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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 (FEE REQUIRED)
For the fiscal year ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission File Number: 0-26532
Phoenix Information Systems Corp.
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(Exact name of Registrant as specified in its charter)
Delaware 13-3337797
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 Second Avenue South, Suite 1100
St. Petersburg, Florida 33701
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (813) 894-8021
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Securities registered pursuant to Section 12(b) of the Act:
None
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the Registrant (1) has 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 .
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Indicate by check mark if disclosure of delinquent filers pursuant 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. [ ]
As of May 31, 1996, the aggregate market value of the voting stock held by
non-affiliates (approximately 22,000,000 shares of Common Stock, $.01 par
value) was approximately $63,250,000 based on the average bid and asked price
($2.875) for one share of Common Stock on such date. The number of shares
issued and outstanding of the Registrant's Common Stock, as of May 31, 1996 was
45,767,618 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
Information required by Items 10, 11, 12 and 13 of this Form
10-K is incorporated by reference from Phoenix Information Systems Corp.'s
definitive Proxy Statement for its 1996 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission, pursuant to
Regulation 14A, not later than 120 days after the end of the fiscal year.
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ITEM 1. BUSINESS
OVERVIEW - THE COMPANY
Phoenix Information Systems Corp. ("Phoenix" or the "Company")
is a development-stage information systems and services company that was formed
specifically to support the growing demand for automation services in the
travel, tourism and aviation transportation industry. Phoenix has installed
and received formal approval from the Civil Aviation Administration of China
("CAAC") to operate an advanced computerized reservation system for the
domestic airlines, hotels and travel agencies in the People's Republic of China
("China"). Phoenix provides state-of-the-art, travel-related services to China
through its joint venture with China Hainan Airlines ("Hainan Airlines"), named
Hainan Phoenix Information Systems, Ltd. ("Hainan-Phoenix" or the "Joint
Venture"). Hainan-Phoenix is the only commercial entity to receive formal
approval to operate a computerized reservation system in China. The Company
owns 70% of Hainan-Phoenix through its wholly-owned subsidiary, Phoenix Systems
Ltd., a Bermuda corporation ("PSL"). Phoenix has not generated any significant
revenues, earnings or history of operations from inception through March 31,
1996. Consequently, Phoenix's continued existence has depended primarily upon
its ability to raise capital.
PSL was formed in 1993 to provide reservation systems and
services worldwide. PSL formed its first joint venture company with Hainan
Airlines. PSL has the responsibility to market, outside of each joint
venture's defined territory, all Phoenix travel products (including the
inventory of airline seats and hotel rooms). PSL has entered into a joint
venture in Russia to provide hotel reservations and expects to enter into
additional joint ventures in other countries as such opportunities arise. PSL
has also established a turnkey reservations center in the United States and is
currently taking on-line reservations for several customers.
Hainan-Phoenix is a Chinese joint venture that was formed in
late 1993. The Joint Venture was granted its business license in March 1994.
In January, 1995, the Joint Venture installed its proprietary airline and hotel
reservation systems software on Stratus Computer, Inc. ("Stratus") hardware
located in the Joint Venture's office in Hainan Province, China. The Company's
system is presently capable of providing computer reservation services to
subscribing Chinese airlines, hotels, tour companies and other travel
providers.
On June 1, 1996, Hainan-Phoenix officially went operational
with its first customer, Hainan Airlines. Hainan Airlines, the only publicly
held airline in China, is one of the fastest growing and most profitable
airlines in China. In fact, Hainan was awarded an esteemed designation from
the CAAC as the best airline in China in 1995. Hainan Airlines, which carried
more than 870,000 passengers in 1995, expects to carry over 1.6 million
passengers in 1996, and over 2.7 million passengers by 1998. Based in China's
Hainan province, Hainan Airlines currently operates a fleet of 6 Boeing 737, 2
Metro 23 and 1 Lear 55 aircraft throughout China.
Chen Feng, the chairman of Hainan Airlines and former director
of strategic planning for the CAAC, serves on the Board of Directors of the
Company. Hainan Airlines, like the other regional and independent airlines in
China, is hampered by the lack of automation. In order to remedy this problem,
Hainan Airlines entered into the Joint Venture as a means of gaining access to
automated reservation services. Through its reservation system, the Joint
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Venture has created a database of airline seats and hotel rooms that will be
marketed in mainland China by the Joint Venture and outside of mainland China
by PSL.
Phoenix Systems Group, Inc. ("PSG"), a wholly-owned subsidiary
of the Company, is responsible for the development, support and maintenance of
the Company's application software systems.
On September 15, 1994, Phoenix acquired all the capital stock
of American International Travel Agency Inc. ("American") in exchange for
25,000 shares of Phoenix Common Stock. American provides the following
benefits to Phoenix: (i) the development of a tour department capable of
packaging and remarketing Phoenix's inventory of hotel rooms and airline seats
and (ii) the ability to test enhancements of the PHOENIX-AIR and PHOENIX-HOTEL
systems.
RECENT DEVELOPMENTS
Since March 31, 1995, the Company has made significant
progress in many areas. Among other developments, the Company (i) commenced
commercial operations in the United States with Eastwind Airlines and Laker
Airways; (ii) commenced commercial operations in China with Hainan Airlines;
(iii) acquired an option to purchase 50% of American Aviation Ltd. (a company
formed by two Soros-managed investment entities), which owns 25% of the equity
in Hainan Airlines; (iv) established a cooperative strategic alliance agreement
between Hainan Phoenix and CITS (China International Travel Service) Telecom
Ltd. to establish the China Travel Network, a comprehensive travel-industry
information system to provide computerized reservation services to domestic
airlines, hotels, and other travel service providers throughout China; (v)
closed the final $4,800,000 of a $10,000,000 equity financing with S-C Phoenix
Partners ("S-C"), a New York general partnership, the general partners of which
include affiliates of George Soros and Purnendu Chatterjee; (vi) closed a
$5,000,000 convertible preferred stock financing with an institutional
investment fund (See Note 10 to the Consolidated Financial Statements); (vii)
commenced discussions (and in some cases, negotiations) with prospective
airlines and hotel groups in China, the Czech Republic, Russia, the Ukraine,
and the United States; and (viii) commenced commercial operations in Russia
with the establishment of a hotel reservations center and the cut-over of the
Phoenix hotel reservation system by XXI Century Travel Network, of which PSL
owns 30 percent.
THE COMPANY'S RESERVATION SYSTEMS
The Company's two reservations systems are PHOENIX-AIR and
PHOENIX-HOTEL. These systems are capable of generating reservations for most
business and leisure travel needs.
The PHOENIX-AIR System
PHOENIX-AIR is the Company's airline reservation system.
PHOENIX-AIR is a "multi-host," client-server system which conforms to
international airline industry standards, enabling PHOENIX-AIR subscribers to
communicate directly with other major airline reservation systems throughout
the world. PHOENIX-AIR's architecture allows subscribers to operate
independent local area networks. Subscribers may operate PHOENIX-AIR as an
internal reservation system for their specific airline; they may also use it as
a communications interface to
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access a global network of travel, booking and reservation agents through other
reservations systems.
PHOENIX-AIR is based on client-server technology. The legacy
mainframe airline and CRS systems with which PHOENIX-AIR competes operate
through a central processing mainframe computer, typically located in the
United States and Europe. Subscribers to these mainframe CRSs access their
respective networks through communications packages and are required to
purchase custom equipment to use these systems. PHOENIX-AIR on the other hand,
offers local airlines an in-country option to the mainframe systems currently
used by major airlines. PHOENIX-AIR is an affordable alternative to the legacy
systems being marketed by the CRSs and airline reservation system providers.
The basic concept is to share processing power throughout a network of
intelligent PCs, application servers and supplementary resource servers. Due
to dramatic increases in processing power of the desktop PCs and advanced
networking technology, client-server systems offer significant advantages in
application effectiveness, costs, training and user acceptance when compared to
legacy systems.
The Company's sales and marketing plan stresses PHOENIX-AIR's
dual capacity as both an internal reservations system and as a distribution
system. See "--Marketing and Sales Plan."
The PHOENIX-AIR system has the capability to present
information to users in English and other languages, thereby lowering operator
training costs and increasing the potential productivity of reservation agents
using PHOENIX-AIR.
The PHOENIX-HOTEL System
PHOENIX-HOTEL is a PC-based hotel reservation system,
originally designed by the Company for use by smaller, independent
establishments which may not otherwise have access to national or international
hotel reservation networks. PHOENIX-HOTEL has the capacity to be used by
subscribers as an internal hotel reservation system and as a network and
distribution system. PHOENIX-HOTEL can be configured to operate with from one
to several thousand intelligent terminal stations.
PHOENIX-HOTEL has been designed to be flexible and
user-friendly. Like most hotel systems, PHOENIX- HOTEL uses codes and
abbreviations unique to the travel and hospitality industry. However, unlike
many other systems, PHOENIX-HOTEL clearly portrays these codes into "plain
English," allowing operators to forego learning the complex set of codes
required by most travel-related programs. As a result, subscribers to
PHOENIX-HOTEL encounter relatively lower training costs for personnel new to
the industry while maintaining the advantages of an industry-standard system.
The Company has reached an understanding with officials from
Hainan Province pursuant to which the Hainan provincial government will ask the
province's major existing hotels, and those being developed, to subscribe to
the PHOENIX-HOTEL system.
Phoenix Reservations Center
Phoenix offers an alternative solution to the high cost of
staffing and operating a reservations call center to those airlines desiring to
outscource both their reservation system and
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call center. This product is especially attractive to start-up airlines who
need a turnkey solution to accelerate their entry into the marketplace and to
established airlines wishing to reduce costs, increase reservations office
flexibility and offload processing from their mainframes.
Development of PHOENIX-AIR
The original design for PHOENIX-AIR was created twelve years
ago by Linjeflug Airlines of Sweden. Many of the features of this system were
later incorporated into a travel agency and tour booking system developed for,
and partially by, World Comnet, Inc. ("WCN"), which was an international
reservations systems company headquartered in Irvine, California. WCN filed for
relief under Chapter 7 of Title 11 of the United States Code in 1992. On
October 9, 1992, the Company acquired from a secured creditor of WCN its rights
to certain WCN software products, including the travel-related software known
as the LIBRA and TOURINC Systems. The Company also acquired all of the secured
creditor's rights in WCN's related airline communications interface software.
The Company subsequently entered into an agreement with
Stratus pursuant to which the Company adapted and converted the LIBRA and
TOURINC software to a Stratus platform, renaming it "PHOENIX-AIR." The Company
has also executed a joint marketing and sales partnership agreement with
Stratus. This agreement calls for both parties to pursue worldwide marketing
of Phoenix's software and Stratus' hardware. In 1994, Stratus shipped its
first Stratus M250 processor to Hainan-Phoenix's office in Hainan Province
following the shipment of a Stratus R5 and a Stratus R10 processor to the
Company's Florida office.
The Company offers its reservation services throughout the
world on a Stratus hardware system. Stratus is a recognized leader in
fault-tolerant transaction processing systems and is a major supplier of
hardware and software to the airline industry. Such systems allow a computer
system to continue operating even if any single component fails. Stratus has a
marketing force in 20 countries around the world and enjoys a significant
presence in China and in the Pacific Rim.
PHOENIX-AIR was designed to be operated using off the shelf
standard PCs and computer printers in contrast to dumb terminals and
proprietary printers. For those airlines which do not require a ticket
(commonly called ticket-less or electronic ticketing), Phoenix was one of the
first service providers to offer this capability. The system can also produce
the standard industry ticket documents. PHOENIX-AIR provides a seamless,
electronic interface to revenue accounting systems, credit card processing
centers and provides reconciliation of credit card data to support both a
ticket and ticket-less airline.
Reservation services telecommunications access
The Company provides connectivity to worldwide travel
suppliers through its frame relay and X.25 networks, and through the industry
network, owned and operated by SITA. In each country in which Phoenix services
customers, the communications solution is state-of-the-art.
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Telecommunications in China
The Company has been granted access to China's
state-of-the-art data communications network known as "ChinaPac", which should
enable the Company's reservation services to run at higher efficiency.
ChinaPac is an electronic packet switching network (X.25) that utilizes China's
national fiber optic network, which is managed by the Chinese Ministry of Post
and Telecommunications ("MPT"). ChinaPac currently links more than 30 major
cities in China, encompassing the majority of travel destinations there.
MPT's network consists of eight major X.25 switching nodes
located in Beijing, Shenyang, Xi'an, Nanjing, Wuhan, Shanghai, Chengdu, and
Guangzhou. These nodes have extension access points to outlying areas via X.25
pads. The Company anticipates that these cities will be among the first to be
connected to its reservation services after the initial roll-out in Haikou,
Hainan. The Company's reservation services are linked by direct communications
to the Company's headquarters in St. Petersburg, Florida and to China's
domestic airline offices, hotels and ground operators through ChinaPac.
THE HAINAN-PHOENIX JOINT VENTURE
On November 22, 1993, Hainan Airlines and PSL signed a joint
venture contract (the "Joint Venture Agreement"), establishing Hainan-Phoenix.
Hainan Airlines and PSL submitted the Joint Venture Agreement in mid-December
1993 for approval with the appropriate Chinese government authorities. The
Chinese Ministry of Foreign Economic Relations and Trade approved the Joint
Venture Agreement, and on March 12, 1994 the Company was given official
notification that Hainan-Phoenix received its business license (the "Business
License") from the Chinese State Administration of Industry and Commerce. In
addition to operating the reservation system, the Business License authorizes
Hainan-Phoenix to operate in the following lines of business, among others:
the development of other software systems and networks, computer sales, leasing
and after-sales service, technical training, and consulting services for
computer and network applications.
The Joint Venture Agreement requires the parties to make a
total investment in Hainan-Phoenix of up to $10,725,000, with registered
capital of $8,580,000. Under the terms of the Joint Venture Agreement: (1)
Hainan Airlines agreed to provide 30% of the registered capital (in the form of
$1,500,000 in cash and property with an aggregate value of $1,080,000,
consisting of a five-year lease of 400 square meters of office space, which
lease was subsequently modified to a 38-month lease of 600 square meters); (2)
PSL agreed to provide 70% of the registered capital (in the form of $1,500,000
in cash and exclusive licensing rights in China of the Company's reservation
system, valued at $4,500,000 for purposes of the Joint Venture Agreement); (3)
PSL and Hainan Airlines agreed that, in the event additional loans to
Hainan-Phoenix were required, the parties would provide loan guarantees in
proportion to their respective ownership interests; (4) PSL and Hainan agreed
that any and all expenses related to the formation of Hainan- Phoenix would be
borne by the parties in proportion to their respective ownership interest and
each party would be reimbursed for all approved expenses incurred on behalf of
Hainan-Phoenix; and (5) a working team was organized to complete the
preparatory work necessary to establish Hainan-Phoenix. The Joint Venture
Agreement also provided for the annual distribution of profits, net of any
income taxes, to the partners in proportion to their equity interest within
three months after the end of each calendar year.
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In addition to the financial terms set forth above, the Joint
Venture Agreement imposed the following obligations on the respective parties.
PSL agreed to perform the following services for the benefit of Hainan-Phoenix:
(a) provide its share of the necessary capital to establish and staff the
business with proper executive, technical and administrative personnel; (b)
provide its share of the necessary capital to purchase, install and maintain
the required hardware, software and licenses required; (c) provide all required
user documentation and train the Hainan-Phoenix staff and the training staffs
of subscribers in the proper operation and use of the reservations systems; (d)
provide technical support for the reservation systems until such time as the
Hainan-Phoenix staff gains the necessary skills to maintain the operation of
its systems; (e) develop, market and maintain outside China an infrastructure
to support the international sale of travel components supplied by
Hainan-Phoenix's subscribers for use or consumption within China; and (f)
provide additional capital to expand the capacity of its reservation system
when and if other customers seek to join the system. Hainan-Phoenix, for its
part, agreed to perform the following services for the benefit of PSL: (a)
utilize its best efforts to insure that all participating air carriers or
ground operators on the system appoint PSL as their exclusive general sales
agent for the international market; (b) assure availability of air seat
inventory and blocked allotment space on ground services; and (c) pledge that
all participants on the system will agree that PSL, as general sales agent,
shall determine the international selling price or be offered for its tour
products the greatest available discount from the published tariff prices.
The Company anticipates that Hainan-Phoenix will generate
revenues from (1) reservation bookings and processing fees for each airline
seat sold and each hotel room night booked; (2) reservation center services
fees; (3) fees and commissions on Chinese domestic airline tickets sold to
foreign, inbound China passengers; (4) fees from tour and cruise bookings, car
rentals and China travel network advertising; and (5) a portion of the airfare
from international carriers entering into joint marketing agreements with the
Company. The Company has granted Hainan- Phoenix a 50-year license for the
exclusive use in China of the PHOENIX-AIR and PHOENIX-HOTEL reservation
systems.
Through March 31, 1996, Hainan Airlines had not made the
$1,500,000 cash contribution. PSL has made loans to the Joint Venture in the
amount of approximately $1,500,000. As of March 31, 1996, Hainan-Phoenix had
expended approximately $1,464,000 to acquire hardware, system software,
networking and processing equipment, including terminals.
Hainan-Phoenix utilized these assets to (i) further refine its
reservation system to make it possible to sell China's travel products both
domestically and internationally; (ii) commence system training and
installation; (iii) organize a marketing force to promote use of the
reservations system by other airlines and hotels; (iv) market the Company's
systems to Chinese ground operators; and (v) provide services to support PSL's
efforts to market internationally Hainan-Phoenix's inventory of travel
products.
At the time of formation of the Joint Venture, the Company
instituted a four-step process to roll-out its reservation system:
1. Pre-Installation - The Company finalized hardware
specifications, ordered hardware, obtained export
licenses and implemented PHOENIX-AIR and
PHOENIX-HOTEL management training.
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2. Installation - The Company finalized the installation
of its computers and terminals and conducted
Company-level testing of and training for its
Stratus, PHOENIX-AIR and PHOENIX-HOTEL systems. In
February 1995, the Company installed an initial
reservations center in Haikou, the capital city of
Hainan Province.
3. Roll-out - The Company is conducting user training on
PHOENIX-AIR and PHOENIX-HOTEL.
4. Operation and Marketing - The Company is conducting
on-going hardware and software maintenance and
systems marketing.
The Company has completed all of the stages of this roll-out
process.
