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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year ended December 31, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________ to
______________
COMMISSION FILE NUMBER: 0-20937
PHOENIX INTERNATIONAL LTD., INC.
(Exact name of registrant in its charter)
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Florida 59-3171810
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
500 International Parkway, Heathrow, Florida 32746
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area (407) 548-5100
code):
Securities registered pursuant to Section 12(b) of the
Act:
None None
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $0.01 Par Value Per Share
(Title of each class)
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Indicate by check mark whether the Registrant: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The estimated aggregate market value of the voting stock held by non-affiliates
of the Registrant, based upon the closing sale price of Common Stock on March
27, 2000, as reported on the Nasdaq National Market, was approximately
$37,990,000. As of March 27, 2000, the Registrant had outstanding 9,410,172
shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE 1999 ANNUAL REPORT TO SHAREHOLDERS OF THE REGISTRANT ARE
INCORPORATED BY REFERENCE IN PART II OF THIS FORM 10-K; PORTIONS OF THE
REGISTRANT'S REGISTRATION STATEMENT DECLARED EFFECTIVE BY THE SECURITIES AND
EXCHANGE COMMISSION ON AUGUST 13, 1997 (333-31415) ARE INCORPORATED BY REFERENCE
IN PART I AND PART II OF THIS FORM 10-K; AND PORTIONS OF THE PROXY STATEMENT FOR
THE REGISTRANT'S 2000 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 5, 2000
ARE INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K.
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INDEX OF FORM 10-K
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PART I
Item 1. Business...................................................................................... 3
Item 2. Properties.................................................................................... 15
Item 3. Legal Proceedings............................................................................. 15
Item 4. Submission of Matters to a Vote of Security Holders........................................... 16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................... 16
Item 6. Selected Financial Data....................................................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 16
Item 7A. Quantitative and Qualitative Disclosure on Market Risk........................................ 16
Item 8. Financial Statements and Supplementary Data................................................... 16
Item 9. Changes and Disagreements with Accountants in Accounting and Financial Disclosure............. 16
PART III
Item 10. Directors and Executive Officers of the Registrant............................................ 17
Item 11. Executive Compensation........................................................................ 19
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 19
Item 13. Certain Relationships and Related Transactions................................................ 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 20
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PART I
ITEM 1. BUSINESS
This report contains statements which constitute forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
appear in a number of places in this report and include all statements that are
not historical statements of fact regarding our intent, belief, current
expectations, and those of our management with respect to, among other things:
- - our financing plans;
- - trends affecting our financial condition or results of operations;
- - our growth strategy and operating strategy;
- - the development and implementation of the Phoenix System and our other
products;
- - sales performance and prospects; and
- - the possible impact on our operations and financial performance of
market conditions and other factors that have hindered us in the past,
such as currently-pending litigation and the slowdown in purchases of
software during 1999.
The words "may," "would," "could," "continue," "will," "expect," "estimate,"
"anticipate," "goal," "strategy," "believe," "hope," "intend," "plan" and
similar expressions are intended to identify forward looking statements.
Forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, many of which we cannot control. Our actual results may
differ materially from those projected in forward looking statements. Among the
key risks, assumptions, and factors that may adversely affect our operating
results, performance, and financial condition are:
- whether the market conditions and other factors which hindered
our success in 1999, such as a slowdown in purchase decisions
as a result of Year 2000 concerns and the negative publicity
and litigation against us, will continue to affect our
operations in the future;
- unanticipated delays in developing new products and
enhancements;
- unanticipated delays in deploying our products and services
through our application service centers;
- whether the market accepts our new products and services,
including those under development and our e-commerce operating
environment and services;
- our reliance on significant new customers to reach or exceed
market expectations for our performance;
- the timing of customer contracts, which may slip from one
quarter to later quarters or fiscal periods;
- our ability to leverage our sales force, marketing
relationships, and other distribution channels worldwide to
generate new customers;
- the distraction of management's time and attention, increased
legal and other costs, and other adverse impacts of pending
litigation and negative publicity;
- our ability to grow and manage our growth despite adverse
market and other factors described above; and
- competition and other factors discussed in detail in our prior
press releases and filings with the Securities and Exchange
Commission, including the "Risk Factors" section of our
registration statement on Form S-1, as declared effective on
August 13, 1997 (No. 333-31415).
GENERAL
Phoenix is a leading provider of highly adaptable, enterprise-wide
client/server application software and related services to the financial
services industry. Our flagship product, the Phoenix System(TM), is a fully
integrated processing solution that manages financial institutions' retail and
wholesale operations in an open-system environment. We offer the Phoenix System
to financial institutions around the world along with our trade finance and
global payments software products and a full suite of professional and systems
integration services. Our market in the United States includes new, or "de
novo," financial institutions and existing institutions with assets up to $3
billion. Internationally, we focus on retail-oriented institutions in Africa,
the Asia-Pacific region, Europe, Central and South America, and the Middle East
that have up to 300 branches and/or up to 2 million accounts. As of December 31,
1999, Phoenix's client base included over 140 institutions in 25 countries.
Phoenix's Chairman of the Board and Chief Executive Officer, Bahram
Yusefzadeh, has 31 years of experience in the banking software industry, and
Phoenix's senior management team has over 190 combined years of experience in
the banking software and
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financial services industry. Mr. Yusefzadeh founded Phoenix to develop and
market a new generation of integrated banking software applications using
client/server technology capable of replacing less flexible and technologically
dated "legacy" systems. To develop the Phoenix System, we have combined:
- our management's extensive experience with banking and banking
software systems;
- input from a consortium of financial institutions; and
- advances in client/server and e-commerce technology.
During 1999, we formed additional alliances with U.S. and international
financial institutions and technology and service providers to further develop,
enhance and expand the Phoenix System and its capabilities for all of our
markets.
INDUSTRY BACKGROUND
Many financial institutions employ computer systems for their core
processing needs that are based on older "legacy" computer architecture. These
legacy systems were originally developed to operate on large mainframe and
mid-range computers. Like these legacy systems, the Phoenix System supports all
of the core areas of financial institution data processing, including: system
administration; processing of accounts, loans, and deposits; nightly processing;
general ledger; budgeting; teller functions; and holding company accounting.
Although some modified legacy systems have introduced newer technologies to make
them easier to use, increase data storage, and provide more flexible access to
data, these systems generally are limited because they are based on decades-old
architecture which does not allow full integration of available data. Without
such integration, the information provided by these modified legacy systems
generally is neither complete nor readily accessible to the user. Thus, Phoenix
believes that financial institutions using legacy-based systems are at a
competitive disadvantage to those using more modern and open architectures, such
as client/server based systems like the Phoenix System.
In recent years, the competitive landscape of the financial services
industry has changed dramatically. Financial institutions now compete directly
with diversified non-financial institution financial service providers,
including insurance companies and investment banks. Financial institutions, like
other businesses, face pressure and challenges to do things faster, more
efficiently, and more profitably. Recent developments such as the rapid
acceptance and use of electronic commerce have further elevated customer
expectations of convenient access to a full suite of financial services. In
order to stay competitive, we believe that financial institutions must have easy
access to detailed information about their institution and their customers in
order to effectively develop and market profitable products and services and
expand their relationships with their customers. The Phoenix System provides
such access and a consolidated presentation of each customer's total
relationship with the financial institution.
We believe that client/server computing makes possible the development
of powerful applications capable of addressing enterprise-wide business problems
in a flexible and cost-effective manner. The client/server model consists of a
centrally located "server" or group of "servers" which are responsible for data
storage and account and system processing, and remote PC-based workstation
"clients" which are connected to the servers through an enterprise-wide network
and which are used to enter, change, manipulate and analyze the institution's
data. Because of this allocation of functions, a client/server system is
scalable, meaning that its responsiveness and capacity can be increased by
upgrading the server or replacing it with a more powerful model. 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.
Due to the recent and rapid developments in banking software technology
and e-commerce and the demand for easy access to an institution's data, we
believe that an increasing number of U.S. and international financial
institutions are re-evaluating the functionality of their current software and
hardware systems and will be looking for alternative systems which can improve
their performance and increase their flexibility and functionality. We created
the Phoenix System to help these financial institutions meet their needs.
THE PHOENIX SOLUTION
The Phoenix System allows financial institutions to integrate their
customer and account data in a comprehensive management information system. This
system is readily accessible throughout the entire institution, can be modified
to suit the particular needs of each institution, and is easily interfaced with
other products. Phoenix believes that the Phoenix System is easy to use, simple
to learn, and that it can enable a financial institution to provide higher
quality customer service with reduced operating and training costs. Unlike some
legacy systems, the Phoenix System is an integrated system that provides
advantages in three critical areas: customer relationship management, management
decision support, and financial product development. Due to its inherent
structure, the
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Phoenix System is flexible and scalable, stores dates and performs
calculations using four-digit years, and allows financial institutions to take
advantage of many emerging technologies relatively easily and cost efficiently.
In addition, when used in conjunction with our trade finance product and our
third party treasury product, the Phoenix System provides an integrated
"universal" banking system for international clients.
Advanced Technology. The Phoenix System operates in an "open systems"
environment using 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 integrated
software modules:
- system administration - holding company financial statements
- account processing - executive information system
- nightly processing - budgeting
- teller system
The core applications of the Phoenix System include:
- account processing for deposits and loans;
- a self-balancing general ledger system;
- full on-line transaction processing capabilities; and
- a comprehensive set of access controls.
Because of the Phoenix System's architecture and features, account
processing can be customized to provide an analysis-based approach tailored to
each institution's products and services. The ledger system supports both batch
and on-line memo post transaction processing functions, and includes
multi-currency functionality in some international versions. The on-line
processor allows users to post on-line transactions to any account in the
Phoenix System, some of which can be accomplished in real time. Finally, the
access control system allows an institution to restrict access to different
levels of information, allowing the institution to limit transactional activity,
implement logging activities for audit purposes and combine connections with an
interactive context sensitive on-line help system.
Financial Product Development. The Phoenix System allows a financial
institution to quickly develop, deliver and process new financial products and
services. Each product can be as simple or as sophisticated as an institution's
customers and competition demand. In the Phoenix System, financial product
development is parameter-driven, meaning that institutions can design products
and services by simply selecting product features from a variety of options. An
institution can develop several kinds of new financial products rapidly without
significant technical programming or support personnel. In addition, the Phoenix
System allows institutions to analyze the profitability of both individual loans
and customer relationships and broad categories of customers. Institutions can
also perform "what if" calculations to model the financial impact of new
products and services based upon information maintained on the Phoenix System.
Customer Relationship Management. The Phoenix System places a
structural emphasis on managing customer relationships, allowing an institution
to pursue a more personalized approach to its products and services. Our
Relationship Information Management system, or "RIM", integrates a customer's
account data, transactional activity, financial data from third party financial
applications, marketing information, relationships with other customers and
accounts, financial statements and other types of information in order to
present each customer's total relationship portfolio in one place. The RIM
benefits an institution by providing its management with critical assistance in
managing, tracking and analyzing the financial condition, profitability,
creditworthiness and overall relationship with each customer and groups of
customers. The RIM includes the following features:
- Marketing and Other Personal Information. The RIM tracks a
range of personal information, such as employment history,
homeownership status, other credit providers and other bank
accounts.
- On-line Financial Statements and Portfolios. The RIM maintains
information regarding a customer's assets, liabilities,
income, expenses and net worth, and can provide cash flow
analysis.
- Extensive Customer Relationship Tracking. The RIM can track
relationships between customers, groups of customers, accounts
and groups of accounts.
- Customer-Based Statements. The RIM enables the Phoenix System
to allow customer statements to be customized to contain an
unlimited number of accounts, and each statement can be
configured to show summary information, detailed account
information, or both summary and detailed account information.
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- Integrated Signature, Photograph and Document Imaging. The RIM
provides on-line images of a customer's signature card and
personal photograph and can store and display images including
images of loan collateral, other assets, Social Security cards
and drivers' licenses.
- Flexible Inquiry Capability. The RIM allows users to progress
through increasingly detailed levels of information, enabling
thorough and quick research of customer inquiries without
having to enter arcane codes or search through voluminous
printed reports.
- Third Party Information. The RIM is able to integrate the data
existing in the RIM with data from external and third party
software and service providers, including information on
trust, brokerage, insurance and credit card accounts.
Management Decision Support. The Phoenix System provides a financial
institution's executives with the following functions:
- a fully integrated general ledger;
- a broad suite of standard reports augmented by an ad hoc
reporting capability;
- an integrated set of budgeting templates; and
- customer and account profitability analysis.
The Phoenix System's executive information system, or "EIS", allows
senior executives to track performance and model the effect of business
strategies and changes in market conditions on their financial institution. 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.
Future Development Plans. We intend to continue to enhance our current
products and to develop and introduce additional products to keep pace with
technological developments and emerging industry standards and to address the
increasingly sophisticated needs of our clients. As in the past, we plan to
consult with our financial institution clients to help identify and prioritize
future product enhancements. We also intend to continue to enter into strategic
relationships with third party product providers, allowing us to offer new
products and solutions to our clients more quickly than if we developed such
systems ourselves. We are currently participating on the advisory council for
Microsoft's Windows Distributed Internet Applications Architecture for Financial
Services, or "Windows DNAfs", a new industry "framework," or method of producing
software, being developed by Microsoft to allow software from different
financial services industry software providers to exchange data and communicate
with each other. See "Product Development and New Products."
STRATEGY
Our primary objective is to advance our position as a leading provider
of enterprise-wide client/server application software for the financial services
industry worldwide by pursuing the following strategies:
Maintain and Extend Technology Leadership. We intend to integrate new
technologies, add new applications, enhance existing applications, and expand
functionality for the Phoenix System in an effort to maintain our technology
leadership position. In 1998 and 1999, we delivered significant upgrades in the
U.S. and international versions of the Phoenix System. The Phoenix System runs
on both the Unix and Windows NT operating systems, and in conjunction with the
Sybase and Microsoft SQL Server database management systems. The system is
32-bit enabled and runs on hardware platforms from leading suppliers in the
world, including IBM(R), Unisys(R), Sun Microsystems(R), Compaq(R), and
Hewlett-Packard(R), among others. Most recently, Phoenix introduced significant
performance improvements to manage the more demanding processing needs of larger
financial institutions and multiple institutions processed in a service bureau
environment. We intend to continue to commit substantial resources to maintain
and extend our technological leadership.
Expand U.S. Distribution. We plan to continue to expand our U.S.
distribution by increasing our direct sales and implementation forces in key
geographic locations and by seeking additional strategic sales and marketing
relationships. We have continued to expand our U.S. client base and now have
clients in 29 states. As discussed in more detail below, Phoenix has also
entered the application service provider business in the United States, which
allows financial institutions to outsource the maintenance and operation of the
Phoenix System to our remote service centers, as opposed to running the system
themselves "in-house." This capability will allow us to market the Phoenix
System to a large number of financial institutions which prefer to outsource
their processing operations, a market which Phoenix has not previously
addressed. We estimate that as many as half of the financial institutions in our
target market are potential candidates for our application service center
outsourced processing solution, significantly increasing our potential market
for the Phoenix System.
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Expand International Distribution. Since 1998, we have successfully
expanded our global distribution and market penetration by increasing our
international direct sales and implementation forces, enlarging our
international offices, opening additional sales and marketing offices in
strategically located cities around the world, and by leveraging our strategic
alliances and third party distribution channels. We currently have offices in
London, England; Sydney, Australia; Singapore, Malaysia and Wellington, New
Zealand. Approximately 60 of our more than 350 employees are based overseas. In
addition, we have marketing alliances with several overseas distributors,
including:
- Siemens Business Services, a division of Siemens Nixdorf
Informationssysteme AG, one of the world's leading suppliers
of financial services information technology;
- Data Action in Adelaide, Australia, who focus on marketing the
Phoenix System to Australia's credit union industry. To-date,
15 credit unions representing approximately 10% of the total
market in Australia in financial assets have committed to
implement the Phoenix System;
- Computer System Associates (Nigeria) Limited, or "CSA," a
leading supplier of financial services software in Africa;
- International Turnkey Systems, or "ITS," a computer services
company based in Kuwait, who has recently established a
development facility in Cairo, Egypt through their software
division, ITSoft, and completed training for providing support
and modification services for the Phoenix System in the Middle
East; and
- Ultima A.S., a Turkish based software company which provides
marketing support, software support, and implementation and
development services to Phoenix's clients in Turkey.
e-Commerce Services. In October 1999, we implemented the first phase of
our strategy to offer the Phoenix System in an outsourcing or "application
service center" environment by (1) purchasing a controlling interest in Phoenix
International New York, Inc. (formerly Servers On-Line, Inc.), an application
service center using the Phoenix System located in Ronkonkoma, New York, and (2)
acquiring the account processing clients of ERAS JV, an application service
center using the Phoenix System located in Miami, Florida. These acquisitions
provided us with application service centers, or "ASCs," in the Northeast and
the Southeast. As part of the integration of the acquired operations, we intend
to relocate ERAS JV's Miami application service center to our Orlando facilities
in early 2000. These acquisitions are part of our ongoing strategy to broaden
our market and deliver our client/server-based core banking system both to U.S.
financial institutions that wish to run their processing services at their own
facilities and those institutions that would prefer to outsource their account
processing functions to a third party. We plan to establish additional Phoenix
application service centers in the near future in other parts of the U.S. as
demand permits. The ASCs will also provide Phoenix with more recurring revenue
because such contracts involve larger monthly service fees, as opposed to the
large up front license fee and smaller annual support fees we receive from our
in-house clients. Our current client processing agreements have an average term
of five years.
Leverage Existing Customer Base. At the end of 1999, Phoenix's client
base included over 140 financial institutions worldwide. We leverage our
implemented client base by:
- attempting to maximize recurring revenues from our clients by
offering service fee-based complementary products and
services;
- licensing additional subsidiaries of our clients' holding
companies;
- obtaining favorable references from existing clients in the
course of developing new client relationships; and
- consulting with existing clients in the development of new
products and product enhancements.
We believe that many financial institutions looking for updated
technology solutions are hesitant to be the first institution to implement new
technologies within their region. As we secure new clients in new regions of the
world, we believe that these "anchor" installations will help us generate new
business from each region. Last year in the United States, we successfully
leveraged our relationships with our installed clients to generate 12 new U.S.
clients, and to collect additional license fees from and sell additional
products to 21 pre-existing U.S. clients. We intend to continue to build our
presence worldwide by securing new clients in new regions and capitalizing on
our installed client base in each region where we already have a presence.
TECHNOLOGY
Phoenix works with leading hardware manufacturers and development tool and
relational database vendors in the client/server community to produce software
based on leading-edge technological developments. These vendors include
Microsoft(R), Hewlett-Packard Company(R), IBM(R), Centura(R) Software
Corporation, Sun Microsystems(R), and Sybase(R), among others. The Phoenix
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System operates on Microsoft Windows(R) 95/98, Windows NT(R), and UNIX. During
2000, we will be looking at certifying the Phoenix System for use with Windows
2000(R). During 1999, Phoenix released U.S. Version 2.5 and 2.5 YE containing
many upgrades to the Phoenix System, and completed International Version I-2.0.4
and Version of I-2.0.5 for international clients adding new functionality to
support multi-currency retail banking. In addition, Phoenix has developed a
version of the Phoenix System to run on Microsoft's new SQL Server 7 and is
currently beta-testing the Microsoft SQL Server 7 version of the Phoenix System.
Some of the key technological features of the Phoenix System are described
below.
Centralized Relational Database Management System. An advantage of the
Phoenix System as compared to legacy or modified legacy systems is that the
Phoenix System stores and maintains data in an open relational database rather
than in a proprietary flat file format. As a result, an institution's data can
be easily accessed and integrated by many third-party products, such as
commercially available query and report writing tools. In addition, a structured
query language, or "SQL", relational database allows users to expand and change
the structures of the tables and manipulate data stored and maintained in the
Phoenix System.
Both the Windows NT and UNIX versions of the Phoenix System, as well as
Phoenix's ancillary products TradeWind(TM) and TradeCentre(TM), use Sybase
System 11.x, a relational database technology provided by Sybase. Phoenix is
currently in the process of certifying the new version 12.0 of the Sybase
relational database management system. The Phoenix System, TradeWind, and
TradeCentre can run on hardware platforms from Hewlett-Packard, IBM, NCR(R)
Corporation, Sun Microsystems, Inc., Unisys(R), and other hardware platforms
that are UNIX or Microsoft Windows NT compliant. During 1999, we conducted
benchmark studies on the newest and largest platform from Hewlett-Packard, the
V2500, continuing our focus on scaling the Phoenix System for use by larger
institutions.
Replication and Distributed Data Processing. We have leveraged the open
architecture of the Phoenix System to implement an advanced distributed database
for support of our 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(R) NetWare or Microsoft
Windows NT.
Open Protocols for Data Communication. We use 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. These protocols allow Phoenix clients using 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, clients that have an
existing network infrastructure in place that supports TCP/IP do not have to
reinvest in new technology to run Phoenix products.
32-bit Application Support. U.S. Version 2.5 and International Version
I-2.0.5 of the Phoenix System, which Phoenix released on a widespread basis to
its clients in 1999, are native 32-bit applications which enable Phoenix clients
to take further advantage of operating systems from Microsoft (Windows 95/98 and
Windows NT Workstation). These systems offer Phoenix clients substantial
benefits in the areas of fault tolerance, ability to support more complex
transaction processing (multi-tasking), performance and security.
TARGET MARKETS
The United States Market. The following table shows the number of FDIC
insured depository institutions grouped by asset size as of the end of the third
quarter of 1999:
- 5,912 institutions with assets of less than $100 million;
- 2,827 institutions with assets from $100 million to $300
million;
- 994 institutions with assets from $300 million to $1 billion;
- 312 institutions with assets from $1 billion to $3 billion;
and
- 226 institutions with assets of more than $3 billion.
These numbers include both commercial banks and savings institutions.
We primarily focus our direct in-house sales efforts in the U.S. on commercial
financial institutions and savings institutions with asset sizes from $100
million to $3 billion, a range that includes over 4,000 institutions. Our
application service center business will target institutions with less than $300
million in assets, which includes over 9,000 institutions. We believe that many
of these financial institutions seek cost-effective, flexible, and sophisticated
technology solutions that can help them compete more effectively in the changing
financial services marketplace. The Phoenix System operates with both the
Microsoft Windows NT and UNIX operating system environments. We believe the
Windows NT version is attractive to much of Phoenix's market of U.S. financial
institutions because of the lower overall hardware and operating
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expenses associated with a Windows NT environment. We intend to take advantage
of improvements that are being made to both the UNIX and Windows 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.
The International Market. We currently divide international financial
institutions into two groups based upon the number of branches and accounts:
those with more than 300 branches and/or 2 million accounts, which we refer to
as "Tier 1," and those with less than 300 branches or 2 million accounts, which
we refer to as "Tier 2." Today, Phoenix primarily focuses its international
sales and marketing efforts on Tier 2 institutions located in Africa, the
Asia-Pacific region, Europe, Latin America, the Caribbean and the Middle East.
We also target Tier 1 institutions who can use the Phoenix System in regional or
market segment areas of their operations. One of our clients, Bank of Hawaii, is
a Tier 1 institution that uses the Phoenix System to run its operations in
particular regions. We believe that the international market offers significant
opportunity because economic diversity and other market factors have increased
the demand for sophisticated wholesale and retail banking products and services.
Sophisticated international financial institutions offer a broad array of
financial products and services and demand technology that is open, powerful and
economical. Phoenix also believes that these technology-minded institutions are
looking for software solutions that will last at least 10 to 15 years.
Therefore, these institutions appreciate the flexibility, scalability,
functionality and expandability of our client/server technology. During 1999,
Phoenix derived over half of its revenues from its international clients. There
are many risks associated with significant international operations which could
have a material impact on Phoenix's operations and financial performance,
including governmental and regulatory changes, the relative political and
economic instability of foreign markets, the diminished ability to monitor and
maintain client relationships across larger geographical areas, the increased
costs incurred to maintain international operations, and the other risks
discussed in our filings with the Securities and Exchange Commission, including
this report and in the "Risk Factors" section of our registration statement on
Form S-1 (No. 333-31415) declared effective on August 13, 1997.
SALES AND MARKETING
We market our software and services directly through our sales and
marketing personnel and through third party agents that provide products and
services to the financial services industry. As of December 31, 1999, Phoenix's
sales and marketing department, including administrative staff, consisted of 21
individuals, including personnel in our Singapore, Sydney and London sales
offices. In addition, we have established local representation relationships
with agents located in several countries that assist in the sales,
implementation, and support processes. Through these relationships, we continue
to add clients and believe that these relationships will assist us in building
our international following in the future.
Phoenix'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. White papers and other sales support
literature and ongoing client communications also contribute to the lead
development process. We also actively market our products and services through
our Internet web site which allows prospects to read or download product
information, access online product presentations, and register to receive
information by mail or email. We believe that an increasing number of future
clients will initially learn about us and our products and services through our
Internet web site.
Our direct sales and marketing force is complemented, particularly in
the international market, by various indirect distribution channels, including a
growing network of sales, marketing and support agents. Some agents also provide
implementation, training, support and other services to end-users. In all cases,
the Phoenix System remains the sole property of Phoenix. In most cases, if we
terminate our relationship with an agent, clients sold by that agent continue to
pay support fees to Phoenix. We intend to expand our network for indirect
distribution primarily on a non-exclusive basis and anticipate that the
percentage of our total revenues derived from indirect sales will increase in
the future.
In the international market, we have relationships with several third
party marketing agents:
- Computer Systems Associates (Nigeria) Limited which
exclusively markets the Phoenix System to financial
institutions in certain countries of Africa and
semi-exclusively in others;
- International Turnkey Systems which markets the Phoenix System
to financial institutions in certain countries in the Middle
East; and
- Siemens Nixdorf Informationssysteme AG, a large multinational
company which markets, sublicenses, and distributes the
Phoenix System to financial institutions located in Australia
and in those countries in Africa, Asia-Pacific, Europe, and
the Middle East that are not a part of other agents exclusive
territories.
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<PAGE> 10
PRODUCT PRICING
In-House System Pricing. For those clients who license the Phoenix
System for in-house use, we price the Phoenix System and related services in two
components: (1) 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 (2) fees for a full range of complementary services,
including implementation, programming, conversion, training, and installation
services, interface services for tying the Phoenix System to third-party
applications, client and software support services, disaster recovery services,
and Internet/Intranet consulting services. License agreements generally have a
term of five years and automatically renew for one-year periods thereafter until
cancelled. Each agreement also contains a five-year commitment to pay customer
and software support fees, which we recognize as revenue on a quarterly basis.
Most license agreements provide that Phoenix can cancel the license if the
client does not continue to pay for client and software support. Implementation,
conversion, training, installation and interface fees are generally paid at the
beginning of a license relationship or when the particular service is performed.
In the United States, license fees are based on the asset size of each
institution client. Internationally, each institution pays a base license fee
and an incremental license fee based on the number of branches and/or accounts
of such financial institution. Implementation, programming services, conversion,
training and interface fees vary based on the complexity of a particular
project. Implementation fees in the United States are generally fixed, and
internationally are charged on a time and materials basis for work performed.
Customer and software support fees both in the U.S. and internationally are paid
annually or quarterly and are generally calculated as a percentage of the total
license fees. Both in the U.S. and internationally, as the asset size of each
client institution increases or as branches or accounts are added, clients pay
additional incremental license fees, and the client's software support fees are
increased proportionately over the life of the license agreement.
Application Service Center Pricing. Our new application service
centers, or "ASCs," use the Phoenix System to provide remote institution and
account processing services to clients. ASC clients pay an up-front fee for
hardware and implementation of the Phoenix System, and then a monthly fee for
processing services based on the number of accounts and transactions processed
each month. Since there is no license fee, the up-front fees received are lower,
but the recurring fees to Phoenix are higher as a percentage of total contract
value than the support fees received from in-house clients.
Pricing to Our Sales Agents. Our agents license our products at a
discount for sublicensing or are paid a commission based upon sales. Under many
of these agreements, we anticipate that primary responsibility for
implementation and training services will shift to the agents as they
successfully complete the requisite training and successfully complete one or
more installations under our supervision. Under these sublicensing arrangements,
agents will retain a greater percentage of the implementation, conversion, and
training service fees as they accept more of the responsibility for these
services. We believe, however, that the difference in the margins obtained from
direct and indirect sales should not have a material adverse effect on our
business, operating results, and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in our 1999 Annual Report, included in this report as an exhibit.
WORLDWIDE SERVICES
In 1999, we consolidated our implementation services and client
services divisions into the new Worldwide Services Division. While the functions
remain largely the same, the consolidation allows us to manage implementation
and support functions as a cohesive unit, to better utilize resources and to
provide service continuity to our clients. Specifically, the restructured
Worldwide Services Division has dedicated resources to support both U.S. and
international clients. Both the U.S. group and the international group provide a
comprehensive range of direct client care services including implementation,
training and ongoing support. We have created a separate group dedicated to
providing services for clients utilizing our application service centers, or
"ASCs," an option that delivers the Phoenix System to clients who wish to
outsource their processing operations, and have dedicated units for ongoing
technical, education and professional services for ASC customers.
Implementation Services. Our comprehensive implementation services help
new clients and banks acquired by existing clients convert to the Phoenix System
by providing extensive project planning and coordination. As part of the overall
implementation process, each client is assigned an Implementation Manager and a
dedicated team of implementation experts that guide the client through the
entire installation and coordinate the conversion and implementation process,
including data conversion, software installation, network certification,
education, training and consulting. Each implementation team consists primarily
of data conversion analysts and conversion programmers who convert a client's
current account data to the Phoenix System. Data conversion activities include
data mapping, program development, data conversion, extensive testing, detailed
data auditing and a complete trial, or "mock," conversion prior to the final
implementation date.
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<PAGE> 11
As of December 31, 1999, Phoenix had 61 people directly assigned to
implementation and training responsibilities. To support our growing client
base, as well as to support the customization necessary for additional onsite
resources and international clients, we constantly monitor our staffing
requirements in order to alter resources as necessary.
Education and Training Services. We offer a comprehensive education and
training program both for new and existing clients. As part of the
implementation process for new clients, we provide training classes to
familiarize them with the Phoenix System and train them to set up the Phoenix
System's customized parameters. Training courses are available both on-site and
at Phoenix's headquarters in Orlando. We also provide hands-on application
training services at the client site prior to installation, and post-conversion
support. Additional on-site training for the Phoenix System and ancillary
products is available upon request.
Consulting and Development Services. We offer consulting and
development services, including assistance for clients planning large-scale
implementations, assistance in managing operational reorganizations, and
customized programming services for clients who wish to customize the Phoenix
System to meet their own unique information processing needs.
International Services. Through a number of international strategic
alliance agreements, we may transfer responsibility for implementation, support,
development and/or product localization services to an agent servicing the
particular area of the world. To ensure quality control, each agent is required
to send their staff to Phoenix for training and to work side-by-side with a
Phoenix implementation team on at least one implementation project. Upon
successful completion of training, the agent then assumes direct primary
responsibility for the client care services in their region for which they have
been certified. Some agents are able to provide more local services than others,
depending on their resources and the experience of their personnel. This process
allows Phoenix to deliver and install its software faster and across more areas.
While these alliances add depth and breadth to our worldwide client support
capabilities, Phoenix still remains focused on ensuring client satisfaction and
quality assurance levels through its many worldwide offices.
Ongoing Customer Support. Once implementation is complete, each client
is transitioned to a Client Care Unit for ongoing support. Each Client Care Unit
is led by a Client Care Manager and a dedicated team of support representatives.
A Client Care Manager is assigned to each client at contract signing and works
with the Implementation Manager to provide indirect support during the
implementation process to insure a smooth transition.
We deliver ongoing support via a range of communication vehicles
including telephone, Internet, electronic mail, and fax. Our support personnel
are available on a 24 hour per day, seven day per week basis. Our Internet
support, called SupportNet, is a special client-only area of Phoenix's web site.
It provides a free, online support mechanism for our clients allowing clients
with Internet access to obtain online support through features such as a
discussion forum, online support documents for the Phoenix System, online
software defect reporting, online enhancement requests, and on-line file
transfers.
Clients are given a single phone number and email address for all
support services. The client care team members answer inquiries directly when
possible, but are also accessible by pager, cellular telephone, and laptop
computer so the Client Care Manger has maximum utilization of resources at all
times. This enables clients to have their questions answered, addressed and
resolved as expediently as possible. Additionally, many client support
activities can be performed through high-speed data lines connected directly to
a client's location. Phoenix support personnel have the ability to connect
remotely to the server at the client site and perform work as if they were
physically at the client's site. This approach helps Phoenix deliver
cost-effective support services to clients without the traditional expense
associated with on-site visits.
We are committed to maintaining high levels of service and support to
ensure our client's satisfaction due to the mission-critical nature of the
Phoenix System and its impact on the client's day-to-day operations. Our Client
Care Units provide support not only for the ongoing use and maximization of the
Phoenix System, but also can help clients identify potential network and
technology infrastructure problems. As of December 31, 1999, Phoenix had 52
people in its Client Services Units dedicated to providing these services.
Internet/Intranet Product and Customization. In conjunction with our
Internet banking product, we offer Internet consulting services to help clients
design their web sites and establish a presence on the World Wide Web. We also
help clients create their own internal web environment, or Intranet, enabling
them to improve the flow of communication, eliminate paper, increase
productivity levels and enhance the dissemination of information with less
additional hardware and infrastructure costs.
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<PAGE> 12
Business Recovery Services. We offer business recovery services to
assist clients in re-establishing processing capacity within 24 hours of an
interruption in processing capability caused by a disaster or other event. Our
disaster recovery service offering is a separate 5-year contract that has an
initial implementation fee and annual service fees. We provide this service
through a third party service provider, SunGard Recovery Services, Inc. We
receive a commission based on the monthly fees SunGard charges to our clients.
This service satisfies current United States financial institution regulatory
obligations to maintain and annually test a disaster recovery plan.
Additional Services. We continually strive to add value to the Phoenix
System by providing a wide range of professional services, including on-site
operations support, process audits, additional education services, and
customized plans to address specific client needs as they relate to the use and
operation of the Phoenix suite of products. We offer a full range of networking
support, database services, and on-site consulting upon request, both directly
and through our third party service providers. We perform on-site network
certification for all clients during their initial software installation, and
these same network engineers and database analysts are available for ongoing
support as part of our professional services offering.
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 our
inception through December 31, 1999, product development expenditures (the total
of product development expense and capitalized software development costs)
represented approximately 55% of our aggregate revenues. Hewlett-Packard
provided developmental-stage assistance by supplying computer hardware for
development and testing of Phoenix's products. Early in our history, a group of
U.S. financial institutions participated in a 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. U.S. financial institutions continue to contribute to plans for new
products and enhancements as part of the Phoenix user group, known as "PHOCUS."
We believe that our future success will depend in large part on our
ability to maintain and enhance our current product and service offerings and to
develop, acquire, integrate and introduce new products and features that will
keep pace with technological advances and satisfy evolving client requirements.
As of December 31, 1999, our Research & Development Division consisted of 188
employees. We develop and adjust product direction in response to two core trend
areas: (1) developments in the financial services industry and (2) developments
in technology.
International Enhancements. Consistent with our original plan,
international versions of the Phoenix System support numerous international
features, such as multi-currency and multi-language capability. The Phoenix
Systems multi-currency capability supports world currencies formatted in
accordance with the standards established by the International Standards
Organization. Phoenix has acquired additional international capabilities, such
as a trade finance system, and has rights to license AFA Systems International's
"Musketeer" treasury and risk management systems to Phoenix clients. The
combination of our retail, trade finance and treasury offerings allows us to
market an integrated, international "universal" banking system. We also intend
to develop and license additional international functionality as we enter new
countries that require additional functionality. For instance, to support our
new relationship with Data Action, a major credit union service bureau provider
in Australia, we have established a development center in Sydney, Australia to
work on enhancing the Phoenix System for the Australian credit union market.
Additionally, we have established development capacity in Cairo, Egypt through
International Turnkey Systems and its division ITSoft to focus on international
functionality development required in the Middle East and Eastern Europe. We
intend to continue to incorporate additional international functionality and to
integrate new technologies for the benefit of existing and future clients around
the world.
Future Technologies. Phoenix is participating on the advisory council
for Windows DNAfs, an industry framework being developed by Microsoft. This
framework is intended to define a way of constructing software applications to
allow different financial services industry software providers to exchange data
and communicate with each other. We continue to work with Microsoft on its DNAfs
specifications for inclusion in our future product enhancements, named "Project
Aurora." Project Aurora is a set of technologies, tools and frameworks that we
are developing to serve as the foundation for a new set of products to be
delivered in the coming years. Fundamentally, Project Aurora is planned as a
distributed Internet-based application that is being designed to run under the
Windows 2000 COM+ environment and is expected to be deployed using an Internet
browser. Project Aurora is designed to enhance and extend the functionality of
the Phoenix System, rather than replace it. We spent much of 1999 evaluating and
testing the underlying technology of the Project Aurora framework. We expect to
continue working on Project Aurora during 2000, capitalizing on (and contingent
on) the planned availability of Windows 2000 in the first quarter. We hope to be
able to demonstrate the technology next year. To help confirm that the project
will address the needs of our target markets, we continue to validate the
Project Aurora strategy with our
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clients, prospects and industry consultants. We intend to continue to develop,
modify and enhance the Phoenix System to offer our client institutions what we
believe are some of the best technologies available in the financial services
software industry.
Product Development Cycle. Each year, we host a conference for our
"PHOCUS" users group, which includes all current U.S. and international users of
the Phoenix System. Phoenix uses the suggestions and feedback from this
conference and other sources of client feedback to help develop plans for new
products and enhancements. We meet with PHOCUS approximately twice a year to
offer recommendations and to help prioritize product development and enhancement
projects. For each new market, country or region where we sell our software, we
attempt to adapt and augment the Phoenix System to meet customer needs.
Additionally, our product development personnel continue to independently
develop new product ideas and enhancements. Once a product idea has been
formalized, we use an internal review process to (1) determine whether to
develop the product or enhancement, (2) set a development schedule, and (3)
develop a budget for the product or enhancement.
Product Plans. Phoenix'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 clients both in the U.S. and abroad. In
addition, product plans focus on extending the usefulness of the Phoenix System
into new and emerging alternative delivery channels. Phoenix believes that it
will be able to improve its competitive position by successfully completing,
licensing, acquiring, or delivering to client institutions new products and
enhancements including, among others, the following:
- e-Commerce Portal. We are developing an e-commerce portal,
which will utilize the Phoenix System Relationship Information
Manager, or "RIM". This product strategy provides for the
aggregation of multiple value-added products and services to a
financial institution's product offering through Internet
enabled delivery channels. The portal will extend the reach of
relationship management to add-on service providers, providing
for stronger relationship building opportunities for Phoenix
clients.
- Internet Banking. We will continue to enhance our Internet
Banking product throughout 2000. We are evaluating current
functionality, including the ability to open accounts over the
Internet, including fully automated online opening and funding
of accounts on the Phoenix System. Additional features planned
include ACH support, check imaging, account alerts, on-line
stock brokerage services, and biometric security support.
- Report Engine. Phoenix continues to focus on further
developing the reporting capabilities of the Phoenix System.
2000 product plans include further enhancements to enable
greater control and flexibility in establishing high
performance reporting. In addition, enhancements focusing on
user-defined client correspondence are planned to enable
Phoenix clients to flexibly control the presentation of
information to their customers.
- Larger Bank Processing. In 1999 we worked on increasing the
scalability of the Phoenix System through an enhanced,
multi-threaded, multi-tasking overnight process. We believe
that such enhancements will help to broaden the appeal of the
Phoenix System for larger institutions. We also continue to
develop a variety of enhancements to process larger financial
institutions, capitalizing on the latest database and server
technological advances. One key project for 2000 includes
enhancements to capitalize on the features of the new version
12.0 of the Sybase relational database management system, when
released.
The discussion of potential future products, new enhancements and product
development plans 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; failure to meet
development, functionality and performance expectations; and undetected and
uncorrected errors or failures. These product plans are "forward-looking
statements" which are subject to the risks and uncertainties discussed in this
report and in our filing with the Securities and Exchange Commission, including
the "Risk Factors" described therein.
