Federal National Mortgage
Association. Phoenix is also developing modules that permit
the processing of dealer loans and accounting for non-accrual
loans. Phoenix believes that such enhancements will broaden
the appeal of the Phoenix System for larger institutions.
- ATM system. Phoenix signed a Software License and Development
Agreement with MultiSoft, a company located in Ecuador, that
gives Phoenix worldwide rights to license and use MultiSoft's
NT-based client/server ATM system. The Company recently
delivered a fully integrated, private label version of the
Multisoft ATM system which will allow its customers to support
their own ATM network and to connect to regional and national
ATM networks.
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- Telephone banking system. The Company also has an arrangement
with MultiSoft and plans to enter into a license with respect
to MultiSoft's NT-based client/server telephone banking
system. The Company recently delivered a fully integrated,
private label version of this automated voice response banking
system which will allow the Company's client institutions to
offer customized telephone banking services through which
callers can perform fund transfers, make balance and other
inquiries and initiate service requests via e-mail.
- Cash management system. Phoenix has acquired exclusive rights
to a cash management system that was originally developed by
Ixe Banco, a bank located in Mexico City. Phoenix plans to
deliver a highly integrated version of this cash management
system during 1998 which will allow the Company's customers
to provide online cash management services to their retail
and commercial customers.
- Loan pricing and credit scoring system. Phoenix has formed a
relationship (including a minimal equity investment by
Phoenix) with Integrated Financial Services, Inc., an
Atlanta-based software and services company, whereby Phoenix
acquired non- exclusive marketing rights to CreditPak.
CreditPak, which the Company plans to interface with the
Phoenix System, is an NT-based commercial credit analysis,
loan pricing software package that enables lenders to consider
the total financial relationship of the borrower and the bank.
- Automated loans and mortgages. Phoenix has acquired an equity
interest in Dyad, a company located in Norcross, Georgia which
is in the process of developing automated loan and mortgage
products, including associated software, hardware and
documentation. In addition, Phoenix has obtained the rights to
market, sell and license Dyad's products, non-exclusively in
the United States and exclusively abroad. These products are
expected to enable financial institutions and their lenders to
provide automated loan and mortgage processing from an
ATM-styled kiosk based upon information supplied by the
applicant and electronic verification of such information and
credit investigation of the applicant's history and ratings,
which are obtained automatically. See "Certain Transactions."
These potential new enhancements and products are subject to
significant technical risks, including delays in the development, introduction,
production or implementation of the new enhancements or products, failure to
achieve market acceptance and undetected errors or failures. See "Risk Factors
- -- Dependence on New Products and Rapid Technological Change; Risk of Product
Errors."
COMPETITION
The financial services software market is intensely competitive,
rapidly evolving and subject to rapid technological change. Competitors vary in
size and in the scope and breadth of the products and services offered. Phoenix
encounters competition in the U.S. from a number of sources, including Fiserv,
Inc., Bisys, Inc., Marshall & Isley Corp., EastPoint Technology, Inc., a
division of Marshall & Isley Corp. ("EastPoint"), Electronic Data Systems Corp.,
Jack Henry & Associates, Inc., ALLTEL Information Services, Inc., The Kirchman
Corporation and Open Solutions, Inc. ("OSI"), all of which offer core retail
software systems or outsourcing alternatives to the financial institutions
industry. Of these competitors, the Company believes that only EastPoint and OSI
offer true client/server solutions. In the international arena, the Company
competes with several global players, including Fiserv, Inc., Midas-Kapiti
International, Inc., ACT/Kindle Banking Systems (`ACT/Kindle'), Sanchez Computer
Associates, Inc. and Financial Network Services (`FNS'). In addition, there are
smaller, regional competitors in the countries which the Company targets
internationally. The Company expects additional competition from other
established and emerging companies as the client/server application software
market continues to develop and expand.
In general, Phoenix competes on the basis of: (i) product architecture,
including distributed computing capability, access to commercial SQL databases
and ease of customization and integrations with other applications; (ii)
functionality, including the breadth and depth of features and functions and
ease of use;
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(iii) service and support, including the range and quality of technical support,
training, implementation and consulting services and the capability to provide
these on a global basis; (iv) management expertise, including management's
banking software experience and financial services industry knowledge; and (v)
product pricing in relation to performance and support. Management believes that
the Phoenix System is a market leader in the areas of product architecture and
management expertise and that the Company competes favorably in the areas of
functionality, service and support and product pricing.
Financial institutions have two fundamental alternatives for obtaining
data processing capabilities: (i) in-house applications, either those that are
developed internally or those that are purchased from third party vendors; and
(ii) outsourcing, either as a part of a total outsourcing solution or where a
third party acts as a service bureau. Until the introduction of client/server
technology, the only in-house processing systems offered were proprietary legacy
systems running on mainframe or mid-range computer hardware. In the United
States market, client/server application software has only recently been made
available to financial institutions, but it is gaining market acceptance and
market share. In the international market, there are a number of client/server
alternatives available, as well as traditional legacy systems.
The Company believes that none of its current competitors offers
application software that provides the level of flexibility and functionality
featured in the Company's customer relationship management, customer
profitability analysis or executive information modules. The Company expects
additional competition from other established and emerging companies as the
client/server market continues to develop and expand. In addition, competition
could increase as a result of software industry consolidations, including
particularly the acquisition of any of the client/server based retail banking
system providers by one of the larger service providers to the financial
services industry. For example, EastPoint, a provider of client/server
technology, was acquired by Marshall & Isley Corp., one of Phoenix's largest
competitors in the U.S. on August 7, 1996.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Phoenix relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. Phoenix seeks to protect its software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. The Company's license agreements contain
provisions which limit the number of users, state that title remains with the
Company, protect confidentiality, permit the termination of license for misuse
or abuse and require licensees to notify the Company of infringements on the
Company's property and rights. Phoenix presently has no patents or patent
applications pending and has no trademark or copyright registrations. Despite
the Company's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's products is difficult, particularly overseas, and while the
Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to as great of an extent as do the laws of the United States.
Nevertheless, the Company believes that due to the rapid pace of technological
change in the information technology and software industries, factors such as
the technological and creative skills of its employees, new product
developments, frequent product enhancements and the timeliness and quality of
support services are more important to establishing and maintaining a
competitive advantage in the industry.
Phoenix does not believe that any of its products infringe upon the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by the Company with respect to current
or future products. The Company expects that software product developers will be
increasingly subject to infringement claims as the number of products and
competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require Phoenix to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company or at all, which could have a
material adverse effect upon the Company's business, operating results and
financial conditions.
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<PAGE> 45
EMPLOYEES
As of May 31, 1997, Phoenix had a total of 169 employees and contract
workers, of which 77 were engaged in product development and support, 49 were in
implementation and training, 13 were in sales and marketing, 12 were in finance
and administration, 5 were in executive management and 13 were engaged in
product development and support, sales and marketing and general business
operations at Phoenix A.P. Limited. All of the Company's senior and executive
officers who were employed by the Company as of the date of this Prospectus have
entered into employment agreements with the Company. None of the Company's
employees is represented by a labor union. The Company has not experienced any
work stoppages and considers its relations with its employees to be
satisfactory.
FACILITIES
The Company recently moved its principal administrative, sales,
marketing, support and product development facility to a commercial building in
Heathrow, Florida. The Company currently leases approximately 37,000 square feet
of space in this building and has exercised an option to lease approximately
11,000 square feet of additional space commencing in October 1997. The lease for
this property is for a term of ten years and expires on April 1, 2007. The
Company believes that its new facilities will be adequate for its current
requirements.
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<PAGE> 46
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as
of May 31, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE CLASS(1) POSITION
- ---- --- -------- --------
<S> <C> <C> <C>
Bahram Yusefzadeh(2)(3)..................... 51 III Chairman of the Board and Chief Executive
Officer
Ralph H. Reichard........................... 54 III President, Chief Operating Officer and
Director
Clay E. Scarborough......................... 43 -- Senior Vice President and Chief Financial
Officer
Raju M. Shivdasani.......................... 46 -- Senior Vice President and President of
International Division
Michael R. Newes............................ 51 -- Senior Vice President of Worldwide Marketing
Harold C. Boughton.......................... 45 -- Senior Vice President of Domestic Business
Development
Gerald P. Nissen............................ 48 -- Senior Vice President of Technology Services
Twanna C. Soifer............................ 49 -- Senior Vice President of Implementation
Services
Ruann F. Ernst(2)........................... 50 I Director
Ronald E. Fenton(3)(4)...................... 68 III Director
William C. Hess(4).......................... 60 I Director
James C. Holly(2)(3)........................ 56 III Director
Paul A. Jones(2)............................ 43 II Director
J. Michael Murphy(3)........................ 57 II Director
Glenn W. Sturm(4)........................... 43 II Director
O. Jay Tomson............................... 61 I Director
</TABLE>
- ----------
(1) Class I term expires in 2000; Class II term expires in 1998; and Class
III term expires in 1999.
(2) Member of the Compensation and Stock Option Committee. Mr. Holly is the
Chairman of the Compensation and Stock Option Committee, and Mr.
Yusefzadeh is a non-voting member of the Compensation and Stock Option
Committee.
(3) Member of the Executive Committee. Mr. Yusefzadeh is the Chairman of
the Executive Committee.
(4) Member of the Audit Committee. Mr. Fenton is the Chairman of the Audit
Committee.
Bahram Yusefzadeh. Mr. Yusefzadeh, the Company's founder, Chairman of
the Board and Chief Executive Officer, has over 28 years of experience in the
banking software industry. In 1969, he co-founded Nu-Comp Systems, Inc. ("Nu-
Comp"), where he developed the Liberty Banking System and served as Nu-Comp's
president and chief executive officer. Mr. Yusefzadeh became chairman of the
board of Broadway & Seymour, Inc. ("Broadway & Seymour") upon its acquisition
of Nu-Comp in June 1986 and remained in that position until November 1986.
From 1986 to 1992, he worked for The Kirchman Corporation ("Kirchman"), first
as president of the product and marketing strategies division, and later as
president of both the independent banking group and the outsourcing division.
Mr. Yusefzadeh currently serves as a member of the Executive Committee and as
a non-voting member of the Compensation and Stock Option Committee.
Ralph H. Reichard. Mr. Reichard joined Phoenix as a consultant and
advisor in 1994. He officially joined the Company in January 1995 as President
and Chief Operating Officer and he has served as a director
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<PAGE> 47
of the Company since 1995. From 1990 to 1994, Mr. Reichard was the president of
the banking business unit of Newtrend, L.P. ("Newtrend"), a software and
outsourcing services provider to banks, thrifts and credit unions. He served on
Newtrend's executive management committee and was responsible for the day-to-day
operation and management of the banking software and outsourcing business. From
1989 to 1990, Mr. Reichard served as president and chief operating officer for
the professional services division of Credit Card Software, Inc. He was
president of research and development for Kirchman from 1987 to 1989. From 1983
to 1987, he was senior vice president and regional professional services manager
for Broadway and Seymour.
Clay E. Scarborough. Mr. Scarborough joined the Company in March 1996 as
a Senior Vice President and Chief Financial Officer. From 1995 to 1996, he
served as chief financial officer and senior vice president of Medifax, Inc.,
a health industry services company. From 1992 to 1995, he was chief financial
officer and vice president of administration for A.D.A.M. Software, Inc., a
multimedia software publishing company. In 1991, Mr. Scarborough served as
vice president of finance at Gerber Alley Healthcare, a hospital information
systems software company. From 1986 to 1991, Mr. Scarborough was employed by
Digital Communication Associates, a publicly traded data communications
technology company where he last served as director of finance. Mr.
Scarborough holds a M.B.A. from the Harvard Graduate School of Business
Administration and is a certified public accountant.
Raju M. Shivdasani. Mr. Shivdasani joined the Company in July 1996 as a
Senior Vice President and as President of the International Division. From
1990 to 1996, he worked for Fiserv, Inc. where he served as group executive
vice president of the bank services sector and president of CBS Worldwide, a
banking software division. Mr. Shivdasani has over 25 years of experience
working for companies in the banking software, service bureau and data center
services industries.
Michael R. Newes. Mr. Newes joined the Company in 1993 and serves as
Senior Vice President of Worldwide Marketing. From 1990 to 1993, he was a senior
vice president for OKRA Marketing Corporation ("OKRA"), a financial institutions
database software marketing company. He worked with Mr. Yusefzadeh at both
Nu-Comp and Kirchman and has nearly 25 years of experience in marketing, sales
and customer support for technology companies.
Harold C. Boughton. Mr. Boughton joined the Company in May 1996 as Senior
Vice President of Domestic Business Development and is responsible for all
domestic sales and marketing activities. From 1992 to 1996, Mr. Boughton worked
for Fiserv, Inc., first as national sales manager for the CBS Service Bureau and
later as national sales manager for InformEnt. From 1990 to 1992, he served as
regional sales manager and national sales manager for DCR Technologies, an
optical storage technology company.
Gerald P. Nissen. Since February 1995, Mr. Nissen has served as Senior
Vice President of Technology Services for Phoenix and has responsibility for the
product development, customer support, documentation, quality assurance,
networking services and disaster recovery services components of the Phoenix
System. From 1992 to 1995, Mr. Nissen worked at Newtrend in the banking business
unit where he served as senior vice president of product services and was
responsible for product development, product support and consulting services.
Twanna C. Soifer. Ms. Soifer joined the Company in 1993 as Senior Vice
President of Client Services and is now responsible for the training and
implementation of Phoenix System users. Prior to joining Phoenix, Ms. Soifer
managed documentation for the Horizon Product for Systematics, Inc. from 1991
to 1993. From 1990 to 1991, she was a consultant for Prophet Management
Information Services and for OKRA. Prior to 1990, Ms. Soifer held management
positions at Kirchman and Broadway & Seymour.
Ruann F. Ernst. Ms. Ernst has been a director of the Company since 1996
and currently serves as a member of the Compensation and Stock Option
Committee. Since 1995, she has served as General Manager of the financial
services business unit of Hewlett-Packard's Computer Systems Organization.
Ms. Ernst has worked for Hewlett-Packard for more than 13 years. From 1991 to
1993, she served as Director of Strategic Business for Hewlett-Packard's
multiuser UNIX product line. In 1993, Ms. Ernst assumed the position of
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<PAGE> 48
Marketing Manager for Hewlett-Packard for the financial industry worldwide, as
well as U.S. responsibility for the process, retail and oil and gas industries.
Ronald E. Fenton. Mr. Fenton has been a director of Phoenix since 1993,
currently serves as a member of the Executive Committee and is the Chairman of
the Audit Committee. He has served as the president, chief executive officer and
a director of BancSecurity Corporation since 1982 and the president, chief
executive officer and director of Security Bank since 1976. Mr. Fenton is the
chairman of the board of Story County Bank & Trust, Story City, Iowa and is the
chairman of the board of Security Bank Jasper-Poweshiek, Kellogg, Iowa. He is
also a director, executive committee member and former chairman of the board of
Shazam, Inc. ("Shazam"), a regional electronic funds transfer network.
William C. Hess. Mr. Hess has been a director of the Company since 1993
and currently serves as a member of the Audit Committee. Since 1984, he has been
the president of Iowa Savings Bank, and since 1981, he has been chairman of the
board of Sac City State Bank. He is also a director of Audubon State Bank, Iowa
Savings Bank, Perry State Bank, Raccoon Valley State Bank and Home State Bank.
Mr. Hess is a past director of Shazam, a past director of the Iowa Bankers
Mortgage Association and Iowa Bankers Association and a past member of the board
of directors of the Iowa Department of Banking.
James C. Holly. Mr. Holly has been a director of Phoenix since 1993,
currently serves as a member of the Executive Committee and is Chairman of the
Compensation and Stock Option Committee. Since 1977, he has served as
president, chief executive officer and director of Bank of the Sierra. He is
also the current president of the California Independent Bankers Association.
Mr. Holly holds an M.B.A. from the University of Wisconsin and was a
commissioned officer in the United States Army (Armor).
Paul A. Jones. Mr. Jones has been director of the Company since 1995 and
currently serves as a member of the Compensation and Stock Option Committee.
He is the president, chief executive officer and a director of Glenview State
Bank and was the president of such bank from 1986 to 1996. Mr. Jones is a
director of Cummins-American Corp. and Cummins-Allison Corp.
J. Michael Murphy. Mr. Murphy has been a director of Phoenix since 1993
and currently serves as a member of the Executive Committee. Since 1977, he
has served as president of Drum Service Co. of Florida, a large steel drum
reconditioning and recycling company. In 1995, he became the chairman of the
board of Lochaven Federal Savings and Loan Association, Orlando Florida. He
is the past president of the National Trade Association of Drum Reconditioners
and was chairman of the board of the International Federation of Drum
Reconditioners from 1990 to 1993. Mr. Murphy holds a M.B.A. from the Harvard
Graduate School of Business Administration.
Glenn W. Sturm. Mr. Sturm has been a director of the Company since 1996
and currently serves as a member of the Audit Committee. Mr. Sturm is a
partner in the law firm of Nelson Mullins Riley & Scarborough, L.L.P., where
he serves as corporate chairman.
O. Jay Tomson. Mr. Tomson has been a director of the Company since 1993
and was Chairman of the Board of the Company from August 1993 to February
1994. Since 1974, he has served as chairman and chief executive officer of
First Citizens National Bank, and since 1977, he has been chairman of the
board of First Citizens Financial Corporation. Mr. Tomson was a member of the
Board of Directors of the Federal Reserve Bank of Chicago from 1980 to 1986.
He is a former director and president of Shazam.
DIRECTOR COMPENSATION
Pursuant to the Company's 1996 Director Stock Option Plan (the "1996
Director Plan"), upon initial election to the Board and on each anniversary date
of such election thereafter, each director will receive automatic grants of
options to acquire 2,000 shares of Common Stock at an exercise price equal to
the fair market value on the date of grant. In addition, directors who serve on
committees of the Board receive options to acquire 1,000 shares at such exercise
price. See "-- Stock Option Plans." In addition, the Company
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<PAGE> 49
currently pays all travel expenses and reimburses the directors for their
out-of-pocket expenses related to their services as directors. Directors do not
receive cash fees for their services as directors of the Company.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Company for services rendered during the years indicated to the Company's Chief
Executive Officer and the four most highly compensated other executive officers
whose total salary and bonus exceeded $100,000 (collectively, the "Named
Executive Officers") during the year ended December 31, 1996. The Company did
not grant any stock appreciation rights or make any long-term incentive plan
payouts during the periods shown.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------- --------------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
YEAR(1) SALARY($) BONUS($)(2) COMPENSATION OPTIONS/SARS(3) COMPENSATION($)
------- --------- ----------- ------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bahram Yusefzadeh ................. 1996 196,544 100,000 10,656(4) 2,000 14,045(5)
Chairman of the Board and ...... 1995 194,795 19,000 -- 78,985 7,538(6)
Chief Executive Officer ........ 1994 160,000 30,000(7) -- 22,567 5,847(8)
Ralph H. Reichard ................. 1996 150,000 80,000 -- 2,000 4,951(9)
President and Chief Operating .. 1995 140,000 -- -- 90,601 --
Officer ........................ 1994 -- -- -- 58,078 --
Michael R. Newes .................. 1996 110,000 15,819(10) -- -- 2,554(11)
Senior Vice President of ....... 1995 107,436 36,474(12) -- 18,584 --
Worldwide Marketing ............ 1994 100,000 4,000(13) -- 45,797 400(14)
Gerald P. Nissen .................. 1996 113,333 30,000 18,485 2,636
Senior Vice President of ....... 1995 100,833 -- -- 43,094 --
Technology Services ............ 1994 -- -- -- --
Clay E. Scarborough ............... 1996 85,500 42,000 26,850(15) 46,462 1,809(11)
Senior Vice President and ...... 1995 -- -- -- -- --
Chief Financial Officer ........ 1994 -- -- -- -- --
</TABLE>
- --------------------
(1) During 1995, the Company changed its fiscal year end from January 31 to
December 31. Accordingly, the information reported for 1995 is for the
eleven months ended December 31, 1995 and the information reported for
1994 is for the twelve months ended January 31, 1995.
(2) Bonuses for each year include amounts earned for that year, even if
paid in the subsequent year, and exclude bonuses paid during that year
but earned for a prior year.
(3) All figures in this column reflect options to purchase shares of Common
Stock.
(4) Represents automobile lease payments paid by the Company for Mr.
Yusefzadeh.
(5) Includes $6,076 for long-term disability premiums paid by the Company,
$1,584 for term life insurance paid by the Company for Mr. Yusefzadeh's
beneficiaries, $3,211 for health insurance premiums paid by the Company
for Mr. Yusefzadeh's dependents and $3,174 for Company contributions
pursuant to the Profit Sharing Plan (as defined herein).
(6) Includes $2,887 for long-term disability premiums paid by the Company,
$1,824 for term life insurance premiums paid by the Company for Mr.
Yusefzadeh's beneficiaries and $2,827 for health insurance premiums
paid by the Company for Mr. Yusefzadeh's dependents.
(7) Represents a bonus approved by the Board of Directors as reimbursement
for expenses incurred by Mr. Yusefzadeh for expenses related to the
start-up of the Company.
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<PAGE> 50
(8) Includes $3,803 for health insurance premiums paid by the Company,
$1,644 for life insurance premiums paid by the Company for Mr.
Yusefzadeh's beneficiaries and $400 for Mr. Yusefzadeh's imputed cost
of excess life insurance.
(9) Represents health insurance premiums paid by the Company for Mr.
Reichard's dependent and $3,174 for Company contributions pursuant to
the Profit Sharing Plan (as defined herein).
(10) Reflects an incentive-based commission of which $10,725 was earned and
paid in 1996 and $5,094 was earned in 1996 and paid in 1997.
(11) Reflects the Company's contribution pursuant to the Profit Sharing
Plan.
(12) Reflects an incentive-based commission paid in Fiscal 1995.
(13) Reflects a bonus earned in Fiscal 1994 but paid in Fiscal 1995.
(14) Represents imputed cost of excess life insurance.
(15) Represents a relocation allowance grossed up for taxes.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning each grant of stock
options to each of the Named Executive Officers during the year ended December
31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE VALUE AT
SECURITIES GRANTED TO EXERCISE ASSUMED ANNUAL RATES OF STOCK
UNDERLYING EMPLOYEES OR BASE PRICE APPRECIATION FOR OPTION TERM(1)
OPTIONS IN PRICE EXPIRATION -------------------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ----------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Bahram Yusefzadeh ....... 2,000(2) 0.8% $12.00 2001 $ 6,624 $ 14,664
Ralph H. Reichard ....... 2,000(2) 0.8 12.00 2001 6,624 14,664
Michael R. Newes ........ -- -- -- -- -- --
Gerald P. Nissen ........ 3,485(3) 1.3 6.46 2003 7,675 17,489
15,000(4) 5.8 12.00 2006 113,184 286,866
Clay E. Scarborough ..... 46,462(5) 17.9 6.46 2006 188,731 478,340
</TABLE>
- --------------------
(1) The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange
Commission (the "Commission"). There can be no assurance provided to
any executive officer or any other holder of the Company's securities
that the actual stock price appreciation over the term will be at the
assumed 5% and 10% levels or at any other defined level. Unless the
market price of the Common Stock appreciates over the option term, no
value will be realized from the option grants made to the Named
Executive Officers.
(2) Options were granted at the fair market value of the Common Stock on
the date of grant as determined by the Board. Represents director stock
options that are fully vested.
(3) Options were granted at the fair market value of the Common Stock on
the date of grant as determined by the Board. Represents incentive
stock options which were granted on March 6, 1996 and vest ratably on
each of March 6, 1996, 1997 and 1998.
(4) Options were granted at the fair market value of the Common Stock on
the date of grant as determined by the Board. Represents incentive
stock options which were granted on June 28, 1996 and vest ratably on
each of February 1, 1997, 1998, 1999 and 2000.
(5) Mr. Scarborough joined the Company in March 1996. Options were granted
at the fair market value of the Common Stock on the date of grant as
determined by the Board. Represents incentive stock options which were
granted on March 6, 1996 and vest ratably on each of March 6, 1996,
1997, 1998 and 1999.
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<PAGE> 51
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth the number of options exercised and the
value realized on such exercises during the year ended December 31, 1996 and the
value of options held by the Named Executive Officers as of December 31, 1996.
AGGREGATE OPTION/SAR EXERCISE IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SECURITIES UNDERLYING OPTIONS AT FISCAL
SHARES OPTIONS AT FISCAL YEAR END(#) YEAR END($)(1)
ACQUIRED VALUE ---------------------------- -------------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bahram Yusefzadeh ....... -- -- 28,716 52,269 $344,849 $654,147
Ralph H. Reichard ....... -- -- 72,274 55,174 920,730 714,755
Michael R. Newes ........ 45,797 $487,424 11,615 6,969 150,360 90,217
Gerald P. Nissen ......... -- -- 18,702 40,553 239,605 404,545
Clay E. Scarborough ..... -- -- 11,616 34,846 125,374 376,100
</TABLE>
- --------------------
(1) The closing price of the Common Stock on the Nasdaq National Market on
December 31, 1996 was $17.25 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Stock Option Committee of the Board of Directors was
formed on March 18, 1995. The current members of the Compensation and Stock
Option Committee are Messrs. Holly and Jones and Ms. Ernst, and Mr. Yusefzadeh
is a non-voting member. Mr. Holly is chairman of the Compensation and Stock
Option Committee. Ronald E. Fenton was a member of the Compensation and Stock
Option Committee during the year ended December 31, 1996. Neither Messrs.
Holly, Jones or Fenton, nor Ms. Ernst has been an officer or employee of the
Company at any time.
Transactions with James C. Holly and Affiliates. James C. Holly, the
president, chief executive officer and director of Bank of the Sierra, is a
director of the Company, Chairman of the Compensation and Stock Option Committee
and a member of the Executive Committee. In March 1994, the Company licensed the
Phoenix System to Bank of the Sierra. Pursuant to the U.S. Bank Partners'
Discount Program and because Bank of the Sierra was the second commercial
installation site for the Phoenix System, Bank of the Sierra was given a
discount with an aggregate value of approximately $354,000 on the customer and
software support fees. During Fiscal 1995, the year ended December 31, 1996 and
the five months ended May 31, 1997, the Company recognized revenues from Bank of
the Sierra of approximately $275,000, $50,000 and $45,000 and received from Bank
of the Sierra an aggregate of approximately $113,000, $136,000 and $38,000 (not
including taxes or reimbursable expenses), respectively, pursuant to its
licensing arrangement with Bank of the Sierra.
See "Certain Transactions."
From November 1994 through January 1995, the Company sold a total of
628,610 shares of Common Stock to existing shareholders, employees, officers and
directors at a price of $4.30 per share pursuant to a rights offering and
certain preemptive rights (the "Rights Offering"). Pursuant to the Rights
Offering, Bank of the Sierra purchased 38,044 shares of Common Stock at a price
of $4.30 per share. In November 1994, Bank of the Sierra exercised options to
purchase 18,585 shares of Common Stock at an exercise price of $1.08 per
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<PAGE> 52
share and options to purchase 3,982 shares of Common Stock at an exercise price
of $4.30 per share. These options were transferred from Mr. Holly, who was
granted these options for his service as a director of the Company during 1993
and Fiscal 1994.
Pursuant to the Rights Offering, Mr. Holly purchased 1,770 shares of
Common Stock at a price of $4.30 per share in December 1994. In March 1994, Mr.
Holly purchased, on his own behalf, 9,292 shares of Common Stock at a price of
$1.08 per share. In May 1995, Bank of the Sierra exercised options to purchase
9,292 shares of Common Stock at an exercise price of $4.30 per share. These
options were transferred from Mr. Holly, who was granted these options for his
service as a director of the Company for Fiscal 1995. As of the date of this
Prospectus, Mr. Holly held outstanding options to purchase 2,000, 3,000 and
4,000 shares of Common Stock that are currently exercisable at exercise prices
of $12.00, $15.25 and $21.13, respectively, per share, which were granted
pursuant to the 1996 Director Plan.
In May 1994, the Company borrowed $250,000 from several of the U.S. Bank
Partners, including Bank of the Sierra, for the purpose of purchasing furniture
and equipment. The loan matured in May 1995, was secured by such furniture and
equipment and bore interest at a rate of 9.0% per annum. The Company repaid the
note in full in May 1995.
Transactions with Paul A. Jones and Affiliates. Paul A. Jones, the
president of Glenview State Bank, is a director of the Company and member of the
Compensation and Stock Option Committee. In January 1995, the Company licensed
the Phoenix System to Glenview State Bank. Pursuant to the U.S. Bank Partners'
Discount Program, Glenview State Bank was given a discount with an aggregate
value of approximately $164,000 on the initial license fee. During Fiscal 1995,
the year ended December 31, 1996 and the five months ended May 31, 1997, the
Company recognized revenues from Glenview State Bank of approximately $7,000,
$776,000 and $241,000 and received from Glenview State Bank an aggregate of
approximately $85,000, $430,000 and $121,000 (not including taxes or
reimbursable expenses), respectively, pursuant to its licensing arrangement with
the Company. As of the date of this Prospectus, Mr. Jones held outstanding
options to purchase 9,292, 2,000 and 3,000 shares of Common Stock that are
currently exercisable at exercise prices of $4.30, $12.00 and $21.13,
respectively, per share.
Transactions with Bahram Yusefzadeh. Pursuant to the Rights Offering and
the exercise of options granted to Mr. Yusefzadeh for his service as a director
of the Company, Mr. Yusefzadeh and an affiliate of Mr. Yusefzadeh were issued
shares of capital stock of the Company in exchange for promissory notes which
bore interest at a rate of 7.92% per year and were unsecured. The principal and
interest on the notes were due and payable upon the consummation of the
Company's initial public offering in July 1996. In July 1996, Mr. Yusefzadeh and
his affiliate paid the Company approximately $1.3 million, plus accrued interest
of approximately $159,000 to repay such notes in full. In January 1994, Mr.
Yusefzadeh loaned an aggregate of $35,203 to the Company to finance the
Company's purchase of certain office equipment. The loan was secured by such
office equipment and was payable on demand with interest payable at 12% per
annum. In July 1996, the Company repaid to Mr. Yusefzadeh the loan and accrued
interest of approximately $46,000 from the proceeds of the Company's initial
public offering.
In May 1996, Mr. Yusefzadeh unconditionally guaranteed the Company's
obligations under a line of credit and term loan. The Company paid off the line
of credit and term loan from the proceeds of the Company's initial public
offering, releasing Mr. Yusefzadeh from his guarantee. In addition, Mr.
Yusefzadeh personally guaranteed the office lease for the Company's headquarters
in Maitland, Florida (which terminated on March 31, 1997) and certain other
leases for general office equipment. In Fiscal 1994 and Fiscal 1995, the Company
used Mr. Yusefzadeh's personal American Express card for purchasing equipment
and for other general business expenses, including travel expenses for directors
and office supplies. The Company paid approximately $205,000 in Fiscal 1994 and
approximately $175,000 in Fiscal 1995 to American Express directly in full
reimbursement for the purchases by Mr. Yusefzadeh. As of the date of this
Prospectus, Mr. Yusefzadeh held outstanding options to acquire 44,139, 2,000 and
2,000 shares that are currently exercisable at exercise prices of $4.74, $12.00
and $21.13, respectively, per share.
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<PAGE> 53
Transactions with Ronald E. Fenton and Affiliates. Ronald E. Fenton, the
president, chief executive officer and a director of BancSecurity Corporation
("BancSecurity"), is a director of the Company, Chairman of the Audit Committee
and a member of the Executive Committee. Mr. Fenton was a member of the
Compensation and Stock Option Committee from its inception until the annual
meeting of the Board of Directors in May 1997. In February 1996, the Company
licensed the Phoenix System to BancSecurity. During the year ended December 31,
1996 and the five months ended May 31, 1997, the Company recognized revenues
from BancSecurity of approximately $521,000 and $47,000 and received from
BancSecurity an aggregate of approximately $514,000 and $122,000 (not including
taxes or reimbursable expenses), respectively, pursuant to its licensing
arrangement with BancSecurity. Pursuant to the U.S. Bank Partners' Discount
Program (as defined hereafter), BancSecurity was given a discount with an
aggregate value of approximately $299,000 on the license and service fees. See
"Certain Transactions." Pursuant to the Rights Offering, BancSecurity purchased
35,404 shares of Common Stock at a price of $4.30 per share in December 1994.
In July 1995, Mr. Fenton exercised options to purchase 9,292 shares of
Common Stock at a price of $4.30 per share. Pursuant to the Rights Offering, Mr.
Fenton purchased 5,929 shares of Common Stock at a price of $4.30 per share in
December 1994. In November 1994, Mr. Fenton exercised options to purchase 9,292
shares of Common Stock at a price of $1.08 per share and options to purchase
3,982 shares of Common Stock at a price of $4.30 per share. In September 1994,
Mr. Fenton exercised options to purchase 9,293 shares of Common Stock at a price
of $1.08 per share. As of the date of this Prospectus, Mr. Fenton held
outstanding options to purchase 2,000, 3,000 and 4,000 shares of Common Stock
that are currently exercisable at exercise prices of $12.00, $15.25 and $21.13,
respectively, per share.
EMPLOYMENT AGREEMENTS
Yusefzadeh Agreement. On December 28, 1995, Mr. Yusefzadeh and the
Company entered into an employment agreement (the "Yusefzadeh Agreement")
pursuant to which he will serve as the Chief Executive Officer of the Company.
The Yusefzadeh Agreement provides that Mr. Yusefzadeh will receive a base salary
of not less than $200,000 per year, plus incentive compensation as determined by
the Compensation Committee based upon achievement of targeted levels of
performance and such other criteria as the Compensation Committee shall
establish from time to time, and an additional annual bonus as determined by the
Compensation Committee. In addition, he may participate in the Phoenix
International Limited, Inc. Stock Option Plan, dated October 21, 1995 (the
"October 1995 Plan"), and will receive health insurance for himself and his
dependents, long-term disability insurance, civic and social club dues, use of
an automobile owned or leased by the Company and other benefits of similarly
situated employees. Mr. Yusefzadeh's base salary may be increased upon a
periodic review by the Board of Directors or a committee thereof. The Yusefzadeh
Agreement has a term of three years and renews daily until either party fixes
the remaining term at three years by giving written notice. The Company can
terminate Mr. Yusefzadeh's employment upon his death or disability or for cause,
and Mr. Yusefzadeh can terminate his employment for any reason within a 90-day
period beginning on the 30th day after any occurrence of a change in control or
within a 90-day period beginning on the one-year anniversary of the occurrence
of any change in control. If Mr. Yusefzadeh's employment is terminated by the
Company in breach of the Yusefzadeh Agreement or if Mr. Yusefzadeh terminates
the Yusefzadeh Agreement for any reason after a change in control, the Company
must pay Mr. Yusefzadeh one-twelfth of his annual base salary and bonus for each
of 36 consecutive 30-day periods following the termination and must continue Mr.
Yusefzadeh's life and health insurance until he reaches age 65, and Mr.
Yusefzadeh's outstanding options to purchase Common Stock would vest and become
immediately exercisable.
In the Yusefzadeh Agreement, the Company also granted Mr. Yusefzadeh,
with respect to his shares of Common Stock, piggyback and, after any termination
of employment or if he is no longer a director of the Company, demand
registration rights. See "Shares Eligible for Future Sale." Under the Yusefzadeh
Agreement, Mr. Yusefzadeh agrees to maintain the confidentiality of the
Company's trade secrets. Mr. Yusefzadeh agrees that for a period of two years,
if he is terminated for cause, not to compete with or solicit employees or
customers of the Company within the United States.
Reichard Agreement. On December 28, 1995, Mr. Reichard and the Company
entered into an employment agreement (the "Reichard Agreement") pursuant to
which he will serve as the Chief Operating
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Officer and President of the Company. The Reichard Agreement provides that Mr.
Reichard will receive a base salary of not less than $140,000 per year, plus
incentive compensation as determined by the Compensation Committee based upon
achievement of targeted levels of performance and such other criteria as the
Compensation Committee shall establish from time to time, and an additional
annual bonus as determined by the Compensation Committee. In addition, he may
participate in the October 1995 Plan and will receive health insurance for
himself and his dependents, civic and social club dues, use of an automobile
owned or leased by the Company and other benefits of similarly situated
employees. Mr. Reichard's base salary may be increased upon a periodic review
by the Board of Directors or a committee thereof. The Reichard Agreement has a
term of three years and renews daily until either party fixes the remaining
term at three years by giving written notice. The Company can terminate Mr.
Reichard's employment upon his death or disability or for cause, and Mr.
Reichard can terminate his employment for any reason within a 90-day period
beginning on the 30th day after any occurrence of a change in control or within
a 90-day period beginning on the one-year anniversary of the occurrence of any
change in control. If Mr. Reichard's employment is terminated by the Company in
breach of the Reichard Agreement or if Mr. Reichard terminates the Reichard
Agreement for any reason after a change in control, the Company must pay Mr.
Reichard one-twelfth of his annual base salary and bonus for each of 36
consecutive 30-day periods following the termination and must continue Mr.
Reichard's life and health insurance until he reaches age 65, and Mr.
Reichard's outstanding options to purchase Common Stock would vest and become
immediately exercisable. Under the Reichard Agreement, Mr. Reichard agrees to
maintain the confidentiality of the Company's trade secrets. Mr. Reichard also
agrees for a period of two years, if he is terminated for cause, not to compete
with or solicit employees or customers of the Company within the United States.
Other Employment Agreements. During 1996, the Company entered into
employment agreements with each of Messrs. Boughton, Newes, Nissen, Scarborough
and Shivdasani and Ms. Soifer (collectively, the "Other Agreements"). Generally,
the Other Agreements provide for a minimum base salary per year, and a bonus as
determined by the Chief Executive Officer and President based upon achievement
of targeted levels of performance and such other criteria as they shall
establish from time to time. The agreements for Messrs. Boughton, Newes, and
Shivdasani contain provisions for commission compensation paid in accordance
with a commission plan established each year by the Chief Executive Officer and
President. In addition, each employee may participate in the October 1995 Plan
and will receive insurance and other benefits of similarly situated employees.
Each of the Other Agreements, except for Mr. Scarborough's, have a term of one
year that renews daily until either party fixes the remaining term at one year
by giving written notice. The term of Mr. Scarborough's agreement is 18 months
and renews daily until either party fixes the remaining term at 18 months by
giving written notice. Generally, the Company can terminate each of the
employees upon death or disability or for cause, and the employee can terminate
his employment for any reason within one year of a change in control with
adequate justification. If the employee's employment is terminated by the
Company for any reason within one year after a change in control or if the
employee terminates the agreement with adequate justification, the Company
generally must pay the employee one-twelfth of his base salary and bonus for
each of 12 (18 under Mr. Scarborough's employment agreement) consecutive 30-day
periods following the termination and must continue the employee's life and
health insurance for a specified period of time, and the employee's outstanding
options to purchase Common Stock would vest and become immediately exercisable.
For Mr. Scarborough, the Company would pay his base salary and bonus for each of
18 consecutive 30-day periods following the termination. Under the Other
Agreements, each employee agrees to maintain the confidentiality of the
Company's trade secrets. Typically, the employee also agrees for a period of one
year, if he is terminated for cause or resigns without adequate justification,
not to compete with or solicit employees or customers of the Company within the
United States. Mr. Scarborough's non-compete and non- solicitation period is 18
months.
STOCK OPTION PLANS
March 1995 Plan. In March 1995, the Board of Directors adopted, and the
Company's shareholders approved, the Phoenix International Ltd., Inc. 1995 Stock
Option Plan (the "March 1995 Plan"). As of May 31, 1997, options to acquire
approximately 369,823 shares of Common Stock were outstanding under the March
1995 Plan. All of such options were issued at the fair market value of the
Common Stock as determined by the Board of Directors based on the Company's
financial condition and prospects at such time and recent sales of the
securities of the Company. Effective May 24, 1996, the Board of Directors and
shareholders approved
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an amendment to the March 1995 Plan which reduced the number of authorized
shares to 520,000, and the Board of Directors will not issue any additional
options under the March 1995 Plan.
October 1995 Plan. Effective October 21, 1995, the Board of Directors
adopted and the Company's shareholders approved the October 1995 Plan, the
primary focus of which is to provide an incentive to key employees who are in a
position to serve the best interests of the Company. Under the October 1995
Plan, a stock option committee comprised of two independent directors has
discretion to award either incentive stock options ("ISOs") within the meaning
of Section 422 of the Code which permits the deferral of taxable income related
to the exercise of such options, or nonqualified options not entitled to such
deferral. Subject to the provisions of the October 1995 Plan, the stock option
committee, in its discretion, selects the recipients of awards and the number of
shares or options granted thereunder and determines other matters such as (i)
vesting schedules, (ii) the exercise price of options (which cannot be less than
100% of the fair market value of the Common Stock on the date of grant for ISOs)
and (iii) the duration of awards (which cannot exceed ten years from the date of
grant or modification of the option). Effective May 24, 1996, the Board of
Directors and the shareholders approved an amendment to the October 1995 Plan
which increased the number of shares available for issuance pursuant to option
grants to 250,000. On January 24, 1997, the Board of Directors approved and on
May 16, 1997, the Company's shareholders approved an amendment to the October
Plan increasing the number of shares available for issuance pursuant to option
grants to 500,000. As of May 31, 1997, options to acquire 228,653 shares were
outstanding under the October 1995 Plan. All of such options were issued at the
fair market value of the Common Stock as determined by the Board of Directors
based on the Company's financial condition and prospects at such time and recent
sales of the securities of the Company.
1996 Director Stock Option Plan. In June 1996, the Company adopted the
1996 Director Plan. The 1996 Director Plan provides for the granting of
non-qualified stock options to the directors of the Company. The 1996 Director
Plan authorizes the issuance of up to 99,000 shares of Common Stock pursuant to
options having an exercise price equal to the fair market value of the Common
Stock on the date the options are granted. The 1996 Director Plan contains
provisions providing for adjustment of the number of shares available for option
and subject to unexercised options in the event of stock splits, dividends
payable in Common Stock, business combinations or certain other events affecting
the Common Stock of the Company. The Board of Directors administers the 1996
Director Plan subject to certain limitations.
The 1996 Director Plan provides for the grant of (i) options to purchase
2,000 shares to each director of the Company on the date of such director's
election to the Board of Directors and on the anniversary date of such election
and (ii) options to purchase 1,000 shares to each non-employee director of the
Company on the date of such director's election to a committee of the Board of
Directors at an exercise price equal to the fair market value of the Common
Stock on the date the options are granted. Each option shall be exercisable in
full beginning six months after the date of grant and shall expire five years
after the date of grant, unless canceled sooner as a result of termination of
service or death, or unless such option is fully exercised prior to the end of
the option period. As May 31, 1997, options to acquire 59,000 shares of Common
Stock were outstanding under the 1996 Director Plan.