The Joint Venture has held discussions with most of China's
scheduled airlines and is in advanced negotiations with several of these
carriers. Although the Company anticipates that the Joint Venture will enter
into contracts with one or more of such airlines, there can be no assurance
that the Company will be able to do so.
TRAVEL AND TOURISM INDUSTRY
Overview of the Industry
Since the 1950's, the travel and tourism industry has been
growing at a rate of 10% to 11% annually. This growth can be attributed to
many factors, including socioeconomic developments, the technological
advancement of the airline industry, the rapid expansion of the hotel industry
and product distribution methods, and the strategic automation of, and
communication among, travel agencies and tour companies. The travel industry
has also benefited from the development of CRSs which facilitate travel
planning. Today there are six preeminent global CRSs in the industry providing
services primarily to North America, Europe and Latin America and one providing
service primarily to Asia. The names and principal sponsors of each of these
systems are set forth below:
<TABLE>
<S> <C>
CRS Primary Sponsors
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ABACUS Royal Brunei, Cathay Pacific, Korean Air, Malaysia
Airlines, Philippine Airlines and Singapore
Airlines
SABRE American Airlines
GALILEO International United Airlines, US Air, British Airways, Swiss
Air, KLM, Alitalia and Air Canada
AMADEUS Continental, SAS, Iberia, Lufthansa,
Air France, Varig and Argentina
WORLDSPAN Delta Airlines, Northwest Airlines, TWA and Abacus
- an Asian CRS
GABRIEL SITA
</TABLE>
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Together, these systems provide service to approximately 40,000 travel agency
subscribers in the USA and a total of 75,000 subscribers worldwide.
Subscribers to these systems account for 90% of the travel agents in their
respective markets.
Many industry analysts agree that opportunities for growth
within the travel and tourism industry lie principally in less developed travel
markets. Vast developing nations such as China, India and Russia as well as
less developed countries in South America and Southeast Asia, have become
increasingly lucrative areas for travel and tourism operators. These markets
present enormous opportunities as international travel destinations.
Furthermore, due to the size of their populations, such markets offer enormous
numbers of potential travelers.
With the growth of travel and industry, many countries have
decentralized their travel industries. One result has been large growth in the
number and use of small regional airline carriers in many developing markets.
The Company expects this trend to continue as governments try to generate the
revenues associated with attracting increased travel and tourism. The Company
believes that these airlines, and the markets they serve, present the Company
with opportunities for future growth.
This growth in small regional airline carriers is also taking
place in the United States. Low cost/low fare, point-to-point, cost-conscious
carriers are increasing in number and size. The Company feels that it can
profit from this growth by marketing Phoenix's low cost effective airline
reservation system as an alternative to higher priced mainframe legacy systems.
Many of these new domestic United States carriers also desire
to outsource their reservations centers. The Company feels it can fill this
need through its airline reservation center.
Travel and Tourism in China
BACKGROUND
The travel and tourism industry in China has grown over 20%
annually over the past 6 years. The Chinese government and private enterprises
have committed to the further development of the infrastructure of China.
China has made major commitments to build new airports, update older airports,
purchase a substantial number of new aircraft and build deluxe and luxury
hotels throughout the country. It is estimated that due to the rising demand
in China, the number of aircraft in China will increase from approximately 450
currently, to 1200 by the turn of the century. As China increases its hotel
and airline capacity, the need for sophisticated and affordable information
systems solutions expands.
CURRENT STATUS OF TRAVEL AND TOURISM IN CHINA
The development of a broader domestic market for business and
leisure travel within China, as well as that for international travel, is
hindered by a widespread lack of access to a reservation system in China.
While CAAC offers a reservation system, the system is only capable of making
domestic reservations on some airlines. CAAC's technology and communications
are outdated and are believed to be inadequate for China's needs. As a result,
the Chinese travel and tourism industry continues to depend largely on manual
reservation systems. The lack of a modern reservation system hinders China's
efforts to develop an effective
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marketing or sales program at home or abroad, as it proves costly and
cumbersome for Chinese travelers and travel providers both inside and outside
of China.
On January 24, 1996, the Company announced that its Joint
Venture received formal approval from the Civil Aviation Administration of
China ("CAAC") to operate the Joint Venture's reservation systems for air
travel within China. Hainan-Phoenix is the only commercial entity to receive
formal approval to operate a reservation system in China. The CAAC, like the
Federal Aviation Administration in the United States, is the official
regulatory body for the airline industry.
With the implementation of the Company's reservation system,
both Chinese and foreign travel agents are expected to have on-line access to
Chinese domestic airlines and to many of the country's domestic hotels. The
Company's reservation system allows subscribing travel agents worldwide to
reserve and confirm airline seats and hotel rooms in China, a service that has
been unavailable to date. The Company's reservation system is also expected to
allow travel agents who previously earned no compensation for selling domestic
Chinese airline tickets to earn a commission for the services that they provide
to their customers. Hainan-Phoenix also anticipates earning fees from bookings
made through its reservation system for airline seats, hotel rooms, tours and
other Chinese travel products that may be offered through the Company's
reservation system.
Hainan-Phoenix has developed the CHINA TRAVEL NETWORK which is
an industry network or "intranet". The China Travel Network is a common
platform for network communications, office automation and e-mail. The users
will be airline carriers, airport authorities, air traffic control, fuel supply
companies, and information systems suppliers such as hotels, travel agents,
tour companies and cruise lines. Hainan-Phoenix will sell the network which
includes PHOENIX-AIR and PHOENIX-HOTEL software. The Joint Venture's products
will be available on the "internet". Hainan- Phoenix's programming team is
expected to have on-line reservations available on the web towards the end of
1996 using the Netscape software interface. This web site will allow any user
in the world to have access to flight schedules, hotels, destination
information and other travel services in China.
AIRLINE INDUSTRY
General Background
Most airline tickets are sold by independent retail travel
agencies using any one of the six CRSs which now dominate the travel industry:
SABRE, GALILEO, WORLDSPAN, AMADEUS, ABACUS and GABRIEL. These CRSs provide the
database, automation and means of communication for most of the world's travel
agency locations, which number more than 80,000. For an airline's products to
be sold effectively, they must be available through one of these
industry-standard CRSs. To date, this has not been the case for China's
domestic airlines and hotels. However, through the Company's agreements with
GALILEO, WORLDSPAN and SYSTEMONE/AMADEUS, the Company's reservation system
users have access to the information stored by these mainframe CRSs. See
"--The Company's Reservations Systems."
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Chinese Domestic Airlines
The Chinese government has allowed the formation of
independent airlines. There are now over 20 independent commercial airlines
operating in China. These airlines include Hainan Airlines, China United
Airlines, New China (Xinhua) Air, Shanghai Airlines, Sichuan Airlines, Hubei
Airlines, Xiamen Airlines, Xinjiang Airlines, Wuhan Airlines and many others.
Many of these independent carriers have ambitious expansion plans. In
addition, reports indicate that new airlines are being formed and that the
growth and expansion of the travel and tourism industry as well as that of the
airline industry is expected to continue well into the next decade.
According to a report by a division of CAAC, the number of
domestic air passengers in China increased from 22 million in 1992 to 40
million in 1994. Without access to CAAC's reservation system, however, the
independent airlines are hampered by an inability to offer prospective domestic
passengers the ability to book reservations in advance. None of the Chinese
carriers have the capacity to book international reservations. This lack of
capacity has proven to be a major obstacle for the independent carriers in
China.
THE OPPORTUNITY FOR THE COMPANY
The Company's reservation system offers an immediate, viable
solution to China's and the less developed travel market's current travel
problem of non-existent or poorly automated reservation systems.
Hainan-Phoenix provides an affordable, in-country reservation system
alternative to Chinese customers. Furthermore, Hainan-Phoenix will distribute
and sell worldwide its inventory of airline seats, hotel rooms and other travel
products. Hainan-Phoenix's database of Chinese travel products, easily
accessible to travel agents everywhere, is expected to enable travelers to and
within China to book reservations as they would to other major travel
destinations.
COMPANY PLAN OF DEVELOPMENT
With respect to the global market, the Company proposes to
establish agreements with the CRS service suppliers and interline agreements
with the major international airlines now serving China. In 1995 and 1996, the
Company announced agreements with Galileo International (CRS), SystemOne (CRS)
(now SystemOne/Amadeus) and SITA (communications access), making it possible
for Phoenix's proposed travel services and products to be available through
travel agent terminals worldwide. The Company anticipates reaching agreements
with additional CRS systems in the future. Airline interline agreements would
enable international carriers to sell directly from the Company's inventory of
domestic Chinese airline seats and hotel rooms. For example, from the United
States, the two dominant carriers to China are Northwest and United Airlines.
Both of these airlines would offer Phoenix an appealing CRS affiliation.
United Airlines, along with British Airways and others, is on the GALILEO CRS,
which has 49,000 travel agency subscribers worldwide (12,500 of these in the
United States). Northwest, along with TWA and Delta, is on the WORLDSPAN CRS,
which has more than 10,000 travel agency subscribers (40,000 terminals) in the
United States and Canada, as well as more than 1,000 agencies in other
countries. WORLDSPAN also provides access to ABACUS, a Singapore-based CRS,
which has more than 2,500 travel agency subscribers in the Pacific Rim.
12
<PAGE> 13
PSL seeks to position itself in worldwide travel markets as a
principal distributor of travel products and information about China. The
Company proposes to assemble a flexible array of travel components, and to
capitalize on the Company's reservation systems by warehousing these products
and distributing them in foreign markets. More specifically, the Company plans
to follow the following four-point plan:
1. The Company will link its international database of
airline and hotel inventory to Phoenix's principal
office in St. Petersburg, Florida and to industry
owned communications networks, including Societe
Internationale de Telecommunications Aeronautiques
("SITA") and Aeronautical Radio Incorporated
("ARINC") to enable the flow of standardized
reservation messages and traffic between systems.
This step is critical to allowing international
promotion of China's travel products.
2. The Company will establish "interline agreements"
with major air carriers and reservation systems
outside China on behalf of Hainan-Phoenix's
subscribing airlines. These agreements will enable
the Company to display and sell seats on China's
domestic flights through other airline systems and to
arrange revenue settlement procedures which are
compatible with and acceptable to the established
travel industry.
3. The Company will develop and sell individual and
group travel products to travelers going to China.
These products may be sold directly or by wholesale
and retail travel agencies worldwide.
4. The Company will organize advertising and promotional
programs to position the Company as the premier U.S.
source of travel products to China and develop a
professional sales force to support the marketing
efforts.
Hainan-Phoenix Sales Agreement
The Company has an understanding with Hainan Airlines that PSL
will enter into a general sales agency agreement with Hainan-Phoenix to act as
the exclusive general sales agent for Hainan-Phoenix's clients for an initial
period of five years.
Pursuant to the proposed general sales agency agreement, PSL
would undertake to sell Hainan-Phoenix's travel products and information
services to travel providers outside of China and to send travelers to China
through the Hainan-Phoenix reservation system, however, the Company has
determined that a general sales agency agreement is not practicable.
COMPETITION
The Company's potential competitors can be grouped into three
general categories: (1) global CRSs, (2) other airline systems, and (3)
reservations services companies. A brief description of each follows.
13
<PAGE> 14
o Global CRSs (ABACUS, SABRE, GALILEO, WORLDSPAN,
AMADEUS and GABRIEL), some of which are used by such
airlines as Delta, TWA, American, United and
Northwest, are both airline and travel agency
systems. These systems are designed to operate at
great speed in order to allow for a myriad of fare
and schedule changes and to support the world-wide
travel agency community. These IBM- based systems
operate in an environment known as TPF ("Transaction
Processing Facility"). There are numerous obstacles
to installing and operating TPFs in China, including
(i) a very large capital investment and (ii) required
license fees.
TPF systems communicate with travel agents and other
CRSs using protocol ALC, a six-bit protocol that is
limited in its capability to be used in a new
environment. ALC supports a very limited character
set, and could not be used, for example, to print
Chinese characters.
The costs associated with entering the Chinese travel
market are compounded for the Global CRSs given (i)
the lack of subscribers ready or able to install the
specialized equipment necessary to hook into and
maintain contact with the Global CRSs mainframe
computers, (ii) the Chinese government's preference
for "in-country" reservation systems and (iii) the
Chinese copyright laws which render many vendors of
software wary of exporting their products to China.
o Other Airlines - Air carriers, such as Air China,
Japan Airlines, Lufthansa and other European air
carriers have computerized reservation systems.
While any one of these airlines, among others, could
offer their services to domestic Chinese airlines,
the Company believes that no Chinese airline has
become a partner with a foreign airline for such a
purpose. The Company believes foreign airlines face
two principal obstacles in forging alliances in
China. First, these airline reservations systems do
not offer complete reservation services for
intra-China flights. Second, in order to enter into
the Chinese market, a foreign airline would give up
much of its autonomy to CAAC while the individual
Chinese carrier may also fear losing autonomy over
its business to a larger foreign airline.
Hainan-Phoenix has the advantage of having no
government-aligned airline affiliation. Thus,
Hainan-Phoenix can offer the Chinese airlines the
advantages of modern reservations services and
worldwide distribution without loss of independence.
Moreover, unlike the Company's Stratus/PC-based
system, virtually all airline systems operate in
either an IBM/TPF or UNISYS environment, either of
which would be much more expensive and less flexible
than Hainan- Phoenix's system.
o Reservation Services - Reservation Services are
offered also by SITA (Gabriel), CAAC, Maersk Data
Systems and APOLLO. SITA provided
14
<PAGE> 15
the original reservations service to CAAC but was
dropped when CAAC decided to provide its own service
utilizing a UNISYS System. Maersk is a large Swedish
transportation concern. APOLLO operates in the
IBM/TPF environment.
o CAAC does not pay travel agency commissions on
intra-China flights. CAAC's policy is not to book
confirmed reservations on domestic flights for
foreign travelers except those who fly into China on
China Air. Even for Chinese travelers, CAAC
generally issues only one-way tickets, so that local
government officials at the destination can continue
to exercise their historic control over seat
availability on outgoing airplanes. To date,
management believes that CAAC has not executed
interlining agreements with any western airlines, and
therefore cannot make or accept confirmed
computerized reservations for seats on each others
airlines.
Hotel chains such as Sheraton and Hyatt have computerized
reservation systems pertaining to their own hotels, however, management
believes that they do not offer the complete land travel services which are
anticipated to be offered by Phoenix.
PREDECESSORS
Phoenix was originally incorporated in Delaware on April 4,
1986 as C.S. Primo Corp. C.S. Primo Corp. changed its name to Dynasty Travel
Group, Inc. on July 9, 1991. Dynasty Travel Group, Inc. subsequently changed
its name to Phoenix Information Systems Corp. on September 29, 1993.
TRADEMARKS AND COPYRIGHTS
Phoenix applied for federal registration of the trademark
"PHOENIX," "PHOENIX-AIR" for Phoenix's airline reservation system and
"PHOENIX-HOTEL" for Phoenix's hotel reservation system, which applications were
approved by the United States Patent and Trademark office. Such trademarks
will enhance Phoenix's right to use such trademarks and stop others from
infringing upon such trademarks.
Phoenix has also received copyright protection for the
software programs of "PHOENIX-AIR" and "PHOENIX- HOTEL". However, copyright
protection granted by the United States Copyright Office affords only limited
practical protection against duplication of the media embodying the programs.
EMPLOYEES
At May 31, 1996, the Company had 130 employees including
executive officers to the Company. The Company believes that its future
success will depend, in part, on its ability to attract and retain qualified
personnel. None of the Company's employees is currently represented by a labor
union. The Company considers its relations with its employees to be good.
15
<PAGE> 16
ITEM 2. PROPERTIES
On July 29, 1993, the Company entered into a six-year lease
for approximately 10,000 square feet of office space in St. Petersburg,
Florida. On July 13, 1995, PSL entered into a seven-year lease for
approximately 9,000 square feet of office space in the same building.
Pursuant to the Joint Venture Agreement as modified, Hainan
Airlines has provided Hainan-Phoenix with 600 square meters in its office
building in Haikou, Hainan for a period of 38 months. In addition,
Hainan-Phoenix has leased 30 square meters in Beijing in the China Air Service
Building at a cost of $1,000 per month to support the Joint Venture's marketing
efforts. Rent expense for such space in fiscal 1996 and 1995 was approximately
$730,000 and $188,000, respectively. See Note 7 of the Consolidated Financial
Statements.
ITEM 3. LEGAL PROCEEDINGS
UNGERLEIDER V. ROBERT P. GORDON, PHOENIX INFORMATION SYSTEMS CORP., ET AL.
On April 13, 1995, Bruce A. Ungerleider, M.D. (the
"Plaintiff"), filed a complaint in the United States District Court for the
Middle District of Florida (Tampa Division), Civil Action No. 95-568 (the
"Complaint"), against Robert P. Gordon ("Gordon"), Phoenix Information Systems
Corp. ("Phoenix"), Harvest International of America, Inc. ("Harvest") and John
Does 1 through 10 inclusive (together with Gordon, Phoenix and Harvest, the
"Defendants").
The Plaintiff's claims essentially relate to alleged
agreements, misrepresentations and omissions made prior to the time of, or in
connection with, a written settlement agreement entered into on April 15, 1993
between Plaintiff and Gordon, Phoenix and Harvest (the "Settlement Agreement").
The Plaintiff also alleges that Gordon made oral promises to induce Plaintiff
to enter into the Settlement Agreement including an oral promise to give
Plaintiff shares of Phoenix stock in addition to the shares specified in the
Settlement Agreement. Plaintiff alleges that he was fraudulently induced to
enter into the Settlement Agreement pursuant to which he released his rights
to, among other things, options, payments and a finders fee in connection with
investment monies subsequently received by the Company from S-C.
In December 1994, S-C consummated its investment in the
Company. In connection with S-C's investment, Robert J. Conrads, a director of
the Company who introduced the Company to S-C, received a finders fee which
entitled him to 600,000 shares of Common Stock. See "Item 7. - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Certain Financing Transactions."
The Plaintiff claims that the Defendants, and each of them
individually, violated the antifraud provisions of the Federal and Florida
securities law, the civil theft provision of Florida law, and Florida common
law. The Plaintiff seeks rescission, and compensatory and treble damages in
the amount of $60 million.
The management of Phoenix is of the opinion that the lawsuit
is without merit, and that there are meritorious defenses to the claims. The
management of Phoenix also is of the
16
<PAGE> 17
opinion that the April 15, 1993 agreement referred to in the previous paragraph
is a valid and binding compromise and settlement agreement in accordance with
its terms.