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. - Jack Henry & Associates, Inc.
- BISYS, Inc. - ALLTEL Information Services, Inc.
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- Marshall & Ilsley Corp. - Prologic Corporation
- East Point Technology, Inc., & - The Kirchman Corporation
a division of Marshall Ilsley Corp.
- Open Solutions, Inc.
- Electronic Data Systems Corp.
All of these companies offer core retail software systems or
outsourcing alternatives to the financial services industry. Of these
competitors, we believe that only East Point and Open Solutions offer true
client/server solutions. Many of our competitors have far greater resources then
we do and competition from new companies is possible.
In the international arena, we compete with several global players,
including:
- Fiserv, Inc. - Sanchez Computer
Associates, Inc.
- Midas-Kapiti International, Inc. - Prologic Corporation
- ACT/Kindle Banking Systems - Financial Network
Services
In addition, there are smaller, regional competitors in the countries
that we target internationally. We expect additional competition from other
established and emerging companies as the client/server application software
market continues to develop and expand.
In general, we believe we compete on the basis of:
- product architecture, including distributed computing capability,
access to commercial SQL databases and ease of customization and
integration with other applications;
- functionality, including the breadth and depth of features and
functions and ease of use;
- 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;
- management expertise, including management's banking software
experience and financial services industry knowledge; and
- product pricing in relation to performance and support.
We believe that the Phoenix System is a market leader in the areas of
product architecture and management expertise and that Phoenix competes
favorably in the areas of functionality, service, support and product pricing.
We believe that our current competitors do not offer application
software that provides the level of flexibility and functionality featured in
our customer relationship management, customer profitability analysis, or
executive information modules. We expect 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. We cannot estimate the
possible adverse consequences to our financial condition or results of
operations from competition.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
We rely primarily on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to protect
our proprietary rights. We seek to protect our software, documentation and other
written materials under trade secret and copyright laws, which afford only
limited protection. Our license agreements contain provisions which limit the
use of the software, state that title remains with Phoenix, protect
confidentiality, permit the termination of license for misuse or abuse and
require licensees to notify Phoenix of infringements on our property and rights.
We presently do not have any patents, pending patent applications, registered
trademarks or copyright registrations. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary.
Policing unauthorized use of our products is difficult, particularly overseas.
While we are unable to determine the extent to which piracy of our software
products exists, we are not aware of any software piracy of our products to
date. However, in our industry, particularly in certain overseas markets,
software piracy is a persistent problem. In addition, the laws of some foreign
countries do not protect our proprietary rights to the same extent as the laws
of the United States. Nevertheless, we believe 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 our 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 than merely copying our software.
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We do not believe that any of our products infringe upon the
proprietary rights of third parties. We cannot be sure, however, that third
parties will not claim infringement by Phoenix with respect to current or future
products. We expect that software product developers will be increasingly
subject to infringement claims as the number of products and competitors in our
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 us to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available at all or on terms
acceptable to us. This could have a material adverse effect upon our business,
operating results, and financial conditions.
EMPLOYEES
As of December 31, 1999, we had a total of 372 employees and contract
workers, of which 188 were engaged in research and development (including
research projects and project development), 61 in implementation and training,
52 in client support, 21 in sales and marketing, 21 in finance and
administration, 6 in executive management, 5 in e-commerce services, and 18 in
product development and support, sales and marketing, and general business
operations at our subsidiary, Phoenix A.P. Limited. All of our executive
officers employed as of the date of this report have entered into employment
agreements with Phoenix. None of our employees are represented by a labor union.
To date, we have not experienced any work stoppages and consider our relations
with our employees to be satisfactory.
FACILITIES
The following chart summarizes Phoenix's worldwide facilities and the
terms of the lease for each. Phoenix does not own any real property. The New
York facility is used by Phoenix International New York, Inc., which is more
than 50% owned by Phoenix, and the New Zealand facility is used by Phoenix
International A.P. Limited, a wholly owned subsidiary of Phoenix.
<TABLE>
<CAPTION>
Square Lease Term in Lease
Location Function Footage Months Expiration
-------- -------- -------- -------------- ----------
<S> <C> <C> <C> <C>
Heathrow, Florida, USA Headquarters, administration, sales, 48,000 120 3/31/07
development & implementation
Heathrow, Florida, USA Development & implementation 22,500 120 3/31/07
Sydney, Australia Research & development 6,500 36 9/30/01
London, England Sales & implementation 3,440 126 1/31/10
Wellington, New Zealand Sales, development & implementation 1,500 6 3/31/00
Singapore, Malaysia Sales 500 6 6/30/00
Ronkonkoma, New York, USA Sales & implementation 5,500 60 12/31/02
</TABLE>
ITEM 2. PROPERTIES
See the information provided in Item 1 above entitled "Business --
Facilities" for information with respect to Phoenix's facilities.
ITEM 3. LEGAL PROCEEDINGS
Phoenix is subject to various claims and legal proceedings covering a
variety of matters arising in the ordinary course of its business activities.
A lawsuit seeking unspecified damages was filed on November 23, 1999
requesting class status in the United States District Court for the Middle
District of Florida, Orlando Division, by George Taylor, a former Phoenix
employee, against Phoenix and its chief executive officer. The suit was filed on
behalf of all persons who purchased common stock during the period from May 4,
1998 to April 15, 1999. The lawsuit alleges, among other things, that Phoenix
and our chief executive officer improperly recognized revenues, overstated
revenues and failed to disclose that our revenues were allegedly in decline, all
of which allegedly caused our stock price to be higher than it otherwise would
have been during the class period. The lawsuit alleges that these purported
actions violate Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder. Because we are in the early stages of this
litigation, we have not yet been able to determine what its effect will be, nor
can we estimate the cost or expense of defending this
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lawsuit or other possible damages to Phoenix. However, the defense of the case
is covered by our insurance policies, and we intend to vigorously defend this
case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of our security holders during the
fourth quarter of the year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required in Item 5 is incorporated herein by reference
from Phoenix's 1999 Annual Report to Shareholders, included in this Form 10-K as
Exhibit 13.1 (the "Annual Report").
ITEM 6. SELECTED FINANCIAL DATA
The information required in Item 6 is incorporated herein by reference
from the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required in Item 7 is incorporated herein by reference
from the Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ON MARKET RISK
We do not use derivative financial instruments in our operations or
investments. While we have significant international operations, our contracts
are all written for payments to be made in U.S. Dollars and, therefore, we do
not believe we are materially subject to fluctuations in foreign currency
exchange rates. Our short term and long term investments are principally in a
single financial institution with significant assets and consist of U.S.
Treasury bills and notes with maturities of less than three years. We do not
consider the interest rate risk for these investments to be material. We do not
have any material credit facilities and, therefore, do not have a significant
risk due to potential fluctuations in interest rates for loans at this time.
Changes in interest rates could decrease our interest income and could make it
more costly to borrow money in the future and may impede our future acquisition
and growth strategies if management determines that the costs associated with
borrowing funds are too high to implement these strategies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required in Item 8 is incorporated herein by reference
from the Annual Report.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
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PART III
We have omitted certain information required by Part III in this report
and will file a definitive Proxy Statement pursuant to Regulation 14A (the
"Proxy Statement") not later than 120 days after the end of the financial year
covered by this Report. Certain information included in the Proxy Statement is
incorporated in this report by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS AND DIRECTORS
The following table lists our directors and executive officers and
directors and their ages as of March 29, 2000:
<TABLE>
<CAPTION>
NAME AGE CLASS(1) POSITION
---- --- -------- --------
<S> <C> <C> <C>
Bahram Yusefzadeh(2)(3) 53 III Chairman of the Board and Chief Executive Officer
Raju M. Shivdasani 49 III President, Chief Operating Officer and Director
Theodore C. Burns 43 -- Senior Vice President and Chief Financial Officer
Richard T. Powers 52 -- Executive Vice President, U.S. Business
Daniel P. Baker 37 -- Senior Vice President, Research and Development
Harold C. Boughton 48 -- Senior Vice President, Corporate Marketing
C. Russell Pickering 31 -- Senior Vice President, Corporate Counsel
Ronald G. Welsh 52 -- Senior Vice President, Worldwide Services
Ruann F. Ernst(2)(3) 53 I Director
Ronald E. Fenton(2)(3)(4) 71 III Director
William C. Hess(4) 63 I Director
J. Michael Murphy(3)(4) 59 II Director
O. Jay Tomson(4) 63 I Director
</TABLE>
- ---------------
(1) Class I term expires in 2000; Class II term expires in 2001; and Class
III term expires in 2002.
(2) Member of the Compensation and Stock Option Committee. Ms. Ernst 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 Audit Committee. Mr. Murphy is the Chairman of the Audit
Committee.
Bahram Yusefzadeh. Mr. Yusefzadeh is Phoenix's founder, chairman of the
board, and chief executive officer. He has 31 years of experience in the banking
software industry. In 1969, he co-founded Nu-Comp Systems, Inc., 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. 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, 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 founded Phoenix in 1993 and currently
serves as a member of the Executive Committee and as a non-voting member of the
Compensation and Stock Option Committee. Mr. Yusefzadeh has been a director of
Towne Services, Inc., a publicly traded company, since 1997 and has been a
member of its audit and compensation committees since 1998.
Raju M. Shivdasani. Mr. Shivdasani joined Phoenix in July 1996 as a
senior vice president and president of the International Sales Division. In
January 1998, Mr. Shivdasani assumed the position of president and chief
operating officer and was appointed a director of Phoenix. 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 28 years of experience working for companies
in the banking software, service bureau, and data center services industries.
17
<PAGE> 18
Theodore C. Burns. Mr. Burns joined Phoenix in October 1998 as senior
vice president and chief financial officer. From 1993 to 1998, Mr. Burns worked
with PricewaterhouseCoopers LLP (and its predecessor, Price Waterhouse LLP) in
the U.S., Indonesia, India, and South Korea, most recently as a director in
their Financial Advisory Services Group. He previously advised banking
institutions in the areas of mergers & acquisitions, capital raising, and
strategy for over eight years, first with Golembe Associates, Inc. and later
with Fox-Pitt, Kelton Inc. Mr. Burns holds an MBA from Columbia University and
is a certified public accountant.
Richard T. Powers. Mr. Powers was promoted to executive vice president
U.S. Business in March 2000, and is the executive responsible for U.S.
operations, including the company's in-house and Application Service Center
businesses. He joined Phoenix in October 1999 as senior vice president of
e-Commerce Services and was responsible for the company's U.S. e-commerce
initiatives. He brings more than 26 years experience in all facets of the
financial services industry, both as a banker and as founder, president, and
chief operating officer of Servers On-Line, Inc., a New York information
processing business for financial institutions which began in 1998, now
majority-owned and managed by Phoenix. Prior to that, he served as president and
chief operating officer of Waterhouse National Bank, a virtual financial
institution and affiliate of Waterhouse Securities of New York from 1993 to
1997. During his tenure, Mr. Powers was instrumental in growing the organization
from $30 million to more than $1.3 billion in assets in just two years. Mr.
Powers also served as executive vice president and chief operations officer of
North Fork Bank located in Long Island, New York, where the bank grew from $484
million in assets to $6 billion in assets under his leadership.
Daniel P. Baker. Mr. Baker joined Phoenix in February 1998 as senior
vice president for Research and Development and is responsible for U.S. and
international product development and quality assurance of the Phoenix System
and Phoenix ancillary products. From 1995 to 1998, Mr. Baker served as senior
vice president, Information Technology Division and director of Market Systems
Strategy at the John H. Harland Company. From 1993 to 1995, he worked for Fiserv
Inc., where he served as vice president of Technology Services. Prior to Fiserv,
Mr. Baker served over 15 years in the banking industry.
Harold C. Boughton. Mr. Boughton joined Phoenix in June 1996 as senior
vice president of U.S. Business Development and became senior vice president of
Corporate Marketing in March 2000. 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.
C. Russell Pickering. Mr. Pickering joined Phoenix in February 2000 as
senior vice president and corporate counsel. Prior to joining Phoenix, Mr.
Pickering was an associate with Nelson Mullins Riley & Scarborough, L.L.P., from
1994 to 2000 where he practiced in the areas of general corporate law,
securities, mergers and acquisition and computer law, specializing in the
representation of emerging technology companies and financial institutions. As
outside counsel, Mr. Pickering managed Phoenix's U.S. and international
intellectual property, software licensing, third party distributor and third
party product contracts. Mr. Pickering received his J.D. from the University of
Texas at Austin in 1994, and is a licensed member of the State Bar of Georgia.
Ronald G. Welsh. Mr. Welsh joined Phoenix in February 1999 as senior
vice president of Worldwide Services. He is responsible for the ongoing support
and implementation functions for Phoenix's clients around the world. He brings a
wide range of hands-on expertise in bank data processing, data center
management, strategic technology planning, training, and support, as well as
mergers and acquisitions. Prior to joining Phoenix, he served as both vice
president of Strategic Technology Planning and vice president of Operations and
Information Technology for NationsBank from 1985 to 1994. Mr. Welsh also
worked with Honeywell Information Systems in their North American banking and
government divisions and managed independent service bureaus for S&Ls and banks
in the 1980s.
Ruann F. Ernst. Ms. Ernst has been a director of Phoenix since 1996 and
currently serves as a member of the Executive Committee and is the chairman of
the Compensation and Stock Option Committee. Ms. Ernst has served as chairman of
the board of Digital Island, Inc. since December 1999 and as its chief executive
officer and as a director since June 1998. She was president of Digital Island,
Inc. from June 1998 until December 1999. Prior to joining Digital Island, Ms.
Ernst served with Hewlett Packard, a computer equipment and services company,
for approximately ten years, most recently as general manager of the Financial
Services Business Unit. Ms. Ernst serves on the Board of Directors of The
Institute for the Future and Advanced Fibre Communications, Inc.
Ronald E. Fenton. Mr. Fenton has been a director of Phoenix since 1993
and currently serves as a member of the Executive Committee and Compensation and
Stock Option Committee. Mr. Fenton is the chairman of the board of directors of
F&M Bank - Iowa Central and a board member of F&M Bank - Iowa Story County and
F&M Bank - Iowa South Central. He also serves as chairman of the board of
directors of BancSecurity Corporation (where he has been since 1982), and
recently retired as president,
18
<PAGE> 19
chief executive officer and director of Security Bank (where he had been since
1976). He is also a director 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 Phoenix 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 1988, he has been chairman of the
board of Sac City State Bank. Mr. Hess serves as an officer and director of
several bank holding companies and he is also a director of Audubon State Bank,
Iowa Savings Bank, Perry State Bank and Raccoon Valley 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 member of the
Board of Directors of the Iowa Department of Banking.
J. Michael Murphy. Mr. Murphy has been a director of Phoenix since 1993
and currently serves as a member of the Executive Committee and as chairman of
the Audit Committee. Since 1977, he has served as president of Drum Service Co.
of Florida, which in February 1998 merged into Palex, Inc., where he now serves
as a senior vice president. From 1988 to 1998 he served as a director of
Lochaven Federal Savings and Loan Association in Orlando Florida and served as
its chairman of the board from 1995 to 1996. He is a past chairman of the
Reusable Industrial Packaging Association and was chairman of the International
Confederation of Drum Reconditioners from 1990 to 1993. Mr. Murphy holds an
M.B.A. from the Harvard Graduate School of Business Administration.
O. Jay Tomson. Mr. Tomson has been a director of Phoenix since 1993 and
was chairman of the board of Phoenix from August 1993 to February 1994. Mr.
Tomson is also a member of the Audit Committee. 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. In
1987, he served as the president of the Independent Community Bankers
Association, formerly the Independent Bankers Association of America.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The information required by this Item is incorporated by reference from
the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from
the Proxy Statement, except for those portions relating to the Compensation and
Stock Option Committee's Report on Executive Compensation and Phoenix's Stock
Performance Graph.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from
the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from
the Proxy Statement.
19
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The consolidated financial statements of Phoenix as of December 31,
1999 and 1998 and for each of the years in the three-year period ending December
31, 1999, together with the report of Ernst & Young LLP, dated February 7, 2000,
except for Note 13 as to which the date is February 15, 2000, appearing in
Phoenix's 1999 Annual Report to Shareholders, included as Exhibit 13.1 to this
Form 10-K, are incorporated herein by reference.
(a)(2) Financial Statement Schedules
SCHEDULE II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
BALANCE AT THE BALANCE AT
BEGINNING OF THE END OF
DESCRIPTION YEAR PROVISION WRITE-OFFS YEAR
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
1999 (473,000) (867,801) 685,801 (655,000)
1998 (155,000) (347,150) 29,150 (473,000)
1997 (15,000) (140,000) -- (155,000)
</TABLE>
Financial statement schedules other than the one listed above are
omitted because they are either: (1) not applicable or not required; or (2) the
information required is contained in the consolidated financial statements or
the notes thereto.
(a)(3) Exhibits
The Exhibit Index set forth after the signature pages of this Form 10-K
is incorporated by reference herein.
(a)(4) Reports on Form 8-K
None.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereto duly authorized.
Phoenix International Ltd., Inc.
By: /s/ Bahram Yusefzadeh
-------------------------------------
Date: March 28, 2000 Bahram Yusefzadeh
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Bahram Yusefzadeh
and Raju M. Shivdasani, and each one of them, his attorneys-in-fact, each with
the power of substitution, for him in any and all capacities, to sign any and
all amendments to this Annual Report or Form 10-K and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorneys-in-fact, or his substitute or substitutes, may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchanges Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
Chairman of the Board and Chief March 28, 2000
Executive Officer (principal
/s/ Bahram Yusefzadeh executive officer)
- -------------------------------------
Bahram Yusefzadeh
Chief Financial Officer (principal March 28, 2000
/s/ Theodore C. Burns financial and accounting officer)
- -------------------------------------
Theodore C. Burns
/s/ Raju M. Shivdasani President, Chief Operating March 28, 2000
- ------------------------------------- Officer and Director
Raju M. Shivdasani
/s/ Ruann F. Ernst Director March 28, 2000
- -------------------------------------
Ruann F. Ernst
/s/ Ronald E. Fenton Director March 28, 2000
- -------------------------------------
Ronald E. Fenton
/s/ William C. Hess Director March 28, 2000
- -------------------------------------
William C. Hess
/s/ J. Michael Murphy Director March 28, 2000
- -------------------------------------
J. Michael Murphy
/s/ O. Jay Tomson Director March 28, 2000
- -------------------------------------
O. Jay Tomson
</TABLE>
21
<PAGE> 22
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3.1 Restated Articles of Incorporation filed with the Secretary of
State of Florida on January 24, 2000.
3.2 Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 of Phoenix'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 Restated
Articles of Incorporation and Amended and Restated Bylaws
defining the rights of the holders of common stock of Phoenix.
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 Phoenix's Registration Statement
on Form S-1 (Registration No. 33-03355), as declared effective
by the Securities and Exchange Commission on July 1, 1996 (the
"1996 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
1996 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 1996
Registration Statement).*
10.4 Amendment, dated May 24, 1996, to the October Plan
(incorporated by reference to Exhibit 10.44 of the 1996
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 Phoenix's Registration Statement on Form
S-8, as filed July 3, 1997 (the "Form S-8")).*
10.6 Third Amendment, dated as of January 30, 1998, to the October
Plan (incorporated by reference to Exhibit A of Phoenix's
definitive proxy statement on Schedule 14A for its 1998 annual
meeting of shareholders, File No. 0-20937 (the "1998 Proxy")).
10.7 Revised Form of Stock Option Agreement for the October Plan
(incorporated by reference to Exhibit 10.45 of the 1996
Registration Statement).*
10.8 Phoenix International Ltd., Inc. 1996 Director Stock Option
Plan (the "Director Plan") (incorporated by reference to
Exhibit 10.46 of the 1996 Registration Statement).*
10.9 First Amendment to the Director Plan (incorporated by
reference to Exhibit B to the 1998 Proxy).*
10.10 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).*
10.11 Phoenix International Ltd., Inc. 1998 Employee Stock Purchase
Plan (incorporated by reference to Exhibit C of the 1998
Proxy).*
10.12 Form of Phoenix's Director Indemnity Agreement (incorporated
by reference to Exhibit 10.47 of the 1996 Registration
Statement).
22
<PAGE> 23
10.13 Employment Agreement by and between Phoenix
and Bahram Yusefzadeh, dated December 28, 1995 (incorporated
by reference to Exhibit 10.14 of the 1996 Registration
Statement).*
10.14 First Amendment to Employment Agreement by and between Phoenix
and Bahram Yusefzadeh, dated May 22, 1996 (incorporated by
reference to Exhibit 10.15 of the 1996 Registration
Statement).*
10.15 Amended and Restated Employment Agreement by and between the
Company and Raju M. Shivdasani, dated as of March 20, 1998
(incorporated by reference to Exhibit 10.3 of Phoenix's Form
10-Q, dated May 6, 1998, File No. 0-20937 (the "First Quarter
1998 10-Q")).*
10.16 Employment Agreement by and between Phoenix and Harold C.
Boughton, dated June 3, 1996 (incorporated by reference to
Exhibit 10.1 of the Second Quarter 1996 10-Q).*
10.17 Employment Agreement dated as of March 6, 1998 by and between
Phoenix and Daniel P. Baker (incorporated by reference to
Exhibit 10.4 of the First Quarter 1998 10-Q).*
10.18 Form of Employment Agreement by and between Phoenix and its
senior vice presidents (incorporated by reference to Exhibit
10.20 to Phoenix's Annual Report on Form 10-K for the year
ended December 31, 1998 (File No. 6-20937) (the "1998 Form
10-K")).
10.19 Form of Employee Confidentiality Agreement (incorporated by
reference to Exhibit 10.19 of Phoenix's Annual Report on Form
10-K for the year ended December 31, 1996, File No. O-20937)
(the "1996 10-K")).
10.20 OEM Software License Agreement, dated June 30, 1995, between
Phoenix and Gupta Corporation (incorporated by reference to
Exhibit 10.26 of the 1996 Registration Statement).+
10.21 Form of Domestic Software License Agreement (incorporated by
reference to Exhibit 10.1 of Company's Form 10-Q, dated July
31, 1998, File No. 0-20937 (the "Second Quarter 1998 10-Q")).
10.22 Form of International Software License Agreement (incorporated
by reference to Exhibit 10.2 of the Second Quarter 1998 10-Q).
23
<PAGE> 24
10.23 Form of Confidentiality and Non-Disclosure Agreement
(incorporated by reference to Exhibit 10.34 of the 1996
Registration Statement).
10.24 Form of Confidentiality Agreement (incorporated by reference
to Exhibit 10.35 of the 1996 Registration Statement).
10.25 Form of Mutual Non-Disclosure Agreement (incorporated by
reference to Exhibit 10.36 of the 1996 Registration
Statement).
10.26 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
1996 Registration Statement).
10.27 Form of Phoenix International Ltd., Inc. Confidentiality
Agreement (incorporated by reference to Exhibit 10.38 of the
1996 Registration Statement).
10.28 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
1996 Registration Statement).*
10.29 Remarketing Agreement and Support Authorization, dated as of
April 22, 1996, between Phoenix and Computer Systems
Associates (Nigeria) Limited ("CSA") (incorporated by
reference to Exhibit 10.42 of the 1996 Registration Statement)
(the "CSA Agreement").+
10.30 Lease Agreement, dated September 11, 1996, between Phoenix and
500 International Parkway Development Company (incorporated by
reference to Exhibit 10.1 of Phoenix's Form 10-Q, dated
November 5, 1996, File No. 0-20937).
10.31 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 Phoenix's Form
10-Q, dated May 8, 1997, File No. 0-20937 (the "First Quarter
1997 10-Q")).
10.32 Cooperative Marketing Agreement, dated March 26, 1997, between
Phoenix and International Turnkey Systems (incorporated by
reference to Exhibit 10.2 of the First Quarter 1997 10-Q).+
10.33 Cooperative Marketing Agreement, dated June 28, 1997, between
Phoenix and Siemens Nixdorf Informationssysteme AG
(incorporated by reference to Exhibit 10.49 of Phoenix's
Registration Statement on Form S-1 (No. 333-31415), as
declared Effective by the Securities and Exchange Commission
on August 13, 1997 (the "1997 Registration Statement")).
10.34 Cooperative Marketing Agreement, dated April 16, 1997, between
Phoenix and Advanced Financial Systems, Inc. (incorporated by
reference to Exhibit 10.51 of the 1997 Registration
Statement).+
10.35 Software License and Development Agreement, dated as of
January 15, 1998, between Phoenix and Intercept Systems, Inc.
(incorporated by reference to Exhibit 10.2 of the First
Quarter 1998 10-Q).+
10.36 Source Code License and Marketing Agreement, dated as of March
31, 1998, between Phoenix and CSA (incorporated by reference
to Exhibit 10.2 to the First Quarter 1998 10-Q).+
10.37 Agreement for Software Services in Relation to Phoenix Banking
system dated September 30, 1998 between Phoenix and Siemens
Nixdorf Information Systems Pty. Limited (incorporated
24
<PAGE> 25
by reference to Exhibit 10.1 to Phoenix's Form 10-Q, dated
November 4, 1998, File No. 0-20937).
10.38 Disaster Recovery Services Marketing Agreement dated as of
December 15, 1998 between Phoenix and SunGard Recovery
Services Inc. (incorporated by reference to Exhibit 10.51 of
the 1998 Form 10-K).+
10.39 Reorganization and Stock Purchase Agreement dated as of
October 5, 1999 between Phoenix and Servers On-Line, Inc. and
certain of the shareholders of Servers On-Line, Inc.
10.40 Contract Purchase Agreement dated as of October 21, 1999
between Phoenix, ERAS JV, ERAS, Inc. and TIB Software &
Services, Inc.
10.41 Master Services Agreement Number 1014 dated as of December 14,
1999 between Phoenix and GE Capital Information Technology
Solutions - North America, Inc.
10.42 Master Software Distribution Agreement dated as of July 6,
1999 between Phoenix and Financialware, Inc.
10.43 Two Party Escrow Agreement dated as of June 1, 1999 between
Phoenix and Fort Knox Escrow Services, Inc.
10.44 Commercial Application Partner (CAP) Agreement dated as of
November 1, 1996 between Phoenix and Sybase, Inc.
13.1 Registrant's 1999 Annual Report to Shareholders. Except for
the portions of said Annual Report specifically incorporated
herein by reference, the Annual Report is furnished for the
information of the Securities and Exchange Commission and is
not deemed filed herewith.
21.1 Subsidiaries of Phoenix.
23.1 Consent of Ernst & Young LLP.
24.1 Power of Attorney (contained on the signature page of this
filing).
27.1 Financial Data Schedule (for Securities and Exchange
Commission purposes only).
- ------------------
+ Confidential treatment previously granted for portions of such exhibit.
* This agreement is a compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
25
<PAGE> 1
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
PHOENIX INTERNATIONAL LTD., INC.
These Restated Articles of Incorporation of Phoenix International Ltd.,
Inc., a Florida corporation (the "Corporation"), are hereby adopted pursuant to
Section 607.1007 of the Florida Business Corporation Act (the "Act").
ARTICLE I.
NAME AND PRINCIPAL OFFICE
The name of the Corporation is "Phoenix International Ltd., Inc." The
principal office of the Corporation is 500 International Parkway, Heathrow,
Florida 32746.
ARTICLE II.
CAPITAL STOCK
The aggregate number of shares of capital stock which the Corporation
shall have authority to issue is fifty million (50,000,000) shares of voting
common stock, par value $0.01 per share (the "Common Stock").
In addition to the Common Stock, the Corporation shall have the
authority, exercisable by its Board of Directors, to issue ten million
(10,000,000) shares of preferred stock, par value $0.01 per share (the
"Preferred Stock"), any part or all of such shares of Preferred Stock may be
established and designated from time to time by the Board of Directors by filing
an amendment to these Restated Articles of Incorporation, which is effective
without shareholder action, in accordance with the appropriate provisions of the
Act, and any amendment or supplement thereto (a "Preferred Stock Designation"),
in such series and with such preferences, limitations, and relative rights as
may be determined by the Board of Directors. The number of authorized shares of
Preferred Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of a majority of the
votes of the Common Stock, without a vote of the holders of the shares of
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required by law or pursuant to the Preferred Stock Designation or Preferred
Stock Designations establishing the series of Preferred Stock.
<PAGE> 2
ARTICLE III
DIRECTORS
The Corporation shall have not more than eleven directors, and the
number of directors shall be set by the Board of Directors as set forth in the
Corporation's Bylaws. The Board of Directors shall be divided into three classes
to be known as Class I, Class II, and Class III, which shall be as nearly equal
in number as possible. Except in case of death, resignation, disqualification,
or removal for cause, each director shall serve for a term ending on the date of
the third annual meeting of shareholders following the annual meeting at which
the director was elected. Despite the expiration of a director's term, he shall
continue to serve until his successor, if there is to be any, has been elected
and has qualified. In the event of any increase or decrease in the authorized
number of directors, the newly created or eliminated directorships resulting
from such an increase or decrease shall be apportioned among the three classes
of directors so that the three classes remain as nearly equal in size as
possible; provided, however, that there shall be no classification of additional
directors elected by the Board of Directors until the next meeting of
shareholders called for the purposes of electing directors, at which meeting the
terms of all such additional directors shall expire, and such additional
directors positions, if they are to be continued, shall be apportioned among the
classes of directors and nominees therefor shall be submitted to the
shareholders for their vote.
No director may be removed from the Board of Directors except by the
shareholders for cause. Any vacancy occurring on the Board of Directors,
including a vacancy resulting from an increase in the number of directors, may
only be filled by the affirmative vote of the remaining directors even if the
remaining directors constitute less than a quorum of the Board of Directors.
ARTICLE IV
LIMITATION ON DIRECTOR LIABILITY
No director of the Corporation shall be personally liable for monetary
damages to the Corporation or any other person or any statement, vote, decision
or failure to act, regarding corporate management or policy by a director,
unless the director breached or failed to perform his duties as a director and
the director's breach of, or failure to perform, those duties constitutes:
(i) a violation of criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no reasonable
cause to believe his conduct was unlawful;
(ii) a transaction from which the director received an
improper personal benefit;
(iii) a circumstance under which the liability provisions of
Section 607.0834 of the Act are applicable;
2
<PAGE> 3
(iv) in a proceeding by or in the right of the Corporation
to procure a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interests of the
Corporation or willful misconduct; or
(v) in a proceeding by or in the right of someone other
than the Corporation or a shareholder, recklessness or an act or
omission which was committed in bad faith or with malicious purpose or
in a manner exhibiting wanton and willful disregard of human rights,
safety or property.
If at any time the Act shall have been amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
each director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Act, as so amended, without further action by the
shareholders, unless the provisions of the Act, as amended, require further
action by the shareholders. Any repeal or modification of the foregoing
provisions of this Article Four shall not adversely affect the elimination or
limitation of liability or alleged liability pursuant hereto of any director of
the Corporation for or with respect to any alleged act or omission of the
director occurring prior to such a repeal or modification.
ARTICLE V
ACTION BY WRITTEN CONSENT
All actions by the shareholders shall be taken at a meeting, with prior
notice which complies with the notice provisions of the Corporation's Bylaws,
and with a vote of the holders of the outstanding stock of each voting group
entitled to vote thereon.
ARTICLE VI
SPECIAL MEETING OF SHAREHOLDERS
A special meeting of shareholders, for any purpose or purposes, may be
called only by the Executive Committee of the Board of Directors or by the Chief
Executive Officer of the Corporation. In addition, the Secretary shall call a
special meeting when requested in writing by the holders of at least 50% of all
of the shares entitled to vote at a meeting. Such written shareholder request
shall comply with the notice provisions of the Corporation's Bylaws.
3
<PAGE> 4
ARTICLE VII
VOTING PROVISIONS
The affirmative vote of at least 66 2/3% of the directors is required
for the following actions by the Corporation to be submitted to a vote of the
shareholders:
(i) sale of substantially all of the assets of the
Corporation;
(ii) liquidation of the Corporation;
(iii) the merger, consolidation or reorganization of the
Corporation, unless the shareholders of the Corporation own at least a
majority of the combined voting power of the corporation resulting from
such merger, consolidation or reorganization; or
(iv) any increase in the number of directors above eleven
directors;
provided, further, that the affirmative vote of holders of at least 66 2/3% of
all of the shares of the Common Stock is required for shareholder approval of
any action outlined in the clauses above.
ARTICLE VIII
AMENDMENTS
These Restated Articles of Incorporation may only be altered, amended
or repealed by the affirmative vote of the holders of 66 2/3% of the outstanding
stock entitled to vote thereon.
These Restated Articles of Incorporation do not contain amendments
requiring shareholder approval; they were adopted by the Board of Directors on
December 13, 1999.
IN WITNESS WHEREOF, the undersigned has executed these Restated
Articles of Incorporation this 15th day of December, 1999.
/s/ Bahram Yusefzadeh
------------------------------------------
BAHRAM YUSEFZADEH
Chief Executive Officer
4
<PAGE> 1
EXHIBIT 10.39
REORGANIZATION AND
STOCK PURCHASE AGREEMENT
<TABLE>
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Parties:
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Phoenix International Ltd., Inc. Servers On-Line, Inc.
500 International Parkway 4175 Veterans Highway, Suite 405
Heathrow, FL 32746 Ronkonkoma, New York 11779
Attention: Bahram Yusefzadeh Attention: Kenneth J. Sole
Kenneth J. Sole Richard T. Powers
210 Paulanna Avenue 15 Groveland Park Blvd.
Bayport, New York Sound Beach, New York
Lisa C. McGuinness Kenneth J. Sole & Associates, Inc.
116 Burt Avenue 4175 Veterans Highway
Oceanside, New York Suite 405
Ronkonkoma, NY 11779
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THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of October 5, 1999, by and between Phoenix International Ltd., Inc., a
Florida corporation ("Phoenix"); Servers On-Line, Inc., a New York corporation
("SOL"); Kenneth J. Sole & Associates, Inc., a New York corporation ("KJS");
and Kenneth J. Sole ("Sole"), Richard T. Powers ("Powers"), and Lisa C.
McGuinness ("McGuinness"), each individual shareholders of SOL. Intending to be
legally bound, and in consideration of the parties' respective covenants and
agreements set forth below, the parties agree as follows:
1. DEFINITIONS. When used herein, the following terms shall have the
following meanings:
1.1. "Affiliate", whether or not capitalized, with respect to any
natural person or legal entity, shall mean any corporation, trust, partnership,
limited liability company, or other legal or common law entity which owns a
majority of or which is majority owned by such person or which otherwise
directly or indirectly controls or is controlled by such person or entity, and
with respect to a natural person shall also include spouses, parents, siblings,
and children.
1.2. "Closing" shall mean the closing of the transactions
contemplated in this Agreement, at the time and place set forth in Section 4.1.
1.3. "Conversion Ratio" shall initially mean $0.0517662 per share.
Immediately prior to Closing, the final Conversion Ratio will be calculated
such that following the stock dividend, the Minority Shareholders will own at
least 5/12ths of the common shares of SOL outstanding after the Closing,
excluding the shares owned by Phoenix, and Phoenix will own at least 51% of all
of the common shares of SOL outstanding after the Closing, including the shares
owned by Phoenix.
1.4. "Disclosure Memorandum" means the memorandum executed and
delivered by SOL and the Management Group as soon as possible following the
execution and delivery of this Agreement containing information required to be
disclosed under this Agreement.
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1.5. "Encumbrance" means any mortgage, charge (whether fixed or
floating), security interest, pledge, claim, right of first refusal, lien
(including, without limitation any unpaid vendor's lien), option,
hypothecation, title retention or conditional sale agreement, lease, option,
restriction as to transfer, use or possession, easement, subordination to any
right of any other person, and any other encumbrance on the absolute and
unfettered use and ownership of any asset or property.
1.6. "Management Group" shall mean Sole, Powers, and McGuinness.
1.7. "Material Adverse Effect" shall mean an adverse effect which
materially affects the business, assets, operations, financial condition, or
liabilities of a party.
1.8. "Minority Shareholders" shall mean all of the shareholders of
SOL other than Phoenix, Sole, Powers, McGuinness, and KJS.
1.9. "Recurring Revenue" shall mean include all fees earned by SOL
through its service bureau contracts, excluding one-time, up-front fees (e.g.,
set up fees), and flow-through reimbursables (e.g., telephone charges and
travel expenses incurred by SOL employees), as shown in SOL's financial
statements.
2. TRANSACTIONS.
2.1. Conversion of Accounts Payable. At the Closing, all accounts
payable at the time of the Closing owed by SOL to KJS, Sole, Powers, or
McGuinness, will be converted to equity investments in the common stock of SOL
at the Conversion Ratio.
2.2. Additional Investment by Management Group. Prior to or at the
Closing, Powers' total equity investment in the common stock of SOL shall be at
least $85,000. All amounts invested in SOL by Powers in addition to his
original $45,000 investment shall be converted into common stock at the
Conversion Ratio. Prior to the Closing, Powers will make such investments from
time to time as required to fund the ongoing operation of SOL at the level
required to maintain operations and provide service to customers through the
Closing, but in no case shall he be required to invest more than a total of
$85,000 under this Section, and in any case the balance of the required
investment shall be made at Closing. Powers will notify Phoenix prior to making
any such investment. If Phoenix unilaterally terminates this Agreement
unreasonably and without cause, Phoenix shall fully reimburse Powers for the
amount of investments in excess of the original $45,000 investment.
2.3. Phoenix Equity Investment. At the Closing, Phoenix will make
an equity investment of $700,000 in the common stock of SOL at the Conversion
Ratio. Phoenix shall satisfy such investment by converting all accounts payable
due from SOL to Phoenix and all loans by Phoenix to SOL (including for funding
of operations under Section 3.1) at the Closing into equity at the Conversion
Ratio, and by delivering to SOL a demand promissory note for the balance (the
"Promissory Note"). At the Closing, this investment shall give Phoenix
ownership of no less than 51% of the then outstanding shares of common stock of
SOL, calculated on a fully diluted basis factoring in the stock dividend
required to be made under Section 3.3 but not any conversion of outstanding
preferred shares.
2.4. Sole Stock Purchase. At the Closing, Phoenix shall purchase
1,000,000 shares owned by Sole in exchange for $80,000 in cash. Upon execution
of this Agreement, Phoenix shall advance Sole $30,000 against such $80,000,
less amounts to be paid by Sole due under leases as set forth in Exhibit 3.9.
In the event that the Closing does not occur due to no fault of Phoenix prior
to October
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29, 1999, Sole shall repay such amounts to Phoenix. Sole hereby agrees to and
does pledge all of his shares of SOL common stock to secure such repayment
obligation, and agrees to deliver the certificate or certificates representing
such shares to Phoenix to secure such obligation at the execution of this
Agreement.
2.5. Contingent Stock Purchase Rights. At the Closing, Phoenix
shall grant the Minority Shareholders a right to put their shares of SOL common
stock to Phoenix for purchase for aggregate consideration of $250,000 in cash.
Such rights shall be granted pursuant to the Stock Rights Agreement
substantially in a form to be negotiated and agreed by the parties. At the
Closing, Phoenix shall severally grant Sole, McGuinness, Powers, and KJS a
right to put their shares of SOL common stock to Phoenix for purchase for
aggregate consideration of $350,000 worth of Phoenix common stock. Such rights
shall be granted pursuant to the Stock Rights Agreement substantially in a form
to be negotiated and agreed by the parties. The foregoing rights will only be
exercisable in the event that SOL's Recurring Revenue exceeds $250,000 for any
three consecutive calendar months ending on or before July 31, 2001.
Additionally, pursuant to such agreements, the Minority Shareholders shall
grant Phoenix an option to acquire their shares of SOL common stock for
aggregate consideration of $250,000 in cash and each of Sole, Powers,
McGuinness, and KJS shall grant Phoenix an option to acquire their shares of
SOL common stock for aggregate consideration of $350,000 worth of Phoenix
common stock.
2.6. Grant By Existing SOL Shareholders to Phoenix of Right of
First Refusal. At the Closing, the current SOL common shareholders shall grant
Phoenix a right of first refusal with respect to their shares of SOL pursuant
to the Stock Rights Agreements.