PROFIT SHARING PLAN
The Company maintains a tax-qualified profit sharing plan for eligible
employees that includes a 401(k) component (the "Profit Sharing Plan"). All
full-time employees are eligible to participate in the Profit Sharing Plan upon
the attainment of age 21 and completion of six months of service. Under the
Profit Sharing Plan, an employee may elect to defer a portion of his
compensation by reducing his compensation by up to 20% and directing the Company
to contribute such reduction to the Profit Sharing Plan. Each year, the Company
will determine whether to make a discretionary matching contribution equal to a
percentage, determined by the Company, not to exceed 100% of the employee's
deferred compensation contribution. An employee must meet certain employment
requirements to be eligible to participate in any such matching contribution
made by the Company. The Company did not make any matching contributions during
the year ended December 31, 1996. All contributions to the Profit Sharing Plan
by or on behalf of employees are subject to annual limits prescribed by the
Code.
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CERTAIN TRANSACTIONS
As an incentive to provide initial capital for the Company, the Company
agreed to give certain pricing discounts to the U.S. Bank Partners on their
initial contract with the Company if they licensed the Phoenix System for use in
their banks (the "U.S. Bank Partners' Discount Program"). Pursuant to the U.S.
Bank Partners' Discount Program, the Company agreed to provide two types of
discounts: (i) a credit against the initial license fee equal to the amount of
each U.S. Bank Partner's investment in the Company's capital stock and (ii) a
15% credit on the first five years of customer and software support fees. The
Company has offered discounts on license fees totalling $855,000 in connection
with U.S. Bank Partner's investment in the Company's capital stock since its
inception. Discounts of $450,000 were used in 1996 and discounts of $300,000
were used in 1995, leaving a balance of $105,000 of available discounts as of
December 31, 1996 and as of May 31, 1997. See Note 8 of Notes to Consolidated
Financial Statements. The following is a description of transactions where
discounts have been given pursuant to the U.S. Bank Partners' Discount Program
to U.S. Bank Partners that have an affiliate serving as a member of the
Company's Board of Directors. See "Management -- Compensation Committee
Interlocks and Insider Participation" for a discussion of the transactions with
BancSecurity, Glenview State Bank and Bank of the Sierra.
In February 1994, the Company licensed the Phoenix System to First
Citizens Financial Corporation ("FCFC"). Pursuant to the U.S. Bank Partners'
Discount Program and because FCFC agreed for one of its banks to serve as the
first commercial installation site of the Phoenix System, FCFC was given pricing
concessions of approximately $477,000 on license fees, implementation fees and
customer and software support fees. During Fiscal 1995, the year ended December
31, 1996 and the five months ended May 31, 1997, the Company recognized revenues
from FCFC of approximately $55,000, $314,000 and $4,900, and received from FCFC
an aggregate of approximately $114,000, $203,000 and $6,000 (not including taxes
or reimbursable expenses), respectively, pursuant to its licensing arrangement
with the Company. O. Jay Tomson, the chairman of the board and chief executive
officer of First Citizens National Bank, the holding company for FCFC, is a
director of the Company.
In December 1995, the Company licensed the Phoenix System to Iowa Savings
Bank. Pursuant to the U.S. Bank Partners' Discount Program, Iowa Savings Bank
was given a discount with an aggregate value of approximately $123,000 on the
initial license fee. During Fiscal 1995, the year ended December 31, 1996 and
the five months ended May 31, 1997, the Company recognized revenues from Iowa
Savings Bank of approximately $0, $102,000 and $14,000 and received from Iowa
Savings Bank an aggregate of approximately $82,000, $47,000 and $4,000 (not
including taxes or reimbursable expenses), respectively, pursuant to its
licensing arrangements with the Company. William C. Hess, the president of Iowa
Savings Bank, is a director of the Company.
On March 5, 1997, the Company entered into a stock purchase agreement
with Dyad whereby the Company purchased a minimal equity interest in Dyad. Dyad
is in the process of developing automated loan and mortgage products, including
associated software, hardware and documentation. Pursuant to the Company's
agreement with Dyad, the Company has an option for one year to increase its
equity interest in Dyad to no more than 10% of the outstanding shares of Dyad.
As part of this transaction, the Company and Dyad entered into a license and
distribution agreement (the "License Agreement") whereby the Company obtained
the domestic rights to market, sell and license (on an exclusive basis to the
Company's customers and on a non-exclusive basis to others) Dyad's products. In
addition, the Company obtained the exclusive right to market, sell and license
Dyad's products worldwide (outside of the U.S.), which exclusivity is contingent
upon the Company satisfying certain specific revenue targets. The Company has
paid Dyad a total of $700,000 pursuant to these agreements and is obligated to
pay an additional advance under the License Agreement. It is the Company's
intention to use approximately $800,000 of the net proceeds of this Offering to
exercise its option in full and to make such additional advance payment. See
"Use of Proceeds." Initially, the Company will keep all of the license fees
generated from the Company's sale of Dyad's products; eventually, however, the
Company will retain only a portion of such fees. Glenn W. Sturm, director,
Secretary and General Counsel of the Company, is a shareholder and director of
Dyad. Bahram Yusefzadeh, Chairman of the Board and Chief Executive Officer of
the Company, is a director of Dyad.
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<PAGE> 57
The transactions under the U.S. Bank Partners' Discount Program are on
terms more favorable to officers, directors and principal shareholders of the
Company than they could obtain in a transaction with an unaffiliated third
party. Each of the transactions under the U.S. Bank Partners' Discount Program,
the Unisys Agreement and with Dyad was approved by a majority of the independent
directors of the Company, and any additional contracts under the U.S. Bank
Partners' Discount Program or between the Company and Unisys or Dyad will be
approved by a majority of the independent directors of the Company. All future
transactions, except for contracts pursuant to the U.S. Bank Partners' Discount
Program, between the Company and its officers, directors, principal shareholders
and their affiliates will be approved by a majority of independent directors of
the Company and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
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PRINCIPAL AND SELLING SHAREHOLDERS
The table below sets forth certain information regarding beneficial
ownership of the Common Stock, as of May 31, 1997 and as adjusted to reflect the
sale of shares offered hereby, by (i) each person known to the Company to own
beneficially more than 5% of the Common Stock, (ii) each director and Named
Executive Officer, (iii) all directors and executive officers of the Company as
a group and (iv) each Selling Shareholder. Unless otherwise indicated, the
persons listed below have sole voting and investment power over the shares of
Common Stock indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)(2)
----------------------- ---------------------
SHARES
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------ ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Bahram Yusefzadeh(3) .......................... 1,097,416 27.5% 205,738 891,678 17.0%
SAFECO Corporation(4) ......................... 268,300 6.8 -- 268,300 5.2
Yusefzadeh Family Limited Partnership(3)(5) ... 236,861 6.0 42,500 194,361 3.7
Ronald E. Fenton(6) ........................... 229,071 5.8 -- 229,071 4.4
James C. Holly(7) ............................. 206,120 5.2 -- 206,120 4.0
Glenn W. Sturm(8) ............................. 194,232 4.9 113,238 80,994 1.5
Ralph H. Reichard(9) .......................... 152,786 3.8 26,262 126,524 2.4
Michael R. Newes(10) .......................... 146,909 3.7 -- 146,909 2.8
William C. Hess(11) ........................... 137,735 3.5 10,000 127,735 2.5
Bahram and Laury Yusefzadeh Charitable
Remainder Trust(3)(12) ....................... 137,500 3.5 100,738 36,762 *
Paul A. Jones(13) ............................. 72,943 1.8 -- 72,943 1.4
O. Jay Tomson(14) ............................. 57,431 1.5 24,000 33,431 *
First Citizens National Bank Charitable
Foundation(14) .............................. 38,431 1.0 15,000 23,431 *
J. Michael Murphy(15) ......................... 37,859 1.0 -- 37,859 *
Gerald P. Nissen(16) .......................... 31,101 * -- 31,101 *
Merrell Bailey(17) ............................ 29,325 * 10,000 19,325 *
Clay E. Scarborough(18) ....................... 23,231 * -- 23,231 *
Iowa Savings Bank Charitable Foundation(11) ... 20,000 * 5,000 15,000 *
E & C's Charities(3)(19) ...................... 12,500 * 12,500 -- *
Kanabec Credit Corporation(14) ................ 8,000 * 4,000 4,000 *
Ruann F. Ernst(20) ............................ 5,000 * -- 5,000 *
All directors and executive officers as a group
(16 persons) ................................ 2,300,008 53.2% 266,000 2,034,008 36.5%
</TABLE>
- ----------
* Less than 1%
(1) For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares that such person or group has
the right to acquire within 60 days after May 31, 1997 or with respect to
which such person otherwise has or shares voting or investment power. For
purposes of computing the percentages of outstanding shares held by each
person or group of persons on a given date, shares which such person or
group has the right to acquire within 60 days after such date are deemed
to be outstanding for purposes of computing the percentage for such
person or group but are not deemed to be outstanding for the purpose of
computing the percentage of any other person or group.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Mr. Yusefzadeh's address is c/o Phoenix International Ltd., Inc., 500
International Parkway, Heathrow, Florida 32746. Includes (i) 662,184
shares held in his name (50,000 shares of which are being sold as part of
this Offering); (ii) 236,861 shares held by the Yusefzadeh Family Limited
Partnership (the "Yusefzadeh Partnership") of which Mr. Yusefzadeh is the
general partner (42,500 shares of which are being sold as part of this
Offering); (iii) 137,500 shares held by the Bahram and Laury Yusefzadeh
Charitable Remainder Trust (the "Trust"), of which Mr. Yusefzadeh is a
director (100,738 shares of which are being sold as part of this
Offering); (iv) 12,500 shares held in the name of E&C's Charities, of
which Mr. Yusefzadeh is a director (all of which are being sold as part
of this Offering); (v) options to acquire 44,139, 2,000 and 2,000 shares
that are currently exercisable at an exercise price of $4.74,
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<PAGE> 59
$12.00 and $21.13, respectively, per share; and (vi) 232 shares held by
his daughter. Mr. Yusefzadeh disclaims beneficial ownership with respect
to E&C's Charities' and his daughter's shares.
(4) As reported by SAFECO Corporation ("Safeco") in a Statement on Schedule
13F filed with the Commission as of March 31, 1997. In its Statement on
Schedule 13F filed with the Commission, Safeco reports that it is a
holding company for SAFECO Asset Management Company ("Safeco
Management"), a registered investment adviser to several investment
companies. As a result of its ownership of Safeco Management, Safeco may
be deemed to be the beneficial owner of the shares of the Company's
Common Stock managed by Safeco Management. Safeco specifically disclaims
ownership over these shares of Common Stock. SAFECO Corporation's
address is SAFECO Plaza, Seattle, Washington 98185.
(5) The Yusefzadeh Partnership's address is c/o Bahram Yusefzadeh, Phoenix
International Ltd., Inc., 500 International Parkway, Heathrow, Florida
32746. The Yusefzadeh Partnership disclaims beneficial ownership with
respect to all shares beneficially owned by Mr. Yusefzadeh other than
through the Yusefzadeh Partnership.
(6) Mr. Fenton's address is c/o Security Bank, 11 North First Avenue,
Marshalltown, Iowa 50158. Includes (i) 11,940 shares held by Mr. Fenton
and his wife, as joint tenants; (ii) 3,838 shares held by his individual
retirement account; (iii) options to acquire 2,000, 3,000 and 4,000
shares that are currently exercisable at an exercise price of $12.00,
$15.25 and $21.13, respectively, per share and; (iv) 204,293 shares held
in the name of BancSecurity Corporation. Mr. Fenton is the president,
chief executive officer and a director of BancSecurity Corporation. Mr.
Fenton disclaims beneficial ownership of the shares of Common Stock held
by BancSecurity Corporation. BancSecurity Corporation's address is 11
North First Avenue, Marshalltown, Iowa 50158. BancSecurity Corporation
disclaims beneficial ownership with respect to Mr. Fenton's shares.
(7) Mr. Holly's address is c/o Bank of the Sierra, 86 North Main Street,
Porterville, California 93258. Includes (i) 11,062 shares held in his
name; (ii) options to acquire 2,000, 3,000 and 4,000 shares that are
currently exercisable at exercise prices of $12.00, $15.25 and $21.13,
respectively, per share; and (iii) 186,058 shares held in the name of
Bank of the Sierra. Mr. Holly is the president, chief executive officer
and director of Bank of the Sierra. Mr. Holly disclaims beneficial
ownership with respect to the shares of Common Stock held by Bank of the
Sierra.
(8) Includes (i) 11,616 shares held in Mr. Sturm's name; (ii) options to
acquire 11,616, 2,000, 1,000 and 3,000 shares that are currently
exercisable at exercise prices of $4.30, $12.00, $15.25 and $21.13,
respectively, per share; (iii) options to acquire 15,000 shares from Mr.
Yusefzadeh that are currently exercisable at an exercise price of $17.00
per share; (iv) 137,500 shares held by the Trust, of which Mr. Sturm is a
director (100,738 shares of which are being sold as part of this
Offering) and (v) 12,500 shares held by E & C's Charities, of which Mr.
Sturm is a director (all of which are being sold as part of this
Offering). Mr. Sturm disclaims beneficial ownership with respect to the
shares of Common Stock held by the Trust and E & C's Charities.
(9) Includes (i) 6,969 shares held in Mr. Reichard's name; (ii) 16,262 shares
held by his individual retirement account (all of which are being sold as
part of this Offering); (iii) options to acquire 96,230, 2,000 and 2,000
shares that are currently exercisable at exercise prices of $4.30, $12.00
and $21.13, respectively, per share; and (iv) 29,325 shares held by his
wife (10,000 shares of which are being sold as part of this Offering).
Mr. Reichard disclaims any beneficial ownership with respect to his
wife's shares.
(10) Includes (i) 106,952 shares held in Mr. Newes' name; (ii) 26,019 shares
held by his individual retirement account; and (iii) options to acquire
13,938 shares of Common Stock held by him which are currently exercisable
at an exercise price of $4.30 per share
(11) Includes (i) 25,196 shares held in Mr. Hess's name (5,000 shares of
which are being sold as part of this Offering); (ii) 5,111 shares
held by his individual retirement account; (iii) options to acquire
9,292, 2,000 and 3,000 shares of Common Stock held in his name which
are currently exercisable at exercise prices of $4.30, $12.00 and
$21.13, respectively, per share; (iv) 64,286 shares held in the name
of Community Grain Corporation, of which he is secretary and
treasurer; (v) 2,950 shares held in the name of Raccoon Valley State
Bank Charitable Fund, of which he is an officer and director; (vi)
2,950 shares held in the name of Perry State Bank Charitable Fund, of
which he is an officer and director; (vii) 2,950 shares held in the
name of Sac City State Bank Charitable Fund, of which he is an
officer and director; and (viii) 20,000 shares held in the name of
Iowa Savings Bank Charitable Foundation, of which he is an officer
and director (5,000 shares of which are being sold as part of this
Offering). Mr. Hess disclaims beneficial ownership of the shares of
Common Stock described in clauses (iv)-(viii) above.
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<PAGE> 60
(12) The Trust disclaims beneficial ownership with respect to all shares
beneficially owned by Mr. Yusefzadeh other than through the Trust.
(13) Includes (i) options to acquire 9,292, 2,000 and 3,000 shares held by
Mr. Jones which are currently exercisable at exercise prices of
$4.30, $12.00 and $21.13, respectively, per share; and (ii) 58,651
shares held in the name of Cummins-American Corporation. Mr. Jones
is a director of Cummins-American Corporation, and he and his
immediate family control 94% of the voting stock of Cummins-American
Corporation. Mr. Jones disclaims beneficial ownership of the shares
of Common Stock held by Cummins-American Corporation.
(14) Includes (i) 7,000 shares held in Mr. Tomson's name (5,000 shares of
which are being sold as part of this Offering); (ii) 38,431 shares
held in the name of First Citizens National Bank Charitable
Foundation, Inc. (15,000 shares of which are being sold as part of
this Offering); (iii) options to acquire 2,000 and 2,000 shares of
Common Stock held by him that are currently exercisable at exercise
prices of $12.00 and $21.13, respectively, per share; and (iv) 8,000
shares held in the name of Kanabec Credit Corporation (4,000 shares
of which are being sold as part of this Offering). Mr. Tomson is a
director of First Citizens Financial Corporation and First Citizens
National Bank Charitable Foundation, Inc., and he owns controlling
interest in Kanabec Credit Corporation. Mr. Tomson disclaims
beneficial ownership of the shares of Common Stock held by each these
entities.
(15) Includes (i) 22,567 shares held in the name of Murphy Family
Partners; and (ii) options to acquire 9,292, 2,000, 1,000 and 3,000
shares held by him which are currently exercisable at exercise prices
of $4.30, $12.00, $15.25 and $21.13, respectively, per share. Mr.
Murphy is the trust protector of Murphy Family Partners and exercises
sole voting and dispositive power over the shares held by Murphy
Family Partners.
(16) Includes options to acquire 31,101 shares held by him which are currently
exercisable at exercise prices ranging from $4.30 to $12.00 per share.
(17) Ms. Bailey is married to Mr. Reichard. See note (8) above.
(18) Includes options to acquire 2,000 and 3,000 shares that are currently
exercisable at exercise prices of $12.75 and $21.13, respectively,
per share.
(19) E & C's Charities disclaims beneficial ownership with respect to all
shares beneficially owned by Mr. Yusefzadeh other than through E & C's
Charities.
(20) Includes options to acquire 23,231 shares that are currently exercisable
at an exercise price of $6.46 per share.
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DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is only a
summary and is subject to the provisions of the Articles of Incorporation and
Bylaws, which are included as exhibits to the Registration Statement of which
this Prospectus forms a part, and the provisions of applicable law.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Under the Articles of Incorporation, the Board of Directors has authority
to issue 50,000,000 shares of Common Stock, par value $0.01 per share, and
10,000,000 shares of preferred stock, par value $1.00 per share, in one or more
classes or series and, within certain limitations, to determine the voting
rights (including the right to vote as a series on particular matters),
preferences as to dividends and in liquidation, and conversion and other rights
of such series. The Company has no current plans to issue any shares of
preferred stock. The rights of the holders of the Common Stock discussed below
are subject to such rights as the Board of Directors may hereafter confer on the
holders of preferred stock; accordingly, such rights conferred on holders of
preferred stock that may be issued in the future under the Articles of
Incorporation may adversely affect the rights of holders of the Common Stock. As
of May 31, 1997, there were 3,944,692 shares of Common Stock of the Company
outstanding.
COMMON STOCK
Under the Articles of Incorporation, holders of Common Stock are entitled
to receive such dividends as may be legally declared by the Board of Directors.
Each shareholder is entitled to one vote per share on all matters to be voted
upon and will not be entitled to cumulate votes for the election of directors.
Holders of Common Stock will not have preemptive, redemption or conversion
rights and, upon liquidation, dissolution or winding up of the Company, will be
entitled to share ratably in the net assets of the Company available for
distribution to common shareholders. All outstanding shares prior to the
Offering will be, and all shares to be outstanding upon completion of the
Offering will be, validly issued, fully paid and non-assessable. The rights,
preferences and privileges of holders of Common Stock will be subject to any
classes or series of preferred stock that the Company may issue in the future.
PREFERRED STOCK
The Articles of Incorporation provide that the Board of Directors shall
be authorized, without further action by the holders of the Common Stock, to
provide for the issuance of shares of the preferred stock in one or more classes
or series and to fix the designations, powers, preferences and relative,
participating, optional and other rights, qualifications, limitations and
restrictions thereof, including the dividend rate, conversion rights, voting
rights, redemption price and liquidation preference, and to fix the number of
shares to be included in any such classes or series. Any preferred stock so
issued may rank senior to the Common Stock with respect to the payment of
dividends or amounts upon liquidation, dissolution or winding-up, or both. In
addition, any such shares of preferred stock may have class or series voting
rights. Upon completion of the Offering, the Company will not have any shares of
preferred stock outstanding. Issuances of preferred stock, while providing the
Company with flexibility in connection with general corporate purposes, may,
among other things, have an adverse effect on the rights of holders of Common
Stock and, in certain circumstances, could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company or the effect of decreasing the market price of the Common
Stock. The Company has no present plan to issue any shares of preferred stock.
CLASSIFIED BOARD OF DIRECTORS
The Articles of Incorporation divide the Board of Directors into three
classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors are elected at each annual
meeting of shareholders. The classification of directors, together with other
provisions in the Articles of
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Incorporation and Bylaws that limit the ability of shareholders to remove
directors and that permit the remaining directors to fill any vacancies on the
Board of Directors, has the effect of making it more difficult for shareholders
to change the composition of the Board of Directors. As a result, at least two
annual meetings of shareholders may be required for the shareholders to change a
majority of the directors, whether or not such a change in the Board of
Directors would be beneficial to the Company and its shareholders and whether or
not a majority of the Company's shareholders believes that such a change would
be desirable. Currently, the terms of Class I directors expire in 2000, the
terms of Class II directors expire in 1998 and the terms of Class III directors
expire in 1999.
REMOVAL OF DIRECTORS AND FILLING VACANCIES
The Articles of Incorporation provide that a director may be removed by
shareholders only for cause. The Articles of Incorporation provide that this
removal requires the approval of the holders of 66.67% of the total voting power
of all outstanding securities of the Company then entitled to vote generally in
all matters submitted to shareholders (the "Voting Stock"), voting together as a
single class, subject to the rights of the holders of any class of preferred
stock then outstanding to remove directors elected by such holders under
specified circumstances or to vote separately as a class. Moreover, the Florida
Act and the Articles of Incorporation also provide that, subject to any rights
of holders of any class of preferred stock then outstanding, all vacancies on
the Board of Directors, including those resulting from an increase in the number
of directors, may be filled solely by a majority of the remaining directors,
even if they do not constitute a quorum. When a director resigns from the Board
of Directors effective at a future date, a majority of directors then in office,
including the directors who are to resign, may vote on filling the vacancy.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER
PROPOSALS
The Bylaws establish an advance notice procedure for shareholders to make
nominations of candidates for election as directors or to bring other business
before any meeting of shareholders of the Company. Any shareholder nomination or
proposal for action at an upcoming shareholder meeting must be delivered to the
Company no later than the deadline for submitting shareholder proposals pursuant
to Rule 14a-8 under the Exchange Act. The presiding officer at any shareholder
meeting is not required to recognize any proposal or nomination which did not
comply with such deadline.
The purpose of requiring shareholders to give the Company advance notice
of nominations and other business is to afford the Board of Directors a
meaningful opportunity to consider the qualifications of the proposed nominees
or the advisability of the other proposed business and, to the extent deemed
necessary or desirable by the Board of Directors, to inform shareholders and
make recommendations about such qualifications or business, as well as to
provide a more orderly procedure for conducting meetings of shareholders.
Although the Bylaws do not give the Board of Directors any power to disapprove
timely shareholder nominations for the election of directors or proposals for
action, they may have the effect of precluding a contest for the election of
directors or the consideration of shareholder proposals if the proper procedures
are not followed and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its
own proposal.
ANTI-TAKEOVER PROVISIONS UNDER THE FLORIDA ACT
The Company is subject to several anti-takeover provisions under the
Florida Act that apply to a public corporation organized under the Florida Act
unless the corporation has elected to opt out of such provisions in its articles
of incorporation or (depending on the provision in question) its bylaws. The
Company has not elected to opt out of these provisions. The Florida Act contains
a provision that prohibits the voting of shares in a publicly-held Florida
corporation which are acquired in a "control share acquisition" unless the
holders of a majority of the corporation's voting shares (exclusive of shares
held by officers of the corporation, inside directors or the acquiring party)
approve the granting of voting rights as to the shares acquired in the control
share acquisition. A "control share acquisition" is defined as an acquisition
that immediately thereafter entitles the acquiring party to vote in the election
of directors within each of the following ranges of voting power: (i)
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one-fifth or more but less than one-third of such voting power, (ii) one-third
or more but less than a majority of such voting power and (iii) more than a
majority of such voting power.
The Florida Act also contains an "affiliated transaction" provision that
prohibits a publicly-held Florida corporation from engaging in a broad range of
business combinations or other extraordinary corporate transactions with an
"interested shareholder" unless: (i) the transaction is approved by a majority
of disinterested directors before the person becomes an interested shareholder,
(ii) the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years, or (iii) the transaction is
approved by the holders of two-thirds of the corporation's voting shares other
than those owned by the interested shareholder. An "interested shareholder" is
defined as a person who, together with affiliates and associates, beneficially
owns more than 10% of the corporation's outstanding voting shares.
LIMITATION OF LIABILITY; INDEMNIFICATION MATTERS
Article 9 of the Bylaws requires the Company, to the fullest extent
permitted or required by the Florida Act, to (i) indemnify its directors against
any and all liabilities and (ii) advance any and all reasonable expenses,
incurred in any proceeding to which any such director is a party or in which
such director is deposed or called to testify as a witness because he or she is
or was a director of the Company. Generally, the Florida Act permits
indemnification of a director upon a determination that he or she acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed to,
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The right to indemnification granted in the Bylaws is not exclusive of
any other rights to indemnification against liabilities or the advancement of
expenses to which a director may be entitled under any written agreement, Board
resolution, vote of shareholders, the Florida Act or otherwise.
The Company has entered into agreements with each of its current
directors and intends to enter into agreements with its current executive
officers pursuant to which it is obligated to indemnify those persons to the
fullest extent authorized by law and to advance payments to cover defense costs
against an unsecured obligation to repay such advances if it is ultimately
determined that the recipient of the advance is not entitled to indemnification.
The indemnification agreements provide that no indemnification or advancement of
expenses shall be made (a) if a final adjudication establishes that his actions
or omissions to act were material to the cause of action so adjudicated and
constitute: (i) a violation of criminal law (unless the indemnitee had
reasonable cause to believe that his actions were lawful); (ii) a transaction
from which the indemnitee derived an improper personal benefit; (iii) an
unlawful distribution or dividend under the Florida Act; or (iv) willful
misconduct or a conscious disregard for the just interests of the Company in a
derivative or shareholder action; (b) for liability under Section 16(b) of the
Exchange Act, or (c) if a final decision by a court having jurisdiction in the
matter determines that indemnification is not lawful.
At present, the Company is not aware of any pending or threatened
litigation or proceeding involving a director, officer, employee or agent of the
Company in which indemnification would be required or permitted under the Bylaws
or the Florida Act.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. An increase in the number of shares of Common
Stock that may become available for sale in the public market after the
expiration of the restrictions described below could adversely affect the market
price of the Common Stock prevailing from time to time in the public market and
could impair the Company's ability to raise additional capital through the sale
of its equity securities in the future.
The Company's directors, executive officers and certain of its
shareholders, optionholders and warrantholders have agreed to enter into Lockup
Agreements with the Underwriters providing that, subject to certain exceptions,
they will not offer, sell or otherwise dispose of, directly or indirectly, any
shares of Common Stock, any securities convertible into or exercisable or
exchangeable for Common Stock or any options to acquire Common Stock for a
period of 180 days from the completion of the Offering, without the prior
written consent of J.C. Bradford & Co. See "Principal and Selling Shareholders"
and "Underwriting." As a result, notwithstanding possible earlier eligibility
for sale under the provisions of Rule 144 or Rule 701 under the Securities Act,
shares subject to the Lock-up Agreements generally will not be eligible for sale
until the Lock-up Agreements expire or their terms are waived by J.C. Bradford &
Co. Assuming J.C. Bradford & Co. does not release the shareholders from the
Lock-up Agreements, the following shares of Common Stock will be eligible for
sale in the public market at the following times: upon completion of the
Offering, approximately _______ shares (of which______ shares are eligible to be
sold in accordance with Rule 144) will be immediately available for sale in the
public market and _____ days after the completion of the Offering, approximately
_______ shares will be eligible for sale pursuant to Rule 701 under the
Securities Act and approximately ________ shares (all of which are held by
affiliates of the Company) will be eligible for sale pursuant to Rule 144.
In general, under Rule 144, if one year has elapsed since the later of
the date of acquisition of "restricted securities" from the Company or any
"affiliate" of the Company, as those terms are defined under the Securities Act,
the holder is entitled to sell within any three-month period a number of shares
of Common Stock that does not exceed the greater of 1% of the then-outstanding
shares of Common Stock (approximately 51,947 shares immediately after the
Offering or approximately 54,220 shares if the Underwriters' over-allotment
option is exercised in full), or the average weekly trading volume of shares of
Common Stock on all exchanges and reported through the automated quotation
system of a registered securities association during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission.
Sales under Rule 144 are also subject to ceratin restrictions on the manner of
sales, notice requirements and the availability of current public information
about the Company. If two years have elapsed since the date of acquisition of
restricted shares from the Company or from any "affiliate" of the Company, and
the holder thereof is deemed not to have been an "affiliate" of the Company at
any time during the 90 days preceding a sale, such person would be entitled to
sell such Common Stock in the public market under Rule 144(k) without regard to
the volume limitations, manner of sale provisions, public information
requirements or notice requirements described above.
As of May 31, 1997, the Company had granted pursuant to the March Plan,
the October Plan, the 1996 Director Plan and otherwise and there remains
outstanding options and warrants to purchase 826,476 shares of Common Stock out
of a maximum of 1,121,603 shares of Common Stock reserved for those purposes.
See "Management -- Stock Option Plans."
REGISTRATION RIGHTS
Under the Yusefzadeh Agreement, upon the termination of Mr. Yusefzadeh's
employment or in the event he is no longer a director of the Company for any
reason, he may request registration for sale under the Securities Act of all or
part of the Common Stock then held by him. However, the Company shall not be
required to effect a demand registration under the Securities Act if: (i) the
aggregate market value of the shares of Common Stock proposed to be registered
does not equal or exceed $2,000,000; (ii) within 12 months prior
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to any such request for registration, a registration of securities of the
Company has been effected in which Mr. Yusefzadeh had the right to participate;
(iii) the Company receives such request for registration within 180 days
preceding the anticipated effective date of a proposed underwritten public
offering of securities of the Company approved by the Board of Directors prior
to the Company's receipt of such request; or (iv) the Board of Directors
reasonably determines in good faith that effecting such a demand registration at
such time would have a material adverse effect upon a proposed sale of all (or
substantially all) of the assets of the Company, or a merger, reorganization,
recapitalization, or similar transaction materially affecting the capital
structure or equity ownership of the Company which is actively being negotiated
with another party whose identity is disclosed to Mr. Yusefzadeh; provided,
however, that the Company may only delay a demand registration for a period not
exceeding six months (or until such earlier time as such transaction is
consummated or no longer proposed).
In addition, under the Yusefzadeh Agreement, Mr. Yusefzadeh has unlimited
piggyback registration rights if the Company proposes to make a registered
public offering of any of its securities under the Securities Act, other than an
offering pursuant to a demand registration or an offering registered on Form
S-8, Form S-4 or comparable forms. At the written request of Mr. Yusefzadeh, the
Company shall include in such registration and offering, and in any underwriting
of such offering, all shares of Common Stock as may have been designated at his
request.
Mr. Yusefzadeh's registration rights are subject to reduction in certain
circumstances and after reasonable negotiations among the managing underwriters,
the Company and Mr. Yusefzadeh. Mr. Yusefzadeh is required to pay all transfer
taxes, if any relating to the sale of his shares, the fees and expenses of his
own counsel and his pro rata portion of any underwriting discount, fee or
commission or the equivalent thereof. All other expenses shall be borne by the
Company. The Company is also obligated to indemnify Mr. Yusefzadeh in any of the
Company's registrations against certain losses and liabilities, including
liabilities under the Securities Act and state securities laws.
On June 12, 1996, the Company granted to each of William M. Toole and Mr.
Newes, two of the Company's employees, registration rights with respect to
116,155 shares of Common Stock. For so long as the shares are subject to resale
restrictions, each shareholder shall have the right to one demand registration
of such shares under the Securities Act on Form S-8, provided the shareholder is
employed at the time of his request and subject to other limitations such as any
such registration not being adverse to the Company's interests. In addition,
each shareholder has the right to one piggyback registration of the shares
subject to certain limitations, including the right of the managing underwriters
to object to inclusion of the shares in any such offering. The shareholders will
pay their own expenses incurred in connection with such registration.
In connection with the Company's initial public offering, the Company
sold to J.C. Bradford & Co. warrants (the "Bradford Warrants"), to purchase
19,000 shares of Common Stock. In connection with the sale of the Bradford
Warrants was the grant of certain registration rights with respect to the shares
of Common Stock underlying such warrants. From July 1, 1997 to July 1, 2001, the
holders of at least 50% of then-outstanding shares subject to the Bradford
Warrants shall have the right to one demand registration of such shares under
the Securities Act. In addition, between July 1, 1997 to July 1, 2003, the
holders of the Bradford Warrants have the right to piggyback registration in any
new registration statement filed by the Company, subject to certain limitations,
including the right of the managing underwriters to object to the inclusion of
the shares in any such offering. The Company shall pay the expenses of any such
registration, and the Company is obligated to indemnify the holders of the
Bradford Warrants, their officers and directors and persons who control such
holder in any of the Company's registrations against certain losses and
liabilities, including liabilities under the Securities Act.
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UNDERWRITING
Pursuant to the Underwriting Agreement and subject to the terms and
conditions thereof, the Underwriters named below, acting through J.C. Bradford &
Co., Wheat, First Securities, Inc. and Advest, Inc., as representatives of the
several Underwriters (the "Representatives"), have agreed, severally, to
purchase from the Company and the Selling Shareholders the number of shares of
Common Stock set forth below opposite their respective names.
<TABLE>
<CAPTION>
NUMBER
OF
NAME OF UNDERWRITER SHARES
- ------------------- -------
<S> <C>
J.C. Bradford & Co..............................................................................
Wheat, First Securities, Inc....................................................................
Advest, Inc.....................................................................................
---------
Total....................................................................................... 1,520,000
=========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all shares of Common
Stock offered hereby if any of such shares are purchased.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose initially to offer the shares of
Common Stock to the public at the public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other dealers.
After the public offering, the public offering price and such concessions may be
changed. The Underwriters have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
The offering of the shares of Common Stock is made for delivery when, as
and if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any offer for the purchase of shares.
The Company has granted the Underwriters an option, exercisable not later
than 30 days from the date of this Prospectus, to purchase up to an aggregate of
additional 228,000 shares of Common Stock to cover over-allotments, if any. To
the extent the Underwriters exercise the option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
table above bears to the total number of shares in such table, and the Company
will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the shares of Common Stock
offered hereby. If purchased, the Underwriters will sell these additional shares
on the same terms as those on which the 1,520,000 shares are being offered.
The Company's executive officers, directors and certain of its
shareholders, optionholders and warrantholders beneficially owning an aggregate
of approximately __________ shares have agreed with the Underwriters not to
offer, sell, loan, pledge or otherwise dispose of or grant any options or other
rights with respect to, any shares of Common Stock or any securities that are
convertible into or exchangeable or exercisable for Common Stock owned by them
prior to the expiration of a period of 180 days following the date
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of this Prospectus, without the prior written consent of J.C. Bradford & Co.,
except with respect to the grant and exercise of stock options granted or to be
granted under the Company's stock option plans.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters and controlling persons, if any,
against certain civil liabilities, including liabilities under the Securities
Act, or will contribute to payments that the Underwriters or any such
controlling persons may be required to make in respect thereof.
In connection with this Offering, certain Underwriters and selling group
members (if any) who in the past have acted as market makers in the Common Stock
may engage in passive market making activities in the Common Stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M under the Exchange
Act. Underwriters and other participants in the distribution of the Common Stock
generally are prohibited during a specified time period (the "qualifying
period"), determined in light of the timing of the pricing of the offering, from
bidding for or purchasing the Common Stock or a related security except to the
extent permitted under the applicable rules of Regulation M. Rule 103 allows,
among other things, an Underwriter or member of the selling group (if any) for
the Common Stock to effect "passive market making" transactions on the Nasdaq
National Market in the Common Stock during the qualifying period at a price that
does not exceed the highest independent bid for that security at the time of the
transaction. Such a passive market maker must not display a bid for the subject
security at a price in excess of the highest independent bid, and generally must
lower its bid if all independent bids are lowered. Moreover, the passive market
maker's net purchases of such security on each day of the qualifying period
shall not exceed 30% of its average daily trading volume during a reference
period preceding the distribution.
In connection with the Offering, the Underwriters and other persons
participating in the offering may engage in transactions that stabilize,
maintain or otherwise affect the price of Common Stock. Specifically, the
Underwriters may over-allot in connection with the Offering, creating a short
position in Common Stock for their own account. To cover over-allotments or to
stabilize the price of Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. The Underwriters may also impose a
penalty bid whereby they may reclaim selling concessions allowed to an
underwriter or a dealer for distributing Common Stock in the Offering, if the
Underwriters repurchase previously distributed Common Stock in transactions to
cover their short position, in stabilization transactions or otherwise. Finally,
the Underwriters may bid for, and purchase, shares of Common Stock in market
making transactions. These activities may stabilize or maintain the market price
of Common Stock above market levels that may otherwise prevail. The Underwriters
are not required to engage in these activities and may end any of these
activities at any time.
From time to time, in the ordinary course of business, J.C. Bradford &
Co. has provided and may in the future provide financial advisory or other
services to the Company. To date, J.C. Bradford & Co. has not received
additional compensation from the Company for such services. J.C. Bradford &
Co. will receive a fee of $50,000 upon consummation of the Offering for
financial advisory services rendered in connection with the Offering.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Nelson Mullins Riley & Scarborough, L.L.P., Atlanta, Georgia.
Glenn W. Sturm, a partner of Nelson Mullins Riley & Scarborough, L.L.P.,
beneficially owns 194,232 shares of Common Stock and serves as Secretary and a
director of the Company. Certain legal matters in connection with the Offering
will be passed upon for the Underwriters by Alston & Bird LLP, Atlanta, Georgia.
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EXPERTS
The consolidated financial statements of the Company at December 31, 1995
and 1996, and for the year ended January 31, 1995, the eleven months ended
December 31, 1995 and the year ended December 31, 1996 appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, is required to file reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the Public Reference Section of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's regional offices at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of the reports, proxy statements and
other information can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549, upon payment of prescribed rates or in
certain cases by accessing the Commission's World Wide Web site at
http://www.sec.gov. The Common Stock of the Company is traded on the Nasdaq
National Market under the symbol PHXX, and such reports, proxy statements and
other information concerning the Company also can be inspected at the offices of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the shares of Common Stock offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information set forth in the Registration Statement. For
further information about the Company and the Common Stock, reference is made to
the Registration Statement and to the financial statements, exhibits and
schedules filed therewith. The statements contained in this Prospectus about the
contents of any contract or other document referred to are summaries, and in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. Copies of each such document may be
obtained from the Commission at its principal office in Washington, D.C. upon
payment of the charges prescribed by the Commission or, in the case of certain
such documents, by accessing the Commission's World Wide Web site at
http://www.sec.gov.
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PHOENIX INTERNATIONAL LTD., INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Condensed Consolidated Balance Sheet as of March 31, 1997................................. F-2
Unaudited Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1996 and 1997........................................................ F-3
Unaudited Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1997........................................................ F-4
Notes to Unaudited Condensed Consolidated Financial Statements...................................... F-5
Report of Independent Auditors...................................................................... F-7
Consolidated Balance Sheets as of December 31, 1995 and 1996........................................ F-8
Consolidated Statements of Operations for the Year Ended
January 31, 1995, the Eleven Months Ended December 31, 1995,
and the Year Ended December 31, 1996 ............................................................ F-9
Consolidated Statements of Shareholders' Equity (Deficit) for
the Year Ended January 31, 1995, the Eleven Months Ended
December 31, 1995, and the Year Ended December 31, 1996.......................................... F-10
Consolidated Statements of Cash Flows for the Year Ended
January 31, 1995, the Eleven Months Ended December 31, 1995,
and the Year Ended December 31, 1996............................................................. F-11
Notes to Consolidated Financial Statements.......................................................... F-12
</TABLE>
F-1
<PAGE> 70
PHOENIX INTERNATIONAL LTD., INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 4,770,815
Accounts receivable, net of allowance for doubtful accounts
of $50,000 ................................................... 1,667,900
Unbilled accounts receivable ................................... 1,577,347
Prepaid expenses and other current assets ...................... 754,907
------------
Total current assets .................................... 8,770,969
Property and equipment:
Computer equipment and purchased software ...................... 1,429,312
Furniture, office equipment and leasehold improvements ......... 890,656
------------
2,319,968
Accumulated depreciation and amortization ...................... (407,165)
------------
1,912,803
Capitalized software costs, net of accumulated
amortization of $571,351 ....................................... 2,534,212
Other assets ..................................................... 546,400
------------
Total assets ............................................ $ 13,764,384
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 449,755
Accrued expenses ............................................. 510,243
Note payable ................................................. 250,000
Capital lease, current portion ............................... 121,633
Deferred revenue ............................................. 899,453
------------
Total current liabilities ............................... 2,231,084
Deferred revenue under economic development grant ................ 190,000
Capital lease, long term portion ................................. 595,219
------------
Total long term liabilities ............................. 785,219
Shareholders' equity:
Common Stock, $0.01 par value:
20,000,000 shares authorized, 3,864,374 issued
and outstanding .............................................. 38,644
Additional paid-in capital ................................... 10,850,528
Stock subscription receivables ............................... (83,443)
Accumulated deficit .......................................... (57,648)
------------
Total shareholders' equity .............................. 10,748,081
------------
Total liabilities and shareholders' equity .............. $ 13,764,384
============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
F-2
<PAGE> 71
PHOENIX INTERNATIONAL LTD., INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1997
---------- ----------
<S> <C> <C>
Revenues:
License fees and other ......................... $1,127,607 $2,268,406
Implementation, customer and software
support and other service fees ............... 653,723 1,445,318
---------- ----------
Total revenues ................................... 1,781,330 3,713,724
Expenses:
Costs of license fees and other ................ 131,029 219,737
Costs of implementation customer and
software support and other service fees ...... 457,196 831,633
Sales and marketing ............................ 268,818 560,997
General and administrative ..................... 358,260 436,607
Product development ............................ 299,067 553,140
---------- ----------
Total expenses ................................... 1,514,370 2,602,114
Other income (expense):
Interest income ................................ 28,647 74,788
Interest expense ............................... (1,081) (5,389)
---------- ----------
Income before income taxes ....................... 294,526 1,181,009
Income tax expense ............................... 153,000 167,713
---------- ----------
Net income ....................................... $ 141,526 $1,013,296
========== ==========
Net income per share ............................. $ 0.04 $ 0.24
========== ==========
Weighted average shares outstanding .............. 3,298,444 4,286,640
========== ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
F-3
<PAGE> 72
PHOENIX INTERNATIONAL LTD., INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ........................................................ $ 141,526 $1,013,296
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization ............................. 108,360 216,891
Provision for doubtful accounts ........................... -- 35,000
Deferred taxes ............................................ 153,000 --
Changes in operating assets and liabilities:
Accounts receivable ................................... (138,303) (767,164)
Unbilled accounts receivable .......................... (38,561) (389,065)
Interest receivable, related party .................... (26,008) --
Prepaid expenses and other current assets ............. (25,569) (206,528)
Accounts payable ...................................... 124,855 65,062
Accrued expenses ...................................... 76,438 (411,797)
Deferred revenue ...................................... (125,467) (102,964)
---------- ----------
Net cash provided by (used in) operating activities ............... 250,271 (547,269)
INVESTING ACTIVITIES
Purchases of property and equipment ............................... (61,943) (384,978)
Sale of short term investments .................................... -- 2,730,825
Changes in other assets ........................................... -- (266,400)
Capitalized software costs ........................................ (313,278) (673,363)
---------- ----------
Net cash provided by (used in) investing activities ............... (375,221) 1,406,084
FINANCING ACTIVITIES
Payments of capital lease obligation .............................. -- (9,657)
Net proceeds from issuance of common stock ........................ 50,000 123,528
Cash payments for stock subscription receivable ................... -- 27,240
---------- ----------
Net cash provided by financing activities ......................... 50,000 141,111
Net increase (decrease) in cash and cash equivalents .............. (74,950) 999,926
Cash and cash equivalents at beginning of the period .............. 425,931 3,770,889
---------- ----------
Cash and cash equivalents at end of the period .................... $ 350,981 $4,770,815
========== ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
F-4
<PAGE> 73
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include all adjustments, consisting only of normal recurring accruals, which
the Company considers necessary for a fair presentation of the financial
position and the results of operations for the interim periods presented. The
condensed consolidated financial statements have been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures usually found in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and "Selected Financial and Operating Data" for the year ended
December 31, 1996.