All of the defendants have moved to dismiss the complaint and
the motion has been sub judice since September, 1995. The parties are
currently engaging in pre-trial discovery, which is scheduled to conclude in
August of 1996. If Phoenix does not prevail in its defense of the Plaintiff's
claims, Phoenix's business, financial condition and future prospects would be
materially adversely affected.
CHARLES CHANG AND JULIETTE CHANG V. ROBERT P. GORDON AND PHOENIX INFORMATION
SYSTEMS CORP.
On or about November 17, 1995, Charles Chang ("C. Chang")
filed a complaint against Defendants Phoenix, Robert P. Gordon, and Harvest
International of America, Inc. ("Harvest"), in the Supreme Court of the State
of New York, County of New York. The defendants removed the action to the
United States District Court for the Southern District of New York. On April
16, 1996, C. Chang and his wife, Juliette Chang (collectively with C. Chang,
the "Plaintiffs") filed an Amended Complaint in the United States District
Court for the Southern District of New York, Docket No. 96 Civ. 152 (the
"Amended Complaint"), against Phoenix and Robert P. Gordon. The Amended
Complaint alleges claims against Phoenix for violation of Federal securities
laws, the Racketeering Influenced and Corrupt Organizations Act, common law
fraud, and for an accounting. The Amended Complaint seeks an unspecified
amount of damages to be determined and purports to seek punitive damages in the
sum of $10,000,000.
The action appears to be based on an alleged business
relationship between Robert P. Gordon and C. Chang to engage in business in
China. In addition, the Amended Complaint alleges that Robert P. Gordon and C.
Chang had an oral agreement to exchange certain shares of Harvest owned by C.
Chang for certain shares of Phoenix held by Robert P. Gordon. Plaintiffs do
not allege that Phoenix was a party to any of the transactions alleged in the
Amended Complaint.
The management of Phoenix has been advised by counsel that it
has meritorious defenses to the Amended Complaint and intends vigorously to
defend the action. Phoenix and Robert P. Gordon have moved to dismiss the
Amended Complaint. There can be no assurance, however, that Phoenix will be
successful in defending the action and the Company is unable to state the
potential outcome of this lawsuit. In the event that the action ultimately
concludes in an adverse manner, then Phoenix's business, financial condition
and future prospects could be materially adversely affected.
SETTLED MATTERS
On September 30, 1994, the Securities and Exchange Commission
("S.E.C.") issued an Order Instituting Proceedings Pursuant to Section 8A of
the Securities Act of 1933 and Section 21C of the Securities Exchange Act of
1934, Making Findings' and Imposing a Cease and Desist Order against Harvest
and Robert P. Gordon. The findings and remedial sanctions imposed by the Order
were in accordance with Offers of Settlement dated July 24, 1994, submitted by
Harvest and Mr. Gordon, which the S.E.C. accepted. Without admitting or
denying liability, Harvest and Mr. Gordon consented to the Cease and Desist
Order alleging violations of Section 17(a) of the 1933 Act and Section 10(b)
and Rule 10b-5 of the 1934 Act by reason of
17
<PAGE> 18
alleged misrepresentations in 1990 and 1991 in connection with the offer and
sale of Harvest non-interest bearing promissory notes convertible into common
stock of the predecessors of Phoenix and PSG, and which common stock was to
have been issued and registered within 30 or 60 days from the dates of the
various notes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. MARKET INFORMATION
On May 9, 1991, the Company's Common Stock became quoted in
the Over-The-Counter market in the "Pink Sheets" and on the Electronic Bulletin
Board.
On April 13, 1995 Phoenix submitted an application to have its
Common Stock listed on the Nasdaq Stock Market (the "Nasdaq"). On January 25,
1996, the NASDAQ Stock Market had determined that the Company does not meet its
listing requirements. As soon as the Company and its advisors feel that the
Company would qualify for listing, Phoenix will again apply.
The current bulletin board symbol is "PHXS." Set forth below
are prices of the Company's Common Stock for the periods indicated as quoted by
the National Quotation Bureau, Inc.:
<TABLE>
<CAPTION>
Bid
---
High Low
---- ---
<S> <C> <C>
Fiscal 1995
- -----------
April 1 - June 30, 1994 $ 1 $ 5/16
July 1 - September 30, 1994 3 1/32 3/16
October 1 - December 31, 1994 2 5/8 7/32
January 1 - March 31, 1995 5 1 1/8
Fiscal 1996
- -----------
April 1 - June 30, 1995 3 3/4 2
July 1 - September 30, 1995 5 1/2 1 1/8
October 1 - December 31, 1995 5 1/8 1
January 1 - March 31, 1996 4 1
</TABLE>
On May 31, 1996, the closing high bid and low asked prices for
the Company's Common Stock as reflected on the electronic bulletin board were
$2 27/32 and $2 29/32, respectively. The above quotations reflect interdealer
prices without retail markups, markdowns or commissions.
The number of record holders of the Company's Common Stock as
of April 22, 1996 was approximately 1,050. No cash dividends have been paid by
the Company on its Common Stock and no cash dividend payment is anticipated in
the foreseeable future.
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<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following is selected financial information only, and is
qualified by the consolidated financial statements and notes thereto, which are
set forth in their entirety elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended March 31,
--------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement Data:
- -------------------------------------------------------------------------------------------------------------------------------
Net Sales $ 746,535 $ 136,624 $ -0-
- -------------------------------------------------------------------------------------------------------------------------------
Start-Up and Organizational Expenses (11,404,534) (5,507,242) (2,585,940)
- -------------------------------------------------------------------------------------------------------------------------------
Net Loss (9,704,318) (4,841,824) (2,567,932)
- -------------------------------------------------------------------------------------------------------------------------------
Net Loss Per Common Share (.23) (.19) (.12)
- -------------------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common Shares 41,727,774 25,836,623 22,161,238
- -------------------------------------------------------------------------------------------------------------------------------
Cash Dividends $ -0- $ -0- $ -0-
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Cumulative Since
April 1, 1989
Year Ended March 31, (Inception) to
March 31, 1996
------------------------------------------
1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement Data:
- -------------------------------------------------------------------------------------------------------------------------------
Net Sales $ -0- $ -0- $ 883,159
- -------------------------------------------------------------------------------------------------------------------------------
Start-Up and Organizational Expenses (1,641,252) (549,121) (22,366,344)
- -------------------------------------------------------------------------------------------------------------------------------
Net Loss (1,640,852) (549,095) (19,980,096)
- -------------------------------------------------------------------------------------------------------------------------------
Net Loss Per Common Share (.08) (.03) Not Applicable
- -------------------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common Shares 20,867,000 20,000,000 Not Applicable
- -------------------------------------------------------------------------------------------------------------------------------
Cash Dividends $ -0- $ -0- $ -0-
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (1):
- -------------------------------------------------------------------------------------------------------------------------------
Working Capital (Deficit) $ (919,317) $ 772,086 $ (751,358) $ (586,126) $ (159,418)
- -------------------------------------------------------------------------------------------------------------------------------
Total Assets 5,482,717 4,584,348 300,467 117,816 44,954
- -------------------------------------------------------------------------------------------------------------------------------
Long Term Debt 173,075 9,391 -0- -0- -0-
- -------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity (Deficit) 653,367 2,463,970 (2,495,508) (953,202) (377,930)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For information pertaining to the issuance of $5,000,000 of 6%
convertible preferred stock in April 1996, see Note 10 of the
Consolidated Financial Statements.
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
INTRODUCTORY STATEMENT
Phoenix Information Systems Corp. ("Phoenix" or the "Company")
is a development-stage information systems and services company that has
developed airline and hotel travel reservation systems.
In fiscal 1996, Phoenix commenced operations in the United
States, China and Russia. Efforts are under way to enlist additional airlines,
hotels and other travel service providers. While Phoenix has now commenced
operations, the Company has only a brief operating history and has yet to
generate significant revenues or earnings. Consequently, Phoenix's continued
existence has depended, primarily, upon its ability to raise capital.
In China, Phoenix has installed and begun to operate its
advanced computerized travel reservation system for domestic airlines. Phoenix
provides state-of-the-art, travel-related information services to China through
its 70% owned joint venture with China Hainan Airlines.
RESULTS OF OPERATIONS
During the fiscal years ended March 31, 1996, 1995 and 1994,
Phoenix sustained net losses of $9,704,318, $4,841,824 and $2,567,932,
respectively. These losses may continue for a presently undetermined time.
While Phoenix has concentrated its sales efforts in China,
Russia and other countries, the Company has also focused on small domestic
carriers that could utilize the Company's reservation system. On May 5, 1995,
Phoenix entered into an Agreement with Eastwind Airlines, Inc. ("Eastwind") to
provide Eastwind (a new ticketless carrier with service between Greensboro,
Boston and Trenton) with a complete reservation system to manage all sales,
airport and operations functions. In addition, Phoenix implemented a
reservation center that processes all Eastwind reservations as of July 16,
1995. Furthermore, in May 1996, the Company commenced commercial operations
with Laker Airlines.
Higher travel commission revenues in fiscal 1996 as compared
to fiscal 1995 are primarily attributable to the inclusion of American
International Travel Agency Inc.'s results for a full year in fiscal 1996 as
compared to a partial year in fiscal 1995.
During the fiscal years ended March 31, 1996, 1995 and 1994,
Phoenix had start-up and organizational expenses of $11,404,534, $5,507,242 and
$2,585,940, respectively. The expanding start-up and organizational expenses
over the three year period reflects principally the addition of marketing and
administrative employees, consulting and legal services and greater financing
costs as the Company's focus shifts from product development to generation of
customers and sales.
20
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
Working Capital Deficit; Financial Instability
As of March 31, 1996, Phoenix had stockholders' equity of
$653,367, an accumulated deficit of $19,980,096 and a working capital deficit
of $919,317. Phoenix has not generated any significant revenues, earnings or
history of operations from inception through March 31, 1996. During fiscal
1996, Robert P. Gordon, Chairman of the Board lent the Company $1,182,500 as
working capital of which $232,500 was then utilized to exercise 172,222 stock
options; $850,000 was converted into a 5% note, payable on demand; and $100,000
as a non-interest bearing loan. In April 1996, the demand note and the
non-interest bearing loan were repaid through the issuance of $5,000,000 of
convertible preferred stock.
Phoenix continues its efforts to raise funds in order to
assure that the Company will have sufficient capital to meet its obligations
and to implement its proposed operations and plans. However, no assurances can
be given that such efforts will be successful.
Certain Financing Transactions
The following is a summary of certain material financing
transactions entered into by the Company during the past three years to meet
its liquidity requirements:
In May 1993, Phoenix entered into a Placement Agent Agreement
(the "Agreement") with Axiom Partners, Inc. ("Axiom"), a New York based
brokerage firm, pursuant to which Axiom agreed to serve as Placement Agent for
a private offering of up to 1,400,000 of Phoenix's units at an offering price
of $1.50 per unit for an aggregate maximum gross amount of $2,100,000. Each
Unit consisted of one share of Phoenix's common stock and one warrant to
purchase one share of Phoenix's common stock at an exercise price of $3.00 per
share at any time until the expiration date of April 30, 1995. The Agreement
provided that, if by August 2, 1993, Phoenix had not (i) completed a financing
of at least $7,000,000, inclusive of the proceeds raised from this offering,
(ii) entered into a letter of commitment for the financing (or a highly
confident letter for the underwriting of the financing) or (iii) otherwise
entered into a written arrangement that reasonably established that the
financing would be consummated by October 31, 1993, and certain other financing
conditions were not met, then the exercise price would be lowered to $.50 per
share. Since the Company did not meet any of the foregoing conditions, the
exercise price of the warrants was lowered to $.50 per share.
From the commencement of the private placement offering in May
1993 through August 13, 1993, Phoenix sold 355,000 Units and raised gross
proceeds of $532,500. During the offering, Phoenix issued 42,750 Units to
Axiom and its counsel as compensation in the offering. As of April 30, 1995,
all of the warrants were exercised at $.50 per share into 397,750 shares which
were issued in connection with the exercise of such warrants.
In February 1994, the Company sold privately to Robert
Conrads, an accredited investor who has since become a member of the Company's
Board of Directors, a "unit" consisting of 350,000 restricted shares of common
stock and 200,000 common stock purchase warrants which expire on March 1, 1999
for a purchase price of $250,000. The warrant included in such unit entitles
the holder to purchase 200,000 shares of common stock at an exercise price of
$2.00 per share from March 1, 1994 through the expiration date.
21
<PAGE> 22
In May 1994, the Company sold privately to an accredited
investor two Units consisting of 66,667 restricted shares of common stock and
an equal number of common stock purchase warrants (the "Warrant") which expire
on May 10, 1997 (the "Expiration Date") for a purchase price of $50,000 per
Unit. For each Unit, the warrant entitles the holder to purchase 66,667 shares
of common stock at an exercise price of $2.00 per share from May 10, 1994
through the Expiration Date.
On December 9, 1994, the Company entered into a Convertible
Note Purchase Agreement (the "Note Agreement") with S-C. The Note Agreement
provides for the sale of up to an aggregate of $10,000,000 of the Company's
convertible notes ("Notes") in five "tranches" pursuant to the terms of the
Note Agreement. The Notes bear interest at short-term LIBOR plus 2%, are due
on the earlier of December 8, 1999, or thirteen months from demand, and are
secured under a Security Agreement by the Company's airline and hotel
reservation system applications software. The Notes were required to be
offered by the Company to S-C upon the Company achieving certain performance
and operational targets or events as specified in the Note Agreement.
On December 9, 1994, Phoenix issued its Tranche A Convertible
Note, in the principal amount of $3,000,000, in exchange for net proceeds of
$2,846,670. On February 17, 1995, Phoenix issued its Tranche B Convertible
Note, in the principal amount of $1,200,000 pursuant to the terms of the
Agreement. Under the Agreement, Phoenix was to offer the $1,200,000 Tranche B
Convertible Note to S-C after completing the installation of Phoenix's airline
reservation system in China, which was completed on February 9, 1995. On March
15, 1995, Phoenix and S-C entered into an amendment (the "Amendment") to the
Agreement providing, among other things, for the issuance by Phoenix of a
Tranche C Note, in the principal amount of $1,000,000, prior to the target date
specified in the Agreement and conversion of all outstanding notes, in the
aggregate principal amount of $5,200,000, into 9,666,666 shares of Phoenix's
common stock at the conversion prices provided in the notes. The conversion
took place effective March 16, 1995.
On August 3, 1995, Phoenix and S-C entered into an amendment
(the "Amendment") to the agreement providing, among other things, for the issue
by Phoenix of the remaining $200,000 Tranche C Convertible Note along with
$150,000 from the Tranche D Convertible Note prior to the target dates
specified in the agreement.
On September 15, 1995, February 9, 1996 and March 15, 1996,
Phoenix and S-C entered into amendments (the "Amendments") to the agreement
providing, among other things, for the acceleration of issuance by Phoenix of
$1,200,000 and $1,150,000 under the Tranche D Convertible Note and $2,100,000
under the Tranche E Convertible Note.
Note issuances during fiscal year 1996 aggregating $4,800,000
were converted on the then dates of issue into 4,333,333 shares of Phoenix's
common stock at the conversion prices provided in the notes. Furthermore,
300,000 additional common shares were issued. As of March 16, 1996, S-C had
purchased all $10,000,000 notes and had converted the notes into Phoenix common
stock.
In connection with the execution of the Note Agreement, the
Company granted S-C three-year warrants to purchase up to 4,000,000 shares of
Common Stock at an exercise price of $3.00 per share.
22
<PAGE> 23
S-C will also have registration rights, first purchase rights
on subsequent issues by the Company to maintain the percentage ownership of the
Company, and the right to nominate one or more directors to the Company's
Board. Further, if the Company enters into a joint venture to install and
operate its reservation system in India, then S-C has the right to participate
in such joint venture on an equal basis with the Company and its joint venture
partner (i.e., each partner would own one-third if the Partnership elects to
participate fully).
In consideration of S-C's agreement to purchase the Tranche C
Note prior to the specified target date and conversion of the note to equity,
Phoenix issued to S-C a three-year warrant to purchase 2.5 million shares of
its Common Stock at a purchase price of $2.00 per share. This warrant is fully
exercisable at any time, but otherwise contains substantially the same terms as
the warrant to purchase 4 million shares at $3.00 per share issued in
connection with the execution of the Note Agreement. Phoenix also agreed to
certain modifications to the Registration Rights Agreement entered into with
S-C. Furthermore, in consideration of S-C's agreements to purchase a portion
of the Tranche C Note and all of the Tranche D and E Notes prior to the
specified target dates and conversion of the notes to equity, Phoenix issued to
S-C three-year warrants as follows:
<TABLE>
<S> <C>
600,000 @ $ 4.00
345,000 @ 3.00
140,000 @ 3.28
700,000 @ 3.00
</TABLE>
These warrants are fully exercisable at any time, but
otherwise contain substantially the same terms as the 2,500,000 warrants
specified above.
As of March 31, 1996, assuming exercise of all outstanding stock
options and warrants, S-C's investment will represent approximately 36% of
Phoenix's outstanding equity. While management continues to hold, and has a
right to acquire, approximately 27% of Phoenix's outstanding equity, the
transactions described above may be deemed to constitute a "change of control"
of Phoenix. Neither Phoenix nor S-C, however, consider the foregoing as a
"change of control."
CONVERSIONS OF DEBT
On November 1, 1993, Michael Gordon, a brother of the
President of Phoenix, agreed to convert $219,700 in demand loans into a 10%
Convertible Note. The 10% Convertible Note permitted Mr. Gordon to convert the
outstanding principal balance of the note plus interest into the Company's
common stock before the maturity date of the 10% Convertible Note on January 1,
1995. On December 31, 1994, Michael Gordon converted the 10% Convertible Note,
with an outstanding balance of $246,780, and at a conversion rate of $1.25 per
share as specified in the 10% Convertible Note, into 197,424 shares of the
Company's Common Stock.
In November 1993 and February 1994, Robert and Elizabeth
Gordon converted their $1,275,618 in demand loans into 10% Convertible Notes.
Each of the 10% Convertible Notes permitted the Gordons to convert the
outstanding principal balance of the note plus interest into the Company's
Common Stock before the maturity date of the 10% Convertible Notes on January
1, 1995. In November 1994, Robert and Elizabeth Gordon elected to convert
their 10% Convertible Notes, with an outstanding balance of $1,409,041 (based
on conversion rates of
23
<PAGE> 24
$1.25 and $0.75 per share as specified in the 10% Convertible Note Agreements
dated November 1, 1993 and February 25, 1994) into 1,452,713 shares of the
Company's Common Stock.