3. OTHER AGREEMENTS.
3.1. Funding of Operations Through Closing. From the date of this
Agreement through the Closing, Phoenix shall fund SOL's operating expenses to
the extent they exceed SOL's income from operations and the additional
contribution of Powers set forth in Section 2.2. At the Closing, such loans
shall be converted into equity under Section 2.3.
3.2. Authorization and Reservation of Shares; Adjustment to Rights
in Preferred Stock. Prior to the Closing, SOL's Board of Directors shall have
adopted (contingent on the Closing) and SOL's shareholders shall have approved
(contingent on the Closing) an amendment to SOL's Articles of Incorporation in
a form reasonably acceptable to Phoenix (the "Charter Amendment"), which shall
increase the number of common shares authorized for issuance by SOL to 150
million, and shall effectively increase the conversion rights on SOL's Series A
Preferred Stock such that each share of preferred stock will be convertible
into 100 shares of common stock at any time at the election of the holders of
shares of such preferred stock. Such amendment shall be filed with the New York
Secretary of State at the Closing. SOL shall reserve and keep available for
issuance such number of its authorized but unissued shares of common stock as
will be sufficient to permit the issuance of all shares contemplated to be
issued pursuant to this agreement. All shares of common stock that are so
issuable shall, when issued upon conversion or exercise, be duly authorized,
validly issued, and fully paid and non-assessable.
3.3. Stock Dividend to Minority Shareholders. Immediately
following the Closing, SOL's Board of Directors shall authorize and complete a
stock dividend to the SOL shareholders, currently estimated at 21 shares
(subject to adjustment) per outstanding share of common stock. At the
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Closing, a final dividend number will be calculated so that after such
dividend, the Minority Shareholders will own at least 5/12ths of the common
shares of SOL to be owned by shareholders other than Phoenix after the Closing,
and Phoenix will own at least 51% of all of the common shares of SOL
outstanding after the Closing. Phoenix, Sole, Powers, McGuinness, and KJS will
and hereby do waive any and all right to receive such dividend, and shall
retain their then current share ownership only. To the extent it becomes
mandatory under law that such shareholders receive such dividend, they will and
hereby do assign such shares to SOL without consideration.
3.4. Employment and Non-Competition Agreements. At the Closing,
McGuinness will enter into an Employment and Non-Competition Agreement in a
form substantially similar to the form used for other Phoenix employees of
similar responsibility and authority, which shall be mutually acceptable to
Phoenix and McGuinness, and shall provide for incentive stock options to be
granted in January of 2000 in an amount consistent with those granted to other
Phoenix employees of similar responsibility and authority. At the Closing,
Powers will enter into an Employment and Non-Competition Agreement with Phoenix
in substantially the same form, and on substantially the same terms, including
those relating to compensation (including incentive stock options to be granted
in January of 2000), as those with Phoenix's Senior Vice Presidents. At the
Closing, Sole will enter into a Non-Competition Agreement in a form to be
negotiated and agreed by the parties, pursuant to which (i) Phoenix shall agree
not to, or assist others to, solicit KJS' employees, contractors, or customers
for a period of two years from the date of Closing, (ii) neither Sole nor its
Affiliates will agree not to, or assist others to, set up a service bureau to
compete with SOL or Phoenix for a period of one year from the Date of Closing,
(iii) neither Sole nor its Affiliates will agree not to, or assist others to,
solicit Phoenix's or SOL's employees, contractors, or customers for a period of
two years from the date of Closing, and (iv) each of Sole, KJS, Phoenix, and
SOL will agree not to denigrate the other in the marketplace at any time.
3.5. SOL Board of Directors. At the Closing, the Board of
Directors of SOL shall be reconstituted at three members, two nominated by
Phoenix and one nominated by Powers and McGuinness at Closing. This provision
shall expire if Phoenix's ownership of SOL exceeds 75%.
3.6. Restricted Shares. All shares and options to purchase shares
issued hereunder by Phoenix or SOL shall be restricted shares and may not be
sold or transferred except pursuant to a transaction which is either registered
or exempt from the federal and state securities laws, which may include the
exemptions for resale of restricted securities under Rule 144, subject to the
holding periods prescribed by such rule and any other applicable securities
laws, rules, or regulations. Each certificate issued hereunder shall have a
legend substantially as follows:
The securities represented by this certificate have not been
registered under the securities act of 1933 (the "33 Act"), as
amended, or any other applicable state securities laws in reliance
upon exemptions from the registration requirements thereof, and cannot
be sold or otherwise transferred except pursuant to (i) an effective
registration statement or (ii) an opinion of legal counsel reasonably
acceptable to the company that an exemption from such registration is
available. These securities have not been recommended by any federal
or state securities commission or regulatory authority. Furthermore,
the foregoing authorities have not recommended or endorsed the
purchase of the securities, confirmed the accuracy of the memorandum,
or
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determined the adequacy of the memorandum. Any representation to the
contrary is a criminal offense.
3.7. Release. Except for claims available under the terms of this
Agreement or any agreement to be delivered at Closing (including breach of
contract claims), claims set forth in the Disclosure Memorandum, or claims
based on fraud or intentional misconduct, each of Sole, Powers, McGuinness,
Phoenix, SOL, and KJS hereby agree to releases, discharge, and acquit each
other forever from any and all debts, claims, demands, liabilities,
assessments, actions or causes of action, whether in law or in equity, whether
direct or indirect, whether presently known or unknown, absolute or contingent,
arising under any law, rule, regulation, ordinance, contract, agreement,
guideline or other standard of conduct of any kind and whatsoever which any of
them had or has against the other or may have against the other arising out of
facts and circumstances existing prior to the date of this Agreement.
3.8. Resignations. At Closing, except as agreed with Phoenix, each
of Sole, McGuinness, and Powers will resign as officers and directors of SOL.
3.9. Leases. At the Closing, SOL shall assume in their entirety,
and Phoenix shall guarantee SOL's performance under, all equipment leases which
are used in part or in whole by SOL pursuant to an Assignment and Assumption
Agreement in a form to be negotiated and agreed by the parties. In order to
meet security standards requirements, equipment under leases assumed by SOL
shall be dedicated solely for use by SOL, except that equipment which cannot be
used by SOL will be subleased to KJS at no cost. SOL shall allow KJS to
continue to operate on such equipment for a reasonable amount of time as
required to disengage its operations from the network and migrate to an
alternative environment. SOL shall provide assistance as reasonably necessary
to facilitate such migration. Phoenix shall replace KJS on the office lease
currently in the name of both SOL and KJS. KJS will continue under its current
office space lease. Amounts currently due under the leases and the method to
satisfy such amounts are set forth in Exhibit 3.9. The parties will each use
their best efforts to obtain any consents to such assignments prior to the
closing. If the lessors require KJS to remain liable for such leases in order
to obtain such consents, Phoenix shall indemnify KJS for any out-of-pocket
cost, expense, losses, claims, liabilities, or obligations incurred by KJS with
respect to such leases for any equipment which is used by SOL or Phoenix and
not by KJS under such leases.
3.10. Administrative Support. KJS will use its best efforts to
provide administrative support to SOL through August 31, 2000, including the
services of Shannon Rigney, the receptionist. KJS will bill and SOL shall pay
for administrative resources used by SOL. SOL shall be entitled to terminate
the use of any resources provided by KJS at any time with 30 days prior written
notice.
3.11. Services of McGuinness. Following the Closing, SOL will
provide the services of McGuinness to KJS for up to 30 man-days during the six
month period following Closing at cost, calculated per day as the cost of
McGuinness' annual salary and benefits divided by 250. KJS agrees to schedule
the time of McGuinness in a manner that is not unreasonably disruptive to her
duties at SOL.
3.12. KJS Services. After the Closing, Phoenix shall use reasonable
efforts to utilize KJS services. Phoenix does not guarantee the use of any KJS
services.
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3.13. Intellectual Property Assignment. At the closing, Sole and
KJS shall assign to SOL all software and other intellectual property rights in
any software or other code developed by Sole or KJS for or used by SOL. Such
Assignment shall be in a form to be negotiated and agreed by the parties.
3.14. Exhibits and Disclosure Memorandum. Notwithstanding anything
to the contrary in this Agreement, the parties acknowledge that the Exhibits
and Disclosure Memorandum have not yet been finalized or attached to this
Agreement. The Exhibits shall be shall be negotiated and the forms approved by
the parties, and the Disclosure Memorandum finalized and executed by the
parties, as soon as reasonably practicable following the execution of this
Agreement, but in any event no later than October 13, 1999.
4. CLOSING; DELIVERIES.
4.1. Closing. The Closing shall be held at the offices of Nelson
Mullins Riley & Scarborough, Atlanta, Georgia on October 22, 1999, or at such
other place or on such other date as the parties may agree. Each of the parties
agrees to use its best efforts to close by such date.
4.2. Deliveries by SOL at Closing. At the Closing, SOL shall
deliver to Phoenix the following:
(a) A certificate of the secretary of SOL certifying its
Articles of Incorporation, Bylaws, and the resolutions of the Board of
Directors and Shareholders of SOL approving the transactions set forth
herein including the following
(b) A good standing certificate for each of SOL and KJS
issued by the proper authority of New York;
(i) A Board of Director's consent authorizing:
- The conversion of debt
contemplated by Sections 2.1 and
2.3;
- The consummation of the
transactions set forth herein;
- The issuance of the shares to be
issued hereunder; and
- The adjustment of the terms of the
SOL series A preferred stock owned
by Phoenix pursuant to Section
3.2.
(ii) A Shareholder's consent authorizing :
- The consummation of the
transactions set forth herein; and
- The adjustment of the terms of the
SOL series A preferred stock.
(c) A stock certificate for the proper number of shares
to be issued to Phoenix under Section 2.3
(d) A stock certificate(s) for the proper number of
shares to be issued to members of the Management Group under Sections
2.1 and 2.2.
(e) An opinion of counsel in accordance with Section
8.5;
(f) A certified copy of the Charter Amendment required
by Section 3.2;
(g) Employment and Non-Competition Agreements required
by Section 3.4;
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(h) The Assignment and Assumption required by Section
3.9;
(i) Evidence of the option buyout required by Section
8.9;
(j) The intellectual property assignment from KJS
required by Section 3.13;
(k) A stock certificate and stock transfer power for
Sole's 1,000,000 shares of SOL;
(l) A resignation signed by each of Sole, McGuinness,
and Powers;
4.3. Deliveries by Phoenix at Closing. At the Closing, Phoenix
shall deliver to SOL the following:
(a) The Promissory Note under Section 2.3;
(b) Subscription Agreements for the shares to be
purchased hereunder, including by the conversion of debt to equity
under Section 2.3;
(c) The Employment and Non-Competition Agreements
required by Section 3.4;
(d) The Assignment and Assumption Agreement required by
Section 3.9;
(e) A cashier's check for $50,000, representing the
balance of the amount due for Sole's shares;
(f) Opinion of Phoenix's counsel.
5. REPRESENTATIONS AND WARRANTIES OF SOL, THE MANAGEMENT GROUP, AND KJS.
SOL and each member of the Management Group hereby represents and warrants to
Phoenix as follows. These representations and warranties shall survive the
Closing and shall expire on June 30, 2001.
5.1. Organization and Standing; Charter and Bylaws. SOL is a
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of New York and is in good standing under such laws. SOL is
qualified to do business as a foreign corporation in every jurisdiction in
which the failure to so qualify would have a Material Adverse Effect. SOL has
the requisite corporate power and authority to own and operate its properties
and assets and to carry on its business as presently conducted. The Disclosure
Memorandum contains true and accurate copies of the Articles of Incorporation
and Bylaws of SOL as presently in effect.
5.2. Officers and Directors. The current officers and directors of
SOL are listed in the Disclosure Memorandum.
5.3. Corporate Power. SOL has all requisite legal and corporate
power and authority to enter into this Agreement and, when the required
amendment to its articles of incorporation has been adopted and filed, to sell
and issue the shares of its common stock to be issued hereunder, and to carry
out and perform its other obligations under the terms of this Agreement.
5.4. Subsidiaries and Affiliates. SOL does not own or control,
directly or indirectly, any interest or investment in any corporation,
partnership, association, or other form of business entity.
5.5. Capitalization. The authorized capital stock of SOL consists
of 10 million shares of common stock, of which 3.3 million are issued and
outstanding, and 750 thousand shares of
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preferred stock, all of which are issued and outstanding. All such issued and
outstanding shares have been duly authorized and validly issued, are fully paid
and nonassessable, are owned beneficially and of record by the shareholders and
in the amounts set forth in the Disclosure Memorandum, and have been offered,
issued, sold, and delivered by SOL in compliance with all federal and state
securities laws, rules, and regulations. Except as shown on the Disclosure
Memorandum, there are no outstanding rights, options, warrants, conversion
rights, or agreements for the purchase or acquisition from SOL of any shares of
its capital stock other than the rights created by this Agreement. Except as
expressly contemplated by this Agreement and set forth in the Disclosure
Memorandum, there are not, and immediately upon consummation of the
transactions contemplated hereby at Closing, there will be, preemptive or
similar rights to purchase or otherwise acquire shares of capital stock of SOL
pursuant to any provision of law, the Articles of Incorporation of SOL, the
Bylaws of SOL, or any agreement to which SOL is a party that has not been
effectively waived. Except as set forth in the Disclosure Memorandum there is
not, and immediately upon the consummation of the transactions contemplated
hereby at the Closing, there will not be any, agreement, restriction, or
Encumbrance (such as a right of first refusal, right of first offer, proxy,
voting trust, or voting agreement) with respect to the sale or voting of any
shares of capital stock of SOL, whether outstanding or issuable upon conversion
or exercise of outstanding securities.
5.6. Authorization. All corporate action on the part of SOL and
its directors, officers and shareholders necessary (i) for the authorization,
execution, delivery and performance of all its obligations under this Agreement
and any document contemplated hereby and (ii) for the authorization, issuance
and delivery by SOL of the shares to be issued hereunder, has been (or will be)
taken prior to the Closing. This Agreement constitutes the valid and binding
obligations of SOL and the Management Group and is or will be enforceable
against each of them in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the enforcement of creditors' rights generally, and except that the
availability of the remedy of specific performance or other equitable relief is
subject to the discretion of the court before which any proceeding therefor may
be brought.
5.7. Validity of Stock. When issued, sold and delivered in
compliance with the provisions of this Agreement, all shares to be issued
hereunder will be duly authorized, validly issued, fully paid, and
nonassessable, will be free of any liens or encumbrances, and will not be
subject to any preemptive rights, rights of first refusal or redemption rights
created by or through SOL, other than as provided herein and in the Articles of
Incorporation of SOL.
5.8. Disclosure. No representation or warranty by SOL or the
Management Group in this Agreement or in any written statement or certificate
furnished to Phoenix in connection with the transactions contemplated by this
Agreement contains, or will contain, any untrue statement of a material fact or
omits, or will omit, to state a material fact necessary to make the statements
made not misleading in light of the circumstances under which they were made.
SOL and the Management Group have responded to all due diligence inquiries by
Phoenix truthfully and accurately and are not aware of any material fact or
circumstance which has not been disclosed to Phoenix and which they know does
or which they currently know will have a substantial Material Adverse Effect on
the business, operations, assets, or liabilities of SOL.
5.9. Financial Statements. SOL has furnished Phoenix with (a)
audited balance sheets of SOL as of June 30, 1998, together with statements of
income and cash flows for the period then ended,
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(b) unaudited balance sheets of SOL as of December 31, 1998 and December 31,
1999, together with statements of income and cash flow for the twelve-month
periods then ended, and (c) an unaudited balance sheet as of June 30, 1999,
together with statements of income and cash flow for the six-month period then
ended (collectively the "Financial Statements"). The Financial Statements have
been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied and fairly present the financial position of SOL
and the results of its operations as of the dates and for the periods
indicated. Copies of the Financial Statements are set forth in the Disclosure
Memorandum.
5.10. Changes. Except as disclosed in the Disclosure Memorandum and
for the transactions contemplated by this Agreement, since June 30, 1999 there
has not been:
(a) any occurrence outside of the ordinary course of
business which has or would have a Material Adverse Effect on SOL;
(b) any material change (individually or in the
aggregate), except in the ordinary course of business, in the
contingent obligations of SOL by way of guaranty, endorsement,
indemnity, warranty, or otherwise;
(c) any damage, destruction, or loss, whether or not
covered by insurance, materially and adversely affecting the
properties or business of SOL;
(d) any loans made by SOL to its employees, officers, or
directors or members of their immediate families other than travel
advances and other similar business purpose loans made in the ordinary
course of business;
(e) any material transaction by or involving SOL which
was not in the ordinary course of business;
(f) any change or amendment to any material contract by
which SOL or any of its material assets are bound or subject;
(g) any mortgage, pledge, sale, assignment or transfer
of any material tangible or intangible assets of SOL, except, with
respect to tangible assets, in the ordinary course of business
consistent with past practices;
(h) any increases in the compensation of any of SOL's
officers or directors other than in the ordinary course of business;
(i) any declaration or payment of any dividend or other
distribution of the assets of SOL;
(j) any issuance or sale by SOL of any shares of common
stock or other securities;
(k) any resignation or termination of employment of any
officer or key employee of SOL and SOL does not know of any impending
resignation or termination of employment of any officer or key
employee;
(l) any agreement or commitment by SOL to do any of the
things described in this Section;
(m) any material negative change in the relationship
with any of SOL's customers.
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5.11. Assets.
(a) Description. The Disclosure Memorandum sets forth a
list of all of the assets of SOL (whether owned or leased), including
all personal property and leasehold improvements, including a general
description of such assets (if necessary) and their location.
(b) Title. Except as set forth in the Disclosure
Memorandum, SOL has good, valid and marketable title to all of the
assets listed in the Disclosure Memorandum, free and clear of any and
all liens or Encumbrances.
(c) Possession. Except as set forth in the Disclosure
Memorandum, all of the assets listed in the Disclosure Memorandum are
on SOL's premises, in their possession and control and no one else has
any right, title or interest in any property or asset now used or
proposed to be used by SOL in SOL's Business.
(d) Necessary. The assets of SOL reflected on the
Disclosure Memorandum are all the assets necessary to conduct SOL's
business after the Closing in the same manner as it has been
conducted, and all such assets are in the possession of SOL.
5.12. Debts. The Disclosure Memorandum contains a list of all of
the currently outstanding debts of SOL, including but not limited to, loans,
guarantees, extensions of credit, conditional sales, or security arrangements.
All instruments evidencing indebtedness are included in the Disclosure
Memorandum.
5.13. Material Liabilities. Except as disclosed in Exhibit 5.13,
SOL has no debts, liabilities, accounts payable or obligations whatsoever,
absolute or contingent.
5.14. Contracts and Commitments. Other than this Agreement or as
set forth in the Disclosure Memorandum attached hereto, SOL has no contracts,
agreements or instruments to which it is a party and that involve either (i) a
commitment by, or revenue to, SOL in excess of $5,000 annually or (ii)
provisions restricting or affecting the development, manufacture or
distribution of SOL's products or services. To SOL's knowledge, all material
contracts, agreements, or instruments to which SOL is a party are set forth in
the Disclosure Memorandum and are valid and binding upon SOL and the other
parties, and are in full force and effect and enforceable in accordance with
their terms, and neither SOL nor any other party has breached any provision of,
or is in default under, the terms thereof, and there are no existing facts or
circumstances that would prevent the work in process of SOL or its contracts
and agreements from maturing in due course into fully collectible accounts
receivable. SOL has complied with all applicable statutes, ordinances, rules,
regulations and orders relating to seeking, bidding, obtaining, performing
under or otherwise complying with, contracts with governmental and
quasi-governmental authorities, agencies or other entities, except for such
noncompliance that would not have a Material Adverse Effect.
5.15. Protection of Intellectual Property Generally. The Disclosure
Memorandum sets forth a complete list and summary description of all registered
and unregistered trademarks, trade or company names, service marks, service
names, brand names and registrations, and applications for registrations; all
registered copyrights; and all patents and all patent applications, if any - in
each case used or intended to be used in the business of SOL, together with a
complete list of all licenses granted by or to SOL with respect to any of the
above. SOL validly owns or is validly licensed to use all material inventions,
processes, know-how, formulas, patterns, designs, and trade secrets that are
used in the conduct of its business as now conducted. In addition, SOL has been
assigned and
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owns or has obtained licenses for any such intellectual property that was
developed by any employee, contractor or any other individual and that is
material to SOL's business. All such rights and all rights listed in the
Disclosure Memorandum are valid and enforceable and are free from any security
interest, lien or encumbrance or any default on the part of SOL, and are not
now involved in any pending or, to the knowledge of SOL, threatened
interference proceeding. No option, license, sublicense or other agreement has
been granted in respect of any patent, trademark, brand name, trade secret,
copyright or pending application, except as noted in the Disclosure Memorandum.
The operations of SOL and its use of the technology presently used by it do not
infringe on any patent, trademark, service mark, trade or company name or
application therefor, trade secret or any other related technological right of
any other person. None of the rights of SOL described in this Section will be
impaired in any way by the transactions provided for herein; and all of such
rights will be fully enforceable by SOL after the Closing without the consent
or agreement of any other party. SOL does not believe it is or will be
necessary to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by SOL. To the extent
such software is material to operations of SOL or cannot be replaced at a
reasonable cost, any software developed or owned by SOL (except for
off-the-shelf shrinkwrapped software that is or was commercially available), or
used in the conduct of the business of SOL as presently conducted and as
currently proposed to be conducted, to SOL's knowledge, will (i) accurately
process date related information before, during and after January 1, 2000,
including accepting the date input, providing the date output, and performing
calculations on dates or portions of dates; (ii) function without interruption
before, during and after January 1, 2000 without any change in operation; (iii)
respond to two digit date input in a way that resolves any ambiguity as to
century in a defined manner; and (iv) store and provide output date information
in ways that are unambiguous as to century.
5.16. Compliance with Other Instruments. SOL is not in violation of
any term of its Articles of Incorporation or Bylaws or of any provision of any
mortgage, indenture, contract, agreement or instrument to which it is a party
or by which it or its material assets are bound; or any judgment, decree or
order binding upon SOL, which violation would have a Material Adverse Effect.
Neither the execution, delivery, and performance under, and compliance with
this Agreement, nor the issuance of the shares to be issued hereunder, will
result in any such violation or be in conflict with or constitute a material
default under any of the terms or provisions described in the first sentence of
this section, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the material properties or assets of SOL
pursuant to any such term or provision. To the knowledge of SOL, no employee of
SOL is in violation of any term of any employment contract, patent or trade
secret disclosure agreement or any other contract or agreement relating to the
right of any such employee to be employed by SOL because of the nature of the
business conducted or to be conducted by SOL.
5.17. Litigation and Other Proceedings. Except as set forth in the
Disclosure Memorandum, there are no actions, proceedings or investigations
pending against SOL (other than actions, proceedings or investigations of which
SOL has not received notice) or its properties (or, to the knowledge of SOL,
any basis therefor or threat thereof). The foregoing includes, without limiting
its generality, actions pending or, to the knowledge of SOL, threatened
involving the prior employment of any of SOL's employees or their use in
connection with SOL's business of any information or techniques allegedly
proprietary to any of their former employers.
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5.18. Employees. SOL's employees and their current annualized
compensation including all bonuses and incentive payments expected to be paid
in 1999 are listed in the Disclosure Memorandum. Except as contemplated by this
Agreement or included in the Disclosure Memorandum, SOL has no employment
contracts with any of its employees not expressly terminable at will and no
collective bargaining agreements covering any of its employees. Further, SOL
has no policies, procedures or handbooks providing for other than at-will
employment. SOL is not aware of any proposed, threatened or actual union
organization activity affecting SOL's current or prospective operations. All of
SOL's employees are subject to written agreements concerning confidentiality
and assignment of work product.
5.19. Registration Rights. SOL is not under any obligation to any
third party to register any of its presently outstanding securities or any of
its securities that may hereafter be issued pursuant to this or any other
existing agreement.
5.20. Governmental Consents. Except for the filing of the amendment
as contemplated by Section 3.2, no consent, approval or authorization of, or
registration, declaration, designation, qualification or filing with, any
governmental authority on the part of SOL is required in connection with the
valid execution and delivery of this Agreement, the offer, sale or issuance of
the shares by SOL to be issued hereunder, or the consummation of any other
transaction contemplated hereby other than as provided by applicable securities
laws.
5.21. Customers and Suppliers. All customers and suppliers to SOL
are listed in the Disclosure Memorandum. Except as disclosed in the Disclosure
Memorandum attached hereto, SOL has no knowledge that any customer or supplier
has taken, or contemplates taking, any steps that could disrupt the business
relationship of SOL with such customer or supplier, or could result in a
diminution in the value of SOL in a manner that, in either event, would have a
Material Adverse Effect on SOL.
5.22. Licenses and Permits; Compliance with Law; Environmental
Laws.
(a) SOL holds all material licenses, certificates,
permits, franchises and rights from all appropriate federal, state or
other public authorities necessary for the conduct of its business and
the use of its assets. SOL has conducted, and is presently conducting,
its business so as to comply in all material respects with all
applicable statutes, ordinances, rules, regulations and orders of any
governmental authority. SOL is not presently charged with or, to the
knowledge of SOL, under governmental investigation with respect to,
any actual or alleged violation of any statute, ordinance, rule, or
regulation. SOL is not presently the subject of any pending or
threatened adverse proceeding by any regulatory authority having
jurisdiction over its business, properties, or operations. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in the termination of any
such license, certificate, permit, franchise, or right held by SOL.
(b) SOL is in substantial compliance with all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety or emissions, discharges,
releases, threatened releases, removal, remediation or abatement of
pollutants, contaminants, chemicals or industrial, hazardous or toxic
substances or wastes into or in the environment (including, without
limitation, air, surface water, ground water or land) or otherwise
used in connection with the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, hazardous or toxic
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substances or wastes, as defined under such applicable laws
("Environmental Laws"). SOL has received all permits, licenses or
other approvals required of it under applicable Environmental Laws to
conduct its business. SOL is in material compliance with all terms and
conditions of any such permit, license, or approval.
(c) There is no substance designated a "hazardous
substance" by any Environmental Law, including asbestos, petroleum,
urea formaldehyde insulation and petroleum by-products ("Hazardous
Substance") known by SOL to be present at any of the real property
currently owned or leased by SOL; and with respect to such real
property, to the knowledge of SOL, there has not occurred any release
or any threatened release of a Hazardous Substance or any discharge or
threatened discharge of any Hazardous Substance into the ground,
surface or navigable waters, which discharge or threatened discharge
violates any federal, state, local or foreign laws, rules or
regulations concerning water pollution.
(d) SOL has not disposed of, transported or arranged for
the transportation or disposal of any Hazardous Substance where, to
SOL's knowledge, such disposal, transportation or arrangement would
give rise to liability pursuant to any Environmental Law.
5.23. Tax Matters. SOL has accurately prepared and timely filed all
income and other tax returns that are required to be filed, and has paid, or
made provision for the payment of, all taxes that have or may have become due
pursuant to said returns or pursuant to any assessment that has or may be
received from any taxing authority for the period through June 30, 1999. There
are no outstanding agreements by SOL for the extension of time for the
assessment of any tax. The United States income tax returns of SOL (if any)
have not been audited by the Internal Revenue Service. No deficiency assessment
or proposed adjustment of SOL's United States income tax or state or municipal
taxes (if any) is pending, and SOL has no knowledge of any proposed liability
for any tax to be imposed upon SOL's properties or assets for which there is
not an adequate reserve reflected in the June 30, 1999 financial statements.
5.24. Leases. The Disclosure Memorandum contains a complete and
accurate list of all leases (including any capital leases) and lease-purchase
arrangements pursuant to which SOL leases real or personal property from
others. Except as set forth in the Disclosure Memorandum, SOL's possession of
such property has not been disturbed, nor has any claim been asserted against
SOL adverse to its rights in such leasehold interests.
5.25. Indebtedness to Directors and Officers; Interested Party
Transactions. Except as disclosed on the Disclosure Memorandum, SOL is not
indebted to any of its directors or officers or party to any contract with any
affiliate of its directors or officers, and no director or officer has a claim
of any nature against SOL except for compensation due for current pay periods.
All such claims are valid, in accordance with GAAP, and have supporting
documentation. To SOL's knowledge, no officer, director or significant
shareholder of the Company or any affiliated or associated person or entity of
any such person or any entity SOL has or has had, either directly or
indirectly, (a) a material interest in any person or entity that (i) furnishes
or sells services or products that are furnished or sold or are proposed to be
furnished or sold by the Company, or (ii) purchases from or sells or furnishes
to the Company any goods or services, or (b) a beneficial interest in any
material contract or agreement to which the Company is a party or by which it
may be bound. Except as set forth on the Disclosure Memorandum, there are no
existing material arrangements or
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proposed material transactions between the Company and any officer, director or
shareholder or any affiliate or associate of any such person
5.26. Employment; No Conflicting Agreements. To SOL's knowledge,
none of its officers, directors, and key employees of SOL are obligated under
any contract (including licenses, covenants, or commitments of any nature) or
other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would conflict with his or her obligation to use
his or her best efforts to promote the interests of SOL, or that would conflict
with the business of SOL as presently, or proposed to be, conducted.
5.27. Employee Benefit Plans and Arrangements.
(a) List of Plans and Obligations. The Disclosure
Memorandum sets forth a complete and accurate list and description of
all plans, arrangements, agreements, commitments, promises and other
obligations of SOL, including but not limited to pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, sick leave without compensation,
bonus and other incentive plans, every medical, vision, dental and
other health plan, every life insurance plan and every other written
or unwritten employee program, arrangement, agreement or
understanding, commitment or method of contribution or compensation,
whether formal or informal, whether funded or unfunded, and other
obligations under which SOL has been, or will be obligated to provide
benefits to any current or former Employee, retiree, director,
independent contractor, shareholder, officer, consultant or other
beneficiary, or dependent, spouse or other family member or
beneficiary of such Employee, retiree, director, independent
contractor, shareholder, officer, consultant or other beneficiary, of
SOL whether during their employment with SOL or after the termination
of such employment (the "Plans" and the "Beneficiaries",
respectively).
(b) Compliance. To the knowledge of SOL, all of the
Plans have been maintained, funded and administered in compliance, in
all respects, with all laws, rules, and regulations including but not
limited to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and the Internal Revenue Code of 1986, as amended
and all regulations and rulings related thereto. There are no
penalties, interest or taxes related to the Plans due to any federal
or state authority.
(c) No Liabilities or Obligations. Except as reflected
on the June 30, 1999 financial statements, or as otherwise set forth
on the Disclosure Memorandum, SOL has no liabilities or obligations to
any Beneficiaries, governmental authorities or any other parties
arising out of or relating to the Plans.
(d) No Payments. Except as set forth in the Disclosure
Memorandum, the consummation of the transactions contemplated by this
Agreement will not (i) entitle any employee of SOL to any severance
pay, unemployment compensation or any other payment contingent upon a
change in control or ownership of SOL or its assets or (ii) accelerate
the time of payment or vesting or increase the amount of any
compensation or benefit due to any employee.
(e) No Multi-Employer Plans. None of the Plans are a
multi-employer plan, as defined in Section 3(37) of ERISA.
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5.28. Minute Books. The minute books of SOL provided to Phoenix
contain a complete summary of all meetings of directors and shareholders since
the time of its organization and reflect all transactions referred to in such
minutes accurately in all material respects.
5.29. Brokers. Neither SOL nor any of the officers, directors,
employees or significant shareholders of SOL has employed any broker or finder
in connection with the transactions contemplated by this Agreement.
KJS and Sole hereby represents and warrants to Phoenix as follows. These
representations and warranties shall survive the Closing and shall expire on
June 30, 2001.
5.30. Organization and Standing; Charter and Bylaws. KJS is a
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of New York and in good standing under such laws. KJS has the
requisite corporate power and authority to own and operate its properties and
assets and to carry on its business as presently conducted. The Disclosure
Memorandum contains true and accurate copies of the Articles of Incorporation
of KJS as presently in effect.
5.31. Officers and Directors. The current officers, directors, and
shareholders of KJS are listed in the Disclosure Memorandum.
5.32. Corporate Power. KJS has all requisite legal and corporate
power and authority to enter into this Agreement.
6. CONDUCT OF BUSINESS PRIOR TO CLOSING
Pending the Closing, SOL will operate and conduct its business in accordance
with reasonable practices and will not, except as required or approved by
Phoenix, make or institute any material changes in methods of purchase, sale,
management, distribution, marketing, accounting or operation. SOL shall work
closely with Phoenix and shall present a revised business plan, including
operational budget for Phoenix's approval, which will not be unreasonably
delayed or withheld. Pursuant thereto and not in limitation of the foregoing:
6.1. Maintenance of Assets, Permits, Business. SOL shall maintain
its assets in their present state of repair (ordinary wear and tear excepted),
shall use its best efforts to keep available the services of its employees,
continue in all contractual obligations in accordance with its respective terms
and preserve the goodwill, if any, of its business and relationships with the
customers, licensors, suppliers, distributors and brokers with whom it has
business relations. SOL shall maintain all permits and shall obtain any permit
or license required to conduct any of SOL's business prior to the Closing.
6.2. Notice of Disputes. SOL shall promptly advise Phoenix of the
details of any disputes, claims, actions, suits, or proceedings pertaining to
or otherwise adversely affecting SOL's business, affairs, assets, or contracts.
6.3. No Action Without Consent. SOL shall not take any of the
following actions after the date of this Agreement except with the prior
written consent of Phoenix:
(a) sell, assign, transfer or otherwise dispose of any
material assets;
(b) materially affect the carrying value of any existing
liability or enter into any arrangement to assume liabilities (except
as required in the ordinary course of business);
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(c) purchase or commit to purchase any capital asset for
a price exceeding $1,000;
(d) enter into any leasing arrangement for any real
property or any personal property;
(e) enter into or modify any contractual arrangement
with directors, officers, or managers or any material contract with
employees or consultants;
(f) increase or announce any increase of salaries, wages
or benefits for directors, officers, managers or employees (except as
required in the ordinary course of business; such as anniversary date
salary or wage increases consistent with reasonable past practice), or
hire, commit to hire or terminate any employee;
(g) amend its Articles of Incorporation or Bylaws;
(h) incur, assume or guarantee any material obligation
or liability for borrowed money, or exchange, refund or renew any
outstanding indebtedness in such a manner as to reduce the principal
amount of such indebtedness and increase the interest rate or balance
outstanding;
(i) cancel any material debts owed to it;
(j) amend or terminate any material agreement, including
any employee benefit plan (except as otherwise contemplated by this
Agreement) or any insurance policy, in force on the date hereof;
(k) solicit or entertain any offer for, sell or agree to
sell, or participate in any business combination with respect to any
of its shares;
(l) make any changes in accounting methods, principles
or practices;
(m) do any act, omit to do any act or permit any act
within its control which will cause a material breach or untruth of
any warranty or obligation contained in this Agreement or any
obligations contained in any contract;
(n) issue substitute share certificates to replace
certificates which have been lost, misplaced, destroyed, stolen or are
otherwise irretrievable, unless an adequate bond or indemnity
agreement approved by Phoenix has been duly executed and delivered to
SOL; or
(o) enter into any material contract or commitment
which, if it had been entered into prior to execution of this
Agreement, would have been required to be disclosed in the Disclosure
Memorandum.
6.4. Additional Covenants. Provided that funding is provided by
Phoenix as required under Section 3.1, SOL shall:
(a) promptly pay and discharge, or cause to be paid and
discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits,
property or business of SOL or any subsidiary; provided, however, that
any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by
appropriate proceedings, and if SOL shall have set aside on its books
adequate reserves with respect thereto; and provided, further, that
SOL shall pay all such taxes, assessments, charges or levies forthwith
upon the commencement of proceedings to foreclose any lien that may
have attached as security therefor;
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(b) promptly pay, or cause to be paid, when due, in
conformance with customary trade terms, all other indebtedness
incident to the operations of SOL and its subsidiaries, if any;
(c) keep its material properties and those of its
subsidiaries, if any, in good repair, working order and condition,
reasonable wear and tear excepted, and from time to time make all
necessary and proper repairs, renewals, replacements, additions and
improvements thereto;
(d) comply, and cause its subsidiaries, if any, to
comply, in all material respects, at all times with the provisions of
all leases to which any of SOL and its subsidiaries is a party or
under which any of them occupies real property;
(e) keep its material assets and those of its
subsidiaries that are of an insurable character insured by reputable
insurers against loss or damage by fire and explosion in amounts
customary for companies in similar businesses similarly situated; and
maintain, with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property
to the extent and in the manner customary for companies in similar
businesses similarly situated;
(f) keep true records and books of account in which
full, true and correct entries will be made in all material respects
of all material dealings or transactions in relation to its business
and affairs;
(g) duly observe and conform to, and cause its
subsidiaries, if any, to so observe and conform to, in all material
respects, all valid requirements of governmental authorities relating
to the conduct of their businesses or to their property or assets;
(h) maintain in full force and effect its corporate
existence, rights and franchises and use its commercially reasonable
efforts to maintain in full force and effect all licenses and other
rights to use patents, processes, licenses, trademarks, service marks,
trade names or copyrights owned or possessed by it or any subsidiary
and necessary to the conduct of its business;
7. PURCHASER'S REPRESENTATIONS.
7.1. Organization and Standing; Charter and Bylaws. Phoenix is a
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of Florida and in good standing under such laws.
7.2. Corporate Power. Phoenix shall use its best efforts to obtain
all requisite legal and corporate power and authority to carry out and perform
its obligations under the terms of this Agreement and all agreements to be
delivered at the Closing, including issuing the shares and options to be issued
hereunder.
7.3. Authorization. All corporate action on the part of Phoenix
and its directors, officers and shareholders necessary for the authorization,
execution, delivery and performance of all its obligations under this Agreement
and any document contemplated hereby has been (or will be) taken prior to the
Closing. This Agreement and each agreement contemplated hereunder constitutes
the valid and binding obligations of Phoenix and is or will be enforceable
against Phoenix in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the enforcement of creditors' rights generally, and except that the
availability of the remedy of specific performance or other equitable relief is
subject to the discretion of the court before which any proceeding may be
brought.
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7.4. Compliance with Other Instruments. Phoenix is not in
violation of any term of its Articles of Incorporation or Bylaws or of any
provision of any mortgage, indenture, contract, agreement or instrument to
which it is a party or by which it or its material assets are bound; or any
judgment, decree or order binding upon Phoenix, which violation would prevent
or delay Phoenix from performing under the terms of this Agreement. Neither the
execution, delivery, and performance under, nor compliance with this Agreement,
will result in any such violation or be in conflict with or constitute a
material default under any of the terms or provisions described in the first
sentence of this section.
7.5. Governmental Consents. No consent, approval or authorization
of, or registration, declaration, designation, qualification or filing with,
any governmental authority on the part of Phoenix is required in connection
with the valid execution and delivery of this Agreement, or the consummation of
any transaction contemplated hereby other than as provided by applicable
securities laws.
8. CONDITIONS TO CLOSING BY PHOENIX.
The obligation of Phoenix to complete the transaction contemplated herein at
the Closing is subject to the fulfillment to its reasonable satisfaction on or
prior to the Closing Date of the following conditions:
8.1. Representations and Warranties Correct. The representations
and warranties made by SOL herein shall be true and correct in all material
respects when made and shall be true and correct in all material respects at
the time of Closing with the same force and effect as if they had been made at
the Closing.
8.2. Performance. All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by SOL, KJS, or
the Management Group on or prior to the Closing Date shall have been performed
or complied with in all material respects. All documents required by Section
4.2 shall have been executed and delivered by the proper parties.
8.3. Filing of Charter Amendment. The amendments to SOL's articles
of incorporation shall have been properly filed with and accepted by the State
of New York Department of State prior to the Closing.
8.4. Compliance Certificate. Phoenix shall have received a
certificate executed by the President of SOL, dated the Closing Date,
certifying that the conditions specified in Sections 8.1 through 8.3 hereof
have been fulfilled.
8.5. Opinion of SOL's Counsel and Opinion of KJS' counsel. Phoenix
shall have received from counsel to SOL, in form and substance reasonably
satisfactory to Phoenix and their counsel, a favorable opinion addressed to
Phoenix, dated as of the Closing, as to the matters which are usual and
customary for such transactions. Phoenix shall have received from counsel to
KJS, in form and substance reasonably satisfactory to Phoenix and their
counsel, a favorable opinion addressed to Phoenix, dated as of the Closing, as
to the matters which are usual and customary for such transactions.