2. NET INCOME PER SHARE
Net income per share is based on the weighted average number of common
shares outstanding and dilutive common stock equivalents outstanding, using the
treasury stock method, during the periods presented. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin ("SAB") No. 83, common stock
issued for consideration below the public offering price and stock options
issued with exercise prices below the public offering price during the
twelve-month period preceding the initial filing and through the effective date
of the Registration Statement have been included in the calculation of weighted
average shares outstanding, using the treasury stock method, as if they were
outstanding for all periods presented through June 30, 1996. Also see Note 5
"New Accounting Pronouncements" below.
3. CERTAIN TRANSACTIONS
On March 5, 1997, the Company entered into a stock purchase agreement
with Dyad Corporation ("Dyad") whereby the Company purchased a minimal equity
interest in Dyad. Dyad is developing automated loan and mortgage and financial
services delivery products. Pursuant to the Company's agreement with Dyad, the
Company has an option for one year to increase its equity interest in Dyad to
no more than 10% of the outstanding shares of Dyad. In addition, the Company
and Dyad entered into a license and distribution agreement (the "License
Agreement") whereby the Company obtained certain rights to market, sell and
license Dyad's products. The Company paid Dyad license fees upon execution of
the License Agreement and is obligated to pay additional license fees in May
1997. License fees are classified as prepaid royalties against future sales of
Dyad products. Two directors and shareholders of the Company are directors of
Dyad and one is also a shareholder of Dyad.
4. CAPITALIZED SOFTWARE COSTS
The Company capitalizes certain software development costs in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed." These costs include costs incurred internally to develop and enhance
computer software products after technological feasibility has been established
and include certain purchased software costs. Capitalized software costs
include purchased software costs of $311,000 at March 31, 1997.
F-5
<PAGE> 74
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
5. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997 the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings per Share", which will change
the current method of computing earnings per share. The new standard requires
presentation of "basic earnings per share" and "diluted earnings per share"
amounts, as defined therein. "Basic earnings per share" is computed by dividing
net income by weighted average shares outstanding and does not include
potentially dilutive securities. "Diluted earnings per share" is computed by
dividing net income by weighted average shares outstanding, including
potentially dilutive securities using the treasury stock method based on the
average stock price for the period. SFAS 128 will be effective for the
Company's quarter and year ending December 31, 1997, and, upon effectiveness,
all prior-period earnings per share data presented shall be restated to conform
with the provisions of the new pronouncement. Application of the pronouncement
earlier than the Company's quarter ending December 31, 1997 is not permitted.
Pro forma basic and diluted earnings per share for the quarters ended March 31,
1996 and 1997 calculated under the provisions of SFAS 128 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1996 1997
---- ----
<S> <C> <C>
Basic earnings per share............................ $.05 $.26
Diluted earnings per share.......................... $.04 $.24
</TABLE>
6. SUBSEQUENT EVENTS
On May 15, 1997, the Company acquired Hampton Resources Limited, a New Zealand
corporation, in exchange for 77,400 shares of Phoenix common stock. The Company
intends to account for this acquisition under the pooling-of-interests method
and not restate its financial statements for this insignificant transaction.
On May 16, 1997, the shareholders of the Company approved an amendment to the
Company's Articles of Incorporation increasing the number of shares of common
stock authorized for issuance to 50,000,000 and an amendment to the Company's
1995 Stock Option Plan increasing the number of shares reserved for issuance
thereunder from 250,000 to 500,000.
F-6
<PAGE> 75
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Phoenix International Ltd., Inc.
We have audited the accompanying consolidated balance sheets of Phoenix
International Ltd., Inc. as of December 31, 1995 and 1996 and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for the year ended January 31, 1995, the eleven months ended December 31,
1995 and the year ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Phoenix International Ltd., Inc. at December 31, 1995 and 1996, and the
consolidated results of its operations and its cash flows for the year ended
January 31, 1995, the eleven months ended December 31, 1995 and the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Atlanta, Georgia
January 31, 1997
F-7
<PAGE> 76
PHOENIX INTERNATIONAL LTD., INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 425,931 $ 3,770,889
Investments ................................................. -- 2,730,825
Accounts receivable, net of allowance for doubtful
accounts of $10,000 and $15,000 at December 31,
1995 and 1996, respectively ............................... 328,693 935,736
Unbilled accounts receivable ................................ 108,320 1,188,282
Interest receivable, related party .......................... 105,001 --
Prepaid expenses and other current assets ................... 174,339 548,379
Deferred tax asset .......................................... 390,769 --
----------- ------------
Total current assets .......................................... 1,533,053 9,174,111
Property and equipment:
Computer equipment and purchased software ................... 522,571 1,088,509
Furniture, office equipment and leasehold improvements ...... 245,762 252,047
----------- ------------
768,333 1,340,556
Accumulated depreciation and amortization ................... (191,826) (447,128)
----------- ------------
576,507 893,428
Capitalized software development costs, net of
accumulated amortization of $107,647 and $446,572
at December 31, 1995 and 1996, respectively ................. 1,118,729 1,985,628
Other assets .................................................. -- 30,000
----------- ------------
Total assets .................................................. $ 3,228,289 $ 12,083,167
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................................ $ 264,274 $ 384,693
Accrued expenses ............................................ 279,521 922,040
Note payable, related party ................................. 35,203 --
Payable to vendor ........................................... 140,000 --
Deferred revenue ............................................ 3,077,393 1,002,417
----------- ------------
Total current liabilities ..................................... 3,796,391 2,309,150
Deferred revenue under economic development grant ............. -- 190,000
Shareholders' equity (deficit):
Preferred stock, $1.00 par value:
10,000,000 shares authorized, none issued and
outstanding .............................................. -- --
Common stock, $0.01 par value:
20,000,000 shares authorized, 3,838,910 issued and
outstanding at December 31, 1996 ......................... -- 38,389
Class A through E common stock, par values $0.0043
to $4.30:
12,750,000 total shares authorized, 2,992,330 shares
issued and outstanding at December 31, 1995 .............. 1,671,190 --
Additional paid-in capital ................................. 2,368,470 10,727,255
Stock subscription receivables ............................. (1,318,524) (110,683)
Accumulated deficit ........................................ (3,289,238) (1,070,944)
----------- ------------
Total shareholders' equity (deficit) .......................... (568,102) 9,584,017
----------- ------------
Total liabilities and shareholders' equity (deficit) .......... $ 3,228,289 $ 12,083,167
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 77
PHOENIX INTERNATIONAL LTD., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ELEVEN
YEAR ENDED MONTHS ENDED YEAR ENDED
JANUARY 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
License fees and other ........................... $ 57,776 $ 3,467,547 $ 6,827,699
Implementation, customer and software
support and other service fees .................. 369,711 1,556,164 3,577,848
----------- ----------- ------------
Total revenues ..................................... 427,487 5,023,711 10,405,547
Expenses:
Costs of license fees and other .................. -- 375,783 674,037
Costs of implementation, customer
and software support and other service fees ..... 637,427 1,246,886 2,272,710
Sales and marketing .............................. 358,948 983,290 1,377,353
General and administrative ....................... 981,930 1,058,190 1,822,871
Product development .............................. 1,362,780 654,797 1,760,691
----------- ----------- ------------
Total expenses ..................................... 3,341,085 4,318,946 7,907,662
Other income (expense):
Interest income .................................. 26,610 121,815 223,548
Interest expense ................................. (19,366) (12,060) (19,231)
Other income (expense) ........................... 75,989 (4,252) (2,242)
----------- ----------- ------------
Income (loss) before income taxes .................. (2,830,365) 810,268 2,699,960
Income tax expense ................................. -- 255,999 481,666
----------- ----------- ------------
Net income (loss) .................................. $(2,830,365) $ 554,269 $ 2,218,294
=========== =========== ============
Net income (loss) per share ........................ $ (1.11) $ 0.17 $ 0.59
=========== =========== ============
Weighted average shares outstanding ................ 2,560,151 3,235,532 3,760,680
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 78
PHOENIX INTERNATIONAL LTD., INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
ALL CLASSES ADDITIONAL STOCK TOTAL
------------------------- PAID-IN SUBSCRIPTION ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL RECEIVABLES DEFICIT (DEFICIT) EQUITY
---------- ----------- ------------ ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1994 ......... 2,137,251 $ 526,000 $ 285,686 $ (25,000) $(1,013,142) $ (226,456)
Issuance of 139,386 shares of
Class C common stock .......... 139,386 300,000 -- -- -- 300,000
Issuance of 605,046 shares of
Class E common stock, net
of issuance costs of $6,000 ... 605,046 651,117 1,478,566 (1,350,524) -- 779,159
Payment on stock
subscription receivable ....... -- -- -- 25,000 -- 25,000
Issuance of stock options as
compensation for services ...... -- -- 333,250 -- -- 333,250
Net loss ........................ -- -- -- -- (2,830,365) (2,830,365)
---------- ----------- ------------ ----------- ----------- -----------
Balance, January 31, 1995 ......... 2,881,683 1,477,117 2,097,502 (1,350,524) (3,843,507) (1,619,412)
Issuance of 23,231 shares of
Class D common stock ........... 23,231 100,000 -- -- -- 100,000
Issuance of 87,416 shares of
Class E common stock .......... 87,416 94,073 270,968 -- -- 365,041
Payment on stock
subscription receivable ........ -- -- -- 32,000 -- 32,000
Net income ...................... -- -- -- -- 554,269 554,269
---------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1995 ........ 2,992,330 1,671,190 2,368,470 (1,318,524) (3,289,238) (568,102)
Issuance of shares of Class E
common stock from exercise
of stock options ............... 170,269 183,230 137,940 (118,280) -- 202,890
Conversion of Class A, B,C,
D and E common stock into
common stock, $0.01 par ........ --
value .......................... (1,822,794) 1,822,794 -- -- --
Payment of stock subscription
receivable ..................... -- -- -- 1,318,524 -- 1,318,524
Payment on employee stock
subscription receivable ........ -- -- -- 7,597 -- 7,597
Common stock issued in
connection with initial public
offering, net of expenses ...... 670,000 6,700 6,367,195 -- -- 6,373,895
Issuance of common stock
from exercise of stock
options ........................ 7,473 75 32,094 -- -- 32,169
Repurchase and retirement of
common stock ................... (1,162) (12) (1,238) (1,250)
Net income ...................... -- -- -- -- 2,218,294 2,218,294
---------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1996 ........ 3,838,910 $ 38,389 $ 10,727,255 $ (110,683) $(1,070,944) $ 9,584,017
========== =========== ============ =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 79
PHOENIX INTERNATIONAL LTD., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN
YEAR ENDED MONTHS ENDED YEAR ENDED
JANUARY 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ............................ $(2,830,365) $ 554,269 $ 2,218,294
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization .............. 64,534 228,544 594,227
Satisfaction of payable to vendor .......... -- -- (100,000)
Stock options issued for compensation ...... 333,250 -- --
Provision for doubtful accounts ............ -- 10,000 5,000
Deferred taxes ............................. (200,444) (190,325) 390,769
Changes in operating assets and liabilities:
Accounts receivable ....................... (260,530) (78,163) (612,043)
Unbilled accounts receivable .............. (6,597) (99,908) (1,079,962)
Interest receivable, related party ........ (9,444) (95,557) 105,001
Prepaid expenses and other current assets . (81,572) (79,350) (374,040)
Accounts payable .......................... 45,504 127,613 120,419
Accrued expenses .......................... 119,552 56,732 642,519
Deferred revenue .......................... 2,351,833 576,123 (2,074,976)
----------- ----------- -----------
Net cash provided by (used in)
operating activities ........................ (474,279) 1,009,978 (164,792)
INVESTING ACTIVITIES
Purchases of investments ..................... -- -- (2,730,825)
Purchases of property and equipment .......... (342,047) (253,003) (572,223)
Capitalized software development costs ....... (93,001) (1,133,375) (1,205,824)
Increase in other assets ..................... -- -- (30,000)
----------- ----------- -----------
Net cash used in investing activities ........ (435,048) (1,386,378) (4,538,872)
FINANCING ACTIVITIES
Proceeds from short-term debt ................ 291,254 -- 247,031
Payment on short-term debt ................... -- (310,000) (322,234)
Economic development grant ................... -- -- 190,000
Net proceeds from issuance of common stock ... 1,079,159 465,041 6,607,704
Cash payments for stock subscription
receivables ................................ 25,000 32,000 1,326,121
----------- ----------- -----------
Net cash provided by financing activities .... 1,395,413 187,041 8,048,622
Net increase (decrease) in cash and
cash equivalents ............................ 486,086 (189,359) 3,344,958
Cash and cash equivalents at
beginning of period ......................... 129,204 615,290 425,931
----------- ----------- -----------
Cash and cash equivalents at end of period ... $ 615,290 $ 425,931 $ 3,770,889
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for:
Interest .................................... $ 14,942 $ 12,060 $ 56,406
=========== =========== ===========
Income taxes ................................ $ 200,444 $ 313,984 $ 481,666
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES
Equipment provided by vendor ................. $ 78,644 $ -- $ --
=========== =========== ===========
Stock subscription receivable from sale of
Class E stock ............................... $ 1,350,524 $ -- $ 118,280
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 80
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Phoenix International Ltd., Inc. (the "Company"), formed on January 11,
1993, is a leading provider of highly adaptable, enterprise-wide client/server
application software to the financial services industry. The Company's primary
market focus in the United States is on middle market financial institutions
and internationally is on those retail-oriented institutions located within
Africa, Asia-Pacific, Europe, Latin America/Caribbean and the Middle East that
have up to 300 branches and/or one million accounts.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
FISCAL YEAR
The financial statements for 1996 include the twelve months of
operations ended December 31, 1996. During 1995 the Company changed its fiscal
year end from January 31 to December 31. Fiscal 1995 and fiscal 1994 correspond
with the eleven months ended December 31, 1995 and the twelve months ended
January 31, 1995, respectively.
Comparative unaudited results of operations for the eleven months ended
December 31, 1994 are as follows:
<TABLE>
<S> <C>
License fees and other ............................................................................ $ 57,475
Implementation, customer and software support and other service fees .............................. 363,377
-----------
Total revenues .................................................................................. 420,852
Costs of license fees and other ................................................................... --
Costs of implementation, customer and software support and other service fees ..................... 569,651
Sales and marketing ............................................................................... 341,915
General and administrative ........................................................................ 881,471
Product development ............................................................................... 1,325,506
-----------
Total expenses .................................................................................. 3,118,543
Interest income ................................................................................... 17,266
Interest expense .................................................................................. (17,096)
-----------
Net loss before income taxes ...................................................................... (2,697,521)
Income tax expense ................................................................................ --
-----------
Net loss ........................................................................................ $(2,697,521)
===========
</TABLE>
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results inevitably will differ from those estimates,
and such differences may be material to the financial statements.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number of
common shares outstanding and dilutive common stock equivalents outstanding
during the periods presented. Pursuant to Securities and Exchange Commission
SAB 83, "cheap stock", or common stock issued for consideration below the
public offering price and stock options issued with exercise prices below the
public offering price during the twelve-month period preceding the initial
filing of the Registration Statement, has been included in the calculation of
F-12
<PAGE> 81
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
weighted average shares outstanding, using the treasury stock method, as if it
had been outstanding for all periods presented through June 30, 1996.
Historical net income (loss) per share calculated in accordance with
Accounting Principles Board Opinion No. 15 (excluding the impact of "cheap
stock") is as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL
1994 1995 1996
---------------- ---------------- ------------------
<S> <C> <C> <C>
Net income (loss) per share.................. $ (1.21) $ 0.18 $ 0.60
Weighted average shares outstanding.......... 2,330,391 3,029,251 3,715,171
</TABLE>
REVENUE RECOGNITION
Revenues are recorded in accordance with AICPA Statement of Position
91-1, "Software Revenue Recognition." Revenue is derived principally from the
licensing of internally produced software and implementation and support
services. When the Company receives payment in advance of delivering the
products or providing services, these payments are deferred until earned.
Software license revenue is recognized upon delivery and when no significant
obligations remain as to the software system requirements. Implementation
service revenue is recognized as earned over the service period. Support
services are prebilled in advance, and revenue is recognized over the related
period.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash and cash
equivalents as of December 31, 1996 include $190,000 received from a government
municipality under a job growth incentive economic development agreement. The
amount received under this agreement secures a letter of credit. Revenue has
been deferred until the Company completes its obligations under this agreement.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets (generally three to five years for
computer equipment and purchased software and four to seven years for furniture
and office equipment). Leasehold improvements are amortized over the related
lease term.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain software development costs in accordance
with SFAS No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed." Costs incurred internally to develop a computer
software product are charged to product development expense when incurred until
technological feasibility has been established for the product. Thereafter, all
software production costs are capitalized and recorded at the lower of
unamortized cost or net realizable value. Capitalization ceases upon general
release to customers. After general release, capitalized costs are amortized
using the greater of the amount computed using a) the ratio that current gross
revenues for a product bear to the total of current and anticipated revenues for
that product or b) the straight-line method over the estimated useful life of
the related product (currently five years). Amortization for fiscal 1995 and
1996 was $107,647 and $338,925, respectively, and is included in costs of
license fees and other.
Technological feasibility of the Phoenix System was established in
December 1994. The Phoenix System was available for general release in June
1995.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. The Company incurred
$12,625, $116,196, and $90,432, and in advertising costs during fiscal 1994,
fiscal 1995 and 1996, respectively.
F-13
<PAGE> 82
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK BASED COMPENSATION
The Company grants stock options generally for a fixed number of shares
to certain employees with an exercise price equal to or greater than the fair
value of the shares at the date of grant. The Company accounts for stock option
grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), and, accordingly, recognizes no compensation expense for
stock option grants for which the terms are fixed. Compensation expense is
recognized for increases in the estimated fair value of common stock for stock
options with variable terms. In October 1995, the FASB issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which provides an alternative to APB 25 in accounting for
stock-based compensation issued to employees. However, the Company plans to
continue to account for stock-based compensation in accordance with APB 25.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less that the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
adoption of SFAS 121 in 1996 was not material to the financial statements.
2. FINANCIAL INSTRUMENTS
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash and cash
equivalents, investments, and trade accounts receivable.
The Company's cash and cash equivalents at December 31, 1996 are
deposited principally in a single financial institution. Investment accounts
contain money market funds and short-term United States Treasury Bills.
Accounts receivable are unsecured and are due under stated terms, from a
small number of customers which are primarily in the banking business and
generally subject to regulatory oversight. Credit risk with respect to trade
accounts receivable is limited due to the license agreements generally
requiring substantial prepayments.
FAIR VALUE
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
Cash and Cash Equivalents
The carrying amount reported in the balance sheet approximates the fair
value of cash and cash equivalents.
Investments
Investments are classified as available-for-sale and are carried at
amounts approximating their fair value. As of December 31, 1996, investments
were comprised of short-term United States Treasury Bills with no unrealized
gains or losses.
Accounts Receivable And Accounts Payable
The carrying amounts reported in the balance sheet for accounts
receivable and accounts payable approximate their fair value.
F-14
<PAGE> 83
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Short-Term Debt
The carrying amount of the Company's borrowings approximate their fair
value.
3. SHORT-TERM OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
----------- ------------
<S> <C> <C>
Note Payable, related party - Note payable to a shareholder, collateralized by
certain office equipment, paid with accrued
interest in 1996 ............................................................... $ 35,203 $ --
Payable to vendor--Payable to vendor represents non-interest
bearing funds received from a major hardware manufacturer
Repayment of $40,000 was in cash and repayment of $100,000
was satisfied by completing certain product development
milestones ..................................................................... 140,000 --
</TABLE>
4. LEASE COMMITMENTS
The Company leases office space, equipment and furniture under
noncancellable operating leases. Total rent expense for all operating leases
was, $143,468, $181,868 and $320,526 in fiscal 1994, fiscal 1995, and 1996,
respectively. Future minimum lease payments under noncancellable operating
leases with terms of one year or more consisted of the following at December
31, 1996:
<TABLE>
<CAPTION>
Years ending December 31,
<S> <C>
1997.................................. $ 767,461
1998.................................. 980,210
1999.................................. 979,864
2000.................................. 992,800
2001.................................. 1,005,735
Thereafter............................ 5,555,796
-----------
$10,281,866
===========
</TABLE>
5. INITIAL PUBLIC OFFERING
On July 1, 1996, the Company's registration statement relating to its
initial public offering of 670,000 shares of common stock was declared
effective by the Securities and Exchange Commission. On July 8, 1996, the
Company completed the initial public offering, issued the common stock and
received net proceeds of approximately $6.4 million (after deducting
underwriting discounts of $0.6 million and offering costs of $1.1 million). On
July 8, 1996, the Company received approximately $1,319,000 plus accrued
interest of approximately $159,000 for payment of stock subscriptions
receivable due from the CEO out of proceeds of shares sold by the CEO in the
initial public offering.
6. CAPITALIZATION
On May 6, 1996, the Board of Directors approved a 2.3231-for-one share
split of the Company's capital stock (classes A through E). In addition, the
Company amended its articles of incorporation effective May 8, 1996 to reduce
the par value of each of the Company's capital stock (classes A through E) in
accordance with the stock split and to increase the number of authorized shares
of Class A common stock to 1,500,000 shares. All share and per share amounts
related to common stock have been retroactively restated to reflect the stock
split for all periods presented.
F-15
<PAGE> 84
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 8, 1996, the Company filed amended and restated articles of
incorporation authorizing 20,000,000 shares of common stock, par value $0.01
per share, and all outstanding shares of the Company's capital stock (classes A
through E common stock) converted into common stock, on a share for share basis
as approved on June 12, 1996 by the shareholders of the Company. This
recapitalization did not change total shareholders' equity (deficit). Prior to
the conversion the Company had the following authorized capital:
Class A common stock, voting $0.0043 par value, 1,500,000 shares
authorized
Class B common stock, voting $0.43 par value, 10,000,000
shares authorized
Class C common stock, voting $2.15 par value, 200,000
shares authorized
Class D common stock, non-voting $4.30 par value,
50,000 shares authorized
Class E common stock, non-voting, $1.08 par
value, 1,000,000 shares authorized at December 31, 1995 and
1,500,000 shares authorized at May 6, 1996
Differences in voting rights and other preferences of classes A through E of
common stock expired upon the above conversion into a single class of common
stock.
The Board of Directors is authorized to issue up to 10,000,000 shares of
preferred stock, par value $1.00 per share. The terms of preferred stock have
not been designated and no shares have been issued.
7. STOCK OPTIONS AND WARRANTS
The Company has various stock option plans which authorize the Company's
Board of Directors to grant employees, officers, and directors qualified and
unqualified options to purchase shares of the Company's common stock. Exercise
prices of stock options are determined by the Board of Directors and have been
the estimated fair market value at the date of the grant for options granted to
employees and 110% of estimated fair market value for options granted to the
Company's chief executive officer.
Stock option plans effective as of December 31, 1996 are the March 1995
Plan, the October 1995 Plan, and the 1996 Director Plan. Up to 520,000 shares
of the Company's common stock may be issued pursuant to options granted under
the March 1995 Plan; however, the Board does not intend to issue any additional
shares under the March 1995 Plan. The October 1995 Plan authorizes the grant of
options up to 500,000 shares of the Company's common stock, and the 1996
Director Plan authorizes the grant of options up to 99,000 shares of common
stock.
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options rather than the alternative fair
value accounting provided for under FASB Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for fiscal 1995 and fiscal 1996, respectively; risk-free interest
rates of 6.06% and 6.33%; no dividend yield, weighted-average volatility
factors of the expected market place of the Company's common stock of 0.00 and
0.13 and a weighted-average expected life of the option of 2.77 and 3.50 years.
The volatility factors used are 0.00 for options issued prior to initial public
offering of the Company's stock and 0.56 for options granted after the
Company's initial public offering.
F-16
<PAGE> 85
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
FISCAL
1995 1996
------------ -------------
<S> <C> <C>
Pro forma net income.................. $ 430,644 $ 1,815,927
Pro forma net income per share,
primary............................. $ 0.13 $ 0.48
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent
to December 31, 1994, its pro forma effect will not be fully reflected until
1998.
A summary of the Company's option activity and related information
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE EXERCISE
OPTIONS PRICE
--------- ----------------
<S> <C> <C>
Outstanding at February 1, 1994 .. -- --
Granted ........................ 718,999 $ 1.47
Exercised ...................... (152,992) $ 1.44
Canceled ....................... (360,078) $ 1.08
--------
Outstanding at January 31, 1995 .. 205,929 $ 2.17
Granted ........................ 495,865 $ 4.37
Exercised ...................... (86,835) $ 4.18
Canceled ....................... (8,597) $ 2.91
--------
Outstanding at December 31, 1995. 606,362 $ 3.68
Granted ........................ 258,931 $11.24
Exercised ...................... (177,739) $ 1.99
Canceled ....................... (30,696) $ 4.47
--------
Outstanding at December 31, 1996.. 656,858 $ 7.08
========
</TABLE>
The weighted average fair value of options granted during fiscal 1995
and the year ended December 31, 1996 was $4.31 and $11.22, respectively.
Exercise prices for options outstanding as of December 31, 1996 range
from $4.30 to $17.50 per share.
The following table as of December 31, 1996 sets forth by group of
exercise price ranges, the number of shares, weighted average exercise price,
and weighted average remaining contractual life of options outstanding, and the
number and weighted average exercise price of options currently exercisable.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------- ------------------------------
RANGE OF WEIGHTED NUMBER WEIGHTED
EXERCISE NUMBER OF WEIGHTED AVERAGE AVERAGE CONTRACTUAL OF AVERAGE
PRICES SHARES EXERCISE PRICE LIFE (YEARS) SHARES EXERCISE PRICE
- --------------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.30 - $ 6.46 450,733 $ 4.63 7.76 236,559 $ 4.48
$ 12.00 - $17.50 206,125 $ 12.43 8.76 56,125 $ 12.52
- --------------------------------------------------------------------------------- ------------------------------
$ 4.30 - $17.50 656,858 $ 7.08 8.08 292,684 $ 6.02
================================================================================= ==============================
</TABLE>
F-17
<PAGE> 86
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company issued warrants to purchase up to 19,000 shares of common
stock at an exercise price of $14.40 per share to the underwriter of its
initial public offering pursuant to the underwriting agreement. The warrants
are exercisable from July 1997 to July 2001.
At December 31, 1996, the Company had 5,127 and 69,000 shares available
for future grant under the October 1995 Plan and 1996 Director Plan,
respectively. The Company has reserved 749,985 shares of common stock for
issuance upon exercise of options and warrants to purchase common stock.
8. RELATED PARTY TRANSACTIONS
The CEO of the Company had outstanding promissory notes (see Note 3) due
him of $35,203 and accrued interest of $8,110 at December 31, 1995. The
$1,318,524 stock subscription receivable at December 31, 1995 was due from the
Company's CEO related to the issuance of 137,481 shares of Class E non-voting
common stock. Interest of $105,001 was receivable on this stock subscription at
December 31, 1995. In July 1996 following the Company's initial public offering
the Company repaid the promissory note and accrued interest payable to the CEO
and the Company received payment of stock subscription receivables and accrued
interest out of proceeds of shares sold by the CEO in the initial public
offering.
To encourage certain bank shareholders' initial investment in the
Company, the Company offered a discount, equal to the shareholders' initial
investment, to be applied toward the license fee if and when the shareholders
licensed the Phoenix System for use in their normal course of operations.
Discounts offered since inception total $855,000. Discounts of $300,000 were
used in fiscal 1995 and discounts of $450,000 were used in 1996, leaving a
balance of $105,000 of available discounts at December 31, 1996. License fee
revenue of $326,700 and $744,900, net of discounts used, was recorded in fiscal
1995 and 1996, respectively, under license agreements with shareholder banks.
Implementation, support revenues, and other services of $116,300, $254,200 and
$1,060,000 recorded in fiscal 1994, fiscal 1995 and 1996, respectively, were
from shareholder banks.
9. INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL
1994 1995 1996
---------- ---------- ---------
<S> <C> <C> <C>
Current foreign expense.................. $ 200,444 $ 446,324 $ 90,897
Deferred foreign expense (benefit)....... (200,444) (190,325) 390,769
---------- ---------- ---------
Total taxes.............................. $ - $ 255,999 $ 481,666
========== ========== =========
</TABLE>
F-18
<PAGE> 87
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
----------- -----------
<S> <C> <C>
Deferred income tax liabilities:
Tax over book depreciation .......................... $ (1,664) $ (52,958)
Capitalized software ................................ (435,186) (946,126)
----------- -----------
Total tax liabilities ............................. (436,850) (999,084)
Deferred income tax assets:
Amortization of capitalized software ................ -- 215,591
Deferred revenue .................................... 801,744 --
Foreign tax credit carryforwards .................... 514,428 737,664
Research and development credit carryforwards ....... 111,346 198,236
Net operating loss carryforwards .................... 1,058,461 2,224,720
Other ............................................... 4,772 32,540
----------- -----------
Total tax assets .................................. 2,490,751 3,408,751
Valuation allowance for deferred income tax assets .... (1,663,132) (2,409,667)
----------- -----------
Net deferred income tax assets ........................ $ 390,769 $ --
=========== ===========
</TABLE>
The net deferred income tax assets at December 31, 1995 represent
foreign withholding taxes paid upon remittance of cash by the Company's
customers but prior to recognition of revenue by the Company and therefore
relate to deferred revenue.
The reconciliation of income tax computed at the U.S. federal statutory
tax rates to income tax expense is:
<TABLE>
<CAPTION>
FISCAL FISCAL
1994 1995 1996
----------- ----------- ---------
<S> <C> <C> <C>
Tax at U.S. statutory rates ............ $ (962,324) $ 275,491 $ 944,986
Foreign withholding taxes .............. -- 255,999 90,897
State taxes ............................ (110,384) 31,600 105,298
Tax credits ............................ (263,402) (346,571) (310,127)
Non-deductible compensation expense .... 129,634 -- --
Restricted stock compensation .......... -- (1,078,362)
Other .................................. (22,060) 13,833 (17,561)
Change in valuation allowance .......... 1,228,536 25,647 746,535
----------- ----------- ----------
Total tax expense ..................... $ -- $ 255,999 $ 481,666
=========== =========== ==========
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards
of approximately $5,700,000 for federal income tax purposes that expire
approximately $1,000,000 in 2008, $900,000 in 2009, $1,100,000 in 2010, and
$2,700,000 in 2011. The tax benefit related to approximately $2,800,000 of the
net operating loss
F-19
<PAGE> 88
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
carryforwards will result in a credit to shareholders' equity when realized.
The Company also has research and development tax credit carryforwards of
approximately $198,000 that expire in years 2008 through 2011 and foreign tax
credit carryforwards of approximately $738,000 that expire in years 2000
through 2003. Due to uncertainties related to the Company's ability to generate
sufficient taxable income in the future to realize the benefit of net deferred
income tax assets related principally to these carryforward items, the Company
has recorded a valuation allowance against deferred tax assets based on
management's belief that it is more likely than not that the deferred tax
assets for which the valuation allowance has been recorded will not be
realized. The annual utilization of net operating loss carryforwards to offset
future taxable income may be limited due to changes in the ownership of the
Company.
10. EMPLOYEE BENEFITS
The Company maintains a 401(k) plan that covers substantially all
employees. The Company may, at its discretion, contribute by matching employee
deferrals. Defined contributions are limited to the maximum amount deductible
under the Internal Revenue Code. The Company did not make contributions to the
plan in fiscal 1994, fiscal 1995, or 1996. The Company has a profit sharing
plan covering substantially all employees under which the Company may make
discretionary contributions. Contributions to the profit sharing plan, as
determined by the Board of Directors, were $80,000 related to 1996. The Company
did not make contributions to the profit sharing plan in fiscal 1994 or fiscal
1995.
11. MAJOR CUSTOMERS AND EXPORT SALES
Sales to major customers, as a percentage of total revenues, are as
follows:
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1995 1996
---------------- ------------------ ---------
<S> <C> <C> <C>
Customer A........................................ - - 16%
Customer B........................................ - 19% 16%
Customer C........................................ - 43% -
Customer D........................................ 16% - -
Customer E........................................ 15% - -
</TABLE>
Export sales from the United States, as a percentage of total revenues
were 33% in fiscal 1994, of which 26% represents sales to Latin and South
America and 7% to the Pacific Rim. Export sales from the United States, as a
percentage of total revenues were 70% in fiscal 1995, of which 63% represents
sales to Latin and South America and 7% to the Pacific Rim, and 53% in 1996, of
which 42% represents sales to Latin and South America, 7% to the Pacific Rim
and 4% to Africa.
F-20
<PAGE> 89
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 (1) 1995 (2) 1995 1995
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
CALENDAR 1995 (1)
Revenues $ 90,745 $3,199,852 $ 788,767 $ 950,982
Gross profit (132,077) 2,747,471 311,759 405,365
Operating income (loss) (704,260) 2,055,039 (409,230) (476,385)
Net income (loss) (605,973) 1,826,465 (377,437) (445,322)
Net income (loss) per share (3) $ (0.20) $ 0.57 $ (0.12) $ (0.14)
Weighted average shares outstanding 3,076,813 3,231,943 3,146,234 3,262,362
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996 (4)
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
1996
Revenues $ 1,781,330 $2,101,707 $ 2,885,180 $ 3,637,330
Gross profit 1,193,105 1,454,133 2,093,132 2,718,430
Operating income 266,960 397,298 746,527 1,087,100
Net income 141,526 351,450 558,567 1,166,751
Net income per share (3) $ 0.04 $ 0.10 $ 0.14 $ 0.28
Weighted average shares outstanding 3,298,444 3,385,939 4,116,868 4,231,869
</TABLE>
(1) In 1995, Phoenix changed its fiscal year end from January 31 to December
31. However, the information above for the quarter ended March 31, 1995
consists of three months, including the month of January 1995.
(2) License fee and other revenue was $2.8 million for the quarter ended
June 30, 1995 in large part due to license fees of $2.1 million from a
single foreign customer (which includes approximately $205,000 in
foreign withholding taxes that are payable by that customer) and from
the recognition of revenue from the backlog of customers with whom
Phoenix had signed contracts while the Phoenix System was under
development.
(3) Due to the use of the treasury stock method in the calculation of
average shares outstanding, the sum of net income per share for the four
quarters of 1996 and calendar 1995 does not equal net income per share
for those respective years.
(4) License fees and other revenue was $2.6 million for the quarter ended
December 31, 1996 which included $1.55 million to a single reseller
under a distribution license agreement.
13. EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with its senior
executives. Each agreement commits the Company to various obligations if the
employee is terminated without cause or if there is a change in the control of
the Company. The major obligations are for salaries and bonus, healthcare
premiums, and the vesting of previously granted stock options.
F-21
<PAGE> 90
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE
SHARES OF COMMON STOCK OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................................................................................ 3
Recent Developments........................................................................................... 8
Risk Factors ................................................................................................. 9
Use of Proceeds............................................................................................... 17
Capitalization................................................................................................ 18
Price Range of Common Stock and Dividend Policy............................................................... 19
Selected Consolidated Financial and Operating Data............................................................ 20
Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 22
Business...................................................................................................... 29
Management.................................................................................................... 45
Certain Transactions.......................................................................................... 55
Principal and Selling Shareholders............................................................................ 57
Description of Capital Stock.................................................................................. 60
Shares Eligible for Future Sale............................................................................... 63
Underwriting.................................................................................................. 65
Legal Matters................................................................................................. 66
Experts....................................................................................................... 67
Additional Information........................................................................................ 67
Index to Consolidated Financial Statements.................................................................... F-1
</TABLE>
================================================================================
================================================================================
1,520,000 SHARES
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
J.C. Bradford & Co.
Wheat First Butcher Singer
Advest, Inc.
______________, 1997
================================================================================
<PAGE> 91
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting discounts and commissions) payable by the
Registrant in connection with the issuance and distribution of the securities
registered hereby. No portion of such expenses will be borne by the Selling
Shareholders.
<TABLE>
<S> <C>
Securities and Exchange Commission registration
fee ...................................................... $ 10,992
NASD filing fee ............................................ 4,128
Nasdaq National Market listing fee ......................... 17,500
Printing and engraving ..................................... 125,000
Accounting fees and expenses ............................... 135,000
Blue sky fees and expenses ................................. 5,000
Legal fees and expenses .................................... 650,000
Miscellaneous .............................................. 152,380
----------
Total ................................................... $1,100,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article 607.0850 of the Florida Business Corporation Act (the "Florida
Act") and Article 9 of the Company's Amended and Restated Bylaws (the "Bylaws")
permit the Company to indemnify a present or former director of the Company for
liabilities, including legal expenses, arising by reason of service in such
capacity if such person shall have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and in any criminal proceeding if such person had no reasonable cause
to believe his conduct was unlawful. However, no indemnification may be made
with respect to any matter as to which the actions of such director shall have
been adjudged to constitute: (i) a violation of criminal law, unless the
individual had reasonable cause to believe his conduct was lawful or had no
reason to believe his conduct was unlawful; (ii) a transaction from which the
individual derived an improper personal benefit; (iii) a circumstance under
which the liability provisions of Section 607.0834 of the Florida Act, which
relates to unlawful distribution of Company assets, are applicable; or (iv)
willful misconduct or conscious disregard of the best interests of the Company
in a proceeding by or in the right of the Company to procure a judgment in its
favor or in a proceeding by or in the right of a shareholder. Moreover, in the
case of actions brought by or in the right of the Company, indemnification may
be made if the person acted in good faith, and in a manner that such person
reasonably believed to be in, or not opposed to, the best interests of the
Company; provided, however, that no indemnification may be made for any claim,
issue or matter as to which such person shall have been adjudged to be liable,
unless, and only to the extent that, the court in which the judgment was made or
another court of competent jurisdiction determines that such person is entitled
to indemnification.
The Company has entered into agreements with each of its current
directors and executive officers pursuant to which it is obligated to indemnify
those persons to the fullest extent authorized by law and to advance payments to
cover defense costs against an unsecured obligation to repay such advances if it
is ultimately determined that the recipient of the advance is not entitled to
indemnification. The indemnification agreements provide that no indemnification
or advancement of expenses shall be made (a) if a final adjudication establishes
that his actions or omissions to act were material to the cause of action so
adjudicated and constitute: (i) a violation of criminal law (unless the
indemnitee had reasonable cause to believe that his actions were lawful); (ii) a
transaction from which the indemnitee derived an improper personal benefit;
(iii) an unlawful distribution or dividend under the Florida Act; or (iv)
willful misconduct or a conscious disregard for the joint
II-1
<PAGE> 92
interests of the Company in a derivative or shareholder action; (b) for
liability under Section 16(b) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (c) if a final decision by a court having jurisdiction in
the matter determines that indemnification is not lawful.
The Company has purchased a standard policy of directors' and officers'
liability insurance covering directors and officers of the Company with respect
to liabilities incurred as a result of their service in such capacities and has
purchased a rider to that policy covering liabilities under federal and state
securities laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The share numbers presented below are provided with respect to the shares
of Class E Common Stock which were subject to a recapitalization of the
Company's capital stock on a share for share basis into Common Stock upon the
closing of a Company's initial public offering in July 1996 and reflect the
2.3231-for-one stock split in the form of a 132% stock dividend on all shares of
capital stock of the Company outstanding on May 6, 1996.
From February 1994 through May 31, 1996, the Company sold a total of
293,758 shares of Class E Common Stock to employees, officers, directors and
service providers of the Company. These sales were made pursuant to the exercise
of options granted by the Company under its Stock Option Plans to these
employees, officers, directors and service providers. The option exercise prices
range from $1.08 per share to $4.74 per share. The aggregate consideration
received by the Company for these shares of Class E Common Stock was $748,434.
From November 1994 through January 1995, the Company sold a total of
628,610 shares of Class E Common Stock to existing shareholders, employees,
officers and directors of the Company at a price of $4.30 per share pursuant to
a rights offering and certain preemptive rights associated therewith. Each of
the investors was either an accredited investor or known personally by officers
of the Company prior to the transaction. The aggregate consideration paid by the
investors for these shares of Class E Common Stock was $2,111,930.
The Company entered into an Agreement of Merger and Amalgamation Proposal
dated as of May 15, 1997 (the "Agreement") whereby the Company acquired Priority
Solutions through the merger of Priority Solutions with and into Phoenix A.P.
Limited. Phoenix A.P. Limited acquired all of the issued and outstanding shares
of Priority Solutions and certain debt owed by Priority Solutions from its
shareholders, Brian Leigh Thomas and Elizabeth Carolyn Swanston, in exchange for
77,400 shares of Common Stock. Ms. Swanston and Mr. Thomas entered into
employment agreements with Phoenix A.P. Limited and in connection with such
employment, the Company granted to Ms. Swanston and Mr. Thomas an aggregate of
150,000 options to purchase shares of Common Stock which vest on the fifth
anniversary of the date of grant, subject to earlier vesting upon the attainment
of certain performance goals.
Each issuance of securities described above was made in reliance on one
or more of the exemptions from registration provided by Sections 3(a)(11), 4(2)
and 4(6) of the Securities Act, Regulation D, Regulation S and Rule 701, as
promulgated by the SEC pursuant to the Securities Act. Recipients of securities
in these transactions represented their intention to acquire the securities for
investment purposes only and not with a view to or for the sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients of these securities had
access, through their relationships with the Company, to information about the
Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
1.1 Underwriting Agreement.*
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<PAGE> 93
2.1 Agreement of Merger and Amalgamation Proposal by and among the
Company, Hampton Resources Limited, PSL Acquisition Limited, Brian
Lee Thomas and Elizabeth Carolyn Swanston, dated May 15, 1997
(incorporated by reference to Exhibit 2.1 of the Company's Current
Report on Form 8-K, dated May 28, 1997, File No. 0-20937).