In November 1994, the Board of Directors approved converting
certain of the Company's existing debt into stock. The Board of Directors
authorized the conversion of $1,700,000 of principal amount non-interest
bearing loans due Harvest International of America, Inc. and Visitors Services,
Inc. (both owned and controlled by Robert P. Gordon) into 3,400,000 shares of
the Common Stock of the Company from the authorized but unissued stock of the
Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 and an index thereto
commences on page F-1, which pages follow this page.
24
<PAGE> 25
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(A Development Stage Company)
REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS
for the years ended March 31, 1996, 1995, and 1994
and cumulative for the period from inception of development
stage activities, April 1, 1989, through March 31, 1996
<PAGE> 26
C O N T E N T S
_____________________________
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Financial Statements:
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in
Stockholders' Equity (Deficit) F-5 - F-9
Consolidated Statements of Cash Flows F-10 - F-11
Notes to Consolidated Financial Statements F-12 - F-26
</TABLE>
F-1
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Phoenix Information Systems Corp.
We have audited the accompanying consolidated balance sheets of Phoenix
Information Systems Corp. and subsidiaries (the Company), a Delaware
corporation in the development stage, as of March 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the years ended March 31, 1996, 1995 and 1994 and
cumulative for the period from April 1, 1991 through March 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows for the period from
inception of development stage activities, April 1, 1989 through March 31,
1991. Those statements were audited by other auditors whose report dated May
3, 1991, included an explanatory paragraph that expressed substantial doubt
about the Company's ability to continue as a going concern. Our opinion
insofar as it relates to those statements is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audit and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Phoenix Information Systems Corp.
and subsidiaries as of March 31, 1996 and 1995, and the results of their
operations and their cash flows for the years ended March 31, 1996, 1995, and
1994 and cumulative for the period from inception of development stage
activities, April 1, 1989, through March 31, 1996, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the accompanying consolidated financial statements, the Company is a
development stage company with significant losses and cash flow deficits to
date and at March 31, 1996 has not generated any significant revenue, earnings
or history of operations from inception. These conditions raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Tampa, Florida
May 30, 1996
F-2
<PAGE> 28
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS, MARCH 31
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,078,510 $ 1,864,581
Prepaids 135,474 17,700
Trade receivables 78,622 7,141
Receivable from related parties 65,469 346,850
------------- --------------
Total current assets 2,358,075 2,236,272
Property and equipment, net 1,882,549 1,646,563
Deposits and other 110,360 39,706
Due from joint venture partner 737,662 174,605
Goodwill, net 394,071 487,202
------------- --------------
Total assets $ 5,482,717 $ 4,584,348
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 300,773 $ 17,422
Accounts payable 2,688,530 1,256,134
Accrued payroll and payroll taxes 272,582 120,592
Accrued interest 15,507 70,038
------------- --------------
Total current liabilities 3,277,392 1,464,186
Payable to related parties 1,046,633 593,051
Notes payable, less current portion 173,075 9,391
Accrued compensation expense 332,250 53,750
------------- --------------
Total liabilities 4,829,350 2,120,378
------------- --------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.01 par value, 75,000,000 shares authorized,
45,722,618 and 39,510,393 shares issued and outstanding
at March 31, 1996 and 1995, respectively 457,226 395,104
Additional paid-in capital 20,176,237 12,344,644
Losses that have accumulated during the development stage (19,980,096) (10,275,778)
------------- --------------
Total stockholders' equity 653,367 2,463,970
------------- --------------
Total liabilities and stockholders' equity $ 5,482,717 $ 4,584,348
============= ==============
</TABLE>
See accompanying notes.
F-3
<PAGE> 29
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended March 31, 1996, 1995, and 1994
and cumulative for the period from inception of development
stage activities, April 1, 1989, through March 31, 1996
______________________________
<TABLE>
<CAPTION>
Cumulative
Since
1996 1995 1994 April 1, 1989
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Start-up and organizational expenses $ (11,404,534) $ (5,507,242) $ (2,585,940) $ (22,366,344)
Travel commissions, net 387,432 136,624 - 524,056
Management fee income - 138,021 - 138,021
Reservation center revenues 359,103 - - 359,103
License fee income 24,000 24,000 18,000 66,000
Interest and dividend income 25,704 21,708 8 50,026
------------ ------------- ------------- --------------
Net loss before minority interest
in net loss of subsidiary (10,608,295) (5,186,889) (2,567,932) (21,229,138)
------------ ------------- ------------- --------------
Minority interest in net loss of subsidiary 903,977 345,065 - 1,249,042
------------ ------------- ------------- --------------
Net loss $ (9,704,318) $ (4,841,824) $ (2,567,932) $ (19,980,096)
============ ============= ============= ==============
Net loss per common share
outstanding $ (.23) $ (.19) $ (.12)
============ ============= =============
Weighted average number of common
shares outstanding 41,727,774 25,836,623 22,161,238
============ ============= =============
</TABLE>
See accompanying notes.
F-4
<PAGE> 30
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the period from incorporation, June 25, 1987, to March 31, 1996
______________________________
<TABLE>
<CAPTION>
Receivable
Common Stock Additional from Losses That Have
---------------------- Paid-In Issuance of Accumulated During
Shares Amount Capital Common Stock Development Stage
------ ------ ------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock of Dynasty
World, December 28, 1987 11,000 $ 110 - $ (110) -
Issuance of common stock of Dynasty
World, February 24, 1989 9,000 90 - (90) -
150 to 1 stock split, March 31, 1989 2,980,000 29,800 - (29,800) -
Issuance of common stock of Dynasty
World in private placement, net
of issuance costs of $11,755,
May 12, 1989 200,000 2,000 $ 386,245 - -
Capital contribution from majority
stockholder of Dynasty World for
start-up costs, March 31, 1990 - - 59,895 16,500 -
Net loss of Dynasty World for the
period from inception - - - - $ (509,068)
----------- ---------- --------- --------- ----------
Balance, March 31, 1990 3,200,000 $ 32,000 $ 446,140 $ (13,500) $ (509,068)
=========== ========== ========= ========= ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 31
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT), Continued
for the period from incorporation, June 25, 1987, to March 31, 1996
<TABLE>
<CAPTION>
Receivable
Common Stock Additional from Losses That Have
------------------------ Paid-In Issuance of Accumulated During
Shares Amount Capital Common Stock Development Stage
------ ------ ------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1990 3,200,000 $32,000 $446,140 $(13,500) $(509,068)
Eliminate minority Dynasty World shares
which were not converted into shares
of Dynasty Travel (454,562) (4,546) 4,546 - -
--------- ------- -------- -------- ---------
Net shares of Dynasty World as of
March 31, 1990 which were converted
into shares of Dynasty Travel on
January 3, 1991 2,745,438 27,454 450,686 - -
Adjustment to convert number of Dynasty
World shares and par value of Dynasty
shares to shares of Dynasty Travel
received in reverse acquisition (217,079) (2,170) 2,170 - -
--------- ------- -------- -------- ---------
Restated balances, March 31, 1990 2,528,359 $25,284 $452,856 $(13,500) $(509,068)
========= ======= ======== ======== =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 32
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT), Continued
for the period from incorporation, June 25, 1987, to March 31, 1996
______________________________
<TABLE>
<CAPTION>
Common Stock
Common Stock Additional Subscribed
-------------------- Paid-In --------------------------
Shares Amount Capital Shares Amount
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Restated balances, March 31, 1990 2,528,359 $ 25,284 $ 452,856 - -
Issuance of 16,800,000 shares of
Dynasty World common stock on
January 3, 1991, as converted to
shares of Dynasty Travel received
in the reverse acquisition 15,471,641 154,716 13,284 - -
Balance in capital accounts of Dynasty
Travel prior to the reverse
acquisition on March 4, 1991 2,000,000 20,000 (38,900) - -
Net loss - - - - -
---------- --------- --------- ------- --------
Balance, March 31, 1991 20,000,000 200,000 427,240 - -
Sale of stock subscription - - 215,600 440,000 $ 4,400
Collection of stock subscription - - - - -
Net loss - - - - -
---------- --------- --------- ------- --------
Balance, March 31, 1992 20,000,000 $ 200,000 $ 642,840 440,000 $ 4,400
========== ========= ========= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Receivable
from Losses That Have
Issuance of Accumulated During
Common Stock Development Stage
------------ -----------------
<S> <C> <C>
Restated balances, March 31, 1990 $ (13,500) $ (509,068)
Issuance of 16,800,000 shares of
Dynasty World common stock on
January 3, 1991, as converted to
shares of Dynasty Travel received
in the reverse acquisition - -
Balance in capital accounts of Dynasty
Travel prior to the reverse
acquisition on March 4, 1991 - -
Net loss - (167,007)
------------- ------------
Balance, March 31, 1991 (13,500) (676,075)
Sale of stock subscription - -
Collection of stock subscription 13,500 -
Net loss - (549,095)
------------- ------------
Balance, March 31, 1992 $ - $ (1,225,170)
============= ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 33
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT), Continued
for the period from incorporation, June 25, 1987, to March 31, 1996
______________________________
<TABLE>
<CAPTION>
Common Stock
Common Stock Additional Subscribed
------------------------- Paid-In -------------------------
Shares Amount Capital Shares Amount
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1992 20,000,000 $ 200,000 $ 642,840 440,000 $ 4,400
Issuance of common stock 1,050,159 10,502 298,978 (440,000) (4,400)
Sale of common stock subscription - - 753,665 833,500 8,335
Net loss - - - - -
---------- --------- ----------- --------- --------
Balance, March 31, 1993 21,050,159 210,502 1,695,483 833,500 8,335
Issuance of common stock 1,585,750 15,858 716,638 (833,500) (8,335)
Sale of stock subscription - - 295,465 450,000 4,500
Collection of stock subscription - - - - -
Net loss - - - - -
---------- --------- ----------- --------- --------
Balance, March 31, 1994 22,635,909 $ 226,360 $ 2,707,586 450,000 $ 4,500
========== ========= =========== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Receivable
from Losses That Have
Issuance of Accumulated During
Common Stock Development Stage
------------ ------------------
<S> <C> <C>
Balance, March 31, 1992 - $ (1,225,170)
Issuance of common stock $ (1,500) -
Sale of common stock subscription - -
Net loss - (1,640,852)
---------- ------------
Balance, March 31, 1993 (1,500) (2,866,022)
Issuance of common stock - -
Sale of stock subscription - -
Collection of stock subscription 1,500 -
Net loss - (2,567,932)
---------- ------------
Balance, March 31, 1994 $ - $ (5,433,954)
========== ============
</TABLE>
See accompanying notes.
F-8
<PAGE> 34
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT), Continued
for the period from incorporation, June 25, 1987, to March 31, 1996
______________________________
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In
Shares Amount Capital
------ ------ -------
<S> <C> <C> <C>
Balance, March 31, 1994 22,635,909 $ 226,360 $ 2,707,586
Issuance of common stock subscribed 450,000 4,500 -
Sale of common stock 133,334 1,333 98,667
Acquisition of minority interest of subsidiary 533,333 5,334 461,332
Conversion of indebtedness to related
parties to common stock 5,050,137 50,501 3,305,320
Compensation paid through issuance of stock 225,000 2,250 172,750
Services paid through issuance of stock 816,014 8,159 495,656
Conversion of notes payable to stock 9,666,666 96,667 5,103,333
Net loss - - -
---------- --------- ------------
Balance, March 31, 1995 39,510,393 395,104 12,344,644
Sale of common stock 776,070 7,761 680,184
Conversion of indebtedness to related
parties to common stock 172,222 1,722 230,778
Compensation paid through issuance of stock 547,500 5,475 830,296
Services paid through issuance of stock 83,100 831 196,668
Conversion of notes payable to stock 4,633,333 46,333 4,753,667
Transaction fee paid through issuance of options - - 1,140,000
Net loss - - -
---------- --------- ------------
Balance, March 31, 1996 45,722,618 $ 457,226 $ 20,176,237
========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
Common Stock
Subscribed Losses That Have
--------------------- Accumulated During
Shares Amount Development Stage
------ ------ -----------------
<S> <C> <C> <C>
Balance, March 31, 1994 450,000 $ 4,500 $ (5,433,954)
Issuance of common stock subscribed (450,000) (4,500) -
Sale of common stock - - -
Acquisition of minority interest of subsidiary - - -
Conversion of indebtedness to related
parties to common stock - - -
Compensation paid through issuance of stock - - -
Services paid through issuance of stock - - -
Conversion of notes payable to stock - - -
Net loss - - (4,841,824)
----------- ------------- -------------
Balance, March 31, 1995 - - (10,275,778)
Sale of common stock - - -
Conversion of indebtedness to related
parties to common stock - - -
Compensation paid through issuance of stock - - -
Services paid through issuance of stock - - -
Conversion of notes payable to stock - - -
Transaction fee paid through issuance of options - - -
Net loss - - (9,704,318)
----------- ------------- -------------
Balance, March 31, 1996 - $ - $ (19,980,096)
=========== ============= =============
</TABLE>
See accompanying notes.
F-9
<PAGE> 35
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended March 31, 1996, 1995, and 1994
and cumulative for the period from inception of development
stage activities, April 1, 1989, through March 31, 1996
<TABLE>
<CAPTION>
Cumulative
Since
1996 1995 1994 April 1, 1989
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
- ------------------------------------
Net loss $(9,704,318) $(4,841,824) $ (2,567,932) $(19,980,096)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense 1,143,842 212,730 37,926 1,404,607
Compensation paid through issuance of stock 300,000 228,750 24,586 580,452
Transaction fee 1,140,000 - - 1,140,000
Services paid through issuance of stock 835,771 503,815 282,326 1,698,307
Rent paid through in-kind contribution 340,920 170,460 - 511,380
Minority interest in net loss of subsidiary (903,977) (345,065) - (1,249,042)
Other - 81,590 - 157,985
----------- ---------- ------------ ------------
(6,847,762) (3,989,544) (2,223,094) (15,736,407)
Changes in assets and liabilities:
Prepaids, deposits and trade receivables (259,908) 15,653 (20,161) (259,771)
Accounts payable 1,485,396 175,464 50,578 2,065,122
Accrued payroll and payroll taxes 151,990 (347,381) 87,800 216,005
Accrued interest (54,531) 163,530 89,435 216,392
----------- ---------- ------------ ------------
Net cash used in operating activities (5,524,815) (3,982,278) (2,015,442) (13,498,659)
----------- ---------- ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (1,129,196) (992,168) (64,639) (2,224,816)
----------- ---------- ------------ ------------
Net cash used in investing activities (1,129,196) (992,168) (64,639) (2,224,816)
----------- ---------- ------------ ------------
</TABLE>
See accompanying notes.
F-10
<PAGE> 36
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
for the years ended March 31, 1996, 1995, and 1994
and cumulative for the period from inception of development
stage activities, April 1, 1989, through March 31, 1996
______________________________
<TABLE>
<CAPTION>
Cumulative
Since
1996 1995 1994 April 1, 1989
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
- ------------------------------------
Issuance of common stock $ 666,445 $ 100,000 $ 441,800 $ 1,858,095
Stock subscriptions - - 301,500 1,297,000
Proceeds from notes payable 523,000 5,046,670 - 538,000
Payments on notes payable (224,770) (56,406) (35,000) (326,176)
Proceeds from related parties 5,911,962 2,036,206 1,592,715 15,529,818
Payments to related parties - (281,314) (238,101) (1,106,946)
Payments on capital lease obligation (8,697) (10,509) (3,700) 12,194
------------ ------------- ----------- ------------
Net cash provided by financing activities 6,867,940 6,834,647 2,059,214 17,801,985
------------ ------------- ----------- ------------
Increase (decrease) in cash and cash equivalents 213,929 1,860,201 (20,867) 2,078,510
Cash and cash equivalents, beginning of period 1,864,581 4,380 25,247 -
------------ ------------- ----------- ------------
Cash and cash equivalents, end of period $ 2,078,510 $ 1,864,581 $ 4,380 $ 2,078,510
============ ============= =========== =============
</TABLE>
See accompanying notes.
F-11
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____________________
1. Organization and Operations:
The accompanying consolidated financial statements include the accounts
of Phoenix Information Systems Corp. ("Phoenix") and its subsidiaries,
Phoenix Systems Group, Inc. (wholly owned since March 27, 1995), Phoenix
Systems Ltd. (wholly owned since November 11, 1993), Hainan Phoenix
Information Systems, Ltd. (70% owned since November 22, 1993) and
American International Travel Agency, Inc. (wholly owned since September
15, 1994). All significant intercompany accounts and transactions have
been eliminated.
Phoenix, formerly Dynasty Travel Group, Inc. (earlier CS Primo Corp.),
was incorporated in Delaware on April 4, 1986, for the purpose of seeking
potential business opportunities through the acquisition of an existing
business. Prior to the acquisition discussed below, Phoenix was a shell
company with no material assets, liabilities or operations.
Phoenix Systems Group, Inc. ("PSG"), formerly Dynasty World Express,
Inc., was incorporated on June 25, 1987 under the laws of the State of
Delaware and commenced development-stage operations on April 1, 1989 to
become involved in the growth of both business and leisure travel to the
People's Republic of China ("China"), and to participate in the emerging
developments of associated travel infrastructure within China, including
transportation, lodging, funds transfer, and data communications.
On March 4, 1991, Phoenix entered into an Agreement and Plan of
Reorganization (the "Agreement") with PSG, in which 18,000,000 shares of
Phoenix's common stock were issued to certain shareholders of PSG (of
which 16,365,000 shares were issued to Robert P. Gordon and Harvest
International of America, Inc. "Harvest") in exchange for 97.7 percent of
the then outstanding shares of PSG. As of March 4, 1991, PSG had
20,000,000 shares of common stock outstanding which consisted of the
3,200,000 shares outstanding at March 31, 1990, and 16,800,000 shares
which were issued on January 3, 1991. Of the 20,000,000 shares of PSG
outstanding at March 4, 1991, 19,545,438 were exchanged for the
18,000,000 shares of Phoenix's common stock in connection with the
Agreement.
