<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1997.
REGISTRATION NO. 333-31415
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PHOENIX INTERNATIONAL LTD., INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
FLORIDA 7372 59-3171810
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
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:
<TABLE>
<S> <C>
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, L.L.P. ALSTON & BIRD LLP
FIRST UNION PLAZA, SUITE 1400 ONE ATLANTIC CENTER
999 PEACHTREE STREET, N.E. 1201 WEST PEACHTREE STREET
ATLANTA, GEORGIA 30309 ATLANTA, GEORGIA 30309-3424
(404) 817-6000 (404) 881-7000
(404) 817-6050 (FAX) (404) 881-7777 (FAX)
</TABLE>
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 PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
- -------------------------------------------------------------------------------------------------------------------------
<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.
(3) Previously paid.
--------------------------
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 29, 1997
PROSPECTUS
1,520,000 SHARES
[PHOENIX INTERNATIONAL LTD., INC 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 28, 1997, the
last reported sale price of the Common Stock on the Nasdaq National Market was
$23.25 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>
=====================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Total(3)........................ $ $ $ $
=====================================================================================================================
</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
[ARTWORK:
(1) Inside front cover: Graphic of Company logo next to a world
globe with the phrase "Tools to manage the bank...not just run it." to the
right of the globe. The Company name is above the graphic and the sentence
"The World Is Banking on Phoenix.(TM)" is below.
(2) Fold-out of front cover: Graphic display of the Phoenix client/server
banking environment, including examples of Company and third party products,
services and interfaces, planned products, services and interfaces, and data
from third party products which may be integrated with the Phoenix System's
customer management facilities.]
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."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and the related 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) 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 30, 1997, the Phoenix System supported the core processing needs
of 33 institutions with approximately 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 135 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. From the Company's initial public offering in July
1996 through June 30, 1997, the Company developed two major releases of
the Phoenix System, including Version 2.0 scheduled for release in the
third quarter of 1997, which include numerous system enhancements;
introduced and installed a version of the Phoenix System which operates in
a Microsoft Windows NT environment (the "NT Version"); implemented an
enterprise-wide integrated Intranet system for two client institutions;
and 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
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
- ---------------
(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.
Factors that may cause actual results to differ materially from those
contemplated, projected, forecast, estimated or budgeted in such forward-looking
statements include, among others, the following possibilities: (i) heightened
competition, including specifically the intensification of price competition,
the entry of new competitors, and new services by new and existing competitors;
(ii) failure to identify, acquire or profitably manage additional businesses or
successfully integrate acquired businesses, if any, into the Company without
substantial costs, delays or other operational or financial problems; (iii)
failure to obtain new customers or retain existing customers; (iv) inability to
carry out marketing and sales plans; (v) loss of key executives; (vi) general
economic and business conditions which are less favorable than expected; and
(vii) unanticipated changes in industry trends. 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 additional
important factors that could cause such differences.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
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FISCAL YEARS ENDED ELEVEN
------------------------- MONTHS THREE MONTHS ENDED
ENDED YEAR ENDED MARCH 31,
JANUARY 31, JANUARY 31, DECEMBER 31, DECEMBER 31, ----------------------------
1994 1995 1995(1) 1996 1996 1997
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<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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BALANCE SHEET DATA:
Working capital..................................................................... $ 6,539,885 $32,991,833
Total assets........................................................................ 13,764,384 40,216,332
Long-term liabilities(7)............................................................ 785,219 785,219
Total shareholders' equity.......................................................... 10,748,081 37,200,029
</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) 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 $23.25 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 TradeWind(TM), 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,
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 Siemens 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 announced its operating results for the 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.
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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 or as
a result of any change which would limit the Company's ability to utilize
foreign tax credits. In addition, at December 31, 1996, the Company had
available net operating loss carry forwards of approximately $5.7 million. Once
the net operating loss carry forwards 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
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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 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
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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 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
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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."
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
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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
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. See "Factors Affecting Operating
Results; Fluctuations in Quarterly Results."
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
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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 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
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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 2,028,084 shares
(approximately 36.4%) of the outstanding Common Stock. In addition 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 192,728 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
beneficially owned by such persons would represent approximately 38.5% 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."
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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 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
statements on Form S-8 as filed with the Securities and Exchange Commission (the
"Commission") on December 31, 1996 and July 3, 1997 (collectively, 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 3,620,000 shares will be immediately available for sale in the
public market; and beginning 180 days following the date of this Prospectus,
approximately 2,710,000 shares will be eligible for sale pursuant to 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
16
<PAGE> 18
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.
17
<PAGE> 19
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 $23.25 per
share are estimated to be approximately $26.5 million (approximately $31.5
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.
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 $23.25
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 the related 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 37,289,936
Stock subscription receivables............................ (83,443) (83,443)
Accumulated deficit....................................... (57,648) (57,648)
----------- -----------
Total shareholders' equity............................. 10,748,081 37,200,029
----------- -----------
Total capitalization.............................. $11,533,300 $37,985,248
=========== ===========
</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>
HIGH LOW
------ ------
<S> <C> <C>
1996
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 28, 1997)....................... 23.75 20.25
</TABLE>
On July 28, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $23.25 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>
FISCAL YEARS ENDED ELEVEN
------------------------- 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>
<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.
20
<PAGE> 22
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
21
<PAGE> 23
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
--------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED ---------------------
FISCAL FISCAL DECEMBER 31, MARCH 31, MARCH 31,
1994 1995(1) 1996 1996 1997
------ ------- ------------ --------- ---------
<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.
22
<PAGE> 24
Implementation, customer and software support and other service fees increased
121.1% to $1.4 million in the 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.
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
23
<PAGE> 25
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.
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.
24
<PAGE> 26
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
of 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. he 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.
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
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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 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.
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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) 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 third quarter 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 30, 1997, the Phoenix System supported the core processing needs
of 33 institutions with approximately 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 135 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 products and services.
The Relationship Information Management ("RIM") module integrates a
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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."
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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:
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.
From its initial public offering in July 1996 through June 30, 1997, the
Company developed two major releases of the Phoenix System, including
Version 2.0, which include numerous system enhancements; introduced and
installed the NT Version in four client institutions; implemented an
enterprise-wide integrated Intranet system for two client institutions; and
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. From its initial public offering in July
1996 through June 30, 1997, the Company increased its direct sales and
implementation forces from 30 to 51 persons and 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. From its initial public
offering in July 1996 through June 30, 1997, the Company more than doubled
its direct international sales and implementation forces from 6 to 13
persons and 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
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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 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
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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:
- 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-
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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 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 , 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 third quarter of 1997 as part of Version 2.0 of the
Phoenix System.
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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 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 third quarter 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
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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 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
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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.
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 nonexclusive 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
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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 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
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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 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
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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.
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 & Ilsley Corp., EastPoint Technology, Inc., a
division of Marshall & Ilsley 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; (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
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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) inhouse 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 & Ilsley 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.
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
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<PAGE> 44
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.
43
<PAGE> 45
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The current 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
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 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
44
<PAGE> 46
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.
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 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.
45
<PAGE> 47
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 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.
46
<PAGE> 48
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 1995 140,000 -- -- 90,601 --
Operating Officer 1994 -- -- -- 58,078 --
Michael R. Newes.............. 1996 110,000 15,819(10)(12) -- -- 2,554(11)
Senior Vice President of 1995 107,436 36,474(13) -- 18,584 --
Worldwide Marketing 1994 100,000 4,000 -- 45,797 400(14)
Gerald P. Nissen.............. 1996 113,333 30,000 18,485 2,636(11)
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.
(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 $5,094 was earned in 1996 and paid in 1997.
(11) Reflects the Company's contribution pursuant to the Profit Sharing Plan.
47
<PAGE> 49
(12) Reflects an incentive-based commission paid in Fiscal 1995.
(13) Reflects a bonus earned in Fiscal 1994 but paid in Fiscal 1995.
(14) Represents imputed cost of excess life insurance.
(15) Represents a relocation allowance grossed up for taxes.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning each grant of stock
options to each of the Named Executive Officers during the year ended December
31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR ($/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 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.
48
<PAGE> 50
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>
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS AT
SHARES END(#) FISCAL YEAR END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) 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 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
49
<PAGE> 51
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.
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
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<PAGE> 52
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 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
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<PAGE> 53
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 (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 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
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<PAGE> 54
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 made a total of $80,000 in discretionary
contributions under the Profit Sharing Plan which were paid in 1997 with respect
to 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> 56
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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<PAGE> 57
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 Company(14)....................... 8,000 * 4,000 4,000 *
Ruann F. Ernst(20)............................... 5,000 * -- 5,000 *
All directors and executive officers as a group
(15 persons)................................... 2,294,084 53.1% 266,000 2,028,084 36.4%
</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,
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<PAGE> 58
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, $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 Sierra Phoenix,
Inc., a related company to 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 Company,
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
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<PAGE> 59
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.
(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 Company (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 Company. 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,
Ltd.; 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, Ltd. and exercises sole voting and
dispositive power over the shares held by Murphy Family Partners, Ltd.
(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 (9) 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 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
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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) 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.
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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 Lock-up
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 3,620,000 shares (of which approximately 520,000 shares
are eligible to be sold in accordance with Rule 144) will be immediately
available for sale in the public market and 180 days after the completion of the
Offering, approximately 70,000 shares will be eligible for sale pursuant to Rule
701 under the Securities Act and approximately 2,640,000 shares 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 52,000 shares immediately after the
Offering or approximately 54,000 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 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
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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. J.C. Bradford & Co.
has agreed, subject to certain exceptions and conditions, that it will not
offer, sell or otherwise dispose of, directly or indirectly, the Bradford
Warrants, any shares of Common Stock issuable upon exercise of the Bradford
Warrants or any securities convertible into or exercisable or exchangeable for
the Bradford Warrants and the Common Stock underlying such warrants for a period
ending 180 days after completion of the Offering.
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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 2,094,113 shares (after consummation of this Offering) 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 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. J.C. Bradford & Co. has
agreed to be subject to similar restrictions with respect to the Bradford
Warrants and the shares of Common Stock underlying such warrants. See "Shares
Eligible for Future Sale -- Registration Rights."
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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.
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.
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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.
66
<PAGE> 68
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
------------------------
Atlanta, Georgia
July 29, 1997
<PAGE> 69
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>
<CAPTION>
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.
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
F-5
<PAGE> 74
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 TOTAL
ALL CLASSES ADDITIONAL STOCK SHAREHOLDERS'
----------------------- PAID-IN SUBSCRIPTION ACCUMULATED (DEFICIT)
SHARES AMOUNT CAPITAL RECEIVABLE 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 MONTHS
YEAR ENDED 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
F-12
<PAGE> 81
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-13
<PAGE> 82
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-14
<PAGE> 83
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
<S> <C>
Years ending December 31,
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.
F-15
<PAGE> 84
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-16
<PAGE> 85
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
WEIGHTED --------------------
WEIGHTED AVERAGE WEIGHTED
AVERAGE CONTRACTUAL AVERAGE
RANGE OF NUMBER OF EXERCISE LIFE NUMBER OF EXERCISE
EXERCISE PRICES SHARES PRICE (YEARS) SHARES PRICE
- --------------- --------- -------- ----------- --------- --------
<C> <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 -- (CONTINUED)
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 -- (CONTINUED)
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 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.
F-19
<PAGE> 88
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 -- (CONTINUED)
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
[ARTWORK:
Inside back cover: Graphic display of sample screen images of information and
data which may be accessed, stored, computed and displayed through the Phoenix
System.]
<PAGE> 91
======================================================
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....................... 18
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....................... 21
Business.............................. 28
Management............................ 44
Certain Transactions.................. 54
Principal and Selling Shareholders.... 56
Description of Capital Stock.......... 59
Shares Eligible for Future Sale....... 62
Underwriting.......................... 64
Legal Matters......................... 65
Experts............................... 65
Additional Information................ 66
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
1,520,000 SHARES
[PHOENIX INTERNATIONAL LTD., INC LOGO]
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
J.C. Bradford & Co.
Wheat First Butcher Singer
Advest, Inc.
, 1997
======================================================
<PAGE> 92
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 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.
II-1
<PAGE> 93
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 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
<TABLE>
<S> <C> <C>
1.1 -- Form of 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.
</TABLE>
II-2
<PAGE> 94
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).
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).
II-3
<PAGE> 95
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.+
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).
II-4
<PAGE> 96
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 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 Siemens 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.
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<PAGE> 97
23.2 -- Consent of Nelson Mullins Riley & Scarborough, L.L.P.
(included as part of Exhibit 5.1).
24.1* -- Power of Attorney.
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.
* Previously filed in the Company's Registration Statement on Form S-1 (No.