3.1 Amended and Restated Articles of Incorporation as amended by the
Articles of Amendment to Amended and Restated Articles of
Incorporation as filed with the Secretary of State of Florida on May
28, 1997.
3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2
of the Company's Form 10-Q, dated August 14, 1996, File No. 0-20937
(the "Second Quarter 1996 10-Q")).
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws defining
the rights of the holders of Common Stock of the Company.
4.2 Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.2 of the Company's Registration Statement on Form S-1
(Registration No. 333-03355), as declared effective by the Securities
and Exchange Commission on July 1, 1996 (the "Registration
Statement")).
5.1 Opinion of Nelson Mullins Riley & Scarborough, L.L.P., counsel to the
Company, as to the legality of the shares being registered.*
10.1 Phoenix International Ltd., Inc. 1995 Employee Stock Option Plan,
effective as of March 18, 1995 (incorporated by reference to Exhibit
10.12 of the Registration Statement).
10.2 Amendment, dated May 24, 1996, to the Phoenix International Ltd.,
Inc. 1995 Employee Stock Option Plan, effective March 18, 1995
(incorporated by reference to Exhibit 10.43 of the Registration
Statement).
10.3 Phoenix International Ltd., Inc. 1995 Employee Stock Option Plan,
effective as of October 21, 1995 (the "October Plan") (incorporated
by reference to Exhibit 10.13 of the Registration Statement).
10.4 Amendment, dated May 24, 1996, to the October Plan (incorporated by
reference to Exhibit 10.44 of the Registration Statement).
10.5 Second Amendment, dated as of January 24, 1997, to the October Plan
(incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-8, as filed with the Securities and
Exchange Commission on December 31, 1996 and as amended by the
Company's Registration Statement on Form S-8, as filed on July 3,
1997 (the "Form S-8")).
10.6 Revised Form of Stock Option Agreement for the Phoenix International
Ltd., Inc. 1995 Employee Stock Option Plan, effective October 21,
1995 (incorporated by reference to Exhibit 10.45 of the Registration
Statement).
10.7 Phoenix International Ltd., Inc. 1996 Director Stock Option Plan
(incorporated by reference to Exhibit 10.46 of the Registration
Statement).
10.8 Form of Stock Option Agreement under the Phoenix International Ltd.,
Inc. 1996 Director Stock Option Plan (incorporated by reference to
Exhibit 4.7 of the Form S-8).
10.9 Form of the Company's Director Indemnity Agreement (incorporated by
reference to Exhibit 10.47 of the Registration Statement).
II-3
<PAGE> 94
10.10 Employment Agreement by and between the Company and Bahram
Yusefzadeh, dated December 28, 1995 (incorporated by reference to
Exhibit 10.14 of the Registration Statement).
10.11 First Amendment to Employment Agreement by and between the Company
and Bahram Yusefzadeh, dated May 22, 1996 (incorporated by reference
to Exhibit 10.15 of the Registration Statement).
10.12 Employment Agreement by and between the Company and Ralph Reichard,
dated December 18, 1995 (incorporated by reference to Exhibit 10.16
of the Registration Statement).
10.13 First Amendment to Employment Agreement by and between the Company
and Ralph Reichard, dated May 22, 1996 (incorporated by reference to
Exhibit 10.17 of the Registration Statement).
10.14 Employment Agreement by and between the Company and Clay E.
Scarborough, dated May 23, 1996 (incorporated by reference to Exhibit
10.18 of the Registration Statement).
10.15 Employment Agreement by and between the Company and Michael R. Newes,
dated April 12, 1996 (incorporated by reference to Exhibit 10.19 of
the Registration Statement).
10.16 Employment Agreement by and the between the Company and Gerald P.
Nissen, dated April 12, 1996 (incorporated by reference to Exhibit
10.20 of the Registration Statement).
10.17 Employment Agreement by and between the Company and Twanna C. Soifer,
dated April 12, 1996 (incorporated by reference to Exhibit 10.21 of
the Registration Statement).
10.18 Employment Agreement by and between the Company and Harold C.
Boughton, dated June 3, 1996 (incorporated by reference to Exhibit
10.1 of the Second Quarter 1996 10-Q).
10.19 Employment Agreement by and between the Company and Raju M.
Shivdasani, dated July 15, 1996 (incorporated by reference to Exhibit
10.2 of the Second Quarter 1996 10-Q).
10.20 Form of Employee Confidentiality Agreement (incorporated by reference
to Exhibit 10.19 of the Company's annual report on Form 10-K for the
year ended December 31, 1996, File No. 0-20937 (the "1996 10-K").
10.21 Form of Promissory Note for employee loans from the Company
(incorporated by reference to Exhibit 10.54 of the Registration
Statement).
10.22 Form of Stock Pledge and Security Agreement for employee loans from
the Company (incorporated by reference to Exhibit 10.55 of the
Registration Statement).
10.23 OEM Software License Agreement, dated June 30, 1995, between the
Company and Gupta Corporation (incorporated by reference to Exhibit
10.26 of the Registration Statement).+
10.24 Value Added Remarketer Agreement, dated October 13, 1993, between the
Company and Sybase, Inc. (incorporated by reference to Exhibit 10.27
of the Registration Statement).+
10.25 Software License Agreement between the Company and Unisys Corporation
("Unisys"), dated March 16, 1996 (incorporated by reference to
Exhibit 10.28 of the Registration Statement).+
10.26 First Amendment to Software License Agreement between the Company and
Unisys, dated December 27, 1996 (incorporated by reference to Exhibit
10.25 of the 1996 10-K).+
10.27 Second Amendment to Software License Agreement between the Company
and Unisys, dated June 30, 1977. +++
II-4
<PAGE> 95
10.28 General Agreement for Strategic Relationship between the Company and
Hewlett-Packard Company, dated April 30, 1993 (incorporated by
reference to Exhibit 10.29 of the Registration Statement).+
10.29 Form of Software License Agreement (incorporated by reference to
Exhibit 10.30 of the Registration Statement).
10.30 Form of International Software License Agreement (incorporated by
reference to Exhibit 10.31 of the Registration Statement).
10.31 Form of Disaster Recovery Service Agreement (incorporated by
reference to Exhibit 10.32 of the Registration Statement).
10.32 Form of Software Deposit Agreement (incorporated by reference to
Exhibit 10.33 of the Registration Statement).
10.33 Form of Confidentiality and Non-Disclosure Agreement (incorporated by
reference to Exhibit 10.34 of the Registration Statement).
10.34 Form of Confidentiality Agreement (incorporated by reference to
Exhibit 10.35 of the Registration Statement).
10.35 Form of Mutual Non-Disclosure Agreement (incorporated by reference to
Exhibit 10.36 of the Registration Statement).
10.36 Form of Confidentiality/Non-Disclosure Agreement Remitting Access to
System Documentation and Data Files for Data Conversion (incorporated
by reference to Exhibit 10.37 of the Registration Statement).
10.37 Form of Phoenix International Ltd., Inc. Confidentiality Agreement
(incorporated by reference to Exhibit 10.38 of the Registration
Statement).
10.38 The Principal Financial Group Prototype for Savings Plans (401k), as
amended, and the Group Annuity Contract for the Company (incorporated
by reference to Exhibit 10.41 of the Registration Statement).*
10.39 Remarketing Agreement and Support Authorization, dated as of April
22, 1996, between the Company and Computer Systems Associates
(Nigeria) Limited (incorporated by reference to Exhibit 10.42 of the
Registration Statement) (the "CSA Agreement").
10.40 Lease Agreement, dated September 11, 1996, between 500 International
Parkway Development Company and the Company (incorporated by
reference to Exhibit 10.1 of the Company's Form 10-Q, dated November
5, 1996, File No. 0-20937).
10.41 Cooperative Marketing Agreement, dated September 5, 1996,
between the Company and The NetComm Group, Inc. (incorporated by
reference to Exhibit 10.42 of the 1996 10-K).+
10.42 Cooperative Marketing Agreement, dated October 2, 1996, between
the Company and ISC Financial Systems, Inc. (incorporated by
reference to Exhibit 10.43 of the 1996 10-K).+
10.43 Stock Purchase Agreement, dated March 5, 1997, between the Company
and Dyad Corporation (incorporated by reference to Exhibit 10.44 of
the 1996 10-K).+
10.44 Licensed Distribution Agreement, dated March 5, 1997, between the
Company and Dyad Corporation (incorporated by reference to Exhibit
10.45 of the 1996 10-K).+
II-5
<PAGE> 96
10.45 License and Marketing Agreement, dated November 26, 1996, between the
Company and Integrated Financial Services, Inc. (incorporated by
reference to Exhibit 10.46 of the 1996 10-K).+
10.46 Form of Software License Agreement used in connection with the CSA
Agreement (incorporated by reference to Exhibit 10.47 of the 1996
10-K).
10.47 Addendum to Lease Agreement, dated March 17, 1997, between the
Company and 500 International Parkway Development Company
(incorporated by reference to Exhibit 10.1 of the Company's Form
10-Q, dated May 8, 1997, File No. 0-20937 (the "First Quarter 1997
10-Q")).
10.48 Cooperative Marketing Agreement, dated March 26, 1997, between the
Company and International Turnkey Systems (incorporated by reference
to Exhibit 10.2 of the First Quarter 1997 10-Q). ++
10.49 Cooperative Marketing Agreement, dated June 28, 1997, between the
Company and Seimens Nixdorf Informationssysteme AG.+++
10.50 Cooperative Marketing Agreement, dated March 31, 1997, between the
Company and ERAS JV. +++
10.51 Cooperative Marketing Agreement, dated April 16, 1997, between the
Company and Advanced Financial Systems, Inc. +++
11.1 Statement re: Computation of Per Share Earnings (incorporated by
reference to Exhibit 11.1 of the 1996 10-K and First Quarter 1997
10-Q).
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Nelson Mullins Riley & Scarborough, L.L.P. (included as
part of Exhibit 5.1)
24.1 Power of Attorney (contained on the signature page of this filing).
27.1 Financial Data Schedule (for Commission purposes only) (incorporated
by reference to Exhibit 27.1 of the 1996 10-K and First Quarter 1997
10-Q).
- ---------------
+ Confidential treatment previously granted.
++ Confidential treatment has been requested for certain confidential
portions of this exhibit upon filing of such exhibit with the First
Quarter 1997 10-Q.
+++ Confidential treatment has been requested for certain confidential
portions of this exhibit. These confidential portions have been
omitted from this exhibit and filed separately with the Commission.
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES. All information required by the
financial statement schedules is included in the Consolidated Financial
Statements and the related Notes.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
Representatives at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Representatives to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such
II-6
<PAGE> 97
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that,
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-7
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on July 16, 1997.
Phoenix International Ltd., Inc.
By: /s/Bahram Yusefzadeh
--------------------------
Bahram Yusefzadeh
Chairman of the Board and
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Bahram Yusefzadeh and Ralph H. Reichard,
and each of them, as true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any related
Registration Statement pursuant to Rule 462 under the Securities Act of 1933,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully and to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all which said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do, or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/Bahram Yusefzadeh Chairman of the Board and July 16, 1997
- ----------------------------- Chief Executive Officer
Bahram Yusefzadeh (principal executive officer)
/s/Ralph H. Reichard Chief Operating Officer, July 16, 1997
- ----------------------------- President and Director
Ralph H. Reichard
/s/Clay E. Scarborough Senior Vice President and July 16, 1997
- ----------------------------- Chief Financial Officer
Clay E. Scarborough (principal financial
and accounting officer)
/s/ Ruann F. Ernst Director July 16, 1997
- -----------------------------
Ruann F. Ernst
/s/Ronald E. Fenton Director July 16, 1997
- -----------------------------
Ronald E. Fenton
/s/William C. Hess Director July 16, 1997
- -----------------------------
William C. Hess
/s/James C. Holly Director July 16, 1997
- -----------------------------
James C. Holly
/s/Paul A. Jones Director July 16, 1997
- -----------------------------
Paul A. Jones
/s/J. Michael Murphy Director July 16, 1997
- -----------------------------
J. Michael Murphy
/s/Glenn W. Sturm Director July 16, 1997
- -----------------------------
Glenn W. Sturm
/s/O. Jay Tomson Director July 16, 1997
- -----------------------------
O. Jay Tomson
</TABLE>
<PAGE> 99
EXHIBIT INDEX
<TABLE>
<CAPTION>
Location of
Exhibit in
Sequential
Exhibit Numbering
Number Description of Document System
------ ----------------------- ----------
<S> <C> <C>
1.1 Underwriting Agreement*.................................................................
2.1 Agreement of Merger and Amalgamation Proposal by and among
the Company, Hampton Resources Limited, PSL Acquisition Limited,
Brian Lee Thomas and Elizabeth Carolyn Swanston, dated May 15, 1997
(incorporated by reference to Exhibit 2.1 of the Company's Current
Report on Form 8-K, dated May 28,1997, File No. 0-20937)................................
3.1 Amended and Restated Articles of Incorporation as amended by
the Articles of Amendment to Amended and Restated Articles
of Incorporation as filed with the Secretary of State of
Florida on May 28, 1997.................................................................
3.2 Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 of the Company's Form 10-Q, dated August 14,
1996, File No. 0-20937 (the "Second Quarter 1996 10-Q"))................................
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Articles of Incorporation and Amended and Restated
Bylaws defining the rights of the holders of Common Stock of
the Company.............................................................................
4.2 Specimen Common Stock Certificate (incorporated by reference
to Exhibit 4.2 of the Company's Registration Statement on
Form S-1 (Registration No. 333-03355), as declared effective
by the Securities and Exchange Commission on July 1, 1996
(the "Registration Statement")).........................................................
5.1 Opinion of Nelson Mullins Riley & Scarborough, L.L.P.,
counsel to the Company, as the legality of the shares being
registered*.............................................................................
10.1 Phoenix International Ltd., Inc. 1995 Employee Stock Option
Plan, effective as of March 18, 1995 (incorporated by
reference to Exhibit 10.12 of the Registration Statement)...............................
10.2 Amendment, dated May 24, 1996, to the Phoenix International
Ltd., Inc. 1995 Employee Stock Option Plan, effective March
18, 1995 (incorporated by reference to Exhibit 10.43 of the
Registration Statement).................................................................
10.3 Phoenix International Ltd., Inc. 1995 Employee Stock Option
Plan, effective as of October 21, 1995 (the "October Plan")
(incorporated by reference to Exhibit 10.13 of the
Registration Statement).................................................................
10.4 Amendment, dated May 24, 1996, to the October Plan
(incorporated by reference to Exhibit 10.44 of the
Registration Statement).................................................................
10.5 Second Amendment, dated as of January 24, 1997, to the October Plan
(incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-8, as filed with the Securities and
Exchange Commission on December 31, 1996 and as amended by the
Company's Registration Statement on Form S-8, as filed on July 3,
1997 (the "Form S-8"))..................................................................
10.6 Revised Form of Stock Option Agreement for the Phoenix
International Ltd., Inc. 1995 Employee Stock Option Plan,
effective October 21, 1995 (incorporated by reference to
Exhibit 10.45 of the Registration Statement)............................................
10.7 Phoenix International Ltd., Inc. 1996 Director Stock Option
Plan (incorporated by reference to Exhibit 10.46 of the
Registration Statement).................................................................
10.8 Form of Stock Option Agreement under the Phoenix
International Ltd., Inc. 1996 Director Stock Option Plan
(incorporated by reference to Exhibit 4.7 of the Form S-8)..............................
10.9 Form of the Company's Director Indemnity Agreement
(incorporated by reference to Exhibit 10.47 of the
Registration Statement).................................................................
</TABLE>
<PAGE> 100
<TABLE>
<CAPTION>
Location of
Exhibit in
Sequential
Exhibit Numbering
Number Description of Document System
------ ----------------------- ----------
<S> <C> <C>
10.10 Employment Agreement by and between the Company and Bahram
Yusefzadeh, dated December 28, 1995 (incorporated by
reference to Exhibit 10.14 of the Registration Statement)...............................
10.11 First Amendment to Employment Agreement by and between the
Company and Bahram Yusefzadeh, dated May 22, 1996
(incorporated by reference to Exhibit 10.15 of the
Registration Statement).................................................................
10.12 Employment Agreement by and between the Company and Ralph
Reichard, dated December 18, 1995 (incorporated by reference
to Exhibit 10.16 of the Registration Statement).........................................
10.13 First Amendment to Employment Agreement by and between the
Company and Ralph Reichard, dated May 22, 1996 (incorporated
by reference to Exhibit 10.17 of the Registration Statement)............................
10.14 Employment Agreement by and between the Company and Clay E.
Scarborough, dated May 23, 1996 (incorporated by reference
to Exhibit 10.18 of the Registration Statement).........................................
10.15 Employment Agreement by and between the Company and Michael
R. Newes, dated April 12, 1996 (incorporated by reference to
Exhibit 10.19 of the Registration Statement)............................................
10.16 Employment Agreement by and between the Company and Gerald
P. Nissen, dated April 12, 1996 (incorporated by reference
to Exhibit 10.20 of the Registration Statement).........................................
10.17 Employment Agreement by and between the Company and Twanna
C. Soifer, dated April 12, 1996 (incorporated by reference
to Exhibit 10.21 of the Registration Statement).........................................
10.18 Employment Agreement by and between the Company and Harold
C. Boughton, dated June 3, 1996 (incorporated by reference
to Exhibit 10.1 of the Second Quarter 1996 10-Q)........................................
10.19 Employment Agreement by and between the Company and Raju M.
Shivdasani, dated July 15, 1996 (incorporated by reference
to Exhibit 10.2 of the Second Quarter 1996 10-Q)........................................
10.20 Form of Employee Confidentiality Agreement (incorporated by
reference to Exhibit 10.19 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, File No. 0-
20937 (the "1996 10-K"))................................................................
10.21 Form of Promissory Note for employee loans from the Company
(incorporated by reference to Exhibit 10.54 of the
Registration Statement).................................................................
10.22 Form of Stock Pledge and Security Agreement for employee
loans from the Company (incorporated by reference to Exhibit
10.55 of the Registration Statement)....................................................
10.23 OEM Software License Agreement, dated June 30, 1995, between
the Company and Gupta Corporation (incorporated by reference
to Exhibit 10.26 of the Registration Statement).+.......................................
10.24 Value Added Remarketer Agreement, dated October 13, 1993,
between the Company and Sybase, Inc. (incorporated by
reference to Exhibit 10.27 of the Registration Statement).+.............................
10.25 Software License Agreement between the Company and Unisys
Corporation ("Unisys") dated March 16, 1996 (incorporated by
reference to Exhibit 10.28 of the Registration Statement).+.............................
10.26 First Amendment to Software License Agreement between the
Company and Unisys, dated December 27, 1996 (incorporated by
reference to Exhibit 10.25 of the 1996 10-K).+..........................................
</TABLE>
<PAGE> 101
<TABLE>
<CAPTION>
Location of
Exhibit in
Sequential
Exhibit Numbering
Number Description of Document System
------ ----------------------- ----------
<S> <C> <C>
10.27 Second Amendment to Software License Agreement between the
Company and Unisys, dated June 30, 1997. +++............................................
10.28 General Agreement for Strategic Relationship between the Company and
Hewlett-Packard Company, dated April 30, 1993 (incorporated by
reference to Exhibit 10.29 of the Registration Statement).+.............................
10.29 Form of Software License Agreement (incorporated by
reference to Exhibit 10.30 of the Registration Statement)...............................
10.30 Form of International Software License Agreement
(incorporated by reference to Exhibit 10.31 of the
Registration Statement).................................................................
10.31 Form of Disaster Recovery Service Agreement (incorporated by
reference to Exhibit 10.32 of the Registration Statement)...............................
10.32 Form of Software Deposit Agreement (incorporated by
reference to Exhibit 10.33 of the Registration Statement)...............................
10.33 Form of Confidentiality and Non-Disclosure Agreement
(incorporated by reference to Exhibit 10.34 of the
Registration Statement).................................................................
10.34 Form of Confidentiality Agreement (incorporated by reference
to Exhibit 10.35 of the Registration Statement).........................................
10.35 Form of Mutual Non-Disclosure Agreement (incorporated by
reference to Exhibit 10.36 of the Registration Statement)...............................
10.36 Form of Confidentiality/Non-Disclosure Agreement Remitting
Access to System Documentation and Data Files for Data
Conversion (incorporated by reference to Exhibit 10.37 of
the Registration Statement).............................................................
10.37 Form of Phoenix International Ltd., Inc. Confidentiality
Agreement (incorporated by reference to Exhibit 10.38 of the
Registration Statement).................................................................
10.38 The Principal Financial Group Prototype for Savings Plans
(401k), as amended, and the Group Annuity Contract for the
Company (incorporated by reference to Exhibit 10.41 of the
Registration Statement).................................................................
10.39 Remarketing Agreement and Support Authorization, dated as of
April 22, 1996, between the Company and Computer Systems Associates
(Nigeria) Limited (incorporated by reference to Exhibit 10.42 of the
Registration Statement) (the "CSA Agreement")...........................................
10.40 Lease Agreement, dated September 11, 1996, between 500
International parkway Development Company and the Company
(incorporated by reference to Exhibit 10.1 of the Company's
Form 10-Q, dated November 5, 1996, File No. 0-20937)....................................
10.41 Cooperative Marketing Agreement, dated September 5, 1996,
between the Company and The NetComm Group, Inc.
(incorporated by reference to Exhibit 10.42 of the 1996 10-K)+..........................
10.42 Cooperative Marketing Agreement, dated October 2, 1996,
between the Company and ISC Financial Systems, Inc.
(incorporated by reference to Exhibit 10.43 of the 1996 10- K)+.........................
10.43 Stock Purchase Agreement, dated March 5, 1997, between the Company
and Dyad Corporation (incorporated by reference to
Exhibit 10.44 of the 1996 10-K)+........................................................
10.44 License and Distribution Agreement, dated March 5, 1997,
between the Company and Dyad Corporation (incorporated by
reference to Exhibit 10.45 of the 1996 10-K)+...........................................
10.45 License and Marketing Agreement, dated November 26, 1996,
between the Company and Integrated Financial Services, Inc.
(incorporated by reference to Exhibit 10.46 of the 1996 10-K)+..........................
10.46 Form of Software License used in connection with the CSA
Agreement (incorporated by reference to Exhibit 10.47 of the
1996 10-K)..............................................................................
</TABLE>
<PAGE> 102
<TABLE>
<CAPTION>
Location of
Exhibit in
Sequential
Exhibit Numbering
Number Description of Document System
------ ----------------------- ----------
<S> <C> <C>
10.47 Addendum to Lease Agreement, dated March 17, 1997, between the
Company and 500 International Parkway Development Company
(incorporated by reference to Exhibit 10.1 of the Company's form
10-Q, dated May 8, 1997, File No. 0-20937 (the "First Quarter 1997 10-Q"))..............
10.48 Cooperative Marketing Agreement, dated March 26, 1997,
between the Company and International Turnkey Systems
(incorporated by reference to Exhibit 10.2 of the First
Quarter 1997 10-Q)++....................................................................
10.49 Cooperative Marketing Agreement, dated June 28, 1997,
between the Company and Seimens Nixdorf Informationssysteme AG+++.......................
10.50 Cooperative Marketing Agreement, dated March 31, 1997,
between the Company and ERAS JV.+++.....................................................
10.51 Cooperative Marketing Agreement, dated April 16, 1997,
between the Company and Advanced Financial Systems, Inc.+++.............................
11.1 Statement re: Computation of Per Share Earnings
(incorporated by reference to Exhibit 11.1 of the 1996 10-K
and First Quarter 1997 10-Q)............................................................
21.1 Subsidiaries of the Company.............................................................
23.1 Consent of Ernst & Young LLP............................................................
23.2 Consent of Nelson Mullins Riley & Scarborough, L.L.P.
(included as part of Exhibit 5.1).......................................................
24.1 Power of Attorney (contained on the signature page of this filing)......................
27.1 Financial Data Schedule (for Commission purposes only)
(incorporated by reference to Exhibit 27.1 of the 1996 10-K
and First Quarter 1997 10-Q)............................................................
</TABLE>
------------------
+ Confidential treatment previously granted.
++ Confidential treatment has been requested for certain confidential
portions of this exhibit upon filing of such exhibit with the First
Quarter 1997 10-Q.
+++ Confidential treatment has been requested for certain confidential
portions of this exhibit. These confidential portions have been omitted
from this exhibit and filed separately with the Commission.
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PHOENIX INTERNATIONAL LTD., INC.
These Amended and Restated Articles of Incorporation of Phoenix
International Ltd., Inc., a Florida corporation (the "Corporation"), are hereby
adopted pursuant to Sections 607.1003 and 607.1007 of the Florida Business
Corporation Act (the "Act").
ARTICLE I
NAME AND PRINCIPAL OFFICE
The name of the Corporation is "Phoenix International Ltd., Inc." The
principal office of the Corporation is 900 Winderley Place, Suite 140, Maitland,
Florida 32751.
ARTICLE II
CAPITAL STOCK
The aggregate number of shares of capital stock which the Corporation
shall have authority to issue is twenty million (20,000,000) shares of voting
common stock, par value $0.01 per share (the "Common Stock").
In addition to the Common Stock, the Corporation shall have the
authority, exercisable by its Board of Directors, to issue ten million
(10,000,000) shares of preferred stock, par value $0.01 per share (the
"Preferred Stock"), any part or all of such shares of Preferred Stock may be
established and designated from time to time by the Board of Directors by filing
an amendment to these Amended and Restated Articles of Incorporation, which is
effective without shareholder action, in accordance with the appropriate
provisions of the Act, and any amendment or supplement thereto (a "Preferred
Stock Designation"), in such series and with such preferences, limitations, and
relative rights as may be determined by the Board of Directors. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
a majority of the votes of the Common Stock, without a vote of the holders of
the shares of Preferred Stock, or of any series thereof, unless a vote of any
such holders is required by law or pursuant to the Preferred Stock Designation
or Preferred Stock Designations establishing the series of Preferred Stock.
<PAGE> 2
ARTICLE III
DIRECTORS
The Corporation shall have not more than eleven directors, and the
number of directors shall be set by the Board of Directors as set forth in the
Corporation's Bylaws. The Board of Directors shall be divided into three classes
to be known as Class I, Class II, and Class III, which shall be as nearly equal
in number as possible. Except in case of death, resignation, disqualification,
or removal for cause, each director shall serve for a term ending on the date of
the third annual meeting of shareholders following the annual meeting at which
the director was elected; provided, however, that each initial director in Class
I shall hold office until the first annual meeting of shareholders after his
election; each initial director in Class II shall hold office until the second
annual meeting of shareholders after his election; and each initial director in
Class III shall hold office until the third annual meeting of shareholders after
his election. Despite the expiration of a director's term, he shall continue to
serve until his successor, if there is to be any, has been elected and has
qualified. In the event of any increase or decrease in the authorized number of
directors, the newly created or eliminated directorships resulting from such an
increase or decrease shall be apportioned among the three classes of directors
so that the three classes remain as nearly equal in size as possible; provided,
however, that there shall be no classification of additional directors elected
by the Board of Directors until the next meeting of shareholders called for the
purposes of electing directors, at which meeting the terms of all such
additional directors shall expire, and such additional directors positions, if
they are to be continued, shall be apportioned among the classes of directors
and nominees therefor shall be submitted to the shareholders for their vote.
No director may be removed from the Board of Directors except
by the shareholders for cause. Any vacancy occurring on the Board of Directors,
including a vacancy resulting from an increase in the number of directors, may
only be filled by the affirmative vote of the remaining directors even if the
remaining directors constitute less than a quorum of the Board of Directors.
ARTICLE IV
LIMITATION ON DIRECTOR LIABILITY
No director of the Corporation shall be personally liable for monetary
damages to the Corporation or any other person for any statement, vote, decision
or failure to act, regarding corporate management or policy by a director,
unless the director breached or failed to perform his duties as a director and
the director's breach of, or failure to perform, those duties constitute:
(i) a violation of criminal law, unless the
director had reasonable cause to believe his conduct was lawful or had
no reasonable cause to believe his conduct was unlawful;
(ii) a transaction from which the director
received an improper personal benefit;
2
<PAGE> 3
(iii) a circumstance under which the liability
provisions of Section 607.0834 of the Act are applicable;
(iv) in a proceeding by or in the right of the
Corporation to procure a judgement in its favor or by or in the right
of a shareholder, conscious disregard or willful misconduct for the
best interests of the Corporation; or
(v) in a proceeding by or in the right of
someone other than the Corporation or a shareholder, recklessness or
an act or omission which was committed in bad faith or with
malicious purpose or in a manner exhibiting wanton and willful
disregard of human rights, safety or property.
If at any time the Act shall have been amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
each director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Act, as so amended, without further action by the
shareholders, unless the provisions of the Act, as amended, require further
action by the shareholders. Any repeal or modification of the foregoing
provisions of this Article Four shall not adversely affect the elimination or
limitation of liability or alleged liability pursuant hereto of any director of
the Corporation for or with respect to any alleged act or omission of the
director occurring prior to such a repeal or modification.
ARTICLE V
ACTION BY WRITTEN CONSENT
All actions by the shareholders shall be taken at a meeting, with prior
notice which complies with the notice provisions of the Corporation's Bylaws,
and with a vote of the holders of the outstanding stock of each voting group
entitled to vote thereon.
ARTICLE VI
SPECIAL MEETING OF SHAREHOLDERS
A special meeting of shareholders, for any purpose or purposes, may be
called only by the Executive Committee of the Board of Directors or by the Chief
Executive Officer of the Corporation. In addition, the Secretary shall call a
special meeting when requested in writing by the holders of at least 50% of all
of the shares entitled to vote at a meeting. Such written shareholder request
shall comply with the notice provisions of the Corporation's Bylaws.
3
<PAGE> 4
ARTICLE VII
VOTING PROVISIONS
The affirmative vote of at least 66 2/3% of the directors is required
for the following actions by the Corporation to be submitted to a vote of the
shareholders:
(i) sale of substantially all of the assets of
the Corporation;
(ii) liquidation of the Corporation;
(iii) the merger, consolidation or reorganization
of the Corporation, unless the shareholders of the Corporation own at
least a majority of the combined voting power of the corporation
resulting from such merger, consolidation or reorganization; or
(iv) any increase in the number of directors above
eleven directors;
provided, further, that the affirmative vote of 66 2/3% of the holders of the
Common Stock is required for shareholder approval of any action outlined in the
clauses above.
ARTICLE VIII
AMENDMENTS
These Amended and Restated Articles of Incorporation may only be
altered, amended or repealed by the affirmative vote of the holders of 66 2/3%
of the outstanding stock entitled to vote thereon.
4
<PAGE> 5
These Amended and Restated Articles of Incorporation contain certain
amendments requiring shareholder approval. The following voting groups were
entitled to vote on these Amended and Restated Articles of Incorporation as
follows:
Voting Group Designation
<TABLE>
<CAPTION>
Number of Shares Number of Shares Number of Shares
Class Entitled to Vote Voted in Favor Voted Against
----- ---------------- -------------- -------------
<S> <C> <C> <C>
Class A Stock 600,000 600,000 0
Class B Stock 220,000 178,000 0
Class C Stock 80,000 80,000 0
Class D Stock 10,000 10,000 0
Class E Stock 383,836 374,836 0
--------- --------- -
Totals 1,293,836 1,242,836 0
</TABLE>
The number of shares cast for these Amended and Restated Articles of
Incorporation by the shareholders in each voting group was sufficient for
approval by that voting group. These Amended and Restated Articles of
Incorporation were adopted by the shareholders at the annual meeting of
shareholder held on June 12, 1996.
IN WITNESS WHEREOF, the undersigned has executed these Amended and
Restated Articles of Incorporation this 8th day of July, 1996.
/s/ Bahram Yusefzadeh
------------------------
BAHRAM YUSEFZADEH, Chief Executive Officer
5
<PAGE> 6
ARTICLES OF AMENDMENT TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
PHOENIX INTERNATIONAL LTD., INC.
I.
The name of the corporation is Phoenix International Ltd., Inc.
II.
Effective the date hereof, Article Two of the Amended and Restated
Articles of Incorporation of Phoenix International Ltd., Inc. is amended by
deleting the existing Article Two in its entirety and substituting therefor the
following:
"ARTICLE TWO
The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is fifty million (50,000,000)
shares of voting common stock, par value $0.01 per share (the "Common
Stock").
In addition to the Common Stock, the Corporation shall have
the authority, exercisable by its Board of Directors, to issue ten
million (10,000,000) shares of preferred stock, par value $1.00 per
share (the "Preferred Stock"), any part or all of such shares of
Preferred Stock may be established and designated from time to time by
the Board of Directors by filing an amendment to these Amended and
Restated Articles of Incorporation, which is effective without
shareholder action, in accordance with the appropriate provisions of
the Act, and any amendment or supplement thereto (a "Preferred Stock
Designation"), in such series and with such preferences, limitations,
and relative rights as may be determined by the Board of Directors. The
number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding)
by the affirmative vote of a majority of the votes of the Common Stock,
without a vote of the holders of the shares of Preferred Stock, or of
any series thereof, unless a vote of any such holders is required by
law or pursuant to the Preferred Stock Designation or Preferred Stock
Designations establishing the series of Preferred Stock."
III.
This amendment was duly adopted by the Board of Directors on March 14,
1997 and was approved by the affirmative vote of a majority of the shareholders
at the annual meeting of the shareholders, held on May 16, 1997, which number of
votes was sufficient for approval.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed by its duly authorized officer as of the 23rd day of
May, 1997.
PHOENIX INTERNATIONAL LTD., INC.
/s/ Bahram Yusefzadeh
--------------------------------
By: Bahram Yusefzadeh
Title: Chief Executive Officer
<PAGE> 1
EXHBIT 10.27
CONFIDENTIAL TREATMENT REQUESTED
SECOND AMENDMENT TO THE
SOFTWARE LICENSE AGREEMENT
BETWEEN
UNISYS CORPORATION
AND
PHOENIX INTERNATIONAL LTD., INC.
This Second Amendment to the Software License Agreement (this
"Amendment") is entered into as of June 30, 1997 (the "Effective Date") by and
between Unisys Corporation ("Unisys"), with offices at 7000 Palmetto Park Road,
Suite 201, Boca Raton, Florida 33433; and Phoenix International Ltd., Inc.
("Phoenix"), with offices at 500 International Parkway, Heathrow, Florida
32746.
WITNESSETH THAT:
WHEREAS, Phoenix and Unisys entered into that certain Software License
Agreement executed on March 16, 1996, as amended on December 27, 1996 (the
"License Agreement"); and
WHEREAS, the parties wish to amend the terms of the License Agreement
as more particularly set forth herein (the License Agreement, as amended by
this Amendment, being hereinafter referred to as the "Agreement");
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto, intending to be legally bound by the provisions
hereof, hereby agree as follows:
I. A new Section 2.4 shall be added to the Agreement as follows:
2.4 The right and license granted to Unisys pursuant to Section 2.1 of the
Agreement, subject to Sections 2.2 and 2.3 of the Agreement, shall
hereafter extend to the following new products which are complementary
to the Package: the Phoenix ATM Module (the "ATM Module") and the
Phoenix TradeFinance Module (the "TradeFinance Module"; collectively,
the "New Products"), including related technical and operating
documentation. The right and license granted to Unisys with respect to
the New Products shall be non-exclusive (and not exclusive) and shall
apply in the Territory, The Republic of South Africa, and the
Asia-Pacific region as mutually understood by the parties. References
in the Agreement to "Territory" shall be construed to include such
additional territories, but with respect to the New Products only.
Except as otherwise provided in this Amendment (including the
foregoing clarifications), references to the "Package" and related
"Documentation" in the Agreement shall be construed to include the New
Products.
II. A new Section 6.11 shall be added to the Agreement as follows:
1) In consideration for the right and license granted in Section 2.4
above with respect to the TradeFinance Module, Unisys shall pay
Phoenix an initial royalty fee of ***. Such amount shall be fully
earned and non-refundable upon execution of this Amendment and shall
be due and payable as provided in Schedule A to this Amendment.
Delivery by Phoenix of the TradeFinance Module shall occur on June 30,
1997. Such amount shall be credited toward (a) *** of all
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
<PAGE> 2
amounts otherwise due under paragraph (2) of this Section 6.11 up to a
maximum of *** per sublicense of the TradeFinance Module.
2) For each sublicense hereafter granted by Unisys to each End User
with respect to the TradeFinance Module, Unisys shall pay Phoenix ***
for the TradeFinance Module which shall be *** in base license fees
plus *** per workstation greater than *** operating the TradeFinance
Module for such End User. A workstation is intended to mean an access
device such as a operating terminal or similar I/O unit that accesses
the TradeFinance Module for productive use.
3) Phoenix and Unisys shall split *** all maintenance fees for the
TradeFinance Module, subject to Phoenix receiving a minimum of *** in
annual maintenance fees per End User licensed to use the TradeFinance
Module, and a minimum of *** in annual maintenance fees for each
workstation operating the TradeFinance Module in excess of *** for
any given End User.
III. A new Section 6.12 shall be added to the Agreement as follows:
1) In consideration for the right and license granted in Section 2.4
above with respect to the ATM Module, Unisys shall pay Phoenix an
initial royalty fee of ***. Such amount shall be fully earned and
non-refundable upon execution of this Amendment and shall be due and
payable as provided in Schedule A to this Amendment. Delivery by
Phoenix of the ATM Module shall occur on June 30, 1997. Such amount
shall be credited toward *** of all amounts otherwise due under
paragraph (2) of this Section 6.12, up to a maximum of *** per
sublicense of the ATM Module.
2) For each sublicense hereafter granted by Unisys to each End User
with respect to the ATM Module, Unisys shall pay Phoenix *** for the
ATM Module which shall be deemed to be *** in base license fees plus
*** per switch interface greater than *** employing the ATM Module
for such End User. A switch interface is intended to mean each
communications interface to each switch network, separately counted
for VISA, MasterCard, CIRRUS, etc.
3) Phoenix and Unisys shall split *** all maintenance fees for the
TradeFinance Module, subject to Phoenix receiving a minimum of *** in
annual maintenance fees per End User licensed to use the ATM Module,
and a minimum of *** in annual maintenance fees for each switch
interface operating the ATM Module in excess of *** for any given End
User.
IV. A new Section 6.13 shall be added to the Agreement as follows:
Phoenix will receive *** of the base license fees for the ***
sublicenses entered into by Unisys with respect to the Package (not
including the New Products). (Such arrangement has no effect on the
fees due Phoenix for New Products and other matters, including,
without limitation, branch fees, workstation fees, or switch interface
fees.)
V. A new Section 8.6 shall be added to the Agreement as follows:
Phoenix and Unisys anticipate that (1) Changes may be created by
Unisys for distribution solely within the Territory comprising
translations, localizations, and customization designed for End
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
<PAGE> 3
Users in connection with their sublicense of the Package and the New
Products ("Localization Changes"), and (2) Unisys may develop yet
other software products for use by End Users within the Territory in
conjunction with the Package and the New Products, such as additional
new modules, plug-ins, and objects ("Further Products"). The
Localization Changes and the Further Products are intended to include
only that work which is *** and which is not ***. Such
Localization Changes and Further Products are together referred to as
"Unisys Works."
To the extent that the Unisys Works are based on, derive from, include
in whole or in part, or require use of the Package, the new Products,
or any other intellectual property rights of Phoenix (the "Underlying
Interests"), *** the Underlying Interests shall accordingly depend on
other provisions of this Agreement or other agreements reached between
the parties with respect thereto, and *** Underlying Interests by
virtue of ***.
Subject to the foregoing, Phoenix agrees that *** associated
therewith. Phoenix shall not, by virtue of ***, be construed to have
any obligation to market, support, or refrain from ***. Unisys agrees
to deliver to Phoenix copies of all of the Unisys Works periodically.
Upon Phoenix's request, Unisys shall *** upon terms and conditions
mutually acceptable to both Phoenix and Unisys, but in any event ***
than the *** upon which Phoenix has licensed the Package to Unisys
hereunder, including *** terms.
For the foregoing ***, Unisys shall pay Phoenix the sum of *** in
accordance with Schedule A to this Amendment. Such amount shall be
considered fully earned and non-refundable upon execution of this
Agreement.
This Section 8.6 shall constitute a limited exception to the terms of
Section 8.5 above.
VI. Section 9.1 shall be replaced in its entirety with the following:
Training and technical assistance will be provided by Phoenix to
Unisys on a basis to be mutually determined. Such training and
technical assistance will be in the form of a combination of formal
classroom training and on-the-job training during actual
implementation of sublicensed End Users.
Training objectives are described in Addendum F hereto.
VII. Section 9.7 shall be replaced in its entirety with the following:
Except for the assignment of *** (or replacement personnel) as
provided in Section 9.4 hereof, it is acknowledged that Phoenix shall
not be required to travel to the Territory except when Phoenix agrees
to do so. Travel and living expenses for *** and any other on-site
assistance shall be paid or (in the case of End User reimbursement)
provided for by Unisys in accordance with Addendum H.
VIII. Section I.1.C. of Addendum B shall be replaced in its entirety with
the following:
C. Adjustments
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
<PAGE> 4
Unisys may, if it so desires, authorize its country managers (or
equivalent) to *** the foregoing base fees on a case-by-case basis by
*** (as calculated and determined by type of fee by individual End
User). With that sole exception, and unless otherwise agreed in
writing by Phoenix, if the Gross Proceeds from license fees or branch
fees (or, in the case of the New Products, workstation fees or switch
interface fees) due from an End User are less than the amounts set
forth by applying the appropriate rates in accordance with Section A
or B above, then Phoenix shall receive at a minimum an amount equal to
*** based on the above minimum license and branch fees (and, in the
case of the New Products, workstation fees and switch interface fees),
as determined on a per sublicense basis for each category of fees. If
the Gross Proceeds from base license fees and branch fees (and, in the
case of New Products, workstation fees and switch interface fees) due
from an End User exceed the amounts set forth by applying the
appropriate rates in accordance with Section A or B above, then Unisys
shall be entitled to keep ***.
IX. The second, third, and fourth paragraphs of Part II of Addendum B
shall be replaced in their entirety with the following:
*** from support and/or maintenance fees due from all End
Users in connection with the sublicense of the Package.
X. Section III. of Addendum B shall be deleted in its entirety.
XI. Section IV.3 of Addendum B shall be replaced in its entirety with the
following:
Implementation Assistance
- Project Manager $ ***(2) $***(2)
- Other $ ***(2) $***(2)
XII. A new Addendum H shall be added to the Agreement as set forth in
Schedule B.
XIII. If Unisys fails, after using its good faith efforts, to enter into
sublicenses for the ATM Module and the TradeFinance Module sufficient
for Unisys to apply (toward satisfaction of minimum or actual amounts due
Phoenix hereunder which are eligible for the applicable credit(s) as provided
above) the credits provided in Sections 6.11(1) above [***] and Section
6.12(1) above [***] within *** from the Effective Date herein, and only after
Unisys has completely applied all other credits to which it is entitled under
Section 6.1 of the Agreement, Unisys shall be entitled to apply its remaining
credit(s) under this Amendment toward *** otherwise due Phoenix for the
Package under the Agreement (but no more than *** in aggregate base and branch
license fees per sublicense of an End User).