For accounting purposes, the transaction was accounted for as a reverse
acquisition, as if PSG acquired Phoenix because the former shareholders
of PSG owned a majority of Phoenix's common stock (97.7%) following the
acquisition. The consolidated financial statements presented herein for
the periods prior to the effective date of the acquisition only include
the accounts of PSG. The consolidated statements of stockholders' equity
(deficit) have been converted from PSG's capital stock structure to
Phoenix's capital stock structure to reflect the exchange of shares
pursuant to the Agreement. On the date of the acquisition, the minority
stockholders of PSG had a deficit minority interest and, accordingly,
this interest has been valued at zero in the accompanying consolidated
financial statements. The consolidated group of companies are
collectively referred to herein as "Phoenix". All significant
intercompany balances have been eliminated.
Phoenix Systems Ltd. ("PSL"), a Bermuda corporation and wholly-owned
subsidiary of Phoenix, was formed in 1993 to establish foreign
reservation systems joint ventures. PSL formed its first joint venture
company with China Hainan Airlines ("Hainan Airlines"). Phoenix expects
to enter into additional joint venture opportunities in China, other
countries, and the United States. PSL has the responsibility, outside of
China, to market all Phoenix products.
F-12
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____________________
1. Organization and Operations, continued:
On June 30, 1992, Harvest, an affiliate of Phoenix (see Note 6),
received, with the Chinese Academy of Sciences, approval for a joint
venture for the purpose of importing and establishing an airline
reservation system and tour system within China. However, in September
1993, Harvest notified Beijing Great Concept that Harvest would terminate
the joint venture. As an alternative, PSL entered into an Agreement on
October 20, 1993 with Hainan Airlines, whereby PSL and Hainan Airlines
agreed to establish a joint venture to market in China Phoenix's airline
reservations system called PHOENIX-AIR and its hotel reservations system
called PHOENIX-HOTEL and to establish airline and hotel reservation
systems and a tour wholesale system within China. On November 22, 1993,
the new Joint Venture Contract was signed between Hainan Airlines and
PSL. The name of the joint venture is Hainan Phoenix Information
Systems, Ltd. ("Hainan-Phoenix"), an equity joint venture using Chinese
and foreign investment.
Hainan Airlines and PSL submitted the joint venture contract in
mid-December 1993 for approval with the appropriate Chinese government
authorities. The Chinese Ministry of Foreign Economic Relations and
Trade approved the joint venture agreement and on March 12, 1994, Phoenix
was given official notification that Hainan- Phoenix received its
business license from the Chinese State Administration of Industry and
Commerce. In addition to operating the reservation system, the business
license authorizes Hainan-Phoenix to operate in the following lines of
business, among others: the development of other software systems and
networks, computer sales, leasing and after-sales service, technical
training, and consulting services for computer and network applications.
On September 15, 1994, Phoenix consummated the acquisition of all the
capital stock of American International Travel Agency, Inc. ("American")
in exchange for 25,000 shares of common stock in Phoenix. The
acquisition was accounted for under the purchase method. Results of
operations were immaterial for the period September 15, 1994 through
March 31, 1995. American was incorporated in 1977 in the State of
Florida to provide retail leisure travel services, but has expanded its
customer base to include commercial travel services.
In May of 1995 and April of 1996, PSL entered into agreements with
existing airlines to provide airline reservation systems and reservation
services. Phoenix is still in the development stage and has yet to
generate any significant revenues. Accordingly, the consolidated
financial statements are presented on the basis of a development stage
company since April 1, 1989, which was the inception of development stage
operations. Even if Phoenix is ultimately successful in generating
significant revenues, it is uncertain as to how much time may pass before
they are realized.
The accompanying consolidated financial statements have been prepared on
the basis of accounting principles applicable to a going concern.
Accordingly, these financial statements do not include adjustments, if
any, which might be necessary should Phoenix be unable to continue as a
going concern.
2. Summary of Significant Accounting Policies:
Cash and cash equivalents - Cash and cash equivalents consits of
instruments with original maturities of three months or less.
F-13
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____________________
2. Summary of Significant Accounting Policies, continued:
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization, which includes the amortization of assets
recorded under capital leases, is computed using the straight-line method
over the estimated useful lives of the related assets or the remaining
terms of the leases, whichever is shorter. Upon sale or retirement, the
cost and related accumulated depreciation are eliminated from the
respective accounts and any gain or loss is credited or charged to
operations. Maintenance and repairs are charged to expense when
incurred; expenditures for renewals and betterments are capitalized.
Goodwill - Goodwill of approximately $466,700 represents the excess of
the value of PSG stock acquired by Phoenix upon the conversion of PSG
shares and certain Harvest notes into shares of Phoenix (see Note 6) In
addition, goodwill of approximately $61,700 represents the excess of fair
value of net assets acquired of American. Goodwill is being amortized
over 5 years on a straight-line basis. Amortization expense was
approximately $93,100 and $41,200 for 1996 and 1995, respectively. There
was no goodwill prior to 1995.
Revenue recognition - Travel commissions and fees from airline ticketing
are recognized when tickets are written. Hotel and car rental
commissions are recorded as income when cash is received. Cruises and
tour commissions are recorded after the cruises and tours depart.
Management Fee Income - Management fee income represents amounts charged
to Visitors Services, Inc. ("VSI"), a related party, for management and
accounting services.
License Fee Income - License fee income represents monthly fees received
from VSI, for use on a non-exclusive basis of Phoenix's PHOENIX-HOTEL
software.
Income Taxes - As of March 31, 1996, Phoenix has net operating loss
carryforwards of approximately $12,500,000 for income tax purposes that
expire in the years 2007 through 2011. For financial reporting purposes,
a valuation allowance of $4,700,000 has been recognized to offset the
deferred tax assets related to these carryforwards. At March 31, 1996,
Phoenix also has deferred tax assets in the amount of $343,000 related to
start-up costs which have been capitalized for tax purposes. For
financial reporting purposes, a valuation allowance of $343,000 has been
recognized to offset the deferred tax asset related to start-up costs.
For the year ended March 31, 1994, Phoenix adopted Financial Accounting
Standard No. 109, "Accounting for Income Taxes" (SFAS 109), which changed
the requirements for accounting for income taxes from the deferred method
to the asset and liability method. Under the asset and liability method,
expected future tax consequences of temporary differences between the tax
and financial basis of assets and liabilities are reported as deferred
taxes measured at current tax rates. The adoption of SFAS No. 109 had an
immaterial effect on the Company's consolidated financial statements.
Foreign currencies - Foreign currency account balances at year-end are
translated into U.S. dollars at the rate of exchange in effect at
year-end. Gains and losses resulting from foreign currency transactions
are included in net loss as a component of start-up and organizational
expenses as such amounts are immaterial.
F-14
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____________________
2. Summary of Significant Accounting Policies, continued:
Loss Per Common Share - Loss per common share is computed by dividing the
net loss by the weighted average number of common shares outstanding
during the period. Fully diluted per share amounts are antidilutive.
Concentrations of Credit Risk - Financial instruments which potentially
subject Phoenix to concentrations of credit risk consist principally of
cash and cash equivalents. As of March 31, 1996 and 1995, substantially
all of Phoenix's cash balances, including amounts representing
outstanding checks, were maintained with Barnett Bank, N.A..
Non-Cash Transactions - Phoenix had the following non-cash financing
activities during the years ended March 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Investing
- ---------
Transfer of property and equipment from Harvest
via a note payable to Harvest - - $ 69,000
Capital lease obligation - - 29,500
Acquisition of subsidiary, net - $55,655 -
Acquisition of minority interest - 466,666 -
Financing
- ---------
Contribution of joint venture partner - 170,460 -
Conversion of debt to equity $5,032,500 8,555,821 -
Issuance of common stock subscribed - - 8,335
Reclassification of accrued interest to equity - 160,502 45,100
</TABLE>
Use of Estimates - The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial
statements. Estimates also affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Reclassifications - Certain reclassifications have been made to Phoenix's
fiscal year 1995 and 1994 consolidated financial statements to conform
with 1996 consolidated financial statement presentation.
3. Property and Equipment:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Equipment and Furniture $ 440,353 $ 148,482
Computers and Software 2,554,962 1,717,638
------------- -------------
2,995,315 1,866,120
Less accumulated depreciation
and amortization 1,112,766 219,557
------------- -------------
$ 1,882,549 $ 1,646,563
============= =============
</TABLE>
F-15
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____________________
3. Property and Equipment, continued:
Depreciation expense for the years ended March 31, 1996, 1995, 1994 and
cumulative for the period from inception through March 31, 1996 was
approximately $893,200, $171,500, $37,900 and $1,112,700, respectively.
4. Notes Payable:
Notes payable consist of the following as of March 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Note payable to bank, payable in monthly installments of $7,805,
including interest of 9.75%, collateralized by certain property
and equipment $ 200,574 $ -
Notes payable to Investment Company, payable in fiscal 1997, with
interest at 4% 200,000 -
Note payable to bank, payable in monthly installments of $2,563,
including interest of 8.75%, collateralized by a certificate of
deposit maintained at the bank 66,680 -
Note payable on demand with periodic payments including
interest of 13.9% - 11,522
Capital lease obligation, payable in monthly installments of $670 6,594 15,291
------------ -----------
473,848 26,813
Less current portion (300,773) (17,422)
------------ -----------
$ 173,075 $ 9,391
============ ===========
</TABLE>
Annual maturities of notes payable for the fiscal years following fiscal
1996 are approximately as follows:
<TABLE>
<S> <C>
1997 $ 301,000
1998 124,000
1999 49,000
</TABLE>
In addition, on December 9, 1994, Phoenix entered into a Convertible Note
Purchase Agreement with S-C Phoenix Partners (see note 5).
F-16
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____________________
5. Equity Transactions:
In November 1994, the Board of Directors authorized the (a) conversion of
$483,150 principal amount of non- registered and non-interest bearing
notes of Harvest issued in 1990 and 1991 to 40 investors into 653,989
shares of the common stock of Phoenix owned by Harvest; (b) conversion of
$600,000 principal amount of non-registered 12.5% Subordinated
Convertible Notes due March 31, 1993 of Harvest issued in 1990 to 37
investors into 822,248 shares of the common stock of Phoenix owned by
Harvest; and (c) conversion of 200,000 non-registered shares of PSG
issued in 1989 to 17 investors into 533,333 shares of the common stock of
Phoenix from the authorized but unissued shares of Phoenix.
Phoenix initiated communications to the various noteholders and
securities holders with respect to the conversion and transfer of their
present ownership into shares of the common stock of Phoenix and as of
March 31, 1995 (a) Harvest has exchanged all of the $483,150 principal
amount of non-registered and non-interest bearing notes into 653,989
shares of the common stock of Phoenix owned by Harvest, held by all 40
investors; (b) Harvest has exchanged all of the $600,000 principal amount
of non-registered 12.5% Subordinated Convertible Notes of Harvest into
822,248 shares of the common stock of Phoenix owned by Harvest,
representing all 37 investors; and (c) Phoenix has exchanged 533,333
shares of the common stock of Phoenix from the authorized but unissued
shares of Phoenix for all 200,000 shares of PSG held by all 17 investors.
Phoenix now owns 100.0% of PSG.
On December 9, 1994, Phoenix entered into a Convertible Note Purchase
Agreement ("Agreement") with S-C Phoenix Partners, a New York general
partnership ("S-C"), comprised of affiliates of Quantum Industrial
Holdings, Ltd., George Soros and Purnendu Chatterjee. The Agreement
provides for the sale of up to $10,000,000 of Phoenix's convertible notes
("Notes").
On December 9, 1994, Phoenix issued its Tranche A Convertible Note, in
the principal amount of $3,000,000, in exchange for net proceeds of
$2,846,670. On February 17, 1995, Phoenix issued its Tranche B
Convertible Note, in the principal amount of $1,200,000 pursuant to the
terms of the Agreement. Under the Agreement, Phoenix was to offer the
$1,200,000 Tranche B Convertible Note to S-C after completing the
installation of Phoenix's airline reservation system in China, which was
completed on February 9, 1995. On March 15, 1995, Phoenix and S-C
entered into an amendment (the "Amendment") to the Agreement providing,
among other things, for the issue by Phoenix of a Tranche C Note, in the
principal amount of $1,000,000, prior to the target date specified in the
Agreement and conversion of all outstanding notes, in the aggregate
principal amount of $5,200,000, into 9,666,666 shares of Phoenix's common
stock at the conversion prices provided in the notes. The conversion
took place effective March 16, 1995.
On August 3, 1995, Phoenix and S-C entered into an amendment (the
"Amendment") to the agreement providing, among other things, for the
issue by Phoenix of the remaining $200,000 Tranche C Convertible Note
along with $150,000 from the Tranche D Convertible Note prior to the
target dates specified in the agreement.
On September 15, 1995, February 9, 1996 and March 15, 1996, Phoenix and
S-C entered into amendments (the "Amendments") to the agreement
providing, among other things, for the acceleration of issuance by
Phoenix of $1,200,000 and $1,150,000 under the Tranche D Convertible Note
and $2,100,000 under the Tranche E Convertible Note.
F-17
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____________________
5. Equity Transactions, continued:
Note issuances during fiscal year 1996 aggregating $4,800,000 were
converted on the then dates of issue into 4,333,333 shares of Phoenix's
common stock at the conversion prices provided in the notes. Furthermore,
300,000 additional common shares were issued. As of March 16, 1996, S-C
had purchased all $10,000,000 in notes and had converted the notes into
Phoenix common stock. The notes bore interest at short-term LIBOR plus
2%.
In connection with the execution of the Note Agreement, the Company
granted S-C three-year warrants to purchase up to 4,000,000 shares of
Common Stock at an exercise price of $3.00 per share.
S-C will also have registration rights, first purchase rights on
subsequent issues by the Company to maintain the percentage ownership of
the Company, and the right to nominate one or more directors to the
Company's Board. Further, if the Company enters into a joint venture to
install and operate its reservation system in India, then S-C has the
right to participate in such joint venture on an equal basis with the
Company and its joint venture partner (i.e., each partner would own
one-third if the Partnership elects to participate fully).
In consideration of S-C's agreement to purchase the Tranche C Note prior
to the specified target date and conversion of the note to equity,
Phoenix issued to S-C a three-year warrant to purchase 2.5 million shares
of its Common Stock at a purchase price of $2.00 per share. This warrant
is fully exercisable at any time, but otherwise contains substantially
the same terms as the warrant to purchase 4 million shares at $3.00 per
share issued in connection with the execution of the Note Agreement.
Phoenix also agreed to certain modifications to the Registration Rights
Agreement entered into with S-C. Furthermore, in consideration of S-C's
agreements to purchase a portion of the Tranche C Note and all of the
Tranche D and E Notes prior to the specified target dates and conversion
of the notes to equity, Phoenix issued to S-C three-year warrants as
follows:
<TABLE>
<S> <C>
600,000 @ $ 4.00
345,000 @ 3.00
140,000 @ 3.28
700,000 @ 3.00
</TABLE>
These warrants are fully exercisable at any time, but otherwise contain
substantially the same terms as the 2,500,000 warrants specified above.
On December 7, 1995, Phoenix and S-C Phoenix Holdings entered into an
agreement granting Phoenix the option to purchase from S-C Phoenix
Holdings a 50% interest in American Aviation Limited, a company formed to
purchase 25% or more of the equity in Hainan Airlines. Under the
agreement, Phoenix may purchase a 50% interest in American Aviation
Limited for $15,000,000, exercisable for one year from the date of
American's purchase of the Hainan shares. As consideration for the
option, Phoenix granted to S-C Phoenix Holdings warrants to purchase
shares of Phoenix common stock as follows: 2 million shares exercisable
for 120 days at the price of $4.00 per share, which warrant expired
unexercised; and 2 million shares as of the date of American's
$25,000,000 investment in Hainan, exercisable for a period of three years
at a price of $3.28 per share, commencing on December 22, 1997. In
addition, Phoenix granted to S-C Phoenix and Quantum an option to sell
all or part of American Aviation to Phoenix for up to a maximum of
8,000,000 shares of Phoenix's common stock,
F-18
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____________________
5. Equity Transactions, continued:
subject to certain adjustments and conditions, exercisable from December
22, 1997 through December 22, 2000.
6. Related Party Transactions:
In 1989, Phoenix entered into a consulting agreement with Harvest. Under
the terms of this agreement, Phoenix paid Harvest $10,000 per month
beginning in April 1989 relating to operating contracts with certain
Chinese travel companies which Harvest was instrumental in obtaining.
This agreement was terminated in October 1989. Start-up and
organizational expenses in the accompanying consolidated statement of
operations include $70,000 related to this agreement.
On January 3, 1991, PSG issued 16,800,000 shares to Harvest making it the
majority shareholder of PSG until the reverse acquisition with Phoenix on
March 4, 1991 (see Note 1). The shares were issued in exchange for
approximately $38,000 in cash, the forgiveness of $54,000 of indebtedness
which arose subsequent to March 31, 1990, and as reimbursement to Harvest
for approximately $76,000 of rent expense incurred by PSG on office
facilities subleased from Harvest (see below). These shares were
exchanged for shares of Phoenix's common stock in connection with the
reverse acquisition on March 4, 1991.
The majority shareholder of PSG until the issuance of additional shares
to Harvest on January 3, 1991, (see above) and a stockholder of PSG until
the reverse acquisition with Phoenix on March 4, 1991 (see Note 1),
incurred approximately $76,400 of certain travel and travel related
expenses associated with negotiating the operating contracts discussed
above. These costs, which are included in start-up and organizational
expenses in the accompanying consolidated statements of operations, were
a non-reimbursable capital contribution. Of the $76,400, $16,500 was
used to satisfy the total receivable for the stock issuance. The
remaining receivable of $13,500 was due from one stockholder, who is also
a director of Phoenix and was paid in full during 1992.
During fiscal years 1996, 1995 and 1994, Phoenix earned licensing fee
income from VSI, a related entity. VSI is owned by the President of
Phoenix along with certain shareholders of Phoenix. Phoenix has an
agreement with VSI to license on a nonexclusive basis the PHOENIX-HOTEL
software for a period of 15 years at a fee of $2,000 per month subject to
Phoenix's right to increase the monthly fee after a period of one year in
the event Phoenix is able to enter into similar licensing arrangements
with non-affiliated third parties at higher fees. The revenue of $2,000
per month for the license is consideration for VSI performing as a beta
testing site for the software.