333-31415) filed on July 16, 1997.
(b) Financial Statement Schedules. All information required by the
financial statement schedules is included in the Consolidated Financial
Statements and the related notes appearing elsewhere in this Registration
Statement.
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 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-6
<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 29, 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
---------- ----- ----
<C> <S> <C>
/s/ BAHRAM YUSEFZADEH Chairman of the Board and Chief July 29, 1997
- ----------------------------------------------------- Executive Officer (principal
Bahram Yusefzadeh executive officer)
/s/ RALPH H. REICHARD* Chief Operating Officer, July 29, 1997
- ----------------------------------------------------- President and Director
Ralph H. Reichard
/s/ CLAY E. SCARBOROUGH Senior Vice President and Chief July 29, 1997
- ----------------------------------------------------- Financial Officer (principal
Clay E. Scarborough financial and accounting
officer)
/s/ RUANN F. ERNST* Director July 29, 1997
- -----------------------------------------------------
Ruann F. Ernst
/s/ RONALD E. FENTON* Director July 29, 1997
- -----------------------------------------------------
Ronald E. Fenton
/s/ WILLIAM C. HESS* Director July 29, 1997
- -----------------------------------------------------
William C. Hess
/s/ JAMES C. HOLLY* Director July 29, 1997
- -----------------------------------------------------
James C. Holly
</TABLE>
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<PAGE> 99
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C> <C>
Director July 29, 1997
/s/ PAUL A. JONES*
- -----------------------------------------------------
Paul A. Jones
/s/ J. MICHAEL MURPHY* Director July 29, 1997
- -----------------------------------------------------
Michael Murphy
/s/ GLENN W. STURM* Director July 29, 1997
- -----------------------------------------------------
Glenn W. Sturm
/s/ O. JAY TOMSON* Director July 29, 1997
- -----------------------------------------------------
O. Jay Tomson
*By: /s/ BAHRAM YUSEFZADEH July 29, 1997
------------------------------------------------
Bahram Yusefzadeh
Attorney-in-fact pursuant to power of attorney
granted in Registration Statement (No. 333-31415)
as filed on July 16, 1997.
</TABLE>
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<PAGE> 100
EXHIBIT INDEX
<TABLE>
<CAPTION>
LOCATION OF
EXHIBIT IN
SEQUENTIAL
EXHIBIT NUMBER
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
- ------- ----------------------- -----------
<C> <C> <S> <C>
1.1 -- Form of 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>
II-9
<PAGE> 101
<TABLE>
<CAPTION>
LOCATION OF
EXHIBIT IN
SEQUENTIAL
EXHIBIT NUMBER
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
- ------- ----------------------- -----------
<C> <C> <S> <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)+.................................................
</TABLE>
II-10
<PAGE> 102
<TABLE>
<CAPTION>
LOCATION OF
EXHIBIT IN
SEQUENTIAL
EXHIBIT NUMBER
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
- ------- ----------------------- -----------
<C> <C> <S> <C>
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, 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)+...............
</TABLE>
II-11
<PAGE> 103
<TABLE>
<CAPTION>
LOCATION OF
EXHIBIT IN
SEQUENTIAL
EXHIBIT NUMBER
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
- ------- ----------------------- -----------
<C> <C> <S> <C>
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 Siemens 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...........................................
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.
* Previously filed in the Company's Registration Statement on Form S-1 (No.
333-31415) filed on July 16, 1997.
II-12
<PAGE> 1
PHOENIX INTERNATIONAL LTD., INC.
1,520,000 Shares
of
Common Stock
UNDERWRITING AGREEMENT
August __, 1997
J. C. BRADFORD & CO.
WHEAT, FIRST SECURITIES, INC.
ADVEST, INC.
As Representatives of the Several Underwriters
c/o J. C. Bradford & Co.
J. C. Bradford Financial Center
330 Commerce Street
Nashville, Tennessee 37201
Ladies and Gentlemen:
Phoenix International Ltd., Inc., a Florida corporation (the
"Company"), proposes to sell to the underwriters named in Schedule I hereto (the
"Underwriters") for whom you are acting as the representatives (the
"Representatives") 1,254,000 shares of the common stock, par value $.01 per
share ("Common Stock"), of the Company (the "Company Shares"), and the
shareholders of the Company named in Schedule II hereto (the "Selling
Shareholders") propose to sell to the Underwriters 266,000 shares of Common
Stock (the "Selling Shareholder Shares"). The Company Shares and the Selling
Shareholder Shares are hereinafter referred to as the "Firm Shares". The Firm
Shares are to be sold to the Underwriters, acting severally and not jointly, in
such amounts as are set forth in Schedule I hereto opposite the name of each
Underwriter. The Company also proposes to grant to the Underwriters an option to
purchase up to 228,000 additional shares of Common Stock as provided for in
Section 3 of this Agreement for the purpose of covering over-allotments in
connection with the distribution and sale of the Firm Shares (the "Option
Shares"). The Firm Shares and the Option Shares are herein called the "Shares."
1. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter and agrees as follows:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), a registration statement on Form S-1
(Registration No. 333-_______), including the related preliminary
prospectus relating to the Shares, and has filed one or more amendments
<PAGE> 2
thereto. Copies of such registration statement and any amendments,
including any post-effective amendments, and all forms of the related
prospectuses contained therein and any supplements thereto, have been
delivered to you. Such registration statement, together with any
registration statement filed by the Company pursuant to Rule 462(b) of
the Securities Act, including the prospectus, Part II, all financial
schedules and exhibits thereto, and all information deemed to be a part
of such registration statement pursuant to Rule 430A under the
Securities Act, as amended, at the time when it shall become effective,
is herein referred to as the "Registration Statement," and the
prospectus included as part of the Registration Statement on file with
the Commission that discloses all the information that was omitted from
the prospectus on the effective date pursuant to Rule 430A of the Rules
and Regulations (as defined below) and in the form filed pursuant to
Rule 424(b) under the Securities Act is herein referred to as the
"Final Prospectus." The prospectus included as part of the Registration
Statement on the date when the Registration Statement became effective
(including the information deemed to be a part thereof pursuant to Rule
430A) is referred to herein as the "Effective Prospectus." Any
prospectus included in the Registration Statement and in any amendment
thereto prior to the effective date of the Registration Statement is
referred to herein as a "Preliminary Prospectus." For purposes of this
Agreement, "Rules and Regulations" mean the rules and regulations
promulgated by the Commission under either the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
applicable.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus, at the time of filing thereof, complied with the
requirements of the Securities Act and the Rules and Regulations, and
did not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; except that the foregoing does
not apply to statements or omissions made in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter specifically for use therein (it being understood that the
only information so provided is the information included in the last
paragraph on the cover page, the paragraphs relating to stabilization
and passive market making practices on the inside front cover and the
first five paragraphs under the caption "Underwriting" in the Final
Prospectus). When the Registration Statement becomes effective and at
all times subsequent thereto up to and including the later of (X) the
First Closing Date (as hereinafter defined) and (Y) the Option Closing
Date (as hereinafter defined), (i) the Registration Statement, the
Effective Prospectus and Final Prospectus and any amendments or
supplements thereto will contain all statements which are required to
be stated therein in accordance with the Securities Act, the Exchange
Act and the Rules and Regulations and will comply with the requirements
of the Securities Act, the Exchange Act and the Rules and Regulations,
and (ii) neither the Registration Statement, the Effective Prospectus
nor the Final Prospectus nor any amendment or supplement thereto will
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they are
made, not misleading; except that the foregoing does not apply to
statements or omissions made in reliance upon and in conformity with
written information furnished to the Company by any Underwriter
specifically for use therein (it being understood that the only
information so provided is the information included in the last
paragraph on the cover page, the paragraphs relating to
-2-
<PAGE> 3
stabilization and passive market making practices on the inside front
cover and the first five paragraphs under the caption "Underwriting" in
the Final Prospectus).
(c) The Company and each subsidiary of the Company (as used
herein, the term "subsidiary" includes any corporation, joint venture
or partnership in which the Company or any subsidiary of the Company
has an ownership interest in excess of 5%) is duly organized and
validly existing and in good standing under the laws of the respective
jurisdictions of their organization or incorporation, as the case may
be, with full corporate power and authority to own their properties and
conduct their businesses as now conducted and described in the Final
Prospectus and the Registration Statement and are duly qualified or
authorized to do business and are in good standing in all jurisdictions
wherein the nature of their business or the character of property owned
or leased may require them to be qualified or authorized to do
business. The Company and its subsidiaries hold all licenses, consents
and approvals, and have satisfied all eligibility and other similar
requirements imposed by federal and state regulatory bodies,
administrative agencies or other governmental bodies, agencies or
officials, in each case as material to the conduct of the respective
businesses in which they are engaged. Each of the Company's
subsidiaries is set forth on Exhibit 21.1 to the Registration
Statement.
(d) The outstanding stock of each of the Company's corporate
subsidiaries is duly authorized, validly issued, fully paid and
nonassessable. All of the outstanding stock of each of the Company's
subsidiaries is owned by the Company, clear of any lien, encumbrance,
pledge, equity or claim of any kind, and was issued and sold in
compliance with all applicable federal, state or foreign securities
laws, as the case may be. No shares of capital stock of any of the
Company's subsidiaries have been issued in violation of any preemptive
or similar rights. No options or warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into any shares of capital stock or of ownership interests
in any of the Company's subsidiaries are outstanding. Other than as
disclosed in the Effective Prospectus and the Final Prospectus, neither
the Company nor any of its subsidiaries is a partner or joint venturer
in any partnership or joint venture.
(e) The historical capitalization of the Company as of March
31, 1997 is as set forth under the caption "Capitalization" in the
Effective Prospectus and the Final Prospectus, and the Company's
capital stock conforms to the description thereof contained in the
Effective Prospectus and the Final Prospectus, including under the
caption "Description of Capital Stock." All of the issued shares of
capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable. None of the issued shares
of capital stock of the Company have been issued in violation of any
preemptive or similar rights. The Shares have been duly and validly
authorized and, upon issuance and delivery and payment therefor in the
manner herein described, will be validly issued, fully paid and
nonassessable. There are no preemptive rights or other rights to
subscribe for or to purchase, or any restriction upon the transfer of,
any shares of Common Stock pursuant to the Company's articles of
incorporation, bylaws or other governing documents or any agreement or
other instrument to which the Company is a party or by which it may be
bound except as described in the Effective Prospectus and the Final
Prospectus and except for restrictions on transfer imposed under
applicable securities laws. Neither the filing of the Registration
Statement nor the offer or sale of the Shares as contemplated by this
Agreement gives rise to any rights for or relating to the
-3-
<PAGE> 4
registration of any shares of Common Stock or any other securities of
the Company, other than rights relating to shares included in the Firm
Shares and such other rights as have been waived by the holder or
holders thereof to the date hereof. The Underwriters will receive good
and marketable title to the Shares to be issued and delivered by the
Company hereunder, free and clear of all liens, encumbrances, claims,
security interests, restrictions, shareholders' agreements and voting
trusts whatsoever. Except as disclosed in the Effective Prospectus and
the Final Prospectus, there are no outstanding warrants, options,
convertible securities or other rights to purchase or commitments of
sale related to or entitling any person to purchase or otherwise
acquire any securities or interest in the Company or any subsidiary.
(f) All offers and sales of the Company's securities prior to
the date hereof were at all relevant times duly registered or the
subject of an available exemption from the registration requirements of
the Securities Act and the applicable state and foreign securities or
Blue Sky laws. and all securities issuable by the Company upon the
conversion, exercise or exchange of presently outstanding securities of
the Company will be duly registered or the subject of an available
exemption from the registration requirements of the Securities Act and
the applicable state and foreign securities or Blue Sky laws.
(g) The Company has full legal right, power and authority to
enter into this Agreement and to issue, sell and deliver the Shares to
the Underwriters as provided herein, and this Agreement has been duly
authorized, executed and delivered by the Company and constitutes a
valid and binding agreement of the Company enforceable against the
Company in accordance with its terms. No consent, approval,
authorization or order of any court or governmental agency or body or
third party is required for the performance of this Agreement by the
Company or the consummation by the Company of the transactions
contemplated hereby, except such as have been obtained and such as may
be required by the National Association of Securities Dealers, Inc.