XIV. Capitalized terms used herein and not otherwise defined shall have the
meaning provided in the License Agreement. Except as expressly provided
otherwise in this Amendment, the provisions of the License Agreement shall
remain in full force and effect.
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
<PAGE> 5
IN WITNESS WHEREOF, this Amendment has been duly executed by the parties
hereto, as of the Effective Date shown above.
Phoenix International Ltd., Inc. Unisys Corporation
By: /s/ Ralph Reichard By: /s/ Jack A. Blaine
------------------------------ -------------------------------
Ralph Reichard Jack A. Blaine
- --------------------------------- ----------------------------------
Print Name Print Name
President President
- --------------------------------- ----------------------------------
Print Title Print title
<PAGE> 6
Schedule A
September 1, 1997 $***
January 1, 1998 $***
May 1, 1998 $***
August 1, 1998 $***
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
<PAGE> 7
Schedule B
SOFTWARE LICENSE AGREEMENT
ADDENDUM H
TRAVEL POLICY
LODGING: Accommodations shall be selected in accordance with the hotels and
the corresponding rates indicated in the Unisys Hotel Directory,
whenever possible.
The itemized hotel bill must be submitted as a receipt.
MEALS: The cost of all meals will be reimbursed on an actual/reasonable
basis, except meals provided free of charge on airlines, at hotels,
at Unisys facilities, at Unisys sponsored meetings, etc. Meals
provided free of charge shall be itemized as such. Any meal cost of
*** or greater must be supported with a charge card or otherwise
valid receipt.
CAR RENTAL: The rental of an automobile at a rate in excess of major
rental agency rates for standard automobiles is prohibited. The
itemized car rental agreement form must be submitted as a receipt.
TRAVEL: All personnel must travel *** for air and rail travel. Unisys
authorized travel of personnel by private auto shall be compensated
at the rate of *** per mile, plus tolls and parking fees. The
ticket form for air or rail travel must be submitted as a receipt.
The above information is provided as a guideline and shall be adhered to
whenever possible. However, all reasonable, actual expenses incurred which are
submitted and supported by appropriate receipts (any expense of *** or greater
must be supported with a charge card or otherwise valid receipt) shall be
reimbursed.
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
<PAGE> 1
EXHIBIT 10.49
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL
PHOENIX INTERNATIONAL LTD., INC.
COOPERATIVE MARKETING AGREEMENT
Siemens Nixdorf Informationssysteme AG ("SNI")
Date: 28/6/97
-------------------------
(x) Corporation ( ) Partnership
( ) Limited Partnership ( ) Limited Liability Company
Country/State of Organization: Germany
------------------------------------------
Address: Otto-Hahn-Ring 6 - 81739
Munich
Germany
Attention: ***
This COOPERATIVE MARKETING AGREEMENT (this "Agreement") is entered into as of
the date first set forth above (The "Commencement Date") by and between Phoenix
International Ltd., Inc., a Florida corporation ("Phoenix"), and the party first
identified above as SNI. SNI and Phoenix (jointly "the Parties"), intending to
be legally bound, hereby agree as follows:
1. APPOINTMENT. Subject to the terms and conditions of this Agreement, SNI
hereby agrees to enter into a cooperative marketing and software
licensing and distributorship relationship with Phoenix as set forth in
this Agreement and the Addenda attached hereto and listed below (the
"Addenda"):
Knowledge Transfer Addendum
- -------------------------------------------------------------------------
Software License and Distribution Addendum
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
2. DEFINITIONS. As used in this Agreement or Exhibits or Addenda attached
hereto, capitalized terms shall have the following meanings:
- ----------------------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Comission.
<PAGE> 2
2.1. Annual Price List means the price list attached hereto as Exhibit
C containing the recommended license fees agreed to by the
Parties, as reviewed and amended by the parties as set forth in
Section 5 below.
2.2. Confidential Information means any business, technical or other
information furnished or disclosed by one Party to the other Party
or discovered by one Party as a result of examination or
inspection of facilities or product prototypes of the other Party.
Confidential Information shall in all cases include all object and
source code, development level documentation, and technical
information regarding the Software, products and all marketing and
product development information provided by one Party to the
other. Information which is disclosed orally will be deemed to be
Confidential Information provided that it is identified as
confidential at the time of disclosure or reduced to writing,
marked as confidential and provided to the other party, within
seven (7) days of disclosure.
2.3. Documentation means the documentation associated with the Software
as produced and provided by Phoenix to SNI with the Software, and
shall include system documentation and user manuals.
2.4. Eligible Prospect means a retail bank organized and doing business
in the Territory.
2.5. End Users means customers of SNI who license the Software under an
End User License Agreement.
2.6. End User License Agreement means the form of agreement or
agreements applicable to the license of the Software as agreed
upon by Phoenix and SNI from time to time. All End User License
Agreements shall be in English and shall be governed by the laws
of the United States, Germany, the United Kingdom, Holland, or
other choice of law acceptable to both Phoenix and SNI. SNI's
standard End User License Agreement is currently attached as
Exhibit D and has not been negotiated between Phoenix and SNI. The
parties shall use their best efforts to agree upon a standard form
of End User License Agreement within a reasonable period of time.
2.7. Intellectual Property Rights means all copyrights and design
rights, whether registered or unregistered, patents, patent
applications, patent registration rights, know-how, trade secrets,
Confidential Information, and other intellectual property related
to or arising in the Software or Documentation, including all
applicable architecture, designs, modules, routines, programming,
command structures, interfaces, and any Modifications thereto.
2.8 Maintenance and Support Agreement means the form of agreement or
agreements applicable to the maintenance and support of the
Software by SNI for End Users as set forth in Exhibit E, or as
otherwise agreed upon by Phoenix and SNI from time to time. SNI's
standard Maintenance and Support Agreement is currently attached
as Exhibit E and has not been negotiated between Phoenix and SNI.
The parties shall use their best efforts to agree upon a standard
form of Maintenance and Support Agreement within a reasonable
period of time.
2.9. Modification means a work which is based upon the Software, such
as a revision, modification, translation, abridgment,
condensation, expansion, or any other form in which such
preexisting works may be recast, transformed, or adapted, and
shall include any work that incorporates or is combined with such
a preexisting work or any portion thereof.
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2.10. Modify means, with respect to any of the Software, to make a
Modification.
2.11. New Release means a release of any of the Software to introduce
changes or additions to the Software for purposes of error
correction or enhancement of functionality, performance, or
features. A New Release is identified by a change in the digit(s)
to the right of the first decimal point in the Software version
number, such as 2.1 following 2.0 or 2.1.1 following 2.1.0.
2.12. Related Expenses mean all reasonable travel, meal, lodging and
other living expenses and all expenses for materials or equipment
incurred by Phoenix in the provision of services or otherwise in
the performance of its duties hereunder. Prior to incurring any
expense, Phoenix shall obtain the approval of SNI.
2.13. Software means the Phoenix software set forth in Exhibit A
attached hereto, as such Exhibit may be amended from time to time
in writing. The Software means the object code of the Software
only, along with all Modifications and New Releases provided to
SNI hereunder.
2.14. Territory means the regions and countries set forth in Exhibit B,
as such regions and countries exist as of the date of this
Agreement. The Territory may be amended from time to time in
writing by agreement of the parties.
2.15. Trademarks means the trademarks, service marks, and trade names
used by Phoenix in connection with its Software, products and
services as listed on Exhibit F.
2.16. SNI shall mean SNI, Siemens AG, and those subsidiaries that are at
least 50% owned by SNI or Siemens AG.
3. LICENSE
3.1. License Grant. Subject to the terms of this Agreement, and only as
appropriate under the attached Addenda, Phoenix hereby grants to
SNI the following rights and licenses to use the Software at its
premises within the Territory:
a. To use the Software as specifically allowed under the terms
of this Agreement and any Addenda;
b. Subject to completion of training, to use the Software for
back up, demonstrations, and evaluations involving Eligible
Prospects; and
c. To use the Trademarks, provided, however, that such use
shall be subject to reasonable advertising and promotion
guidelines which Phoenix may provide from time to time.
Phoenix reserves the right to disallow any use of the
Trademarks which would in any way, in Phoenix's opinion,
harm the validity or value of the Trademarks.
3.2. Restrictions. SNI shall not:
a. Copy or reproduce the Software in any manner whatsoever
except as reasonably necessary for demonstration,
marketing, backup and archival purposes, or as otherwise
permitted in attached Addenda;
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b. Provide the Software to any third party except (i) to an
affiliated corporation as defined in Clause 2.16 or (ii)
within the Territory and pursuant to a fully executed End
User License Agreement;
c. Use the Software in production for the benefit of any third
party, except as otherwise allowed in Addenda attached
hereto or as otherwise provided by written agreement signed
by both Parties; or
d. Use the Software or Documentation or any Confidential
Information that it may acquire in connection with this
Agreement to:
(i) develop, have developed, support or invest in the
development of any product which has entirely or
partially the same material functions as any of the
Software;
(ii) develop, have developed, support or invest in the
development of any product which is competitive with
the Software; or
(iii) sell competing products or services.
4. TERM
4.1. Term and Renewal. This Agreement shall become effective on the
Commencement Date and shall continue for an initial period of
three (3) years. This Agreement shall automatically renew
thereafter for subsequent one year (1) periods, unless and until
terminated by either party, in its discretion, by written notice
at least ninety (90) days prior to the end of the then current
term. Either Party may terminate this Agreement at any time on at
least thirty (30) days' prior written notice if the other Party
materially breaches its obligations hereunder and has not remedied
such breach within fifteen (15) working days of receiving such
notice. Notwithstanding the termination of this Agreement, Phoenix
shall continue to be entitled to any fees earned prior to such
termination.
4.2. Survival. Notwithstanding termination of this Agreement for any
reason, Sections 12 (Title to Intellectual Property), 13
(Confidentiality), 15 (Employees), and 17 (General), and all other
provisions which by their nature or necessary implication ought or
were intended to continue to have effect, shall continue to have
effect in accordance with their terms. End User License Agreements
granted prior to the date of such termination shall continue in
effect , subject to the provisions of Section 4.4 below.
4.3. Actions Upon Termination. Except as otherwise permitted under
Section 4.4, upon termination of this Agreement SNI shall:
a. Promptly cease to, sub-license, market or promote the
Software;
b. Return all copies of the Software in the possession of SNI
to Phoenix and shall cease using the same for any purpose
whatsoever except as otherwise expressly allowed herein or
in Addenda hereto (including to support End Users pursuant
to Section 4.4 below);
c. for a period of six (6) months following termination, refer
to Phoenix all new prospective customers and all inquiries
received by it relating to the Software;
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d. Return and deliver to Phoenix, or cause to be returned and
delivered to Phoenix, or destroy all memoranda, notes, reports,
documents or media relating to or containing Confidential
Information, including any copies or extracts thereof as
appropriate, except for those documents required to be retained
by law or needed for SNI to carry out its rights as set forth in
Section 4.4 below.
e. Certify its compliance with this Section upon the written request
of Phoenix.
4.4. End User Support. Notwithstanding the foregoing, provided that (i) SNI
remains in compliance with the confidentiality, license, intellectual
property rights, and payment terms of this Agreement, (ii) continues to
meet its maintenance and support obligations to End Users in compliance
with Maintenance and Support Agreements in place, and (iii) continues to
pay Phoenix its percentage of all fees received for such services as
provided herein, SNI may:
a. continue to provide support and maintenance to End Users under
Maintenance and Support Agreements entered into prior to
termination of this Agreement,
b. for a period of six (6) months following termination, be entitled
to fulfill its obligations for any quotes or proposals for the
Software that were outstanding at the date of termination of this
Agreement;
In the event that SNI breaches the terms of any such agreement with an
End User regarding the Software, or fails or refuses to provide support
thereunder in accordance with its terms, Phoenix may assume any such
agreement, and SNI shall assign its rights under such agreement to
Phoenix, so that Phoenix may provide, or provide for the provision of,
such services.
5. ANNUAL PRICE LIST.
Attached hereto as Exhibit C is the current Phoenix Annual Price List
which contains the recommended license and maintenance fees for the
Software and Phoenix's professional service fees for the Territory. The
parties shall review and adjust the Annual Price List annually to reflect
changes in expenses, business environment, and other factors as
reasonable or necessary. If the parties cannot reach agreement on changes
to the Annual Price List within 30 days of the anniversary date of this
Agreement, then the Annual Price List review shall be escalated to the
respective managing director of each Party, or to a nominated
representative of the managing director to agree any changes. Once
agreed, the revised Price List will immediately be made part of this
Agreement.
6. OBLIGATIONS OF SNI
6.1. Customer Contacts. During the term of this Agreement, both Parties
shall work exclusively together with respect to any business
opportunity first presented by the other Party for the Software.
Notwithstanding the foregoing, if within a reasonable time
following the issuance of a Request for Information or Proposal or
similar event, Phoenix is requested by a potential customer to
work with another vendor, or if Phoenix is requested by another
vendor to jointly respond to an RFP presented by a potential
customer to such vendor, then Phoenix shall be allowed to work
with such other vendor, provided that Phoenix will also work with
SNI in such a situation if SNI had a working relationship with the
customer and presented the customer to Phoenix before the customer
makes such a request. In such a
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situation, Phoenix will not offer terms for such customer to such
other vendor which are more favorable than the terms which have
been offered to SNI.
6.2. Qualified Resources and Personnel. SNI shall employ suitably
qualified and trained personnel in order to perform its
obligations hereunder, and under any End User License Agreement,
Maintenance and Support Agreement, or other agreement with an End
User related to the Software. SNI shall at its own expense obtain,
license, and maintain the hardware, network, software, database
management systems, and telecommunications resources necessary to
support its contractual obligations hereunder and any support and
maintenance obligations in place with its End Users.
6.3. End User Vendor Selection. SNI will allow each End User to select
the hardware system it will use with the Software, subject only to
its certification of compatibility by Phoenix, and SNI will, if
requested, facilitate the procurement and support of such systems.
If such request is made by an End User, SNI and Phoenix will work
in conjunction with third party hardware vendors selected by such
End User who will provide, as required by the End User, additional
services to the End User, including, without limitation, systems
integration, software development and modification, consulting,
implementation, support and/or maintenance services.
6.4. End User Compliance. SNI shall inform Phoenix of all known
breaches by End Users of their agreements with Phoenix or SNI.
6.5. Notices, Logos, and Marks. SNI shall not alter, erase or obscure
any notices, legends, or Trademarks, or alter any indications of
ownership such as copyright, serial number or any other
designations or security provisions featured on copies of the
Software and Documentation, and shall include all such features on
all copies of the Software and Documentation made by SNI.
6.6. Copies of Materials. Upon written request by Phoenix, SNI shall
send to Phoenix copies of requested advertising, marketing, and
product material related to the Software created or to be used by
SNI.
6.7. Legal Compliance. SNI shall insure compliance with all laws,
including without limitation, tax, import, and export laws
governing the conduct of business in the Territory or in any
country in which SNI operates or markets or sells the Software.
SNI shall indemnify and hold Phoenix harmless from and against any
and all claims, loses or damages arising out of or related to
SNI's failure to comply with such laws. Without limiting the
foregoing, SNI shall:
a. Not ship, export or re-export the Software or Documentation
or any Phoenix product, information or service to any
country or territory without the prior written approval of
Phoenix, which approval will not be unreasonably withheld.
b. Notify its directors, officer, employees and agents that,
with respect to the subject matter of this Agreement, no
person shall make any payment or gift to any employee,
officer, or representative of any governmental agency or
instrumentality or any foreign political party, where such
payment would constitute a kickback, bribe, or illegal
payment.
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7. MAINTENANCE AND SUPPORT OBLIGATIONS
7.1. End User Maintenance and Support Agreements. SNI shall offer
maintenance and support services to End Users and shall use its
best efforts to ensure that each of its End Users signs a
Maintenance and Support Agreement for the Software, each of which
shall take effect no later than one hundred and eighty (180) days
after delivery to the End User of the Software and have a minimum
term of five (5) years.
7.2. Phoenix Support to SNI. In exchange for the Maintenance and
Support Fees and the Maintenance Fee Royalties due from SNI as set
forth in the Software License and Distribution Addendum, Phoenix
shall provide 2nd level support and maintenance to SNI (for itself
and for the benefit of End Users with Maintenance and Support
Agreements) for the then current release of the Software and, for
six (6) months following delivery of a New Release, for the
immediately preceding release of the Software as follows:
a. When SNI becomes aware of an apparent bug, fault, or other
defect in the software (an "error"), it will request
Phoenix to investigate it. SNI shall, upon request, provide
to Phoenix a listing of output and any other data or
information that Phoenix may require in order to reproduce
the error and the operating conditions under which the
error occurred or was discovered. Phoenix shall use all
commercially reasonable efforts to find corrections or
work-arounds for errors of which it is informed by SNI
within a reasonable period from the date of notification.
Fixes for material errors shall be included, to the extent
reasonable possible, in the next New Release of the
Software. If, in the opinion of an End User and SNI, an
error renders an End User unable to perform absolutely
necessary business transactions, Phoenix shall begin
investigation to find a correction or work-round for the
error within four (4) working hours. All support provided
to SNI by Phoenix shall be through telephone conference,
remote diagnostics and error correction at Phoenix's
offices. On-site service, if required, shall not be covered
by the Maintenance and Support Fee, and shall be performed
by Phoenix on a time and materials basis at the rates set
forth in the Annual Price List plus Related Expenses.
b. Upgrades. Phoenix shall provide, to SNI at no additional
cost, a copy of each New Release of the Software as Phoenix
may from time to time issue to its customers generally. SNI
may provide such new releases only to End Users during
their initial Warranty Periods and to End Users for whom
Phoenix has been paid Maintenance Fee Royalties as set
forth in the Software License and Distribution Addendum.
Phoenix shall provide reasonable telephone support to SNI
to assist in the installation and operation of each New
Release. For any particular New Release to operate
properly, all prior New Releases must have been installed.
7.3. SNI Customer Support. Phoenix authorizes SNI to, and SNI shall, under the
terms of the Maintenance and Support Agreements, provide Level 1 Customer
Support to End Users, either directly or through an affiliated company as
defined in Section 2.16 above. Level 1 Support shall include:
a. a contact point - (regional hot-line).
b. resolving questions about configuration and operation of the
Software.
c. determining whether reported problems are faults in the Software
or not.
d. logging and documenting all support calls and collecting initial
diagnostic information.
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e. reporting identified and documented errors to Phoenix via SNI
Competence Centres.
f. delivery of resolutions to the customer, including the dispatch
and, if applicable, the installation, of corrections or corrected
releases for End User.
7.4. Phoenix Support of End Users. Phoenix shall provide Level 2 Support to
SNI or, if problems cannot be resolved by working with SNI, SNI End
Users. Level 2 Support shall consist of the investigation, resolution,
and testing of system-level (i.e. non-user-related) problems which cannot
be resolved by Level 1 Support. Level 1 SNI personnel shall escalate such
problems to Level 2 Phoenix personnel and shall support Level 2 personnel
in the resolution of the problem by gathering required information and
data from the customer. Problems shall be classified and response times
for classifications shall be as follows:
a. Critical - Critical problems prevent a customer from conducting
normal business operations. Phoenix shall respond to Critical
problems within 1 hour. Phoenix will use reasonable efforts to
resolve Critical problems within one business day.
b. High - High problems have a serious impact on operations, but do
not prevent the conduct of business. Phoenix shall respond to High
problems within 4 hours. Phoenix will use reasonable efforts to
resolve High problems within two business days.
c. Medium - Medium problems are inconvenient but do not cause
disruptive problems. Phoenix shall respond to Medium problems
within one business day. Phoenix will use reasonable efforts to
resolve Medium problems within five business days.
d. Low - Low problems are cosmetic but not functional. Phoenix shall
respond to Low problems within one business day. Phoenix will
resolve Low problems as soon as reasonably convenient.
8. SOURCE CODE. Phoenix will remain the point at which all developments
associated with the source code are maintained. Neither SNI, its
subsidiaries nor its End Users shall be entitled to the source code of
the Software, except as otherwise set forth herein. Phoenix shall escrow
the source code for the Software for the benefit of SNI as set forth in
the Escrow Agreement attached hereto as Exhibit H.
9. PHOENIX'S OBLIGATIONS
9.1. Copies of the Software. Phoenix shall provide SNI with a
reasonable number of copies of the Software and Documentation as
necessary for SNI to market the Software and fulfill its
obligations and exercise its rights hereunder. All Software and
Documentation shall be provided in English.
9.2 Delivery. Phoenix shall supply the Software and Documentation to
SNI Competence Centres within thirty (30) days from the
Commencement Date.
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10. WARRANTY
10.1. Phoenix warrants that Phoenix is the owner of all rights, title,
and interest in and to the Software and Documentation or has
appropriate licensing rights therefore, and that there are, to the
best of Phoenix's knowledge, no claims, disputes, or proceedings
pending or anticipated which affect either the rights granted to
SNI hereunder or the warranties and representations made to SNI
hereunder.
10.2. Phoenix agrees to defend, indemnify and hold SNI and its End Users
harmless from any claims, proceedings, cost, expenses, damages,
penalties, and losses (including reasonable attorney fees)
resulting from any breach of the above warranty in this Section
10, provided that SNI:
a. notifies Phoenix of such claim, dispute, or proceeding
within thirty (30) days of SNI's knowledge thereof;
b. provides Phoenix with the sole authority, as far as
legally possible, to defend and settle such claim(s),
dispute(s), or proceeding(s) with counsel of Phoenix's
choice (SNI may participate at its costs with counsel of
its choice); and
c. cooperates as reasonably requested by Phoenix at Phoenix's
expense.
10.3. Independent of the foregoing, in case of justified infringement
claims of a third party, Phoenix shall use its best reasonable
efforts to either,:
a. acquire from such third party a license grant for the
intellectual property rights in question at Phoenix's cost
and procure for SNI the right to continue to use,
distribute and market the Software and Documentation
pursuant to the rights granted herein, or
b. replace or modify such infringing Software and/or
Documentation in a way that they shall not be deemed any
longer to constitute such infringement, or
c. take back such infringing Software and/or Documentation on
SNI's request and reimburse the related license fee to SNI
less a reasonable depreciation for the intermediate
commercial use of the Software based on a five year working
life of such Software and/or Documentation.
10.4. The indemnification shall not apply (i) where the infringement is
caused by modification of the Software made by SNI, or (ii) where
the infringement is caused by any use of the Software in
combination, operation or use with any machine, program or other
material not stated in the Documentation or approved by Phoenix
for use with the Software.
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10.5. This section 10 represents the exclusive remedy for SNI
against Phoenix for infringement of third Party rights to the
Software, Documentation, or any component thereof.
11. WARRANTIES, LIMITATIONS AND LIABILITY
11.1. Phoenix warrants that the Software and Documentation delivered by
Phoenix to SNI will perform substantially in accordance with the
Documentation. SNI's remedy for any breach of such warranty shall
be repair or replacement of the non-conforming software. In the
event any errors or divergence are discovered within one hundred
and eighty days (180) after delivery of Software and Documentation
to SNI ("Warranty Period"), SNI will use its reasonable efforts to
isolate and analyze such errors or divergence during the warranty
period before advising Phoenix of the errors and requiring
Phoenix's technical involvement to correct such errors. Phoenix
agrees to correct such errors at Phoenix's costs and expense
within the timeframe, classification, and error levels as stated
in Exhibit E.
11.2. Phoenix warrants that neither use nor functionality of the
Software will be limited, restricted, or otherwise impaired by the
calendar change due to the beginning of the new century (generally
known as the year 2000 problem).
11.3. Phoenix shall not be responsible under this Section 11 for fixing
any errors of Software caused by or resulting from any
modification of the Software not made or authorized by Phoenix, or
caused by use of the Software with hardware or operating
environments which have not been approved by Phoenix for use with
the Software.
11.4. The foregoing warranties of Phoenix are in lieu of all other
warranties, express or implied, including, without limitation, any
warranty of merchantability or fitness for a particular purpose.
The same applies mutatis mutandis for SNI.
11.5. With the exclusion of willful or gross negligent conduct, Phoenix
and SNI exclude vis-a-vis each other any liability for indirect or
consequential damages including, but not limited to, interruption
of business, loss of profit, loss of data or restoration of data.
11.6. With the exclusion of claims for personal injury or for willful or
grossly negligent acts or for misappropriation or infringement of
Intellectual Property Rights or equivalent claims, Phoenix's
liability to SNI for damages arising hereunder for any cause
whatsoever shall be limited (i) per event to *** for the products
or services out of which such liability arose and (ii) per End
User to ***.
11.7. With the exclusion of claims for personal injury or for willful or
grossly negligent acts or for misappropriation or infringement of
Intellectual Property Rights or equivalent claims, SNI's liability
to Phoenix for damages arising hereunder for any cause whatsoever
shall be limited (i) per event to *** for the products or services
out of which such liability arose and (ii) per End User to ***.
11.8. Phoenix shall indemnify SNI and its distributors and/or End Users
against any liability arising out of personal injury attributable
to Phoenix or its products, unless and insofar as such liability
is based on willful or negligent misconduct of SNI or its
distributors and/or End Users.
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
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12. TITLE TO INTELLECTUAL PROPERTY
All right title and interest in and to all copies of the Software and
Documentation and all Intellectual Property Rights pertaining thereto
shall vest exclusively with Phoenix, including the Intellectual Property
Rights in all Modifications and other related works created by or for
Phoenix, SNI, or any End User, including their personnel and permitted
agents or contractors. To the extent that such rights do not
automatically vest with Phoenix, SNI agrees to and hereby does assign
such rights to Phoenix, and shall execute such instruments as may be
necessary to effect such assignment. To the extent Modifications are
produced by or under the supervision of SNI with the approval of Phoenix,
Phoenix hereby grants to SNI a non-transferable, and royalty free license
to reproduce, license and distribute such Modifications, but only to the
extent they are marketed and licensed or sold to End Users for use solely
with duly licensed versions of the Software pursuant to End User Licenses
in effect with Phoenix. Output and report formats created by SNI or any
End User shall by owned by SNI or such End User, provided that Phoenix
shall have a royalty free license to reproduce, license, and distribute
such formats in conjunction with the Software. SNI shall assist Phoenix,
at its reasonable request, in perfecting and maintaining Phoenix's rights
in the Software, including trade secrets and copyrights as applicable.
13. CONFIDENTIALITY
13.1. Non-Disclosure. Except as otherwise provided herein or as allowed
by the prior written consent of the parties, for the term of this
Agreement and for a period of three (3) years following the
termination of this Agreement, each Party shall (a) receive all
Confidential Information of the other in strict confidence, (b)
use the same degree of care which it uses to protect its own
confidential information to maintain the confidentiality and
secrecy thereof, (c) disclose the Confidential Information, and
permit the Confidential Information to be disclosed, only to its
employees who need access to the Confidential Information to carry
out the terms and intent of this Agreement, and (d) use the
Confidential Information only in furtherance of its rights and
obligations set forth in this Agreement. Both Parties shall keep
confidential the terms and conditions of this Agreement, but not
its existence, and all other information which is designated in
writing as confidential by one party to the other. Notwithstanding
the foregoing, Phoenix and SNI may make such disclosures as may be
required by order of a court of competent jurisdiction,
administrative agency or other government body, or by law rule or
regulation, provided, however, that to the extent possible, each
Party gives the other Party prior written notice of such
requirement and assists the other party in its efforts to oppose
such requirement. Both Parties may make any disclosure of this
Agreement as may be required by applicable securities laws as
determined by the affected Party with the assistance of counsel.
13.2. Exclusions. Confidential Information shall not include any
information (a) which at the time of disclosure to the receiving
party is in the public domain or thereafter enters the public
domain for reasons not attributable to any act or omission of the
receiving party in breach of its obligations hereunder, (b) which
receiving party can show was in the possession of receiving party
prior to the disclosure thereof to receiving party by the other
party , or (c) which the receiving party can show is acquired by
receiving party from an independent third party who does not
thereby breach an obligation of confidence to the other party and
who discloses it in good faith.
14. EXPORT CONDITIONS AND RESTRICTIONS. Phoenix and SNI shall cooperate to
condition licenses granted within and without the Territory, to require
changes to new End User License Agreements, and to make changes to the
Software and Documentation to the extent that Phoenix, in
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its reasonable judgment, determines that such changes may be necessary or
advisable for the protection of the Software and Documentation and
Phoenix's Intellectual Property Rights therein. SNI may not export the
Software outside of the Territory nor contact any prospective End User
outside of the Territory without Phoenix's prior written approval, which
may be granted or withheld in Phoenix's sole discretion.
15. EMPLOYEES. Barring prior agreement of the other Party, during the term of
this Agreement and for a period of twelve (12) months thereafter, neither
Party will directly or indirectly solicit for employment or employ any
employee of the other directly working with the other Party in fulfilling
obligations under this Agreement without the prior written consent of the
other.
16. ARBITRATION. In the event a claim, controversy or dispute between Phoenix
and SNI arises out of or in connection with this Agreement or the
transactions and business contemplated hereby, including the validity,
construction or enforcement thereof, either party may demand that such
matter be submitted to final and binding arbitration before a single
arbitrator selected by the parties in accordance with the then-existing
rules of the International Chamber of Commerce, Paris. The site of all
arbitration proceedings shall be Zurich, Switzerland , unless Phoenix and
SNI agree in writing to another site. The procedural laws of Zurich shall
apply where the ICC rules are silent. All arbitration proceedings and
records shall be in English. Issuance of an arbitration demand shall
suspend the effect of any default entailed by such claim, controversy or
dispute and any judicial or administrative proceedings instituted in
connection therewith, for the duration of the arbitration proceedings. If
Phoenix and SNI cannot agree on the identity of a single arbitrator
within five (5) days of receipt of the arbitration demand, each of them
shall appoint one (1) arbitrator and the party appointed arbitrators
shall appoint a third arbitrator within five (5) days of their
appointment. The arbitrator or arbitrators shall determine whether a
default has occurred, and shall deliver its or their decision within
sixty (60) days of the date of receipt of the arbitration demand,
specifying such remedy (including money damages) and shall (a) fully
implement the intent and purposes of this Agreement and (b) indemnify and
hold harmless the non-breaching party from all losses, costs and expenses
(including costs of arbitration and reasonable attorneys' fees) resulting
from the default. Limitation of Phoenix's rights in the Software, the
Documentation, or any associated intellectual property rights may not be
awarded under any circumstances. The right to demand arbitration and to
receive damages and obtain other available remedies as provided hereunder
shall be the exclusive remedy in the event an arbitration demand is made.
The arbitrators shall specify the basis for their decision. The
arbitrators shall not award any punitive damages. The decision of the
arbitrators shall be considered as a final and binding resolution of the
dispute, shall not be subject of appeal, and may be entered as a judgment
in any court of competent jurisdiction. Phoenix and SNI hereby consent to
the enforcement in the courts of each country in the Territory and the
United States of any arbitral judgement or award rendered pursuant to
this Section.
17. GENERAL
17.1. No Authority to Bind the Other Party. The parties to this
Agreement are independent contractors and, except as provided in
this Agreement or otherwise in a writing signed by both Parties,
neither Party is authorized to act on behalf of the other or to
bind the other. This Agreement does not establish any relationship
of agency, partnership, or joint venture. Each party shall bear
responsibility for its own employees, including terms of
employment, wages, hours, tax withholding, required insurance, and
daily direction and control. Except as otherwise set forth in an
Addendum, the relationship created hereunder is non-exclusive as
to each party.
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17.2. Successors and Assigns. Except to Siemens AG and except as
otherwise provided in this Agreement, neither Party may assign
this Agreement or any rights or obligations hereunder without the
prior written consent of the other Party. Any such attempted
assignment without such prior written consent shall be void and of
no force and effect. This Agreement shall inure to the benefit of
and shall be binding upon the permitted successors and assigns of
the Parties hereto.
17.3. Governing Law; Jurisdiction. The construction and interpretation
of, and the rights and obligations of the Parties pursuant to this
Agreement shall be governed by the laws of the State of Florida,
USA, and the federal laws of the United States.
17.4. Force Majeure. Neither Party shall be liable for any failure of or
delay in the performance of this Agreement for the period that
such failure or delay is due to acts of God, public enemy, civil
war, strikes or labor disputes, or any other cause beyond the
parties' reasonable control. Each Party agrees to notify the other
party promptly of the occurrence of any such cause and to carry
out this Agreement as promptly as practicable after such cause has
terminated.
17.5. Severability. In the event that any part of this Agreement is
declared by any court or other judicial or administrative body to
be null, void or unenforceable, such provision shall survive to
the extent it is not so declared, and all of the other provisions
of this Agreement shall remain in full force and effect.
17.6. Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to
have been duly given: (i) on the date of service if served
personally on the Party to whom notice is to be given; (ii) on the
day of transmission if sent via facsimile transmission to the
facsimile number given below, and telephonic confirmation of
receipt is obtained promptly after completion of transmission;
(iii) on the day of delivery if by FedEx, DHL, or similar courier
service; or (iv) upon receipt if sent otherwise. Notices shall be
addressed to the applicable party as set forth below unless an
alternate address has been provided in writing in conformance with
this provision:
If to Phoenix:
Phoenix International Ltd., Inc.
500 International Parkway
Heathrow, Florida 32746
Attention: Raju M. Shivdasani
Facsimile: (407) 548-5299
If to SNI, attention Mr. Juergen Frischmuth the address first set
forth above.
17.7. Amendments; Waivers. This Agreement may be amended or modified,
and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument
executed by the Parties hereto, or in the case of a waiver, by the
party waiving compliance. Any waiver by any Party of a condition,
or of the breach of any provision, term, covenant, representation
or warranty contained in this Agreement, in any one or more
instances, shall not be deemed to be nor construed as furthering
or continuing waiver of any such condition, or of the breach of
any other provision, term, covenant, representation or warranty of
this Agreement.
13
<PAGE> 14
17.8. Public Announcements. Neither Party shall make any press release
or public announcement concerning this transaction without the
prior written approval of the other Party unless a press release
or public amendment is required by law or by regulations binding
upon any of the Parties of their affiliates, in which case, the
disclosing Party agrees to give the non-disclosing Party prior
notice and an opportunity to comment on the proposed disclosure.
17.9. Entire Agreement. This Agreement contains the entire understanding
between the Parties hereto with respect to the transactions
contemplated hereby and supersedes and replaces all prior and
contemporaneous agreements and understandings, oral or written,
with regard to such transactions. All schedules and addenda hereto
and any documents and instruments delivered pursuant to any
provision hereof and agreed in writing are expressly made a part
of this Agreement as fully as though completely set forth herein.
The rights of the Parties are only as set forth herein, and there
are and shall be no implied rights or obligations whatsoever.
17.10. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but both of which shall
constitute the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
above written.
Phoenix International Ltd., Inc.: Siemens Nixdorf Informationssysteme AG:
By: /s/ Bahram Yusefzadeh By:
------------------------------ ------------------------------
Signature Signature
Bahram Yusefzadeh
- --------------------------------- ---------------------------------
Name (Print) Name (Print)
Chairman & CEO
- --------------------------------- ---------------------------------
Title Title
/s/ Raju M. Shivdasani
- --------------------------------- ---------------------------------
Witness Witness
14
<PAGE> 15
KNOWLEDGE TRANSFER ADDENDUM
Date: 28/6/97
----------------
This Addendum provides additional terms defining the relationship between SNI
and Phoenix. The terms and conditions contained herein are in addition to those
contained in the applicable Cooperative Marketing Agreement. If any terms
contained herein are inconsistent with the terms of the Cooperative Marketing
Agreement, this Addendum shall control.
1. Technical Training. Phoenix shall provide technical training in Orlando
to SNI's personnel in the installation, implementation, use, maintenance,
and support of the Software, as more particularly set forth in the
Education Program attached hereto as Exhibit G. Phoenix shall provide ***
technical training days at *** providing the technical training is
completed within *** from the Commencement Date. Thereafter SNI
shall pay Phoenix for all technical training ***. Wherever possible and
practical initial technical training will be performed in conjunction
with End User training days.
2. Sales Training. Phoenix shall provide *** days of sales training in
Europe at ***. Initial sales training shall be provided by ***. SNI shall
however be responsible for the travel and out of pocket expenses incurred
during this initial sales training. SNI to advise location, number of
attendees and date. SNI will be responsible for providing appropriately
configured hardware for the sales training course.
3. Additional License. Once the training has been completed, SNI shall have
the additional right and license to use the Software for the purpose of
providing support to End Users as set forth herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
above written.
Phoenix International Ltd., Inc.: Siemens Nixdorf Informationssysteme AG
By: /s/ Bahram Yusefzadeh By: /s/ S.D. Gray
------------------------------ -----------------------------
Signature Signature
B. Yusefzadeh S.D. Gray
- --------------------------------- ---------------------------------
Name (Print) Name (Print)
Chairman & CEO Director - Strategic Alliances
- --------------------------------- ---------------------------------
Title Title
/s/ Raju M. Shivdasani
- --------------------------------- ---------------------------------
Witness Witness
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
15
<PAGE> 16
SOFTWARE LICENSE AND DISTRIBUTION ADDENDUM
SIEMENS NIXDORF INFORMATIONSSYSTEME AG
Date: 28/6/97
---------------------
This Addendum provides additional terms defining the relationship between SNI
and Phoenix. The terms and conditions contained herein are in addition to those
contained in the applicable Cooperative Marketing Agreement. If any terms
contained herein are inconsistent with the terms of the Agreement, this Addendum
shall control.
1. Marketing. Phoenix hereby grants to SNI the semi-exclusive right and
license, subject to the restrictions set forth herein, to market the
Software to Eligible Prospects within the Territory. SNI shall use its
best efforts to identify and introduce Eligible Prospects to Phoenix and
to demonstrate the Software to such Eligible Prospects. Semi-exclusive
shall means that, in each country in the Territory, Phoenix shall not
authorize more than *** distributors or sales agents in addition to SNI.
2. Distribution License
a. Phoenix hereby grants to SNI the right and license to sub-license
and distribute the Software to End Users for use within the
Territory.
b. SNI shall require each End User to enter into an End User License
Agreement with SNI prior to delivery or distribution of the
Software to such End User. SNI may sub-license the Software to End
Users upon different terms and conditions other than those set
forth in the End User License Agreement, subject to i) Phoenix
written approval of such amended terms and conditions ii) SNI
bearing all the risk and liability arising because such terms go
beyond or below the provisions of the standard End User License
Agreement.
3. Competence Centres. SNI shall set up two Competence Centres for the
Software, one in Europe and the other in the Asia Pacific Region. These
centres will be the focus for daily operational contact with the Phoenix
development team and will support the other SNI subsidiaries. SNI may
seek to extend the number of competence centres on a regional basis. The
SNI Competence Centres will remain the focus points for SNI/Phoenix
Product development, co-operation and support. The license fee set forth
herein is for the use, license and support of the Software at these two
competence centres. Additional locations shall require additional fees.
4. ORDER CYCLE
4.1. Whenever SNI signs an End User License Agreement for the Software
or receives an order for such a license, SNI Competence Centre
shall give written notification to Phoenix of the following
information within ten (10) business days :
(a) the Software modules required.
(b) the number of licenses and branch licenses.
(c) the hardware platform, operating system, third party
products and relevant versions.
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
16
<PAGE> 17
(d) the required delivery time.
(e) the name of the End User and location of the premises at
which the Software is to be used, including a contact name.
(f) the name of a contact at the SNI Subsidiary.
(g) the base and branch license fees and maintenance fees, if
any, due from such End User.
Phoenix shall acknowledge such order in writing to such SNI
Competence Centre within ten (10) business days. Its
acknowledgment shall include a delivery date.
4.2. After receipt of the written order from SNI Competence Centre,
Phoenix shall produce a license certificate, an installation kit,
and printed copies of the Documentation, and shall ship the
foregoing to the appropriate SNI Competence Centre, which shall be
responsible for shipment to the End User.
4.3. When importing a Product or enhancement hereunder obtained from
Phoenix, SNI shall be responsible for ensuring compliance with any
import laws and regulations in the respective country. Where the
importer cannot obtain the necessary import license then it shall
be excused performance of this Agreement in relation to that
particular country and this Agreement shall continue with that
country removed from the related Territory. Unless otherwise
specified by Phoenix, SNI shall consider that the Software is not
export restricted under US law.
5. Copies of Software and Documentation. SNI shall be responsible for
delivering the requisite number of copies of the Software and
Documentation to each End User as set forth in valid End User License
Agreements.
6. Collection of Fees. SNI shall be responsible for invoicing and collecting
all fees due from End Users within the Territory. Phoenix shall invoice
SNI for all fees due Phoenix and SNI shall pay all such fees within 30
days upon receipt of such invoices.
7. Fees.
7.1. SNI License Fee. SNI shall pay to Phoenix a license fee of *** for
the rights granted hereunder and for delivery of the current
version of the Software, which shall be fully earned and billable
upon execution of this Agreement and paid by SNI within 30 days
following receipt of Phoenix's invoice. Such fee shall be fully
earned by Phoenix and non-refundable upon delivery of the current
version of the Software to both SNI Competence Centres. Additional
locations shall require additional license fees.
7.2. SNI Maintenance and Support Fee. SNI shall pay Phoenix a
Maintenance and Support Fee of *** per annum, payable quarterly,
for each of the first *** years after delivery of the Software to
SNI for remote Maintenance and Support provided to SNI under this
Agreement. On-site support shall be provided by Phoenix to SNI ***
at Phoenix's rates for such services as set forth in the Annual
Price List, plus reimbursement to Phoenix of ***. In the event
that *** licenses are sold within the first year, then the minimum
amount payable by SNI shall be ***. In the event that *** licenses
are sold during ***, then *** shall be *** due for support fees.
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
17
<PAGE> 18
7.3. End User License Fees.
a. Amount. The Annual Price List shall be used as a
recommendation for calculating End User fees. Fees charged
by SNI to End Users may be set *** of the Annual Price
List.
b. Base and Branch License Fee Royalties. Unless otherwise
agreed between Phoenix and SNI, for each End User, SNI
shall pay to Phoenix the greater of (i) *** of the actual
base and branch license fees due *** or (ii) *** of the
base and branch license fees *** for each End User. Phoenix
shall invoice SNI for the full value of the Software at
time of shipment. SNI shall remit to Phoenix *** within ***
days from receipt of invoice the remaining *** shall be due
and payable within *** days after delivery of the Software
to SNI. Any extension of payment terms offered to End Users
will be discussed with Phoenix and these payment terms may
also be extended for payment of invoice to Phoenix if
mutually agreed in writing. In the event that SNI do not
sell *** licenses within *** from the Commencement Date,
then the license fee split between Phoenix and SNI shall be
changed to *** for the next *** deals or until such time as
a total of *** licenses are sold.