8.6. Shareholder Approval. SOL's Board of Directors and a majority
of its shareholders shall have approved the amendments to SOL's Articles of
Incorporation required by Section 3.2, and the each of the Minority
Shareholders shall have executed a Stock Rights Agreement.
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8.7. OSI Release. SOL shall have used good faith and diligent
efforts to obtain a fully executed release and settlement agreement from OSI
relating to the dispute regarding Harry Epstein's non-compete agreement.
8.8. Option Buy-Out. SOL shall have purchased and cancelled any
and all outstanding options to purchase SOL shares, including the option
granted to Steve Moore.
8.9. Corporate Approval. Phoenix shall have received the approval
of its Board of Directors to perform its obligations hereunder, including the
authority to issue the shares to be issued hereunder and pursuant to the Rights
Agreement.
9. CONDITIONS TO CLOSING BY SOL.
The obligation of SOL to complete the transactions contemplated herein
at the Closing is subject to the fulfillment on or prior to the Closing Date of
the following conditions:
9.1. Representations. The representations made by Phoenix herein
shall be true and correct when made and shall be true and correct at the time
of Closing with the same force and effect as if they had been made on and as of
the Closing.
9.2. Performance. All covenants, agreements and conditions
contained in this Agreement to be performed by or complied with by Phoenix on
or prior to the Closing shall have been performed or complied with in all
respects. All documents required by Section 4.3 shall have been executed and
delivered by Phoenix.
9.3. Compliance Certificate. SOL shall have received a certificate
executed by the President of Phoenix, dated the Closing Date, certifying that
the conditions specified in Sections 9.1 and 9.2 hereof have been fulfilled.
9.4. Opinion of Phoenix's Counsel. SOL, Sole, and KJS shall have
received from counsel to Phoenix, in form and substance reasonably satisfactory
to SOL and their counsel, a favorable opinion addressed to Phoenix, dated as of
the Closing, as to matters which are usual and customary for such transactions.
9.5. Corporate Authority. Phoenix shall have received all required
corporate authorizations necessary or required to perform its obligations
hereunder and under all of the agreements to be delivered at Closing.
10. INDEMNIFICATION
10.1. By the Management Group and Minority Shareholders. The
Management Group and SOL shall indemnify, reimburse and hold harmless Phoenix,
its affiliates and any successor or assigns (the "Indemnified Persons") for any
and all claims, losses, liabilities (actual or contingent), damages, costs
(including court costs), and expenses (including all attorneys' and
accountants' fees and expenses) (hereinafter "Loss" or "Losses"), as a result
of or in connection with any breach, inaccuracy, or untruth of any
representation or warranty by the Management Group or SOL made in this
Agreement, whether such breach, inaccuracy, or untruth exists or is made on the
date of this Agreement or as of the Closing, or as a result of or in connection
with claims made by OSI with regard to the employment of Harry Epstein. KJS
shall indemnify, reimburse, and hold harmless the Indemnified Persons for any
and all Losses as a result of or in connection with any breach of or
noncompliance by KJS or the Management Group of any covenant or agreement of
KJS contained
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in this Agreement. Notwithstanding the foregoing, no claim for indemnification
may be made by Phoenix unless and until the cumulative total of all Losses
exceeds $10,000. Once Losses exceed such amount, Phoenix may recover all
Losses. The foregoing limitation shall not apply to any Loss either
intentionally caused by SOL or which SOL had prior knowledge, including any
claim by OSI in relation to Harry Epstein. Losses shall be satisfied as
follows: (i) KJS and members of the Management Group shall transfer their SOL
shares to Phoenix to satisfy Losses; (ii) if the SOL shares owned by the
Management Group and KJS are insufficient to satisfy all Losses, the Minority
Shareholders shall transfer their SOL shares to Phoenix to satisfy Losses; and
(iii) if the SOL shares owned by the Minority Shareholders are insufficient to
satisfy all Losses, then the members of the Management Group shall each be
responsible for the balance, to the extent that they actually knew of the fact
or circumstance giving rise to the Loss. For purposes of satisfying Losses, SOL
shares shall have a value equal to $600,000 divided by the total number of SOL
shares held by the Management Group and the Minority Shareholders immediately
following the dividend contemplated by Section 3.3.
10.2. Notification. Each party undertakes to notify the others
without delay of the occurrence of any event which constitutes, or may with the
passage of time constitute, an event entitling any person to indemnification
under Section 10.1 or Section 10.6.
10.3. Notice of Claim. To seek indemnification hereunder, an
Indemnified Person shall notify SOL of any claim for indemnification,
specifying in reasonable detail the nature of the Loss and the amount or an
estimate of the amount thereof.
10.4. No Prejudice. Nothing herein shall prevent an Indemnified
Person from making a claim for a Loss hereunder notwithstanding its knowledge
of the Loss or possibility of the Loss on, prior to, or after the Closing Date.
10.5. Other Rights. The indemnities granted hereunder are in
addition to, and not in substitution for, any other right or remedy an
Indemnified Person may now have or may subsequently take or hold, and may be
enforced without first recourse to such other right or remedy and without
taking any steps or proceedings in connection therewith, and notwithstanding
any rule of law or equity or statutory provision to the contrary.
10.6. By Phoenix. Phoenix shall indemnify, reimburse and hold
harmless Sole, Powers, McGuinness, and KJS, and their respective affiliates and
successor or assigns for any and all claims, losses, liabilities (actual or
contingent), damages, costs (including court costs), and expenses (including
all attorneys' and accountants' fees and expenses) as a result of or in
connection with any breach, inaccuracy, or untruth of any representation or
warranty by Phoenix made in this Agreement, whether such breach, inaccuracy, or
untruth exists or is made on the date of this Agreement or as of the Closing
11. MISCELLANEOUS.
11.1. Expenses. Each of SOL, Sole, McGuinness, Powers, and KJS
shall bear its own expenses and legal fees (and expenses and disbursements of
its legal counsel) incurred on its behalf with respect to this Agreement and
the transactions contemplated hereby.
11.2. No Waiver. No failure of either party to exercise any of its
rights under any provision of this Agreement or waiver of any breach of the
terms of this Agreement by the other party shall be construed as waiver of such
rights or of any other breach of the same or any other provision hereof.
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11.3. Notices. All notices, requests and other communications
required or permitted to be given or delivered hereunder to either party should
be in writing, and shall be personally delivered, or sent by certified or
registered mail, postage prepaid and addressed, or by overnight courier such as
Federal Express to such party at the address shown on the first page of this
Agreement, or at such other address as shall have been furnished by notice
given in compliance with this section. All notices, requests, and other
communications shall be deemed to have been given upon delivery as evidenced by
the return receipt or delivery records of the courier.
11.4. Entire Agreement. The parties agree that this Agreement, and
all exhibits and attachments hereto contain the entire agreement between the
parties concerning the subject matter hereof.
11.5. Amendment, Waiver. This Agreement may not be amended or
altered and no rights shall be deemed waived unless such amendment or waiver is
set forth in writing and executed by all parties hereto.
11.6. Assignment. This Agreement may not be assigned by either
party without the express written consent of the other party, provided that
either party may assign all of its rights and obligations hereunder to any
successor in interest to all or substantially all of its business or assets
without such consent. This Agreement shall be binding upon and shall inure to
the benefit of each party's permitted successors and assigns.
11.7. Severability. If any provision of this Agreement should be
held to be invalid, illegal, or unenforceable, then such provision shall be
construed in such a way as to make such provision enforceable, or this
Agreement shall be construed as if such provision had never been contained
herein, and such invalidity, illegality, or unenforceability shall not affect
any other provision hereof.
11.8. Headings. The headings contained in this Agreement are for
convenience only and shall be ignored when interpreting this Agreement and
shall not be construed to alter or change any provision hereof.
11.9. Choice of Law. This Agreement shall be governed by the laws
of the State of Florida without regard to its choice of law rules.
11.10. Force Majeure. Neither party shall be in default by reason of
any failure in the performance of this Agreement (other than a failure to make
payment when due or to comply with restrictions upon the use of any
confidential information or trade secrets) if such failure arises out of any
act, event, or circumstance beyond the reasonable control of such party,
whether or not otherwise foreseeable. The party so affected will resume
performance as soon as reasonably possible.
11.11. Enforcement. If either party brings an action under this
Agreement (including an appeal), the prevailing party shall be entitled to
recover reasonable attorneys' fees and costs.
11.12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and which when taken
together shall constitute one complete instrument.
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<PAGE> 22
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
<TABLE>
<CAPTION>
Phoenix International Ltd., Inc. Servers On-Line, Inc.
<S> <C>
By: /s/ Bahram Yusefzadeh By: /s/ Kenneth J. Sole
----------------------------------------- --------------------------------------------------
Bahram Yusefzadeh Kenneth J. Sole
Chairman and Chief Executive Officer Chief Executive Officer
<CAPTION>
Management Group: Kenneth J. Sole & Associates, Inc.
<S> <C>
/s/ Kenneth J. Sole By: /s/ Kenneth J. Sole
----------------------------------------- -------------------------------------------------
Kenneth J. Sole Kenneth J. Sole
President
/s/ Richard T. Powers
------------------------------------------
Richard T. Powers
/s/ Lisa C. McGuinness
-------------------------------------------
Lisa C. McGuinness
</TABLE>
22
<PAGE> 1
EXHIBIT 10.40
CONTRACT PURCHASE AGREEMENT
Parties:
Phoenix International Ltd., Inc. ERAS JV
500 International Parkway 13822 SW 128th Street
Heathrow, FL 32746 Miami, FL 33186
(407) 548-5100 (305) 255-1452
Fax (407) 548-5296 Fax (305) 255-1741
Attention: Theodore C. Burns Attention: David L. Wilson
ERAS, Inc. TIB Software & Services, Inc.
13822 SW 128th Street 99451 Overseas Highway
Miami, FL 33186 Key Largo, FL 33037-7808
(305) 255-1452 (305) 451-4660
Fax (305) 255-1741 Fax (305) 451-2157
Attention: David L. Wilson Attention: Edward V. Lett
This Contract Purchase Agreement (the "Agreement") is entered into as
of October 21, 1999, by and between Phoenix International Ltd., Inc., a Florida
corporation ("Phoenix"), and ERAS JV ("ERAS JV"), a Florida general partnership
between ERAS, Inc., a Florida corporation ("ERAS Inc."), and TIB Software &
Services, Inc., a Florida corporation ("TIB"). Phoenix and ERAS JV are parties
to a Software License and Cooperative Marketing Agreement pursuant to which
ERAS JV has been using Phoenix's Banking System to operate an account
processing service bureau for financial institutions. Phoenix would like to
purchase ERAS JV's account processing business and related assets and ERAS JV
would like to transfer such business and assets to Phoenix. Additionally, the
parties intend to enter into a new cooperative marketing agreement whereby each
party would market the products and services of the other. Therefore, in
consideration of the mutual representations, warranties, covenants and
agreements of each party set forth below, and upon and subject to the terms and
the conditions hereinafter set forth in this Agreement, the parties do hereby
agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms shall have the following
meanings:
1.1 "Account Processing Business" means ERAS JV's business related to
account processing for financial institutions.
1.2 "Affiliates" of a particular Person means other Persons controlled by,
controlling, or under common control with, such Person.
1.3 "Assignment and Assumption Agreement" means the instrument in a form to
be negotiated and agreed by the parties and executed and delivered at the
Closing pursuant to which ERAS JV will assign the Transferred Contracts to
Phoenix or one of its Affiliates and Phoenix or one of its Affiliates will
assume the Assumed Liabilities. The Assignment and Assumption Agreement will
<PAGE> 2
provide that if Phoenix or its Affiliate materially breaches its obligations to
(i) account processing customers under the Transferred Contracts or (ii)
account processing customers which ERAS JV helps procure pursuant to the
Cooperative Marketing Agreement, and such breach is not cured within the
timeframes set forth in the applicable service contract, then such customers
and ERAS JV shall have the right to transfer account processing for such
customer or customers to ERAS JV in Miami and Phoenix or its Affiliate would
grant ERAS JV a license to the Phoenix Banking System to do such processing.
Any royalty payments remaining from Phoenix to ERAS JV for such customers would
cease. ERAS JV would also pay Phoenix a refund of the pro-rata share of the
purchase price paid for such client, if applicable. ERAS JV would also pay
Phoenix a 15% quarterly royalty on the base processing fees derived from these
clients for remainder of the initial term and subsequent renewal terms.
1.4 "Assumed Liabilities" means the liabilities of ERAS JV listed in
Exhibit A.
1.5 "Bristol" means Bristol Bank.
1.6 "Bristol Contract" means the account processing agreement between
Bristol and ERAS JV dated June 3, 1999.
1.7 "Charter Documents" means the partnership agreement for ERAS JV.
1.8 "Closing" means the consummation of the purchase and sale of the
Transferred Assets and Transferred Contracts and other transactions to be
completed under the terms of this Agreement.
1.9 "Closing Date" means the date on which the Closing occurs.
1.10 "Disclosure Memorandum" means the memorandum in a form acceptable to
Phoenix to be executed and delivered by ERAS JV and the Partners
contemporaneously with the execution and delivery of this Agreement containing
information required to be disclosed under this Agreement.
1.11 "Encumbrance" means any mortgage, charge (whether fixed or floating),
security interest, pledge, claim, right of first refusal, lien (including,
without limitation any unpaid vendor's lien), option, hypothecation, title
retention or conditional sale agreement, lease, option, restriction as to
transfer, use or possession, easement, subordination to any right of any other
person, and any other encumbrance on the absolute and unfettered use and
ownership of any asset or property.
1.12 "Financial Statements" means the financial statements relating to ERAS
JV and the Account Processing Business set forth in the Disclosure Memorandum.
1.13 "GAAP" means generally accepted accounting principles consistently
applied.
1.14 "Item Processing Business" means ERAS JV's business related to item
processing for financial institutions.
1.15 "Knowledge of ERAS JV" (or words of similar import) refers, with
respect to ERAS JV, to all those things known after due inquiry by the
Partners, and officers of ERAS JV, and after due inquiry by the supervisors and
employees of ERAS JV who reasonably should be assumed to know about the thing
or things in question.
1.16 "Partners" means ERAS Inc. and TIB.
1.17 "Relocated Assets" means those assets identified on Exhibit A which are
owned by TIB Bank and Bristol and used by ERAS JV to provide account processing
services to those entities.
2
<PAGE> 3
1.18 "Rule" means any law, statute, rule, regulation, order, court decision,
judgment or decree of any federal, state, territorial, provincial or municipal
authority or body or trade association or organization, and, when it is
commonly proper to follow them, non-compulsory recommendations of any such
public authorities and bodies.
1.19 "Tax" or "Taxes" means all forms of levies, taxes, customs and other
duties normally deemed to be of a fiscal or customs nature, including but not
limited to (a) all taxes levied, imposed or assessed under the Internal Revenue
Code of 1986, as amended, or any rule, in the U.S. or elsewhere; (b) taxes in
the nature of sales tax, consumption tax, value added tax, payroll tax, group
tax, undistributed profits tax, fringe benefits tax, recoupment tax,
withholding tax, land tax, water rates, municipal rates, stamp duties, gift
duties or other state, territorial, provincial or municipal charges or
impositions levied, imposed or collected by any governmental body; and (c) any
additional tax, interest, penalty, charge, fee or other amount of any kind
assessed, charged or imposed in relation to the non-, late, short or incorrect
payment of the same or the failure to file any return.
1.20 "TIB Bank" means TIB Bank of the Keys.
1.21 "TIB Contract" means the account processing agreement between TIB Bank
and ERAS JV dated February 23, 1998.
1.22 "Transferred Assets" means all right, title and interest of ERAS JV in,
to and under the assets listed in Exhibit A.
1.23 "Transferred Contracts" means the contracts to be transferred to
Phoenix as listed in Exhibit A.
1.24 "Transferring Employee" means each Employee of ERAS JV listed in
Exhibit A to whom Phoenix may make an offer of employment and who accepts such
offer.
1.25 "Warranty" means any representation and warranty of ERAS JV and the
Partners in this Agreement and in each certificate or other document delivered
by them or on their behalf in connection with this Agreement.
ARTICLE 2
TERMS OF TRANSACTION
2.1 Purchase and Sale of Transferred Assets. Upon the terms and subject to
the conditions of this Agreement, at the Closing Phoenix shall purchase the
Transferred Assets and Transferred Contracts from ERAS JV and ERAS JV shall
sell, transfer, and assign the Transferred Assets and Transferred Contracts to
Phoenix or an Affiliate designated by Phoenix.
2.2 Consideration. In consideration of the sale, transfer and assignment to
Phoenix of the Transferred Assets at the Closing, Phoenix shall:
(a) pay ERAS JV the sum of $305,000, plus amounts as set forth
in Section 2.4 below (the "Purchase Price") and;
(b) shall execute and deliver the Assignment and Assumption
Agreement.
2.3 Payment. The Purchase Price shall be paid at the Closing by wire
transfer or by cashier's check.
3
<PAGE> 4
2.4 Additional Consideration. If within 180 days after Closing, the term of
the TIB Contract or any successor contract to or substitute contract for the
TIB Contract is extended to run at least five years following the Closing, then
Phoenix shall pay ERAS JV an additional sum of $122,000. If within 180 days
after Closing, the guaranteed term of the account processing portion of the
Bristol Contract or any successor contract to or substitute contract for the
Bristol Contract is extended to run at least five years following the Closing,
then Phoenix shall pay ERAS JV an additional sum of $6,000. If the extension of
any contract is delayed due to an act or omission of Phoenix or a failure of
Phoenix to diligently pursue execution of a new or extended agreement, the time
period for such payment shall be extended.
2.5 Cooperative Marketing Agreement. At the Closing, Phoenix and ERAS JV
shall cancel their current Cooperative Marketing Agreement and enter into a new
five year cooperative marketing agreement (the "Cooperative Marketing
Agreement") reasonably acceptable to each party which shall provide at a
minimum for the following:
(a) ERAS JV will refer all current and future prospects for
account processing services to Phoenix.
(b) Phoenix will grant ERAS JV the exclusive right to market
Phoenix's account processing and service bureau services in the 5 South Florida
counties of Palm Beach, Broward, Dade, Monroe, and Collier. Such right shall
not preclude Phoenix from marketing in such territory directly provided that
the parties will work together on prospects registered to ERAS JV. The
Cooperative Marketing Agreement shall set forth an initial list of financial
institutions in the five named counties to be registered to ERAS JV. Phoenix
shall register additional prospects at the request of ERAS JV, provided Phoenix
is not already in discussions with such prospect and ERAS JV intends in good
faith to begin actively marketing to such prospect within a reasonable time
period. ERAS JV will be entitled to a quarterly royalty for the initial
processing term of registered prospects who sign with Phoenix (not including
the clients which are transferred to Phoenix under Section 1 above) equal to
10% of the base processing revenues generated from such clients, excluding
revenue from optional or ancillary revenues and any pass-through expenses.
(c) ERAS JV will receive a 10% royalty on all license fees
received for ancillary products sold to TIB or any subsidiary or Bristol Bank.
(d) ERAS JV will grant Phoenix a non-exclusive right to market
ERAS JV's item processing services nationwide. ERAS JV will pay Phoenix a
quarterly royalty for the initial processing term for each Phoenix Banking
System client or Phoenix Account Processing client or any client signing with
ERAS JV due in whole or in part to the marketing efforts of Phoenix equal to 7%
of the base processing revenues generated from such clients, excluding revenue
from optional or ancillary revenues and any pass-through expenses.
(e) Phoenix and ERAS JV will jointly market Phoenix's account
processing services and ERAS JV's item processing services as an integrated
solution in certain parts of the United States. As necessary to support future
business, the parties may open additional jointly operated service centers
around the U.S. Phoenix will set pricing and terms, and bear all costs
associated with the account processing business and ERAS JV will set pricing
and terms and bear all costs associated with the item processing business.
Cross-selling commissions to incent the sales force will be mutually agreed
upon, with such sales commission costs being borne by the business owner.
4
<PAGE> 5
(f) Phoenix will include ERAS JV as a preferred sub-contractor for
certain software and networking services to be offered to Phoenix clients.
(g) During the term of the Marketing Agreement and for a period of
two years thereafter, ERAS JV shall agree not to set up, fund, market, sell,
participate in, or assist a third party with any account processing service
bureau for financial institutions, except that ERAS JV shall not be prevented
from selling its software products and item processing services to any party.
In addition, ERAS JV can provide item processing services to any financial
institution that obtains account processing service bureau other than Phoenix.
2.6 Transfer of Customers. Following the Closing, ERAS JV shall assist
Phoenix in transferring the customers under the Transferred Contracts to
Phoenix. Phoenix will contract with ERAS to assist with the initial set-up of
Phoenix's Orlando data center and the relocation of the account processing
business from Miami to Orlando. Phoenix will provide all transition equipment
and software necessary to transfer customers and to facilitate testing and
readiness for such transfer. The customer transfers will occur on a mutually
agreed upon 3-day weekend, anticipated to occur in the first quarter of 2000,
subject to Phoenix's data processing center being ready. Phoenix shall pay ERAS
JV for all work done on a time and materials basis at 75% of ERAS JV's
professional service rates, but in any case not to exceed $900 per day. The
Relocated Assets are owned or licensed by TIB and Bristol and will be relocated
to Orlando. Prior to the Closing, ERAS JV shall get a consent from each of
these entities to move the Relocated Assets in conjunction with the assignment
of the Transferred Contracts.
2.7 Post Closing Space Sharing and Customer Service. Following the Closing,
Phoenix may run the Account Processing Business from ERAS JV's premises until
the customers are transferred as specified in Section 2.6. During such period,
Phoenix shall reimburse ERAS JV for reasonable allocation of the cost of ERAS
JV's space, utilities, administrative expenses, and other resources used by
Phoenix. Until Phoenix hires enough employees (including the Transferring
Employees) to operate the Account Processing Business, ERAS JV shall provide
all services under the Transferred Contracts and for other account processing
customers signed by Phoenix. All such services shall be provided pursuant to
the terms of processing agreements with such customers under the supervision
and direction of Phoenix. ERAS JV shall invoice Phoenix and Phoenix shall pay
ERAS JV for such services at ERAS JV's cost for resources provided. Phoenix
shall pay ERAS JV a rate of $500 per day for time actually spent by David
Wilson providing management services in support of such customers.
2.8 Employees. Phoenix may interview and make offers of employment to the
Transferring Employees. Those employees who accept a position with Phoenix will
be subject to relocation to Orlando under Phoenix's relocation program.
2.9 Right of First Refusal. From the time of the Closing, and only so long
as the Cooperative Marketing Agreement has not terminated ERAS JV and the
Partners agree that Phoenix shall have a right of first refusal to purchase the
partnership interests in ERAS JV and the Item Processing Business on the
following terms:
(a) Transfer of the Item Processing Business. Other than the
ordinary course of business, ERAS JV agrees not to transfer or dispose of any
or all of the Item Processing Business or any or all of the assets used by ERAS
JV to operate the Item Processing Business (for purposes of this section,
collectively the "Item Processing Business") except in accordance with the
following procedure:
5
<PAGE> 6
(i) If ERAS JV receives a bona-fide arm's-length cash
offer to purchase some or all of the Item Processing
Business, and ERAS JV desires to accept such offer ERAS JV
shall submit a written offer to sell such Item Processing
Business to Phoenix. Any such written offer shall (1)
identify the person to which ERAS JV proposes to sell the
item processing business, (2) specify the terms and
conditions, including price, of the proposed sale, and (3)
offer Phoenix the opportunity to purchase such Item
Processing Business on terms and conditions, including price,
not less favorable to Phoenix than the terms and conditions
on which ERAS JV proposes to sell such Item Processing
Business to any other purchaser.
(ii) Phoenix may elect to purchase the Item Processing
Business subject to such offer by delivering written notice
thereof to ERAS JV which, when taken in connection with the
written offer to Phoenix, shall constitute a valid, legally
binding and enforceable agreement for the sale and purchase
of the Item Processing Business covered thereby.
(iii) If Phoenix does not notify ERAS JV of its intent to
purchase the Item Processing Business subject to the offer
within 20 business days after receipt of the offer or does
not elect to purchase the Item Processing Business subject to
the offer, the offer shall be deemed to have been rejected in
its entirety and ERAS JV may sell the Item Processing
Business subject to the offer pursuant to the terms set forth
in the offer at any time within 30 days after expiration of
such notice periods. Any such sale shall be to the person
originally named in the offer as the proposed purchaser and
shall not be at a price and upon other terms and conditions,
if any, more favorable to such purchaser than those specified
in the offer. After such 30-day period, or if ERAS JV
proposes to sell its Item Processing Business to a different
purchaser, or at a lower price, or on terms and conditions
more favorable to the purchaser than those specified in the
offer, ERAS JV must first comply again with the requirements
of this Section.
(b) Transfer of the Partnership Interests. "Interest" as used in
this paragraph shall refer to any partnership interest in ERAS JV and any
voting shares of ERAS, Inc. Party refers to ERAS JV, ERAS, Inc. TIB, and David
Wilson. ERAS, Inc., TIB, and David Wilson agree not to dispose of or transfer
any Interest to anyone not a party to this Agreement, and ERAS JV and ERAS Inc.
agree not to issue to any new Interest to anyone who is not a party to this
Agreement, except as set forth below:
(i) If a Party receives a bona-fide arm's-length cash
offer to purchase an Interest and such party desires to
accept the offer; such Party shall submit a written offer to
sell such Interest to Phoenix. Any such written offer shall
(1) identify the person to which the Partner proposes to sell
or issue the partnership interest, (2) specify the terms and
conditions, including price, of the proposed sale, and (3)
offer Phoenix the opportunity to purchase such Interest on
terms and conditions, including price, not less favorable to
Phoenix than the terms and conditions on which the Party
proposes to sell or issue such Interest to any other
purchaser.
(ii) Phoenix may elect to purchase all of such Interest
subject to such offer by delivering written notice thereof to
the Party proposing to issue or sell such Interest, which,
when taken in connection with the written offer to Phoenix,
shall
6
<PAGE> 7
constitute a valid, legally binding and enforceable agreement
for the sale and purchase of the Interest covered thereby.
(iii) If Phoenix does not notify the Party of its intent to
purchase the Interest subject to the offer within 20 business
days after receipt of the offer or does not elect to purchase
all of the Interest subject to the offer, the offer shall be
deemed to have been rejected in its entirety and such Party
may sell all such Interest subject to the offer pursuant to
the terms set forth in the offer at any time within 30 days
after expiration of such notice periods. Any such sale shall
be to the person originally named in the offer as the proposed
purchaser and shall not be at a price and upon other terms
and conditions, if any, more favorable to such purchaser than
those specified in the offer. After such 30-day period, or if
a Party proposes to sell or issue an Interest to a different
purchaser, or at a lower price, or on terms and conditions
more favorable to the purchaser than those specified in the
offer, such Party must first comply again with the
requirements of this Section.
(c) Issuance of Shares to Union Bank. Notwithstanding the
foregoing, ERAS JV may issue a partnership interest to Union
Bank or to its employees without complying with the foregoing
provisions, provided that Union Bank or such employees agree
to be bound by the provision of this section.
(d) ERAS, Inc. Stock Option Plan. Noth withstanding the foregoing,
ERAS, Inc. may issue stock to its employees pursuant to any written stock option
incentive plan adopted by ERAS, Inc. for its employees.
(e) ERAS, JV Partnership Agreement. The rights of first refusal
held by TIB and ERAS, Inc. pursuant to the ERAS, JV Partnership Agreement are
superior to and take precedence over Phoenix's refusal rights set forth in
section 2.9 (b) above.
2.10 TIB Contract. Prior to the Closing, TIB Bank shall consent to the
assignment of the TIB Contract to Phoenix or one of its Affiliates. TIB Bank
and Phoenix shall use their best efforts to enter into a new processing
agreement by Closing, or as soon thereafter as possible. The new agreement will
have at a minimum the following terms:
(a) a term of five years,
(b) pricing for account processing no less favorable than under
the current TIB Contract, including a reduction in fees for each of the first
three banks implemented for live account processing by Phoenix in addition to
TIB Bank (including Bristol Bank) in the following five Florida counties: Dade,
Broward, Collier, Monroe, Palm Beach, but notwithstanding the foregoing, the
agreement shall include a minimum processing fee payable to Phoenix of $24,650
per month.
(c) pricing for monthly account processing and implementation fees
for the Internet Banking System, the Voice Response System and Safe Deposit Box
System, if requested by TIB Bank, will be no less favorable than under the
current TIB Contract,
(d) pricing for ATM Processing with the Phoenix/Mosaic Postillion
Issuer Configuration Software will equal the lesser of (i) fifty percent of the
cost savings that might be realized from renegotiating agreements with MPS that
result in shifting functionality from MPS to Phoenix, or
7
<PAGE> 8
(ii) Phoenix's monthly ATM processing fees, equal to $1,500 per month plus
$0.25 for each ATM card outstanding at the month-end in excess of 6,000 cards,
(e) there will be no additional software or hardware purchase cost
to support the Phoenix/Mosaic software,
(f) the agreement will incorporate performance standards no less
favorable than those set forth in Exhibit B,
(g) the agreement will provide that TIB Bank is responsible for
the purchase of any additional equipment or equipment upgrades which become
necessary or advisable due to an increase in TIB's Bank processing requirements
or to support additional products or services requested by TIB Bank.
2.11 Resolution of TIB Issues. Phoenix shall work with TIB Bank to address
issues relating to the TIB Contract as follows:
(a) Release 2.5. Phoenix will provide assistance as necessary for
TIB Bank and ERAS JV to implement Release 2.5 of the Phoenix System for TIB on
October 23 and 24, 1999 for live use on October 25, 1999.
(b) Offline Teller System. Phoenix will install the Offline Teller
System for TIB Bank by November 15, 1999. Prior to such installation, Phoenix
shall provide TIB Bank with SQLBase 7.0 along with the proper number of seat
licenses, at the following agreed cost, payable following acceptance:
<TABLE>
<S> <C>
11 units of SQLbase server, 5 concurrent users $13,145
Annual Support Fee $3,988/year
</TABLE>
TIB Bank shall promptly test such upgrade and install it as soon as possible
following successful completion of testing and acceptance, which will not be
unreasonably delayed or withheld. Following the installation of Release 2.5 of
the Phoenix System for TIB Bank, Phoenix shall rebuild the database for each
TIB Bank branch location that will test or run Off Line Teller.
(c) On Line ATM. Phoenix will install the Phoenix/Mosaic
Postillion Issuer Configuration Software for TIB Bank. This component is under
development and will be implemented for TIB Bank as soon as it is commercially
available, with a target installation date of March 31, 2000. This software
will provide an on-line interface to a single switch operated by MPS, at no
additional hardware or software cost to TIB.
(d) Loan Application. Phoenix agrees to focus the efforts of its
Client Services Division and Development staff to address issues that have been
identified by TIB Bank as not working with the Phoenix loan application. These
issues have been reported to Phoenix and Client Care Services Manager, Katy Sue
Lewis, who is scheduled to visit TIB Bank and work on these issues with the
appropriate bank personnel on October 27, 1999 through October 29, 1999, in
order to fully review and identify an accepted work around or fix to these
issues, and an action plan will be reasonably agreed by November 30, 1999.
2.12 The Closing.
(a) The Closing shall take place, subject to the satisfaction or
waiver of the conditions set forth herein, at 10 a.m., October 25, 1999, in the
offices of Nelson Mullins Riley & Scarborough,
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<PAGE> 9
LLP in Atlanta, GA or on such other date and at such other time and place as
the parties shall agree in writing.
(b) At the Closing, ERAS JV shall deliver to Phoenix the following
in a form reasonably acceptable to Phoenix:
(i) a legal opinion of counsel to ERAS JV concerning,
among other things, the due authorization, execution,
delivery, and enforceability of this Agreement and all other
agreements contemplated herein, the effectiveness of the
transfer of the Transferred Assets and Transferred Contracts,
and other reasonable and customary matters;
(ii) the Assignment and Assumption Agreement;
(iii) the Cooperative Marketing Agreement; and
(iv) all business and financial files and records of ERAS
JV relating to the Transferred Assets, the Transferred
Contracts, and the Transferring Employees, including payment
records, financial statements and all other information,
files and records which Phoenix may require to run the
Account Processing Business after the Closing to the same
extent as run by ERAS JV prior to the Closing. ERAS JV shall
be entitled to retain a copy of such books and records solely
for archival purposes.
(c) At the Closing, Phoenix shall deliver to ERAS JV the following
in a form reasonably acceptable to ERAS JV:
(i) the Assignment and Assumption Agreement;
(ii) the Cooperative Marketing Agreement; and
(iii) a legal opinion of counsel to Phoenix concerning, among
other things, the due authorization, execution, delivery, and
enforceability of this Agreement and all other agreements
contemplated herein, and other reasonable and customary
matters;
` (iv) the Purchase Price as set forth in Section 2.2 above
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF ERAS JV AND PARTNERS
To induce Phoenix to execute, deliver and perform this Agreement, and in
acknowledgment of Phoenix's reliance on the following Warranties, each of ERAS
JV and ERAS Inc. hereby jointly and severally represent and warrant to Phoenix
as follows as of the date hereof and as of the Closing:
3.1 Organization, Power and Authority of ERAS JV.
(a) ERAS JV is a general partnership duly formed and validly
existing under the laws of the state of Florida and has all requisite power and
authority, corporate or otherwise, to carry on and conduct its business as it
is now being conducted and to own or lease its properties and assets.
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<PAGE> 10
(b) ERAS JV is not, nor is on the point of being (i) subject to
any bankruptcy or insolvency related procedure in respect of part or all of its
assets, or (ii) involuntarily liquidated.
(c) ERAS JV is owned 30% by TIB and 70% by ERAS, Inc. ERAS Inc.
is owned by the following shareholders in the following percentages:
<TABLE>
<CAPTION>
Shareholder Percentage
----------- ----------
<S> <C>
David and Marguerite Wilson 70%
Carlos Rodriguez, Sr. 10%
Carlos Rodriguez, Jr. 10%
Richard Dailey 10%
</TABLE>
(d) The Disclosure Memorandum sets forth the name, address and
jurisdiction of organization, and percentage ownership of ERAS JV of each
Partner.
(e) The Disclosure Memorandum contains a true, complete and
correct copy of the Partnership Agreement for ERAS JV in effect on the date
hereof.
(f) The current officers and directors of ERAS JV are listed in
the Disclosure Memorandum.
(g) Except as set forth in the Disclosure Memorandum, ERAS JV has
obtained all necessary consents, approvals, authorizations, or estoppels of any
other Person or governmental or regulatory authority required to be obtained to
execute and perform under this Agreement and to authorize and permit ERAS JV to
transfer, or cause to be transferred, to Phoenix all of the Transferred Assets
and Transferred Contracts. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, have
been duly and validly authorized by all necessary action, corporate or
otherwise, on the part of ERAS JV required to take such action and will not,
without the giving of notice or the lapse of time, or both (i) violate or
conflict with any of the provisions of the any Charter Document; (ii) violate,
conflict with or result in a breach or default under or cause termination of
any term or condition of any mortgage, indenture, contract, license, permit,
instrument, trust document, or other agreement, document or instrument to which
any ERAS JV is a party or by which any ERAS JV or any of its properties may be
bound; (iii) violate any Rule; or (iv) result in the creation or imposition of
any Encumbrance upon any of the Transferred Assets, the Transferred Contracts,
or the Account Processing Business.
3.2 Compliance with Law. ERAS JV has not violated any order of any court,
governmental authority, arbitration board, or tribunal to which it is or was
subject, nor is ERAS JV in violation of any Rule, the violation of which would
have an adverse effect on any of the Transferred Assets, Transferred Contracts,
or the Account Processing Business.
3.3 Financial Matters. The Financial Statements, including the footnotes
thereto, are true, complete and correct, have been prepared in accordance with
the Accounting Standards, consistently applied, and fairly present the
financial position of ERAS JV and the Account Processing Business as of the
dates thereof and the results of their operations for the respective periods
thereof.
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3.4 Indebtedness. The Disclosure Memorandum sets forth a complete and
accurate list and description of all instruments or other documents relating to
any direct or indirect indebtedness for borrowed money of ERAS JV which relate
in any way to the Transferred Assets, Transferred Contracts, or the Account
Processing Business, including any indebtedness by way of lease-purchase
arrangements, guarantees, undertakings on which others rely in extending
credit, and all conditional sales contracts, pledges and other security
arrangements with respect to any of the Transferred Assets, Transferred
Contracts, or the Account Processing Business. Except as set forth in the
Disclosure Memorandum, ERAS JV is not in default with respect to any such
indebtedness.
3.5 No Undisclosed Liabilities. Except as and to the extent shown in the
Disclosure Memorandum, as of the date hereof, ERAS JV did not have any
liabilities or obligations whatsoever, whether accrued, absolute, contingent or
otherwise, relating to the Transferred Assets, Transferred Contracts, or the
Account Processing Business.
3.6 Tax Matters.
(a) Tax and Employee Benefit Returns. ERAS JV has correctly and
timely (i) filed all Tax and Employee Benefit returns required to be filed in
the manner required by Tax and Employee Benefit authorities, (ii) responded to
information requested by said authorities and (iii) made all Tax and Employee
Benefit payments at due dates.
(b) Other Matters. Except as set forth in the Disclosure
Memorandum: (i) ERAS JV has not entered into any transaction which could be
disregarded or recharacterized for Tax or Employee Benefit purposes on the
grounds that it aimed at the avoidance of Tax or Employee Benefit obligations;
and (ii) ERAS JV is not the subject matter of any inquiry, investigation or
audit relating to Tax or Employee Benefit matters and have not been informed of
any proposed audit.
3.7 Litigation. Except as set forth in the Disclosure Memorandum, there is
no action, suit, investigation or proceeding pending or, threatened against or
affecting ERAS JV, the Account Processing Business, the Transferred Assets, or
the Transferred Contracts before any court or by or before any governmental
body or arbitration board or tribunal, nor is there a basis for any such
action, suit, investigation or proceeding.
3.8 Assets.
(a) Description. The Disclosure Memorandum sets forth a general
description and the location of all personal property and leasehold
improvements included in the Transferred Assets.
(b) Title. ERAS JV has good, valid and marketable title to all of
the Transferred Assets, free and clear of any and all Encumbrances. After the
Closing, no Encumbrance will interfere with the use of the Transferred Assets
or the Transferred Contracts or the conduct of the Account Processing Business
as presently conducted by ERAS JV or proposed to be conducted by Phoenix. After
the Closing, Phoenix shall have good, valid and marketable title to all of the
Transferred Assets free and clear of any and all Encumbrances.
(c) Possession. All tangible Transferred Assets are on ERAS JV
premises, in their possession and control. No one else has any right, title or
interest in any of the Transferred Assets.
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(d) All Necessary Assets. The Transferred Assets are all the
assets necessary for the conduct of the Account Processing Business by Phoenix
after the Closing in the same manner as it has been conducted by ERAS JV.
(e) Condition. The tangible Transferred Assets are in good
condition and repair, in satisfactory working order, and are suitable for their
respective intended and future uses.
3.9 Suppliers and Customers. The Disclosure Memorandum contains a list of
each supplier of goods or services to ERAS JV to whom ERAS JV paid in the
aggregate more than $5,000 during the 12-month period ended September 30, 1999
in relation to the Accounts Processing Business, together with the amount paid
during such period.
3.10 Trade Secret and Employment Claims. No third party has claimed that
ERAS JV, any Partner, or any director, officer, manager, employee or agent of
ERAS JV, in respect of activities on behalf of ERAS JV or in respect of the
operation of the Account Processing Business to date, has (i) violated any of
the terms or conditions of any employment contract with a third party, (ii)
infringed any patent, trademark or copyright of a third party, (iii) disclosed
or used any trade secrets or proprietary information or documentation of such
third party, or (iv) interfered in the employment relationship between a third
party and any of his or its employees; nor has any such violation, disclosure,
use or interference occurred.
3.11 Contracts. Except as set forth in the Disclosure Memorandum:
(a) Each Transferred Contract is in full force and effect and constitutes a
binding obligation of all parties thereto, enforceable in accordance with its
terms; no Transferred Contract has been canceled or otherwise terminated, and
there is no threat to do so.