("NASD") or under the Securities Act, or state securities or Blue Sky
laws in connection with the purchase and distribution of the Shares by
the Underwriters. The issue and sale of the Shares by the Company, the
Company's performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in a breach or
violation of, or conflict with, any of the terms and provisions of, or
constitute a default by the Company or any of its subsidiaries under,
any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or to which the Company or any of its subsidiaries or any of
their respective properties is subject, the articles of incorporation
or bylaws of the Company or any of its subsidiaries or any statute or
any judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to the Company or any subsidiary
or any of their respective properties. Neither the Company nor any
subsidiary is in violation of its articles of incorporation, bylaws or
other governing instrument or any law, administrative rule or
regulation or arbitrators' or administrative or court decree, judgment
or order or in violation or default (there being no existing state of
facts which with notice or lapse of time or both would constitute a
default) in the performance or observance of any obligation, agreement,
covenant or condition contained in any material contract, indenture,
deed of trust, mortgage, loan agreement, note, lease, agreement or
other instrument or permit to which it is a party or by which it or any
of its properties is or may be bound.
-4-
<PAGE> 5
(h) The consolidated financial statements and the related
notes of the Company, together with related notes and schedules,
included in the Registration Statement, the Effective Prospectus and
the Final Prospectus present fairly the financial position, results of
operations and changes in financial position and cash flow of the
Company and its subsidiaries at the dates and for the periods to which
they relate and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout
the periods indicated, and all adjustments necessary for a fair
presentation of results for such periods have been made. The other
financial statements and schedules included in or as schedules to the
Registration Statement conform to the requirements of the Securities
Act, the Exchange Act and the Rules and Regulations and present fairly
the information presented therein for the periods shown. The financial
and statistical data set forth in the Effective Prospectus and the
Final Prospectus, including such data under the captions "Prospectus
Summary," "Recent Developments Summary of Recent Operating Results,"
"Use of Proceeds," "Capitalization," "Selected Consolidated Financial
and Operating Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," "Management,"
"Principal and Selling Shareholders," and "Certain Transactions,"
present fairly the information set forth therein, and such data has
been compiled and presented on a basis consistent with the financial
statements presented therein and in the books and records of the
Company. The Company and its subsidiaries have no material contingent
obligations that are required to be disclosed in the Company's
financial statements in accordance with generally accepted accounting
principles which have not been so disclosed in the financial statements
included in the Registration Statement. Ernst & Young, LLP, who have
certified the financial statements of the Company, are independent
public accountants as required by the Securities Act and the Rules and
Regulations.
(i) Subsequent to December 31, 1996, neither the Company nor
any subsidiary has sustained any material loss or interference with its
business or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, which is not
disclosed in the Effective Prospectus and the Final Prospectus; and
subsequent to the respective dates as of which information is given in
the Registration Statement, the Effective Prospectus and the Final
Prospectus, (i) neither the Company nor any of its subsidiaries has
incurred any material liabilities or obligations, direct or contingent,
or entered into any material transactions not in the ordinary course of
business, and (ii) there has not been any change in the capital stock,
partnership interests, joint venture interests, long-term debt,
obligations under capital leases or short-term borrowings of the
Company and its subsidiaries or any issuance of options, warrants or
rights to purchase the capital stock of the Company, or any adverse
change, or any development involving a prospective adverse change, in
the general affairs, management, business, prospects, financial
position, net worth or results of operations of the Company or its
subsidiaries, except in each case as described in or contemplated by
the Effective Prospectus and the Final Prospectus.
(j) Except as described in the Effective Prospectus and the
Final Prospectus, there is not pending or, to the knowledge of the
Company, threatened any action, suit, proceeding, inquiry or
investigation to which the Company, any of its subsidiaries or any of
their officers or directors is a party, or to which the property of the
Company or any subsidiary is subject, before or brought by any court,
administrative agency, governmental
-5-
<PAGE> 6
agency, body or otherwise, wherein an unfavorable decision, ruling or
finding could prevent or materially hinder the consummation of this
Agreement or result in a material adverse change in the business
condition (financial or other), prospects, financial position, net
worth or results of operations of the Company or its subsidiaries.
(k) There are no contracts or other documents required by the
Securities Act or by the Rules and Regulations to be described in the
Registration Statement, the Effective Prospectus or the Final
Prospectus or to be filed as exhibits to the Registration Statement
which have not been described or filed as required.
(l) Except as described in the Effective Prospectus and the
Final Prospectus, the Company and each of its subsidiaries have good
and marketable title to all real and material personal property owned
by them, free and clear of all liens, charges, encumbrances or defects,
except those reflected in the financial statements hereinabove
described. The real and personal property and buildings referred to in
the Effective Prospectus and the Final Prospectus which are leased from
others by the Company are held under valid, subsisting and enforceable
leases. The Company or its subsidiaries owns or leases all such
properties as are necessary to its operations as now conducted.
(m) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences and (v) such controls would prevent or detect errors or
irregularities in amounts that would be material in relation to the
Company's financial statements. Neither the Company nor any of its
subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any such subsidiary, has,
directly or indirectly used any funds of the Company or any of its
subsidiaries for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; made any unlawful
payment to foreign or domestic government officials or employees or to
foreign or domestic political parties or campaigns from funds of the
Company or any of its subsidiaries; violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or made any bribe,
rebate, payoff, influence payment, kickback or other payment, or
received or retained any funds, in violation of any law, rule or
regulation.
(n) The Company and its subsidiaries have filed all federal,
state, local and foreign [income and franchise] tax returns required to
be filed through the date hereof and have paid all taxes shown as due
therefrom; and there is no tax deficiency, assessment, fine or penalty
or that has been, nor does the Company or any subsidiary have knowledge
of any tax deficiency, assessment, fine or penalty which is likely to
be, asserted against the Company or its subsidiaries, which if
determined adversely could materially and adversely affect the
earnings, assets, affairs, business prospects or condition (financial
or other) of the Company or its subsidiaries. All tax liabilities
incurred as of the respective dates of the financial statements have
been adequately provided for in the financial statements of the
Company.
-6-
<PAGE> 7
(o) The Company and its subsidiaries operate their business in
each jurisdiction in which the Company or any of its subsidiaries is
doing business in conformity with all applicable statutes, ordinances,
decrees, orders, rules and regulations of all applicable governmental
bodies, including federal, state and local governing bodies in the
United States and all foreign governments in areas outside of the
United States. The Company and its subsidiaries have all licenses,
approvals or consents to operate their respective business in all
locations in which such businesses are currently being operated, and
the Company and its subsidiaries are not aware of any existing or
imminent matter which may adversely impact their operations or business
prospects other than as specifically disclosed in the Effective
Prospectus and the Final Prospectus. The Company has not engaged in any
activity, whether alone or in concert with one of its customers,
creating the potential for exposure to civil or criminal monetary
liability or other material sanctions under federal, state or foreign
laws regulating consumer credit transactions, debt collection practices
or other violations of law.
(p) Neither the Company nor any of its subsidiaries have
failed to file with the applicable regulatory authorities any
statement, report, information or form required by any applicable law,
regulation or order; all such filings or submissions were in compliance
with applicable laws when filed and no deficiencies have been asserted
by any regulatory commission, agency or authority with respect to such
filings or submissions. Neither the Company nor any of its subsidiaries
have failed to maintain in full force and effect any license or permit
necessary or proper for the conduct of its business, or received any
notification that any revocation or limitation thereof is threatened or
pending, and there is not pending any change under any law, regulation,
license or permit which could materially adversely affect its business,
operations, property or business prospects. Neither the Company nor any
of its subsidiaries have received any notice of violation of or been
threatened with a charge of violating, and are not under investigation
with respect to a possible violation of, any provision of any law,
regulation or order.
(q) No labor dispute exists with the Company's employees or
with employees of its subsidiaries or is imminent which could
materially adversely affect the Company or any of its subsidiaries. The
Company is not aware of any existing or imminent labor disturbance by
its employees or by any employees of its subsidiaries which could be
expected to adversely affect the condition (financial or otherwise),
results of operations, properties, affairs, management, business
affairs or business prospects of the Company or any of its
subsidiaries.
(r) The Company and its subsidiaries own or possess the
licenses, patents, patent rights, copyrights, trademarks, service
marks, trade names and proprietary and other confidential information
and trade secrets presently employed by them in connection with the
businesses now operated by them, and neither the Company nor any of its
subsidiaries have received any notice of infringement of or conflict
with asserted rights of others with respect to any of the foregoing
which, alone or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in any adverse change in the
condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company or its subsidiaries.
-7-
<PAGE> 8
(s) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and adequate for the conduct
of their respective businesses and the value of their respective
properties and is customary for companies engaged in similar
industries; and neither the Company nor any such subsidiary has any
reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business at a comparable cost.
(t) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distributions on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such subsidiary or
from transferring any of such subsidiary's property or assets to the
Company or any other subsidiary of the Company.
(u) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become, an "investment
company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended (the
"1940 Act").
(v) Neither the Company nor any of its subsidiaries nor any of
the directors, officers, employees or agents of the Company and its
subsidiaries have taken, and they will not take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might be expected to constitute, stabilization or
manipulation of the price of the Common Stock.
(w) The Shares to be sold by the Company have been approved
for listing on the Nasdaq National Market (the "Nasdaq National
Market") upon notice of issuance, and the Shares to be sold by the
Selling Shareholders are listed on the Nasdaq National Market.
(x) The Company has previously disclosed and delivered or made
available to the Underwriters or their representatives prior to the
date the Registration Statement was declared effective copies of all
pension, retirement, profit-sharing, deferred compensation, stock
option, employee stock ownership, severance pay, vacation, bonus or
other incentive plans, all other written employee programs,
arrangements or agreements, all medical, vision, dental or other health
plans, all life insurance plans and all other employee benefit plans or
fringe benefit plans, including, without limitation, "employee benefit
plans" as that term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), adopted,
maintained, sponsored in whole or in part or contributed to by the
Company, its predecessors or any subsidiary of the Company or its
predecessors for the benefit of employees, retirees, dependents,
spouses, directors, independent contractors or other beneficiaries and
under which employees, retirees, dependents, spouses, directors,
independent contractors or other beneficiaries are eligible to
participate (collectively, the "Company Benefit Plans").
The Company and its subsidiaries (and each predecessor of the
Company or a subsidiary that adopted or contributed to a Company
Benefit Plan) have maintained all
-8-
<PAGE> 9
Company Benefit Plans (including filing all reports and returns
required to be filed with respect thereto) in accordance with their
terms and in compliance with the applicable terms of ERISA, the
Internal Revenue Code and any other applicable federal and state laws
the breach or violation of which would have, individually or in the
aggregate, a material adverse effect on the earnings, assets, affairs,
business prospects or condition (financial or otherwise) of the Company
and its subsidiaries. Each Company Benefit Plan which is intended to be
qualified under Section 401(a) of the Internal Revenue Code has either
received a favorable determination letter from the Internal Revenue
Service or timely requested such a letter and has at all times been
maintained in accordance with Section 401 of the Internal Revenue Code,
except where any failure to receive or seek such a favorable
determination letter or so maintain such Company Benefit Plan would not
have, individually or in the aggregate, a material adverse effect on
the earnings, assets, affairs, business prospects or condition
(financial or otherwise) of the Company and its subsidiaries. Neither
the Company nor its subsidiaries has engaged in a transaction with
respect to any Company Benefit Plan that, assuming the taxable period
of such transaction expired as of the date hereof, would subject the
Company or any subsidiary to a tax or penalty imposed by either Section
4975 of the Internal Revenue Code or Section 502(i) of ERISA in amounts
which are reasonably likely to have, individually or in the aggregate,
a material adverse effect on the earnings, assets, affairs, business
prospects or condition (financial or otherwise) of the Company and its
subsidiaries.
Neither the Company nor any subsidiary is obligated to provide
post-retirement medical benefits or any other unfunded post-retirement
welfare benefits (except COBRA continuation coverage required to be
provided by ERISA Section 601), which such liabilities to the Company
would have, individually or in the aggregate, a material adverse effect
on the earnings, assets, affairs, business prospects or condition
(financial or otherwise) of the Company and its subsidiaries. Neither
the Company nor any member of a group of trades or businesses under
common control (as defined in ERISA Sections 4001(a)(14) and
4001(b)(1)) with the Company have at any time within the last six years
sponsored, contributed to or been obligated under Title I or IV of
ERISA to contribute to a "defined benefit plan" (as defined in ERISA
Section 3(35)). Within the last six years, neither the Company nor any
member of a group of trades or businesses under common control (as
defined in ERISA Sections 4001(a)(14) and 4001(b)(1)) with Company have
had an "obligation to contribute" (as defined in ERISA Section 4212) to
a "multiemployer plan" (as defined in ERISA Sections 4001(a)(3) and
3(37)(A)).