Phoenix has advanced to and received from related entities, operating
funds, on a non-interest bearing basis. For the years ended March 31,
1996 and 1995, the balances were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
VSI, receivable $ 44,043 $ 268,045
VSI, payable 159,643 345,917
</TABLE>
The payable to related parties at March 31, 1996 and 1995, respectively,
included $77,200 and $279,600 of accrued expenses for travel and
services rendered, which are payable to various related
F-19
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____________________
6. Related Party Transactions, continued:
parties; and $39,100 and $44,800 in legal fees from a company that is
controlled by a past director of Phoenix.
From April 1990 to March 1991, Phoenix and PSG subleased office space and
existing computer and office equipment from Harvest in St. Petersburg,
Florida at a monthly cost of $7,000. The monthly rate increased to
$7,500 per month between April 1991 and June 1992. This facility
contained approximately 7,500 square feet of office space of which
approximately 40% has been subleased by Phoenix. During the period from
July 1992 to August 1993, Phoenix subleased approximately 85% of the
office space from Harvest at a combined monthly rental of $15,000.
However, on July 29, 1993, Phoenix entered into a lease agreement to take
over the existing premises of Harvest, plus an additional 3,638 square
feet of rentable area. The lease agreement became effective September 1,
1993 and the rental schedule for September 1, 1993 through December 31,
1995 was approximately $11,100 per month and for 1996 is approximately
$12,200 per month.
On November 1, 1993, Michael Gordon, a brother of the President of
Phoenix, agreed to convert the outstanding balance of $219,700 in demand
loans into a 10% Convertible Note. The outstanding principal amount and
accrued and unpaid interest on the Note were, under the terms of the
Note, convertible into Phoenix's common stock at a conversion rate of
$1.25 per share before the maturity date on January 1, 1995. On December
31, 1994, Michael Gordon converted the 10% Convertible Note, with an
outstanding balance of $246,780, at a conversion rate of $1.25 per share
as specified in the 10% Convertible Note, into 197,424 shares of
Phoenix's common stock.
In November 1993 and February 1994, Robert and Elizabeth Gordon converted
$1,275,618 in demand loans into 10% Convertible Notes. Each of the 10%
Convertible Notes permitted the Gordons to convert the outstanding
principal balance of the note plus interest into Phoenix's common stock
before the maturity date of the 10% Convertible Notes on January 1, 1995.
In November 1994, Robert and Elizabeth Gordon elected to convert their
10% Convertible Notes, with an outstanding balance of $1,409,041 (based
on conversion rates of $1.25 and $0.75 per share as specified in the 10%
Convertible Note Agreements dated November 1, 1993 and February 25, 1994)
into 1,452,713 shares of Phoenix's common stock.
On December 22, 1993, Phoenix's disinterested four members of the Board
of Directors, namely Paul Henry, Robert Baranek, Frank Cappiello and Chen
Feng, unanimously approved the grant to Robert P. Gordon, Chairman of the
Board of Phoenix, options to purchase 8,500,000 shares of Phoenix's
common stock at an exercise price of $1.35 per share at any time until
the expiration date on December 22, 1998. The disinterested Directors
(who have no economic interest in Harvest) retained Wilson Associates
(experts in business valuation issues) to perform the following
assessment services relative to the contribution of Robert P. Gordon in
arranging the Hainan-Phoenix Joint Venture Contract on behalf of Phoenix:
"(1) consideration, study and determination of the value of past
services, economic contribution and related benefits conferred by Robert
P. Gordon and his associates and affiliates for Phoenix and its
predecessor companies, and (2) whether those activities merit special
compensation or benefits and the amount of such compensation or benefits,
together with a study of any matters related to the foregoing."
In November 1994, the Board of Directors approved converting certain of
Phoenix's existing debt into stock. The Board of Directors
authorized the conversion of $1,700,000 of principal amount non-
F-20
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____________________
6. Related Party Transactions, continued:
interest bearing loans due Harvest and VSI (both owned and controlled by
Robert P. Gordon) into 3,400,000 shares of the Common Stock of Phoenix
from the authorized but unissued stock of Phoenix. The conversion was
completed effective December 2, 1994.
On September 30, 1994, the Securities and Exchange Commission ("S.E.C.")
issued an Order Instituting Proceedings Pursuant to Section 8A of the
Securities Act of 1933 ("1933 Act") and Section 21C of the Securities
Exchange Act of 1934 ("1934 Act"), Making Findings' and Imposing a Cease
and Desist Order against Harvest and Robert P. Gordon. The findings and
remedial sanctions imposed by the Order were in accordance with Offers of
Settlement dated July 24, 1994, submitted by Harvest and Mr. Robert P.
Gordon, which the S.E.C. accepted. Without admitting or denying
liability, Harvest and Mr. Robert P. Gordon consented to the cease and
desist order alleging violations of Section 17 (a) of the 1933 Act and
Section 10 (b) and Rule 10b-5 of the 1934 Act by reason of alleged
misrepresentations in 1990 and 1991 in connection with the offer and sale
of Harvest non-interest bearing promissory notes convertible into common
stock of the predecessors of Phoenix and PSG, and which common stock was
to have been issued and registered within 30 or 60 days from the dates of
the various notes.
During fiscal 1996, Robert P. Gordon, Chairman of the Board lent the
Company $1,182,500 as working capital of which $232,500 was then utilized
to exercise 172,222 stock options; $850,000 was converted into a 5% note,
payable on demand; and $100,000 as a non-interest bearing loan. In April
1996, the demand note and the non-interest bearing loan were repaid, see
note 10. Interest expense on the demand note amounted to $12,007 in
fiscal 1996.
During fiscal 1996, Hainan Phoenix Information Systems, Ltd. borrowed
$19,395 from the wife of its President, which loan bears interest at 4%.
7. Commitments and Contingencies:
PSL has contracted with Hainan Airlines and established the
Hainan-Phoenix Joint Venture ("Joint Venture") in China, which is 70%
owned by PSL and 30% by Hainan Airlines. The Joint Venture Agreement
requires its partners to fund Hainan-Phoenix with $8,580,000 in cash and
property. Hainan Airlines has agreed to contribute $1,500,000 in cash
and $1,080,000 in property, in the form of an in-kind contribution for
the use of 400 square meters of prime office facilities for a period of
five years. Pursuant to the Joint Venture Agreement as modified, Hainan
Airlines has provided the Joint Venture with 600 square meters in its
office building in Haikou, Hainan for a period of 38 months. PSL has
agreed to provide the Joint Venture with cash of $1,500,000 and
subsequent cash as loans to the Joint Venture (of which approximately
$1,500,000 had been loaned as of March 31, 1996) and the PHOENIX-AIR and
PHOENIX-HOTEL software, valued at $4,500,000. PSL has provided the
PHOENIX-AIR and PHOENIX-HOTEL software. Hainan Airlines has not made
their individual $1,500,000 cash contribution. In addition, Phoenix
plans to perform certain services for the Joint Venture, including staff
training, technical support, and marketing services. Phoenix also plans
to provide additional capital to the Joint Venture to expand the
reservation system, if necessary.
On April 13, 1995, a third party filed a complaint in the United States
District Court with claims that essentially relate to alleged agreements,
misrepresentations and omissions made prior to the time of, or in
connection with, a written settlement agreement entered into on
April 15, 1993 (the "Settlement
F-21
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____________________
7. Commitments and Contingencies, continued:
Agreement") between Plaintiff and Robert P. Gordon ("Gordon"), Phoenix
and Harvest (the "Defendants"). The Plaintiff alleges that Gordon made
oral promises to induce Plaintiff to enter into the Settlement Agreement
including a promise to give Plaintiff additional Phoenix stock which
Plaintiff claims that he initially received. Plaintiff alleges that he
was fraudulently induced to enter into the Settlement Agreement pursuant
to which he released his rights to, among other things, options, payments
and a finders fee in connection with investment monies subsequently
received by Phoenix. The Plaintiff seeks rescission, and compensatory
and treble damages in the amount of $60 million.
On April 16, 1996, a third party filed an Amended Complaint in the United
States District Court, against Robert P. Gordon and Phoenix. The
Amended Complaint alleges claims against Phoenix for violation of Federal
securities laws, the Racketeering Influenced and Corrupt Organizations
Act, common law fraud, and for an accounting. The Amended Complaint
seeks an unspecified amount of damages to be determined and purports to
seek punitive damages in the sum of $10,000,000.
The action appears to be based on an alleged business relationship
between Robert P. Gordon and a third party to engage in business in
China. In addition, the Amended Complaint alleges that Robert P. Gordon
and a third party had an oral agreement to exchange certain shares of
Harvest owned by the third party for certain shares of Phoenix held by
Robert P. Gordon. Plaintiffs do not allege that Phoenix was a party to
any of the transactions alleged in the Amended Complaint.
Management of Phoenix is of the opinion that the lawsuits are without
merit, and that there are meritorious defenses to the claims. The
occurrence or outcome of such litigation cannot presently be determined.
Accordingly, no provision for liability that may result, if any, has been
made in the accompanying consolidated financial statements. If Phoenix
does not prevail in its defense of the Plaintiff's claims, Phoenix's
business, financial condition and future prospects would be materially
adversely affected.
During September 1992, Phoenix purchased applications software for an
airline reservation system. On September 29, 1993, Phoenix formed a
marketing alliance with Stratus Computer, Inc. ("Stratus") of Marlboro,
Massachusetts whereby Phoenix will act as a Systems Integrator in
Stratus' "Pinnacle Partner Program." This agreement will allow both
companies to market Phoenix software products and Stratus hardware
products worldwide.
The Company leases its office space under long-term operating leases
expiring at various dates. Rent expense for the years ended March 31,
1996, 1995, 1994 and cumulative for the period from inception through
March 31, 1996 was approximately $730,000, $188,000, $153,000, and
$1,402,000, respectively. At March 31, 1996, the approximate minimum
annual rental commitments under these non-cancelable leases were:
<TABLE>
<S> <C>
FY1997 $ 810,000
FY1998 643,000
FY1999 302,000
FY2000 268,000
FY2001 144,000
-----------
$ 2,167,000
===========
</TABLE>
F-22
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____________________
8. Registration Statements:
In May 1993, Phoenix entered into a Placement Agent Agreement (the
"Agreement") with Axiom Partners, Inc. ("Axiom"), a New York based
brokerage firm pursuant to which Axiom agreed to serve as Placement Agent
for a private offering of up to 1,400,000 of Phoenix's units at an
offering price of $1.50 per unit for an aggregate maximum gross amount of
$2,100,000. Each unit consisted of one share of Phoenix's common stock
and one warrant to purchase one share of Phoenix's common stock at an
exercise price of $3.00 per share at any time until the expiration date
of April 30, 1995. The Agreement provided for Axiom to offer to sell
180,000 of Phoenix's units on a "best efforts/all or none" basis and the
remaining 1,220,000 units on a "best efforts" basis. The Placement
Agreement provided that, if by August 2, 1993, neither Phoenix nor any of
its affiliates had (i) completed a financing of at least $7,000,000,
inclusive of the proceeds raised from this offering, (ii) entered into a
letter of commitment for the financing (or a highly confident letter for
the underwriting of the financing) or (iii) otherwise entered into a
written arrangement that reasonably established that the financing would
be consummated by October 31, 1993, and certain other financing
conditions were not met, then the exercise price would be lowered to $.50
per share. Since Phoenix did not meet any of the foregoing conditions,
the exercise price of the warrants was lowered to $.50 per share. The
Agreement provided for an offering period of 30 days commencing on May
13, 1993, subject to certain extensions mutually agreed upon by the
parties. The offering period was extended to the close of business on
August 13, 1993 and terminated on the same date.
From the commencement of the private placement offering in May 1993
through August 13, 1993, Phoenix sold 355,000 units and raised gross
proceeds of $532,500. Such proceeds were utilized to make payments of
approximately $187,000 to the Internal Revenue Service, $254,000 to pay
for salaries and other general operating expenses, and $92,000 for the
expenses of the offering. During the offering, Phoenix issued 42,750
units to Axiom and its counsel as further compensation in the offering.
As of April 30, 1995, all of the warrants were exercised at $.50 per
share into 397,750 shares of Phoenix's common stock.
In February 1994, Phoenix sold privately to an accredited investor a unit
for shares of its restricted common stock at a purchase price of $250,000
for the unit. The unit consisted of 350,000 shares of Phoenix's common
stock and 200,000 common stock purchase warrants which expire on March 1,
1999. Each warrant entitles the holder to purchase common stock at an
exercise price of $2.00 per share from March 1, 1994 through the
expiration date. Such proceeds were utilized to pay for salaries and
other general operating expenses.
In May 1994, Phoenix sold privately to an accredited investor two units
for shares of its restricted common stock at a purchase price of $50,000
per unit. Each unit consists of 66,667 shares of Phoenix's common stock
and an equal number of common stock purchase warrants (the "warrant")
which expire on May 10, 1997 (the "Expiration Date"). For each unit, the
warrant entitles the holder to purchase 66,667 shares of common stock at
an exercise price of $2.00 per share from May 10, 1994 through the
Expiration Date. Such proceeds were utilized to pay for salaries and
other general operating expenses.
Phoenix filed a Form S-8 Registration Statement with the S.E.C. in
connection with an employee benefit plan (the "Plan") covering 4,000,000
shares. On December 4, 1995, Phoenix filed a reoffer prospectus covering
registered securities of the same class of 5,000,000 additional shares of
Phoenix's common stock, pursuant to the Plan. The Plan allows Phoenix to
issue common stock and/or options to purchase common stock to certain
consultants, service providers and employees. The purpose of the
F-23
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____________________
8. Registration Statements, continued:
plan is to promote the best interests of Phoenix and its stockholders by
providing a means of non-cash remuneration to eligible participants who
contribute to the operating progress and earning power of Phoenix. The
Plan is administered by Phoenix's Board of Directors or a committee
consisting of three members which has the discretion to determine from
time to time the eligible participants to receive an award; the number of
shares of stock issuable directly or to be granted pursuant to option;
the price at which the option may be exercised or the price per share in
cash or cancellation of fees or other payments which Phoenix is liable
for. As of March 31, 1996, a total of 973,823 shares were issued under
the plans, including 75,000 shares to two executive officers of American,
247,222 shares to three executive officers of Phoenix, 346,820 shares to
three former employees, 117,500 shares for public relations services and
187,281 shares for legal services.
Future sales of substantial amounts of Phoenix's common stock in the open
market by selling security holders or pursuant to Rule 144 could have a
substantial and material adverse impact on the market price of Phoenix's
common stock. The availability of these shares for resale in the
over-the-counter market may make it more difficult for Phoenix to
establish a trading market.
F-24
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____________________
9. Stock Options and Warrants:
Stock option and warrant transactions during the years ended March 31,
1996, 1995 and 1994 are listed below. There was no stock option activity
prior to fiscal year 1994.
<TABLE>
<CAPTION>
Options and Warrants Option Price
-------------------- ------------
<S> <C> <C>
1994
----
Outstanding, beginning of year -0-
Granted 11,212,750 $ .50 - $2.00
Exercised -0-
Canceled -0-
----------
Outstanding, end of year 11,212,750 $ .50 - $2.00
----------
Exercisable, end of year 9,878,256 $ .50 - $2.00
---------
1995
----
Outstanding, beginning of year 11,212,750 $ .50 - $2.00
Granted 11,649,167 $1.06 - $3.00
Exercised -0-
Canceled -0-
----------
Outstanding, end of year 22,861,917 $ .50 - $3.00
----------
Exercisable, end of year 15,559,117 $ .50 - $3.00
----------
1996
----
Outstanding, beginning of year 22,861,917 $ .50 - $3.00
Granted 6,235,000 $3.00 - $5.00
Exercised (1,031,792) $ .50 - $1.70
Canceled (2,472,809) $1.00 - $4.00
----------
Outstanding, end of year 25,592,316 $1.00 - $5.00
----------
Exercisable, end of year 20,883,453 $1.00 - $5.00
----------
</TABLE>
F-25
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____________________
10. Subsequent Event:
In April 1996, Phoenix issued $5,000,000 of 6% convertible preferred
stock. The preferred stock is convertible into common stock at a 15% discount
to market, subject to a maximum conversion price of $4.00 per share and a
minimum of $2.00 per share. If not converted by the purchaser prior to the
second anniversary of the issuance date, the preferred stock will automatically
be converted into common stock. Assuming the preferred stock were converted on
March 31, 1996, selected balance sheet totals would be as follows:
<TABLE>
<S> <C>
Cash and cash equivalents $ 6,828,510
Total assets 10,232,717
Stockholders' Equity 5,403,367
</TABLE>
F-26
<PAGE> 52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEMS 10, 11, 12 AND 13
Information required by Items 10, 11, 12 and 13 of this Form
10-K is incorporated by reference from Phoenix Information Systems Corp.'s
definitive Proxy Statement for its 1996 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission, pursuant to
Regulation 14A, not later than 120 days after the end of the fiscal year.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM
8-K.
(a)(1)(2) Financial Statements/Schedules
A list of the Financial Statements and Financial Statement
Schedules filed as a part of this Report is set forth in Item 8, and appears at
Page F-1 of this Report, which list is incorporated herein by reference.