(b) There are no existing defaults or events of default, real or
claimed, or events which with notice or lapse of time or both would constitute
defaults under any Transferred Contract.
3.12 Labor Matters.
(a) ERAS JV is in compliance with all Rules respecting employment
and employment practices, terms and conditions of employment, wages and hours.
(b) ERAS JV is not nor has been engaged in any unfair labor
practice, and no unfair labor practice complaints against ERAS JV are pending
before the National Labor Relations Board or similar authority. There are no
labor strikes or other labor trouble actually pending, being threatened
against, or affecting ERAS JV; relations between management and labor are
amicable; and there have not been, nor are there presently, any attempts or
plans to organize ERAS JV's employees.
(c) There is no agreement, arrangement or understanding between
ERAS JV and any trade union, any representative of any trade union or any
bargaining unit in respect of any of the Transferring Employees.
3.13 Employees.
(a) The Disclosure Memorandum sets forth as to each Transferring
Employee his or her name, the date on which he or she was hired, the basic rate
of pay (separately listing any bonus), a true and correct estimate of each of
the Transferring Employee's accrued sick leave entitlement up to the Closing
Date, a true and correct estimate of each of the Transferring
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Employee's accrued vacation up to the Closing Date, and a true and correct
estimate of all other benefits actually or continently accruing to any
Transferring Employee as of the Closing Date. Except as set forth in the
Disclosure Memorandum, ERAS JV does not have any obligation to pay severance to
any Transferring Employee under any circumstances, contingent or otherwise.
(b) Except as set forth in the Disclosure Memorandum, ERAS JV has
not entered into any agreement with any Transferring Employee, for a fixed term
or otherwise.
(c) Since their hire, each Transferring Employees has received
normal raises (subject to normal performance criteria), and all remuneration
for shift, weekend and/or casual work has been negotiated and agreed upon with
the applicable employees on a case-by-case basis.
(d) During the last five years no significant accident or injury
to a Transferring Employee has occurred at ERAS JV.
(e) ERAS JV have made available to Phoenix all employment records
for each Transferring Employee.
(f) To ERAS JV's knowledge, no Transferring Employee is under any
obligation which would prevent or limit such employee from performing any duty
in furtherance of the Account Processing Business, including without limitation
any no-compete, no-hire, or non-solicitation obligation pursuant to any
employment or other agreement with any party.
(g) No Transferring Employee has made any claim or instituted any
action of any kind against ERAS JV or either Partner.
3.14 Employee Benefit Plans and Arrangements.
(a) Plans and Obligations. ERAS JV has maintained, funded and
administered in compliance, in all respects, with all Rules, including but not
limited to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and the Internal Revenue Code of 1986, as amended and all regulations
and rulings related thereto, all plans, arrangements, agreements, commitments,
promises and other obligations of ERAS JV, including but not limited to
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, sick leave without
compensation, bonus and other incentive plans, every medical, vision, dental
and other health plan, every life insurance plan and every other written or
unwritten employee program, arrangement, agreement or understanding, commitment
or method of contribution or compensation, whether formal or informal, whether
funded or unfunded and other obligations under which ERAS JV have been, are or
will be obligated to provide benefits to any of the Transferring Employees.
There are no penalties, interest or Taxes related to the Plans due to any
federal or state authority which would effect the Transferring Employees.
(b) No Payments. The consummation of the transactions contemplated
by this Agreement will not (i) entitle any Transferring Employee to any
severance pay or any other payment contingent upon a change in control or
ownership of ERAS JV or its assets or (ii) accelerate the time of payment or
vesting or increase the amount of any compensation or benefit due to any
Transferring Employee.
3.15 Adverse Information. Neither ERAS JV nor any Partner has withheld
information about any conditions, facts or circumstances that have had or
reasonably could be expected to have an adverse effect on the value of the
Transferred Assets, Transferred Contracts, or the Account Processing Business.
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3.16 Other Information. No representation, warranty or statement made by any
ERAS JV or Partners in this Agreement, the Disclosure Memorandum or any other
document or instrument furnished to Phoenix in connection with the transactions
contemplated herein, contains or will contain any untrue statement or omit to
state a material fact necessary to make the statements contained herein or
therein not misleading.
ARTICLE 4
CONDUCT OF BUSINESS PRIOR TO CLOSING
Pending the Closing, ERAS JV will operate and conduct the Account Processing
Business diligently and only in accordance with reasonable prior practices and
will not make or institute any material changes in methods of purchase, sale,
management, distribution, marketing, accounting or operation except with the
prior written consent of Phoenix. Pursuant thereto and not in limitation of the
foregoing:
4.1 Maintenance of Assets, Permits, Business. ERAS JV shall maintain the
Transferred Assets in their present state of repair (ordinary wear and tear
excepted), shall use its best efforts to keep available the services of the
Transferring Employees, continue in all contractual obligations under the
Transferred Contracts in accordance with their respective terms and preserve
the goodwill, if any, of the Account Processing Business and relationships with
the customers, licensors, suppliers, distributors and brokers with whom it has
business relations. ERAS JV shall maintain all ERAS JV Permits and shall obtain
any permit or license required to conduct the Account Processing Business.
4.2 Notice of Disputes. ERAS JV shall promptly advise Phoenix of the
details of any disputes, claims, actions, suits or proceedings pertaining to or
otherwise adversely affecting the Transferred Assets, Transferred Contracts, or
the Account Processing Business.
4.3 No Action without Consent. ERAS JV shall not take any of the following
actions after the date of this Agreement without the prior written consent of
Phoenix:
(a) sell, assign, transfer or otherwise dispose of any of the
Transferred Assets;
(b) subject any Transferred Asset to an Encumbrance;
(c) increase or announce any increase of any salaries, wages or
benefits for Transferring Employees, (except as required in the ordinary course
of business; such as anniversary date salary or wage increases consistent with
reasonable past practice), or hire, commit to hire or terminate any employee;
(d) amend or terminate any Transferred Contract;
(e) solicit or entertain any offer for, or sell or agree to sell,
or participate in any business combination with respect to, any of the
Accounting Processing Business;
(f) do any act, omit to do any act or permit any act within its
control which will cause a material breach or untruth of any Warranty or
obligation contained in this Agreement or any obligations contained in any
contract;
(g) take any action which would have an adverse effect on any ERAS
JV Permit.
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Neither Phoenix, nor any of its Affiliates, shall incur any liability to ERAS
JV arising out of, related to or in connection with the Phoenix's directing and
supervising the Account Processing Business under the authority of this
Section.
ARTICLE 5
COVENANTS OF THE PARTIES
5.1 Cooperation. ERAS JV and the Partners, on the one hand, and Phoenix, on
the other hand, shall cooperate fully with each other and their respective
employees, legal counsel, accountants and other representatives and advisers in
connection with the steps required to be taken as part of their respective
obligations under this Agreement; and shall, at any time and from time to time
after the Closing, upon the request of the other, do, execute, acknowledge and
deliver, or will cause to be done, executed, acknowledged and delivered, all
such further acts, deeds, assignments, transfers, conveyances, powers of
attorney, receipts, acknowledgments, acceptances and assurances as may be
reasonably required to satisfy and perform the obligations of such party
hereunder, and to allow Phoenix to operate the Account Processing Business
after Closing in the manner in which it was operated before the Closing.
5.2 Access. Prior to the Closing, ERAS JV shall (i) provide Phoenix and its
designees (officers, counsel, accountants, actuaries, and other authorized
representatives) with such information as Phoenix may from time to time
reasonably request with respect to ERAS JV and the transactions contemplated by
this Agreement; (ii) provide Phoenix and its designees complete access to the
books, records, offices, personnel, counsel, accountants, and actuaries of ERAS
JV as Phoenix or its designees may from time to time request; and (iii) permit
Phoenix and its designees to make such inspections of ERAS JV premises as
Phoenix may reasonably request. No such investigation shall limit or modify in
any way ERAS JV's or any Partner's obligations with respect to any breach,
inaccuracy or untruth of its representations, warranties, covenants or
agreements contained herein. Any information so furnished by ERAS JV or
Partners shall be true, current and complete in all respects and shall not
contain any untrue statement of a fact or omit to state a fact required to be
stated therein or necessary to make the statements therein not misleading.
5.3 Records. ERAS JV shall provide to Phoenix, as soon as is reasonably
practicable after the Closing, copies of any and all files, records or other
data in their possession or under their control in respect of or relating to
the Transferred Assets, Transferred Contracts, or the operation of the Account
Processing Business.
5.4 Expenses. Whether or not the expenses are incurred before or after the
Closing, each of the expenses incurred by Phoenix, ERAS JV, and Partners in
connection with the authorization, preparation, execution and performance of
this Agreement, including without limitation all fees, commissions, and
expenses of agents, representatives, counsel, accountants, brokers and finders,
shall be paid by the party that incurred such expenses.
5.5 Tax Matters.
(a) ERAS JV shall pay all Taxes arising from or relating to the
sale of the Transferred Assets or Transferred Contracts to Phoenix and the
other transactions contemplated by this Agreement.
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(b) ERAS JV shall file and control any returns required to be
filed by ERAS JV after the Closing Date.
(c) ERAS JV and Phoenix will cooperate and coordinate with regard
to allocation of the purchase price for tax and account purposes.
5.6 Survival of Warranties. The Warranties will not merge, but will survive
the Closing.
5.7 Indemnification.
(a) By ERAS JV and Partners. Partners and ERAS JV (the "Indemnifying
Parties") jointly and severally shall indemnify, reimburse, and hold harmless
Phoenix, its Affiliates and any successor or assigns (the "Indemnified
Persons") for any and all direct or indirect claims, losses, liabilities
(actual or contingent), damages (including special and consequential damages),
costs (including court costs) and expenses (including all attorneys' and
accountants' fees and expenses) (hereinafter "a Loss" or "Losses"), as a result
of or in connection with (i) any breach, inaccuracy or untruth of any Warranty,
whether such breach, inaccuracy or untruth exists or is made on the date of
this Agreement or as of the Closing; or (ii) any breach of or noncompliance by
ERAS JV, or any Partner of any covenant or agreement of ERAS JV or Partners
contained in this Agreement or in any other agreement or instrument delivered
in connection with this Agreement; (iii) any misstatement or omission in any
Financial Statements. Notwithstanding the foregoing, no claim for
indemnification may be made by an Indemnified Person unless and until the
cumulative total of all Losses exceeds $5,000.00. Once Losses exceed such
amount, the Indemnified Persons may recover all Losses. The foregoing
limitation shall not apply to any Loss either intentionally caused by any ERAS
JV or the Partners or of which any ERAS JV or the Partners had prior knowledge.
(b) By Phoenix. Phoenix (an "Indemnifying Party") shall indemnify,
reimburse, and hold harmless ERAS JV and the Partners, their Affiliates and any
successor or assigns (the "Indemnified Persons") for any and all direct or
indirect claims, losses, liabilities (actual or contingent), damages (including
special and consequential damages), costs (including court costs) and expenses
(including all attorneys' and accountants' fees and expenses) (hereinafter "a
Loss" or "Losses"), as a result of or in connection with any breach of or
noncompliance by Phoenix of any covenant or agreement of Phoenix contained in
this Agreement or in any other agreement or instrument delivered in connection
with this Agreement. Notwithstanding the foregoing, no claim for
indemnification may be made by the Indemnified Persons unless and until the
cumulative total of all Losses exceeds $5,000.00. Once Losses exceed such
amount, the Indemnified Persons may recover all Losses. The foregoing
limitation shall not apply to any Loss either intentionally caused by any
Phoenix or of which Phoenix had prior knowledge.
(c) Notification. The Indemnifying Parties hereby undertakes to
notify the Indemnified Persons without delay of the occurrence of any event
which constitutes or may with the passage of time constitute an event entitling
any Indemnified Person to indemnification under this Section.
(d) Notice of Claim. To seek indemnification hereunder, an
Indemnified Person shall notify the Indemnifying Parties of any claim for
indemnification, specifying in reasonable detail the nature of the Loss and the
amount or an estimate of the amount thereof.
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(e) No Prejudice. Nothing herein shall prevent an Indemnified
Person from making a claim for a Loss hereunder notwithstanding its knowledge
of the Loss or possibility of the Loss on, prior to, or after the Closing Date.
(f) Other Rights. The indemnities granted hereunder are in
addition to and not in substitution for any other right or remedy an
Indemnified Person may now have or may subsequently take or hold, and may be
enforced without first recourse to such other right or remedy and without
taking any steps or proceedings in connection therewith, and notwithstanding
any rule of law or equity or statutory provision to the contrary.
5.8 Casualty. ERAS JV shall bear the risk of any loss or damage or
destruction to any of the Transferred Assets from fire or other casualty or
cause at all times prior to the Closing. Upon the occurrence of any loss or
damage to any significant portion of such assets as a result of fire, casualty,
or other causes prior to the Closing, ERAS JV shall immediately notify Phoenix
of the same in writing, stating with particularity the extent of loss or damage
incurred, the cause thereof, if known, and the extent to which restoration,
replacement, and repair of such assets lost or destroyed will be reimbursed
under any insurance policy with respect thereto. Phoenix shall have the option,
but not the obligation, exercisable within 15 days after receipt of such notice
from ERAS JV to:
(a) Postpone the Closing until such time as such assets have been
completely repaired, replaced, or restored; or
(b) Elect to consummate the Closing and accept such assets in
their "then" condition, in which event ERAS JV shall assign to Phoenix all
rights under any insurance claim covering the loss and pay over to Phoenix any
proceeds under any such insurance policy theretofore received by ERAS JV with
respect thereto.
5.9 Funds Received After Closing. Any and all funds to which Phoenix is
entitled pursuant to this Agreement received by ERAS JV (or any party to this
Agreement other than Phoenix) after Closing in respect of the Transferred
Contracts shall be remitted to Phoenix immediately upon receipt.
5.10 No Public Announcements. Prior to Closing, without the prior written
consent of the other parties, neither Phoenix, Partners, nor ERAS JV shall make
any press release or other public disclosure, or make any statement to any
customer, supplier or other person with regard to the transactions contemplated
by this Agreement, except as required by law. After Closing, without the prior
written consent of Phoenix, neither ERAS JV nor Partners shall make any press
release or other public disclosure, or make any statement to any customer,
supplier or other person with regard to the transactions contemplated by this
Agreement, except as required by law and after consultation with Phoenix.
Notwithstanding the foregoing, ERAS JV acknowledges that Phoenix announced the
acquisition of ERAS JV at its user conference in early October, and ERA JV and
the Partners waive any and all claims any of them may have against Phoenix
arising out of such announcement, including but not limited to any claim for
any breach of this or any other agreement between the parties.
5.11 Acquisition Proposals. Prior to the Closing or termination of this
Agreement, neither ERAS JV nor the Partners shall, and shall not permit any
officer, director, employee or agent of any ERAS JV or any Affiliate thereof
(a) to solicit, initiate or encourage submission of proposals or offers, or
accept any offers, from any person relating to any acquisition or purchase of
any or all
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of the Transferred Assets, the Transferred Contracts, or the Account
Processing Business (an "Acquisition Proposal"), or (b) to participate in any
discussions or negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with or assist,
facilitate or encourage any Acquisition Proposal by any other Person.
5.12 Closing. Each of the parties shall use reasonable commercial efforts to
close the transactions contemplated herein on or before October 25, 1999, or
such other date as the parties may mutually agree upon.
5.13 Break Up Fee. In the event that the Closing does not occur by the end
of November 1999 due a breach of the terms of this Agreement or of any
obligation of Phoenix or ERAS JV to close hereunder, the breaching party shall
pay the other party a break up fee equal to $30,500.
ARTICLE 6
CONDITIONS TO OBLIGATIONS OF ERAS JV AND PARTNERS
The obligations of ERAS JV to consummate the sale of the Transferred Assets and
Transferred Contracts hereunder shall be subject to the satisfaction (or waiver
by ERAS JV) at or prior to the Closing Date of each of the following
conditions:
6.1 Litigation. No suit, investigation, action or other proceeding shall be
pending or overtly threatened before any court or governmental agency, which
has resulted in the restraint or prohibition of ERAS JV, or in the reasonable
opinion of counsel for ERAS JV could result in the obtaining of material
damages or other relief from ERAS JV, in connection with this Agreement or the
consummation of the transactions contemplated hereby.
6.2 Representations, Warranties and Covenants. Each of the
representations and warranties of Phoenix contained in this Agreement shall be
true in all respects as of the time of the Closing with the same force and
effect as though made at that time; Phoenix shall have performed and complied
in all respects with the respective covenants and agreements set forth herein
to be performed or complied with by it at or before the Closing; and Phoenix
shall have delivered to ERAS JV a certificate, signed on behalf of Phoenix by
its President or CEO to all such effects.
6.3 Execution and Delivery of Documents. Phoenix shall have delivered the
Purchase Price and executed and delivered all the documents required herein and
all other agreements, certificates and other documents delivered by Phoenix
hereunder shall be in form and substance satisfactory to counsel for ERAS JV.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF PHOENIX
The obligations of Phoenix to be performed hereunder shall be subject to the
satisfaction (or waiver by Phoenix) at or before the Closing of each of the
following conditions:
7.1 Representations, Warranties and Covenants. Each of the representations
and warranties of ERAS JV and Partners contained in this Agreement shall be
true in all respects as of the time of the Closing with the same force and
effect as though made at that time; ERAS JV and Partner shall have performed
and complied in all respects with the respective covenants and agreements set
forth herein to be performed or complied with by it at or before the Closing;
and ERAS JV and
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each Partner shall have delivered to Phoenix a certificate, signed on behalf of
ERAS JV by its President, and by each Partner to all such effects.
7.2 Litigation. No suit, investigation, action or other proceeding shall be
pending or overtly threatened before any court or governmental agency, which
has resulted in the restraint or prohibition of Phoenix, or in the reasonable
opinion of counsel for Phoenix could result in the obtaining of material
damages or other relief from Phoenix, in connection with this Agreement or the
consummation of the transactions contemplated hereby.
7.3 Execution and Delivery of Documents. ERAS JV and Partners shall have
executed and delivered all the documents required herein; and all other
agreements, certificates and other documents delivered by ERAS JV to Phoenix
hereunder shall be in form and substance satisfactory to counsel for Phoenix.
7.4 No Adverse Change. ERAS JV shall not have suffered any adverse change
in its business, prospects, financial condition, working capital, assets,
liabilities (absolute, accrued, contingent or otherwise), reserves or
operations.
7.5 Required Governmental Approvals. All governmental authorizations,
consents and approvals necessary for the valid consummation of the transactions
contemplated hereby shall have been obtained and shall be in full force and
effect. All applicable governmental pre-acquisition filing, information
furnishing and waiting period requirements shall have been met or such
compliance shall have been waived by the governmental authority having
authority to grant such waivers.
7.6 Due Diligence. Phoenix shall have completed its due diligence
concerning the Transferred Contracts, the Transferred Assets, and the Account
Processing Business to its reasonable satisfaction, and shall not have
identified any fact, circumstance, or contingency which would in Phoenix's
opinion have or likely have a material adverse effect on the value of the
Transferred Contracts, the Transferred Assets, or the Account Processing
Business.
7.7 Other Necessary Consents. ERAS JV shall have obtained the consent of
each of TIB Bank and Bristol Bank to assign the Transferred Contracts, and to
move the hardware and software used to process their accounts to Orlando.
Further, ERAS JV shall have obtained all consents listed in the Disclosure
Memorandum, and all other consents, the failure of which to obtain would have a
material adverse effect on the Account Processing Business or the Transferred
Assets. With respect to each such consent, approval and estoppel, Phoenix shall
have received written evidence, satisfactory to them, that such consent,
approval or estoppel has been duly and lawfully filed, given, obtained or taken
and is effective, valid and subsisting.
7.8 Encumbrances. All of the Transferred Assets shall be free and clear of
all Encumbrances.
ARTICLE 8
MISCELLANEOUS
8.1 Notices. All notices, requests, demands, consents and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by overnight courier or express
mail service or by postage pre-paid certified or registered mail, return
receipt requested (the return receipt constituting prima facie evidence of the
giving of such notice, request, demand or other communication), by personal
delivery, or by fax
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with confirmation of receipt to the address set forth on the first page of this
Agreement or such other address of which a party subsequently may give notice
to all the other parties.
8.2 Parties Bound by Agreement; Successors and Assigns. The terms,
conditions and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof. Without the prior written consent of Phoenix, neither Partners nor
ERAS JV may assign their rights, duties or obligations hereunder or any part
thereof to any other Person. Phoenix may assign its rights and duties hereunder
in whole or in part (before or after the Closing) to one or more Affiliates.
8.3 Entire Agreement. This Agreement, the Disclosure Memorandum and all
other certificates, schedules and other documents delivered pursuant thereto
constitute the entire agreement between the parties with respect to the
transactions contemplated hereby, and supersede and are in full substitution of
any and all prior agreements and understandings written or oral between the
parties relating to such transactions.
8.4 Descriptive Headings. The descriptive headings of the Sections of this
Agreement are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
8.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.6 Amendments and Waivers. No modification, termination, extension,
renewal or waiver of any provision of this Agreement shall be binding upon a
party unless made in writing and signed by such party. A waiver on one occasion
shall not be construed as a waiver of any right on any future occasion. No
delay or omission by a party in exercising any of its rights hereunder shall
operate as a waiver of such rights.
8.7 Governing Law, Jurisdiction and Venue. This Agreement is executed by
the parties and shall be construed in accordance with and governed by the laws
of the State of Florida.
8.8 No Third-Party Beneficiaries. With the exception of the parties to this
Agreement, their respective successors and assigns, and the Indemnified
Parties, there shall exist no right of any person to claim a beneficial
interest in this Agreement or any rights accruing by virtue of this Agreement.
8.9 Gender and Number. Where the context requires, the use of a pronoun of
one gender or the neuter is to be deemed to include a pronoun of the
appropriate gender, singular words are to be deemed to include the plural, and
vice versa.
20
<PAGE> 21
Each of the parties hereto has caused this Agreement to be duly executed on its
behalf as of the date indicated on the first page hereof.
PHOENIX: ERAS JV:
PHOENIX INTERNATIONAL LTD, INC. ERAS JV
By: /s/ Theodore C. Burns By: /s/ David L. Wilson
---------------------------- ----------------------------
Theodore C. Burns David L. Wilson
CFO President and CEO
PARTNERS:
ERAS, INC. TIB SOFTWARE & SERVICES, INC.
By: /s/ David L. Wilson By: Edward V. Lett
---------------------------- ----------------------------
David L. Wilson Edward V. Lett
President and CEO President and CEO
/s/ David L. Wilson
- -------------------------------
David L. Wilson
21
<PAGE> 1
EXHIBIT 10.41
MASTER SERVICES AGREEMENT NUMBER ____1014______
THIS MASTER SERVICES AGREEMENT NUMBER ____1014______ (this "Agreement") is
entered into as of December 14, 1999, by and between GE Capital Information
Technology Solutions--North America, Inc. ("Provider"), with an office at 4401
Vineland, Suite A15, Orlando, FL 32811, and Phoenix International, Inc.
("Customer"), with an office at 500 International Parkway, Heathrow, FL 32746.
1. SERVICE. This Agreement states the general terms and conditions upon
which Provider agrees to perform certain services ("Services") for Customer. At
the time Provider and Customer mutually agree to the particular type of Service
required, such Service shall be described in a statement of work (the
"Statement of Work") which when executed by the parties shall incorporate by
reference the terms and conditions of this Agreement. Each Statement of Work
shall be a separate agreement. In the event of a conflict between the
provisions of a Statement of Work and the provisions of this Agreement, the
provisions of the Statement of Work shall prevail. The terms and conditions of
the Statement of Work shall prevail over any conflicting, additional or other
terms appearing on any order submitted by Customer.
2. SERVICE CHARGES. The charges for the Services shall be set forth in
the Statement of Work. Payment for the Services Charges shall be due and
payable upon receipt of invoice. Customer shall pay on demand interest at the
lesser of 2% per month or the highest rate allowed by law on all invoices not
paid within thirty (30) days of receipt. Provider may adjust the charges for
service provided under a Statement of Work, effective anytime after the initial
twelve months the term of such Statement of Work, by providing at least sixty
(60) days prior written notice which may be given during the initial term.
3. TAXES. Unless customer is exempt pursuant to a valid exemption
certificate, Customer agrees to pay all sales, use, excise or other taxes that
result from any transaction under a Statement of Work whether assessed to
Customer or Provider, excluding taxes based on Provider's net income.
4. LIMITED WARRANTY AND DISCLAIMER. Provider warrants that Service under
any Statement of Work will be performed in a good and workmanlike manner. Parts
and materials, which are furnished by Provider and billed separately to
Customer, will be free from defects in workmanship and material at the time of
installation. If any failure to meet the foregoing warranty appears within
forty-five (45) days' from the date such Service or material is furnished,
Provider shall re-perform the Service, repair or replace the defective parts or
material without additional charge to Customer, or refund to Customer the
amount paid for such Service or defective parts or material. THE FORGOING SETS
FORTH THE EXCLUSIVE REMEDIES AGAINST PROVIDER FOR CLAIMS BASED ON A DEFECT IN
PRODUCTS. PROVIDER MAKES NO OTHER WARRANTIES, WHETHER WRITTEN, ORAL OR
STATUTORY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR PURPOSE, INFRINGEMENT OR THE LIKE.
<PAGE> 2
5. TERM. The initial term of this Master Services Agreement shall be
concurrent with any scope of work, work order, or statement of work issued
hereunder for work to be completed for Customer or its clients. Either party
may terminate this Master Services Agreement with 180 days' prior written
notice, but in any case not before the completion of any work under any
outstanding statement or work, work order, or scope of work, and provided all
invoices for performed services have been paid in full.
6. TERMINATION. Either party may terminate a Statement of Work if the
other party (i) after fifteen (15) days notice that any payment due hereunder
remains unpaid for more than 60 days after invoice, (ii) fails to conduct
business in the normal course, becomes insolvent, makes a general assignment
for the benefit of creditors, suffers or permits the appointment of a receiver
for its business or assets, or avails itself of or becomes subject to any
proceeding under the Federal Bankruptcy Code or any other federal or state
statute relating to insolvency or the protection or creditors, or (iii) fails
to cure any material breach of any of its other obligations, representations,
warranties or covenants hereunder within 30 days after receipt of written
notice specifying the basis for the breach.
7. INDEMNITY. Each party shall indemnify and save harmless the other
party from and against any loss, expense or claim asserted by third parties for
damage to third party tangible property, or for bodily injury, or both, related
to a Statement of Work, to the extent such damage or injury is attributable to
the negligence or willful misconduct of the indemnitor; provided, indemnitee
gives the indemnitor prompt notice of any such claim and all necessary
information and assistance so that indemnitor, at its option, may defend or
settle such claim, and indemnitee does not take any adverse position in
connection with such claim. In the event that any such damage or injury is
cause by the joint or concurrent negligence of both parties, the loss, expense
or claim shall be borne by each party in proportion to its negligence.
8. DATA RIGHTS. Provider shall retain all right, title, and interest in
and to its software, documentation, and proprietary processes, procedures,
know-how, trade secrets and confidential information, and all copyright, trade
secret, patent and other intellectual property rights contained therein,
including those which may be provided to or used for the benefit of Customer or
its customers. To the extent such proprietary products or information is
provided to Customer or included in any deliverables provided hereunder,
Provider grants the Customer or Customer's end-user a non-exclusive right to
use, reproduce, copy, and display any deliverables as necessary to use such
deliverables in the conduct of the Customer's or such end-user's business. Such
license shall be effective and perpetual once Customer has paid all fees due
for such deliverables. Customer shall retain all right, title and interest in
and to its software, documentation, and proprietary processes, procedures,
know-how, trade secrets and confidential information, and all copyright, trade
secret, patent and other intellectual property rights contained therein. The
Customer shall also exclusively own all changes, additions to, enhancements or
similar modifications of its software or documentation made by Provider in the
course of providing services to Customer hereunder.
9. EMPLOYEES. The parties enter into this Agreement as independent
contractors and neither has the authority to bind the other to any third party
or otherwise to act in any way as the
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<PAGE> 3
representative of the other, unless otherwise expressly agreed in writing
signed by both parties hereto. In particular, it is understood and agreed that
neither party nor any employee or agent of such party is eligible to
participate in or to exercise rights under any of the other party's profit
sharing, group insurance, major medical or any other compensation or benefit
plans. Provider shall be solely responsible for the payment of its employees'
compensation, including employment taxes, workers' compensation and any similar
taxes associated with employment of Provider personnel. Customer will not,
during the term of any Statement of Work and for a period of six (6) months
after any termination of all Statement of Works, directly or indirectly solicit
for employment or directly or indirectly employ any person who is an employee
of Provider or its permitted subcontractors and assignees and who has provided
Service under any Statement of Work.
10. LIMITATION OF LIABILITY. PROVIDER'S ENTIRE LIABILITY FOR ANY CLAIM,
REGARDLESS OF LEGAL THEORY, SHALL NOT EXCEED THE AMOUNTS PAID TO PROVIDER
DURING THE SIX (6) MONTHS PRECEDING THE EVENT GIVING RISE TO THE CLAIM. IN NO
EVENT SHALL EITHER PARTY BE RESPONSIBLE TO THE OTHER FOR INCIDENTAL, INDIRECT,
PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES ARISING UNDER OR IN ANY WAY
CONNECTED WITH ANY STATEMENT OF WORK EVEN IF ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. THE FOREGOING LIMITATION OF LIABILITY SHALL NOT APPLY TO CLAIMS FOR
PERSONAL INJURY OR PHYSICAL DAMAGE TO REAL OR TANGIBLE PERSONAL PROPERTY CAUSED
BY THE NEGLIGENCE OR WILLFUL MISCONDUCT OF A PARTY.
11. CONFIDENTIAL INFORMATION. Each party agrees not to disclose to third
parties or employees without a need to know, information received from the
other party which has been identified as proprietary or confidential, or which
by the nature of the circumstances surrounding disclosure, should in good faith
be treated as proprietary or confidential, including without limitation
information regarding the other party's customers, business, pricing, know-how,
documentation, manuals, or other printed material (collectively,
"Information"). In any case, Customer's information shall include all of
Customer's technology, software, code, related documentation, and all trade
secrets embodied therein, and all confidential information of Customer's
customers, including all information about their customers. Information shall
not include any information which (i) was in the public domain prior to
disclosure, (ii) comes into the public domain through no knowledge or omission
of a party, or (iii) is disclosed to a party without restriction by a third
party who has a legal right to make such disclosure.
12. ARBITRATION. If a dispute arises out of or relates to a Statement of
Work, or the breach thereof, and if said dispute cannot be settled through
direct discussions, the parties agree to first attempt to settle the dispute in
an amicable manner by mediation administered by the American Arbitration
Association under its Commercial Mediation Rules, before resorting to
arbitration. Thereafter, any unresolved controversy or claim arising out of or
relating to a Statement of Work, or breach thereof, shall be settled by
arbitration administered by the American Arbitration Association in accordance
with its Commercial Arbitration Rules, and judgment upon the Award rendered by
the
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<PAGE> 4
arbitrator(s) may be entered in any court having jurisdiction thereof. The
prevailing party in any arbitration or other action shall be entitled
reimbursement of its costs and reasonable attorneys' fees.
13. GENERAL PROVISIONS.
(A) Customer may not assign or otherwise transfer its obligations under
any Statement of Work except with the written consent of Provider, which shall
not be unreasonably withheld.
(B) Provider shall exercise commercially reasonable efforts to perform
the Services in a timely manner, but shall not be responsible for delays or
failures to perform which are due to causes beyond its reasonable control.
(C) Customer shall execute proper data back-up and recovery procedures
before and after any Service is rendered under any Statement of Work. Customer
hereby releases Provider from any liability for loss of Customer's data from
any and all causes.
(D) This Agreement shall be interpreted in accordance with the
substantive law, but not the choice of law rules, of the State of New York.
(E) No action under this Agreement may be brought by either party more
than two (2) years after the cause of action has accrued.
(F) If any provision of this Agreement is deemed, by a court of competent
jurisdiction, invalid or unenforceable, such judgement shall not invalidate or
render unenforceable the remainder of the Agreement.
(G) This Agreement constitutes the entire agreement between the parties
with respect to the subject matter, and supersedes all prior agreements and
understandings, both written and oral.
(H) Any notice, under this Agreement, shall be in writing and shall be
effective upon receipt via certified United States mail or nationally
recognized courier.
(I) All changes to this Agreement must be in writing and executed by both
parties.
(J) This Agreement and any Statement of Work may be executed in multiple
counterparts, each of which shall be deemed an original of equal force and
effect.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the day and year shown above.
CUSTOMER: PROVIDER:
PHOENIX INTERNATIONAL, INC. GE CAPITAL INFORMATION TECHNOLOGY
SOLUTIONS--NORTH AMERICA, INC.
By: /s/ Ted Burns By: /s/ David Swensen
---------------------------------- -----------------------------
Name: Ted Burns Name: David Swensen
Title: Chief Financial Officer Title: Account Executive
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<PAGE> 1
EXHIBIT 10.42
FINANCIALWARE, INC.
3535 EAST 96TH ST., SUITE 120
INDIANAPOLIS, INDIANA 46240-1411
MASTER SOFTWARE DISTRIBUTION AGREEMENT
DISTRIBUTOR: Phoenix International
-----------------------------------------------
Address: 500 International Parkway
-----------------------------------------------
Heathrow, FL 32746
-----------------------------------------------
Telephone: ( 407 ) 548 - 5150
---------- --------------- --------------------
Facsimile: ( ) -
---------- --------------- --------------------
The provisions of the Standard Terms and Conditions and
Schedules A and B are also a part of this Agreement.
Financialware, Inc. Phoenix International
-------------------------------------
DISTRIBUTOR
/s/ Charles G. Myers /s/ Raju M. Shivdasani
- ------------------------------------- -------------------------------------
Signature Signature
Charles G. Myers, President Raju M. Shivdasani, President & COO
- ------------------------------------- -------------------------------------
Printed Name and Title Printed Name and Title
July 6, 1999 June 24, 1999
- ------------------------------------- -------------------------------------
Date Date
PLEASE SIGN AND RETURN ALL COPIES.
DISTRIBUTOR COPY WILL BE RETURNED AFTER SIGNATURE BY FWI.
<PAGE> 2
MASTER SOFTWARE DISTRIBUTION AGREEMENT
STANDARD TERMS AND CONDITIONS
For purposes of this Agreement, the term "FWI" shall mean
Financialware, Inc., and "Distributor" shall mean the distributor identified on
the Signature Page of this Agreement
WHEREAS, FWI publishes computer software products including those FWI
products ("FWI Products") and third party products ("Other Products") listed on
the Signature Page, as such may be modified (collectively, the "Products").
Distributor distributes software or provides services that are complementary to
the Products. FWI and Distributor desire that Distributor act as an
independent, nonexclusive dealer in the Products.
THEREFORE, the parties agree as follows:
1. APPOINTMENT.
1.1 Scope. FWI hereby appoints Distributor, and Distributor hereby accepts
such appointment, as an independent, nonexclusive dealer in the
Products. In conjunction with such appointment, FWI grants to
Distributor a nontransferable, nonexclusive license to demonstrate and
market the Products to End-Users. "End-Users" are Distributor
customers that license from FWI a Product their own use. Distribution
to End-Users shall be pursuant to FWI's End-User license agreement
and, in the case of the Other Products, to any requirements of the
applicable third party vendors. Distributor's license does not
transfer any rights in any Product to Distributor or to any End-User
nor any right to sublicense.
1.2 Reserved Rights. FWI reserves the right, from time to time and in its
sole discretion, (a) to increase or decrease the number of authorized
distributors, (b) to distribute Products directly to independent
resellers and End-Users, or (c) to change, or to add to or delete from
the list of Products. In addition, FWI may from time to time impose
special conditions concerning Distributor's licensing of certain
Products, or change or terminate the type of service or support that
FWI makes available, after giving prior written notice to Distributor;
provided that Distributor's End-Users shall at all times during and
after the term of this Agreement be entitled to receive the same
support being provided to FWI's general customer base for the same
Products, as long as they pay the appropriate fee therefor,
1.3 Export. Distributor will be solely responsible for compliance with any
applicable export control laws or regulations, and payment of any
tariffs or other fees that may be required in connection with
distribution of any Product outside of the United States. FWI shall
have no obligation under this Agreement to directly distribute any
Product outside of the United States. All Products will be supported
in US format only. Distributor shall be solely responsible for
international returns.
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<PAGE> 3
2. PRICE.
2.1 Prices. The current FWI retail prices for the Products are as set
forth on the then-current applicable FWI published price list ("FWI
Price List"). The initial discount applicable to the Products is as
set forth on Schedule A. FWI may change the FWI retail prices on the
FWI Product Price List at any time and may change the Distributor
discount at any time; provided, however, that FWI may increase the
price of Product to Distributor only after giving thirty days prior
notice to Distributor. Payment shall be made to FWI by Distributor
pursuant to the payment policy set forth below. Distributor shall be
solely responsible for establishing the price at which Products are
licensed or sold to its End-Users. Discounts do not apply to Product
maintenance/support or training.
2.2 Payment Terms. Full payment in U.S. dollars for Products licensed to
an End User of Distributor is due and payable by Distributor to FWI
within fifteen (I5) days of date of the invoice therefor, which
invoice shall be sent at the time of Product shipment to Distributor
or when hardware is delivered to FWI for staging. Products shall be
invoiced upon an End User licensing same, and services shall be
invoiced as specified in FWI's Price List. Interest shall accrue an
any delinquent amounts owed by Distributor at the lesser of 1.5% per
month or the maximum rate permitted by law. If any portion of
Distributor's outstanding balance is aged greater than 60 days (a
"Late Payment Condition"), FWI may require full or partial payment in
advance. If a Late Payment Condition exists, FWI may cancel or suspend
shipment of all Products to Distributor and the provision of services
until the Late Payment Condition is cured.
2.3 Taxes. Distributor shall pay any taxes (other than FWI's income taxes)
which may arise by virtue of its distribution of the Products, The
prices set forth in this Agreement do not include any such taxes.
Should any tax be assessed against FWI as a result of Distributor's
distribution of the Products hereunder, Distributor agrees to pay such
tax. If, pursuant to this Agreement and at the request of Distributor,
FWI ships Products to a state that has a sales tax, Distributor agrees
to provide FWI with appropriate documentation satisfactory to the
applicable tax authorities for any claim of exemption from any sales,
use, value added or other taxes, duties or similar fees which may be
required upon delivery of Products or collection of payments due from
Distributor. Should Distributor fail to provide adequate exemption
documentation, or should any tax or levy be assessed against FWI,
Distributor agrees to pay such tax or levy and indemnify FWI for any
claim for such tax or levy.
3. SUPPORT.
3.1 Technical Support. Distributor shall provide technical support to its
End Users in accordance with FWI's support standards, which FWI may
modify from time to time. At a minimum, Distributor shall (1) provide
all assistance necessary to install the Products and (2) respond
during normal business hours to End User's questions regarding
operation of the Products. FWI shall provide reasonable consultation
to
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<PAGE> 4
Distributor regarding questions raised by End Users that Distributor's
staff cannot answer. The support shall be provided to End Users whose
Product(s) are under warranty or for which the End User has remitted
payment of the annual fee for the Product.
3.2 Training. Distributor shall, at its expense, participate in any
Distributor training and product promotion programs which FWI may
establish from time to time. Distributor shall maintain on its staff
at all times the number of trained and technically proficient
personnel necessary, and all hardware necessary, for Distributor to
market the Products and provide installation, training and technical
support to End Users.
3.3 Initial Subscription and Renewal. In connection with initial Product
license sales, Distributor shall pay FWI the applicable first year
maintenance cost pursuant to the FWI Product Price List, on behalf of
each new End-User less 15%. Renewals of support shall be solely the
responsibility of FWI and Distributor shall not have the right to sell
support to End-Users other than in connection with the initial Product
license sale. FWI's obligation to support any Distributor End-User
shall be contingent on Distributor's provision of the appropriate
End-User information to FWI pursuant to the terms of Section 4.3.