(y) Neither the Company nor any of its subsidiaries is in
violation of any federal or state law or regulation relating to
occupational safety and health, and the Company and its subsidiaries
have received all permits, licenses or other approvals required of them
under applicable federal and state laws and regulations to conduct
their respective businesses, and the Company and each such subsidiary
is in compliance with all terms and conditions of any such permit,
license or approval, except any such violation of law or regulation,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals which would not, singly or in the aggregate,
result in a material adverse effect on the earnings, assets, affairs,
business prospects or condition (financial or otherwise) of the Company
and its subsidiaries.
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<PAGE> 10
(z) Except where such failure to comply or violation would
not, singly or in the aggregate, have a material adverse effect on the
earnings, assets, affairs, business prospects or condition (financial
or otherwise) of the Company and its subsidiaries, (i) the Company has
complied with the Immigration Reform and Control Act of 1986 and all
Regulations promulgated thereunder ("IRCA") with respect to the
completion and maintenance of Forms I-9, Employment Eligibility
Verification Forms, for all of its current employees and reverification
of the employment status of any and all employees whose employment
authorization documents indicated a limited period of employment
authorization; (ii) with respect to all former employees who left the
Company's employment within three years prior to the date hereof, the
Company has complied with IRCA with respect to the maintenance of Forms
I-9 for at least three years or for one year beyond the date of
termination, whichever is later; (iii) the Company has not violated any
applicable laws relating to immigration and has employed only
individuals authorized to work in the United States and has never been
the subject of any inspection or investigation relating to its
compliance with or violation of IRCA; and (iv) the Company has not been
warned, fined or otherwise penalized by reason of any failure to comply
with IRCA, and no such proceeding is pending or threatened.
(aa) The property, assets and operations of the Company and
its subsidiaries comply in all material respects with all applicable
federal, state or local law, common law, doctrine, rule, order, decree,
judgment, injunction, license, permit or regulation relating to
environmental matters (the "Environmental Laws"), except to the extent
that failure to comply with such Environmental Laws would not have a
material adverse effect on the earnings, business, management,
properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and its subsidiaries. To the
knowledge of the Company, none of the property, assets or operations of
the Company and its subsidiaries is the subject of any foreign,
federal, state or local investigation evaluating whether any remedial
action is needed to respond to a release into the environment of any
substance regulated by, or form the basis of liability under, any
Environmental Laws (a "Hazardous Material"), or is in contravention of
any Environmental Law that would have a material adverse effect on the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and its
subsidiaries. Neither the Company nor the Subsidiary has received any
notice or claim, nor are there pending, reasonably anticipated or, or
to the Company's knowledge, threatened lawsuits against them with
respect to violations of an Environmental Law or in connection with the
release of any Hazardous Material into the environment. Neither the
Company nor the Subsidiary has any material contingent liability in
connection with any release of Hazardous Material into the environment.
(bb) The Phoenix System includes design, performance and
functionality so that a customer will not experience invalid or
incorrect results or abnormal software operation related to calendar
year 2000. The Phoenix System includes calendar year 2000 compatibility
capabilities, including, but not limited to, date data century
recognition, same century and multiple century formula and date value
calculations, and user interface date data values that reflect the
century.
(cc) Neither the Company nor any of its subsidiaries has
received or is aware of any communication (written or oral) relating to
the termination or modification or
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<PAGE> 11
threatened termination or modification of any of the agreements
described in or referred to in the Effective Prospectus or the Final
Prospectus, nor is it aware of any communication (written or oral)
relating to any determination not to renew or extend any agreement
described in or referred to in the Effective Prospectus or the Final
Prospectus at the end of the current term of any such agreement.
(dd) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall
be deemed to be a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
2. Representations, Warranties and Covenants of the Selling
Shareholders. Each of the Selling Shareholders, severally and not jointly,
represents, warrants and covenants to each Underwriter and agrees as
follows:
(a) Such Selling Shareholder now has, and at the First Closing
Date, or upon the exercise of options for the purchase of such Shares
will have, good and marketable title to the Selling Shareholder Shares
to be sold by such Selling Shareholder, free and clear of any liens,
encumbrances, equities and claims (other than as imposed by the
Securities Act or this Agreement), and full right, power and authority
to effect the sale and delivery of such Selling Shareholder Shares; and
upon the delivery of and payment for the Selling Shareholder Shares
pursuant to this Agreement, good and marketable title to such Selling
Shareholder Shares, free and clear of any liens, encumbrances,
equities, claims, security interests, restrictions, shareholder
agreements or voting trusts, will be transferred to the Underwriters.
(b) Such Selling Shareholder has duly executed and delivered
the Custody Agreement and Power of Attorney in the form previously
delivered to the Representatives, appointing each of Bahram Yusefzadeh
and Ralph H. Reichard as such Selling Shareholder's duly authorized
attorney-in-fact (the "Attorney-in-Fact") and [American Stock Transfer
& Trust Company] as the duly authorized custodian (the "Custodian") of
the Selling Shareholder Shares. The Attorneys-in-Fact are authorized to
execute, deliver and perform this Agreement on behalf of such Selling
Shareholder, to deliver the Selling Shareholder Shares to be sold by
such Selling Shareholder hereunder, to accept payment therefor and
otherwise to act on behalf of such Selling Shareholder in connection
with this Agreement. Shares of Common Stock, in suitable form for
transfer, representing the Selling Shareholder Shares to be sold by
such Selling Shareholder hereunder have been deposited with the
Custodian pursuant to the Custody Agreement and Power of Attorney for
the purpose of delivery pursuant to this Agreement. Such Selling
Shareholder agrees that its Selling Shareholder Shares on deposit with
the Custodian are subject to the interest of the Underwriters
hereunder, that the arrangements made for such custody and the
appointment of the Attorneys-in-Fact are to that extent irrevocable,
and that the obligations of such Selling Shareholder hereunder shall
not be terminated by any act or deed of the Selling Shareholders (or by
any other person, firm or corporation, including the Company, the
Custodian or the Underwriters) or by operation of law (including the
death of an individual Selling Shareholder or the dissolution of a
corporate Selling Shareholder) or by the occurrence of any other event
or events, except as provided in this Agreement and the Custody
Agreement. If such Selling Shareholder should dissolve, die or become
incapacitated, or if any other event should occur, before the delivery
of the Shares of such Selling Shareholder hereunder, which renders such
Selling Shareholder incapable of acting
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<PAGE> 12
on his or its own behalf, the Selling Shareholder Shares deposited with
the Custodian shall be delivered by the Custodian in accordance with
the terms and conditions of this Agreement as if such dissolution,
death, incapacity, or other event had not occurred, regardless of
whether or not the Custodian or the Attorneys-in-Fact shall have
received notice thereof.
(c) Such Selling Shareholder, acting individually or through
the Attorneys-in-Fact, has duly executed and delivered this Agreement.
This Agreement constitutes a legal, valid and binding obligation of
such Selling Shareholder, enforceable against such Selling Shareholder
in accordance with its terms. All authorizations and consents necessary
for the execution and delivery of this Agreement and the Custody
Agreement and Power of Attorney on behalf of such Selling Shareholder
and for the sale and delivery of the Selling Shareholder Shares to be
sold by such Selling Shareholder hereunder have been given. Such
Selling Shareholder has the legal capacity and full right, power and
authority to execute this Agreement and the Custody Agreement and Power
of Attorney.
(d) The performance of this Agreement and the Custody
Agreement and Power of Attorney and the consummation of the
transactions contemplated hereby and thereby by such Selling
Shareholder will not result in a breach or violation of, or conflict
with, any of the terms or provisions of, or constitute a default by
such Selling Shareholder under, any indenture, mortgage, deed of trust,
trust (constructive or other), loan agreement, lease, franchise,
license or other agreement or instrument to which such Selling
Shareholder or any of such Selling Shareholder's properties is bound,
any statute, or any judgment, decree, order, rule or regulation of any
court or governmental agency or body applicable to such Selling
Shareholder or any of such Selling Shareholder's properties, or result
in a breach of any of the terms and provisions of, or constitute a
default under, the organizational documents of such Selling
Shareholder, if not an individual.
(e) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Common Stock. Such Selling Shareholder
has not distributed and will not distribute any prospectus or other
offering material in connection with the offer and sale of the Shares
other than any Preliminary Prospectus filed with the Commission or the
Final Prospectus or other material permitted by the Securities Act.
(f) For a period of 180 days from the effective date of the
Registration Statement, such Selling Shareholder agrees that it will
not, except as expressly provided herein or with the prior written
approval of J. C. Bradford & Co., directly or indirectly, make, agree
to or cause any offer, sale (including short sale), loan, pledge or
other disposition of, or grant any options or other rights with respect
to, or otherwise reduce any risk of ownership of, directly or
indirectly, any shares of Common Stock or other capital stock of the
Company, or any securities that are convertible into or exchangeable or
exercisable for shares of Common Stock or other capital stock of the
Company, or derivatives thereof, or request the registration of any of
the foregoing.
(g) To the knowledge of such Selling Shareholder, the
representations and warranties of the Company in Section 1 of this
Agreement are true and correct. Such Selling Shareholder has reviewed
and is familiar with the Registration Statement as
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<PAGE> 13
originally filed with the Commission, and as amended, and the
Preliminary Prospectus. To the knowledge of such Selling Shareholder,
there are no facts, conditions or information not disclosed in such
Preliminary Prospectus that have adversely affected or could adversely
affect the business, financial position, net worth or results of
operations, or could adversely affect the properties or assets, of the
Company or any of its subsidiaries. To the knowledge of such Selling
Shareholder, the Preliminary Prospectus does not include an untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Such Selling
Shareholder represents that it was not prompted to sell the Selling
Shareholder Shares by any information concerning the Company or any
subsidiary that is not set forth in the Preliminary Prospectus, the
Effective Prospectus or the Final Prospectus.
(h) At the time the Registration Statement became effective
(A) such parts of the Registration Statement and any amendments and
supplements thereto as specifically refer to such Selling Shareholder
did not contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading and (B) such parts of the Effective
Prospectus and Final Prospectus as specifically refer to such Selling
Shareholder did not and will not include an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading.
(i) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Shareholder agrees to deliver to you prior
to or at the First Closing Date (as defined below) a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department
regulations in lieu thereof).
(j) Any certificate signed by or on behalf of such Selling
Shareholder as such and delivered to the Representatives or to counsel
for the Representatives shall be deemed a representation and warranty
by such Selling Shareholder to each Underwriter as to the matters
covered thereby.
3. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell 1,254,000 Firm
Shares and each of the Selling Shareholders agrees to sell to each of
the Underwriters the number of Firm Shares set forth opposite their
names in Schedule II hereto, and each of the Underwriters, severally
and not jointly, agrees to purchase at a purchase price of $_____ per
share, the number of Firm Shares set forth opposite such Underwriter's
name in Schedule I hereto.
(b) The Company also grants to the Underwriters an option to
purchase, solely for the purpose of covering over-allotments in
connection with the distribution and sale of the Firm Shares, all or
any portion of the Option Shares at the purchase price per share set
forth above. The option granted hereby may be exercised as to all or
any part of
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<PAGE> 14
the Option Shares at any time within 30 days after the date the
Registration Statement becomes effective or, if such 30th day shall be
a Saturday or Sunday or a holiday, on the next business day thereafter
when the New York Stock Exchange is open for trading. The Underwriters
shall not be under any obligation to purchase any Option Shares prior
to the exercise of such option. The option granted hereby may be
exercised by the Underwriters by the Representatives giving written
notice or notice by telephone (confirmed in writing) to the Company
setting forth the number of Option Shares to be purchased and the date
and time for delivery of and payment for such Option Shares and stating
that the Option Shares referred to in such notice are to be used for
the purpose of covering over-allotments in connection with the
distribution and sale of the Firm Shares. If such notice is given prior
to the First Closing Date (as defined herein), the date set forth
therein for such delivery and payment shall not be earlier than two
full business days thereafter or the First Closing Date, whichever
occurs later. If such notice is given on or after the First Closing
Date, the date set forth therein for such delivery and payment shall
not be earlier than three full business days thereafter. In either
event, the date so set forth shall not be more than 15 full business
days after the date of such notice. The date and time set forth in such
notice is herein called the "Option Closing Date." Upon exercise of the
option, the Company shall become obligated to sell to the Underwriters,
and, subject to the terms and conditions herein set forth, the
Underwriters shall become obligated to purchase, for the account of
each Underwriter, from the Company the number of Option Shares
specified in such notice. Option Shares shall be purchased for the
accounts of the Underwriters in proportion to the number of Firm Shares
set forth opposite such Underwriter's name in Schedule I hereto, except
that the respective purchase obligations of each Underwriter shall be
adjusted so that no Underwriter shall be obligated to purchase
fractional Option Shares. To the extent, if any, that the option is
exercised, payment for the Option Shares shall be made on the Option
Closing Date in same day funds by certified or bank cashier's check
drawn to the order of, or by wire transfer to the account of the
Company against delivery of certificates therefor at the offices of
J.C. Bradford & Co., 330 Commerce Street, Nashville, Tennessee 37201,
or at such other place as you and the Company shall agree upon.