7.4. End User Maintenance Fees.
a. Amount. Subject to a Maintenance and Support Agreement
being executed, SNI shall charge each End User an annual
Maintenance Fee. Maintenance Fees shall be *** of the base
and branch license fees charged to each End User, which may
be *** at the discretion of management.
b. Maintenance Fee Royalties. Unless otherwise agreed between
Phoenix and SNI, for each End User, SNI shall pay to
Phoenix the greater of (i) *** of the actual maintenance
and support fees due *** or (ii) *** of the base and branch
license fees *** for each End User. After *** years
following the Commencement Date or at such time as ***
licenses are sold, whichever is sooner, the foregoing
percentages shall be *** and *** respectively. The
foregoing fee splits are based upon SNI providing all first
level support to End Users. All maintenance fee royalties
shall be paid to Phoenix within 30 days of receiving
invoice from Phoenix.
7.5. Professional Services and Development Fees. Professional
Services and Development work includes installation,
conversion, training, Modification, implementation, and
consulting services. Phoenix shall provide such
Professional Services and Development to SNI and for and on
behalf of End Users as reasonably requested by SNI from
time to time. Fees for such services shall be billed to SNI
at a *** stated in Annual Price List, plus ***. All such
fees and expenses shall be paid by SNI within 30 days after
receipt of invoice from Phoenix. SNI shall be responsible
for billing and collecting such fees and expenses from End
Users.
7.6. Hardware and Network Fees. SNI shall keep *** for hardware
and network services provided to End Users other than as
set forth above. SNI shall consult with Phoenix for
certification of all hardware and network products sold to End
Users for use with the Software.
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
18
<PAGE> 19
7.7. Taxes. SNI shall pay all sales, use, import, VAT or other
taxes, tariffs, or duties arising out of the transactions
contemplated herein, however designated, based or levied by any
federal, state, municipal or local taxing authority in the
Territory, (exclusive of United States Federal, state or local
taxes based upon the net income of Phoenix) ("Taxes"). SNI shall
indemnify and reimburse Phoenix for all Taxes which Phoenix is
required to pay. Upon request by Phoenix, SNI shall provide
Phoenix satisfactory documentation of taxes paid. SNI may
challenge the applicability of any Tax only after paying the Tax
or giving Phoenix other satisfactory assurances of compliance.
Phoenix may increase its prices to cover any export taxes which
may arise.
Withholding tax regulations may apply within certain
countries within the Territory. SNI will notify Phoenix as soon
as possible of any obligation to deduct a withholding tax from
payments to Phoenix. Phoenix shall have sole responsibility for
applying for any required exemption certificates which SNI cannot
obtain on Phoenix's behalf. If no such tax exemption is obtained
from the local authorities and submitted to SNI, SNI shall be
obligated to withhold respective tax amounts. If Phoenix, after
using reasonable efforts, is unable to obtain an exemption from
any withholding tax, Phoenix shall immediately notify SNI so that
SNI may take appropriate steps to increase the cost to the End
User, and SNI shall insure that Phoenix is reimbursed for
all such taxes withheld from payments to Phoenix.
7.8. Set Off. Notwithstanding the foregoing, SNI shall
be entitled to keep base and branch license fees payable
to Phoenix up to *** from each of the first *** deals, or future
deals until the full amount of *** has been recovered from
Phoenix. Thereafter fees shall be split as set forth herein
8. Complementary Products and Services. SNI may provide to End Users
complementary products and services for provision to End Users with the
Software. SNI may include such products and services in End User License
Agreements.
9. Support. If SNI has completed the requisite training requirements set
forth therein, SNI may provide Support to End Users. Subject to receipt
of its share of the Maintenance Fee Royalties as set forth herein,
Phoenix shall provide that Support required by End Users and not provided
by SNI. If further support, non maintenance, is required by any End User,
Phoenix shall provide such support and SNI shall pay Phoenix the fees set
forth in the Annual Price List for such support, plus Related expenses.
10. Implementation. If SNI has completed the requisite training programs,
then SNI may implement the software sold as a result of SNI's efforts.
All Software not implemented by SNI shall be implemented by or at the
direction of Phoenix. Phoenix shall supply SNI with one copy of the
Software and Documentation on the appropriate electronic media for
implementation for each fully executed End User License Agreement
presented to Phoenix along with Phoenix's percentage of the license fees
for such End User.
11. Personnel. SNI shall assign a minimum of *** sales executives to focus on
sales of the Software in the Territory.
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
19
<PAGE> 20
12. Source Code. Phoenix shall license source code for the Software to End
Users when required by such End Users. A *** fee shall be charged for
license of the source code equal to the greater of *** or ***, which
amount shall be paid directly to Phoenix in its entirety.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
above written.
Phoenix SNI
By: /s/ Bahram Yusefzadeh By: /s/ S.D. Gray
---------------------------- -----------------------------
Signature Signature
B. Yusefzadeh S.D. Gray
- ------------------------------- --------------------------------
Name (Print) Name (Print)
Chairman & CEO Director - Strategic Alliances
- ------------------------------- --------------------------------
Title Title
/s/ Raju M. Shivdasani
- ------------------------------- --------------------------------
Witness Witness
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
20
<PAGE> 21
EXHIBIT A
SOFTWARE
Means the object code version of the software generally referred to as the
"Phoenix Banking System", and does not include the required database management
system nor any other third party applications or systems software.
Phoenix Banking System version 1.37 and subsequent New Releases including the
following components:
Customer & Product Controls
Administrative Controls
Customer Processing
Deposit Processing
Loan Processing
Teller Processing
Nightly Processing
General Ledger Administration & Maintenance
Executive Information System
Data Dictionary: Deposits
Data Dictionary: Loans
Data Dictionary: Customer Information
Report Dictionary
Budgeting
Multi-Currency Module
21
<PAGE> 22
EXHIBIT B
TERRITORY
The Territory shall mean the following regions:
ASIA PACIFIC
EUROPE including Mediterranean countries
MIDDLE EAST
AFRICA
The following countries where Phoenix have an existing exclusive distribution
relationship shall not form part of the Territory:
Kenya, Nigeria, Zimbabwe, Ghana, Ethiopia, and Zambia
Kuwait, United Arab Emirates, Saudi Arabia, Lebanon, Egypt, Oman, Bahrain and
Qatar.
22
<PAGE> 23
EXHIBIT C
CONFIDENTIAL
NOT FOR DISTRIBUTION
===============================================================================
ANNUAL PRICE LIST (US DOLLARS)
PHOENIX RETAIL BANKING SYSTEM
===============================================================================
1. LICENSE FEES
A. Base License (one Server) ***
B. Remote Branch License
Branches
*** ***
*** $ ***
*** $ ***
*** $ ***
*** $ ***
*** $ ***
C. Virtual Branch License (per *** customer accounts) $ ***
2. IMPLEMENTATION FEES (PLUS TRAVEL & LIVING EXPENSES)
<TABLE>
<S> <C> <C>
A. Requirements Review/Analysis ***
B. Conversion and Installation ***
C. Training ***
D. Enhancements and Modifications ***
</TABLE>
3. ANNUAL CUSTOMER AND SOFTWARE SUPPORT FEES: *** of total License
(PLUS TRAVEL & LIVING EXPENSES) Fees per annum.
4. PROFESSIONAL SERVICES PER DAY RATES
<TABLE>
<S> <C> <C>
Daily Rates ***
Senior/Executive Management *** ***
Project Management *** ***
Trainer *** ***
</TABLE>
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
23
<PAGE> 24
<TABLE>
<S> <C> <C>
Implementation Professional *** ***
Development Professional *** ***
</TABLE>
5. THE COMPONENTS OF THE SOFTWARE AND DOCUMENTATION
Customer & Product Controls
Administrative Controls
Customer Processing
Deposit Processing
Loan Processing
Teller Processing
Nightly Processing
General Ledger Administration & Maintenance
Executive Information System
Data Dictionary: Deposits
Data Dictionary: Loans
Data Dictionary: Customer Information
Report Dictionary
Budgeting
Multi-Currency Module
THE SOFTWARE SPECIFICATIONS ARE LOCATED IN THE LICENSED DOCUMENTATION.
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
24
<PAGE> 25
EXHIBIT D
End User License Agreement
(to be attached)
25
<PAGE> 26
CONFIDENTIAL
INTERNATIONAL SOFTWARE LICENSE AGREEMENT
- ----------------------------------------- --------------------------------------
Name of Customer: Effective Date (Day/Month/Year):
- ----------------------------------------- --------------------------------------
Type of entity: Country of formation:
- ----------------------------------------- --------------------------------------
Mailing Address: Business Address (if different from
mailing address):
- ----------------------------------------- --------------------------------------
City, State, Country, Postal Code: City, State, Country, Postal Code:
- ----------------------------------------- --------------------------------------
Phone Number (including country Fax Number (including country
and city code): and city code):
- ----------------------------------------- --------------------------------------
Whereas SNI is authorized to license and distribute certain retail banking
software developed and owned by Phoenix International Ltd., Inc. which Customer
wishes to license, then in consideration of the obligations of the parties set
forth below, the parties hereby agree as follows:
1 DEFINITIONS
1.1 "Additional Branch" shall mean a Remote Branch not listed in Exhibit D which
is connected to the Customer Network after the Effective Date, whether as a
result of changes in operations, growth, acquisition, or otherwise.
1.2 "Acquired Financial Institution" shall mean any financial institution in
which Customer acquires a greater than 50% interest or which merges with or into
the Customer.
1.3 "Affiliate" shall mean a parent company owning a majority of the Customer,
and majority owned subsidiaries of the Customer.
1.4 "Changes" shall mean corrections, updates, upgrades, translations, additions
and modifications to the Software and Documentation, and any other new or
additional works based in whole or in part on the Software or Documentation.
1.5 "Client Devices" shall mean workstations, personal computers and terminals
connected to the Server through the Customer Network which access and Use the
Software to input, read, interpret, manipulate, or display Customer's data.
1.6 "Confidential Information" shall mean any competitively sensitive or secret
business, marketing, or technical information of Phoenix, SNI, or Customer. In
all cases, Phoenix's Confidential Information shall include the Software and
Documentation, including all Changes. Confidential Information shall not include
information which is (i) generally known to the public or readily ascertainable
from public sources (other than as a result of a breach of confidentiality
hereunder), (ii) independently developed by the receiving party without
reference to or reliance on any Confidential Information of the disclosing
party, as demonstrated by written records of the receiving party, or (iii)
obtained from an independent third party who created or acquired such
information without reference to or reliance on Confidential Information.
1.7 "Customer and Software Support" shall have the meaning set forth in Section
8.
1.8 "Customer Network" shall mean the Server and the Client Devices at the
Remote Branches for which license fees have been paid hereunder.
1.9 "Designated Location" shall mean the street address of the location of the
Server as specified on Exhibit D. Customer shall notify SNI prior to any change
in the location of the Server. Upon such notice, Exhibit D will be deemed
automatically amended to reflect the change.
1.10 "Documentation" shall mean the system and user documentation relating to
the Software provided to Customer by or on behalf of SNI.
1.11 "Effective Date" means the date first set forth above as the date of this
Agreement.
1.12 "Licensed Products" shall mean collectively the Software and Documentation.
<PAGE> 27
CONFIDENTIAL
1.13 "Related Expenses" shall mean reasonable travel and other out-of-pocket
expenses incurred by SNI in the performance of its obligations hereunder,
including (without limitation) airfare, travel costs, lodging costs, and meals;
the cost of optional products, services, and hardware requested or authorized by
Customer; shipping charges, courier and delivery charges; tape, cartridge and
diskette costs. To the extent reasonably possible, SNI will obtain the approval
of Customer prior to incurring substantial Related Expenses, and Customer will
not unreasonably withhold such approval.
1.14 "Remote Branches" shall mean the street addresses listed in Exhibit D where
Client Devices reside. The Remote Branches will include Additional Branches only
after the proper license fees for such Additional Branches have been paid to
SNI. At such time, Exhibit D will be deemed automatically amended to include
such Additional Branches.
1.15 "Server" shall mean the network file server serving as the Sybase database
for the Software.
1.16 "Software" shall mean the object code version of the Phoenix software
listed in Exhibit A, along with all Changes provided to Customer or authorized
by SNI hereunder.
1.17 "Term" shall have the meaning set forth in Section 4 below.
1.18 "Territory" shall mean the countries or territories set forth in Exhibit E.
1.19 "Third Party Software" shall mean software required to be used in
conjunction with the Phoenix Software, as more particularly described in Exhibit
C attached hereto.
1.20 "Use" (used as a noun or verb) shall mean the reading into computer memory
of the Software for the purpose of access and/or execution, in whole or in part.
2 LICENSE GRANT
2.1 License. Subject to the restrictions and limitations of this Agreement and
to payment of the fees set forth herein, SNI hereby grants to Customer a
non-exclusive, non-transferable sub-license during the term of this Agreement
and within the Territory to:
(1) Use the Software on the Customer Network;
(2) transfer the Software to a backup machine when the primary Server or
any associated machine elements required for Use of the Software are
temporarily inoperable or unusable, or to another machine for disaster
recovery testing (which may occur concurrent with normal Use of the
Software to process Customer's data on Customer Network), or for actual
disaster recovery and processing in the event the Customer Network is
non-functional due to the occurrence of disaster;
(3) make a reasonable number of additional copies of the Software for
testing, backup, and archival purposes in support of its ordinary Use of
the Software;
(4) use the Documentation in support of Customer's Use of the Software;
(5) may make a reasonable number of additional copies of the Documentation
or portions thereof as required to support the Use of the Software.
2.2 Restrictions. The Software may only be used for Customer's and its
Affiliates' own internal data processing needs. Customer may not, without the
prior written consent of Phoenix and SNI:
(1) translate, reverse engineer, de-compile, interpret or disassemble the
Software;
(2) transfer, distribute, sell, lease, or assign the Licensed Products;
(3) use the Licensed Products to process accounts or records, or to
generate output data, for the direct benefit of, or for purposes of
rendering services to, any business entity or organization other than
Customer and its Affiliates; or
(4) make any Changes to the Software.
2.3 Delivery. SNI will deliver to Customer one copy of the current unmodified
version of the Software (as listed in Exhibit A) in object code form, and one
copy of the current version of the Documentation. The licenses granted to
Customer under Section 2.1 shall become immediately effective, and shall not
delayed or contingent based on installation, operation, or the delivery or
completion of any services.
2.4 Records. Customer agrees to maintain a record of the number and location of
all copies of the Licensed Products in its possession. Customer shall provide
SNI with a copy of such record upon SNI's written request. Following prior
written notice, SNI or its designee shall have the right to enter Customer's
premises during regular business hours in a non-disruptive manner for the
purpose of inspecting the location and use of the Software and Documentation,
the compliance of Customer with the provisions of this Agreement, and the
standard procedures of Customer regarding retention, safekeeping, and disposal
of all media and materials pertaining thereto
3 PAYMENTS AND TERMS.
3.1 Fees. The fees and charges for products and services to be provided under
this Agreement are set forth in Exhibit B. All amounts shall be paid in U.S.
dollars by wire transfer
2
<PAGE> 28
CONFIDENTIAL
to the bank account designated by SNI in accordance with the payment terms set
forth in Exhibit B, or as otherwise agreed between SNI and Customer.
Additionally, Customer shall pay all Related Expenses incurred by SNI.
3.2 Payment Terms. All invoices shall be due and payable on the date specified
in Exhibit A, or, if a date is not specified, not later than 30 days following
the date of invoice. Overdue amounts shall incur interest at the lesser of 1
1/2% per month or the highest rate allowed under applicable law. Time is of the
essence with respect to all payments due from Customer hereunder. Customer may
not suspend or set-off any payment due SNI hereunder on any basis whatsoever.
3.3 Taxes. Customer shall pay on a timely basis all sales, use, import, export,
VAT and other taxes, tariffs, and duties arising out the transactions
contemplated herein, however designated, based or levied by any federal, state,
municipal or local taxing authority of United States or the Territory (but shall
not include United States Federal, state or local taxes based upon the net
income of SNI) ("Taxes"). Customer shall promptly reimburse and shall indemnify
SNI for all Taxes which SNI is required by any taxing authority to pay. Customer
may challenge the applicability of any Tax only after paying the Tax or giving
SNI satisfactory assurance of compliance.
3.4 Fee Adjustments. SNI reserves the right to adjust its prices once per year
subject to 30 days advanced written notice. The Customer and Software Support
Fee shall not be increased by more than 15% per annum.
4 TERM AND TERMINATION
4.1 Term. This Agreement and the license granted herein shall have an initial
term commencing on the Effective Date and continuing for a period of 5 years
from the Effective Date (the "Initial Term"). Thereafter, this Agreement shall
automatically renew for additional 1 year periods unless and until either party
notifies the other in writing of its desire not to renew this Agreement at least
90 days prior to the last day of the Initial Term or any subsequent renewal
period.
4.2 Termination by SNI. SNI shall have the right to terminate this Agreement
upon the occurrence of any of the following events:
(1) Customer's material breach of any provision of this Agreement if such
breach is not cured within 20 days following written notice of such breach
to Customer; or
(2) Customer's failure to obtain and pay for Customer and Software Support;
or
(3) Customer ceases to do business, makes a composition or assignment for
the benefit of its creditors, makes a general arrangement with its
creditors concerning any extension or forgiveness of any of its secured
debt, becomes bankrupt or insolvent, suffers or seeks the appointment of a
receiver to the whole or any material part of its business, takes any
action to liquidate or wind up the whole or any material part of its
business, is found subject to any provisions of any bankruptcy code
concerning involuntary bankruptcy or similar proceeding, or suffers a
material adverse change in its financial position, and any such event
affects or delays payments to SNI hereunder; or
(4) Customer becomes a subsidiary of, or controlled as to its management
policy by, any government instrumentality; or
(5) Customer is required by laws in the Territory to offer or permit the
use or exercise (with or without payment to SNI) of the Software to any
other person or entity.
4.3 Result of Termination by SNI. In the event that this Agreement is terminated
under Section 4.2(1) above, Customer's license to Use the Software shall
immediately cease. In all other cases, Customer may continue to Use the Software
in accordance with this Agreement for up to 180 days following termination,
provided that Customer has paid and continues to pay all amounts due as if this
Agreement were still in effect. Upon expiration of such period (and immediately,
in the event of termination under Section 4.2(1)), Customer shall either return
to SNI or destroy all copies of the Licensed Products. Upon SNI's request,
Customer shall certify that it has completed such action.
4.4 Termination by Customer. Customer may terminate this Agreement upon the
occurrence of any of the following:
(1) SNI's material breach of any provision of this Agreement if SNI has not
initiated adequate steps to cure such breach within 10 days following
written notice of such breach to SNI; or
(2) SNI ceases to do business, makes a composition or assignment for the
benefit of its creditors, makes a general arrangement with its creditors
concerning any extension or forgiveness of any of its secured debt, becomes
bankrupt or insolvent, suffers or seeks the appointment of a receiver to
the whole or any material part of its business, takes any action to
liquidate or wind up the whole or any material part of its business, is
found subject to any provisions of any bankruptcy code concerning
involuntary bankruptcy or similar proceeding, or suffers a material adverse
change in its financial position, and any such event materially affects
SNI's ability to meet its obligations hereunder.
4.5 Result of Termination by Customer. In the event that this Agreement is
terminated by Customer under Section 4.4, or by SNI after the Initial Term,
Customer may
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<PAGE> 29
CONFIDENTIAL
continue to Use the Software in accordance with this Agreement until the later
of nine months following such termination or the end of the Initial Term. Upon
expiration of such period, Customer shall either return to SNI or destroy all
copies of the Licensed Products. Upon SNI's request, Customer shall certify that
it has completed such action.
4.6 No Refund. No payments shall be refundable upon termination of this
Agreement, whether such termination is by Customer or SNI.
4.7 Survival. All obligations with respect to restrictions on use of the
Licensed Products, confidentiality, payment of fees, ownership, and protection
of intellectual property rights shall survive any termination of this Agreement.
4.8 Non-exclusive Remedy. The rights and remedies of the parties are not
exclusive and are in addition to any other rights and remedies provided by law
or equity.
4.9 De-Conversion. Upon Customer's request, following the termination or
expiration of Customer's right to Use the Software, SNI shall assist Customer
with the conversion of its data from its then current format into a generic
format of Customer's choice. Customer shall pay SNI on a time and materials
basis for such assistance at its then current published rates for the Territory,
plus Related Expenses.
4.10 Source Code. Phoenix has deposited the most current version of the source
code for the Software with an independent escrow agent. In the event that SNI,
Phoenix on SNI's behalf, or either of their successors, shall cease to provide
Customer and Software Support, Customer's license for the use of the Software
hereunder is still in effect, and Customer has paid its Customer and Software
Support Fee and all other fees due hereunder, Customer shall have the right to
obtain, for its own sole and exclusive use for the sole purpose of maintaining
and supporting the Software, with no right of transfer, a single copy of such
source code from the escrow agent, subject to the terms of this Agreement.
5 TITLE
5.1 Ownership. The Software and Documentation are (i) copyrighted works
protected by copyright laws, treaties and conventions of the United States and
the Territory and (ii) contain trade secrets and Confidential Information of
Phoenix protected under applicable law of the United States and the Territory.
Phoenix retains all right, title, and interest in and to the Software,
Documentation, and all copyright, trade secret, patent and other intellectual
property rights contained therein, subject only to the limited license granted
to Customer in Section 2 hereof. Phoenix shall also exclusively own all Changes
to the Licensed Products, whether made by or on behalf of Phoenix, Customer, or
their employees, agents or otherwise. To the extent that Changes, including all
associated intellectual property rights, are not owned in their entirety by
Phoenix immediately upon their creation, Customer agrees to assign (and hereby
automatically assigns) all right, title and interest therein to Phoenix, without
any requirement of consideration or further documentation. Customer agrees to
take such further action and execute such further documentation as Phoenix may
reasonably request to give effect to this Section 5.1.
5.2 Report Formats. All output and report formats (e.g., ad hoc reports, SQL
queries, etc.) created by Customer shall be jointly owned by Phoenix and
Customer, and Phoenix shall have the right to license such output and report
formats to other users of the Software without payment of any fee to Customer.
Likewise, Customer shall have the benefit of output and report formats created
by other end users. To the extent such output reports derive from or contain any
part of the Software or Documentation, the restrictions applicable to the
Software and Documentation shall apply to any use thereof.
5.3 Infringement. Customer shall immediately notify Phoenix in the event that
it discovers any infringement of Phoenix's rights in the Licensed Products
or any violation of the terms of a License Agreement, and shall, at Phoenix's
expense, cooperate with Phoenix and assist in the prosecution of Phoenix's
claim.
6 Installation
SNI shall install the current unmodified version of the Software on the Customer
Network.
7 CUSTOMER OBLIGATIONS
7.1 Customer Contact. Customer shall appoint a Contact Person, listed on
Exhibit D, to serve as the focal point of communication between SNI and
Customer. SNI shall direct all communications concerning Customer to the
Customer Contact. Customer may change the Contact Person at any time upon
written notice to SNI.
7.2 Hardware and Software Requirements. Prior to Installation of the Software,
Customer shall license and obtain (i) the Third Party Software and (ii) the
Customer Network. The Customer Network must be in compliance with the Phoenix
Network and Configuration Standards Guide as provided by SNI to Customer, and
the other requirements set forth in Exhibit C. The Software will not work
properly if the Customer Network is not in compliance with such standards.
Alternative hardware and software configurations will be evaluated for use with
the Software by SNI upon Customer's reasonable request, provided that Customer
pays all of SNI's costs in connection with such evaluation. Customer shall
provide at its cost an on-line telecommunications link with a telephone modem in
order to provide SNI and Phoenix access to the Customer Network. Neither Phoenix
nor SNI shall not use such access for any reason other than to provide Customer
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and Software Support hereunder and to monitor the size, configuration, and
performance of the Customer Network.
7.3 Subsequent Releases. Customer shall install all corrections, enhancements,
and subsequent releases of the Software within 90 days after receipt from SNI.
7.4 Personnel. Customer shall keep its personnel trained in the operation of the
Licensed Products and the Customer Network.
8 CUSTOMER AND SOFTWARE SUPPORT
8.1 Customer and Software Support. Following delivery of the Software to
Customer, and subject to payment by Customer of the Customer and Software
Support Fees set forth in Exhibit A, SNI shall provide Customer with Customer
and Software Support, which shall consist of the following:
(1) SNI shall provide Customer with updates, patches, bug fixes and new
releases of the Software and Documentation which SNI provides to its
customers generally;
(2) SNI will provide remote telephonic support for the Licensed Products
Monday through Friday, 8:00 AM to 5:00 PM eastern standard time and
emergency telephonic support via pager access 24 hours a day, 365 days per
year. Telephone support shall include (i) diagnosing errors or malfunctions
in the Software and malfunctions caused by operator error, (ii) advising
Customer of corrective measures, and (iii) clarifying operating
instructions contained in the Documentation; and
(3) SNI shall insure that the Software operates in conformance with the
Documentation. If the Software fails to operate in conformance with the
Documentation, and the problem cannot be remedied thorough telephonic
support, SNI shall use all reasonable efforts to correct or replace the
Software or portions thereof or provide a temporary work-around for such
problem within a reasonable period of time based upon the impact of the
problem on Customer's ability to operate.
8.2 Customer Obligations. Customer shall promptly notify SNI of all problems
with the Software, and shall, if applicable, provide assistance in identifying
and detecting problems, errors, and malfunctions. As requested by SNI, Customer
shall provide data and information regarding all errors in sufficient detail and
with sufficient supporting documentation to enable SNI to diagnose, and if
necessary, recreate the problem, error, or malfunction. Customer shall install
all subsequent releases of the Software within 30 days of receipt.
8.3 Limitation. Customer and Software Support shall not cover malfunctions and
errors caused by (i) unreported defects, (ii) misuse or abuse of the Software,
(iii) by use of the Software with hardware or software other than that approved
by Phoenix for use with the Software, or (iv) Changes made other than by or with
the express written authority of Phoenix. Customer and Software Support shall
only be provided for the most current release of the Software provided to
Customer, and, for a period of 90 days after delivery of the most current
release, of the previous release of the Software. Support may be provided for
previous releases after such 90 day period at SNI's option at SNI's then current
time and materials rates for such services for the Territory, plus Related
Expenses.
8.4 Fee. Customer shall pay the annual Customer and Software Support Fee for so
long as Customer continues to hold or use the Licensed Products
9 WARRANTIES
9.1 Warranty. SNI warrants that, for a period of 90 days after delivery, the
original unmodified version of the Software shall conform in all material
respects with any program descriptions included in the Documentation. SNI does
not warrant that the Licensed Products will operate without interruption or be
error-free. SNI warrants that the Software will operate in accordance with this
Agreement on dates occurring on and after January 1, 2000, to the same extent
that it operates prior to such date and that the Software will be capable of
properly processing data having dates falling on and after January 1, 2000. In
the event Customer discovers any non-conformance by the Software with the above
warranty (a "defect"), Customer agrees to provide SNI notice of such defect, and
shall, upon SNI's request, provide such data and information regarding the
defect as SNI may require to recreate the defect. SNI agrees, as its exclusive
obligation for any breach of such warranty, to use its best reasonable efforts
to correct reported defects. SNI shall not be responsible for (i) unreported
defects, (ii) defects caused by misuse or abuse of the Software, (iii) defects
caused by use of the Software with hardware or software other than that approved
by SNI for use with the Software, or for (iv) Changes made other than by or with
the express written authority of SNI. Customer shall be limited to the
warranties provided by third-party licensors or manufacturers with respect to
third-party software or equipment that may be provided by SNI.
9.2 DISCLAIMER. EXCEPT AS PROVIDED IN SECTION 6.1 ABOVE, PHOENIX AND SNI
SPECIFICALLY DISCLAIM ANY OTHER WARRANTIES OF ANY KIND, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
9.3 LIMITATION OF LIABILITY. IN NO EVENT SHALL PHOENIX OR SNI BE LIABLE FOR ANY
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING FROM
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THE USE, OR INABILITY TO USE, THE LICENSED PRODUCTS OR ARISING OUT OF ANY OTHER
CIRCUMSTANCES ASSOCIATED WITH THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING
WITHOUT LIMITATION DAMAGES BASED ON LOSS OF PROFIT, LOSS OR INTERRUPTION OF DATA
OR COMPUTER TIME, ALTERATION OR ERRONEOUS TRANSMISSION OF DATA, EVEN IF PHOENIX
OR SNI IS ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES. Phoenix's and
SNI's total liability to Customer under any provision of this Agreement (other
than indemnification under Section 10) or for any and all claims, losses or
damages relating to the Licensed Products (whether based on tort, contract, or
any other theory), other than claims based upon the gross negligence or willful
misconduct of Phoenix or SNI, shall be limited to the amount actually paid by
Customer to SNI for the Licensed Products giving rise to the liability. The
parties acknowledge that each of them relied upon the inclusion of this
limitation in consideration of entering into this Agreement.
10 PATENT AND COPYRIGHT INDEMNITY
10.1 Infringement Claims. If a third party claims that the Software infringes
any patent, copyright, trade secret, or similar intellectual property right of
any third party, and such claim would impair Customer's right to use the
Software hereunder, Phoenix shall (as long as Customer is not in default under
this Agreement or any other agreement with Phoenix) defend Customer against that
claim at Phoenix's expense and pay all damages awarded by a court in a final
judgment, provided that Customer (i) promptly notifies Phoenix in writing of any
such claim, (ii) allows Phoenix to control the defense and disposition of such
claim, including any related settlement negotiations, and (iii) cooperates with
Phoenix, at Phoenix's expense, in the defense of such claim.
10.2 Remedies. If such a claim is made or appears possible, Phoenix may, at its
option, either (i) secure for Customer the right to continue to use the
Software, (ii) modify or replace the Software so it is non-infringing, or (iii)
refund a pro-rata portion of the license fees paid for the infringing material
based on a five year straight line useful period. Phoenix has no obligation
hereunder for any claim based on a modified version of the Software which has
not been prepared solely by Phoenix, or for any combination, operation or use of
the Software with any hardware or software not approved in writing by Phoenix.
Phoenix also shall have no obligation hereunder for any claim based on theories
of law that are not substantially equivalent to laws, treaties and conventions
applicable to U.S. patents, copyrights, trade secrets, and similar intellectual
property rights. THIS SECTION 10 STATES PHOENIX'S ENTIRE OBLIGATION TO CUSTOMER
WITH RESPECT TO MATTERS OF TITLE OR ANY CLAIM OF INFRINGEMENT THEREOF.
11 CONFIDENTIALITY
11.1 Confidentiality. Each Party agrees at all times to maintain the complete
confidentiality of the Confidential Information of the other. Each Party shall
not permit or authorize access to, or disclosure of, the Confidential
Information of the other to any person or entity other than employees or
advisors who have a "need to know" such information in order to enable the
receiving party to exercise its rights or perform its obligations under this
Agreement. Neither party shall disclose or supply the Confidential Information
of the other to any non-employee third party without the prior written approval
of the other party, which approval shall not be unreasonably withheld, provided
the requesting party can demonstrate a need for such disclosure in order to
comply with its obligations hereunder. Either party may disclose portions of the
Confidential Information of the other to governmental regulatory authorities if
such disclosure is required by applicable laws, provided the party required to
make such disclosure notifies the other party of the applicable legal
requirements before such disclosure occurs and assists the other party to obtain
such protection as may be available to preserve the confidentiality of such
information.
11.2 Disposal. Prior to disposal of any media or materials that contain any part
of the Software, Documentation or other Confidential Information of Phoenix or
SNI, Customer shall obliterate or otherwise destroy all code, instructions,
commentary, or further evidence of Confidential Information, for example, by
erasing, incinerating, or shredding such materials.
12 ARBITRATION
In the event a claim, controversy or dispute between SNI or Phoenix and Customer
arises out of or in connection with this Agreement or the transactions and
business contemplated hereby, including the validity, construction or
enforcement thereof, either party may demand that such matter be submitted to
final and binding arbitration. The situs of all arbitration proceedings shall be
_______________, unless SNI and Customer agree in writing to another situs. All
arbitration proceedings and records shall be in English. Issuance of an
arbitration demand shall suspend the effect of any default entailed by such
claim, controversy or dispute and any judicial or administrative proceedings
instituted in connection therewith, for the duration of the arbitration
proceedings. Arbitration shall be governed by the commercial rules of the
American Arbitration Association (the "AAA"). Arbitration shall be conducted by
one arbitrator who shall be chosen by the AAA within 5 days of receipt of the
arbitration demand. The arbitrator or arbitrators shall determine whether a
default has occurred, and shall
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deliver its or their decision within 45 days of the date of receipt of the
arbitration demand, specifying such remedy (including money damages) as shall
(a) fully implement the intent and purposes of this Agreement and (b) indemnify
and hold harmless the non-breaching party from all losses, costs and expenses
(including costs of arbitration and reasonable attorneys' fees) resulting from
the default. Termination or limitation of Phoenix's rights in the Software, the
Documentation, or any associated intellectual property rights may not be awarded
under any circumstances. The right to demand arbitration and to receive damages
and obtain other available remedies as provided hereunder shall be the exclusive
remedy in the event an arbitration demand is made, except that Phoenix shall be
entitled to obtain equitable relief, such as injunctive relief, from any court
of competent jurisdiction in order to protect its rights in the Software, the
Documentation, or any associated intellectual property rights while such
proceeding is pending or in support of any award made pursuant to such
arbitration. Phoenix and Customer hereby consent to the enforcement in the
courts of each country in the Territory and the United States of any arbitral
judgment or award rendered pursuant to this Section.
13 COMPLIANCE WITH LAWS
13.1 Compliance with Laws. Customer shall, at its own expense, comply with all
laws relating to the licensing and use of the Licensed Products, and shall
procure all licenses and pay all fees and other charges required thereby.
13.2 Export Restrictions. Customer shall not ship or export the Licensed
Products outside of the Territory without the express written consent of SNI.
13.3 Corrupt Practices. Neither Customer nor any of its directors, officers,
employees, or agents will make, offer to make, or accept any payment or gift
directly or indirectly to any employee, officer, or representative of any
governmental entity or instrumentality or to any foreign political party, any
official of a foreign political party, or candidate, where such payment would
constitute a bribe, kickback, or illegal payment under U.S. or applicable
foreign laws.
14 GENERAL
14.1 Notice. Notices shall be deemed given as of four days following deposit
with FedEx, DHL, or other international courier service if properly addressed as
first set forth above, or to such other address as may be requested by written
notice in compliance with this Section.
14.2 Assignment. Customer may not assign, transfer, or delegate its rights or
obligations hereunder without SNI's prior written consent. Subject to the
foregoing, this Agreement shall inure to the benefit of and be binding upon the
parties hereto and their permitted successors and assigns. For purposes of this
Section, the acquisition of more than 50% of the voting stock of Customer, the
acquisition of all or substantially all the business and assets of Customer, or
the merger of Customer with or into another entity shall constitute an
unauthorized assignment, unless all other provisions of this Agreement are duly
honored, the surviving entity signs a new license agreement with SNI containing
terms and conditions reasonably acceptable to SNI, and the surviving entity pays
additional license fees for use of the Licensed Products for the new or
different number of Remote and Additional Branches and/or Acquired Financial
Institutions resulting out of the transaction.
14.3 Waiver. The failure of either party to enforce any term of this Agreement
shall not constitute a waiver of either party's right to enforce every term of
this Agreement.
14.4 Enforcement. If either party brings an action under this Agreement
(including appeal), the prevailing party shall be entitled to recover reasonable
attorneys' fees and costs.
14.5 Should any provision of this Agreement be held by a court of competent
jurisdiction or arbitration authority to be unenforceable, the remaining
provisions of this Agreement shall not be affected or impaired thereby.
14.6 CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE
LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF FLORIDA, EXCLUDING ITS
CONFLICT OF LAWS RULES. IT SHALL NOT BE GOVERNED BY THE UNITED NATIONS
CONVENTION ON THE INTERNATIONAL SALE OF GOODS, THE APPLICATION OF WHICH IS
EXPRESSLY EXCLUDED. WITH RESPECT TO ANY CLAIM OF EITHER PARTY WITH RESPECT TO
OWNERSHIP OF THE LICENSED PRODUCTS, OR THE PROTECTION OF INTELLECTUAL PROPERTY
OR CONFIDENTIAL INFORMATION OF PHOENIX, OR THE PAYMENT OF AMOUNTS DUE SNI
HEREUNDER, CUSTOMER HEREBY CONSENTS TO BE SUBJECT TO THE JURISDICTION OF THE
FEDERAL AND STATE COURTS OF THE STATE OF FLORIDA.
14.7 Force Majeure. Neither party shall be in default by reason of any failure
in the performance of this Agreement (other than a failure to make payment when
due or to comply with restrictions upon the Use of the Licensed Products) if
such failure arises out of any act, event or circumstance beyond the reasonable
control of such party, whether or not otherwise foreseeable. The party so
affected will resume performance as soon as reasonably possible.
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14.8 Headings and Captions. The headings and captions appearing in this
Agreement are inserted only as a matter of convenience and in no way limit the
scope or affect the meaning of any section.
14.9 Employees. Neither party shall hire or solicit for hire any employee of the
other without the express written consent of the other party.
14.10 Prior Agreements, Amendment. This Agreement constitutes the entire
agreement between the parties and supersedes all prior understandings and
agreements between them regarding the Licensed Products, and may not be modified
or amended except in writing signed by authorized representatives of both
parties.
14.11 Phoenix. Phoenix, as the owner of the Software, is intended to be, and is
by this reference, a third party beneficiary of this Agreement, including,
without limitation, the provisions regarding the protection of the Software and
of Phoenix's Confidential Information and intellectual property rights.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed
as of the Effective Date.
SIEMENS NIXDORF INFORMATIONSYTEMEAG
- -------------------------------- ------------------------------------
Signature Witness
- -------------------------------- ------------------------------------
Name (print) Name (print)
- -------------------------------- ------------------------------------
Title (print) Witness
(SEAL)
------------------------------------
CUSTOMER: Name (print)
- -------------------------------- ------------------------------------
Signature Witness
- -------------------------------- ------------------------------------
Name (print) Name (print)
- -------------------------------- ------------------------------------
Title (print) Witness
------------------------------------
(SEAL) Name (print)
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EXHIBIT A
SOFTWARE
PHOENIX SOFTWARE:
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EXHIBIT B
FEES
1. INITIAL LICENSE FEES:
<TABLE>
<S> <C>
A. Initial Financial Institution (one Server) $
-------------
B. Remote Branch Fees
1-2 No Charge
3-5 $ each
--------
6-10 $ each
--------
11-25 $ each
--------
26-50 $ each
--------
51-100 $ each
--------
101 or more $ each
--------
TOTAL INITIAL LICENSE FEES: $
=============
2. ADDITIONAL LICENSE FEES:
A. Acquired Financial Institution Fee $ each
--------
B. Additional Branch Fee $ each
--------
3. INSTALLATION FEES $
-------------
4. ANNUAL CUSTOMER AND SOFTWARE SUPPORT FEES:
A. Initial Financial Institutions $ /year
--------
B. Remote Branches of Initial Financial Institution $ /year
--------
TOTAL INITIAL ANNUAL CUSTOMER AND SOFTWARE
SUPPORT FEES $
=============
</TABLE>
5. PAYMENT TERMS
5.1 All License Fees shall be billable *** upon execution of this Agreement
and *** upon delivery of the Software. The License Fees are one-time
initial license fees for the delivery of the current version of the
Software, and are fully earned and non-refundable upon shipment of the
Software to Customer. All modifications and enhancements for the Software
requested by Customer shall be the subject of a separate agreement with
separate consideration and license fees to be paid therefore.
5.2 Customer shall notify SNI immediately in the event it wishes to install
the Software at any location not currently identified on Exhibit D, and
shall pay to SNI Additional Branch Fees or Acquired Financial Institution
Fees, as applicable, for such locations prior to their installation.
5.3 An initial one-time Installation Fee is due upon execution of this
Agreement for SNI's assistance with the Installation of the Software. SNI
shall be entitled to additional Implementation Fees, to be paid in advance,
if Implementation is required when Customer adds an Acquired Financial
Institution or other Additional Branches. Fees for implementation at
Additional Branches and Acquired Financial Institutions shall be at SNI's
then current rates for such services plus Related Expenses.
5.4 The Customer and Software Support Fee is due and billable for Customer
and Software Support on the Installation Date and on each annual
anniversary thereof for so long as the license for the Software is in
effect or Customer continues to use the Software.
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
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EXHIBIT B
IMPLEMENTATION
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EXHIBIT C
NETWORK CONFIGURATIONS AND THIRD PARTY SOFTWARE
1. Network Requirements
Customer agrees to provide and maintain a network in accordance with the
standards set forth in the Phoenix Hardware and Network Services Guide,
as provided by Phoenix and amended from time to time.
2. UNIX Server Requirements
Customer agrees to provide and maintain a ___________________ server at
a size recommended by Phoenix, or greater.
3. Sybase Software Requirements
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EXHIBIT D
CUSTOMER CONTACT, DESIGNATED LOCATION AND REMOTE BRANCHES
CUSTOMER CONTACT:
DESIGNATED LOCATION:
REMOTE LOCATIONS:
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EXHIBIT E
TERRITORY
14
<PAGE> 40
EXHIBIT E
Maintenance and Support Agreement
(to be attached)
27
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EXHIBIT F
Trademarks and Trade Names
Phoenix
Phoenix International
The Phoenix International Logo
Phoenix Banking System
Phoenix International Banking System
The World is Banking on Phoenix
TradeWind
Priority Solutions
TradeCentre
TradeMark
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EXHIBIT G
IMPLEMENTATION METHODOLOGY TRAINING
OBJECTIVE: To train SNI on our Implementation Methodology.
PREREQUISITES We will send SNI our standard "welcome package."
They should thoroughly review the information and
be prepared to discuss and review this
information.
ACTION PLAN: SNI should send a project manager and a technical
person to Phoenix for training on our
implementation methodology. This training will
occur *** days prior to the SA training scheduled
for SNI and the bank. We will spend the *** days
reviewing the methodology and preparing them for
the SA training class.
ATTENDEES: Phoenix staff and SNI. The SNI project manager
should be a banker, or someone who has extensive
conversion and implementation experience; the
technician should have skills in *** and ***.
DURATION OF TRAINING: *** days. Recommend that this begin on a *** and
run through ***. The technician should plan to
stay *** to spend time with one of our conversion
programmers. The project manager will stay to
participate in the Implementation Planning Session
and Enhancement Review Session.
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
29
<PAGE> 43
IMPLEMENTATION PLANNING SESSION/ENHANCEMENT REVIEW SESSION
OBJECTIVE: SNI and the bank will attend a
planning/enhancement review session in Orlando.
The session will take place immediately following
the review of our implementation methodology. The
objective is to conduct a gap analysis and
determine required functionality for the bank.
This is normally done prior to the signing of a
contract with the bank. We will provide the
results of the gap analysis to development so that
an estimate can be prepared. We will also review
our implementation methodology with the bank.
PREREQUISITES The bank must be familiar with the current data
processing system and the functionality required
to operate the bank. They must also be aware of
all regulatory requirements. The bank should bring
copies of current regulatory reports, product
definitions, and file layouts of the current
system's data files.