4. ORDER AND REPORTING PROCEDURES.
4.1 Purchase Orders. Purchase orders must be submitted to FWI by
Distributor in writing. All purchase orders shall be subject to
acceptance by FWI and shall not be binding until the earlier of such
acceptance or shipment, and, in the case of acceptance by shipment,
only as to the portion of the order actually shipped.
Order cancellations must be confirmed in writing.
4.2 Controlling Terms. This Agreement will apply to each order and the
provisions of Distributor's form of purchase order will not supersede
any of the terms of this Agreement.
4.3 Reporting. For each Product order filled by Distributor, and for each
training contract and professional services contract entered into by
Distributor, Distributor will, from the information it gathers from
the End-User, inform FWI, of the date and content of the order or
contract, the name, address and telephone number of the End-User(s)
for whom the order was placed, the number of network users to use any
Product, the number of active employees to be covered by any Product,
whether each End-User has subscribed to the applicable FWI support
program and such other information as FWI may reasonably request.
Failure by Distributor to use its best efforts to provide the required
End-User information will constitute a material breach of the terms of
this Agreement subject to termination pursuant hereto.
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<PAGE> 5
5. SHIPMENT.
5.1 Shipment And Risk Of Loss. FWI will ship all Products ordered directly
to the Distributor, in single or several lots, F.O.B. FWI's point of
shipment. FWI will select the carrier. Distributor will be responsible
for and pay all shipping and freight charges. All risk of loss of, or
damage to, the Products shipped will pass to Distributor upon delivery
by FWI to the carrier, freight forwarder or Distributor, whichever
comes first.
5.2 Delays. Should orders for the Products exceed FWI's available
inventory, FWI will allocate its available inventory and make
deliveries on a basis FWI deems equitable, in its sole discretion, and
without liability to Distributor on account of the method of
allocation chosen or its implementation. In any event, FWI shall not
be liable for any damages, direct, consequential, special, or
otherwise, to Distributor or to any other person for failure to
deliver or for any delay or error in delivery of the Products for any
reason whatsoever.
6. RETURNS OF PRODUCT. During the term of this Agreement, Distributor may
only return to FWI unopened Products (support not included) that have been
superseded by a new release. Upon receipt of the returned Product FWI will
exchange it for the then-current version of the same Product. Distributor will
be responsible for and pay all shipping, freight and insurance charges for all
Products returned to FWI and any Products to be returned to Distributor or an
End-User. No other returns of Product will be honored by FWI
7. INTERFACE. Distributor shall be solely responsible for any interface
between the Products and Distributor's own software products.
8. MARKETING AND SALES.
8.1 Distributor User Solicitation. FWI and Distributor will work together
in good faith to develop an announcement plan to Distributor End-Users
and for conducting joint mailings into the Distributor customer base.
FWI and Distributor will share equally in production and mailing cost
associated with mutually agreed upon incentive programs. Distributor
will handle telephone follow-up and mailing administration at no
charge to FWI.
8.2 Minimum Volume Commitment. Distributor commits to generating fees to
FWI in the amount of the MVC sat forth on the Signature page of this
Agreement, during each annual term of this Agreement. If in any annual
term Distributor fails to generate fees to FWI equal to or greater
than the MVC, Distributor shall pay to FWI at the end of each annual
term an amount equal to one hundred percent (100%) of the difference
between actual fees paid to FWI and the MVC.
8.3 Demonstration Copies. FWI will provide Distributor with demonstration
copies of each Product, free of charge, solely for use by Distributor
personnel in connection with
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<PAGE> 6
performing its obligations under this Agreement. These copies may not
be sold, licensed or modified.
8.4 Marketing Materials. Distributor shall purchase marketing collateral
from the standard FWI Price List.
8.5 Updates and New Releases. During the term of this Agreement, FWI shall
use reasonable efforts to deliver a copy of any update or new release
of the Products to Distributor prior to release of such update or new
release by FWI to its End Users for which FWI has received payment for
an active annual support and maintenance agreement.
8.6 Account Managers. FWI and Distributor shall each designate an account
manager who will be responsible for managing the sales and marketing
relationship and for providing a first line of contact on such issues.
8.7 Certification. Distributor agrees that only sales people who have been
adequately trained on FWI's Products may sell the Products.
9. DURATION AND TERMINATION OF AGREEMENT.
9.1 Term. This Agreement shall begin on the date it is signed by both
parties hereto, and shall continue until terminated as provided below.
9.2 Termination at Will. Either party may terminate this Agreement by
providing the other party with at least ninety days prior written
notice of termination.
9.3 Termination for Cause.
a. Either party will have the right to terminate this Agreement
at any time if the other party is in breach of any material
term. Such termination will become effective thirty days
after the nonterminating party's receipt of a notice of
termination in the absence of a cure during such thirty day
period.
b. Either party will have the right to terminate this Agreement
at any time if the other party (i) becomes insolvent; (ii)
discontinues its business; (iii) is merged, consolidated, or
sells all or substantially all of its assets; (iv) fails to
pay its debts or perform its obligations in the ordinary
course of business as they mature; or (v) becomes the subject
of any voluntary or involuntary proceeding in bankruptcy,
liquidation, dissolution, receivership, attachment or
composition for the benefit of creditors. Such termination
will become effective upon the nonterminating party's receipt
of a notice of termination at any time after the specified
event.
9.4 Orders After Termination Notice. In the event that any notice of
termination of this Agreement is given, FWI will be entitled to reject
all or part of any orders received
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<PAGE> 7
from Distributor after the date of such notice. Notwithstanding any
credit terms made available to Distributor prior to such notice, any
Products shipped thereafter shall be paid for by certified or
cashier's check prior to shipment.
9.5 Effect of Termination. Upon termination or expiration of this
Agreement:
a. The due dates of all outstanding invoices to Distributor for
the Products automatically will be accelerated so they become
due and payable on the effective date of termination or
expiration, even if longer terms had been provided
previously, All orders or portions thereof remaining
unshipped as of the effective date of termination will
automatically be canceled.
b. Each party shall cease using any trademark, logo or tradename
of the other and Distributor's right to market any Products
shall automatically cease and terminate, unless FWI agrees
otherwise.
c. For a period of one year after the date of termination,
Distributor shall make available to FWI for inspection all
sales records of Distributor that pertain to Distributor's
activities and compliance hereunder.
9.6 No Damages for Termination. Distributor acknowledges and agrees that
Distributor has no expectation and has received no assurances that its
business relationship with FWI will continue beyond the stated term of
this Agreement or its earlier termination in accordance with this
Section 9 and will make no claims against FWI for damages or expenses
(including damages which may arise from the loss of prospective
customers of Distributor, or expenses incurred or investments made in
connection with the establishment, development, or maintenance of
Distributor's business as a FWI distributor) in connection with any
permitted termination.
9.7 Survival. Distributor's obligations to pay FWI all amounts due
hereunder, as well as either party's obligations relating to
indemnification, warranties, disclaimers of warranty, protection of
proprietary rights and confidential information shall survive
termination of this Agreement.
10. RELATIONSHIP OF THE PARTIES. Distributor's relationship with FWI
during the term of the Agreement will be that of an independent contractor with
no power to bind FWI, or to create any obligation on behalf of FWI.
11. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement and Schedules A and B
represent the entire agreement between Distributor and FWI with respect to
their subject matter, superseding all previous communications or agreements
regarding such subject matter. This Agreement may be modified only by a writing
signed by the parties.
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<PAGE> 1
EXHIBIT 10.43
TWO-PARTY ESCROW AGREEMENT
BETWEEN
PHOENIX AND FORT KNOX
<PAGE> 2
TWO-PARTY ESCROW AGREEMENT
This Two-Party Escrow Agreement ("Agreement") is made as of this 1st
day of June, 1999, by and between Phoenix International Ltd., Inc. ("Phoenix")
and Fort Knox Escrow Services, Inc. ("Fort Knox").
Preliminary Statement. Fort Knox will act as the escrow agent for the
source code for certain of Phoenix's software listed on Exhibit B (the
"Software"). Phoenix will deliver to Fort Knox a sealed package containing the
source code and associated development level documentation necessary to permit
Phoenix's licensees to use the source code to support the Software (the "Deposit
Materials"). Phoenix desires Fort Knox to hold the Deposit Materials, and, upon
certain events, deliver the Deposit Materials for some or all of the Software
(or a copy thereof) to those persons or entities listed from time to time on
Exhibit C hereto as a licensee of Phoenix ("Licensee"), in accordance with the
terms hereof.
Now, therefore, in consideration of the foregoing, of the mutual
promises hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. Delivery by Phoenix. Phoenix shall be solely responsible for
delivering to Fort Knox the Deposit Materials as soon as practicable on CD-ROM,
magnetic tape, or other industry acceptable electronic media. Fort Knox shall
hold the Deposit Materials in accordance with the terms hereof. Fort Knox shall
have no obligation to verify the completeness or accuracy of the Deposit
Materials. Fort Knox shall not provide the Deposit Materials to any person or
entity except in accordance with the terms of this Agreement. No license is
granted to Fort Knox to use, copy, change or duplicate the Deposit Materials
except as specifically set forth in this Agreement. Phoenix shall provide Fort
Knox a list of Licensees who shall be beneficiaries of this Agreement, including
the Software licensed by each Licensee. Phoenix shall provide periodic updates
of such list to Fort Knox.
2. Duplication, Updates.
2.1. Fort Knox may duplicate the Deposit Materials by any
means in order to comply with the terms and provisions of this Agreement,
provided that the Licensee to whom a copy of the Deposit Materials is to be
delivered pursuant to the terms hereof shall bear the expense of duplication.
Alternatively, Fort Knox, by notice to Phoenix, may reasonably require Phoenix
to promptly duplicate the Deposit Materials.
2.2. Within 30 days following the delivery of any
modifications, updates, or new releases of any of the Software or updated
documentation included in the Deposit Materials to any Licensee for
implementation (excluding beta tests), Phoenix shall deliver an updated version
of such Deposit Materials ("Additional Deposit") to Fort Knox. Fort Knox shall
have no obligation to verify the accuracy or completeness of any Additional
Deposit or to verify that any Additional Deposit is in fact a copy of the
Deposit Materials or any modification, update, or new release thereof.
3. Notification of Deposits. Simultaneous with the delivery to Fort
Knox of the Deposit Materials or any Additional Deposit, as the case may be,
Phoenix shall deliver to Fort Knox a written statement specifically identifying
all items deposited, identifying the Software to which they relate, and stating
that such Deposit Materials or Additional Deposit have been inspected by Phoenix
and are complete and accurate. Fort Knox shall, within 10 business days of
receipt of any Deposit Materials, or Additional Deposit, notify Phoenix, and
each Licensee of the Software to which such Deposit Materials or Additional
Deposit relates, of such deposit. Such notifications may be made by regular U.S.
Mail.
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<PAGE> 3
4. Delivery by Fort Knox
4.1. Delivery by Fort Knox to Licensees on Notice from
Phoenix. Within 5 days after Phoenix notifies Fort Knox to effect delivery of
the Deposit Materials to a Licensee or Licensees at a specific address or
addresses, the notification being accompanied by a check payable to Fort Knox in
the amount of $100.00, Fort Knox shall deliver to such Licensee or Licensees a
copy of the Deposit Materials relating to the Software listed for each such
Licensee or Licensee(s).
4.2. Delivery by Fort Knox to Licensees on Notice from
Licensee.
(a) Licensee Notice. Any Licensee wishing to receive
a copy of any of the Deposit Materials must provide to Fort Knox:
(i) written notification that either Phoenix has
failed in a material respect to support the
applicable Software as required by any license or
support agreement ("License Agreement") between
Phoenix and any Licensee, or that any other event has
occurred which would require release of the Deposit
Materials under the terms of any License Agreement
with a Licensee, and such failure or event has not
been cured by Phoenix within the time period for cure
set forth in such License Agreement ("Phoenix
Default");
(ii) evidence satisfactory to Fort Knox that Licensee
has previously notified Phoenix of such Phoenix
Default in writing;
(iii) a written demand that the Deposit Materials be
released and delivered to Licensee;
(iv) a written undertaking from the Licensee that the
Deposit Materials being supplied to the Licensee will
be used only as permitted under the terms of the
License Agreement;
(v) specific instructions from the Licensee for this
delivery; and
(vi) an initial check payable to Fort Knox in the
amount of $100.00.
(b) Objection Notice, Delivery to Arbitration. Fort Knox
shall, within 5 business days after receipt of all the documents specified
above, send to Phoenix by certified mail a copy of all such documents. Phoenix
shall have 30 days from the date on which Phoenix receives such documents
("Objection Period") to notify Fort Knox of its objection ("Objection Notice")
to the release of the Deposit Materials to such Licensee and to request that the
issue of Licensee's entitlement to a copy of the Deposit Materials be submitted
to arbitration in accordance with Section 4.3 below.
(c) Delivery to Licensee. If, at the end of the Objection
Period, Fort Knox has not received an Objection Notice from Phoenix, then Fort
Knox shall within 10 business days deliver to the Licensee the Deposit Materials
for the Software for which Licensee is listed in accordance with the
instructions specified in paragraph 4.2(b)(v). All parties agree that Fort Knox
shall not be required to deliver the Deposit Materials until all fees then due
Fort Knox have been paid.
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4.3. Arbitration. All disputes shall be settled pursuant to
binding arbitration conducted as follows:
(a) If the Licensee is located in North, Central or South
America, the matter shall be submitted to, and settled by arbitration by a panel
of 3 arbitrators chosen by the Atlanta Regional Office of the American
Arbitration Association in accordance with the rules of the American Arbitration
Association. If the Licensee is located other than in North, Central or South
America the matter shall be submitted to, and settled by arbitration by a panel
of 3 arbitrators chosen by the International Chamber of Commerce in accordance
with their arbitration rules and procedures. The arbitrators shall apply Florida
law. At least 1 arbitrator shall be reasonably familiar with the computer
software industry. The decision of the arbitrators shall be binding and
conclusive on all parties involved, and judgment upon their decision may be
entered in a court of competent jurisdiction. All costs of the arbitration
incurred by Fort Knox, including reasonable attorneys' fees and costs, shall be
paid by Phoenix. If, however, a Licensee refuses to submit to such binding
arbitration, the matter shall not be submitted to arbitration and Fort Knox may
submit the matter to any court of competent jurisdiction in an interpleader or
similar action in accordance with paragraph 6(a) hereof.
(b) Phoenix may, at any time prior to the commencement of
arbitration proceedings, notify Fort Knox that Phoenix has withdrawn the
Objection Notice. Upon receipt of any such notice from Phoenix, Fort Knox shall
reasonably promptly deliver the Deposit Materials to the Licensee in accordance
with the instructions specified in paragraph 4.2(a)(v).
4.4. Delivery by Fort Knox to Phoenix. Fort Knox shall release
and deliver the Deposit Materials to Phoenix upon termination of this Agreement
in accordance with paragraph 7(a) hereof.
5. Indemnity. Phoenix shall indemnify and hold harmless Fort Knox and
each of its directors, officers, agents, employees and stockholders ("Fort Knox
Indemnities") absolutely and forever, from and against any and all claims,
actions, damages, suits, liabilities, obligations, costs, fees, charges, and any
other expenses whatsoever, including reasonable attorneys' fees and costs, that
may be asserted against any Fort Knox Indemnitee in connection with this
Agreement or the performance of Fort Knox or any Fort Knox Indemnitee hereunder.
6. Disputes and Interpleader.
6.1. Unless required to be submitted to arbitration as set
forth above, in the event of any dispute between any of Fort Knox, Phoenix
and/or any Licensee relating to delivery of the Deposit Materials by Fort Knox
or to any other matter arising out of this Agreement, Fort Knox may submit the
matter to any court of competent jurisdiction in an interpleader or similar
action. Any and all costs incurred by Fort Knox in connection therewith,
including reasonable attorneys' fees and costs, shall be borne by Phoenix.
6.2. Fort Knox shall perform any acts ordered by any court of
competent jurisdiction, without any liability or obligation to any party
hereunder by reason of such act.
7. Term and Renewal.
7.1. The initial term of this Agreement shall be 2 years,
commencing on the date hereof (the "Initial Term"). This Agreement shall be
automatically extended for an additional term of one year ("Additional Term") at
the end of the Initial Term and at the end of each Additional Term hereunder
unless, on or before 90 days prior to the end of the Initial Term or an
Additional Term, as the case may be, either party notifies the other party that
it wishes to terminate the Agreement at the end of such term.
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7.2. In the event of termination of this Agreement in
accordance with paragraph 7(a) hereof, Phoenix shall pay all fees due Fort Knox
and shall promptly notify all Licensees that this Agreement has been terminated
and Fort Knox shall return to Phoenix all copies of the Deposit Materials then
in its possession.
7.3. In the event of termination of this Agreement, Fort Knox
shall destroy the Deposit Materials and Phoenix shall promptly notify all
Licensees that this Agreement has been terminated.
8. Fees. Phoenix shall pay to Fort Knox fees in accordance with Exhibit
A as compensation for Fort Knox's services under this Agreement.
8.1. Payment. Fort Knox shall issue an invoice to Phoenix
following execution of this Agreement ("Initial Invoice"), on the commencement
of any Additional Term hereunder, and in connection with the performance of any
additional services hereunder. Payment is due upon receipt of invoice. All fees
and charges are exclusive of, and Phoenix is responsible for the payment of, all
sales, use and like taxes. Fort Knox shall have no obligations under this
Agreement until the Initial Invoice has been paid in full by Phoenix.
8.2. Nonpayment. In the event of non-payment of any fees or
charges invoiced by Fort Knox, Fort Knox shall give notice of non-payment of any
fee due and payable hereunder to Phoenix and, in such an event, Phoenix shall
have the right to pay the unpaid fee within 10 days after receipt of notice from
Fort Knox. If Phoenix fails to pay in full all fees due during such 10-day
period, Fort Knox shall give notice of non-payment of any fee due and payable
hereunder to the Licensee(s) and, in such event, the Licensee(s) shall have the
right to pay the unpaid fee within 30 days of receipt of such notice from Fort
Knox. Upon payment of the unpaid fee by either Phoenix or the Licensee(s), as
the case may be, this Agreement shall continue in full force and effect until
the end of the applicable term. Failure to pay the unpaid fee under this
paragraph 8(b) by both Phoenix and the Licensee(s) shall result in termination
of this Agreement.
9. Ownership of Deposit Materials. Fort Knox and Phoenix recognize and
acknowledge that ownership of the Deposit Materials shall remain with Phoenix at
all times.
10. Available Verification Services. Upon receipt of a written request
from any Licensee, Fort Knox and such Licensee may enter into a separate
agreement pursuant to which Fort Knox will agree, upon certain terms and
conditions, including payment of additional fees by Licensee, to inspect the
Deposit Materials for the purpose of verifying its relevance, completeness,
currency, accuracy and functionality ("Technical Verification Agreement"). Upon
written request from Phoenix, Fort Knox will issue to Phoenix a copy of any
written technical verification report rendered in connection with such
engagement. If Fort Knox and Licensee enter into such Technical Verification
Agreement, Phoenix shall reasonably cooperate with Fort Knox by providing its
facilities, computer systems, and technical and support personnel for technical
verification whenever reasonably necessary. If requested by any Licensee,
Phoenix shall permit one employee of such Licensee to be present at Phoenix's
facility during any such verification of the Deposit Materials.
11. Miscellaneous.
11.1. Remedies. Except for intentional misrepresentation,
gross negligence or intentional misconduct, Fort Knox shall not be liable to
Phoenix for any act, or failure to act, by Fort Knox in connection with this
Agreement. Any liability of Fort Knox regardless of the cause shall be limited
to the
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amount of fees exchanged under this agreement. Fort Knox will not be
liable for special, indirect, incidental or consequential damages hereunder.
11.2. Natural Degeneration; Updated Version. In addition, the
parties acknowledge that as a result of the passage of time alone, the Deposit
Materials are susceptible to loss of quality ("Natural Degeneration"). It is
further acknowledged that Fort Knox shall have no liability or responsibility to
any person or entity for any Natural Degeneration. For the purpose of reducing
the risk of Natural Degeneration, Phoenix shall deliver to Fort Knox a new copy
of the Deposit Materials at least once every three years.
11.3. Permitted Reliance and Abstention. Fort Knox may rely
and shall be fully protected in acting or refraining from acting upon any notice
or other document believed by Fort Knox in good faith to be genuine and to have
been signed or presented by the proper person or entity. Fort Knox shall have no
duties or responsibilities except those expressly set forth herein.
11.4. Independent Contractor. Fort Knox is an independent
contractor, and is not an employee or agent of either Phoenix or any Licensee.
11.5. Amendments. This Agreement shall not be modified or
amended except by another agreement in writing executed by the parties hereto.
11.6. Entire Agreement. This Agreement, including all exhibits
hereto, supersedes all prior discussions, understandings and agreements between
the parties with respect to the matters contained herein, and constitutes the
entire agreement between the parties with respect to the matters contemplated
herein. All exhibits attached hereto are by this reference made a part of this
Agreement and are incorporated herein.
11.7. Counterparts; Governing Law. This Agreement may be
executed in 2 counterparts, each of which when so executed shall be deemed to be
an original and both of which when taken together shall constitute one and the
same Agreement. This Agreement shall be construed and enforced in accordance
with the laws of the State of Georgia.
11.8. Confidentiality. Fort Knox will hold and release the
Deposit Materials only in accordance with the terms and conditions hereof, and
will maintain the confidentiality of the Deposit Materials.
11.9. Notices. All notices, requests, demands or other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be delivered by hand or by commercial overnight
delivery service which provides for evidence of receipt, or mailed by certified
mail, return receipt requested, postage prepaid, and addressed as follows:
(a) If to Phoenix: to the address listed on the signature page
hereof
(b) If to Fort Knox:
Fort Knox Escrow Services, Inc.
2100 Norcross Parkway, Suite 150
Norcross, GA 30071 USA
E-mail: [email protected]
Attn: Contracts Administrator
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If delivered personally or by commercial overnight delivery service,
the date on which the notice, request, instruction or document is delivered
shall be the date on which delivery is deemed to be made, and if delivered by
mail, the date on which such notice, request, instruction or document is
received shall be the date on which delivery is deemed to be made. Any party may
change its address for the purpose of this Agreement by notice in writing to the
other parties as provided herein.
11.10. Survival. Paragraphs 5, 6, 8, 9 and 11 shall survive
any termination of this Agreement.
11.11. No Waiver. No failure on the part of any party hereto
to exercise, and no delay in exercising any right, power or single or partial
exercise of any right, power or remedy by any party will preclude any other or
further exercise thereof or the exercise of any other right, power or remedy. No
express waiver or assent by any party hereto to any breach of or default in any
term or condition of this Agreement shall constitute a waiver of or an assent to
any succeeding breach of or default in the same or any other term or condition
hereof.
IN WITNESS WHEREOF each of the parties has caused its duly authorized
officer to execute this Agreement as of the date and year first above written.
FORT KNOX ESCROW SERVICES, INC.
By: /s/ Glen S. Bryman
------------------------------------------
Title: Director of Sales
PHOENIX
By: /s/ Raju Shivdasani
------------------------------------------
Print Name: Raju Shivdasani
Title: President and Chief Operating Officer
Address: 500 International Parkway
Heathrow, Florida 32746
Phone: (407) 548-5100
Fax: (407) 548-5296
E-Mail: [email protected]
--------------------------
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EXHIBIT 10.44
COMMERCIAL APPLICATION PARTNER (CAP) AGREEMENT
This Agreement is made effective November 1, 1996 between SYBASE, INC.
("Sybase") with offices at 6475 Christie Avenue, Emeryville, California 94608
(or SYBASE CANADA LIMITED, with offices at I Robert Speck Parkway; Suite 800,
Mississauga, Ontario, Canada L4Z 3M3), and Phoenix International Ltd, Inc
("Partner"), with offices at 900 Winderly Pl. Suite 140 Maitland FL 32751.
1. LICENSE GRANT. Subject to the terms and conditions below, Sybase grants to
Partner a nonexclusive and nontransferable license to market and distribute
copies of unmodified object code versions of those Sybase and/or Powersoft
software products identified in the attached initialed Schedules along with
accompanying documentation ("Programs") to Partner's customers ("End-Users") who
will use the Programs only for their own internal business purposes in the
applicable Territory described in each Schedule A, provided that the Programs
are distributed for use with computer application programs developed by Partner
for commercial distribution to more than one third party and containing
significant added functionality over the Programs ("Application Software").
Partner shall license to each End-User the same number of copies of the Programs
and the same number of Seats/Named Users for such Programs as Partner licenses
to such End-User for its Application Software. In addition to being able to
distribute "full use" copies of the Programs, "full use" Seats and "full use"
Named Users, Partner may also distribute, with respect to certain Programs
identified in Sybase's then-current price list, Application Deployment Copies,
Application Deployment Seats and Application Deployment Named Users (which are
restricted licenses defined in the Sybase license agreement accompanying each
copy of the Program ("Sybase Shrinkwrap")). Partner may also sell to End-Users
certain Sybase services as described in the Schedule(s). Notwithstanding the
above, if the Territory includes any of the Prohibited Countries set forth in
Sybase's then current "Prohibited Country List" (a current copy of which has
been provided to Partner), Partner may not market or distribute Programs for use
in such Prohibited Countries. The CAP shall not be authorized to use or allow
its End-Users to use the Programs for timesharing, rental or service bureau
purposes or on behalf of any third party. In connection with the distribution
rights granted above, Partner may appoint distributors to distribute the
Programs to End-Users within the Territory. The appointment of distributors
shall be by contracts which require that the distributor market the Programs
only in accordance with the terms of this Agreement and on a basis which
protects the proprietary interests of Sybase in and to the Programs to the same
extent that Partner's proprietary interests in its own products are protected
(but in any event no less than a reasonable extent). Partner may order under
this Agreement (a) copies of the Programs for its own internal production
purposes and/or developing and supporting the Application Software ("Internal
Use Copies"), (b) copies of the Programs which may only be used for developing
and supporting the Application Software ("Development Copies"), (c) copies of
the Programs which may be distributed to End-Users for evaluation purposes and
for up to the number of days designated in the applicable Schedule A, after
which they must be returned to Partner ("Evaluation Copies"), and (d) up to that
number of copies of the Programs shown on Schedule A for purposes of Partner
providing demonstrations and training for the Application Software
("Demonstration Copies"). Partner is authorized to incorporate into the
documentation for the Application
<PAGE> 2
Software portions of the documentation for the Program to the extent such
portions are necessary to document usage of the Program in conjunction with the
Application Software.
2. FEES AND PAYMENT TERMS. For the first year of this Agreement, Partner shall
be responsible for paying to Sybase a non-refundable program fee shown in
Schedule A ("Initial Fee"). The Initial Fee is due upon execution of this
Agreement by Partner. For each additional year, a non-refundable annual program
renewal fee ("Annual Renewal Fee") as set forth in such Schedule is due and
payable upon each anniversary of the date of this Agreement. Fees as set forth
in the attached Schedule(s) shall be due to Sybase for each copy of the Programs
ordered by Partner for an End-User and for each Internal Use Copy; such fees
shall be based on Sybase's then-current price list for the country in which the
Programs are to be used ("Price List"). The license fee for Development Copies
is the same as the fee for Internal Use Copies unless Sybase designates
otherwise in its Price List. The license fee for Demonstration Copies, if any,
is set forth in the Schedule(s). Notwithstanding the above, there is no charge
for authorized Evaluation Copies distributed to End-Users. License fees for
Internal Use Copies, Development Copies, Demonstration Copies, and copies of the
Programs which Sybase ships to Partner for distribution to End-Users shall be
due and payable to Sybase with Partner's order for the Programs or, upon Sybase
credit approval of Partner, 30 days after the date of Sybase's invoice for the
Programs. Any past-due invoice may subject Partner to credit hold at the sole
discretion of Sybase. All fees under this Agreement are stated in United States
dollars.
3. OWNERSHIP. Programs are owned by Sybase or its licensors and are protected by
copyright law, trade secret laws and international conventions. All rights in
and to patents, copyrights, trademarks and trade secrets in the Programs are and
shall remain with Sybase and its licensors. No title to or ownership of the
Programs is transferred to Partner or End-User. Partner shall not translate,
localize or modify any portion of the Programs without the prior written consent
of Sybase.
4. ORDERING AND DELIVERY. Internal Use Copies, Development Copies, Demonstration
Copies, Evaluation Copies and copies of the Programs for distribution to
End-Users shall be ordered from Sybase and delivered by Sybase to Partner (or in
the case of Evaluation Copies and copies for distribution to End-Users, Sybase
shall deliver the copies directly to the End-Users if so instructed by Partner).
Partner will use the "Exhibit A" form adopted by Sybase from time to time (or a
Purchase Order containing the same information) to order Programs from Sybase.
All shipments are FOB origin, and Partner is responsible for all shipping
charges. Except for taxes on Sybase's income, Partner shall be responsible for
any sales, use, excise or any other form of taxes resulting from this Agreement.
5. LICENSE ACCOMPANYING PROGRAMS. If Partner uses the Programs, Partner agrees
to be bound by the terms and conditions of the Sybase Shrinkwrap.
Notwithstanding the above, Development Copies and Demonstration Copies shall
only be used for the purposes outlined in Section 1 above and shall be returned
to Sybase upon expiration or termination of this Agreement. Partner shall ensure
that the End-User's use of the Programs is either subject to the terms and
conditions of (a) the Sybase Shrinkwrap or (b) an executed license agreement or
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<PAGE> 3
shrinkwrap agreement between Partner and End-User which is substantially similar
to, and no less restrictive in protecting Sybase's interests than, the Sybase
Shrinkwrap. If Evaluation Copies are being licensed, the Sybase Shrinkwrap or
license agreement between Partner and End-User (as applicable) shall be modified
by a written commitment from End-User to use the Programs for a period not to
exceed the number of days designated in the applicable schedule to this
Agreement. If a conflict arises between this Agreement and any such license
agreement, the terms of this Agreement shall prevail. Partner shall undertake
reasonable efforts to enforce the terms of any license agreement between Partner
and an End-User as it relates to the Programs.
6. REPORTS. Partner shall keep or cause to be kept full and accurate accounts
and records of all transactions made by it and by its authorized distributors
under this Agreement (including Evaluation Copies) in form such that all amounts
owing hereunder to Sybase may be readily and accurately determined. Partner
shall undertake to assure that its distributors are (a) accurately reporting to
Partner all sales to End-Users and (b) otherwise complying with this Agreement.
Partner shall allow Sybase to examine its records to determine compliance with
this Agreement. Any examination shall be at the expense of Sybase, shall occur
during regular business hours at Partner's offices and shall not interfere
unreasonably with Partner's regular activities. Sybase shall give Partner 30
days or more prior written notice of the date of each such examination and the
name of the accountant who will be conducting the examinations. All information
obtained from conducting the examinations shall be maintained as Confidential
Information. Partner agrees to pay Sybase any amounts owing as a result of
Partner's non-compliance with the payment provisions of this Agreement within 30
days of the date of the examination report which details such non-compliance. In
the event such amounts owed by Partner to Sybase exceeds 5% of total royalties
due, Partner shall pay the costs of such examination.
7. SUPPORT & MAINTENANCE. Partner shall be solely responsible for providing
End-User technical support and service of warranty claims for Partner's
Application Software, including the Programs, provided that Partner may also
sell Sybase technical support services for the Programs only, on the terms
described in the attached Schedules. Partner may distribute to End-Users to whom
it has licensed Application Deployment Copies of a Program updates to such
Program which am made generally available by Sybase so long as Partner has paid
Sybase all applicable Application Deployment Maintenance Fees.
8. INDEPENDENT CONTRACTORS. Partner and Sybase are independent contractors and
are not agents or representatives of each other. Partner does not have the right
to bind Sybase and shall not misstate or misrepresent its relationship to
Sybase.
9. ADVERTISING; TRADEMARKS. Sybase may identify Partner as a Commercial
Application Partner in Sybase advertising and marketing materials, Partner shall
not make any representations concerning the Programs which are inconsistent with
Sybase's marketing materials and advertising. Partner may utilize applicable
Sybase trademarks and logos only in accordance with Sybase's then-current
published guidelines, and trademarks shall remain the exclusive property of
Sybase or its licensors. Partner shall suitably feature the Programs and
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<PAGE> 4
related trademarks and Sybase's ownership of the Program in any advertising,
marketing literature, product documentation and packaging of the Application
Software. Partner shall give appropriate recognition in the Application Software
of Sybase's proprietary rights in the Programs in the same manner, places and
times and no less conspicuously than the recognition of the proprietary rights
of others including Partner in the Application Software.
10. TERM AND RIGHTS UPON TERMINATION. This Agreement will become effective as of
the date first shown above and shall continue in force for a period of 3 years,
subject to (a) Partner's payment of all fees owing hereunder, or (b) termination
under Section 11 below. Thereafter, this Agreement shall automatically renew for
additional one-year terms subject to payment of Sybase's then-current Annual
Renewal Fee and provided that Partner is not then in default of this Agreement,
unless written notice of termination is given by either party at least 30 days
prior to the expiration of the term then in effect. No expiration or termination
of this Agreement shall impair or affect (i) Internal Use Copies, which shall
continue so long as Partner is not in breach of the Sybase Shrinkwrap or (ii)
copies of Programs distributed by Partner to End-Users in accordance with this
Agreement prior to the effective date of the expiration or termination of this
Agreement. All Demonstration Copies shall be returned to Sybase. Termination or
expiration shall not release either party from its liability to pay any fees
accruing prior to the date of the termination or expiration. Sections 3, 5, 10,
11, 12, 13, 14 and 18 of this Agreement shall survive any expiration or
termination of this Agreement.
11. DEFAULT. Either party may immediately terminate this Agreement or any
license granted hereunder by written notice to the other if such other party
breaches any term or condition of this Agreement, including but not limited to
failure to pay when due any fee hereunder, and does not remedy such breach
within 30 days of written notice thereof from the non-breaching party. Each
party will reimburse the other party for all reasonable costs incurred by the
other party (including attorneys' fees) in collecting past due amounts
hereunder. Any breach which by its nature cannot be remedied shall entitle the
non-breaching party to terminate this Agreement immediately upon written notice
to the other party. This remedy shall not be an exclusive remedy and shall be in
addition to any other remedies which the non-breaching party may have under this
Agreement or otherwise.
12. CONFIDENTIAL INFORMATION. Each party will not disclose or use any business
and/or technical information of the other designated orally or in writing as
"Confidential" or "Proprietary" (together, "Confidential Information") without
the prior written consent of the other party. Such restrictions do not extend to
any item of information which (a) is now or later becomes available in the
public domain without the fault of the receiving party; (b) is disclosed or made
available to the receiving party by a third party without restrictions and
without breach of any relationship of confidentiality; (c) is independently
developed by the receiving party without access to the disclosing party's
Confidential Information, (d) is known to the recipient at the time of
disclosure, or (e) is produced in compliance with applicable law or court order,
provided that the disclosing party is given reasonable notice of such law or
order and an opportunity to attempt to preclude or limit such production. Upon
termination or expiration of this Agreement, each party shall immediately return
all copies of Confidential Information received from the other party. Partner
shall not release the results of any
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benchmark of the Programs to any third party without the prior written approval
of Sybase for each such release.
13. DISCLAIMER OF WARRANTY; LIMITATION OF LIABILITY. Except as expressly
provided in the Sybase Shrinkwrap, NO EXPRESS OR IMPLIED WARRANTY OR CONDITION
IS MADE WITH RESPECT TO THE PROGRAMS OR SERVICES SUPPLIED BY SYBASE OR ITS
SUBSIDIARIES, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. The aggregate liability to
Sybase and its subsidiaries, if any, for any losses or damages arising out of or
in connection with this Agreement, whether the claim is in contract, tort or
otherwise, shall not exceed the amount paid by Partner to Sybase under this
Agreement for the affected Programs or services. UNDER NO CIRCUMSTANCES SHALL
SYBASE, ITS SUBSIDIARIES OR ITS LICENSORS BE LIABLE FOR SPECIAL, INDIRECT,
EXEMPLARY, INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED
TO, LEGAL FEES, LOSS OF PROFITS, LOSS OR INACCURACY OF DATA OR LOSS RESULTING
FROM BUSINESS DISRUPTION, EVEN IF SYBASE HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
14. INDEMNIFICATION. Partner indemnifies and holds harmless Sybase, its
affiliates, directors, employees and agents from all third party claims,
including court costs and reasonable fees of attorneys and expert witnesses,
arising in connection with (a) a breach by Partner of its agreement with an
End-User or distributor (unless such breach was caused by Sybase's breach of
this Agreement or the Sybase Shrinkwrap), or (b) use of the Application Software
if liability is not caused by the Programs as provided by Sybase. Sybase
indemnifies and holds harmless Partner, its affiliates, directors, employees and
agents from all third party claims, including court costs and reasonable fees of
attorneys and expert witnesses, arising in connection with (i) a breach by
Sybase of the Sybase Shrinkwrap or (ii) use of the Programs as provided by
Sybase if liability is not caused by the Application Software.
15. EXPORT RESTRICTION. Partner shall not transfer, directly or indirectly, any
restricted Programs or technical data received from Sybase or its subsidiaries,
or the direct product of such data, to any destination subject to export
restrictions under U.S. law, unless prior written authorization is obtained from
the appropriate U.S. agency.
16. ASSIGNMENT. This Agreement may not be assigned (by operation of law or
otherwise) or otherwise transferred in whole or in part by Partner unless
Partner has received prior written permission from Sybase, such permission not
to be unreasonably denied by Sybase. To the extent Partner is permitted to
assign this Agreement, all provisions of this Agreement shall be binding upon
Partners successors or assigns.
17. NOTICES. All notices under this Agreement shall be in writing and either
delivered personally, sent by first class mail, express carrier or by confirmed
facsimile transmission to the address of the party set forth above (and if to
Sybase, to the attention of the General Counsel). All notices shall be deemed
given on the business day actually received.
5
<PAGE> 6
18. OTHER. This Agreement, the initialed Schedules, and any documents explicitly
referred to therein, constitute the entire agreement between the parties,
supersede any and all previous agreements authorizing Partner to distribute the
Programs to third parties and no representation, condition, understanding or
agreement of any kind, oral or written, shall be binding upon the parties unless
incorporated herein. This Agreement may not be modified or amended, nor will the
rights of either party be deemed waived, except by an agreement in writing
signed by authorized representatives of Partner and Sybase. Purchase orders
shall be binding as to the products and services ordered, and the site for
delivery of Programs or performance of services as set forth on the face side of
or a special attachment to the purchase order. Other terms and preprinted terms
on or attached to any purchase order shall be void. This Agreement shall be
governed by, and construed in accordance with, the laws of California if Partner
is located in the United States and the laws of Ontario if Partner is located in
Canada without regard to their conflict of laws rules or the United Nations
Convention on the International Sale of Goods. If any provision of this
Agreement is held to be unenforceable, the parties shall substitute for the
affected provision an enforceable provision which approximates the intent and
economic effect of the provision. The parties have requested that this Agreement
and all documents contemplated hereby be drawn up in English. For Quebec
Province transactions: Les parties aux presentes ont exige que cette entente et
tous autres documents envisages par les presentes soient rediges en anglais.
6
<PAGE> 7
Accepted and agreed on behalf of:
<TABLE>
<S> <C>
Phoenix International Ltd, Inc. ("Partner") Sybase, Inc. ("Sybase")
(or Sybase Canada Limited, if applicable)
/s/ Ralph Reichard /s/ Meg-Ann Meaney
- --------------------------------------------- ------------------------------------------
(Authorized Signature) (Authorized Signature)
Ralph Reichard
- --------------------------------------------- ------------------------------------------
(Printed Name) (Printed Name)
Meg-Ann Meaney
President 11/1/96 Sales Support Manager
- --------------------------------------------- -----------------------------------------
(Title) (Date) (Title) (Date)
</TABLE>
7
<PAGE> 1
EXHIBIT 13.1
PHOENIX INTERNATIONAL 1999 ANNUAL REPORT
<PAGE> 2
PHOENIX INTERNATIONAL
Table of Contents
<TABLE>
<S> <C>
Company Profile 1
Letter to Shareholders 2
Selected Financial and Operating Data 8
Management's Discussion and Analysis 9
Consolidated Balance Sheets 16
Consolidated Statements of Operations 17
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows 19
Notes to Consolidated Financial Statements 20
Report of Independent Auditors 31
Officers and Directors 32
Corporate Information Inside Back Cover
</TABLE>
<PAGE> 3
PHOENIX INTERNATIONAL
Company Profile
Phoenix International, based in Orlando, Florida, is a leading provider of
installed client/server core banking and e-commerce solutions for the financial
services industry. Phoenix's flagship product is the Phoenix System, a powerful
and flexible client/server-based system designed to allow financial institutions
to better serve their customers and meet their business and financial
objectives. Among Phoenix's complementary product offerings are: Phoenix
Intranet, a rapid intranet development tool; Phoenix Web Services, which include
website development, maintenance, and hosting; and Phoenix Internet Banking, an
integrated online and real-time Internet banking application. Phoenix also
offers the use of the Phoenix System in an outsourced service bureau environment
through its newly acquired application service centers. In addition, Phoenix
offers clients a full complement of professional and systems integration
services.