(c) Certificates in definitive form for the Firm Shares which
each Underwriter has agreed to purchase hereunder shall be delivered by
or on behalf of the Company and the Selling Shareholders to the
Underwriters for the account of such Underwriter against payment by
such Underwriter or on its behalf of the purchase price therefor, by
wire transfer or certified or official bank check payable in same day
funds, to the order of the Company or the Selling Shareholders, as the
case may be, at the offices of J. C. Bradford & Co., 330 Commerce
Street, Nashville, Tennessee 37201, or at such other place as may be
agreed upon by J.C. Bradford & Co., the Company and the Selling
Shareholders, at 10:00 A.M., Nashville time, on the third (or if the
Firm Shares are priced, as contemplated by Rule 15c6-1(c) promulgated
pursuant to the Exchange Act, after 4:30 P.M., Washington, D.C. time,
the fourth) full business day after this Agreement becomes effective,
or at such other time not later than the seventh full business day
thereafter as the Representatives, the Company and the
Attorneys-in-Fact may determine, such time of delivery against payment
being herein referred to as the "First Closing Date." The First Closing
Date and the Option Closing Date are herein individually referred to as
the "Closing Date" and collectively referred to as the "Closing Dates."
Certificates in definitive form for the Option Shares which each
Underwriter shall have agreed to purchase hereunder shall be similarly
delivered by or on behalf of the Company on the
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<PAGE> 15
Option Closing Date. The certificates in definitive form for the Shares
to be delivered will be in good delivery form and in such denominations
and registered in such names as J.C. Bradford & Co. may request not
less than 48 hours prior to the First Closing Date or the Option
Closing Date, as the case may be. Such certificates will be made
available for checking and packaging, at a location designated by you,
at least 24 hours prior to the First Closing Date or the Option Closing
Date, as the case may be. It is understood that you may (but shall not
be obligated to) make payment on behalf of any Underwriter or
Underwriters for the Shares to be purchased by such Underwriter or
Underwriters. No such payment shall relieve such Underwriter or
Underwriters from any of its or their obligations hereunder.
4. Offering by the Underwriters. After the Registration Statement
becomes effective, the several Underwriters propose to offer for sale to the
public the Firm Shares and any Option Shares which may be sold at the price and
upon the terms set forth in the Final Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms.
5. Covenants of the Company. The Company covenants and agrees
with each of the Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective and to comply with the
provisions of and make all requisite filings with the Commission
pursuant to Rules 424, 430A, 434 and 462(b), if relied upon by the
Company, of the Rules and Regulations and to notify you promptly in
writing of all such filings. The Company shall notify you promptly in
writing of any request by the Commission for any amendment of or
supplement (including any Term Sheet) to the Registration Statement,
the Effective Prospectus or the Final Prospectus or for additional
information; the Company shall prepare and file with the Commission,
promptly upon your request, any amendments of or supplements to the
Registration Statement, the Effective Prospectus or the Final
Prospectus which, in your reasonable opinion, may be necessary or
advisable in connection with the distribution of the Shares; and the
Company shall not file any amendment of or supplement to the
Registration Statement, the Effective Prospectus or the Final
Prospectus to which you reasonably object after reasonable notice
thereof. The Company shall advise you promptly after it receives notice
and obtains knowledge of the issuance by the Commission or any
jurisdiction or other regulatory body of any stop order or other order
suspending the effectiveness of the Registration Statement, suspending
or preventing the use of any Preliminary Prospectus, the Effective
Prospectus or the Final Prospectus or suspending the qualification of
the Shares for offering or sale in any jurisdiction, or of the
institution of any proceedings for any such purpose; and the Company
shall use its best efforts to prevent the issuance of any stop order or
other such order and, should a stop order or other such order be
issued, to obtain as soon as possible the lifting thereof.
(b) The Company will take or cause to be taken all necessary
action and furnish to whomever you direct such information as may be
reasonably required in qualifying the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the
Underwriters may designate and will continue such qualifications in
effect for as long as may be reasonably necessary to complete the
distribution and for a period of not less than one year after the
Effective Date; provided that, in connection
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<PAGE> 16
therewith, the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction in which the Company is not currently so subject.
(c) Within the time during which a Final Prospectus relating
to the Shares is required to be delivered under the Securities Act, the
Company shall comply with all requirements imposed upon it by the
Securities Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as is necessary to
permit the continuance of sales of or dealings in the Shares as
contemplated by the provisions hereof and the Final Prospectus. If
during such period any event occurs as a result of which the Final
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances then
existing, not misleading, or if during such period it is necessary to
amend the Registration Statement or supplement the Final Prospectus to
comply with the Securities Act, the Company shall promptly notify you
and shall amend the Registration Statement or supplement the Final
Prospectus (at the expense of the Company) so as to correct such
statement or omission or effect such compliance.
(d) The Company will furnish without charge to the
Representatives copies of the Registration Statement (three of which
shall be signed and shall be accompanied by all exhibits thereto) and
will furnish without charge to the Representatives, each Underwriter
and to any dealer in securities each Preliminary Prospectus, the
Effective Prospectus and the Final Prospectus, and all amendments and
supplements thereto, including any prospectus or supplement prepared
after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Underwriters may
reasonably request.
(e) The Company will (i) deliver to you at such office or
offices as you may designate as many copies of the Preliminary
Prospectus and Final Prospectus as you may reasonably request, and (ii)
for a period of not more than nine months after the Registration
Statement becomes effective or such longer period that a Final
Prospectus relating to the Shares is required to be delivered under the
Securities Act, send to the Underwriters as many additional copies of
the Final Prospectus and any supplement thereto as you may reasonably
request.
(f) The Company shall make generally available to its security
holders, in the manner contemplated by Rule 158(b) under the Securities
Act as promptly as practicable and in any event no later than 45 days
after the end of its fiscal quarter in which the first anniversary of
the effective date of the Registration Statement occurs, an earnings
statement satisfying the provisions of Section 11(a) of the Securities
Act covering a period of at least 12 consecutive months beginning after
the effective date of the Registration Statement.
(g) The Company will apply the net proceeds from the sale of
the Shares as set forth under the caption "Use of Proceeds" in the
Final Prospectus.
(h) During a period of three years from the effective date of
the Registration Statement, the Company will furnish to the
Representatives, without charge, copies of all
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<PAGE> 17
reports and other communications (financial or other) furnished by the
Company to its shareholders and, as soon as available, copies of any
reports or financial statements furnished or filed by the Company to or
with the Commission or any national securities exchange or
over-the-counter market on which any class of securities of the Company
may be listed or traded and such additional information concerning the
business and financial condition of the Company and its subsidiaries as
you from time to time may reasonably request.
(i) The Company will, from time to time, after the effective
date of the Registration Statement file with the Commission such
reports as are required by the Securities Act, the Exchange Act and the
Rules and Regulations, and shall also file with state securities
commissions in states where the Shares have been sold by you (as you
shall have advised us in writing) such reports as are required to be
filed by the securities acts and the regulations of those states.
(j) Except pursuant to this Agreement or with the prior
written consent of J.C. Bradford & Co., the Company will not, and the
Company has provided agreements executed by all of the Company's
officers, directors, holders of one percent (1%) or more of the issued
and outstanding shares of Common Stock and holders of options to
purchase one percent (1%) or more of the shares of Common Stock issued
and outstanding on the date hereof providing that none of them will,
for a period of 180 days from the effective date of the Registration
Statement and except as contemplated by this Agreement, directly or
indirectly, make, agree to or cause any offer, sale (including short
sale), loan, pledge or other disposition of, or grant any options or
other rights with respect to, or otherwise reduce any risk of
ownership, directly or indirectly, of any shares of Common Stock or
other capital stock of the Company, or any securities that are
convertible into or exchangeable or exercisable for shares of Common
Stock or other capital stock of the Company, or derivatives thereof, or
request the registration of any of the foregoing, except that the
Company may (i) grant options pursuant to the Company's stock option
plans described in the Registration Statement in the ordinary course of
business consistent with past practice, (ii) issue shares of Common
Stock or securities convertible into Common Stock solely to owners of
capital stock of any company acquired by the Company, and (iii) issue
shares of Common Stock upon the exercise of such options or any of the
Company's outstanding stock options as described in the Registration
Statement or stock options granted under clause (i) above.
(k) If at any time during the 30 day period after the
Registration Statement is declared effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of
which, in your opinion, the market price for the Shares has been or is
likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Final Prospectus), the Company will, after written notice from you
advising it to do so, prepare, consult with you concerning the
substance of, and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting
on such rumor, publication or event.
(l) Neither the Company nor any of its officers, directors or
affiliates will take, directly or indirectly, any action designed to
cause or result in, or which might
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<PAGE> 18
constitute or be expected to constitute, stabilization or manipulation
of the price of the Common Stock.
(m) The Company will cause the Shares to be listed on the
Nasdaq National Market at each Closing Date and will use its reasonable
best efforts to cause the Shares to be so listed for at least one year
from the date hereof.
(n) The Company shall not invest or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as
would require the Company or the Subsidiary to register as an
investment company under the 1940 Act.
(o) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a
registrar for the Common Stock.
6. Expenses. The Company and the Selling Shareholders agree
with the Underwriters that (a) whether or not the transactions contemplated by
this Agreement are consummated or this Agreement becomes effective or is
terminated, the Company will pay all fees and expenses incident to the
performance of the obligations of the Company and the Selling Shareholders,
including, but not limited to, (i) the Commission's registration fee, (ii) the
expenses of printing (or reproducing) and distributing the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), each Preliminary Prospectus, the Effective Prospectus, the
Final Prospectus, any amendments or supplements thereto, and this Agreement and
other underwriting documents, including Underwriter's Questionnaires,
Underwriter's Powers of Attorney, Blue Sky Memoranda, Agreements Among
Underwriters and Selected Dealers Agreements, (iii) fees and expenses of
accountants and counsel for the Company and the Selling Shareholders, (iv)
expenses of registration or qualification of the Shares under state Blue Sky and
securities laws, including the fees and disbursements of counsel to the
Underwriters in connection therewith, (v) filing fees paid or incurred by the
Underwriters and related fees and expenses of counsel to the Underwriters in
connection with filings with the NASD, (vi) expenses of listing the Shares on
the Nasdaq National Market, (vii) any expenses for travel, lodging and meals
incurred by the Company in connection with marketing, dealer and other meetings
attended by the Company and the Underwriters in marketing the Shares, (viii) the
costs and charges of the Company's transfer agent and registrar and the cost of
preparing the certificates for the Shares, and (ix) all other costs and expenses
incident to the performance of its obligations hereunder not otherwise provided
for in this Section; and (b) all out-of-pocket expenses, including counsel fees,
disbursements and expenses, incurred by the Underwriters in connection with
investigating, preparing to market and marketing the Shares and proposing to
purchase and purchasing the Shares under this Agreement will be borne and paid
by the Company if the sale of the Shares provided for herein is not consummated
by reason of the termination of this Agreement by the Representatives pursuant
to Sections 10 or 13(iv) or pursuant to Section 13(ii) because of any failure or
refusal on the part of the Company or the Selling Shareholders to comply with
the terms in all material respects or fulfill in all material respects any of
the conditions of this Agreement. To the extent, if at all, that any of the
Selling Shareholders engage special legal counsel to represent them in
connection with the transactions contemplated by this Agreement, the fees and
expenses of such counsel shall be borne by such Selling Shareholder. Any
transfer taxes imposed on the sale of the Shares to the several Underwriters
will be paid by the Company and the Selling Shareholders pro rata. The Company
and the Selling Shareholders have agreed between themselves with regard to the
sharing of fees and expenses. It is understood, however, that except as provided
in this Section 6 and Sections 8 and 10, the Underwriters will pay all of their
own costs
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<PAGE> 19
and expenses, including the fees of their counsel and any advertising expenses
in connection with any offers they may make.