<TABLE>
<CAPTION>
(a)(3) Exhibits
--------
<S> <C>
3 Certificate of Incorporation as Amended
3.1 By-Laws
10.1 China Hainan Airline Agreement dated October 20, 1993 (1)
10.2 Employment Contract with Robert P. Gordon dated November 1, 1993 (1)
10.3 Employment Contract with Xenophon L. Sanders dated August 16, 1993 (2)
10.4 Consultant Agreement with Frank Cappiello dated November 11, 1993 (1)
10.5 Consultant Agreement with Chen Feng dated November 11, 1993 (1)
10.6 Consulting Agreement with Paul W. Henry dated November 1, 1993 (1)
10.7 Employment Contract with Leo O. Parisi dated October 1, 1993 (1)
10.8 Employment Contract with Joseph Avila dated October 1, 1993 (1)
</TABLE>
25
<PAGE> 53
<TABLE>
<S> <C>
10.9 Employment Contract with Vincent P. Gordon dated November 1, 1993 (1)
10.10 Phoenix Consulting and Services Compensation Agreement dated February 25, 1994 (employee
benefit plan covering 4,000,000 shares) (1)
10.11 Hainan-Phoenix Joint Venture Contract dated November 22, 1993 (3)
10.12 Articles of Association of Hainan-Phoenix dated November 22, 1993 (3)
10.13 Amendment No. 1 to Hainan-Phoenix Joint Venture Contract dated February 4, 1994 (3)
10.14 Amendment to Agreement and Plan of Share Exchange dated February 9, 1994 (4)
10.15 Amendment to Agreement and Plan of Share Exchange dated May 9, 1994 (5)
10.16 Consultant Agreement between the Company and Robert J. Conrads dated February 25, 1994
(5)
10.17 Software License & Software Maintenance Agreement between the Company and Visitors
Services, Inc. dated April 27, 1993 (5)
10.18 Systems Integrator Purchase and License Agreement between the Company and Stratus
Computer, Inc. dated September 29, 1993 (5)
10.19 Tranche B Convertible Note, dated February 17, 1995, between the Company and S-C Phoenix
Partners. (6)
10.20 Tranche C Convertible Note, dated March 15, 1995, between the Company and S-C Phoenix
Partners. (6)
10.21 Amendment Agreement, dated March 15, 1995, between the Company and S-C Phoenix Partners.
(6)
10.22 Warrant Agreement, dated March 15, 1995, between the Company and S-C Phoenix Partners.
(6)
10.23 Registration Rights Agreement Amendment, dated March 15, 1995, between the Company and S-
C Phoenix Partners. (6)
10.24 Contract for an Automated Airline Reservation System, dated March 1, 1995 between Hainan
Phoenix Information Systems Ltd. and Hainan Airlines. (9)
</TABLE>
26
<PAGE> 54
<TABLE>
<S> <C>
10.25 Agreement, dated May 5, 1995 between Phoenix Systems Ltd. and Eastwind Airline Inc. (9)
10.26 Galileo International Global Airline Distribution Agreement, dated January 10, 1995
between Galileo International Partnership, Galileo International Limited and Hainan
Airlines. (9)
10.27 Galileo International Globalfares Access Agreement, dated February 3, 1995 between
Galileo International Partnership and Phoenix Systems Ltd. (9)
10.28 System One Participating Airline Distribution and Services Agreement between System One
Information Management, Inc. and Phoenix Systems Ltd. (9)
10.29 Amendment Agreement, dated December 9, 1994, between the Company and S-C Phoenix
Partners, a warrant agreement between the Company and S-C Phoenix Partners and (iii) a
registration rights agreement between the Company and S-C Phoenix Partners (7)
10.30 Complaint filed on April 20, 1995 by Bruce A. Ungerleider, M.D., as Plaintiff, against
Robert P. Gordon, the Company, Harvest International of America, Inc. and John Does 1
through 10 inclusive in the Middle District of Florida (Tampa District) (8)
*10.31 Amended Consulting Agreement with Paul W. Henry dated March 10, 1995
*10.32 Amended Employment Contract with Vincent P. Gordon dated January 17, 1995
*10.33 Employment Agreement with Leonard S. Ostfeld dated November 1, 1995
10.34 Phoenix Consulting and Services Compensation Agreement dated December 4, 1995 (employee
benefit plan covering 5,000,000 shares) (10)
*10.35 Amendment Agreement, dated August 3, 1995, between the Company and S-C Phoenix Partners
to the Tranche C and D Notes
*10.36 Amendment Agreement, dated September 15, 1995, between the Company and S-C Phoenix
Partners (6)
*10.37 Options Agreement dated December 7, 1995 between the Company and S-C Phoenix Holdings to
purchase a 50% interest in American Aviation Limited
</TABLE>
27
<PAGE> 55
<TABLE>
<S> <C>
*10.38 Amendment Agreement, dated February 9, 1996, between the Company and S-C Phoenix Partners
to the Tranche D Note
*10.39 Amendment Agreement, dated March 15, 1996, between the Company and S-C Phoenix Partners
to the Tranche E Note
*10.40 Agreement to issue $5,000,000 of 6% convertible preferred stock
* 11 Earnings Per Share (see notes to consolidated financial statements)
* 21 Subsidiaries of the Registrant
* 23 Consent of Coopers & Lybrand, independent auditors for Phoenix Information Systems Corp.
* 27 Financial Data Schedule for the fiscal year ended March 31, 1996.
</TABLE>
-----------------
(1) Incorporated by reference to Exhibit 10(a)(1), (2), (4), (5), (6),
(7), (8), (9), (10), and (11), filed as Exhibits to the Form 10-Q
dated September 30, 1993.
(2) Incorporated by reference to Exhibit 10 in the Form 10-Q dated June
30, 1993.
(3) Incorporated by reference to Exhibit 10(a)(14), (15), (16), and (17),
filed as Exhibits to the Form 10-Q dated December 31, 1993.
(4) Incorporated by reference to Exhibit 2(a) in the Form 8-K/A - No. 1,
under Item 7, date of earliest event reported - December 1, 1993.
(5) Incorporated by reference to Exhibit 10(a)(19), (20), (21), (22),
(23), (24), (25), (26), and (27), filed as Exhibits to the Form 10-K
dated March 31, 1994.
(6) Incorporated by reference to Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5
to the Company's Current Report on Form 8-K filed on April 14, 1995.
(7) Incorporated by reference to the Company's Current Report on Form 8-K
filed on April 14, 1995.
(8) Incorporated by reference to the Company's Current Report on Form 8-K
filed on April 20, 1995.
(9) Incorporated by reference to the Company's 10K filed for the fiscal
year ended March 31, 1995.
(10) Incorporated by reference to the Company's S-8 filed on February 16,
1996.
* Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended March 31, 1996
28
<PAGE> 56
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Phoenix Information Systems Corp.
By /s/ Robert P. Gordon
------------------------------
Robert P. Gordon,
Chairman of the Board
Dated: St. Petersburg, FL
June 18, 1996
Pursuant to the requirement of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
---------- -----
<S> <C> <C>
/s/ Robert P. Gordon Chairman of the Board, and
- -------------------------------- President June 18 , 1996
Robert P. Gordon
/s/ Leonard S. Ostfeld Vice President, and Chief Financial June 18 , 1996
- -------------------------------- Officer
Leonard S. Ostfeld
/s/ Paul W. Henry Secretary, and Director June 18 , 1996
- --------------------------------
Paul W. Henry
/s/ Xenophon L. Sanders Director June 18 , 1996
- --------------------------------
Xenophon L. Sanders
Director , 1996
- -------------------------------- -----------------
Chen Feng
/s/ Frank Cappielo Director June 18 , 1996
- --------------------------------
Frank Cappiello
/s/ Robert J. Conrads Director June 18 , 1996
- --------------------------------
Robert J. Conrads
/s/ W. James Peet Director June 18 , 1996
- --------------------------------
W. James Peet
</TABLE>
<PAGE> 57
Supplemental Information
As such time as an annual report is sent to the security
holders of the Company, copies will be forwarded to the Securities and Exchange
Commission.
<PAGE> 58
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
------ ------------------- ----
<S> <C> <C>
3 Certificate of Incorporation as Amended
3.1 By-Laws
10.1 China Hainan Airline Agreement dated October 20, 1993 (1)
10.2 Employment Contract with Robert P. Gordon dated November 1, 1993 (1)
10.3 Employment Contract with Xenophon L. Sanders dated August 16, 1993 (2)
10.4 Consultant Agreement with Frank Cappiello dated November 11, 1993 (1)
10.5 Consultant Agreement with Chen Feng dated November 11, 1993 (1)
10.6 Consulting Agreement with Paul W. Henry dated November 1, 1993 (1)
10.7 Employment Contract with Leo O. Parisi dated October 1, 1993 (1)
10.8 Employment Contract with Joseph Avila dated October 1, 1993 (1)
10.9 Employment Contract with Vincent P. Gordon dated November 1, 1993 (1)
10.10 Phoenix Consulting and Services Compensation Agreement dated February 25, 1994
(employee benefit plan covering 4,000,000 shares) (1)
10.11 Hainan-Phoenix Joint Venture Contract dated November 22, 1993 (3)
10.12 Articles of Association of Hainan-Phoenix dated November 22, 1993 (3)
10.13 Amendment No. 1 to Hainan-Phoenix Joint Venture Contract dated February 4, 1994 (3)
10.14 Amendment to Agreement and Plan of Share Exchange dated February 9, 1994 (4)
10.15 Amendment to Agreement and Plan of Share Exchange dated May 9, 1994 (5)
10.16 Consultant Agreement between the Company and Robert J. Conrads dated February 25, 1994
(5)
10.17 Software License & Software Maintenance Agreement between the Company and Visitors
Services, Inc. dated April 27, 1993 (5)
10.18 Systems Integrator Purchase and License Agreement between the Company and Stratus
Computer, Inc. dated September 29, 1993 (5)
10.19 Tranche B Convertible Note, dated February 17, 1995, between the Company and S-C Phoenix
Partners. (6)
10.20 Tranche C Convertible Note, dated March 15, 1995, between the Company and S-C Phoenix
Partners. (6)
10.21 Amendment Agreement, dated March 15, 1995, between the Company and S-C Phoenix Partners.
(6)
10.22 Warrant Agreement, dated March 15, 1995, between the Company and S-C Phoenix Partners.
(6)
10.23 Registration Rights Agreement Amendment, dated March 15, 1995, between the Company and
S-C Phoenix Partners. (6)
10.24 Contract for an Automated Airline Reservation System, dated March 1, 1995 between Hainan
Phoenix Information Systems Ltd. and Hainan Airlines. (9)
10.25 Agreement, dated May 5, 1995 between Phoenix Systems Ltd. and Eastwind Airline Inc. (9)
10.26 Galileo International Global Airline Distribution Agreement, dated January 10, 1995
between Galileo International Partnership, Galileo International Limited and Hainan
Airlines. (9)
10.27 Galileo International Globalfares Access Agreement, dated February 3, 1995 between
Galileo International Partnership and Phoenix Systems Ltd. (9)
10.28 System One Participating Airline Distribution and Services Agreement between System One
Information Management, Inc. and Phoenix Systems Ltd. (9)
10.29 Amendment Agreement, dated December 9, 1994, between the Company and S-C Phoenix
Partners, a warrant agreement between the Company and S-C Phoenix Partners and (iii) a
registration rights agreement between the Company and S-C Phoenix Partners (7)
10.30 Complaint filed on April 20, 1995 by Bruce A. Ungerleider, M.D., as Plaintiff, against
Robert P. Gordon, the Company, Harvest International of America, Inc. and John Does 1
through 10 inclusive in the Middle District of Florida (Tampa District) (8)
*10.31 Amended Consulting Agreement with Paul W. Henry dated March 10, 1995
*10.32 Amended Employment Contract with Vincent P. Gordon dated January 17, 1995
*10.33 Employment Agreement with Leonard S. Ostfeld dated November 1, 1995
10.34 Phoenix Consulting and Services Compensation Agreement dated December 4, 1995 (employee
benefit plan covering 5,000,000 shares) (10)
*10.35 Amendment Agreement, dated August 3, 1995, between the Company and S-C Phoenix Partners
to the Tranche C and D Notes
*10.36 Amendment Agreement, dated September 15, 1995, between the Company and S-C Phoenix
Partners (6)
*10.37 Options Agreement dated December 7, 1995 between the Company and S-C Phoenix Holdings to
purchase a 50% interest in American Aviation Limited
*10.38 Amendment Agreement, dated February 9, 1996, between the Company and S-C Phoenix Partners
to the Tranche D Note
*10.39 Amendment Agreement, dated March 15, 1996, between the Company and S-C Phoenix Partners
to the Tranche E Note
*10.40 Agreement to issue $5,000,000 of 6% convertible preferred stock
* 11 Earnings Per Share (see notes to consolidated financial statements)
* 21 Subsidiaries of the Registrant
* 23 Consent of Coopers & Lybrand, independent auditors for Phoenix Information
Systems Corp.
* 27 Financial Data Schedule for the fiscal year ended March 31, 1996.
</TABLE>
-----------------
(1) Incorporated by reference to Exhibit 10(a)(1), (2), (4), (5), (6),
(7), (8), (9), (10), and (11), filed as Exhibits to the Form 10-Q
dated September 30, 1993.
(2) Incorporated by reference to Exhibit 10 in the Form 10-Q dated June
30, 1993.
(3) Incorporated by reference to Exhibit 10(a)(14), (15), (16), and (17),
filed as Exhibits to the Form 10-Q dated December 31, 1993.
(4) Incorporated by reference to Exhibit 2(a) in the Form 8-K/A - No. 1,
under Item 7, date of earliest event reported - December 1, 1993.
(5) Incorporated by reference to Exhibit 10(a)(19), (20), (21), (22),
(23), (24), (25), (26), and (27), filed as Exhibits to the Form 10-K
dated March 31, 1994.
(6) Incorporated by reference to Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5
to the Company's Current Report on Form 8-K filed on April 14, 1995.
(7) Incorporated by reference to the Company's Current Report on Form 8-K
filed on April 14, 1995.
(8) Incorporated by reference to the Company's Current Report on Form 8-K
filed on April 20, 1995.
(9) Incorporated by reference to the Company's 10K filed for the fiscal
year ended March 31, 1995.
(10) Incorporated by reference to the Company's S-8 filed on February 16,
1996.
* Filed herewith
<PAGE> 1
EXHIBIT 10.31
AMENDMENT
AMENDMENT to CONSULTING AGREEMENT of November 1, 1993, made as of the
10th day of March 1995, by and between the parties: PAUL W. HENRY, an
individual residing at 91 Crowninshield Road, Brookline, Massachusetts 02146
(hereinafter referred to as the "Consultant") and PHOENIX INFORMATION SYSTEMS
CORP., a Delaware corporation, with principal executive offices located at City
Centre, Suite 1100, 100 Second Avenue South, St. Petersburg, FL 33701
(hereinafter referred to as the "Company").
W I T N E S S E T H
WHEREAS, the Consultant has served the Company as an advisor since
1987, as a Director since August 1992 and as a paid consultant since December
1992; and
WHEREAS, the Consultant and the Company executed a CONSULTING
AGREEMENT of November 1, 1993 (hereinafter referred to as the "AGREEMENT"); and
WHEREAS, by means of this AMENDMENT, the Consultant and the Company
desire to revise and extend the AGREEMENT; and
WHEREAS, all references to the "Company" shall include both Phoenix
Information Systems Corp. and its subsidiaries, unless the context indicates
otherwise. All references to "PISC" shall refer solely to Phoenix Information
Systems Corp.
NOW, THEREFORE, it is mutually agreed by and between the parties
hereto to amend the AGREEMENT as follows:
AMENDMENT TO ARTICLE III
COMPENSATION
The Company shall continue to pay the Consultant at the rate of
$10,000 per month through March 31, 1995, the original term of the AGREEMENT.
For Fiscal Years (FY) 1996 - 1998, the Company shall pay the Consultant as
follows: FY96 - $10,600 per month; FY97 - $11,250 per month; and FY98 -
$12,000. The AGREEMENT shall terminate on March 31, 1998, unless further
extended.
1
<PAGE> 2
AMENDMENT TO ARTICLE V
OTHER BENEFITS
As voted by the Board of Directors at its meeting of January 17, 1995,
the Consultant shall be entitled to receive 120,000 additional options to
purchase the Common Stock of PISC at the price of $1.06 per share until their
expiration on November 1, 1998. The additional options shall vest as follows:
5,000 on April 1, 1995 and then 5,000 per month as of the first day of each of
the twenty-three months thereafter. The options granted under this AMENDMENT
are subject to the same terms and conditions as the options granted under the
AGREEMENT.
The Consultant agrees to serve as a Director for up to three
additional years, commencing April 1, 1995. For each month of service as a
Director, he shall be entitled to receive a five-year option to purchase 3,000
shares of the Common Stock of PISC at an exercise price of $1.70 per share (as
approved by the Board of Directors at its meeting of February 15, 1995).
AMENDMENT TO ARTICLE VI
TERM
By means of this AMENDMENT, the term of the AGREEMENT shall be
extended by three years, until March 31, 1998, unless terminated pursuant to
the terms of the AGREEMENT.
AMENDMENT TO ARTICLE XI
NOTICE
All notices required to be given under the terms of the AGREEMENT and
this AMENDMENT thereto shall be in writing and shall be deemed to have been
duly given if delivered to the addressee in person or mailed by certified mail,
return receipt requested, as follows:
If to the Company, addressed to:
Phoenix Information Systems Corp.
City Centre, Suite 1100
100 Second Avenue South St.
Petersburg, FL 33701
With a copy to:
Lester Morse P.C.
111 Great Neck Road
Great Neck, NY 11021
2
<PAGE> 3
If to the Consultant, addressed to:
Paul W. Henry
91 Crowninshield Road
Brookline, MA 02146
or to any such other address as the party to receive the notice shall advise by
due notice given in accordance with this paragraph.
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT to
the AGREEMENT and affixed their hands and seal the day and year first above
written.
ATTEST CONSULTANT
/s/ MICHAEL GORDON /s/ PAUL W. HENRY
- ------------------------------ --------------------------------------
Paul W. Henry
PHOENIX INFORMATION SYSTEMS CORP.
[Corporate Seal]
/s/ ROBERT P. GORDON
--------------------------------------
Robert P. Gordon
Chairman of the Board and President
3
<PAGE> 1
EXHIBIT 10.32
AMENDMENT
AMENDMENT to EMPLOYMENT AGREEMENT of November 1, 1993, made as of this
17th day of January 1995 by and between the parties: VINCENT P. GORDON, an
individual residing at Hong Kong Parkview Tower #4, Apartment 1631, 88 Tai Tam
Road, Level 4, Hong Kong, China (hereinafter referred to as the "Executive"),
and PHOENIX INFORMATION SYSTEMS CORP., a Delaware corporation, with principal
executive offices located at City Centre, Suite 1100, 100 Second Avenue South,
St. Petersburg, FL 33701 (hereinafter referred to as "Phoenix" or the
"Company").
W I T N E S S E T H
WHEREAS, the Company and the Executive executed an EMPLOYMENT
AGREEMENT of November 1, 1993 (the "AGREEMENT"); and
WHEREAS, the Executive has subsequently moved to China as President of
Hainan Phoenix Information Systems, Ltd., a licensed joint venture in China
which is 70%-owned by the Company's wholly owned subsidiary, Phoenix Systems
Ltd.; and
WHEREAS, the Executive and the Company desire to revise and extend the
AGREEMENT; and
WHEREAS, all references to "Phoenix" or the "Company" shall include
both Phoenix Information Systems Corp. and its subsidiaries unless the context
indicates otherwise. All references to "PISC" shall refer solely to Phoenix
Information Systems Corp.; all references to "PSG" shall refer solely to
Phoenix Systems Group, Inc.; all references to "PSL" shall refer solely to
Phoenix Systems Ltd.; and all references to "Hainan-Phoenix" shall refer to
Hainan Phoenix Information Systems Ltd.