ACTION PLAN: SNI, the bank, and Phoenix personnel will devote
*** days to reviewing the bank's current
processing environment and reviewing the
implementation methodology. At the end of the ***
days, we will agree on any enhancements that may
be required. If it is necessary to extend the
length of this meeting, we will complete the
enhancement review following the SA training
class.
ATTENDEES: The SNI project manager, the bank's project
manager, "power users" form the bank who have
knowledge of the current loans, deposit, and GL
operations, and Phoenix personnel.
DURATION: *** days. Suggest this session begins immediately
following the Implementation Methodology training
(*** through ***).
NOTE: In our opinion, this session should be provided on
a *** with the cost being paid for by the bank.
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
30
<PAGE> 44
SA TRAINING
OBJECTIVE: To train SNI and the bank on how to set up the SA.
When the training is complete, the bank will have
an SA that is virtually complete and SNI will have
the training materials and knowledge needed to
begin structuring a training program for use in
training other banks.
PREREQUISITES: Prior to arriving in Orlando, we will have a
conference call with SNI and the bank to explain
the required preparation for the SA class. We will
provide them with an SA profile to discuss the
decisions that need to be made prior to class so
they can establish the SA while they are here.
NOTE: All attendees must have Windows training prior to
attending any of the Phoenix training classes.
ACTION PLAN: Training will include GL, loans, deposits,
bank, RIM, and teller controls (assuming the bank
will be using our teller system). When the
training is complete, we will have an established
SA that the bank can load on their DBS when it is
installed. We will use the SA to begin the
conversion process.
ATTENDEES: The following SNI personnel should attend SA
training:
- the project manager
- the person responsible for implementing
loans
- the person responsible for implementing
deposits
- the person responsible for implementing
the GL chart of accounts and financial
control
- the training manager
The following bank personnel should attend SA
training:
- the project manager
- the person responsible for establishing
and maintaining the general ledger and
analyzing financial data
- the person responsible for establishing
and maintaining deposit products and
deposit processing controls
- the person responsible for establishing
and maintaining loan products and loan
processing controls
- the training manager
31
<PAGE> 45
These people will need to be in Orlando
for training on the days when the
material being presented is applicable
to their area of expertise. For example:
the GL people must be present when
setting up the Chart of Accounts, the
Statement of Income, etc. They will not
need to be present for loans or deposits
set up. However, depending on the size
of the bank's GL, the GL person may need
to be in Orlando for as long as a week
in order to complete the GL set up.
Normally, the project manager and the
training manager attend all classes.
DURATION: SNI and the bank will receive
approximately *** of SA training. The
normal schedule is shown below.
SA CLASS SCHEDULE (ORLANDO)
<TABLE>
<S> <C> <C> <C> <C>
---------------- ------------ ----------- -------------- ---------------
***
---------------- ------------ ----------- -------------- ---------------
Bank / RIM Financial Financial Financial
Controls Controls Controls Controls Teller Controls
---------------- ------------ ----------- -------------- ---------------
***
---------------- ------------ ----------- -------------- ---------------
Deposit Deposit
RIM Controls Controls Controls Loan Controls Loan Controls
---------------- ------------ ----------- -------------- ---------------
</TABLE>
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
32
<PAGE> 46
DATA MAPPING TRAINING
OBJECTIVE: To train SNI on how to complete data mapping for
conversion of the bank's data to Phoenix. When the
training is complete, SNI will have experience
with data mapping and will be able to do the next
conversion with limited assistance from Phoenix.
PREREQUISITES: Prior experience in mapping and data conversion,
as well as a thorough understanding of Rapid SQL
and FoxPro. Must have strong banking background.
ACTION PLAN: The purpose of this training is to provide SNI
with data mapping experience required to convert
the bank's data to the Phoenix system. In
addition to mapping, these conversion
coordinators will be taught how to perform data
audits and submit changes to the conversion
programmers.
ATTENDEES: The following SNI personnel must be available for
this training:
- the project manager
- the person responsible for mapping loans
- the person responsible for mapping deposits
- the person responsible for mapping and
balancing the General Ledger
DURATION: Approximately *** weeks during the ***, then
another *** weeks during the ***.
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
33
<PAGE> 47
CONVERSION PROGRAMMING TRAINING
OBJECTIVE: To train SNI on how to write conversion programs
and scripts for conversion of the bank's data to
Phoenix. When the training is complete, SNI will
have experience in conversion programming and
testing. They should be able to do the ***
conversion with limited assistance from Phoenix.
PREREQUISITES: The SNI programmers must have at least *** years
of prior programming experience in *** and ***.
ACTION PLAN: SNI conversion programmers will write and test
conversion code under the supervision of Phoenix
conversion programmers. In addition, the
programmers will learn how to run the front-end
and back-end conversion programs, how to load the
converted data into the Phoenix database, and how
to manage change control resulting from data
audits. They will also be trained on how to write
and apply conversion and scripts to be used at
live conversion.
ATTENDEES: The following SNI personnel must be available for
this training:
- ***, or preferably ***, SNI programmers
DURATION: Approximately *** weeks during the *** to ***,
then another *** weeks during the ***; then
another *** weeks during the ***. If they
send *** people, this may be shortened.
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
34
<PAGE> 48
MOCK CONVERSION TRAINING
OBJECTIVE: To train SNI on how to conduct a mock conversion.
They should be able to do the *** conversion with
support from Phoenix.
PREREQUISITES: The SNI conversion team should have previous
experience with conversions and must have
completed the data mapping (for conversion
coordinators) and programming (for conversion
programmers) training.
ACTION PLAN: Phoenix will conduct a mock conversion in Orlando
to simulate a live conversion at the bank. We will
test as many externals as possible and will
develop a schedule that covers all of the major
tasks that must be accomplished at conversion.
After the mock conversion is finished in Orlando,
the SNI implementation team will travel to the
bank and conduct an on-site mock conversion with
telephone support from Orlando.
ATTENDEES: The entire SNI implementation team should be in
Orlando for this training.
DURATION: Approximately *** to *** days.
NOTE: Depending on the results of the mock conversion,
it may be necessary for the SNI conversion team to
remain in Orlando between the mock and live
conversion. This will be true if major problems
are identified or if interface testing is not
completed during the mock conversion.
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
35
<PAGE> 49
LIVE CONVERSION TRAINING
OBJECTIVE: To train SNI on how to conduct a live conversion.
They should be able to do the second conversion
with support from Phoenix.
PREREQUISITES: The SNI conversion team should have previous
experience with conversions and must have
completed the data mapping (for conversion
coordinators) and programming (for conversion
programmers) training as well as the mock
conversion training.
ACTION PLAN: Phoenix will develop a detailed schedule for the
live conversion based on the results of the mock
conversion. The SNI conversion team will be
instructed on any final details that may need to
be covered between the mock and the live
conversions. An additional simulated conversion
can be run in Orlando, if deemed necessary.
At live conversion, the SNI implementation team
will travel to the bank and conduct the live
conversion with telephone support from Orlando.
ATTENDEES: If an additional simulated conversion is
necessary, the entire SNI implementation team
should be in Orlando for this training.
DURATION: Approximately *** - *** days.
CONCLUSION:
Our experience has been that personnel must be actively involved in the
implementation in order to learn the process. Watching someone map or watching
someone code is not "hands on" enough to facilitate the exchange of knowledge.
Basically, the people from SNI should plan on sending an implementation team to
Orlando beginning with the data mapping and continuing through the live
conversion. Of course, this does not have to be uninterrupted time, but should
be in segments that are long enough for them to get the work done. We will
provide the training and guide them through the process, but it will be much
more beneficial if they do the actual mapping, coding and converting while
drawing upon our expertise.
The timeline for the actual conversion will be established following the
implementation planning meeting and the enhancement review session.
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
36
<PAGE> 50
SOFTWARE INSTALLATION TRAINING
OBJECTIVE: To train SNI on how to install hardware and
software at bank site.
PREREQUISITES: Expert-level knowledge of how to configure and
administer Windows NT networks (requires MCSE
certification) and Novell Netware 2.x and 4.x
networks (requires CNE certification).
Expert-level knowledge of Windows 95 and Window NT
Workstation. Working knowledge of Sybase DBMS and
Gupta SQLBase. Basic knowledge of other critical
local and wide area network equipment including
routers, bridge, DSU's, hubs and Ethernet
switches.
ACTION PLAN: Phoenix will provide training to complete:
- Custom configurations Phoenix requires
on database servers at both the
hardware, operating system, and DBMS
layers.
- Customizations that have to be made to
the configurations of all network file
servers.
- Customizations that have to be made to
the configuration of all workstations.
- Scripts and other software processes
that have to be used to finalize
different phases of an installation.
- Many standards and conventions in the
areas of addressing (IP, IPX) and naming
(e.g., domain naming, server resource
identifiers) that absolutely must be
adhered to in order to support remote
dial-in support.
ATTENDEES: Maximum of *** SNI Systems/Telecommunications
trained professionals.
DURATION: *** weeks of tutorial plus on-the-task training.
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
37
<PAGE> 51
TECHNICAL TRAINING
OBJECTIVE: To train SNI on systems architecture, computer
room operations and level 1 support functions.
PREREQUISITES: This team from SNI should be comprised of
professionals who have experience in computer room
functions and customer support / help desk
activities. Background in retail bank operations
and client/server systems a plus.
<TABLE>
<CAPTION>
------------------------------------- ------------------------------------ ----------------------------------
ACTIVITY DURATION MAXIMUM ATTENDEES
------------------------------------- ------------------------------------ ----------------------------------
<S> <C> <C>
I System Architecture *** ***
- Technical Overview
- Client processes and central
server processes
- On-Line and off-line
functions
- Overnight processing
- Interfaces
------------------------------------- ------------------------------------ ----------------------------------
------------------------------------- ------------------------------------ ----------------------------------
II 1st Level Support Training *** ***
------------------------------------- ------------------------------------ ----------------------------------
------------------------------------- ------------------------------------ ----------------------------------
III Managing the system *** ***
(UNIX)
------------------------------------- ------------------------------------ ----------------------------------
------------------------------------- ------------------------------------ ----------------------------------
IV Reporting - Crystal Reports *** ***
------------------------------------- ------------------------------------ ----------------------------------
</TABLE>
- ------------------------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
38
<PAGE> 52
Exhibit H
Escrow Agreement
(to be attached)
39
<PAGE> 1
EXHIBIT 10.50
CONFIDENTIAL TREATMENT
REQUESTED
PHOENIX INTERNATIONAL LTD., INC.
COOPERATIVE MARKETING AGREEMENT
Marketing Agent: ERAS JV Date: March 31, 1997
( ) Corporation ( X ) Partnership
( ) Limited Partnership ( ) Limited Liability Company
State of Organization: Florida
Address: 13322 S.W. 128th Street
Miami, Florida 33186-5807
Attention: ***
Phone: ***
Fax: ***
This COOPERATIVE AGREEMENT (this "Agreement") is entered into as of the
date first set forth above by and between Phoenix International Ltd., Inc., a
Florida corporation ("Phoenix"), and the party first identified above as the
Marketing Agent ("Marketing Agent"). The parties hereto, intending to be legally
bound, agree as follows:
1 APPOINTMENT
Subject to the terms and conditions of this Agreement, the Marketing Agent
hereby agrees to enter into a cooperative marketing relationship with Phoenix as
set forth in the relationship addendum(s) attached hereto and listed below (the
"Relationship Addendum(s)"):
SERVICES ADDENDUM
TRAINING AND IMPLEMENTATION ADDENDUM
RELATIONSHIP ADDENDUM
SERVICE BUREAU ADDENDUM
*** Omitted pursuant to a request for confidential treatment and
filed separately with the Commission.
<PAGE> 2
2 DEFINITIONS
As used in this Agreement, capitalized terms shall have the following meanings:
2.1 Confidential Information means any business, technical or other
information furnished by Phoenix to the Marketing Agent or disclosed to the
Marketing Agent as a result of examination or inspection of Phoenix's facilities
or product prototypes. Confidential Information shall in all cases include all
source code, development level documentation, and similar technical information
regarding the Software and all marketing and product development information
provided by Phoenix. Information which is disclosed orally will be deemed to be
Confidential Information provided that it is identified as confidential at the
time of disclosure and that the disclosing party, within twenty-one (21) days
after such disclosure, provides such information to the receiving party in
writing designated as confidential.
2.2 Documentation means the documentation associated with the Software as
produced and provided by Phoenix to the Marketing Agent and its customers
generally.
2.3 Eligible Prospect means a retail bank organized and doing business
exclusively in the Territory, and as more particularly described in Exhibit B
attached hereto.
2.4 End Users means customers presented to Phoenix by the Marketing Agent
and approved by Phoenix in accordance with Section 5.1 hereof, who license the
Software under an End User License.
2.5 End User License means the form of agreement or agreements applicable
to the license of the Software as provided by Phoenix to the Marketing Agent
from time to time.
2.6 Intellectual Property Rights means all copyright, design rights,
whether registered or unregistered, patents or patent application, know-how,
trade secrets, and Confidential Information related to or arising in the
Software or Documentation, including all applicable architecture, designs,
modules, routines, programming, command structures, interfaces, and any
Modifications thereto.
2.7 Maintenance means making Modifications to the Software to correct
verifiable and reproducible errors reported to Phoenix and includes all error
correction, maintenance and emergency releases and other modifications required
as a result of changes made by Phoenix which directly affect any of the
Software.
2.8 Modification means a work which is based upon one or more preexisting
works, such as a revision, modification, translation, abridgment, condensation,
expansion, or any other form in which such preexisting works may be recast,
transformed, or adapted, and shall include any work that incorporates or is
combined with such a preexisting work or any portion thereof.
2.9 Modify means, with respect to any of the Software, to make a
Modification.
2.10 New Release means a new release of any of the Software to introduce
changes or additions to the Software for purposes of error correction and minor
enhancement of functionality and features.
2
<PAGE> 3
2.11 New Version means a new release of any of the Software which adds
significant new features or functions, or significant improvement in performance
and for which Phoenix may make extra charges to its customers generally.
2.12 Prime Rate means the prime rate (or base rate) reported in the "Money
Rates" column or section of The Wall Street Journal as being the base rate on
corporate loans at larger U.S. Money Center banks on the first date on which The
Wall Street Journal is published in each month.
2.13 Trademarks means the trademarks, service marks and trade names used by
Phoenix in connection with its software, products and services, whether
registered or unregistered.
2.14 Support means the provision of relevant assistance in the form of
telephone assistance and consultation, personnel and materials for the
implementation and continued use of the Software, including any Modification
which Phoenix offers as an addition to, replacement for, or option with such
Software under this Agreement.
2.15 Software means the technology, software, documentation, equipment,
communications and other items as indicated on Exhibit A attached hereto, as
such Exhibit may be amended from time to time in writing.
2.16 Territory means the regions set forth on Exhibit B, as such regions
exist as of the date of this Agreement.
3 LICENSE
Subject to the terms of this Agreement, and only as appropriate under the
applicable Relationship Addendum(s), Phoenix hereby grants to the Marketing
Agent the following non-exclusive, revocable rights and licenses with respect to
the Software within the Territory:
3.1 To use the Software as reasonably required to fulfill its obligations
and exercise its rights under this Agreement and in accordance with the
Relationship Addendum(s). The Marketing Agent may not provide the Software to
any third party except pursuant to a fully executed End User License, and may
not use the Software in production for the benefit of any third party, except as
otherwise allowed in a Relationship Addendum attached hereto or as otherwise
provided by written agreement signed by both parties. The Marketing Agent may
not use, rely on, or refer to the Software for purposes of developing or
supporting any other software.
3.2 Subject to completion of sufficient training as applicable and as
required by Phoenix from time to time, to use the Software for back up,
demonstrations, and evaluations involving End Users.
3.3 To use the Trademarks relating to the Software, provided, however, that
such use shall be subject to reasonable advertising and promotion guidelines
which Phoenix may provide from time to time. Phoenix reserves the right to
disallow any use of the Trademarks which would in any way, in Phoenix's opinion,
harm the validity or value of the Trademarks.
3.4 The Marketing Agent shall not copy, adapt, modify or reproduce the
Software in any manner whatsoever except as reasonably necessary for
demonstration, marketing, backup and archival purposes. All copies of the
software to be provided to End Users shall be supplied to the Marketing Agent by
Phoenix.
3
<PAGE> 4
4 TERM AND REVIEW
4.1 This Agreement shall become effective on the date first set forth above
and shall continue for an initial period of three (3) years. This Agreement
shall automatically renew thereafter from year to year, unless and until
terminated by either party, in its discretion, by at least thirty (30) days'
prior written notice to the other party. In addition, Phoenix reserves the right
to terminate this Agreement at any time on at least thirty (30) days' prior
written notice if the Marketing Agent defaults on its obligations, incurs a
conflict of interest of significant impact, or fails to devote reasonable effort
to the license of the Software to End Users.
4.2 Notwithstanding the termination of this Agreement, Phoenix shall
continue to be entitled to the fees earned under this Agreement after such
termination. So long as the Marketing Agent continues to satisfy its obligations
to End Users under this maintenance and support agreements, notwithstanding a
termination of this Agreement, the Marketing Agent may continue to provide such
maintenance and support.
4.3 Either party may request a review of this Agreement and the royalty
payments applicable to the Software, such review to take place in advance of
each anniversary of the commencement of this Agreement while the Agreement
remains in force.
4.4 Survival. Notwithstanding termination of this Agreement for any reason
(including, without limitation, by notice pursuant to Section 3.1), Sections 10
(Title to Intellectual Property), 11 (Confidentiality) and 14 (General) shall
continue to have effect as shall any other provisions which by their nature or
necessary implication ought or were intended to continue to have effect, and End
User Licenses of customers already granted prior to the date of such termination
shall continue to be valid.
4.5 Actions Upon Termination. Upon termination the Marketing Agent shall:
a. promptly cease to use, license, market or promote the
Software;
b. return all copies of the Software in the possession of the
Marketing Agent to Phoenix and shall cease using the same for any
purpose whatsoever except to fulfill its obligations under maintenance
and support agreements;
c. for a period of six (6) months following termination, refer to
Phoenix all prospective customers and all inquiries received by it
relating to the Software;
d. return and deliver or cause to be returned and delivered to
Phoenix all memoranda, notes, reports, documents or media relating to
or containing Confidential Information, including any copies or
extracts thereof.
The Marketing Agent shall certify its compliance with this Section upon the
written request of Phoenix.
4
<PAGE> 5
5 OBLIGATIONS OF THE MARKETING AGENT
5.1 End User Approval. The Marketing Agent shall notify Phoenix of
potential customers for the Software. Phoenix shall notify the Marketing Agent
of marketing conflicts with Phoenix's marketing efforts to such potential
customers. In case of conflict, the senior sales managers of Phoenix and the
Marketing Agent shall determine whose sales force shall market to the customer.
If no resolution can be reached, the decision of Phoenix as to such customer
shall be final.
5.2 Customer Contacts. During the term of this Agreement, the Marketing
Agent will work exclusively with Phoenix with respect to any business
opportunity presented to the Marketing Agent by Phoenix or obtained by the
Marketing Agent as a result of the working relationship of the Marketing Agent
with Phoenix.
5.3 Development of Competing Software. The Marketing Agent shall not use
the Software or Documentation or any Confidential Information (as defined
herein) that it may acquire in connection with this Agreement to develop, have
developed, or support or invest in, directly or indirectly, the development of
any product which has, entirely or partially, the same functions as any of the
Software or which would be in direct or indirect competition with any of the
Software, or to sell competing products or services.
5.4 Qualified Personnel. The Marketing Agent shall employ suitably
qualified and trained personnel in order to perform its obligations hereunder,
and under any End User License or other agreement with an End User related to
the implementation, use or support of the Software.
5.5 End User Compliance. The Marketing Agent shall inform Phoenix of all
known breaches by End Users of their agreements with Phoenix.
5.6 Notices, Logos and Marks. The Marketing Agent shall not alter, erase or
obscure any notices, legends, or trademarks or alter any indications of
ownership such as copyright, serial number or any other designations or security
provisions featured on copies of the Software and Documentation, and shall
include all such features on all copies of the Software and Documentation made
by the Marketing Agent.
5.7 Copies of Materials. The Marketing Agent shall send to Phoenix copies
of all advertising, marketing and product material related to the Software
created or to be used by the Marketing Agent.
6 PHOENIX'S OBLIGATIONS
6.1 Copies of the Software. Phoenix shall provide the Marketing Agent with
a reasonable number of copies of the Software and Documentation as necessary for
the Marketing Agent to fulfill its obligations and exercise its rights
hereunder. All Documentation shall be provided in English.
5
<PAGE> 6
6.2 Maintenance and Support. Phoenix shall provide a description of the
specific hardware and software environment required by the Software. Upon
request, Phoenix will review alternative hardware and software configurations
proposed by the Marketing Agent and may, in its sole discretion, approve such
configurations. Phoenix shall provide the following maintenance and support for
Software operating in approved hardware and software environments during the
term of this Agreement:
a. Support. Phoenix shall provide Support and Maintenance to the
Marketing Agent for the then-current version and the immediately
preceding version of the Software. In order to assist in the provision
of Maintenance, the Marketing Agent shall notify Phoenix promptly
following the discovery of any defect. Further, upon discovery of a
defect, if requested by Phoenix, the Marketing Agent shall submit to
Phoenix a listing of output and any other data that Phoenix may require
in order to reproduce the error and the operating conditions under
which the error occurred or was discovered.
b. Upgrades. Phoenix shall provide the Marketing Agent with a
copy of each New Release and each New Version of the Software as
Phoenix may from time to time issue to its customers generally. Phoenix
shall provide reasonable telephone support to assist in the
installation and operation of each New Release and New Version. For any
particular New Release or New Version to operate properly, the
Marketing Agent must have installed all prior New Releases and New
Versions.
Regulatory Compliance. Phoenix shall ensure the software
complies with minimum regulatory requirements of U.S. Federal Agencies
having jurisdiction over the operation of the End User.
d. Telephone Support. Phoenix shall maintain a telephone support
line during hours to be designated by Phoenix from time to time, which
in any case shall cover at least 8:30 a.m. to 5:30 p.m. Monday through
Friday, Orlando, Florida time. Support in response to questions which
are outside the intended scope of this Agreement may be subject to an
additional charge.
Exceptions. The following matters are not covered by Maintenance or
Support under this Agreement:
(1) Any problem resulting from the misuse, improper use,
alteration, or damage of any of the Software;
(2) Any problem caused by the Modifications of any
version of the Software not made or authorized by Phoenix; or
(3) Any problem resulting from the use of the Software with
other programming or with hardware configurations not approved
in writing by Phoenix.
6.3 Expenses for On-Site Support. The Marketing Agent shall pay Phoenix's
normal charges and expenses for time, materials, and other resources and
expenses, including Phoenix's travel costs, required to provide Maintenance or
Support hereunder. In addition, the Marketing Agent is responsible for
procuring, installing, and maintaining all computer and other equipment,
networks, telephone lines, communications interfaces, and other hardware
necessary to operate the Software and to obtain maintenance services from
Phoenix. Phoenix will not be responsible
6
<PAGE> 7
for delays caused by events or circumstances beyond its reasonable control.
7 TRAINING.
7.1 Initial Training. Phoenix shall provide up to 4 instructor days of
initial training in the functionality, marketing and operation of the Software.
The Marketing Agent shall pay Phoenix's reasonable travel, living, facility and
equipment expenses for such training, but shall not be charged for instructor
time. Phoenix shall provide training materials including "The Value Added Path
Methodology," sales and marketing materials, and an initial stock of sales
collaterals. Additional materials will be provided upon request at a price equal
to Phoenix's cost for such materials.
7.2 Upgrade Training. Phoenix shall provide training on all New Releases at
times and locations determined by Phoenix. The Marketing Agent may send two
representatives to one scheduled training session for each New Release at no
cost. Additional representatives may attend such training for additional fees as
determined by Phoenix. The Marketing Agent shall pay all travel and living
expenses for its representatives.
7.3 Additional Training. Phoenix shall provide additional technical
assistance and training to the Marketing Agent in excess of the initial training
as reasonably requested by the Marketing Agent; provided, however, that the
Marketing Agent shall reimburse Phoenix for all expenses incurred by Phoenix in
providing such assistance and training and shall pay all applicable training and
instructor fees related to such services at Phoenix's then current rates, unless
otherwise agreed in writing before such services are provided.
7.4 Classes. Subject to space availability, the Marketing Agent may enroll
its employees in additional or advanced training classes at Phoenix's then
current rates.
8 WARRANTY
8.1 Limited Warranty. Phoenix warrants to the Marketing Agent that the
Software will, for a period of one (1) year after receipt, perform substantially
in conformance with applicable specifications (the "Limited Warranty"). Phoenix
makes no warranty that all nonconformities or defects have been or can be
eliminated from the Software or that operation of the Software will be
uninterrupted or error free. This Limited Warranty shall not apply to (i)
Modifications made to the Software other than those described in the applicable
Documentation or expressly approved by Phoenix, or (ii) to Software damaged due
to accident, abuse or neglect.
8.2 Exclusive Remedy. The Marketing Agent's sole and exclusive remedy for
breach of the above Limited Warranty shall be, at the option of Phoenix, repair
or replacement of the relevant Software. Any replacement Software shall be
covered under the Limited Warranty for the remainder of the original warranty
period, or for thirty (30) days after receipt, whichever is longer.
8.3 DISCLAIMER. EXCEPT FOR THE WARRANTY SET FORTH ABOVE, THE SOFTWARE ARE
LICENSED TO THE MARKETING AGENT "AS IS," AND PHOENIX DISCLAIMS ANY AND ALL OTHER
REPRESENTATIONS AND WARRANTIES, WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED,
INCLUDING (WITHOUT LIMITATION) ANY WARRANTY AS TO MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE.
7
<PAGE> 8
8.4 LIMITATION OF LIABILITY AND DAMAGES. PHOENIX'S LIABILITY FOR ANY AND
ALL DAMAGES SHALL BE LIMITED TO THE EXCLUSIVE REMEDY SET FORTH ABOVE. NEITHER
PARTY SHALL HAVE ANY LIABILITY FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES WHATSOEVER, INCLUDING, WITHOUT LIMITATION, DAMAGES FOR
LOSS OF PROFITS, INTERRUPTION OF BUSINESS, OR ANY OTHER MONETARY LOSS, ARISING
OUT OF THE USE OR INABILITY TO USE THE SOFTWARE, OR FOR MISSTATEMENTS, MISTAKES
OR OMISSIONS IN THE DOCUMENTATION, EVEN IF SUCH PARTY HAS BEEN APPRISED OF THE
POSSIBILITY OF SUCH DAMAGES.
8.5 Limitation on Actions. No action, regardless of form, arising out of
this Agreement or the transactions contemplated hereunder may be brought more
than two (2) years after the cause of the action has accrued.
8.6 Independent responsibility. Neither party shall be responsible to any
customer or End User for the quality of service or performance of products
furnished by the other party. Each party is solely responsible for establishing
the prices of its own products, services and associated deliverables.
8.7 Trademark Use. Neither party, without the express prior written
approval of the other shall use the trademarks, service marks, or proprietary
words or symbols of the other. Notwithstanding the foregoing, nothing contained
in this Agreement shall affect either party's rights to use any trademarks,
service marks, or proprietary words or symbols of the other to the extent
otherwise permitted by applicable law or by written agreement between the
parties.
9 INDEMNIFICATION BY PHOENIX.
9.1 Infringement of Intellectual Property Rights. If a third party claims
that the Software infringes any patent, copyright, trade secret, or similar
Intellectual Property Rights, Phoenix shall (as long as the Marketing Agent is
not in default under this Agreement or any other agreement with Phoenix)
indemnify and defend the Marketing Agent against such claim at Phoenix's
expense, provided that the Marketing Agent promptly notifies Phoenix in writing
of any such claim, allows Phoenix to control all negotiations and litigation
related thereto, and cooperates with Phoenix in the defense and disposition of
such claim, including any related settlement negotiations.
9.2 Limitations. If such a claim is made or appears possible, Phoenix may,
at its option, secure for the Marketing Agent the right to continue to use the
Software, or modify or replace the Software so it is non-infringing. Phoenix has
no obligation hereunder for any claim based on a modified version of the
Software which has not been approved by Phoenix, or for any combination,
operation or use of the Software with a non-approved operating environment or
with any program, product, data or apparatus not approved in writing by Phoenix.
Phoenix shall have no obligation hereunder for any claim based on theories of
law that are not substantially equivalent to laws, treaties and conventions
applicable to U.S. patents, copyrights, trade secrets, and similar intellectual
property rights. THIS SECTION 12 STATES PHOENIX'S ENTIRE OBLIGATION TO THE
Marketing Agent WITH RESPECT TO MATTERS OF TITLE OR ANY CLAIM OF INFRINGEMENT
THEREOF.
8
<PAGE> 9
10 TITLE TO INTELLECTUAL PROPERTY
All right title and interest in and to all copies of the Software and
Documentation and all Intellectual Property Rights pertaining thereto shall vest
exclusively with Phoenix, including the Intellectual Property Rights in all
Modifications and other related works created by or for Phoenix, the Marketing
Agent, or any End User, including their personnel and permitted agents or
contractors. To the extent rights in Modifications and all Intellectual Property
Rights therein do not automatically and fully vest exclusively in Phoenix, the
Marketing Agent agrees to and hereby does assign to Phoenix all such rights, and
shall execute all such other agreements as Phoenix may require to effect such
assignment. To the extent Modifications are produced by or under the supervision
of the Marketing Agent, Phoenix hereby grants to the Marketing Agent a
non-transferable, and royalty free license to reproduce, license and distribute
such Modifications, but only to the extent they are marketed and licensed or
sold to End Users for use solely with duly licensed versions of the Software
pursuant to End User Licenses in effect with Phoenix.
11 CONFIDENTIALITY
11.1 Non-Disclosure. Except as otherwise provided herein or as allowed by
the prior written consent of Phoenix, for the term of this Agreement and for a
period of three (3) years following the termination of this Agreement, the
Marketing Agent (a) shall receive all Confidential Information in strict
confidence, (b) shall use the same degree of care which it uses to protect its
own confidential information to maintain the confidentiality and secrecy
thereof, (c) shall disclose the Confidential Information, and permit the
Confidential Information to be disclosed, only to employees of the Marketing
Agent who need access to the Confidential Information to carry out the terms and
intent of this Agreement, and (d) shall use the Confidential Information only in
furtherance of its rights and obligations set forth in this Agreement. Both the
parties shall keep confidential the terms and conditions of this Agreement, but
not its existence, and all other information which is designated in writing as
confidential by one party to the other. Notwithstanding the foregoing, the
Marketing Agent may make such disclosures as may be required by order of a court
of competent jurisdiction, administrative agency or other government body, or by
law rule or regulation, provided, however, that to the extent possible, the
Marketing Agent gives Phoenix prior written notice of such requirement and
assists Phoenix in its efforts to oppose such requirement.
11.2 Exclusions. Paragraph 9.2 hereof shall not apply to any Confidential
Information which (a) at the time of disclosure to the Marketing Agent is in the
public domain or thereafter enters the public domain for reasons not
attributable to any act or omission of the Marketing Agent in breach of its
obligations hereunder, (b) which the Marketing Agent can show was in the
possession of the Marketing Agent prior to the disclosure thereof to the
Marketing Agent by Phoenix, or (c) which the Marketing Agent can show is
acquired by the Marketing Agent from a third party who does not thereby breach
an obligation of confidence to Phoenix and who discloses it in good faith.
12 EXPORTS
12.1 Territory. The Marketing Agent may not export the Software outside of
the Territory nor contact any prospective End User outside of the Territory
without Phoenix's prior written approval.
9
<PAGE> 10
13 EMPLOYEES
During the term of this Agreement and for a period of twelve (12) months
thereafter, neither party will directly or indirectly solicit for employment or
employ any employee of the other without the prior written consent of the other.
14 GENERAL
14.1 No Authority to Bind the Other Party. The parties to this Agreement are
independent contractors and, except as provided in this Agreement or otherwise
in a writing signed by both parties, neither party is authorized to act on
behalf of the other or to bind the other. This Agreement does not establish any
relationship of agency, partnership, or joint venture. Each party shall bear
responsibility for its own employees, including terms of employment, wages,
hours, tax withholding, required insurance, and daily direction and control.
Except as otherwise set forth in an Addendum, the relationship created hereunder
is non-exclusive as to each party.
14.2 Successors and Assigns. Except as otherwise provided in this Agreement,
neither party may assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other party. Any such attempted
assignment without such prior written consent shall be void and of no force and
effect. This Agreement shall inure to the benefit of and shall be binding upon
the permitted successors and assigns of the parties hereto.
14.3 Governing Law. The construction and interpretation of, and the rights
and obligations of the parties pursuant to this Agreement shall be governed by
the laws of the State of Florida.
14.4 Force Majeure. Neither party shall be liable for any failure of or
delay in the performance of this Agreement for the period that such failure or
delay is due to acts of God, public enemy, civil war, strikes or labor disputes,
or any other cause beyond the parties' reasonable control. Each party agrees to
notify the other party promptly of the occurrence of any such cause and to carry
out this Agreement as promptly as practicable after such cause has terminated.
14.5 Severability. In the event that any part of this Agreement is declared
by any court or other judicial or administrative body to be null, void or
unenforceable, said provision shall survive to the extent if is not so declared,
and all of the other provisions of this Agreement shall remain in full force and
effect.
14.6 Notices. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given:
(i) on the date of service if served personally on the party to whom notice is
to be given; (ii) on the day of transmission if sent via facsimile transmission
to the facsimile number given below, and telephonic confirmation of receipt is
obtained promptly after completion of transmission; (iii) on the second day
after delivery to Federal Express or similar overnight courier or the Express
Mail service maintained by the United States Postal Service; or (iv) on the
fifth day after mailing, if mailed to the party to whom notice is to be given,
by first class air mail, registered or certified, postage prepaid and properly
addressed, to the party as follows:
10
<PAGE> 11
If to the Phoenix:
Phoenix International Ltd., Inc.
500 International Parkway
Heathrow, Florida 32746
Attention: Ralph Reichard
Facsimile: (407) 548-5296
If to the Marketing Agent, at the address first set forth above.
Any party may change its address for the purpose of this Section by
giving the other parties written notice of its new address in the manner set
forth above.
14.7 Amendments; Waivers. This Agreement may be amended or modified, and any
of the terms, covenants, representations, warranties or conditions hereof may be
waived, only by a written instrument executed by the parties hereto, or in the
case of a waiver, by the party waiving compliance. Any waiver by any party of a
condition, or of the breach of any provision, term, covenant, representation or
warranty contained in this Agreement, in any one or more instances, shall not be
deemed to be nor construed as furthering or continuing waiver of any such
condition, or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
14.8 Public Announcements. Neither party shall make any press release or
public announcement concerning this transaction without the prior written
approval of the other party unless a press release or public amendment is
required by law or by regulations binding upon any of the parties of their
affiliates, in which case, the disclosing party agrees to give the
non-disclosing party prior notice and an opportunity to comment on the proposed
disclosure.
14.9 Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the transactions contemplated hereby
and supersedes and replaces all prior and contemporaneous agreements and
understandings, oral or written, with regard to such transactions. All schedules
and addenda hereto and any documents and instruments delivered pursuant to any
provision hereof are expressly made a part of this Agreement as fully as though
completely set forth herein. The rights of the parties are only as set forth
herein, and there are and shall be no implied rights or obligations whatsoever.
14.10 Parties in Interest. Nothing in this Agreement is intended to confer
any rights or remedies under this Agreement on any persons other than Phoenix
and the Marketing Agent and their respective successors and permitted assigns.
Nothing in this Agreement is intended to relieve or discharge the obligations or
liability of any third persons to Phoenix or the Marketing Agent.
14.11 Section and Paragraph Headings. The section and paragraph headings in
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
14.12 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but both of which shall constitute the same
instrument.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first set
forth in the Agreement.
PHOENIX INTERNATIONAL LTD., INC.: MARKETING AGENT:.
By: /s/ Bahram Yusefzadeh By: /s/ Jose M. Hoyo
-------------------------- ------------------------
Signature Signature
Jose M. Hoyo
- ----------------------------- ---------------------------
Name (Print) Name (Print)
Vice President & Controller
- ----------------------------- ---------------------------
Title Title
12
<PAGE> 13
SERVICES ADDENDUM
This Addendum provides additional terms defining the relationship between the
Marketing Agent and Phoenix. The terms and conditions contained herein are in
addition to those contained in the applicable Cooperative Agreement. If any
terms contained herein are inconsistent with the terms of the Cooperative
Agreement, the Addendum shall control.
Whereas Phoenix and the Marketing Agent may wish to procure the services of one
another for their own benefit and for the benefit of their customers; and
Whereas Phoenix and the Marketing Agent may prepare budgets and customer
quotations based on the cost of such services, Phoenix and the Marketing Agent
agree to provide services to one another and on each other's behalf on the
following terms:
1 Direct Services. From time to time, Phoenix and the Marketing Agent may
provide services to one another, including without limitation implementation and
integration services and assistance, custom software and systems development,
modification and enhancement, and customer support assistance. Such services
shall be provided at *** for such services (the "Discounted Rate").
2 Phoenix Customer Services. At the Marketing Agent's request, Phoenix may
provide services to customers of the Marketing Agent or to the Marketing Agent
on the customer's behalf that the Marketing Agent would normally be obligated
to provide under the terms of the relationship between Phoenix and the
Marketing Agent or between the Marketing Agent and its customers. For all such
services which Phoenix agrees to provide, the Marketing Agent shall pay to
Phoenix *** for such services plus *** for such services.
3 Marketing Agent Customer Services. For all services provided by the
Marketing Agent to customers of Phoenix or Phoenix's affiliates and business
and Marketing Agents, the Marketing Agent shall negotiate rates in good faith,
and in all cases such rates shall be at least as favorable as the Marketing
Agent's then current published rates for such services. Such services may be
provided by the Marketing Agent directly to customers or as a subcontractor to
Phoenix or other parties.
4 Most Favorable Terms. All rates referred to herein before shall be at
least as favorable as the rates provided by the applicable party to any of its
other customers, Marketing Agents or consultants.
5 Materials. Materials provided by one party to the other or to the
other 's customers (other than the Software and other proprietary software and
hardware of either party) shall be billed at the applicable party's actual cost
for such materials.
*** Omitted pursuant to a request for confidential treatment
and filed separately with the Commission.
13
<PAGE> 14
6 Disclaimer. Notwithstanding the foregoing, neither party shall be
obligated to provide services to the other or to any other party without prior
approval on a case by case basis (other than those services required to be
provided under the terms of this or any other agreement).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first set
forth in the Agreement.
PHOENIX INTERNATIONAL LTD., INC.: MARKETING AGENT:
By:/s/ Bahram Yusefzadeh By:/s/ Jose M. Hoyo
----------------------------- -------------------------------
Signature Signature
Jose M. Hoyo
- -------------------------------- ----------------------------------
Name (Print) Name (Print)
Vice President & Controller
- -------------------------------- ----------------------------------
Title Title
14
<PAGE> 15
TRAINING AND IMPLEMENTATION ADDENDUM
This Addendum provides additional terms defining the relationship between the
Marketing Agent and Phoenix. The terms and conditions contained herein are in
addition to those contained in the applicable Cooperative Marketing Agreement.
If any terms contained herein are inconsistent with the terms of the Cooperative
Marketing Agreement, the Addendum shall control.
1 Training and Certification. Phoenix shall assist the Marketing Agent
in the first *** installations of the Software for End Users and shall
concurrently train the Marketing Agent's personnel in the implementation of the
Software. Additionally, the Marketing Agent's personnel shall be entitled to
attend the training sessions for the first *** End Users at no cost. Upon
completion of such training, Phoenix shall certify certain of the Marketing
Agent's personnel to implement the Software. The Marketing Agent shall pay
Phoenix's reasonable travel, living, facility and equipment expenses for such
training, but shall not be charged for instructor time. Up to the limit
established by Phoenix, Phoenix shall provide training materials. Additional
materials will be available for purchase at Phoenix's costs.
2 Right to Implement. Once the Marketing Agent's personnel have completed
the requisite training and have been certified for installation and
implementation of the software by Phoenix, the Marketing Agent may implement
the Software in accordance with this Agreement hereto, but only under the
direction and supervision of certified personnel. All implementations of the
Software shall follow Phoenix's methodology as taught in the training sessions.
3 Additional License. Once the training has been completed, the
Marketing Agent shall have the additional right and license to do the following
with respect to the Software:
3.1 To use the Software for the purpose of installing, maintaining and
marketing the Software for End Users as provided for hereunder.
3.2 To Maintain and Support the Software licensed to End Users, and to
train End Users in the use of the Software and for other educational purposes.
4 Maintenance and Support. Once training has been completed, the
Marketing Agent shall be responsible for all Maintenance and Support of End
Users. The Marketing Agent shall enter into a Maintenance and Support Agreement
with each End User who chooses to accept Maintenance and Support. The
Maintenance and Support Agreement shall be presented to Phoenix prior to use
with End Users, and shall be in a form and contain such terms as are acceptable
to Phoenix. If, at any time, the Marketing Agent materially fails to provide
Maintenance and Support under an agreement with an End User, Phoenix shall
assume the Marketing Agent's responsibilities under such agreement, the
Marketing Agent shall assign the agreement to Phoenix, and the Marketing Agent
shall forward to Phoenix all maintenance and support fees received from such
End User for the period for which Phoenix assumes maintenance and support
obligations, including fees received prior to the assignment for services
provided by Phoenix after the assignment.
*** Omitted pursuant to a request for confidential treatment
and filed separately with the Commission.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first set
forth in the Agreement.
PHOENIX INTERNATIONAL LTD., INC. MARKETING AGENT:
By:/s/ Bahram Yusefzadeh By:/s/ Jose M. Hoyo
----------------------------- ------------------------------
Signature Signature
Jose M. Hoyo
- -------------------------------- ---------------------------------
Name (Print) Name (Print)
Vice President & Controller
- -------------------------------- ---------------------------------
Title Title
16
<PAGE> 17
RELATIONSHIP ADDENDUM
MARKETING AGENT
This Addendum provides additional terms defining the relationship between the
Marketing Agent and Phoenix. The terms and conditions contained herein are in
addition to those contained in the applicable Cooperative Agreement. If any
terms contained herein are inconsistent with the terms of the Cooperative
Agreement, the Addendum shall control.
1 Marketing. Phoenix and the Marketing Agent will identify and introduce
prospective customers to each other and will facilitate communications and the
development of business relationships with such parties.
2 End User Licenses. The Marketing Agent shall present an End User
License to each potential Customer and shall cause all customers to execute an
End User License prior to delivery or installation of the software. The
Marketing Agent shall forward each executed End User License to Phoenix for
acceptance and signature.
3 Prices. All License and Maintenance Fees for the Software shall conform
to Phoenix's standard pricing guides, except as expressly agreed in writing by
Phoenix and the Marketing Agent, and shall in all cases be at least as
favorable as the fees charged by Phoenix to its customers directly. Initially,
the license fees for customers of the Marketing Agent shall be as follows:
<TABLE>
<CAPTION>
Base Phoenix Banking System
Bank Assets License Fee
----------- -----------
<S> <C>
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
</TABLE>
The above license fees may be ***; for those financial institutions currently
using software provided by the Marketing Agent which will be replaced by the
institutions decision to go to the Phoenix Software.