7. Conditions to the Underwriters' Obligations. The respective
obligations of the Underwriters hereunder shall be subject, in their discretion,
to the accuracy of the representations and warranties of the Company and the
Selling Shareholders herein as of the date hereof and as of the Closing Date as
if made on and as of the Closing Date, to the accuracy of the statements of the
Company's officers made pursuant to the provisions hereof, to the performance by
the Company and the Selling Shareholders of all of their covenants and
agreements hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective not later than 4:00
p.m., Washington, D.C. time, on the day following the date of this
Agreement, or such later time and date as shall have been consented to
by the Representatives, and all filings required by Rule 424, Rule
430A, 434 or Rule 462(b), if applicable, of the Rules and Regulations
shall have been made; no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that purpose shall have been instituted or threatened or, to the
knowledge of the Company or the Underwriters, shall be contemplated by
the Commission; any request of the Commission for additional
information (to be included in the Registration Statement or the Final
Prospectus or otherwise) shall have been complied with to your
reasonable satisfaction; and the NASD, upon review of the terms of the
public offering of the Shares, shall not have objected to such offering
or the terms or the Underwriters' participation in the same.
(b) No Underwriter shall have advised the Company that the
Registration Statement, Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, or any amendment or any supplement
thereto, contains an untrue statement of fact which, in your judgment,
is material, or omits to state a fact which, in your judgment, is
material and is required to be stated therein or necessary to make the
statements therein not misleading.
(c) The Representatives shall have received an opinion, dated
the Closing Date, from Nelson Mullins Riley & Scarborough, L.L.P.,
counsel for the Company and the Selling Shareholders, to the effect
that:
(i) The Company is a corporation duly organized and
validly existing and in good standing under the laws of the
State of Florida, with full corporate power and authority to
own its properties and conduct its business as now conducted.
(ii) Each of the Company's subsidiaries (as defined
in this Agreement) is a corporation duly organized and validly
existing and in good standing under the laws of the
jurisdiction of its incorporation, with full corporate power
and authority to own its properties and conduct its business
as now conducted. The outstanding stock of each of the
Company's subsidiaries is duly authorized, validly issued,
fully paid and nonassessable. All of the outstanding stock of
each of the subsidiaries is owned by the Company, free and
clear of all possessory (and, to the knowledge of such
counsel, other) liens, encumbrances, pledges, equities or
claims of any kind. To the knowledge of such counsel, no
options or warrants or other
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<PAGE> 20
rights to purchase from the Company or any subsidiary,
agreements or other obligations to issue or other rights to
convert any obligations into any shares of capital stock or of
ownership interests in any of the Company's subsidiaries are
outstanding.
(iii) The Company and each of its subsidiaries is
duly qualified or authorized to do business as a foreign
corporation in good standing in all jurisdictions where the
nature of its business or character of property owned or
leased by it require it to be so qualified or authorized to do
business, except where the failure to be so qualified or
authorized to do business would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(iv) As of the date specified therein, the Company
had historical authorized and issued capital stock as set
forth under the caption "Capitalization" in the Final
Prospectus, and the Company's capital stock conforms to the
description thereof contained under the caption "Description
of Capital Stock" in the Final Prospectus. All of the issued
shares of Common Stock (including the Selling Shareholder
Shares and the Option Shares) have been duly authorized and
are validly issued, fully paid and nonassessable. The Company
Shares have been duly and validly authorized, and upon
issuance thereof and payment therefor as provided in this
Agreement, will be validly issued, fully paid and
nonassessable.
(v) None of the issued shares of capital stock of the
Company (including the Selling Shareholder Shares and the
Option Shares) have been issued in violation of or subject to
any preemptive or similar rights arising under, and there are
no preemptive rights or other rights to subscribe for or to
purchase, or any restriction upon the transfer of, the Shares
or any other shares of Common Stock pursuant to, the Company's
Articles of Incorporation, Bylaws or, to the knowledge of such
counsel, any agreement (other than this Agreement) or
instrument to which the Company or a Selling Shareholder is a
party or by which it may be bound. To the knowledge of such
counsel, neither the filing of the Registration Statement nor
the offer or sale of the Shares as contemplated thereby gives
rise to any rights for or relating to the registration of any
shares of Common Stock or any other securities of the Company,
other than rights relating to shares included in the Firm
Shares or the Option Shares and such other rights as have been
waived by the holder or holders thereof to the date hereof.
Upon issuance of the Company Shares and payment therefor as
provided in this Agreement, the Underwriters will receive good
and marketable title to the Company Shares, free and clear of
all liens, encumbrances, claims, security interests,
restrictions, shareholders agreements and voting trusts
whatsoever. The form of certificate for the Shares is in due
and proper form.
(vi) All sales of the Company's securities prior to
the date hereof were at all relevant times duly registered or
exempt from the registration requirements of the Act and, to
the knowledge of such counsel, were duly registered or the
subject of an exemption from the registration requirements of
applicable state and foreign securities or blue sky laws, or
if not registered or exempt in compliance with the Act and
applicable state and foreign securities or blue sky laws, to
the knowledge of such counsel, any private rights of action
for rescission or damages
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<PAGE> 21
arising from such failure to register any such securities are
time barred by applicable statutes of limitations or equitable
principles, including laches.
(vii) No consent, approval, authorization or order of
any court, governmental agency or body or, to the knowledge of
such counsel, any third party, is required for the performance
of this Agreement by the Company or the consummation by the
Company of the transactions contemplated hereby, except such
as have been obtained under the Act and such as may be
required from the NASD or under state securities or blue sky
laws in connection with the purchase and distribution of the
Shares by the several Underwriters. The performance of this
Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby will not conflict with
or result in a breach or violation by the Company or any of
its subsidiaries of any of the terms or provisions of, or
constitute a default by the Company or any of its subsidiaries
under, (a) the Articles of Incorporation or Bylaws of the
Company or any of its subsidiaries, (b) any indenture,
mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any of its
subsidiaries is a party or to which the Company or any of its
subsidiaries or their properties are subject and that is an
exhibit to the Registration Statement (each a "Material
Agreement"); (c) any federal statute or (d) to the knowledge
of such counsel, any judgment, decree, order, rule or
regulation of any court or governmental agency or body
applicable to the Company or any of its subsidiaries or their
properties; provided, however, that such counsel need not
express any opinion under this paragraph (vii) as to
compliance with federal securities laws (certain aspects of
which are covered elsewhere in this Agreement) or as to
compliance with the securities or blue sky laws of any other
jurisdiction.
(viii) This Agreement has been duly authorized,
executed and delivered by the Company and constitutes the
valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms,
and the Company has the full corporate power and authority to
enter into this Agreement and to issue, sell and deliver the
Company Shares to be sold by it to the Underwriters as
provided herein.
(ix) To the knowledge of such counsel, except as
described in the Final Prospectus, there is not pending or
threatened any action, suit, proceeding, inquiry or
investigation to which the Company or any of its subsidiaries
is a party, or to which the property of the Company or any of
its subsidiaries is subject, before or brought by any court or
governmental agency or body, which, if determined adversely to
the Company or any of its subsidiaries, could result in a
material adverse change in the business, financial position,
net worth or results of operations, or could materially
adversely affect the properties or assets, of the Company and
its subsidiaries, taken as a whole.
(x) No default exists and no event has occurred
which, with notice or after the lapse of time to cure or both,
would constitute a default in the due performance and
observance of any term, covenant or condition of any Material
Agreement, which default or event would have material adverse
effect on the Company and its subsidiaries, taken as a whole.
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<PAGE> 22
(xi) Neither the Company nor any subsidiary is in
violation of its Articles of Incorporation or Bylaws or, to
the knowledge of such counsel, in violation of any law,
administrative rule or regulation or arbitrators' or
administrative or court decree, judgment or order or, to the
knowledge of such counsel, in violation or default (there
being no existing state of facts, to the knowledge of such
counsel, which with notice or lapse of time or both would
constitute a default) in the performance or observance of any
obligation, agreement, covenant or condition contained in any
Material Agreement, where such violation or default could have
a material adverse effect on the business, financial position,
net worth or results of operations, or could materially
adversely affect the properties or assets, of the Company and
its subsidiaries, taken as a whole, taking into account any
enforceable and valid indemnity that the Company may have from
a third party.
(xii) The Registration Statement and all
post-effective amendments thereto have become effective under
the Act, no stop order suspending the effectiveness of the
Registration Statement has been issued and, to the knowledge
of such counsel, no proceedings for that purpose have been
instituted or are pending, threatened or contemplated by the
Commission. All filings required by Rules 424, 430A, 434 and
462(b), if relied upon by the Company, of the Rules and
Regulations have been made. The Registration Statement, the
Effective Prospectus and Final Prospectus, and any amendments
or supplements thereto, as of their respective effective or
issue dates, complied as to form with the requirements of the
Act and the Rules and Regulations (other than the financial
statements, data and schedules which are contained therein,
and the section captioned "Underwriting" contained therein, as
to which such counsel need not express any opinion). The
descriptions in the Registration Statement, the Effective
Prospectus and the Final Prospectus of statutes, regulations,
legal and governmental proceedings, and contracts and other
documents are accurate in all material respects and present
fairly the information required to be stated. To the knowledge
of such counsel, there are no pending or threatened legal or
governmental proceedings, statutes or regulations required to
be described in the Final Prospectus which are not described
nor are there any contracts or other documents of a character
required to be described in the Registration Statement or the
Final Prospectus or to be filed as exhibits to the
Registration Statement which are not described and filed as
required. The Shares to be sold by the Company have been
approved for listing on the Nasdaq National Market upon notice
of issuance, and the Shares to be sold by the Selling
Shareholders are listed on the Nasdaq National Market.
(xiii) The Company is not, and will not be as a
result of the consummation of the transactions contemplated by
this Agreement, an "investment company" within the meaning of
the 1940 Act.
(xiv) This Agreement and the Custody Agreement and
Power of Attorney described herein have been duly executed and
delivered by or on behalf of each of the Selling Shareholders
and constitute valid and binding agreements of such Selling
Shareholders enforceable against such Selling Shareholders. To
the
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<PAGE> 23
knowledge of such counsel, there are no facts which would
cause any Selling Shareholder to lack the legal capacity and
full right, power and authority to execute this Agreement and
the Custody Agreement and Power of Attorney.
(xv) To the knowledge of such counsel, the
performance of this Agreement and the Custody Agreement and
Power of Attorney and the consummation of the transactions
contemplated thereby by each of the Selling Shareholders will
not result in a breach or violation of, or conflict with, any
of the terms or provisions of, or constitute a default by any
Selling Shareholder under, any indenture, mortgage, deed of
trust, trust (constructive or other), loan agreement, lease
franchise, license or other agreement or instrument to which
such Selling Shareholder or any of such Selling Shareholder's
properties is bound, any statute, or any judgment, decree,
order, rule or regulation of any court or governmental agency
or body applicable to such Selling Shareholder; provided,
however, that such counsel need not express any opinion under
this paragraph (xv) as to compliance with federal securities
laws (certain aspects of which are covered elsewhere in this
Agreement) or as to compliance with the securities or blue sky
laws of any other jurisdiction.
(xvi) To the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental
agency or body is required for the consummation by the Selling
Shareholders of the transactions contemplated by this
Agreement in connection with the Selling Shareholder Shares to
be sold by each Selling Shareholder hereunder, except such as
have been obtained under the Act and such as may be required
from the NASD or under state securities or blue sky laws in
connection with the purchase and distribution of the Shares by
the several Underwriters.
(xvii) As of the Closing Date, the Selling
Shareholders have made good delivery, duly endorsed, to the
Underwriters or to a financial intermediary designated by the
Underwriters, of the Selling Shareholder Shares and, assuming
that the Underwriters constitute bona fide purchasers as
defined in Section 8-302 of the Uniform Commercial Code, the
Selling Shareholders have transferred all rights and interests
therein to the Underwriters free and clear of any and all
liens, pledges, encumbrances, charges, agreements, equities,
claims, security interests, restrictions, shareholder
agreements or voting trusts.
In addition to the matters set forth above, such opinion
letter shall also include a statement to the effect that nothing has
come to the attention of such counsel which leads them to believe that
the Registration Statement, the Effective Prospectus and the Final
Prospectus or any amendment or supplement thereto contains an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading (except that such counsel need express no view as to
financial statements, schedules and other financial information
included therein).
(d) The Representatives shall have received an opinion or
opinions, dated the Closing Date, of Alston & Bird LLP, counsel for the
Underwriters, with respect to the Registration Statement and the Final
Prospectus and such other related matters as the Underwriters may
require, and the Company shall have furnished to such counsel such
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<PAGE> 24
documents as they may reasonably request for the purpose of enabling
them to pass upon such matters.