The common stock of Phoenix International is traded on The Nasdaq National
Market under the symbol PHXX.
[MAP of the world showing locations of operations of Phoenix with the following
sentence printed below it:]
The Phoenix System has been licensed by over 90 institutions in 29 states in the
United States, and by over 50 institutions in 24 other countries.
1
<PAGE> 4
PHOENIX INTERNATIONAL
To our shareholders:
1999 was a challenging year for Phoenix International. We had many operating
successes in 1999 that will shape our company in 2000 and beyond. While our
financial results did not meet our expectations, we believe our fundamental
business strategy is sound and we intend to build upon our solid foundation and
advance our position as a leader in installed client/server-based core
processing solutions for the financial services industry. Our goal for 2000 is
to return the company to higher growth levels and earnings performance and to
meet our primary objective as a public company - to build value for our
shareholders. This Annual Report, while communicating last year's results, will
also focus on Phoenix's underlying strengths and our future market potential.
The past year was difficult for providers of core software solutions for
financial institutions, including Phoenix. For most of 1999, new technology
purchase decisions were put on hold while banks addressed Year 2000 issues. Even
though the Phoenix System is Year 2000 compliant, conservative regulatory and
management policies regarding system changes prevented many potential United
States customers from changing their core banking systems prior to the year
2000. We witnessed similar conservative behavior by financial institutions in
many of the foreign markets in which we do business. While frustrating, we
believed that this situation would be temporary and remained focused on our core
strategy and on building our infrastructure for the future. With 1999 behind us,
we are optimistic that sales of core application software will return to more
normal levels in 2000, and that Phoenix will be prepared to capitalize on the
opportunities before us. We have witnessed some positive indications in our
sales pipelines and we are encouraged about our prospects. In addition, our
backlog, or contracted but unrecognized revenue, increased last year, with $39.9
million recorded at the end of 1999 compared with $35.9 million at the end of
the 1998.
During the past several years, the Internet has and will continue to
significantly alter the financial services landscape as it has in most every
other industry. It has ushered in a historic shift in the way we work, the way
we communicate, and the way we transact business. More specifically, Internet
technologies have empowered consumers to demand faster and more convenient
delivery channels for goods and services, including financial services. Simply
put, financial institutions have to change the way they do business to remain
competitive. In today's world, managing a financial institution means managing
technology. Now, more than ever, financial institutions need the right
technology to be competitive and those who have put off technology investments
need to catch up. As a result, we believe there will be an increase in the
demand for new technology and we believe that Phoenix is well-positioned to meet
this demand.
2
<PAGE> 5
PHOENIX INTERNATIONAL
Investing for the Future
Throughout 1999, we continued to invest in Phoenix and in our products. We
stayed in touch with our clients and prospects in order to understand their
needs and enable us to better serve them. Our strategy has been to continue to
invest in the future to ensure our clients are positioned to take advantage of
future market opportunities and maximize their technology investments. Over the
past year, we continued to invest heavily in our infrastructure - from enhancing
our implementation and training capabilities to strengthening our commitment to
research and development for future products to improving our quality assurance
programs. We believe these initiatives send a message to the market about the
value of our technology and our commitment to the future of Phoenix.
Commitment to Our Customers
We entered 2000 with over 140 financial institutions around the world that have
been licensed to operate the Phoenix System. In 1999, we completed a record 37
implementations, a significant increase over the 25 banks converted in 1998. We
believe this demonstrates the strength of our operations and our ability to
support a growing client base. One of the key factors that enabled us to reach
this milestone was our initiative to expand our implementation and training
capacity and improve client satisfaction levels. In 1999 we focused on expanding
the depth and breadth of our implementation staff, developed cross-training
programs, and enhanced our pre- and post- conversion training efforts. Inherent
in this strategic initiative is our philosophy to approach every client
relationship as an alliance. Further evidence of the success of this strategic
initiative was the positive feedback we received from our clients about our
products and services at our annual PHOCUS users conference in Orlando. Our
commitment to offer advanced technology and enhance the long-term value of the
Phoenix System is an essential component of our operating strategy, and we are
confident that our products and services will continue to receive favorable
recognition in the global marketplace.
Maintaining Technology Leadership
From our inception, our goal has always been to offer the best technology
solutions to our clients. As we enter 2000 our commitment to leverage the
strength of the Phoenix System by maintaining our technology leadership is as
strong as ever. More importantly, an integral part of our business strategy is
to continue to drive the evolution of our products to meet the technology
requirements of our clients. At Phoenix, we are mindful of our client's needs to
offer their customers the latest products and services. As such, we have
continued to expand
Our strategy has been to continue to invest in the
future to ensure our clients are positioned to take
advantage of future market opportunities and
maximize their technology investments.
3
<PAGE> 6
PHOENIX INTERNATIONAL
Our commitment to offer advanced technology and
enhance the long-term value of the Phoenix System is
an essential component of our operating strategy, and
we are confident that our products and services will
continue to receive favorable recognition in the global
marketplace.
our efforts to bring clients the latest technological innovations that are
revolutionizing the banking industry. In 1999 we released new versions of the
Phoenix System, one for our United States clients and a separate version for our
international clients. In addition, we delivered enhanced versions of our trade
finance product to international clients in seven countries. In the United
States, we completed an enhanced version of our Internet banking product, which
has been licensed to over 40 institutions worldwide, and we believe that the
demand for this product will accelerate in 2000. In addition, we are currently
developing additional product enhancements that are slated for release in 2000.
Global Market Opportunities
Phoenix extended its geographic reach in 1999 as financial institutions in the
United States and around the globe embraced our technology. In the United States
the Phoenix System has been licensed by over 90 institutions in 29 states,
ranging in size from start up, or "de novo," banks to large and established
financial institutions, confirming the flexibility and scalability of our
product. In 1999 we entered a number of new international markets including
Jamaica, Saudi Arabia, the Philippines, and Namibia, further strengthening our
position as a global provider of client/server-based core banking solutions. At
the end of 1999, the Phoenix System was licensed to over 50 institutions located
in 24 countries outside the United States. We continue to focus on identifying
opportunities in new markets to replace the aging "legacy" software systems
still in use by many international financial institutions. We believe the
Phoenix System offers the functionality and performance value banks need to be
competitive in today's global marketplace.
As a result of a strategic alliance with Data Action and Siemens Business
Services, we made significant inroads into the Australian credit union
marketplace in 1999. To further support this effort, we established a new,
full-scale application development center in Sydney, Australia, designed to
serve the technology needs that are unique to the Asia-Pacific financial
marketplace. The Sydney center replicates our United States development center
model and is fully staffed with software designers, developers, documentation
specialists, and quality assurance professionals responsible for developing new
products and services for the region, ensuring the
4
<PAGE> 7
PHOENIX INTERNATIONAL
quality of our international code line, and providing a full range of regional
client care services. We believe there is a tremendous opportunity in this
important region to offer the Phoenix System to a new segment of the global
financial services market. We will continue to focus on offering financial
institutions in the United States and around the world what we believe to be the
right solution to meet their changing technology needs.
e-Commerce Initiatives
One of our most exciting new initiatives is our e-commerce strategy, which we
believe will be an important driver of our future performance. Because of the
architectural strengths of our technology platform, the Phoenix System already
provides financial institutions with the foundation to facilitate e-commerce and
other advanced service delivery solutions such as Internet banking. Financial
institutions can leverage the flexibility of our open architecture and fully
integrated, customer-centric design to take advantage of enhanced product
choices and convenient delivery channels. In 1999, Phoenix also began offering
Intranet development services to empower the bank's desktop and serve as an
important internal communications tool. We introduced web development and
hosting services for financial institutions that want to create a transactional
website and establish an Internet presence. By utilizing Phoenix's Internet
banking product, which is fully integrated with our core system, a financial
institution can offer customers on-line, real-time Internet banking services. In
2000, we intend to introduce "aggregator" services that will allow our financial
institution clients to offer additional on-line services to their customers,
such as insurance and brokerage services. Using these technology based,
value-added services, our clients will be able to generate additional
non-interest income opportunities, both an important financial objective and
competitive advantage in today's financial marketplace.
Toward the end of 1999, we acquired two application service centers, or "ASCs",
through which we now offer comprehensive data processing services using the
Phoenix System. The ASCs allow us to bring the power and flexibility of the
Phoenix System to smaller institutions and to institutions which are not
interested in running their own data processing operations, a significant
segment of the United States market which we had not previously addressed. We
estimate that as many as 50% of United States financial institutions prefer to
outsource their information technology operations rather than manage this
function in-house. In addition to expanding our market, the ASC model should
provide recurring revenue
We will continue to focus on offering financial
institutions in the United States and around the
world what we believe to be the right solution to meet
their changing technology needs.
5
<PAGE> 8
PHOENIX INTERNATIONAL
BUILDING STRONG RELATIONSHIPS WITH OTHER LEADING
TECHNOLOGY COMPANIES AND THIRD-PARTY VENDORS HAS
ENHANCED OUR ABILITY TO EXTEND OUR GLOBAL REACH,
PROVIDE SUPPORT ON A LOCAL BASIS, AND DELIVER ADVANCED
SOLUTIONS FOR THE BENEFIT OF OUR CLIENTS.
which we believe is an important factor for our revenue model.
The opening of these ASCs in New York and Florida is an important component of
Phoenix's e-commerce strategy. Under the ASC model, a financial institution will
have access to the Phoenix System as well as a gateway to a wide range of
e-commerce and other innovative banking solutions. With the ability to handle an
institution's core account processing, ancillary services, Internet banking, and
web hosting, we believe that Phoenix is uniquely positioned to offer an
integrated "front-to-back" customer information management solution which we
believe represents a compelling value proposition for financial institutions in
today's market.
Strategic Alliances
Throughout 1999, we continued to position Phoenix for the future by
strengthening our strategic alliances. Building strong relationships with other
leading technology companies and third-party vendors has enhanced our ability to
extend our global reach, provide support on a local basis, and deliver advanced
solutions for the benefit of our clients. As part of our ongoing strategy to add
value to our core banking software offerings, we entered into a strategic
alliance with Financialware, Inc., a Microsoft Certified Solution Provider that
develops Windows-based imaging solutions. Under this agreement, Phoenix can
offer its clients a full suite of document imaging, archive, and delivery
technologies.
We established another key relationship in 1999 with SunGard Recovery Services
to provide Phoenix clients with an array of business and disaster recovery
services, including hot sites, cold sites, disaster recovery planning and
consulting, electronic vaulting, network recovery, and mobile data centers.
SunGard has an outstanding reputation for successful business recovery services
and we are confident that they will provide Phoenix clients with the highest
level of contingency planning and recovery services to protect their information
asset investments.
We have also established a relationship with GE Capital Information Technology
Solutions North America, a leading provider of network consulting, acquisition,
and implementation service. Pursuant to our arrangement, GE will assist our
customers in the design, acquisition, establishment, and maintenance of their
networks, including hardware, software and
6
<PAGE> 9
PHOENIX INTERNATIONAL
communication systems, freeing Phoenix to focus on the delivery and
implementation of its products.
We believe that these new strategic alliances, in addition to other existing
alliances, serve not only to strengthen our service offering, but also send a
clear message to the market that Phoenix and its products have gained favorable
recognition among some of the world's leading technology providers.
Commitment to Our Vision
Phoenix is extremely fortunate to be supported by very dedicated people who have
continued to support the company and our vision. Our clients, alliance partners
and employees all played a pivotal role in an unusual and difficult year for
Phoenix and the financial services technology industry. With their support, we
faced our toughest challenges head-on with a strong conviction that we would
prevail. From the leadership of our senior management team to the dedication of
our staff, Phoenix employees continue to be the foundation of our confidence in
our future prospects. We are grateful for their valued contributions and for the
continued support of our clients and their belief in our mission and vision for
the future. Finally, as a shareholder, we thank you for your investment in
Phoenix and the confidence in our future that your investment represents.
Our goal for 2000 is to leverage the investments in infrastructure, products and
people that we made in 1999 to help us to regain our momentum. We are committed
to our mission and to growth of value for our shareholders. We will continue to
focus on our objectives and strive to achieve greater results for our clients,
our employees, our strategic alliance partners, and our investors.
Thank you for your ongoing support.
Sincerely,
/s/ Bahram Yusefzadeh
Bahram Yusefzadeh
Chairman and Chief Executive Officer
/s/ Raju M. Shivdasani
Raju M. Shivdasani
President and Chief Operating Officer
[PHOTO]
7
<PAGE> 10
PHOENIX INTERNATIONAL
SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
Eleven months
Year ended Year ended Year ended Year ended ended
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995(1)
- ----------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Revenues:
License fees and other $ 7,749,923 $ 16,034,499 $ 12,664,491 $ 6,827,699 $ 3,467,547
Implementation, customer and software
support and other service fees 11,901,279 9,903,709 5,178,543 3,577,848 1,556,164
--------------------------------------------------------------------------------
Total revenues 19,651,202 25,938,208 17,843,034 10,405,547 5,023,711
Expenses:
Cost of license fees and other 4,103,952 1,693,769 1,594,711 674,037 375,783
Cost of implementation, customer and
software support and other service fees 9,108,984 6,356,617 3,886,878 2,272,710 1,246,886
Sales and marketing 5,295,021 4,440,521 3,264,055 1,377,353 983,290
General and administrative 6,200,858 4,561,586 2,743,100 1,822,871 1,058,190
Product development 10,451,006 6,869,311 3,274,238 1,760,691 654,797
---------------------------------------------------------------------------------
Total expenses 35,159,821 23,921,804 14,762,982 7,907,662 4,318,946
Other income (expense):
Interest income 1,013,490 1,698,308 799,676 223,548 121,815
Interest expense (43,958) (57,102) (52,376) (19,231) (12,060)
Other income (expense) (34,860) 82,407 133,656 (2,242) (4,252)
---------------------------------------------------------------------------------
Income (loss) before minority interest and
income taxes (14,573,947) 3,740,017 3,961,008 2,699,960 810,268
Minority interest 54,248 -- -- -- --
---------------------------------------------------------------------------------
Income (loss) before income taxes (14,519,699) 3,740,017 3,961,008 2,699,960 810,268
Income tax expense 1,155,470 1,309,006 920,492 481,666 255,999
---------------------------------------------------------------------------------
Net income (loss) $(15,675,169) $ 2,431,011 $ 3,040,516 $ 2,218,294 $ 554,269
=================================================================================
Net income (loss) per share-basic $ (1.84) $ 0.29 $ 0.45 $ 0.43 $ 0.13
=================================================================================
Net income (loss) per share-diluted $ (1.84) $ 0.27 $ .41 $ 0.40 $ 0.12
=================================================================================
Weighted average shares outstanding-basic 8,518,323 8,378,784 6,698,317 5,110,173 4,394,276
=================================================================================
Weighted average shares outstanding-diluted 8,518,323 8,865,782 7,329,383 5,572,680 4,543,877
=================================================================================
OTHER DATA
Total product development expenditures(2) $ 20,506,714 $ 11,705,993 $ 5,132,271 $ 2,966,515 1,788,172
Total personnel(3) 372 368 193 124 87
Implemented customers(4) 101 64 39 27 12
Backlog(5) $ 39,900,000 $ 35,900,000 $ 21,200,000 $ 6,800,000 $ 7,300,000
</TABLE>
<TABLE>
<CAPTION>
At
---------------------------------------------------------------------------------
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
<S> <C> <C> <C> <C> <C>
Current assets $ 14,688,465 $ 29,605,489 $ 31,905,572 $ 9,174,111 $ 1,533,053
Total assets 44,523,804 59,502,573 52,157,495 12,083,167 3,228,289
Current liabilities 9,569,354 5,515,343 4,417,543 2,309,150 3,796,391
Long-term obligations 472,517 357,299 595,821 190,000 --
Total shareholders' equity (deficit) 34,481,933 50,811,992 45,835,131 9,584,017 (568,102)
</TABLE>
(1) During 1995 Phoenix 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) The total of capitalized software development costs, product development
expenses and purchased software.
(3) All personnel, including contract workers and part-time employees.
(4) Customers that have used a Phoenix product to support daily operations. Does
not reflect mergers.
(5) Contract value of executed license and service agreements minus revenues
recognized from those contracts.
See accompanying notes to consolidated financial statements.
8
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PHOENIX INTERNATIONAL
Management's Discussion and Analysis
You should read this discussion in conjunction with our consolidated financial
statements and related notes, which are included elsewhere in this Annual Report
and you should read our Disclosure Regarding Forward Looking Statements
beginning on page 15 of this Annual Report.
REVENUES
Our revenues are derived primarily from two sources: (1) license fees for our
software products, principally the Phoenix System, and commissions and other
fees from the sale of third party software and hardware products; and (2) fees
for services, which include implementation services, custom programming,
training, interface development for third party products, ongoing software
support, and Internet/Intranet consulting services.
During 1997, we recognized revenues in accordance with AICPA Statement of
Position 91-1, Software Revenue Recognition. During 1998 and 1999, we recognized
revenues in accordance with Statement of Position 97-2, Software Revenue
Recognition issued by the American Institute of Certified Public Accountants, or
the "AICPA," as such statement was amended by Statements of Position 98-4 and
98-9. In accordance with Statement of Position 97-2, as amended, we recognize
software license fee revenue upon execution of a contract and delivery of the
software, provided that the license fee is fixed and determinable, the software
is functional without significant modification, and collection is considered
probable by management. If a software license agreement does not meet such
requirements, then contract accounting is applied to the entire agreement.
We recognize service fee revenues as the services are performed. When we receive
advance payments for services, we defer recognition of the revenue until the
services are performed. We invoice support services in advance and recognize the
revenue over the related service period.
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 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.
MARKETS
We market the Phoenix System both in the United States and internationally. In
the U.S., we have two different kinds of customers: financial institutions who
license our software and operate it themselves on an "in-house" basis, and
financial institutions who rely on us to host and manage the software for them
through our application service centers, or "ASCs." Our in-house target market
includes financial institutions with assets in the range of $100 million to $3
billion (over 4,000 institutions), and our ASC target market includes financial
institutions with assets of less than $300 million (over 9,000 institutions). As
these markets overlap to some extent, our total potential target market in the
U.S. consists of approximately 10,000 financial institutions.
Internationally, we also have two different types of customers: retail-oriented
financial institutions with up to 300 branches and/or two million accounts which
use our software for all of their operations, and larger institutions which use
our software only for particular divisions and/or regional operations.
We intend to pursue potential customers in all of our markets by increasing our
direct and indirect distribution channels. Historically, the majority of our
revenue has come from our direct sales force. We believe that in the future our
revenue will increasingly come from sales made by our marketing agents,
strategic partners, and other indirect sales channels, particularly in the
international market. Our gross margins and the composition of our revenue and
expenses will vary depending on the relative proportions of direct and indirect
sales. We do not believe, however, that the difference in the margins obtained
from direct and indirect sales will have a material adverse effect on our
business, operating results, or financial condition.
9
<PAGE> 12
PHOENIX INTERNATIONAL
Management's Discussion and Analysis
COMPETITION
We have experienced intense competition in our markets and expect increased
competition from many sources. Many of our competitors have significantly
greater resources and operating histories than we do. We intend to invest
significantly in product development and other aspects of our business to stay
competitive. We believe that the banking software market for financial
institutions is diffuse with several barriers to entry, including costs of entry
and time to market. We believe that the use of client/server technology such as
the Phoenix System and the other products we offer will continue to gain market
share in the financial services industry, displacing older "legacy" hardware and
software systems for at least the next several years. Although client/server
technology is rapidly evolving, the open architecture design of the Phoenix
System allows us to adapt to and incorporate changing technologies. We intend to
maintain our leadership position by integrating new technologies, adding new
applications, and enhancing and increasing the functionality of our existing
applications.
FLUCTUATIONS IN FINANCIAL RESULTS
Our quarterly and annual operating results have varied significantly in the past
and may vary significantly in the future. Factors that may cause our future
operating results to vary include, but are not limited to:
- - whether adverse market conditions and other factors that hindered our
sales in 1999 continue to impact our efforts;
- - the size and timing of significant orders;
- - the mix and timing of U.S. and foreign sales;
- - the mix of direct and indirect sales;
- - possible delays or other problems in new product announcements;
- - changes in our pricing policies and those of our competitors;
- - possible delays or other problems in the development, implementation,
and release of our products and enhancements;
- - the distraction of management's time, adverse impact on sales and
marketing efforts and possible increased costs due to pending
litigation against the company;
- - changes in our strategy and operating expenses; and
- - increased competition and general economic factors.
Product revenues are difficult to forecast because the market for client/server
application software products is evolving and affected by many different
factors, including general considerations beyond our control such as the recent
slowdown attributable to Year 2000 concerns. Additionally, our sales cycle
varies substantially from customer to customer and can exceed 12 months in some
cases. We do not believe that quarter-to-quarter comparisons of our results of
operations should be relied upon as indications of our future performance.
10
<PAGE> 13
PHOENIX INTERNATIONAL
Management's Discussion and Analysis
RESULTS OF OPERATIONS
The following table shows the percentage of total revenues represented by some
of the line items in our statement of operations for the periods indicated.
<TABLE>
<CAPTION>
Percent of Total Revenues
-----------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
License fees and other 39.4% 61.8% 71.0%
Implementation, customer and software support
and other service fees 60.6% 38.2% 29.0%
-----------------------------------------
Total revenues 100.0% 100.0% 100.0%
Expenses:
Cost of license fees and other 20.9% 6.5% 8.8%
Cost of implementation, customer and software
support and other service fees 46.4% 24.5% 21.8%
Sales and marketing 26.9% 17.1% 18.3%
General and administrative 31.5% 17.6% 15.4%
Product development 53.2% 26.5% 18.4%
-----------------------------------------
Total expenses 178.9% 92.2% 82.7%
Other income (expense):
Interest income 5.1% 6.5% 4.5%
Interest expense (0.2)% (0.2)% (0.3)%
Other income (expense) (0.2)% 0.3% 0.7%
-----------------------------------------
Income (loss) before minority interest and income taxes (74.2)% 14.4% 22.2%
Minority interest 0.3% 0.0% 0.0%
-----------------------------------------
Income (loss) before income taxes (73.9)% 14.4% 22.2%
Income tax expense 5.9% 5.0% 5.2%
-----------------------------------------
Net income (loss) (79.8)% 9.4% 17.0%
=========================================
</TABLE>
Comparison of the Year Ended December 31, 1999, to the Year Ended December 31,
1998
REVENUES. Our total revenues decreased 24.2% to $19.7 million in 1999 from $25.9
million in 1998. International sales accounted for approximately 55.3% of total
revenues in 1999, compared to 63.0% of total revenues in 1998. License fee
revenues decreased 51.7% to $7.7 million in 1999 from $16.0 million in 1998, due
to a decrease in new contract signings. We believe this decrease was largely
attributable to an industry-wide slowdown in software sales caused by delays in
purchase decisions related to the Year 2000 and to the adverse impact on sales
and marketing of publicity related to litigation against us. Service fees
increased 20.2% to $11.9 million in 1999 from $9.9 million in 1998, due
primarily to an increased number of installations and an increase in the number
of customers under support agreements.
EXPENSES. Our operating expenses increased 47.0% to $35.2 million in 1999 from
$23.9 million in 1998.
Cost of license fees and commissions from the sale of third party products
increased 142.3% to $4.1 million in 1999 from $1.7 million in 1998. The increase
was mainly attributable to higher amortization of capitalized software
development costs of $1.4 million, the write-off of $431,000 of purchased
software and prepaid royalties, and $600,000 in royalties related to third party
products that are integrated into the Phoenix System.
Cost of implementation, customer software support, and other service fees
increased 43.3% to $9.1 million in 1999 from $6.4 million in 1998 primarily as a
result of increased staffing levels, and travel and personnel-related costs
required to support an increased number of installations and customers under
support agreements. Cost of service fees consists primarily of personnel-related
costs incurred in providing implementation, training, and customer support
services.
11
<PAGE> 14
PHOENIX INTERNATIONAL
Management's Discussion and Analysis
Sales and marketing expenses increased 19.2% to $5.3 million in 1999 from $4.4
million in 1998, primarily as a result of an increase of $542,000 in staffing,
commissions, travel, and personnel-related costs, $221,000 of expenses related
to the new Singapore sales office, and increased advertising and marketing costs
of $101,000.
General and administrative expenses increased 35.9% to $6.2 million in 1999 from
$4.6 million in 1998, primarily as a result of increases of $548,000 in
professional service fees, $100,000 in staffing, $521,000 in bad debt expense,
and $417,000 in connection with resolution of customer issues.
Product development expense increased 52.1% to $10.5 million in 1999 from $6.9
million in 1998. Product development expenses increased primarily as a result of
$1.0 million in increased personnel-related costs in the United States, and $2.6
million in expenses related to the new Australian software development center.
Capitalized software development costs increased 107.9% to $10.1 million in 1999
from $4.8 million in 1998. The total of product development expenses and
capitalized software development costs increased 75.2% to $20.5 million during
1999 from $11.7 million during 1998. This increase was primarily attributable to
$2.9 million in expense related to increased staffing to expand and enhance our
product line in the United States, and $5.9 million in expenses associated with
the new Australian software development center.
OTHER INCOME (EXPENSE). Interest income was $1.0 million in 1999 compared to
$1.7 million in 1998. Interest income decreased in 1999 primarily due to a
decrease in interest-yielding funds. Interest expense was $44,000 in 1999
compared to $57,000 in 1998.
MINORITY INTEREST. During 1999, we increased our ownership interest in Phoenix
International New York, Inc. (formerly Servers On-Line, Inc.) to 54% of the
outstanding common shares, which was in addition to the convertible preferred
stock position we acquired in 1998 for $300,000. Phoenix International New York
runs our Northeast application service center and had a net loss for fiscal year
1999. Minority interest of approximately $54,000 was recognized in 1999 to
reflect the portion of this loss attributable to the minority shareholders of
Phoenix International New York.
INCOME TAX EXPENSE. In 1999, we had income tax expense of $1,155,000 resulting
in an effective tax rate of negative 8.0%, compared to our income tax expense of
$1.3 million in 1998, which resulted in an effective tax rate of 35%. As a
result of a shortfall in revenue and the recording of a pre-tax loss in the
fourth quarter of 1999, we determined that the deferred tax assets resulting
principally from net operating losses and tax credit carryforwards and other tax
benefits no longer met the requirements for future realization under Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes.
Accordingly, we recorded a net tax expense of approximately $4.6 million in the
fourth quarter of 1999 to establish a valuation allowance against the net
deferred tax assets previously recognized.
NET INCOME. Net income decreased to a $15.7 million loss for 1999 from a $2.4
million profit in 1998. The decline in net income was primarily the result of
decreased license fee revenues, increased costs, and the effect of the tax
valuation allowance provided in the fourth quarter.
Comparison of the Year Ended December 31, 1998, to the Year Ended December 31,
1997
REVENUES. Total revenues increased 45.4% to $25.9 million in 1998 from $17.8
million in 1997. International sales accounted for approximately 63.0% of total
revenues in 1998, an increase from 53.0% from 1997. License fees and other
revenues increased 26.6% to $16.0 million in 1998 from $12.7 million in 1997 due
to increased prices for licenses of the Phoenix System and an expanded product
line. Implementation, customer and software support and other service fees
increased 91.2% to $9.9 million in 1998 from $5.2 million in 1997.
Implementation, customer and software support and other service fees increased
due to increased numbers of installations and customers under support
agreements.
EXPENSES. Our operating expenses increased 62.0% to $23.9 million in 1998 from
$14.8 million in 1997.
12
<PAGE> 15
PHOENIX INTERNATIONAL
Management's Discussion and Analysis
Cost of license fees and other fees increased 6.2% to $1.7 million in 1998 from
$1.6 million in 1997. These costs increased in the 1998 period mainly as a
result of higher amortization of capitalized software development costs.
Cost of implementation, customer and software support, and other service fees
increased 63.5% to $6.4 million in 1998 from $3.9 million in 1997 as a result of
increased staffing levels required to support increased numbers of installations
and customers under support agreements.
Sales and marketing expenses increased 36.0% to $4.4 million in 1998 from $3.3
million in 1997, primarily as a result of increased staffing, travel, and
personnel costs related to our sales efforts.
General and administrative expenses increased 66.3% to $4.6 million in 1998 from
$2.7 million in 1997. The increase was primarily the result of $592,000 of
increased professional service fees, $500,000 of increased rent, a $600,000
increase in personnel-related costs, and a $200,000 increase in bad debt
expense.
Product development expenses increased 109.8% to $6.9 million in 1998 from $3.3
million in 1997. Product development expenses increased primarily as a result of
increased personnel-related costs for our product development efforts.
Capitalized software development costs increased 156.9% to $4.8 million for 1998
from $1.9 million in 1997. The total of product development expenses and
capitalized software development costs increased 128.1% to $11.7 million during
1998 from $5.1 million during 1997. This increase was primarily attributable to
increased staffing to expand and enhance our product line.
OTHER INCOME (EXPENSE). Interest income was $1.7 million in 1998 compared to
$800,000 in 1997. Interest income increased in 1998 due to twelve full months of
income earned from interest bearing accounts in 1998, compared to five months in
1997. Interest income is primarily the result of income earned from the
investment of proceeds from our secondary public offering of common stock which
we completed in August 1997. Interest expense was $57,000 in 1998 and $52,000 in
1997. Other income was $82,000 in 1998 compared to $134,000 in 1997, primarily
as a result of fulfilling obligations under an economic development grant and
realizing foreign gains from the operations of two of our foreign subsidiaries,
Phoenix International A.P. Limited and Phoenix EMEA Limited.
INCOME TAX EXPENSE. Income tax expense was $1.3 million in 1998, resulting in an
effective tax rate of 35.0%, compared to $920,000 in 1997, resulting in an
effective rate of 23.2%. We determined that the net deferred tax assets
resulting principally from the net operating loss and tax credit carryforwards
and other tax benefits were more likely than not to be realized, and eliminated
the valuation allowance related to these deferred tax assets in 1997. As a
result, our effective tax rate in 1998 was not similarly reduced in 1998 by the
benefit from the reduction in this valuation allowance.
NET INCOME. Net income decreased 20.0% to $2.4 million in 1998 from $3.0 million
in 1997. The decline in net income was primarily the result of decreased
operating margins.
BACKLOG
Backlog, defined as the total contract value over the life of all executed
agreements less the revenue already recognized from these agreements, totaled
$39.9 million at December 31, 1999, compared to $35.9 million at December 31,
1998, and $21.2 million at December 31, 1997. At December 31, 1999, backlog
consisted of $1.3 million for software licenses, $3.9 million for implementation
services, $4.3 million for other professional services, and $30.4 million for
the remaining terms of our customer support service agreements, which generally
have five year terms. The backlog of software license and implementation
revenues is expected to be realized within a period of approximately one year,
and the backlog of customer support service revenue is expected to be realized
over a period of approximately five years.
13
<PAGE> 16
PHOENIX INTERNATIONAL
Management's Discussion and Analysis
LIQUIDITY AND CAPITAL RESOURCES
We fund our cash needs through existing cash and investment balances, sales of
our capital stock, interest on investments and, to a lesser extent, through cash
flow from operations. We do not rely on lines of credit or other borrowings to
fund our operations. At December 31, 1999, we had cash and cash equivalents of
$2.5 million, and long term investments of $9.0 million. Long term investments
consist primarily of U.S. Treasury securities. For 1999, net cash used by
operations was $2,628,000.
Investing activities provided net cash of $1.3 million, which included $14.8
million from the sale of investments, reduced primarily by $10.1 million
invested in capitalized software development costs, $1.9 million in investment
purchases, $0.7 million for purchase of property and equipment, and $0.6 million
for the purchase of our applications service center and account processing
contracts. The prepayment of royalties, included in other assets, used $0.2
million of cash.
Financing activities provided $140,000 of cash, primarily from the issuance of
common stock, and used $144,000 for the payment of capital lease obligations.
Working capital was $5.1 million as of December 31, 1999.
In February 2000, we sold 861,623 shares of our common stock to London Bridge
Software Holdings plc for a total purchase price of $5.0 million. Including the
cash from this sale, we believe our cash balances, investments, and cash flow
from operations will be sufficient to meet our working capital, capital
expenditure, and software development requirements at least through 2000. Cash
flows from operating activities are dependent on continued advance payments from
customers, and we cannot be sure that we will continue to receive these payments
or that we will continue to receive these payments in advance of contract
performance on the same terms as we have in the past. We anticipate that our
operating and investing activities may use cash in the future, due primarily to
growth in operations and development activities. Consequently, future growth,
including acquisitions, may require us to obtain additional equity or debt
financing. These statements are "forward looking" statements which are subject
to risks and uncertainties as discussed below.
IMPACT OF NEW ACCOUNTING STANDARDS
In December 1998, the AICPA issued Statement of Position 98-9. Statement of
Position 98-9, which amends Statement of Position 98-4, Deferral of the
Effective Date of a Provision of Statement of Position 97-2, extends the
application of some provisions of Statement of Position 97-2 through fiscal
years beginning on or before March 15, 1999. Statement of Position 98-9 allows
the recognition of revenue using the "residual method" when valuing certain
elements of software agreements when vendor specific objective evidence of the
value of each element of the contract does not exist for all elements of a
multiple element arrangement. All provisions of Statement of Position 98-9 have
been adopted as of January 1, 2000, and we do not believe that this statement
will have a significant effect on our future results of operations.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative financial instruments and requires
recognition of derivatives in the statement of financial position to be measured
at fair value. Gains or losses resulting from changes in the value of
derivatives would be accounted for depending on the intended use of the
derivative and whether it qualifies for hedge accounting. This statement is
effective for our financial statements beginning in 2001. We are currently
studying the future effects of adopting this statement. However, due to our
limited use of derivative financial instruments, adoption of Statement No. 133
is not expected to have a significant effect on our financial position or
results of operation.
YEAR 2000 ISSUES
We discussed in our reports filed in 1998 and 1999 the nature and progress of
our plans to become Year 2000 ready. In late 1999, we completed the remediation
and testing of our systems. As a result of those planning and
14
<PAGE> 17
PHOENIX INTERNATIONAL
Management's Discussion and Analysis
implementation efforts, we experienced no significant disruptions in
mission-critical information technology and non-information technology systems
due to the Year 2000, and believe our systems successfully responded to the Year
2000 date change. We are not aware of any material problems resulting from Year
2000 issues, either with our products, our internal systems, or the products and
services of third parties used in our operations. We will continue to monitor
our mission-critical computer applications and those of our suppliers and
vendors throughout the Year 2000 to help ensure that we promptly address any
latent Year 2000 matters that may arise.
INFLATION
The effects of inflation on our operations were not significant during the
periods presented in the financial statements accompanying this Annual Report.
Generally, throughout the periods discussed, any increases in revenue have
resulted primarily from higher volumes, rather than price increases.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These statements appear in a number of places in this Annual Report and include
all statements that are not historical statements of fact regarding our intent,
belief, current expectations, and those of our management with respect to, among
other things:
- - our financing plans;
- - trends affecting our financial condition or results of operations;
- - our growth strategy and operating strategy (including, but not limited
to, the development and implementation of the Phoenix System and our
other products);
- - sales performance and prospects; and
- - the possible impact on our operations and financial performance of
market conditions and other factors that have hindered us in the past,
such as currently-pending litigation and the slowdown in purchases of
software during 1999.
The words "may," "would," "could," "continue," "will," "expect," "estimate,"
"anticipate," "goal," "strategy," "believe," "intend," "plan," and similar
expressions and variations thereof are intended to identify forward-looking
statements. Such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, many of which are beyond our
ability to control. Actual results may differ materially from those projected in
the forward-looking statements as a result of various factors. Among the key
risks, assumptions and factors that may adversely affect our operating results,
performance, and financial condition are:
- - whether the market conditions and other factors which hindered our
success in 1999, such as a slowdown in purchase decisions as a result
of Year 2000 concerns and the negative publicity and litigation against
us, will continue to affect our efforts in the future;
- - unanticipated delays in developing new products and enhancements or in
deploying our products and services through our ASCs;
- - whether the market accepts our new products and services, including
those under development and the e-commerce operating environment and
services we offer;
- - our reliance on significant new customers to reach or exceed market
expectations for our performance;
- - the timing of customer contracts slipping from one quarter to later
quarters of fiscal periods;
- - our ability to leverage our sales force, marketing relationships and
other distribution channels worldwide to generate new customers;
- - the distraction of management's time and attention, increased legal and
other costs, and other adverse impacts of pending litigation and
negative publicity;
- - our ability to grow and manage our growth despite adverse market and
other factors described above; and
- - competition and other factors discussed in detail in our prior press
releases and filings with the Securities Exchange Commission, including
the "Risk Factors" section of our registration statements.