Annual Maintenance Fees shall be ***
4 Fees. The Marketing Agent shall be responsible for the invoice and
collecting all license, implementation, maintenance and other fees paid by End
Users purchasing the Software due to
*** Omitted pursuant to a request for confidential treatment
and filed separately with the Commission.
17
<PAGE> 18
the marketing efforts of the Marketing Agent.
4.1 License Fees. The Marketing Agent shall forward the
following percentages of all license fees to Phoenix within 30
days of the execution of the applicable End User License:
<TABLE>
<S> <C>
*1st End User: ***
Next *** End Users: ***
All other End Users: ***
* Dadeland Bank as charter client bank
</TABLE>
4.2 Implementation Fees. The Marketing Agent shall forward ***
for the first *** End Users to Phoenix within 15 days of receipt
of such fees. Thereafter, the Marketing Agent shall keep *** for
services provided to End Users by the Marketing Agent and shall
forward to Phoenix *** for services provided by Phoenix to End Users.
4.3 Maintenance Fees. The Marketing Agent shall forward to
Phoenix the following percentage of all Maintenance Fees collected
from End Users within 15 days of receipt of such fees by the Marketing
Agent.
<TABLE>
<CAPTION>
Maintenance Fees
Year 1 Years 2 - 5
------ -----------
<S> <C> <C>
*1st End User: *** ***
Next *** End Users: *** ***
All other End Users: *** ***
* Dadeland Bank as charter client bank
</TABLE>
4.4 Other Fees. The Marketing Agent shall keep *** for
hardware and network services provided to End Users other than
as set forth above.
5 Expenses. The Marketing Agent will be responsible for the marketing
expenses of its personnel hereunder and Phoenix shall be responsible for the
expenses of Phoenix personnel.
6 Complementary Products and Services. The Marketing Agent may provide to
End Users complementary products and services as certified by Phoenix for
provision to End Users as such may be approved by Phoenix from time to time.
Such products and services shall be provided pursuant to an agreement between
the End User and the Marketing Agent. Phoenix shall have the right and
opportunity to approve all such agreements, which approval shall not be
unreasonably withheld. The Marketing Agent may request that such products and
services be included in the End User License. Phoenix will use its best efforts
to include such products and services in End User Licenses. Such products and
services shall be provided on reasonable terms and conditions no less favorable
than the terms and conditions under which the Marketing Agent offers similar
products and services to its other customers.
7 Implementation. If the Marketing Agent has executed an Implementation
Addendum and complied with the terms therein, then the Marketing Agent may
implement the software sold as a result of the Marketing Agent's efforts. All
Software not implemented by the Marketing Agent hall be implemented by or at
the direction of Phoenix. Phoenix shall supply the Marketing Agent
*** Omitted pursuant to a request for confidential treatment
and filed separately with the Commission.
18
<PAGE> 19
with one copy of the Software and Documentation on the appropriate electronic
media for implementation for each fully executed End User License presented to
Phoenix along with Phoenix's percentage of the license fees for such End User.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first set
forth in the Agreement.
PHOENIX INTERNATIONAL LTD., INC. MARKETING AGENT:
By:/s/ Bahram Yusefzadeh By:/s/ Jose M. Hoyo
----------------------------- -------------------------------
Signature Signature
Jose M. Hoyo
- -------------------------------- ----------------------------------
Name (Print) Name (Print)
Vice President & Controller
- --------------------------------- ----------------------------------
Title Title
19
<PAGE> 20
SERVICE BUREAU ADDENDUM
This Addendum provides additional terms defining the relationship between the
Marketing Agent and Phoenix. The terms and conditions contained herein are in
addition to those contained in the applicable Cooperative Agreement. If any
terms contained herein are inconsistent with the terms of the Cooperative
Agreement, the Addendum shall control.
1 Service Bureau Arrangement. The Marketing Agent may use the Software for
outsourcing data services to Eligible Prospects within the Territory.
2 Fees. The Marketing Agent shall forward to Phoenix a percentage of all
revenue received from outsourcing activities. The percentages shall be based on
*** received by the Marketing Agent from *** involving the use of Phoenix
Software less any pass through expenses (telecommunications, expenses, courier,
materials, etc.) as follows:
<TABLE>
<CAPTION>
Monthly Revenues % Paid to Phoenix
---------------- -----------------
<S> <C>
*** ***
*** ***
*** ***
*** ***
</TABLE>
All amounts due Phoenix shall be forwarded to Phoenix within 30 days of the end
of the month in which they are earned by the Marketing Agent. The Marketing
Agent shall be responsible for the collection of all outsourcing revenue due to
its activities. Monthly revenues for each outsourcing client of the Marketing
Agent attributable to use of the Software shall in no case be less than 50% of
all revenue collected from each client in each month.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first set
forth in the Agreement.
PHOENIX INTERNATIONAL LTD., INC. MARKETING AGENT:
By:/s/ Bahram Yusefzadeh By:/s/ Jose M. Hoyo
-------------------------------- --------------------------------
Signature Signature
Jose M. Hoyo
- ----------------------------------- -----------------------------------
Name (Print) Name (Print)
Vice President & Controller
- ----------------------------------- -----------------------------------
Title Title
20
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
<PAGE> 21
EXHIBIT A
SOFTWARE
Means the software generally referred to as the Phoenix Retail Banking System
21
<PAGE> 22
EXHIBIT B
TERRITORY
The Territory shall be as follows:
The following counties in the State of Florida: Dade, Broward, Collier, Monroe
and Palm Beach.
The Marketing Agent's territory includes those financial institutions with their
primary operations based in the above territory. The Territory may be modified
at any time by mutual written agreement of the parties.
22
<PAGE> 1
EXHIBIT 10.51
CONFIDENTIAL TREATMENT
REQUESTED
PHOENIX INTERNATIONAL LTD., INC.
COOPERATIVE MARKETING AGREEMENT
Marketing Agent: Advanced Financial Systems, Inc. Date: 4/16/97
( X ) Corporation ( ) Partnership
( ) Limited Partnership ( ) Limited Liability Company
State of Organization: Wyoming
Address: 2614 Pioneer Avenue
Cheyenne, WY 82001
Attention: ***
Fax: ***
This COOPERATIVE AGREEMENT (this "Agreement") is entered into as of the
date first set forth above by and between Phoenix International Ltd., Inc., a
Florida corporation ("Phoenix"), and the party first identified above as the
Marketing Agent ("Marketing Agent"). The parties hereto, intending to be
legally bound, agree as follows:
1 APPOINTMENT
Subject to the terms and conditions of this Agreement, the Marketing Agent
hereby agrees to enter into a cooperative marketing relationship with Phoenix
as set forth in the relationship addendum(s) attached hereto and listed below
(the "Relationship Addendum(s)"):
SERVICES ADDENDUM
TRAINING AND IMPLEMENTATION ADDENDUM
RELATIONSHIP ADDENDUM
*** Omitted pursuant to a request for confidential treatment and
filed separately with the Commission.
<PAGE> 2
2 DEFINITIONS
As used in this Agreement, capitalized terms shall have the following meanings:
2.1 Confidential Information means any business, technical or other information
furnished by Phoenix to the Marketing Agent or disclosed to the Marketing Agent
as a result of examination or inspection of Phoenix's facilities or product
prototypes. Confidential Information shall in all cases include all source
code, development level documentation, and similar technical information
regarding the Software and all marketing and product development information
provided by Phoenix. Information which is disclosed orally will be deemed to be
Confidential Information provided that it is identified as confidential at the
time of disclosure and that the disclosing party, within twenty-one (21) days
after such disclosure, provides such information to the receiving party in
writing designated as confidential.
2.2 Documentation means the documentation associated with the Software as
produced and provided by Phoenix to the Marketing Agent and its customers
generally.
2.3 Eligible Prospect means a retail bank organized and doing business
exclusively in the Territory, and as more particularly described in Exhibit B
attached hereto.
2.4 End Users means customers presented to Phoenix by the Marketing Agent and
approved by Phoenix in accordance with Section 5.1 hereof, who license the
Software under an End User License.
2.5 End User License means the form of agreement or agreements applicable to
the license of the Software as provided by Phoenix to the Marketing Agent from
time to time.
2.6 Intellectual Property Rights means all copyright, design rights, whether
registered or unregistered, patents or patent application, know-how, trade
secrets, and Confidential Information related to or arising in the Software or
Documentation, including all applicable architecture, designs, modules,
routines, programming, command structures, interfaces, and any Modifications
thereto.
2.7 Maintenance means making Modifications to the Software to correct
verifiable and reproducible errors reported to Phoenix and includes all error
correction, maintenance and emergency releases and other modifications required
as a result of changes made by Phoenix which directly affect any of the
Software.
2.8 Modification means a work which is based upon one or more preexisting
works, such as a revision, modification, translation, abridgment, condensation,
expansion, or any other form in which such preexisting works may be recast,
transformed, or adapted, and shall include any work that incorporates or is
combined with such a preexisting work or any portion thereof.
2.9 Modify means, with respect to any of the Software, to make a Modification.
2.10 New Release means a new release of any of the Software to introduce
changes or
2
<PAGE> 3
additions to the Software for purposes of error correction and minor
enhancement of functionality and features.
2.11 New Version means a new release of any of the Software which adds
significant new features or functions, or significant improvement in
performance and for which Phoenix may make extra charges to its customers
generally.
2.12 Prime Rate means the prime rate (or base rate) reported in the "Money
Rates" column or section of The Wall Street Journal as being the base rate on
corporate loans at larger U.S. Money Center banks on the first date on which
The Wall Street Journal is published in each month.
2.13 Trademarks means the trademarks, service marks and trade names used by
Phoenix in connection with its software, products and services, whether
registered or unregistered.
2.14 Support means the provision of relevant assistance in the form of
telephone assistance and consultation, personnel and materials for the
implementation and continued use of the Software, including any Modification
which Phoenix offers as an addition to, replacement for, or option with such
Software under this Agreement.
2.15 Software means the technology, software, documentation, equipment,
communications and other items as indicated on Exhibit A attached hereto, as
such Exhibit may be amended from time to time in writing.
2.16 Territory means the regions set forth on Exhibit B, as such regions exist
as of the date of this Agreement.
3 LICENSE
Subject to the terms of this Agreement, and only as appropriate under the
applicable Relationship Addendum(s), Phoenix hereby grants to the Marketing
Agent the following non-exclusive, revocable rights and licenses with respect
to the Software within the Territory:
3.1 To use the Software as reasonably required to fulfill its obligations and
exercise its rights under this Agreement and in accordance with the
Relationship Addendum(s). The Marketing Agent may not provide the Software to
any third party except pursuant to a fully executed End User License, and may
not use the Software in production for the benefit of any third party, except
as otherwise allowed in a Relationship Addendum attached hereto or as otherwise
provided by written agreement signed by both parties. The Marketing Agent may
not use, rely on, or refer to the Software for purposes of developing or
supporting any other software.
3.2 Subject to completion of sufficient training as applicable and as required
by Phoenix from time to time, to use the Software for back up, demonstrations,
and evaluations involving End Users.
3.3 To use the Trademarks relating to the Software, provided, however, that
such use shall be subject to reasonable advertising and promotion guidelines
which Phoenix may provide from
3
<PAGE> 4
time to time. Phoenix reserves the right to disallow any use of the Trademarks
which would in any way, in Phoenix's opinion, harm the validity or value of the
Trademarks.
3.4 The Marketing Agent shall not copy, adapt, modify or reproduce the
Software in any manner whatsoever except as reasonably necessary for
demonstration, marketing, backup and archival purposes. All copies of the
software to be provided to End Users shall be supplied to the Marketing Agent
by Phoenix.
4 TERM AND REVIEW
4.1 This Agreement shall become effective on the date first set forth above
and shall continue for an initial period of two (2) years. This Agreement shall
automatically renew thereafter from year to year, unless and until terminated
by either party, in its discretion, by at least thirty (30) days' prior written
notice to the other party. In addition, Phoenix reserves the right to terminate
this Agreement at any time on at least thirty (30) days' prior written notice
if the Marketing Agent defaults on its obligations, incurs a conflict of
interest of significant impact, or fails to devote reasonable effort to the
license of the Software to End Users.
4.2 Notwithstanding the termination of this Agreement, Phoenix shall continue
to be entitled to the fees earned under this Agreement after such termination.
So long as the Marketing Agent continues to satisfy its obligations to End
Users under this maintenance and support agreements, notwithstanding a
termination of this Agreement, the Marketing Agent may continue to provide such
maintenance and support.
4.3 Either party may request a review of this Agreement and the royalty
payments applicable to the Software, such review to take place in advance of
each anniversary of the commencement of this Agreement while the Agreement
remains in force.
4.4 Survival. Notwithstanding termination of this Agreement for any reason
(including, without limitation, by notice pursuant to Section 3.1), Sections 10
(Title to Intellectual Property), 11 (Confidentiality) and 14 (General) shall
continue to have effect as shall any other provisions which by their nature or
necessary implication ought or were intended to continue to have effect, and
End User Licenses of customers already granted prior to the date of such
termination shall continue to be valid.
4.5 Actions Upon Termination. Upon termination the Marketing Agent shall:
a. promptly cease to use, license, market or promote the Software;
b. return all copies of the Software in the possession of the Marketing
Agent to Phoenix and shall cease using the same for any purpose whatsoever
except to fulfill its obligations under maintenance and support
agreements;
c. for a period of six (6) months following termination, refer to
Phoenix all prospective customers and all inquiries received by it
relating to the Software;
4
<PAGE> 5
d. return and deliver or cause to be returned and delivered to Phoenix
all memoranda, notes, reports, documents or media relating to or
containing Confidential Information, including any copies or extracts
thereof.
The Marketing Agent shall certify its compliance with this Section upon the
written request of Phoenix.
5 OBLIGATIONS OF THE MARKETING AGENT
5.1 End User Approval. The Marketing Agent shall notify Phoenix of potential
customers for the Software. Phoenix shall notify the Marketing Agent of
marketing conflicts with Phoenix's marketing efforts to such potential
customers. In case of conflict, the senior sales managers of Phoenix and the
Marketing Agent shall determine whose sales force shall market to the customer.
If no resolution can be reached, the decision of Phoenix as to such customer
shall be final.
5.2 Customer Contacts. During the term of this Agreement, the Marketing Agent
will work exclusively with Phoenix with respect to any business opportunity
presented to the Marketing Agent by Phoenix or obtained by the Marketing Agent
as a result of the working relationship of the Marketing Agent with Phoenix.
5.3 Development of Competing Software. The Marketing Agent shall not use the
Software or Documentation or any Confidential Information (as defined herein)
that it may acquire in connection with this Agreement to develop, have
developed, or support or invest in, directly or indirectly, the development of
any product which has, entirely or partially, the same functions as any of the
Software or which would be in direct or indirect competition with any of the
Software, or to sell competing products or services.
5.4 Qualified Personnel. The Marketing Agent shall employ suitably qualified
and trained personnel in order to perform its obligations hereunder, and under
any End User License or other agreement with an End User related to the
implementation, use or support of the Software.
5.5 End User Compliance. The Marketing Agent shall inform Phoenix of all known
breaches by End Users of their agreements with Phoenix.
5.6 Notices, Logos and Marks. The Marketing Agent shall not alter, erase or
obscure any notices, legends, or trademarks or alter any indications of
ownership such as copyright, serial number or any other designations or
security provisions featured on copies of the Software and Documentation, and
shall include all such features on all copies of the Software and Documentation
made by the Marketing Agent.
5.7 Copies of Materials. The Marketing Agent shall send to Phoenix copies of
all advertising, marketing and product material related to the Software created
or to be used by the Marketing Agent.
5
<PAGE> 6
6 PHOENIX'S OBLIGATIONS
6.1 Copies of the Software. Phoenix shall provide the Marketing Agent with a
reasonable number of copies of the Software and Documentation as necessary for
the Marketing Agent to fulfill its obligations and exercise its rights
hereunder. All Documentation shall be provided in English.
6.2 Maintenance and Support. Phoenix shall provide a description of the
specific hardware and software environment required by the Software. Upon
request, Phoenix will review alternative hardware and software configurations
proposed by the Marketing Agent and may, in its sole discretion, approve such
configurations. Phoenix shall provide the following maintenance and support for
Software operating in approved hardware and software environments during the
term of this Agreement:
a. Support. Phoenix shall provide Support and Maintenance to the
Marketing Agent for the then-current version and the immediately preceding
version of the Software. In order to assist in the provision of
Maintenance, the Marketing Agent shall notify Phoenix promptly following
the discovery of any defect. Further, upon discovery of a defect, if
requested by Phoenix, the Marketing Agent shall submit to Phoenix a
listing of output and any other data that Phoenix may require in order to
reproduce the error and the operating conditions under which the error
occurred or was discovered.
b. Upgrades. Phoenix shall provide the Marketing Agent with a copy of
each New Release and each New Version of the Software as Phoenix may from
time to time issue to its customers generally. Phoenix shall provide
reasonable telephone support to assist in the installation and operation
of each New Release and New Version. For any particular New Release or New
Version to operate properly, the Marketing Agent must have installed all
prior New Releases and New Versions.
Regulatory Compliance. Phoenix shall ensure the software complies
with minimum regulatory requirements of U.S. Federal Agencies having
jurisdiction over the operation of the End User.
d. Telephone Support. Phoenix shall maintain a telephone support line
during hours to be designated by Phoenix from time to time, which in any
case shall cover at least 8:30 a.m. to 5:30 p.m. Monday through Friday,
Orlando, Florida time. Support in response to questions which are outside
the intended scope of this Agreement may be subject to an additional
charge.
e. Exceptions. The following matters are not covered by Maintenance
or Support under this Agreement:
(1) Any problem resulting from the misuse, improper use, alteration,
or damage of any of the Software;
(2) Any problem caused by the Modifications of any version of the
Software not made or authorized by Phoenix; or
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<PAGE> 7
(3) Any problem resulting from the use of the Software with other
programming or with hardware configurations not approved in writing
by Phoenix.
6.3 Expenses for On-Site Support. The Marketing Agent shall pay Phoenix's
normal charges and expenses for time, materials, and other resources and
expenses, including Phoenix's travel costs, required to provide Maintenance or
Support hereunder. In addition, the Marketing Agent is responsible for
procuring, installing, and maintaining all computer and other equipment,
networks, telephone lines, communications interfaces, and other hardware
necessary to operate the Software and to obtain maintenance services from
Phoenix. Phoenix will not be responsible for delays caused by events or
circumstances beyond its reasonable control.
7 TRAINING.
7.1 Initial Training. Phoenix shall provide up to 4 instructor days of initial
training in the functionality, marketing and operation of the Software. The
Marketing Agent shall pay Phoenix's reasonable travel, living, facility and
equipment expenses for such training, but shall not be charged for instructor
time. Phoenix shall provide training materials including "The Value Added Path
Methodology," sales and marketing materials, and an initial stock of sales
collaterals. Additional materials will be provided upon request at a price
equal to Phoenix's cost for such materials.
7.2 Upgrade Training. Phoenix shall provide training on all New Releases at
times and locations determined by Phoenix. The Marketing Agent may send two
representatives to one scheduled training session for each New Release at no
cost. Additional representatives may attend such training for additional fees
as determined by Phoenix. The Marketing Agent shall pay all travel and living
expenses for its representatives.
7.3 Additional Training. Phoenix shall provide additional technical assistance
and training to the Marketing Agent in excess of the initial training as
reasonably requested by the Marketing Agent; provided, however, that the
Marketing Agent shall reimburse Phoenix for all expenses incurred by Phoenix in
providing such assistance and training and shall pay all applicable training
and instructor fees related to such services at Phoenix's then current rates,
unless otherwise agreed in writing before such services are provided.
7.4 Classes. Subject to space availability, the Marketing Agent may enroll its
employees in additional or advanced training classes at Phoenix's then current
rates.
8 WARRANTY
8.1 Limited Warranty. Phoenix warrants to the Marketing Agent that the
Software will, for a period of one (1) year after receipt, perform
substantially in conformance with applicable specifications (the "Limited
Warranty"). Phoenix makes no warranty that all nonconformities or defects have
been or can be eliminated from the Software or that operation of the Software
will be uninterrupted or error free. This Limited Warranty shall not apply to
(i) Modifications made to the Software other than those described in the
applicable Documentation or expressly approved by Phoenix, or (ii) to Software
damaged due to accident, abuse or neglect.
7
<PAGE> 8
8.2 Exclusive Remedy. The Marketing Agent's sole and exclusive remedy for
breach of the above Limited Warranty shall be, at the option of Phoenix, repair
or replacement of the relevant Software. Any replacement Software shall be
covered under the Limited Warranty for the remainder of the original warranty
period, or for thirty (30) days after receipt, whichever is longer.
8.3 DISCLAIMER. EXCEPT FOR THE WARRANTY SET FORTH ABOVE, THE SOFTWARE ARE
LICENSED TO THE MARKETING AGENT "AS IS," AND PHOENIX DISCLAIMS ANY AND ALL
OTHER REPRESENTATIONS AND WARRANTIES, WHETHER ORAL OR WRITTEN, EXPRESS OR
IMPLIED, INCLUDING (WITHOUT LIMITATION) ANY WARRANTY AS TO MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
8.4 LIMITATION OF LIABILITY AND DAMAGES. PHOENIX'S LIABILITY FOR ANY AND ALL
DAMAGES SHALL BE LIMITED TO THE EXCLUSIVE REMEDY SET FORTH ABOVE. NEITHER PARTY
SHALL HAVE ANY LIABILITY FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES WHATSOEVER, INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF PROFITS,
INTERRUPTION OF BUSINESS, OR ANY OTHER MONETARY LOSS, ARISING OUT OF THE USE OR
INABILITY TO USE THE SOFTWARE, OR FOR MISSTATEMENTS, MISTAKES OR OMISSIONS IN
THE DOCUMENTATION, EVEN IF SUCH PARTY HAS BEEN APPRISED OF THE POSSIBILITY OF
SUCH DAMAGES.
8.5 Limitation on Actions. No action, regardless of form, arising out of this
Agreement or the transactions contemplated hereunder may be brought more than
two (2) years after the cause of the action has accrued.
8.6 Independent responsibility. Neither party shall be responsible to any
customer or End User for the quality of service or performance of products
furnished by the other party. Each party is solely responsible for establishing
the prices of its own products, services and associated deliverables.
8.7 Trademark Use. Neither party, without the express prior written approval
of the other shall use the trademarks, service marks, or proprietary words or
symbols of the other. Notwithstanding the foregoing, nothing contained in this
Agreement shall affect either party's rights to use any trademarks, service
marks, or proprietary words or symbols of the other to the extent otherwise
permitted by applicable law or by written agreement between the parties.
9 INDEMNIFICATION BY PHOENIX.
9.1 Infringement of Intellectual Property Rights. If a third party claims that
the Software infringes any patent, copyright, trade secret, or similar
Intellectual Property Rights, Phoenix shall (as long as the Marketing Agent is
not in default under this Agreement or any other agreement with Phoenix)
indemnify and defend the Marketing Agent against such claim at Phoenix's
expense, provided that the Marketing Agent promptly notifies Phoenix in writing
of any such claim, allows Phoenix to control all negotiations and litigation
related thereto, and cooperates with Phoenix in the defense and disposition of
such claim, including any related
8
<PAGE> 9
settlement negotiations.
9.2 Limitations. If such a claim is made or appears possible, Phoenix may, at
its option, secure for the Marketing Agent the right to continue to use the
Software, or modify or replace the Software so it is non-infringing. Phoenix
has no obligation hereunder for any claim based on a modified version of the
Software which has not been approved by Phoenix, or for any combination,
operation or use of the Software with a non-approved operating environment or
with any program, product, data or apparatus not approved in writing by
Phoenix. Phoenix shall have no obligation hereunder for any claim based on
theories of law that are not substantially equivalent to laws, treaties and
conventions applicable to U.S. patents, copyrights, trade secrets, and similar
intellectual property rights. THIS SECTION 12 STATES PHOENIX'S ENTIRE
OBLIGATION TO THE Marketing Agent WITH RESPECT TO MATTERS OF TITLE OR ANY CLAIM
OF INFRINGEMENT THEREOF.
10 TITLE TO INTELLECTUAL PROPERTY
All right title and interest in and to all copies of the Software and
Documentation and all Intellectual Property Rights pertaining thereto shall
vest exclusively with Phoenix, including the Intellectual Property Rights in
all Modifications and other related works created by or for Phoenix, the
Marketing Agent, or any End User, including their personnel and permitted
agents or contractors. To the extent rights in Modifications and all
Intellectual Property Rights therein do not automatically and fully vest
exclusively in Phoenix, the Marketing Agent agrees to and hereby does assign to
Phoenix all such rights, and shall execute all such other agreements as Phoenix
may require to effect such assignment. To the extent Modifications are produced
by or under the supervision of the Marketing Agent, Phoenix hereby grants to
the Marketing Agent a non-transferable, and royalty free license to reproduce,
license and distribute such Modifications, but only to the extent they are
marketed and licensed or sold to End Users for use solely with duly licensed
versions of the Software pursuant to End User Licenses in effect with Phoenix.
11 CONFIDENTIALITY
11.1 Non-Disclosure. Except as otherwise provided herein or as allowed by the
prior written consent of Phoenix, for the term of this Agreement and for a
period of three (3) years following the termination of this Agreement, the
Marketing Agent (a) shall receive all Confidential Information in strict
confidence, (b) shall use the same degree of care which it uses to protect its
own confidential information to maintain the confidentiality and secrecy
thereof, (c) shall disclose the Confidential Information, and permit the
Confidential Information to be disclosed, only to employees of the Marketing
Agent who need access to the Confidential Information to carry out the terms
and intent of this Agreement, and (d) shall use the Confidential Information
only in furtherance of its rights and obligations set forth in this Agreement.
Both the parties shall keep confidential the terms and conditions of this
Agreement, but not its existence, and all other information which is designated
in writing as confidential by one party to the other. Notwithstanding the
foregoing, the Marketing Agent may make such disclosures as may be required by
order of a court of competent jurisdiction, administrative agency or other
9
<PAGE> 10
government body, or by law rule or regulation, provided, however, that to the
extent possible, the Marketing Agent gives Phoenix prior written notice of such
requirement and assists Phoenix in its efforts to oppose such requirement.
11.2 Exclusions. Paragraph 9.2 hereof shall not apply to any Confidential
Information which (a) at the time of disclosure to the Marketing Agent is in
the public domain or thereafter enters the public domain for reasons not
attributable to any act or omission of the Marketing Agent in breach of its
obligations hereunder, (b) which the Marketing Agent can show was in the
possession of the Marketing Agent prior to the disclosure thereof to the
Marketing Agent by Phoenix, or (c) which the Marketing Agent can show is
acquired by the Marketing Agent from a third party who does not thereby breach
an obligation of confidence to Phoenix and who discloses it in good faith.
12 EXPORTS
12.1 Territory. The Marketing Agent may not export the Software outside of the
Territory nor contact any prospective End User outside of the Territory without
Phoenix's prior written approval.
13 EMPLOYEES
During the term of this Agreement and for a period of twelve (12) months
thereafter, neither party will directly or indirectly solicit for employment or
employ any employee of the other without the prior written consent of the
other.
14 GENERAL
14.1 No Authority to Bind the Other Party. The parties to this Agreement are
independent contractors and, except as provided in this Agreement or otherwise
in a writing signed by both parties, neither party is authorized to act on
behalf of the other or to bind the other. This Agreement does not establish any
relationship of agency, partnership, or joint venture. Each party shall bear
responsibility for its own employees, including terms of employment, wages,
hours, tax withholding, required insurance, and daily direction and control.
Except as otherwise set forth in an Addendum, the relationship created
hereunder is non-exclusive as to each party.
14.2 Successors and Assigns. Except as otherwise provided in this Agreement,
neither party may assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other party. Any such attempted
assignment without such prior written consent shall be void and of no force and
effect. This Agreement shall inure to the benefit of and shall be binding upon
the permitted successors and assigns of the parties hereto.
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<PAGE> 11
14.3 Governing Law. The construction and interpretation of, and the rights and
obligations of the parties pursuant to this Agreement shall be governed by the
laws of the State of Florida.
14.4 Force Majeure. Neither party shall be liable for any failure of or delay
in the performance of this Agreement for the period that such failure or delay
is due to acts of God, public enemy, civil war, strikes or labor disputes, or
any other cause beyond the parties' reasonable control. Each party agrees to
notify the other party promptly of the occurrence of any such cause and to
carry out this Agreement as promptly as practicable after such cause has
terminated.
14.5 Severability. In the event that any part of this Agreement is declared by
any court or other judicial or administrative body to be null, void or
unenforceable, said provision shall survive to the extent if is not so
declared, and all of the other provisions of this Agreement shall remain in
full force and effect.
14.6 Notices. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given:
(i) on the date of service if served personally on the party to whom notice is
to be given; (ii) on the day of transmission if sent via facsimile transmission
to the facsimile number given below, and telephonic confirmation of receipt is
obtained promptly after completion of transmission; (iii) on the second day
after delivery to Federal Express or similar overnight courier or the Express
Mail service maintained by the United States Postal Service; or (iv) on the
fifth day after mailing, if mailed to the party to whom notice is to be given,
by first class air mail, registered or certified, postage prepaid and properly
addressed, to the party as follows:
If to the Phoenix:
Phoenix International Ltd., Inc.
500 International Parkway
Heathrow, FL 32746
Attention: Ralph Reichard
Facsimile: (407) 548-5296
If to the Marketing Agent, at the address first set forth above.
Any party may change its address for the purpose of this Section by giving the
other parties written notice of its new address in the manner set forth above.
14.7 Amendments; Waivers. This Agreement may be amended or modified, and any of
the terms, covenants, representations, warranties or conditions hereof may be
waived, only by a written instrument executed by the parties hereto, or in the
case of a waiver, by the party waiving compliance. Any waiver by any party of a
condition, or of the breach of any provision, term, covenant, representation or
warranty contained in this Agreement, in any one or more instances, shall not
be deemed to be nor construed as furthering or continuing waiver of any such
condition, or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
14.8 Public Announcements. Neither party shall make any press release or public
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<PAGE> 12
announcement concerning this transaction without the prior written approval of
the other party unless a press release or public amendment is required by law
or by regulations binding upon any of the parties of their affiliates, in which
case, the disclosing party agrees to give the non-disclosing party prior
notice and an opportunity to comment on the proposed disclosure.
14.9 Entire Agreement. This Agreement contains the entire understanding between
the parties hereto with respect to the transactions contemplated hereby and
supersedes and replaces all prior and contemporaneous agreements and
understandings, oral or written, with regard to such transactions. All
schedules and addenda hereto and any documents and instruments delivered
pursuant to any provision hereof are expressly made a part of this Agreement as
fully as though completely set forth herein. The rights of the parties are only
as set forth herein, and there are and shall be no implied rights or
obligations whatsoever.
14.10 Parties in Interest. Nothing in this Agreement is intended to confer any
rights or remedies under this Agreement on any persons other than Phoenix and
the Marketing Agent and their respective successors and permitted assigns.
Nothing in this Agreement is intended to relieve or discharge the obligations
or liability of any third persons to Phoenix or the Marketing Agent.
14.11 Section and Paragraph Headings. The section and paragraph headings in
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement. 14.12 Counterparts. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but both
of which shall constitute the same instrument.
14.12 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but both of which shall constitute the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first set forth in the Agreement.
Phoenix International Ltd., Inc.: Marketing Agent:
By: /s/ Ralph Reichard By:/s/ Gary E. Moore
------------------------------ -------------------------------
Signature Signature
Ralph Reichard Gary E. Moore
- --------------------------------- ----------------------------------
Name (Print) Name (Print)
President President
- --------------------------------- ----------------------------------
Title Title
12
<PAGE> 13
SERVICES ADDENDUM
This Addendum provides additional terms defining the relationship between the
Marketing Agent and Phoenix. The terms and conditions contained herein are in
addition to those contained in the applicable Cooperative Agreement. If any
terms contained herein are inconsistent with the terms of the Cooperative
Agreement, the Addendum shall control.
Whereas Phoenix and the Marketing Agent may wish to procure the services of one
another for their own benefit and for the benefit of their customers; and
Whereas Phoenix and the Marketing Agent may prepare budgets and customer
quotations based on the cost of such services, Phoenix and the Marketing Agent
agree to provide services to one another and on each other's behalf on the
following terms:
1 Direct Services. From time to time, Phoenix and the Marketing Agent may
provide services to one another, including without limitation implementation
and integration services and assistance, custom software and systems
development, modification and enhancement, and customer support assistance.
Such services shall be provided at *** for such services (the "Discounted
Rate").
2 Phoenix Customer Services. At the Marketing Agent's request, Phoenix may
provide services to customers of the Marketing Agent or to the Marketing Agent
on the customer's behalf that the Marketing Agent would normally be obligated
to provide under the terms of the relationship between Phoenix and the
Marketing Agent or between the Marketing Agent and its customers. For all such
services which Phoenix agrees to provide, the Marketing Agent shall pay to
Phoenix *** for such services *** for such services.
3 Marketing Agent Customer Services. For all services provided by the
Marketing Agent to customers of Phoenix or Phoenix's affiliates and business
and Marketing Agents, the Marketing Agent shall negotiate rates in good faith,
and in all cases such rates shall be at least as favorable as the Marketing
Agent's then current published rates for such services. Such services may be
provided by the Marketing Agent directly to customers or as a subcontractor to
Phoenix or other parties.
4 Materials. Materials provided by one party to the other or to the other's
customers (other than the Software and other proprietary software and hardware
of either party) shall be billed at the applicable party's actual cost for such
materials.
*** Omitted pursuant to a request for confidential treatment and
filed separately with the Commission.
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<PAGE> 14
5 Disclaimer. Notwithstanding the foregoing, neither party shall be
obligated to provide services to the other or to any other party without prior
approval on a case by case basis (other than those services required to be
provided under the terms of this or any other agreement).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first set forth in the Agreement.
Phoenix International Ltd., Inc.: Marketing Agent:
By:/s/ Ralph Reichard By:/s/ Gary E. Moore
------------------------------ ------------------------------
Signature Signature
Ralph Reichard Gary E. Moore
- --------------------------------- ------------------------------
Name (Print) Name (Print)
President President
- --------------------------------- ------------------------------
Title Title
14
<PAGE> 15
TRAINING AND IMPLEMENTATION ADDENDUM
This Addendum provides additional terms defining the relationship between the
Marketing Agent and Phoenix. The terms and conditions contained herein are in
addition to those contained in the applicable Cooperative Marketing Agreement.
If any terms contained herein are inconsistent with the terms of the
Cooperative Marketing Agreement, the Addendum shall control.
1 Training and Certification. Phoenix shall assist the Marketing Agent in
the first *** installations of the Software for End Users and shall
concurrently train the Marketing Agent's personnel in the implementation of the
Software. Additionally, the Marketing Agent's personnel shall be entitled to
attend the training sessions for the first *** End Users at no cost. Upon
completion of such training, Phoenix shall certify certain of the Marketing
Agent's personnel to implement the Software. The Marketing Agent shall pay
Phoenix's reasonable travel, living, facility and equipment expenses for such
training, but shall not be charged for instructor time. Up to the limit
established by Phoenix, Phoenix shall provide training materials. Additional
materials will be available for purchase at Phoenix's costs.
2 Right to Implement. Once the Marketing Agent's personnel have completed
the requisite training and have been certified for installation and
implementation of the software by Phoenix, the Marketing Agent may implement
the Software in accordance with this Agreement hereto, but only under the
direction and supervision of certified personnel. All implementations of the
Software shall follow Phoenix's methodology as taught in the training sessions.
3 Additional License. Once the training has been completed, the Marketing
Agent shall have the additional right and license to do the following with
respect to the Software:
3.1 To use the Software for the purpose of installing, maintaining and
marketing the Software for End Users as provided for hereunder.
3.2 To Maintain and Support the Software licensed to End Users, and to train
End Users in the use of the Software and for other educational purposes.
4 Maintenance and Support. Once training has been completed, the Marketing
Agent shall be responsible for all Maintenance and Support of End Users. The
Marketing Agent shall enter into a Maintenance and Support Agreement with each
End User who chooses to accept Maintenance and Support. The Maintenance and
Support Agreement shall be presented to Phoenix prior to use with End Users,
and shall be in a form and contain such terms as are acceptable to Phoenix. If,
at any time, the Marketing Agent materially fails to provide Maintenance and
Support under an agreement with an End User, Phoenix shall assume the Marketing
Agent's responsibilities under such agreement, the Marketing Agent shall assign
the agreement to Phoenix, and the Marketing Agent shall forward to Phoenix all
maintenance and support fees received from such End User for the period for
which Phoenix assumes maintenance and support obligations, including fees
received prior to the assignment for services provided by Phoenix after the
assignment.
*** Omitted pursuant to a request for confidential treatment and
filed separately with the Commission.
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first set forth in the Agreement.
Phoenix International Ltd., Inc. Marketing Agent:
By:/s/ Ralph Reichard By:/s/ Gary E. Moore
---------------------------- ------------------------------
Signature Signature
Ralph Reichard Gary E. Moore
- ------------------------------- ----------------------------------
Name (Print) Name (Print)
President President
- ------------------------------- ----------------------------------
Title Title
16
<PAGE> 17
RELATIONSHIP ADDENDUM
MARKETING AGENT
This Addendum provides additional terms defining the relationship between the
Marketing Agent and Phoenix. The terms and conditions contained herein are in
addition to those contained in the applicable Cooperative Agreement. If any
terms contained herein are inconsistent with the terms of the Cooperative
Agreement, the Addendum shall control.
1 Marketing. Phoenix and the Marketing Agent will identify and introduce
prospective customers to each other and will facilitate communications and the
development of business relationships with such parties.
2 End User Licenses. The Marketing Agent shall present an End User License
to each potential Customer and shall cause all customers to execute an End User
License prior to delivery or installation of the software. The Marketing Agent
shall forward each executed End User License to Phoenix for acceptance and
signature.
3 Prices. All License and Maintenance Fees for the Software shall conform to
Phoenix's standard pricing guides, except as expressly agreed in writing by
Phoenix and the Marketing Agent, and shall in all cases be at least as
favorable as the fees charged by Phoenix to its customers directly. Initially,
the license fees for customers of the Marketing Agent shall be as follows:
<TABLE>
<CAPTION>
Customer Assets Initial License Fee
<S> <C>
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
</TABLE>
Annual Maintenance Fees shall be ***.
4 Fees. The Marketing Agent shall be responsible for the invoice and
collecting all license, implementation, maintenance and other fees paid by End
Users purchasing the Software due to the marketing efforts of the Marketing
Agent.
4.1 License Fees. The Marketing Agent shall forward the following
percentages of all license fees to Phoenix within 30 days of the execution
of the applicable End User License:
<TABLE>
<S> <C>
1st *** End Users: ***
All other End Users: ***
</TABLE>
*** Omitted pursuant to a request for confidential treatment and
filed separately with the Commission.
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<PAGE> 18
4.2 Implementation Fees. The Marketing Agent shall forward *** for the
first *** End Users to Phoenix within 15 days of receipt of such fees.
Thereafter, the Marketing Agent shall keep *** for services provided to
End Users by the Marketing Agent and shall forward to Phoenix *** for
services provided by Phoenix to End Users.
4.3 Maintenance Fees. The Marketing Agent shall forward to Phoenix the
following percentage of all Maintenance Fees collected from End Users
within 15 days of receipt of such fees by the Marketing Agent.
<TABLE>
<S> <C>
Year 1 maintenance fees
for each End User: ***
Year 2 through 5 maintenance
fees for each End User: ***
</TABLE>
4.4 Other Fees. The Marketing Agent shall keep *** for hardware and
network services provided to End Users other than as set forth above.
5 Expenses. The Marketing Agent will be responsible for the marketing
expenses of its personnel hereunder and Phoenix shall be responsible for the
expenses of Phoenix personnel.
6 Complementary Products and Services. The Marketing Agent may provide to
End Users complementary products and services as certified by Phoenix for
provision to End Users as such may be approved by Phoenix from time to time.
Such products and services shall be provided pursuant to an agreement between
the End User and the Marketing Agent. Phoenix shall have the right and
opportunity to approve all such agreements, which approval shall not be
unreasonably withheld. The Marketing Agent may request that such products and
services be included in the End User License. Phoenix will use its best efforts
to include such products and services in End User Licenses. Such products and
services shall be provided on reasonable terms and conditions no less favorable
than the terms and conditions under which the Marketing Agent offers similar
products and services to its other customers.
7 Implementation. If the Marketing Agent has executed an Implementation
Addendum and complied with the terms therein, then the Marketing Agent may
implement the software sold as a result of the Marketing Agent's efforts. All
Software not implemented by the Marketing Agent shall be implemented by or at
the direction of Phoenix. Phoenix shall supply the Marketing Agent with one
copy of the Software and Documentation on the appropriate electronic media for
implementation for each fully executed End User License presented to Phoenix
along with Phoenix's percentage of the license fees for such End User.
*** Omitted pursuant to a request for confidential treatment and
filed separately with the Commission.
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first set forth in the Agreement.
Phoenix International Ltd., Inc. Marketing Agent:
By:/s/ Ralph Reichard By:/s/ Gary E. Moore
----------------------------- ---------------------------------
Signature Signature
Ralph Reichard Gary E. Moore
- -------------------------------- ------------------------------------
Name (Print) Name (Print)
President President
- -------------------------------- ------------------------------------
Title Title
19
<PAGE> 20
EXHIBIT A
SOFTWARE
Means the software generally referred to as the Phoenix Retail Banking System
20
<PAGE> 21
EXHIBIT B
TERRITORY
The Marketing Agent's territory includes only those financial institution,
including commercial banks, savings banks, thrifts with their primary
operations based in the above territory, and with assets less than $150
Million. The Territory is non-exclusive.
The Territory shall be as follows: Wyoming, Colorado, Montana, Idaho, Utah,
North Dakota, South Dakota.
The Territory may be modified at any time by mutual written agreement of the
parties.
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<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant
Phoenix FSC, Inc., a wholly-owned subsidiary of the Company, was
incorporated on May 9, 1994 with the government of the Virgin Islands of the
United States, St. Thomas.
Phoenix EMEA Limited, a wholly-owned subsidiary of the Company, was
incorporated on December 9, 1996 with the Registrar of Companies for England
and Wales.
Phoenix A.P. Limited, a wholly-owned subsidiary of the Company, was
incorporated on April 23, 1997 with the Registrar of Companies of New Zealand.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial and Operating Data", and "Experts" and to the use of our
report dated January 31, 1997 in the Registration Statement (Form S-1) and
related Prospectus of Phoenix International Ltd., Inc. for the registration of
1,748,000 shares of its common stock.
ERNST & YOUNG LLP
Atlanta, Georgia
July 15, 1997