(e) The Representatives shall have received from Ernst &
Young, LLP, a letter dated the date hereof and, at the Closing Date, a
second letter dated the Closing Date in form and in substance
satisfactory to the Representatives, stating that they are independent
public accountants with respect to the Company and its subsidiaries
within the meaning of the Securities Act and the applicable Rules and
Regulations, and to the effect that:
(i) In their opinion, the financial statements and
schedules examined by them and included in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and
the published Rules and Regulations and are presented in
accordance with generally accepted accounting principles
consistently applied; and they have made a review in
accordance with standards established by the American
Institute of Certified Public Accountants of the consolidated
interim financial statements, selected financial data, and/or
condensed financial statements derived from audited financial
statements of the Company;
(ii) The unaudited summary and selected financial
information included in the Preliminary Prospectus and the
Final Prospectus under the captions "Prospectus Summary" and
"Selected Consolidated Financial and Operating Data" agrees
with the corresponding amounts in the audited financial
statements included in the Final Prospectus or previously
reported on by them;
(iii) On the basis of a reading of the latest
available interim consolidated financial statements
(unaudited) of the Company and its subsidiaries, a reading of
the minute books of the Company and its subsidiaries,
inquiries of officials of the Company responsible for
financial and accounting matters and other specified
procedures, all of which have been agreed to by the
Representatives, nothing came to their attention that caused
them to believe that:
(A) the unaudited financial statements
included in the Registration Statement do not comply
as to form in all material respects with the
accounting requirements of the federal securities
laws and the related published rules and regulations
thereunder or are not in conformity with generally
accepted accounting principles applied on a basis
substantially consistent with the basis for the
audited financial statements contained in the
Registration Statement;
(B) any other unaudited financial statement
data included in the Final Prospectus do not agree
with the corresponding items in the unaudited
consolidated financial statements from which data was
derived and any such unaudited data were not
determined on a basis substantially consistent with
the basis for the corresponding amounts in the
audited financial statements included in the
Prospectus;
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<PAGE> 25
(C) at a specified date not more than three
days prior to the date of delivery of such respective
letter, there was any change in the consolidated
capital stock, decline in shareholders' equity or
increase in long-term debt of the Company and its
subsidiaries, or other items specified by the
Underwriters, in each case as compared with amounts
shown in the latest balance sheets included in the
Final Prospectus, except in each case for changes,
decreases or increases which the Final Prospectus
discloses have occurred or may occur or which are
described in such letters; and
(D) for the period from the closing date of
the latest consolidated statements of operations
included in the Effective Prospectus and the Final
Prospectus to a specified date not more than three
days prior to the date of delivery of such respective
letter, there were any decreases in total revenues or
net income of the Company, or other items specified
by the Underwriters, or any increases in any items
specified by the Underwriters, in each case as
compared with the corresponding period of the
preceding year, except in each case for decreases
which the Final Prospectus discloses have occurred or
may occur or which are described in such letter.
(iv) They have carried out certain specified
procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information specified by
you which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the
Effective Prospectus and the Final Prospectus and have
compared and agreed such amounts, percentages financial
information with the accounting records of the Company and its
subsidiaries or to analyses and schedules prepared by the
Company and its subsidiaries from its detailed accounting
records.
In the event that the letters to be delivered referred to
above set forth any such changes, decreases or increases, it shall be a
further condition to the obligations of the Underwriters that the
Underwriters shall have determined, after discussions with officers of
the Company responsible for financial and accounting matters and with
Ernst & Young LLP, that such changes, decreases or increases as are set
forth in such letters do not reflect a material adverse change in the
shareholders' equity or long-term debt of the Company as compared with
the amounts shown in the latest consolidated balance sheets of the
Company included in the Final Prospectus, or a material adverse change
in total revenues or net income, of the Company, in each case as
compared with the corresponding period of the prior year.
(f) There shall have been furnished to you a certificate,
dated the Closing Date and addressed to you, signed by the Chief
Executive Officer and by the Chief Financial Officer of the Company to
the effect that:
(i) the representations and warranties of the Company
in Section 1 of this Agreement are true and correct, as if
made at and as of the Closing Date, and the Company has
complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or
prior to the Closing Date;
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<PAGE> 26
(ii) the Registration Statement has become effective
under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement has been issued,
and no proceedings for that purpose have been initiated or are
pending or, to their knowledge, threatened under the
Securities Act;
(iii) all filings required by Rules 424, 430A, 434
and 462(b), if relied upon by the Company, of the Rules and
Regulations have been made;
(iv) they have carefully examined the Registration
Statement, the Effective Prospectus and the Final Prospectus,
and any amendments or supplements thereto, and such documents
do not include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; and
(v) since the effective date of the Registration
Statement, there has occurred no event required to be set
forth in an amendment or supplement to the Registration
Statement, the Effective Prospectus or the Final Prospectus
which has not been so set forth.
(g) The representations and warranties of the Selling
Shareholders shall be true and correct as if made at and as of the
Closing Date, and each Selling Shareholder shall deliver to you a
certificate to that effect, dated the Closing Date, signed by each
Selling Shareholder or such Selling Shareholder's duly appointed
Attorney-in-Fact.
(h) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Final Prospectus, and
except as stated therein, the Company and its subsidiaries have not
sustained any material loss or interference with their respective
businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor
dispute or any court or governmental action, order or decree, or become
a party to or the subject of any litigation which is material to the
Company or its subsidiaries, nor shall there have been any material
adverse change, or any development involving a prospective material
adverse change, in the business, properties, key personnel,
capitalization, net worth, results of operations or condition
(financial or other) of the Company or its subsidiaries, which loss,
interference, litigation or change, in your judgment, shall render it
inadvisable to commence or continue the offering of the Shares at the
offering price to the public set forth on the cover page of the
Prospectus or to proceed with the delivery of the Shares.
(i) The Shares to be sold by the Company shall have been
approved for listing upon notice of issuance on the Nasdaq National
Market, and the Shares to be sold the Selling Shareholders shall be
listed on the Nasdaq National Market.
(j) The agreements relating to the matters described
in Section 5(j) hereof shall be in full force and effect.
(k) You shall have been furnished by the Company and the
Selling Shareholders such additional documents and certificates as you
may reasonably request.
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<PAGE> 27
All such opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only if they
are reasonably satisfactory to the Representatives and their counsel. The
Company and the Selling Shareholders shall furnish to the Representatives such
conformed copies of such opinions, certificates, letters and documents in such
quantities as the Representatives shall reasonably request.
The respective obligations of the Underwriters to purchase and pay for
the Option Shares shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Firm Shares, except that all references to
the "Closing Date" shall be deemed to refer to the Option Closing Date, if it
shall be a date other than the Closing Date.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Securities Act against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter or
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based in whole or in
part upon (i) any inaccuracy in the representations and warranties of
the Company and the Selling Shareholders contained herein, (ii) any
failure of the Company or the Selling Shareholders to perform their
obligations hereunder or under law or (iii) any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, or any amendment or supplement thereto,
any audio or visual materials supplied by the Company and used in
connection with the marketing of the Shares, including without
limitation, slides, videos, films and tape recordings, or in any Blue
Sky application or other written information furnished by the Company
filed in any state or other jurisdiction in order to qualify any or all
of the Shares under the securities laws thereof (a "Blue Sky
Application"), or arise out of or are based upon the omission or
alleged omission to state in the Registration Statement, any
Preliminary Prospectus, the Effective Prospectus or Final Prospectus or
any amendment or supplement thereto or any Blue Sky Application a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each Underwriter
and each such controlling person of each Underwriter upon demand for
any legal or other expenses reasonably incurred by such Underwriter or
such controlling person of each Underwriter in connection with
investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred, whether or not such Underwriter
or controlling person is a party to any action or proceeding; provided,
however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage, or liability arises out of or
is based upon (i) any untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, the
Preliminary Prospectus, the Effective Prospectus or Final Prospectus or
such amendment or such supplement in reliance upon and in conformity
with written information furnished to the Company by any Underwriter
specifically for use therein (it being understood that the only
information so provided is the information included in the last
paragraph on the cover page, the paragraphs relating to stabilization
and passive market making practices on the inside front cover and in
the first five paragraphs under the caption "Underwriting" in any
Preliminary Prospectus and the Final Prospectus and the Effective
Prospectus) or
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<PAGE> 28
(ii) the failure of the Underwriters to deliver the Final Prospectus
after the effective date, as required under Section 4(3) of the
Securities Act and Rule 174 thereunder (provided, that such failure to
deliver was not the result of the failure of the Company to timely
supply sufficient quantities of the Final Prospectus to the
Underwriters upon the Underwriter's reasonable request).
(b) Each of the Selling Shareholders, severally and not
jointly, agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of
the Securities Act against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based in whole or in part upon (i) any inaccuracy
in the representations and warranties of such Selling Shareholder
contained herein, (ii) any failure of such Selling Shareholder to
perform his respective obligations hereunder or under law or (iii) any
untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus,
the Effective Prospectus or Final Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application or arise out of or
are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, the Effective
Prospectus or Final Prospectus or any amendment or supplement thereto
or any Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter and each such controlling person of
each Underwriter for any legal or other expenses reasonably incurred by
such Underwriter or such controlling person of each Underwriter in
connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided,
however, that a Selling Shareholder shall only be liable in his
capacity as a Selling Shareholder pursuant to clause (iii) to the
extent that any statements in or omissions or alleged omissions to
state in the Registration Statement, any Preliminary Prospectus, the
Effective Prospectus, the Final Prospectus or any amendment or
supplement thereto are based upon written information furnished to the
Company by such Selling Shareholder specifically for use therein or to
the extent such Selling Shareholder has failed to bring to the
attention of the Underwriters anything that has come to the attention
of such Selling Shareholder (or solely with respect to Mr. Bahram
Yusefzadeh, the Yusefzadeh Family Limited Partnership, the Bahram and
Laury Yusefzadeh Charitable Remainder Trust and E&C's Charities, any
matter that Mr. Yusefzadeh knew or should have known in his capacity as
founder, principal shareholder, Chairman of the Board, Chief Executive
Officer and director of the Company, and solely with respect to Mr.
Ralph H. Reichard and Ms. Merrell Bailey, any matter that Mr. Reichard
knew or should have known in his capacity as President, Chief Operating
Officer and director of the Company) to cause such Selling Shareholder
to believe that there is any untrue statement relating to the Company
of any material fact contained in the Registration Statement, the
Preliminary Prospectus, the Effective Prospectus, the Final Prospectus,
or any amendment or supplement thereto, or any omission to state
therein a material fact relating to the Company required to be stated
therein or necessary to make the statements therein not misleading;
provided further, that the Selling Shareholders shall not be liable
pursuant to clause (iii) to the extent that any such loss, claim,
damage, or liability arises out of or is based upon (a) any untrue
statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, the Preliminary Prospectus, the
Effective Prospectus or Final Prospectus or such amendment or such
supplement in
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<PAGE> 29
reliance upon and in conformity with written information furnished to
the Company by any Underwriter specifically for use therein (it being
understood that the only information so provided is the information
included in the last paragraph on the cover page, the paragraphs
relating to stabilization and passive market making practices on the
inside front cover and the first five paragraphs under the caption
"Underwriting" in any Preliminary Prospectus and the Final Prospectus
and the Effective Prospectus), (b) the third sentence under the heading
"Legal Matters" or (c) the failure of the Underwriters to deliver the
Final Prospectus after the effective date, as required under Section
4(3) of the Securities Act and Rule 174 thereunder (provided, that if
such failure to deliver was the result of the failure of the Company to
timely supply sufficient quantities of the Final Prospectus to the
Underwriters upon the Underwriter's reasonable request, then the
Company shall indemnify the Underwriters and other persons set forth in
this Section 8(b) with respect to any associated losses, claims,
damages or liabilities pursuant to Section 8(a) above).
(c) Notwithstanding Section 8(b) above, in no event shall the
liability of any Selling Shareholder under Section 8(b) exceed the net
proceeds received by such Selling Shareholder from the Underwriters
with respect to the sale of the Shares.
(d) Neither the Company nor any Selling Shareholder will,
without prior written consent of the Representatives, settle or
compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding (or related cause of
action or portion thereof) in respect of which indemnification may be
sought hereunder (whether or not such Underwriter is a party to such
claim, action, suit or proceeding) unless such settlement, compromise
or consent includes an unconditional release of such Underwriter from
all liability arising out of such claim, action, suit or proceeding (or
related cause of action or portion thereof).