15
<PAGE> 18
PHOENIX INTERNATIONAL
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,484,977 $ 3,795,962
Investments available for sale -- 5,995,640
Accounts receivable, net of allowance for doubtful accounts
of $655,000 and $473,000 at December 31, 1999
and 1998, respectively 8,313,598 8,158,104
Unbilled accounts receivable 2,918,867 7,497,682
Deferred tax asset -- 3,737,198
Prepaid expenses and other current assets 971,023 420,903
-----------------------------------
Total current assets 14,688,465 29,605,489
Long term investments, available for sale 8,964,771 16,533,770
Property and equipment:
Computer equipment and purchased software 5,087,369 4,245,907
Furniture, office equipment and leasehold improvements 2,481,248 2,307,329
-----------------------------------
7,568,617 6,553,236
Accumulated depreciation and amortization (3,964,923) (2,224,508)
-----------------------------------
3,603,694 4,328,728
Capitalized software costs, net of accumulated amortization of
$4,655,000 and $2,282,000 at December 31, 1999
and 1998, respectively 14,540,780 7,155,436
Goodwill and other intangible assets 1,210,268 --
Equity investments and other assets 1,515,826 1,879,150
-----------------------------------
Total assets $ 44,523,804 $ 59,502,573
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 908,556 $ 599,660
Accrued expenses 2,245,738 1,293,335
Accrued contractor services 1,683,496 830,933
Capital lease, current portion 155,223 142,051
Deferred revenue 4,576,341 2,649,364
-----------------------------------
Total current liabilities 9,569,354 5,515,343
Deferred tax liability -- 2,817,939
Capital lease, long term portion 199,870 357,299
Minority interests 272,647 --
Shareholders' equity:
Preferred stock, $0.01 par value:
10,000,000 shares authorized, none issued and outstanding -- --
Common stock, $0.01 par value:
50,000,000 shares authorized, 8,526,942 and 8,498,633 issued and
outstanding at December 31, 1999 and 1998, respectively 85,269 84,986
Additional paid-in capital 46,331,394 46,191,279
Unrealized (losses) gains on investments available for sale (557,283) 238,005
Retained (deficit) earnings (11,377,447) 4,297,722
-----------------------------------
Total shareholders' equity 34,481,933 50,811,992
-----------------------------------
Total liabilities and shareholders' equity $ 44,523,804 $ 59,502,573
===================================
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE> 19
PHOENIX INTERNATIONAL
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
License fees and other $ 7,749,923 $ 16,034,499 $ 12,664,491
Implementation, customer and software
support and other service fees 11,901,279 9,903,709 5,178,543
----------------------------------------------------------
Total revenues 19,651,202 25,938,208 17,843,034
Expenses:
Cost of license fees and other 4,103,952 1,693,769 1,594,711
Cost of implementation, customer and
software support and other service fees 9,108,984 6,356,617 3,886,878
Sales and marketing 5,295,021 4,440,521 3,264,055
General and administrative 6,200,858 4,561,586 2,743,100
Product development 10,451,006 6,869,311 3,274,238
----------------------------------------------------------
Total expenses 35,159,821 23,921,804 14,762,982
Other income (expense):
Interest income 1,013,490 1,698,308 799,676
Interest expense (43,958) (57,102) (52,376)
Other income (expense) (34,860) 82,407 133,656
----------------------------------------------------------
Income (loss) before minority interest and
income taxes (14,573,947) 3,740,017 3,961,008
Minority interest 54,248 -- --
----------------------------------------------------------
Income (loss) before income taxes (14,519,699) 3,740,017 3,961,008
Income tax expense 1,155,470 1,309,006 920,492
----------------------------------------------------------
Net income (loss) $(15,675,169) $ 2,431,011 $ 3,040,516
==========================================================
Net income (loss) per share - basic $ (1.84) $ 0.29 $ 0.45
==========================================================
Net income (loss) per share - diluted $ (1.84) $ 0.27 $ 0.41
==========================================================
Weighted average shares outstanding - basic 8,518,323 8,378,784 6,698,317
==========================================================
Weighted average shares outstanding - diluted 8,518,323 8,865,782 7,329,383
==========================================================
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 20
PHOENIX INTERNATIONAL
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Unrealized
Common Stock Additional Gains/(Losses) on
All Classes Additional Stock Investments Retained Total
--------------------- Paid-In Subscription Available for Earnings/ Shareholders'
Shares Amount Capital Receivables Sale (Deficit) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 5,758,365 $57,583 $ 10,708,061 $(110,683) $ -- $ (1,070,944) $ 9,584,017
Common stock issued in
connection with a public
offering, net of expenses 2,211,000 22,110 31,508,362 -- -- -- 31,530,472
Issuance of common stock from
exercise of stock options 68,622 686 234,915 -- -- -- 235,601
Payment on employee stock
receivable -- -- -- 97,323 -- -- 97,323
Issuance of common stock in
connection with acquisition 115,140 1,152 (1,089) -- -- -- 63
Retained deficit recorded in
connection with acquisition -- -- -- -- -- (102,861) (102,861)
Reduction of deferred tax valuation
allowance related to restricted
stock and stock options -- -- 1,450,000 -- -- -- 1,450,000
Net income -- -- -- -- -- 3,040,516 3,040,516
----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 8,153,127 81,531 43,900,249 (13,360) -- 1,866,711 45,835,131
Comprehensive income:
Net income -- -- -- -- -- 2,431,011 2,431,011
Other comprehensive income:
Unrealized appreciation on
certain securities available
for sale (net of taxes
of $128,000) -- -- -- -- 238,005 -- 238,005
----------
Comprehensive income -- -- -- -- -- -- 2,669,016
Issuance of common stock from
exercise of stock options 345,506 3,455 1,331,030 -- -- -- 1,334,485
Payment on employee stock
receivable -- -- -- 13,360 -- -- 13,360
Tax benefit related to
non-qualified and incentive
stock options -- -- 960,000 -- -- -- 960,000
----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 8,498,633 84,986 46,191,279 -- 238,005 4,297,722 50,811,992
Comprehensive income:
Net loss -- -- -- -- -- (15,675,169) (15,675,169)
Other comprehensive loss:
Unrealized depreciation
on certain securities
available for sale (net
of reversal of taxes of
$128,000) -- -- -- -- (795,288) -- (795,288)
-----------
Comprehensive loss -- -- -- -- -- -- (16,470,457)
Issuance of common stock from
exercise of stock options and
employee stock purchase plan 28,309 283 140,115 -- -- -- 140,398
----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 8,526,942 $85,269 $ 46,331,394 $ -- $(557,283) $(11,377,447) $ 34,481,933
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 21
PHOENIX INTERNATIONAL
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(15,675,169) $ 2,431,011 $ 3,040,516
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,410,961 2,455,797 1,157,665
Bad debt expense 867,801 347,150 140,000
Deferred taxes 1,123,206 960,741 530,298
Revenue under economic development grant -- (95,000) (95,000)
Minority interest (54,248) -- --
Changes in operating assets and liabilities, net
of effects of purchase of
business:
Accounts receivable (1,061,992) (3,926,769) (4,068,749)
Unbilled accounts receivable 4,359,082 (3,731,360) (2,578,040)
Prepaid expenses and other current assets (615,874) (62,229) (43,895)
Accounts payable 285,864 (25,264) 240,231
Accrued expenses 1,804,966 313,606 888,622
Deferred revenue 1,926,977 797,404 849,543
----------------------------------------------------------
Net cash provided by (used in) operating activities (2,628,426) (534,913) 61,191
INVESTING ACTIVITIES
Sales of investments, available for sale 14,827,261 1,930,450 --
Purchases of investments, available for sale (1,866,094) (3,428,841) (18,062,189)
Purchases of property and equipment (696,911) (3,235,769) (1,352,946)
Capitalized software costs (10,055,708) (4,836,683) (1,883,033)
Acquisition of business, net of cash acquired (255,548) -- --
Acquisition of service bureau contracts (375,000) -- --
Increase in other assets (256,700) (349,150) (1,266,400)
----------------------------------------------------------
Net cash provided by (used in) investing activities 1,321,300 (9,919,993) (22,564,568)
FINANCING ACTIVITIES
Capital lease payments (144,257) (131,468) (96,182)
Net proceeds from issuance of common stock 140,398 1,334,485 31,765,838
Cash payments for stock subscription receivables -- 13,360 97,323
----------------------------------------------------------
Net cash provided by (used in) financing activities (3,859) 1,216,377 31,766,979
Net increase (decrease) in cash and cash equivalents (1,310,985) (9,238,529) 9,263,602
Cash and cash equivalents at beginning of period 3,795,962 13,034,491 3,770,889
----------------------------------------------------------
Cash and cash equivalents at end of period $ 2,484,977 $ 3,795,962 $ 13,034,491
==========================================================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for:
Interest $ 38,501 $ 54,352 $ 50,597
==========================================================
Income taxes $ 213,120 $ 43,727 $ 24,500
==========================================================
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Equipment financed by capital lease $ -- $ -- $ 727,000
==========================================================
Purchase of developed software through
forgiveness of receivable $ -- $ -- $ 286,000
==========================================================
Investment in common stock through
cancellation of prepaid royalties $ -- $ 650,000 $ --
==========================================================
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 22
PHOENIX INTERNATIONAL
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Phoenix International Ltd., Inc. was formed on January 11, 1993, and designs,
develops, markets, and supports highly adaptable, enterprise-wide client/server
application software for the financial services industry and provides account
processing services for financial institutions using such software. Phoenix's
primary market is small to mid-sized financial institutions.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Phoenix, its
majority-owned subsidiary Phoenix International New York, Inc. (formerly
Servers On-Line, Inc.), and the following wholly-owned subsidiaries: Phoenix
International A.P. Limited in New Zealand, Phoenix EMEA Limited in the United
Kingdom, Phoenix International (Australia) Pty. Limited, Phoenix International
Software (Singapore) Pte. Ltd., and Phoenix FSC Inc., a company domiciled in
the U.S. Virgin Islands. All significant intercompany balances and transactions
have been eliminated.
Minority interests represent outside shareholders' 46% ownership of the common
stock of Phoenix International New York, Inc., a provider of bank processing
and consulting services in which Phoenix purchased a 54% interest during 1999.
The acquisition was recorded as a purchase and the earnings of Phoenix
International New York are included in our results of operations from the date
of the acquisition. The loss attributable to the minority shareholder interest
in 1999 was $54,248 and is included in minority interest in the consolidated
statements of operations.
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 PER SHARE
The following table sets forth the computation of basic and diluted net income
per share:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator - net income (loss) available
to common shareholders $(15,675,169) $ 2,431,011 $ 3,040,516
=============================================================
Denominator for basic net income per share
- weighted average shares outstanding 8,518,323 8,378,784 6,698,317
Effect of dilutive securities -
employee stock options -- 486,998 631,066
-------------------------------------------------------------
Denominator for diluted net income per
share - adjusted weighted average shares
outstanding and assumed conversion
of dilutive securities 8,518,323 8,865,782 7,329,383
=============================================================
Net income (loss) per share - basic $ (1.84) $ 0.29 $ 0.45
=============================================================
Net income (loss) per share - diluted $ (1.84) $ 0.27 $ 0.41
=============================================================
</TABLE>
REVENUE RECOGNITION
Our revenues are primarily derived from the two following sources: (i) license
fees for our software products and commissions and other fees from the sale of
third party software and hardware products; and (ii) fees for services, which
include implementation services, custom programming, training, interface
development for third party products, ongoing software support, and
Internet/Intranet consulting services.
20
<PAGE> 23
PHOENIX INTERNATIONAL
Notes to Consolidated Financial Statements
During 1997, we recognized revenues in accordance with AICPA Statement of
Position 91-1, Software Revenue Recognition. During 1998 and 1999, we
recognized revenues in accordance with Statement of Position 97-2, Software
Revenue Recognition issued by the American Institute of Certified Public
Accountants, or the "AICPA," as such statement was amended by Statements of
Position 98-4 and 98-9. In accordance with Statement of Position 97-2, as
amended, we recognize software license fee revenue upon execution of a contract
and delivery of the software, provided that the license fee is fixed and
determinable, the software is functional without significant modification, and
collection is considered probable by management. If a software license
agreement does not meet such requirements, then contract accounting is applied
to the entire agreement.
We recognize service fee revenues as the services are performed. When we
receive advance payments for delivery of a product or for providing services,
we defer recognition of the revenue until the services are performed. We bill
support services in advance, and recognize the revenue over the related service
period.
In December 1998, the AICPA issued Statement of Position 98-9. Statement of
Position 98-9, which amends Statement of Position 98-4, Deferral of the
Effective Date of a Provision of Statement of Position 97-2, extends the
application of some provisions of Statement of Position 97-2 through fiscal
years beginning on or before March 15, 1999. Statement of Position 98-9 allows
the recognition of revenue using the "residual method" when valuing certain
elements of software agreements when vendor specific objective evidence of the
value of each element of the contract does not exist for all elements of a
multiple element arrangement. All provisions of Statement of Position 98-9 have
been adopted as of January 1, 2000, and we do not believe that this statement
will have a significant effect on our future results of operations.
CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES
We consider all highly liquid investments with a maturity of three months or
less to be cash equivalents. Investments in marketable securities are
classified as available-for-sale and are recorded at fair value with any
unrealized holding gains or losses, net of deferred taxes, included as a
component of equity and other comprehensive income.
PROPERTY AND EQUIPMENT
Property and equipment is 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). Depreciation expense was $1,699,612 in 1999,
$1,252,066 in 1998, and $525,488 in 1997. Leasehold improvements are amortized
over the related lease term. Property and equipment includes $787,281 of
furniture purchased under a capital lease, with accumulated amortization of
$309,289 at December 31, 1999, and $196,820 at December 31, 1998.
CAPITALIZED SOFTWARE COSTS
We capitalize certain software development costs in accordance with Statement
of Financial Accounting Standards 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 straight-line method over the
estimated useful life of the related product (currently five years).
Capitalized software costs also include purchased software costs of $1,262,000
at December 31, 1999, and $761,000 at December 31, 1998. Amortization of
capitalized software development costs and purchased software was $2,670,365 in
1999, $1,203,731 in 1998, and $632,177 in 1997. These amounts are included in
costs of license fees and other.
GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets, consisting primarily of goodwill and purchased contracts of
approximately $876,000 and $375,000, respectively, resulting from acquisitions
during 1999, are amortized on a straight-line basis over periods ranging from
3.5 years for contracts to 15 years for goodwill. Goodwill and other intangible
assets are
21
<PAGE> 24
PHOENIX INTERNATIONAL
Notes to Consolidated Financial Statements
periodically reviewed for impairment based on an assessment of future
operations to ensure they are appropriately valued. Accumulated amortization as
of December 31, 1999, was $40,986.
STOCK-BASED COMPENSATION
Stock options granted to our employees are generally for a fixed number of
shares with an exercise price equal to or greater than the fair value of the
shares at the date of grant. We account for stock option grants in accordance
with APB Opinion No. 25, Accounting for Stock Issued to Employees and related
interpretations, 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. We have adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, which encourages, but does not require, companies to adopt a fair
value based method for determining expense related to stock-based compensation.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, was issued in June 1998. This statement
establishes accounting and reporting standards for derivative financial
instruments and requires recognition of derivatives in the Statement of
Financial Position to be measured at fair value. Gains or losses resulting from
changes in the value of derivatives would be accounted for depending on the
intended use of the derivative and whether it qualifies for hedge accounting.
This statement is effective for our financial statements beginning in 2001. We
are currently studying the future effects of adopting this statement. However,
due to our limited use of derivative financial instruments, adoption of
Statement No. 133 is not expected to have a significant effect on our financial
position or results of operations.
2. FINANCIAL INSTRUMENTS
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject Phoenix to significant
concentrations of credit risk consist principally of cash and cash equivalents,
investments, and trade accounts receivable.
Our cash and cash equivalents at December 31, 1999, were held primarily by a
single financial institution. Trade accounts receivable are unsecured and due
under stated terms from a small number of customers which are primarily in the
banking business and are generally subject to regulatory oversight. Trade
receivables due from foreign customers comprised 74% of total trade receivables
as of December 31, 1999, and 73% of total trade receivables as of December 31,
1998. Our long-term investments are held principally by a single financial
institution and consist of United States Treasury bills and United States
Treasury notes with maturities of less than three years (for which interest
rate risk is not considered material).
FAIR VALUE
We used the following methods and assumptions in estimating our fair value
disclosures for financial instruments:
- Cash and Cash Equivalents: The carrying amount reported in the balance
sheet approximates the fair value of cash and cash equivalents.
- Investments: Available for sale investments are carried at market value
as determined by quoted market prices.
3. LEASE COMMITMENTS
We lease furniture and computer equipment under a capital lease, and office
space and equipment under non-cancelable operating leases. Total rent expense
for all operating leases was $2,315,327 in 1999, $1,382,926 in 1998, and
$701,617 in 1997.
22
<PAGE> 25
PHOENIX INTERNATIONAL
Notes to Consolidated Financial Statements
Future minimum lease payments under capital leases and aggregate non-cancelable
operating leases with terms of one year or more consisted of the following at
December 31, 1999:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
- ------------------------------------------------------------------------
Years ending December 31,
<S> <C> <C>
2000 $180,552 $ 2,199,493
2001 180,552 2,071,254
2002 30,092 1,803,992
2003 - 1,736,997
2004 - 1,756,780
Thereafter - 4,491,595
------------------------
Total minimum lease payments 391,196 14,060,111
Amounts representing interest (36,103) -
------------------------
Net minimum lease payments $355,093 $14,060,111
========================
</TABLE>
4. ACQUISITIONS
During October 1999, Phoenix increased its ownership interest in Phoenix
International New York, Inc. (formerly Servers On-Line, Inc.) to 54% of the
outstanding common shares, which was in addition to the convertible preferred
stock position acquired in 1998 for $300,000. Phoenix International New York,
Inc. runs our Northeast application service center. The purchase price and
related costs of approximately $960,000 were satisfied by the issuance of a
$389,000 promissory note, conversion of $311,000 of Phoenix International New
York's liabilities to Phoenix into equity, and payment of $260,000 in cash.
Upon satisfaction of specific performance criteria, the minority shareholders
of Phoenix International New York, Inc. have the option to sell their remaining
interests to Phoenix in exchange for a total of $250,000 in cash and $350,000
in Phoenix common stock. The acquisition of Phoenix International New York,
Inc. was accounted for as a purchase under Accounting Principles Board Opinion
No. 16. In accordance with such opinion, we allocated the purchase price based
on the fair value of the assets acquired and liabilities assumed. Acquired
intangibles, which include renewable contracts and goodwill, total
approximately $870,000 and are being amortized over periods ranging from 3.5 to
15 years.
Pro forma financial statements for the Servers On-Line acquisition are not
required under APB No. 16 as the effect of the acquisition is not material to
the Company's results of operations.
5. CAPITALIZATION
In May 1997, the shareholders approved an amendment to our articles of
incorporation increasing the number of shares of common stock authorized for
issuance to 50,000,000.
In August 1997, Phoenix completed a secondary public offering of its common
stock. We issued 2,211,000 shares of common stock, including the underwriter's
over-allotment option, at a price of $15.67 per share. The proceeds to Phoenix
from the offering, net of underwriting discounts and offering expenses, were
approximately $31.5 million.
In May 1998, Phoenix effected a three-for-two stock split in the form of a 50%
stock dividend, distributed on May 18, 1998, to shareholders of record on May
11, 1998. Accordingly, all share and per share amounts have been adjusted to
reflect this split.
The Board of Directors is authorized to issue up to 10,000,000 shares of
preferred stock, par value $0.01 per share. The terms of preferred stock have
not been designated and no shares have been issued.
23
<PAGE> 26
PHOENIX INTERNATIONAL
Notes to Consolidated Financial Statements
6. STOCK OPTIONS
Phoenix has various stock option plans that authorize its Board of Directors to
grant employees, officers, and directors qualified and non-qualified options to
purchase shares of its common stock. Stock options are generally granted with
an exercise price at or above the fair market value of Phoenix common stock on
the date of the grant. As of December 31, 1999, we had three stock incentive
plans:
- the Phoenix International Ltd., Inc. 1995 Employee Stock Option Plan,
effective March of 1995;
- the Phoenix International Ltd., Inc. 1995 Employee Stock Option Plan,
effective October of 1995; and
- the Phoenix International Ltd., Inc. 1996 Director Stock Option Plan.
Up to 780,000 shares of Phoenix common stock may be issued pursuant to options
granted under the March 1995 Employee Stock Option Plan; however, the Board
does not intend to issue any additional shares under this plan. As of December
31, 1999, the October 1995 Employee Stock Option Plan authorized the grant of
options to purchase up to 1,304,959 shares of Phoenix common stock and the 1996
Director Stock Option Plan authorized the grant of options to purchase up to
352,480 shares of Phoenix common stock. Stock options granted under these plans
have varying vesting schedules, but options typically vest over a three to five
year period from the date of grant and options expire within ten years from the
date of grant. Stock options granted under the 1996 Stock Option Director Plan
are non-qualified, have a term of five years, and may be exercised only after
the six month anniversary of the date of grant.
At December 31, 1999, we had 63,231 shares available for issuance under the
March 1995 Employee Stock Option Plan, 162,126 shares under the October 1995
Employee Stock Option Plan, and 106,480 shares under the 1996 Director Stock
Option Plan. We have reserved 2,781,939 shares of common stock for issuance
upon exercise of options and warrants to purchase common stock.
Phoenix's Board of Directors approved in February 2000 an amendment to increase
the total number of shares available for issuance under the October 1995
Employee Stock Option Plan to 2,100,000 shares, and an amendment to increase
the number of shares available for issuance under the 1996 Director Stock
Option Plan to total 500,000 shares. Each of these amendments will be subject
to approval of Phoenix's shareholder at the next annual shareholders meeting.
We have elected to follow APB Opinion No. 25 and related interpretations in
accounting for our employee stock options rather than the alternative fair
value accounting provided for under Statement of Financial Accounting Standards
No. 123. Under APB Opinion No. 25, because the exercise price of our employee
stock options generally equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
24
<PAGE> 27
PHOENIX INTERNATIONAL
Notes to Consolidated Financial Statements
Pro forma information regarding net income (loss) and net income (loss) per
share is required by Statement of Financial Accounting Standards No. 123, which
also requires that the information be determined as if Phoenix had accounted
for our employee stock options granted subsequent to December 31, 1994, under
the fair value method of Statement of Financial Accounting Standards No. 123.
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 and fair values:
<TABLE>
<CAPTION>
No dividend yield, weighted
average volatility factors of the Weighted average Weighted average
Risk-free expected market price of expected life of fair value of
Year interest rates Phoenix common stock options granted options granted
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 6.24% 0.49 3.97 years $8.86
1998 5.18% 0.54 2.80 years $5.21
1999 5.64% 0.68 2.02 years $2.80
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of options is
amortized to expense over the option's vesting period. Our pro forma
information follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income (loss) $ (18,230,317) $ 1,202,673 $ 1,929,129
Pro forma net income (loss)
per share - diluted $ (2.14) $ 0.14 $ 0.29
Pro forma net income (loss)
per share - basic $ (2.14) $ 0.14 $ 0.27
</TABLE>
A summary of our option activity and related information follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Options Price
- ------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1996 987,030 $ 4.71
Granted 408,450 $13.97
Exercised (68,622) $ 3.47
Cancelled (11,343) $ 4.10
---------
Outstanding at December 31, 1997 1,315,515 $ 7.66
Granted 639,457 $14.04
Exercised (345,506) $ 4.15
Cancelled (128,294) $ 9.65
---------
Outstanding at December 31, 1998 1,481,172 $11.06
Granted 492,200 $ 7.72
Exercised (22,352) $ 2.94
Cancelled (204,354) $11.94
---------
Outstanding at December 31, 1999 1,746,666 $10.11
=========
</TABLE>
25
<PAGE> 28
PHOENIX INTERNATIONAL
Notes to Consolidated Financial Statements
Exercise prices for options outstanding as of December 31, 1999, range from
$2.86 to $19.34 per share. There were 790,094 options exercisable at a weighted
average exercise price of $10.02 at December 31, 1998, and 774,383 options
exercisable at a weighted average exercise price of $6.72 at December 31, 1997.
The following table 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 as of December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number of Contractual Exercise Number of Exercise
Exercise Prices Shares Life (Years) Price Shares Price
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.86 - $ 6.67 600,028 7.23 $ 4.95 342,453 $ 4.03
$ 8.00 - $13.75 622,388 7.07 $10.65 433,326 $10.35
$14.08 - $19.34 524,250 5.85 $15.39 404,700 $15.30
- -----------------------------------------------------------------------------------------------
$ 2.86 - $19.34 1,746,666 6.76 $10.11 1,180,479 $10.21
</TABLE>
We have warrants outstanding at December 31, 1999, to purchase up to 28,500
shares of common stock at an exercise price of $9.60 per share which were
issued in July 1997 to the underwriters of our initial public offering pursuant
to the underwriting agreement. The warrants are exercisable through July 2001.
7. INCOME TAXES
Significant components of the provision for income taxes are as follows for the
years ended December 31, 1999, December 31, 1998, and December 31, 1997.
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current foreign tax expense $ 32,264 $ 348,265 $ 390,194
Deferred domestic tax expense 1,123,206 960,741 530,298
-----------------------------------------------
Total tax expense $ 1,155,470 $ 1,309,006 $ 920,492
===============================================
</TABLE>
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.
26
<PAGE> 29
P H O E N I X I N T E R N A T I O N A L
Notes to Consolidated Financial Statements
Significant components of our deferred income tax assets and liabilities at
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax liabilities:
Tax over book depreciation $ (104,282) $ (94,158)
Capitalized software, net (5,051,079) (2,487,436)
Unrealized gains (losses) 193,572 (128,000)
--------------------------------
Total tax liabilities (4,961,789) (2,709,594)
Deferred income tax assets:
Alternative minimum tax credit 50,593 50,593
Research and development credit carryforwards 1,481,578 903,063
Allowance for doubtful accounts 248,800 149,123
Net operating loss carryforwards 10,513,485 2,488,980
Other 183,851 37,094
--------------------------------
Total tax assets 12,478,307 3,628,853
--------------------------------
Subtotal 7,516,518 919,259
Valuation allowance for deferred income tax assets (7,516,518) --
--------------------------------
Net deferred income tax assets $ -- $ 919,259
================================
</TABLE>
The reconciliation of income tax computed at U.S. Federal statutory tax rates
to income tax expense is:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at U.S. statutory rates $ (4,936,698) $ 1,271,606 $ 1,346,743
State taxes (580,788) 183,266 194,089
Foreign taxes 32,264 197,485 241,377
Tax credits (578,515) (409,319) 411,939
Restricted stock compensation -- -- 1,042,119
Other (297,311) 65,968 93,892
Change in valuation allowance 7,516,518 -- (2,409,667)
----------------------------------------------------
Total tax expense $ 1,155,470 $ 1,309,006 $ 920,492
====================================================
</TABLE>
Realization of deferred tax assets is dependent on generating sufficient
taxable income prior to expiration of any net operating loss carryforwards. As
a result of the operating loss in 1999, we reassessed the likelihood of
realizing the benefit of our deferred tax assets and, at December 31, 1999, our
net deferred tax assets were fully offset by a valuation allowance. We will
continue to assess the valuation allowance and to the extent it is determined
that such allowance is no longer required, the tax benefit of the remaining net
deferred tax assets will be recognized in the future. During 1997, the $2.4
million valuation allowance was eliminated as Phoenix determined that it was
"more likely than not" that the majority of the deferred tax assets would be
realized.
We had net operating loss carryforwards of approximately $27.7 million
available at December 31, 1999, that expire approximately $490,000 in 2010,
$1,060,000 in 2011, $2,940,000 in 2012, $1,930,000 in 2018, and $21,280,000 in
2019. These carryforwards are available to offset future taxable income for
federal income tax purposes. In addition, we have available research and
development tax credit carryforwards of $1.5 million that also expire in years
2008 through 2019. Whether we can utilize these carryforwards to reduce future
income taxes will depend on our ability to generate sufficient taxable income
prior to the expiration of the carryforwards.
8. EMPLOYEE BENEFITS
We maintain a 401(k) plan that covers substantially all U.S. employees. The
Company may, at its discretion, contribute by matching employee contributions.
Defined contributions are limited to the maximum amount deductible under the
Internal Revenue Code. In 1999, we made contributions totaling $122,000, and
did not make contributions to the 401(k) plan in 1997 or 1998.
27
<PAGE> 30
P H O E N I X I N T E R N A T I O N A L
Notes to Consolidated Financial Statements
We have a profit sharing plan with discretionary contributions covering
substantially all employees. We did not make contributions to the profit
sharing plan in 1997, 1998, or 1999.
We established an employee stock purchase plan, effective July 1, 1998, in
which substantially all employees may participate. Eligible employees may
purchase Phoenix common stock at a discount to market value at established
dates. We have reserved 150,000 shares of its common stock for issuance under
this plan. The plan is designed as a non-compensatory plan under Section 423 of
the Internal Revenue Code. Payroll deductions used to purchase Phoenix common
stock totaled $79,000 in 1999, compared with $75,000 in 1998.
9. EMPLOYMENT AGREEMENTS
Phoenix has entered into employment agreements with our senior executives.
Certain agreements commit Phoenix to various obligations if the employee is
terminated without cause or if there is a change in the control of Phoenix. The
major obligations are for salaries and bonus, healthcare premiums, and the
vesting of previously granted stock options.
10. SEGMENTS, MAJOR CUSTOMERS AND EXPORT SALES
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information, requires disclosure of certain
financial information for reportable operating segments based on our
organizational structure. We have no identifiable segments that meet Statement
of Financial Accounting Standards No. 131 criteria.
Major customers as defined by Phoenix are those that individually account for
10% or more of total revenues. There were no major customers in 1999. Sales to
one major customer in 1998 comprised 11% of revenues, and sales to another
major customer in 1997 comprised 11% of revenues.
Domestic and export sales, as a percentage of total revenues, were as follows:
<TABLE>
<CAPTION>
Latin Europe,
United America & Africa & Pacific
States Caribbean Middle East Rim
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 45% 20% 19% 16%
1998 37% 6% 40% 17%
1997 51% 17% 25% 7%
</TABLE>
11. CONTINGENCIES AND COMMITMENTS
Phoenix is subject to various claims and legal proceedings covering a variety
of matters arising in the ordinary course of its business activities. A lawsuit
was filed on November 23, 1999, against Phoenix and its CEO involving alleged
violations of federal securities laws and requesting class action status. The
suit covers purchases and sales of Phoenix common stock made during the period
from May 4, 1998, to April 15, 1999. Because we are in the early stages of this
litigation, we have not yet been able to determine what its effect will be, nor
can we estimate the cost or expense of defending this lawsuit or other possible
damages to Phoenix. We have therefore only made accruals for certain legal
expenses in connection with the lawsuit. We have referred this matter to our
insurance carrier and legal advisors and have instructed them to vigorously
defend against the allegations made in the lawsuit.
12. RELATED PARTY TRANSACTIONS
In 1997 and 1998, Phoenix purchased a total of 11% of the equity of Dyad
Corporation in several transactions for a total purchase price of $1.5 million.
In 1999, Dyad Corporation merged with and became a wholly-owned subsidiary of
Netzee, Inc. Pursuant to such merger, Phoenix received 70,976 shares of Netzee
common stock which is restricted stock. One person who served on Phoenix's
Board of Directors from 1996 until 1999 was a director of Dyad Corporation, and
is a director and the chief executive officer of Netzee.
28
<PAGE> 31
P H O E N I X I N T E R N A T I O N A L
Notes to Consolidated Financial Statements
In December 1998, Phoenix entered into a service agreement and a marketing
agent agreement with Towne Services, Inc. This marketing agent agreement allows
Phoenix exclusive marketing and distribution rights in various regions of the
world for Collections Works, one of Towne's software products. The agreement
provides for payment by Phoenix of $485,000 for this right. Phoenix's chief
executive officer is a director of Towne Services and one of our shareholders
and a former director is also a shareholder and director of Towne Services.
In September 1997, Phoenix entered into a software license and cooperative
marketing agreement with Servers On-Line. In October of 1999, we acquired a 54%
controlling interest in Servers On-Line, Inc., and changed the name of the
company to Phoenix International New York, Inc. Prior to such acquisition,
Phoenix recognized $169,000 in revenues during 1999 from this company, and
$181,500 in 1998. Certain officers of the acquired company are now officers of
Phoenix.
To encourage certain bank shareholders' initial investment in Phoenix, we
offered a discount, equal to the shareholders' initial investment in Phoenix,
to be applied toward license fees if and when each shareholder licensed the
Phoenix System for use in the normal course of its operations. Discounts
offered since inception total $896,250. Discounts of $41,250 were used in 1998
and no discounts were used in 1997 or 1999. Net of discounts used, license fee
revenue from these shareholders totaled $25,385 in 1999, $13,750 in 1998, and
$480,185 in 1997. Implementation, support, and other service revenues from
these shareholders totaled $14,441 in 1999, $121,875 in 1998, and $635,879 in
1997.
13. SUBSEQUENT EVENTS
In February 2000, London Bridge Software Holdings plc purchased 861,623 shares
of Phoenix common stock for $5,000,000. This acquisition made London Bridge a
9.16% equity owner in Phoenix as of the transaction date. In connection with
this purchase, Phoenix entered into an agreement with London Bridge to market
one of its products called "Vectus."
Phoenix's Board of Directors approved in February 2000 an amendment to increase
the total number of shares available for issuance under the October 1995
Employee Stock Option Plan to 2,100,000 shares, and an amendment to increase
the number of shares available for issuance under the 1996 Director Stock
Option Plan to total 500,000 shares. Each of these amendments will be subject
to approval of Phoenix's shareholders at the next annual shareholders meeting.
29
<PAGE> 32
P H O E N I X I N T E R N A T I O N A L
Notes to Consolidated Financial Statements
14. QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------------------------------------
March 31, 1999 June 30, 1999 September 30, 1999 December 31, 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Revenues $ 5,534,755 $ 5,736,256 $ 2,938,436 $ 5,441,755
Gross profit $ 2,711,500 $ 2,515,283 $ (432,877) $ 1,644,360
Operating loss $ (2,290,857) $ (2,553,529) $ (5,914,011) $ (4,750,222)
Net loss (3) $ (1,308,092) $ (1,473,054) $ (3,702,690) $ (9,191,333)
Net loss per share - Basic (1) $ (0.15) $ (0.17) $ (0.43) $ (1.08)
Net loss per share - Diluted(2) $ (0.15) $ (0.17) $ (0.43) $ (1.08)
Weighted average shares
outstanding - basic 8,504,949 8,514,802 8,526,768 8,526,772
Weighted average shares
outstanding - diluted 8,504,949 8,514,802 8,526,768 8,526,772
<CAPTION>
Three months ended
----------------------------------------------------------------------------
March 31, 1998 June 30, 1998 September 30, 1998 December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Revenues $ 4,598,444 $ 5,666,703 $ 8,002,479 $ 7,670,582
Gross profit $ 2,831,554 $ 3,732,554 $ 5,574,276 $ 5,749,438
Operating income (loss) $ (381,856) $ 361,327 $ 1,251,261 $ 785,673
Net income $ 35,124 $ 497,665 $ 1,116,285 $ 781,937
Net income per share - Basic (1) $ 0.00 $ 0.06 $ 0.13 $ 0.09
Net income per share - Diluted(2) $ 0.00 $ 0.06 $ 0.13 $ 0.09
Weighted average shares
outstanding - basic 8,231,703 8,366,344 8,422,974 8,494,114
Weighted average shares
outstanding - diluted 8,725,621 8,928,034 8,874,710 8,934,755
<CAPTION>
Three months ended
----------------------------------------------------------------------------
March 31, 1997 June 30, 1997 September 30, 1997 December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Revenues $ 3,713,724 $ 4,706,108 $ 3,354,710 $ 6,068,492
Gross profit $ 2,662,354 $ 3,247,352 $ 1,906,184 $ 4,545,555
Operating income (loss) $ 1,111,610 $ 856,953 $ (312,324) $ 1,423,813
Net income $ 1,013,296 $ 763,674 $ 9,971 $ 1,253,575
Net income per share - Basic(1) $ 0.18 $ 0.13 $ -- $ 0.15
Net income per share - Diluted(2) $ 0.16 $ 0.12 $ -- $ 0.14
Weighted average shares
outstanding - basic 5,773,046 5,917,110 6,950,588 8,152,524
Weighted average shares
outstanding - diluted 6,429,960 6,568,083 7,647,260 8,672,229
</TABLE>
(1) Due to rounding of quarterly calculations being different from
rounding of year to date information, the sum of basic net income per
share for the four quarters does not equal basic net income per share
for the year.
(2) Due to the calculation of weighted average shares outstanding for the
year as the average of quarterly weighted average shares outstanding,
the sum of diluted net income per share for the four quarters does not
equal diluted net income per share for the year.
(3) The net loss for the three months ended December 31, 1999, includes a
significant fourth quarter tax adjustment to reverse benefits
recognized in previous periods.
See accompanying notes to consolidated financial statements.
30
<PAGE> 33
P H O E N I X I N T E R N A T I O N A L
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, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ending December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ending December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 7, 2000,
except for Note 13 as to
which the date is February 15, 2000
31
<PAGE> 34
P H O E N I X I N T E R N A T I O N A L
<TABLE>
<CAPTION>
Officers and Directors
Board of Directors Officers
<S> <C>
Bahram Yusefzadeh(1)(3) Bahram Yusefzadeh
Chairman of the Board Chairman of the Board and
and Chief Executive Officer Chief Executive Officer
Raju M. Shivdasani Raju M. Shivdasani
President and Chief Operating Officer President and Chief Operating Officer
Ruann F. Ernst (1)(3) Theodore C. Burns
President and Chief Executive Officer, Senior Vice President and
Digital Island, Inc. Chief Financial Officer
Ronald E. Fenton(1)(3) Richard T. Powers
Chairman of the Board, Executive Vice President,
F&M Bank - Iowa Central U.S. Business
William C. Hess(2) Daniel P. Baker
President, Senior Vice President,
Iowa Savings Bank Research and Development
J. Michael Murphy (2)(3) Harold C. Boughton
Division President, Senior Vice President,
Palex, Inc. Corporate Marketing
O. Jay Tomson(2) C. Russell Pickering
Chairman and Senior Vice President and
Chief Executive Officer, Corporate Counsel
First Citizens National Bank
Ronald G. Welsh
Senior Vice President,
Worldwide Services
</TABLE>
(1) Member of Compensation and Stock Option Committee Mr. Yusefzadeh is a
non-voting member
(2) Member of Audit Committee
(3) Member of Executive Committee
32
<PAGE> 35
Corporate Information
Form 10-K Investor Contact
A copy of our Annual Report on Form 10-K for 1999 (without exhibits) is
available from us at no charge. Requests for the Annual Report on Form 10-K and
other investor contacts should be directed to Investor Relations, at our
corporate office.
Annual Shareholders' Meeting
The annual meeting of shareholders will be held on Friday, May 5, 2000, at 9:00
a.m. local time at our corporate office.
Common Stock and
Dividend Information
Our common stock trades on the Nasdaq Stock Market under the symbol PHXX. As of
March 15, 2000, Phoenix International Ltd., Inc. had approximately 2,029
beneficial holders of our common stock. Of that total, approximately 120 were
shareholders of record. To date, we have not paid cash dividends on our common
stock. We currently intend to retain earnings to support operations and finance
expansion and therefore do not anticipate paying cash dividends in the
foreseeable future.
The following table sets forth the high and low sales price information as
reported by Nasdaq during the last two fiscal years, as adjusted to reflect our
three-for-two stock split, effective May 18, 1998.
<TABLE>
<CAPTION>
Stock Price High Low
- -------------------------------------------------------------------------------
<S> <C> <C>
1998
First Quarter $ 16.00 $ 10.92
Second Quarter 20.83 14.75
Third Quarter 19.69 13.38
Fourth Quarter 18.81 14.25
<CAPTION>
Stock Price High Low
- -------------------------------------------------------------------------------
<S> <C> <C>
1999
First Quarter $ 15.25 $ 4.87
Second Quarter 8.50 4.62
Third Quarter 6.62 4.00
Fourth Quarter 4.53 3.50
</TABLE>
Corporate Office
Phoenix International Ltd., Inc.
500 International Parkway
Heathrow, FL 32746
407-548-5100
www.phoenixint.com
Registrar and Transfer Agent
American Stock Transfer &
Trust Company
40 Wall Street
New York, NY 10005
Independent Auditors
Ernst & Young LLP
Atlanta, GA
General Counsel
Nelson Mullins Riley &
Scarborough, L.L.P.
First Union Plaza, Suite 1400
999 Peachtree Street, N.E.
Atlanta, GA 30309
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
NAME JURISDICTION OF ORGANIZATION
- ---- ----------------------------
<S> <C>
Phoenix International A.P. Limited New Zealand
Phoenix EMEA Limited United Kingdom
Phoenix International (Australia) Pty. Limited Australia
Phoenix International New York, Inc. (formerly New York
known as Servers On-Line, Inc.), a majority-owned
subsidiary of registrant
Phoenix International Software (Singapore) Ptc. Singapore, Malaysia
Ltd.
Phoenix FSC Inc. U.S. Virgin Islands
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Phoenix International Ltd., Inc. and to the incorporation by reference in
the Registration Statements (Form S-8 No. 333-19121, Form S-8 No. 333-30797 and
Form S-8 No. 333-57559) of our report dated February 7, 2000, except for Note
13 as to which the date is February 15, 2000, included in the 1999 Annual
Report to Shareholders of Phoenix International Ltd., Inc.
Our audits also included the financial statement schedule of Phoenix
International Ltd., Inc. listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FROM FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FILING.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,484,977
<SECURITIES> 8,964,721
<RECEIVABLES> 11,232,465
<ALLOWANCES> (655,000)
<INVENTORY> 0
<CURRENT-ASSETS> 14,688,465
<PP&E> 7,568,617
<DEPRECIATION> (3,964,923)
<TOTAL-ASSETS> 44,523,804
<CURRENT-LIABILITIES> 9,569,354
<BONDS> 0
0
0
<COMMON> 85,269
<OTHER-SE> 34,376,664
<TOTAL-LIABILITY-AND-EQUITY> 44,523,804
<SALES> 0
<TOTAL-REVENUES> 19,651,202
<CGS> 0
<TOTAL-COSTS> 13,212,936
<OTHER-EXPENSES> 21,946,885
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (43,958)
<INCOME-PRETAX> (14,519,699)
<INCOME-TAX> 1,155,470
<INCOME-CONTINUING> (15,675,169)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,675,169)
<EPS-BASIC> (1.84)
<EPS-DILUTED> (1.84)
</TABLE>