(e) Each Underwriter will indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the
Company within the meaning of the Securities Act and each of the
Selling Shareholders against any losses, claims, damages or liabilities
to which the Company or any such director, officer or controlling
person or the Selling Shareholders may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or Final Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state in the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus or
Final Prospectus or any amendment or supplement thereto a material fact
required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter specifically for use therein (it being understood that the
only information so provided is the information included in the last
paragraph on the cover page, the paragraphs relating to stabilization
and passive market making practices on the inside front cover and the
first five paragraphs under the caption "Underwriting" in any
Preliminary Prospectus and in the Effective Prospectus and the Final
Prospectus);
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<PAGE> 30
(f) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, including
governmental proceedings, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought
against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may wish, jointly with
any other counsel satisfactory to such indemnified party; and after
notice from the indemnifying party to such indemnified party of its
election to so assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section 8 for any
legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation, except that the indemnified party shall have the right
to employ separate counsel if, in its reasonable judgment, it is
advisable for the indemnified party and any other similarly situated
indemnified party to be represented by separate counsel, and in that
event the fees and expenses of separate counsel shall be paid by the
indemnifying party. However, in no event, shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in
addition to local counsel, if any) separate from their own counsel for
all indemnified parties in connection with any action or separate, but
similar or related, actions arising out of the same general allegations
or circumstances.
(g) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in the
preceding part of this Section 8 is for any reason held to be
unavailable to the Underwriters, the Company or the Selling
Shareholders or is insufficient to hold harmless an indemnified party,
then the Company and the Selling Shareholders shall contribute to the
damages paid by the Underwriters, and the Underwriters shall contribute
to the damages paid by the Company and the Selling Shareholders;
provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. In determining the
amount of contribution to which the respective parties are entitled,
there shall be considered the relative benefits received by each party
from the offering of the Shares (taking into account the portion of the
proceeds of the offering realized by each), the parties' relative
knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent
any statement or omission, and any other equitable considerations
appropriate under the circumstances. The Company and the Selling
Shareholders and the Underwriters agree that it would not be equitable
if the amount of such contribution were determined by pro rata or per
capita allocation (even if the Underwriters were treated as one entity
for such purpose). No Underwriter or person controlling such
Underwriter shall be obligated to make contribution hereunder which in
the aggregate exceeds the underwriting discount applicable to the
Shares purchased by such Underwriter under this Agreement, less the
aggregate amount of any damages which such Underwriter and its
controlling persons have otherwise been required to pay in respect of
the same or any similar claim. The Underwriters' obligations to
contribute hereunder are several in proportion to their respective
underwriting obligations and not joint. For purposes of this Section,
each person, if any, who controls an Underwriter within the meaning of
Section 15 of the Securities Act shall have the same rights to
contribution as such Underwriter, and each director of the Company,
each officer
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<PAGE> 31
of the Company who signed the Registration Statement, and each person,
if any, who controls the Company within the meaning of Section 15 of
the Securities Act, and the Selling Shareholders shall have the same
rights to contribution as the Company.
(h) The obligations of the Company and the Selling
Shareholders under this Section 8 shall be in addition to any liability
which the Company and the Selling Shareholders may otherwise have and
shall extend, upon the same terms and conditions, to each person, if
any, who controls any Underwriter within the meaning of the Securities
Act; and the obligations of the Underwriters under this Section 8 shall
be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to
each officer and director of the Company and to each person, if any,
who controls the Company within the meaning of the Securities Act and
to the Selling Shareholders.
9. Default of Underwriters. If any Underwriter defaults in its
obligation to purchase Shares hereunder and if the total number of Shares which
such defaulting Underwriter agreed but failed to purchase is ten percent or less
of the total number of Shares to be sold hereunder, the non-defaulting
Underwriters shall be obligated severally to purchase (in the respective
proportions which the number of Shares set forth opposite the name of each
non-defaulting Underwriter in Schedule I hereto bears to the total number of
Shares set forth opposite the names of all the non-defaulting Underwriters) the
Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase. If any Underwriter so defaults and the total number of Shares with
respect to which such default or defaults occur is more than ten percent of the
total number of Shares to be sold hereunder, and arrangements satisfactory to
the other Underwriters, the Company and the Selling Shareholders for the
purchase of such Shares by other persons (who may include the non-defaulting
Underwriters) are not made within 36 hours after such default, this Agreement,
insofar as it relates to the sale of the Shares, will terminate without
liability on the part of the non-defaulting Underwriters, the Company or the
Selling Shareholders except for (i) the provisions of Section 8 hereof, and (ii)
the expenses to be paid or reimbursed by the Company pursuant to Section 6
hereof. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 9. Nothing herein shall
relieve a defaulting Underwriter from liability for its default.
10. Default by the Selling Shareholders. If the Selling
Shareholders shall fail to sell the number of Selling Shareholder Shares that
the Selling Shareholders are obligated to sell, the Representatives may, at
their option, by notice to the Company, either (a) require the Company to sell
and deliver the number of Selling Shareholder Shares as to which the Selling
Shareholders have defaulted or such lesser number as may be requested by the
Representatives, (b) elect to purchase the Firm Shares that the Company and the
non-defaulting Selling Shareholders have agreed to sell pursuant to this
Agreement, or (c) terminate this Agreement without liability on the part of the
Underwriters or the Company, except for the provisions of Section 8 hereof and
the expenses to be paid or reimbursed by the Company pursuant to Section 6
hereof.
In the event of a default under this Section that does not result in
the termination of this Agreement, the Representatives shall have the right to
postpone the First Closing Date for a period not exceeding ten days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements. No action taken pursuant to this Section
shall relieve the Company or the Selling Shareholder so defaulting from
liability, if any, in respect of such default.
-31-
<PAGE> 32
11. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, its
officers, the Selling Shareholders and the Underwriters set forth in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, any of its officers or
directors, the Selling Shareholders, any Underwriter or any controlling person,
(ii) any termination of this Agreement, and (iii) delivery of and payment for
the Shares.
12. Effective Date. This Agreement shall become effective at
whichever of the following times shall first occur: (i) at 11:30 a.m., Eastern
Standard Time, on the next full business day following the date on which the
Registration Statement becomes effective or (ii) at such time after the
Registration Statement has become effective as the Representatives shall
release the Firm Shares for sale to the public; provided, however, that the
provisions of Sections 6, 8, 11 and 12 hereof shall at all times be effective.
For purposes of this Section 12, the Firm Shares shall be deemed to have been
so released upon the release by the Representatives for publication, at any
time after the Registration Statement has become effective, of any newspaper
advertisement relating to the Firm Shares or upon the release by the
Representatives of telegrams offering the Firm Shares for sale to securities
dealers, whichever may occur first.
13. Termination. This Agreement may be terminated by the
Representatives by notice to the Company and the Selling Shareholders (i) at any
time before it becomes effective in accordance with Section 12 hereof; (ii) in
the event that at or prior to the First Closing Date the Company or the Selling
Shareholders shall have failed, refused or been unable to perform any agreement
on the part of the Company or the Selling Shareholders to be performed hereunder
(or any other condition to the obligations of the Underwriters hereunder is not
fulfilled); (iii) if at or prior to the Closing Date trading in securities on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market shall have been suspended or materially limited or minimum or maximum
prices shall have been established on either of such Exchanges or the Nasdaq
National Market, or a banking moratorium shall have been declared by Federal or
state authorities; (iv) if at or prior to the Closing Date trading in securities
of the Company shall have been suspended; or (v) if there shall have been such a
material change in general economic, political or financial conditions or if the
effect of international conditions on the financial markets in the United States
shall be such as, in your reasonable judgment, makes it inadvisable to commence
or continue the offering of the Shares at the offering price to the public set
forth on the cover page of the Prospectus or to proceed with the delivery of the
Shares. Termination of this Agreement pursuant to this Section 13 shall be
without liability of any party to any other party other than as provided in
Sections 6 and 8 hereof.
14. Notices. All communications hereunder shall be in writing
and, if sent to any of the Underwriters, shall be mailed or delivered or
telegraphed and confirmed in writing to the Representatives in care of J. C.
Bradford & Co., J. C. Bradford Financial Center, 330 Commerce Street,
Nashville, Tennessee 37201, Attention: Michael C. Nunan, or, if sent to the
Company or the Selling Shareholders, shall be mailed, delivered or telegraphed
and confirmed in writing to the Company at 500 International Parkway,
Heathrow, Florida 32746, Attention: Bahram Yusefzadeh.
15. Miscellaneous. This Agreement shall inure to the benefit of
and be binding upon the several Underwriters, the Company, the Selling
Shareholders and their respective successors and legal representatives. Nothing
expressed or mentioned in this Agreement is intended or shall be
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<PAGE> 33
construed to give any other person any legal or equitable right, remedy or claim
under or in respect of this Agreement. This Agreement and all conditions and
provisions hereof are intended to be for the sole and exclusive benefit of the
Company, the Selling Shareholders and the several Underwriters and for the
benefit of no other person except that (i) the representations and warranties of
the Company and the Selling Shareholders contained in this Agreement shall also
be for the benefit of any person or persons who control any Underwriter within
the meaning of Section 15 of the Securities Act, and (ii) the indemnities by the
Underwriters shall also be for the benefit of the directors of the Company,
officers of the Company who have signed the Registration Statement and any
person or persons who control the Company within the meaning of Section 15 of
the Securities Act. No purchaser of Shares from any Underwriter will be deemed a
successor because of such purchase. The validity and interpretation of this
Agreement shall be governed by the laws of the State of Tennessee. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument. You hereby represent and warrant to the Company that you have
authority to act hereunder on behalf of the several Underwriters, and any action
hereunder taken by you will be binding upon all the Underwriters.
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<PAGE> 34
If the foregoing is in accordance with your understanding of our
agreement, please indicate your acceptance thereof in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between the Company, the Selling Shareholders and each of the several
Underwriters.
Very truly yours,
PHOENIX INTERNATIONAL LTD., INC.
By:
-------------------------------------
Name: Bahram Yusefzadeh
Title: Chairman of the Board and
Chief Executive Officer
SELLING SHAREHOLDERS
By:
-------------------------------------
Attorney-in-Fact
Confirmed and accepted as of the
date first above written.
J. C. BRADFORD & CO.
WHEAT, FIRST SECURITIES, INC.
ADVEST, INC.
For themselves and as Representatives
of the Several Underwriters
By: J. C. Bradford & Co.
By:
--------------------------------------
(Authorized Representative)
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<PAGE> 35
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of Option
Number of Shares to be Purchased
Firm Shares If Maximum
Underwriter to be Purchased Option Exercised
- ----------- --------------- ----------------
<S> <C> <C>
J. C. Bradford & Co.
Wheat, First Securities, Inc.
Advest, Inc.
TOTAL 1,520,000 228,000
========= =======
</TABLE>
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<PAGE> 36
SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDERS
FIRM SHARES
<TABLE>
<CAPTION>
Number of Firm Shares
Selling Shareholder to be Sold
- ------------------- ---------------------
<S> <C>
Bahram Yusefzadeh 50,000
The Yusefzadeh Family Limited Partnership 42,500
Ralph Reichard 16,262
William C. Hess 5,000
Bahram and Laury Yusefzadeh Charitable 100,738
Remainder Trust
O. Jay Tomson 5,000
First Citizens National Bank Charitable 15,000
Foundation
Merrell Bailey 10,000
Iowa Savings Bank Charitable Foundation 5,000
E&C's Charities 12,500
Kanabec Credit Corporation 4,000
-------
TOTAL 266,000
=======
</TABLE>
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<PAGE> 1
EXHIBIT 5.1
LAW OFFICES
NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
A REGISTERED LIMITED LIABILITY PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
FIRST UNION PLAZA OTHER OFFICES:
SUITE 1400 Charleston, South Carolina
999 PEACHTREE STREET, N.E. Charlotte, North Carolina
ATLANTA, GEORGIA 30309 Columbia, South Carolina
TELEPHONE (404) 817-6000 Florence, South Carolina
TELECOPIER (404) 817-6050 Greenville, South Carolina
Myrtle Beach, South Carolina
July 29, 1997
Phoenix International Ltd., Inc.
500 International Parkway
Heathrow, Florida 32746
Gentlemen:
We have acted as counsel to Phoenix International Ltd., Inc. (the
"Company") in connection with the filing of a Registration Statement on Form
S-1 (Reg. No. 333-31415) (the "Registration Statement") under the Securities
Act of 1933, covering the offering of up to 1,748,000 shares (the "Shares") of
the Company's Common Stock, $.01 par value per share. In connection therewith,
we have examined such corporate records, certificates of public officials and
other documents and records as we have considered necessary or proper for the
purpose of this opinion.
This opinion is limited by and is in accordance with, the January 1,
1992, edition of the Interpretive Standards applicable to Legal Opinions to
Third Parties in Corporate Transactions adopted by the Legal Opinion Committee
of the Corporate and Banking Law Section of the State Bar of Georgia.
Based on the foregoing, and having regard to legal considerations
which we deem relevant, we are of the opinion that the Shares, when issued and
delivered as described in the Registration Statement, will be legally issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
/s/NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
<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 Amendment No. 1 to the Registration Statement
(Form S-1 No. 333-31415) 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 28, 1997