NOW, THEREFORE, it is mutually agreed by and between the parties to
revise and extend the AGREEMENT as follows:
AMENDMENT TO ARTICLE I
EMPLOYMENT
Prior to January 1, 1995, the Company had employed the Executive as
Vice President of PSG. As of January 1, 1995, the Executive hereby accepts
such employment and agrees to serve on a full-time basis as an executive
officer of PSL and Hainan-Phoenix, subject to the terms and conditions set
forth in the AGREEMENT and the AMENDMENT thereto.
1
<PAGE> 2
AMENDMENT TO ARTICLE II (A)
DUTIES
(A) The Executive shall, during the remainder of the original term
and this one-year extension to the AGREEMENT, and subject to the direction and
control of the Company's Board of Directors and President, perform such
executive duties and functions as he may be called upon to perform consistent
with his employment hereunder as President of Hainan Phoenix Information
Systems, Ltd.
AMENDMENT TO ARTICLE III (A)
COMPENSATION
(A) As of January 1, 1995, the Executive's base salary shall
increased to Ten Thousand Dollars ($10,000) per month. Such compensation may
be increased by the Board of Directors or a Compensation Committee thereof, and
a plan may be instituted whereby the Executive could earn a performance-based
bonus. Also, when the Executive's two-bedroom apartment lease expires, he will
be allowed to lease a comparable three-bedroom apartment in a similar apartment
complex for the duration of the AGREEMENT, should his duties require that he
continue to be based in China
AMENDMENT TO ARTICLE IV
WORKING CONDITIONS AND BENEFITS
(A) The Executive shall be entitled to paid vacations during each
year of his employment with Hainan-Phoenix in accordance with that company's
practice.
(B) The Executive is authorized to include reasonable and necessary
expenses for promoting the business of Hainan-Phoenix, including authorized
expenses for entertainment, travel and similar items. Hainan-Phoenix shall
reimburse the Executive for all such expenses, upon presentation by the
Executive of an itemized account of such authorized expenditures.
(C) The Executive shall be employed by Hainan-Phoenix at executive
offices maintained by Hainan-Phoenix in Haikou, Hainan Province, China. The
Executive shall travel on the Hainan-Phoenix's behalf to the extent reasonable
and necessary.
(D) Hainan-Phoenix shall provide the Executive during the term of the
AGREEMENT and this AMENDMENT thereto with major medical health benefits
equivalent to that provided other officers, but the Company shall provide
catastrophic and surgical care.
(E) The Company shall provide to the Executive to the full extent
provided for under the laws of the Company's State of Incorporation and the
Company's By-laws, indemnification for any claim or lawsuit which may be
asserted against the Executive when acting in such capacity for the company,
provided that said indemnification is not in violation of any of the following;
(1) federal and state law or (2) rule or regulation of the Securities and
Exchange Commission.
2
<PAGE> 3
AMENDMENT TO ARTICLE V
OTHER BENEFITS
(A) In the AGREEMENT, the Executive was granted five-year
non-qualified options to purchase 150,000 shares of Common Stock of the Company
at an exercise price of $1.50 per share, and on November xx, 1995, such
exercise price was lowered by the Board of Directors of Phoenix to $1.00 per
share. This AMENDMENT grants to the Executive up to 150,000 additional
options, exercisable at a price of $1.06 per share, with an expiration date of
November 1, 1998.
These additional options are to be granted for achieving certain
performance targets and for continued service to the Company, as follows:
(i) 50,000 options when and if the Phoenix-Air and Phoenix-Hotel
systems commence commercial operation in China; and
(ii) 25,000 options when and if Hainan-Phoenix signs as customers
one or more Chinese airlines which collectively have 25 planes
carrying 100 passengers or more, or the equivalent daily passenger
capacity with smaller aircraft; and
(iii) 25,000 options when and if Hainan-Phoenix signs as a customer
Air China or one of its regional affiliates (China Eastern, China
Northern, China Northwest, China Southern, and China Southwest) or
their successor airlines; and
(iv) 50,000 options which shall vest on the first day of each month
of the one-year extension to the AGREEMENT as follows: 4,166 per month
for the first 11 months and 4, 174 in the twelfth month.
(B) During the term hereof, the Executive shall be entitled to
receive such of the following other benefits of employment available to other
members of the Company's management: health and life insurance benefits,
pension, profit sharing and income protection or disability plans, in each
instance, consistent with his position.
AMENDMENT TO ARTICLE V
TERM
The AGREEMENT is hereby extended until November 1, 1997, unless the
AGREEMENT is otherwise terminated pursuant to its terms.
3
<PAGE> 4
AMENDMENT TO ARTICLE XI
NOTICE
All notices required to be given under the terms of the AGREEMENT and
this AMENDMENT thereto shall be in writing and shall be deemed to have been
duly given if delivered to the addressee in person or mailed by certified mail,
return receipt requested, as follows:
If to the Company, addressed to:
Phoenix Information Systems Corp.
City Centre, Suite 1100
100 Second Avenue South
St. Petersburg, FL 33701
With a copy to:
Lester Morse P.C.
111 Great Neck Road
Great Neck, NY 11021
If to the Executive, addressed to:
Vincent P. Gordon
Hong Kong Parkview Tower #4, Apartment 1631
88 Tai Tam Road, Level 4
Hong Kong, China
or to any such other address as the party to receive the notice shall advise by
due notice given in accordance with the paragraph.
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT to
the AGREEMENT and affixed their hands and seal the day and year first above
written
ATTEST EXECUTIVE
/s/ THERESA RAINEY /s/ VINCENT P. GORDON
- ------------------------------ ----------------------------------------
Vincent P. Gordon
PHOENIX INFORMATION SYSTEMS CORP.
[Corporate Seal]
/s/ ROBERT P. GORDON
----------------------------------------
Robert P. Gordon
Chairman of the Board and President
4
<PAGE> 1
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 17th day of October, 1995 by and between the
parties: LEONARD S. OSTFELD, an individual residing at Six Jamestown Court,
East Brunswick, NJ 08816 (hereinafter referred to as the "Executive") and
PHOENIX INFORMATION SYSTEMS CORP., a Delaware corporation, with principal
executive offices located at City Centre, Suite 1100, 100 Second Avenue South,
St. Petersburg, FL 33701 (hereinafter referred to as the "Company").
W I T N E S S E T H
WHEREAS, the Company is engaged in providing automated reservations
systems and services to the International travel industry; and
WHEREAS, the Company desires to retain and employ the Executive for
the purpose of securing to the Company the experience, ability and services of
the Executive as Vice President of Finance and Chief Financial Officer; and
WHEREAS, the Executive desires to be employed by the Company; and
NOW, THEREFORE, it is mutually agreed by and between the parties
hereto as follows:
ARTICLE I
EMPLOYMENT
The Company hereby employs the Vice President of Finance and Chief
Financial Officer and the Executive hereby accepts such employment and agrees
to serve on a full-time basis as an executive officer of the Company effective
November 1, 1995 subject to and upon the terms and conditions set forth in this
Agreement.
ARTICLE II
DUTIES
(A) The Executive shall, during the term of his employment with
the Company and subject to the direction and control of the Company's Board of
Directors, perform such executive duties and functions as he may be called upon
to perform consistent with his employment hereunder as Vice President of
Finance and Chief Financial Officer.
(B) The Executive agrees to devote his full time and best efforts
to the performance of his duties for the Company, which shall include, but not
be limited to, the following: to participate in the direction of the Company's
business; and to promote the Company's relationships with its employees,
customers and others in the business community.
1
<PAGE> 2
ARTICLE III
COMPENSATION
(A) The Company shall pay to the Executive for all services to be
rendered pursuant to the terms of this Agreement: (i) a base salary at the
rate of Eleven Thousand Five Hundred ($11,500.00) per month, payable in
accordance with the Company's normal payroll procedures. Executive shall also
be entitled to periodic salary adjustments as determined by the Board of
Directors. Executive's voluntary termination of employment for any reason not
covered herein shall terminate the salary of Executive as of the date of such
termination.
(B) Compensation for the Executive may also be increased by
incentive earnings as approved by a majority of the Board of Directors or a
Compensation Committee thereof.
(C) Acceptance of this position requires the Executive to work out
of the home office located in St. Petersburg, Florida. Reasonable and
customary relocation costs to St. Petersburg shall be borne by the Company.
The Executive will be responsible for submitting expense receipts in support of
the expenses incurred in the relocation. The Company will provide to the
Executive housing for 60 days as part of his relocation cost.
ARTICLE IV
WORKING CONDITIONS AND BENEFITS
(A) The Executive shall be entitled to paid vacations during each
year of his employment with the Company in accordance with present Company
practice.
(B) The Executive is authorized to incur reasonable and necessary
expenses for promoting the business of the Company, including authorized
expenses for entertainment, travel and similar items. The Company shall
reimburse the Executive on a monthly basis for all such expenses, upon
presentation by the Executive of an itemized account of such authorized
expenditures.
(C) The Executive shall be employed by the Company at executive
offices maintained by the Company in St. Petersburg, Florida. The Executive
shall travel on the Company's behalf to the extent reasonably necessary.
(D) The Company shall provide the Executive during the term of
this Agreement with major medical health benefits equivalent to that provided
other officers.
(E) The Company shall provide to the Executive to the full extent
provided for under the laws of the Company's State of Incorporation and the
Company's Bylaws, indemnification for any claim or lawsuit which may be
asserted against the Executive when acting in such capacity for the Company,
provided that said indemnification is not in violation of any of the following:
(a) federal and state law or (b) rule or regulation of the Securities and
Exchange Commission.
2
<PAGE> 3
ARTICLE V
OTHER BENEFITS
(A) In consideration of Executive's special background and
experience and its application to the continuing development of the Company,
and in recognition of the key management role of Executive, and as an incentive
for Executive to continue his relationship with Company, Executive is herewith
granted options to purchase 225,000 shares of Phoenix Information Systems
Corp.'s Common Stock at $4.00 USD per share. The option is granted to
Executive pursuant to the Company's Consulting and Services Compensation
Agreement dated February 25, 1995 (the "Plan"). The Plan and the shares
underlying the option have been registered with the Securities and Exchange
Commission pursuant to a registration statement on Form S-8, SEC File No.
33-75862. The options shall expire on November 30, 2000, and they shall vest
for the benefit of the Executive at the rate of 6,250 shares per month for 36
months, beginning December 1, 1995. If the Executive terminates his
employment willfully, or due to death or disability, or if he is fired for
cause prior to the end of the term of this Employment Agreement, then the
unexercised portion of the aforesaid stock options shall be null and void upon
the earlier of November 30, 2000 or the 90th day following the termination date
of his employment. If the Executive is terminated without cause, the
Executive shall be permitted to exercise vested options until expiration. All
share certificates delivered to the Executive upon exercise of the options
shall be issued with legend governing affiliates and control securities and are
subject to certain restrictions on resale. During the lifetime of the
Executive, the non-qualified options may only be exercised by the Executive and
may not be assigned, transferred or hypothecated, except under the laws of
descent and distribution. Vesting of options will end upon termination of the
Executive for any reason.
(B) During the term hereof, the Executive shall be entitled to
receive such of the following other benefits of employment that are available
to other members of the Company's management: health and life insurance
benefits, pension, profit sharing and income protection or disability plans, in
each instance, consistent with his position.
ARTICLE VI
TERM
The term of this Agreement shall commence as of November 1, 1995 and
continue until October 31, 1998, unless this Agreement is otherwise terminated
pursuant to the terms hereof.
ARTICLE VII
TERMINATION
(A) The Company may terminate this Agreement upon written notice
to the Executive if the Executive becomes disabled or suffers an illness and as
a result of such disability or illness is substantially unable to perform his
duties hereunder for a period of three consecutive months or an aggregate of 90
working days over a consecutive 12 month period; such notice shall be forwarded
to the Executive by the Company upon and after a resolution of the Company's
Board of Directors authorizing such notification.
3
<PAGE> 4
(B) The Company may terminate this Agreement for cause upon
written notice from the Company to the Executive if the Executive has
materially violated the terms of this Agreement or committed acts of misconduct
or willfully fails to carry out the policies of the Company's Board of
Directors or commits acts which have a material adverse effect on the business
of the Company. Such notice shall be forwarded to the Executive by the company
upon and after a resolution of the Company's Board of Directors authorizing
such notification.
(C) In the event that the Company terminates the employment of the
Executive without cause, then the Executive shall be entitled to the following:
(i) Severance pay equal to six month's base salary or the
time remaining on the balance of the contract, whichever is less, at the rate
of base salary then in effect at the termination date. Such severance pay
shall be made in one lump sum or in monthly installments on the first day of
each month at the option of the Company;
(ii) Continuation of medical insurance for a period of six
months or 30 days following the commencement of other employment, whichever is
less.
The consideration set forth in this sub-paragraph (C) together with
any prior unpaid salary and unreimbursed expenses, shall completely relieve the
Company of any liability to the Executive for any compensation that would have
otherwise been payable to the Executive under the terms of this Agreement.
ARTICLE VIII
CONFIDENTIALITY AND NON-COMPETITION
(A) All Company trade secrets, proprietary information, software,
software codes, advertising, sales, marketing and other materials or articles
of information, including without limitation customer and supplier lists, data
processing reports, customer sales analyses, invoices, price lists or
information, samples, or any other materials or data of any kind furnished to
the Executive by the Company or developed by the Executive on behalf of the
Company or at the Company's direction or for the Company's use or otherwise in
connection with the Executive's employment hereunder, are and shall remain the
sole and confidential property of the Company; if the Company requests the
return of such materials at any time during or after the termination of the
Executive's employment, the Executive shall immediately deliver the same to the
Company.
(B) During the term of this Agreement and eighteen months after
the termination of his employment with the Company for any reason whatsoever,
the Executive shall not directly or indirectly induce or attempt to influence
any employee of the Company to terminate his or her employment with the
Company.
4
<PAGE> 5
(C) During the term of this Agreement and at all times thereafter,
the Executive shall not use for his personal benefit, or disclose, communicate
or divulge to, or use for the direct or indirect benefit of any person, firm
association or company other than the Company, any material referred to in
paragraph (A) above or any information regarding the business methods, business
policies, procedures, techniques, research or development projects or results,
trade secrets, or other knowledge or processes used or developed by the Company
or any names and addresses of customers or clients or any other confidential
information relating to or dealing with the business operations or activities
of the Company, made known to the Executive or learned or acquired by the
Executive while in the employ of the Company.
ARTICLE IX
SEVERABILITY
If any provision of this Agreement shall be held invalid or
unenforceable, the remainder of this Agreement shall remain in full force and
effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall remain in full force and effect in all other
circumstances.
ARTICLE X
ARBITRATION
Any controversy, claim or dispute arising out of the terms of this
Agreement, or the breach thereof, may be settled by arbitration in Pinellas
County Florida under the rules of the American Arbitration Association, if both
the Company and the Executive agree to arbitration, and the award rendered
thereon shall be final, binding and conclusive as to all parties and may be
entered in any court of competent jurisdiction.
ARTICLE XI
NOTICE
All notices required to be given under the terms of this Agreement
shall be in writing and shall be deemed to have been duly given if delivered to
the addressee in person or mailed by certified mail, return receipt requested,
as follows:
If to the Company, addressed to:
Phoenix Information Systems Corp.
City Centre, Suite 1100
100 Second Avenue South
St. Petersburg, FL 33701
If to the Executive, addressed to:
Mr. Leonard S. Ostfeld
Six Jamestown Court
East Brunswick, NJ 08816
5
<PAGE> 6
or to any such other address as the party to receive the notice shall advise by
due notice given in accordance with this paragraph.
ARTICLE XII
BENEFIT
This Agreement shall inure to and shall be binding upon the parties
hereto, the successors and assigns of the Company and the heirs and personal
representatives of the Executive.
ARTICLE XIII
WAIVER
The waiver of either party of any breach or violation of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
ARTICLE XIV
GOVERNING LAW
This Agreement has been negotiated and executed in the State of
Florida and Florida law shall govern its construction and validity.
ARTICLE XV
ENTIRE AGREEMENT
This Agreement contains the entire Agreement between the parties
hereto; no change, addition or amendment shall be made hereto except by written
agreement signed by the parties hereto. This Agreement supersedes all prior
Agreements and understandings.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
and affixed their hands and seal the day and year first above written.
EXECUTIVE:
/s/ LEONARD S. OSTFELD
----------------------------------------
PHOENIX INFORMATION SYSTEMS CORP.
[Corporate Seal]
By: /s/ ROBERT P. GORDON
-----------------------------------
Robert P. Gordon
Chairman
ATTEST:
/s/ PAUL W. HENRY
- ------------------------------
6
<PAGE> 1
EXHIBIT 10.35
[Letterhead of]
PHOENIX INFORMATION SYSTEMS CORP.
August 3, 1995
S-C Phoenix Partners
888 Seventh Avenue
New York, New York 10106
Gentlemen:
Reference is hereby made to the Convertible Note Purchase
Agreement, dated December 9, 1994, as amended (the "Agreement"), between the
undersigned (the "Company") and you ("S-C Partners"). Capitalized terms are
used herein as therein defined. Pursuant to the Agreement, S-C Partners has
purchased, and the Company has issued, prior to the date hereof the Tranche A
Note, the Tranche B Note and a Tranche C Note in the principal amount of
$1,000,000. As of the date hereof, S-C Partners is purchasing, and the Company
is issuing, a Tranche C Note in the remaining principal amount of $200,000 and
a Tranche D Note in the principal amount of $150,000.
This will confirm our agreement respecting the inclusion of
different conversion provisions in the Tranche C and Tranche D Notes referred
to above, the contingent issuance of certain warrants by the Company to S-C
Partners, the amendment of the provisions of the existing Warrant Agreement by
and between the Company and S-C Partners and certain related matters, as
follows:
1. The conversion provisions of the Tranche C and
Tranche D Notes referred to above contained in Section 3(a) thereof
reflect modifications from the provisions thereof contained in the
previously issued Tranche A, Tranche B and Tranche C (in the principal
amount of $1,000,000) Notes. The Company and S-C Partners hereby
acknowledge and agree that the provisions of Section 3(a) contained in
the Tranche C
<PAGE> 2
2
and Tranche D Notes referred to above reflect their agreement.
2. Notwithstanding the issuance of a Tranche D Note in
the principal amount of $150,000, the remaining up to $2,350,000 of
the Tranche D Note and the Tranche E Note shall continue to be subject
to the conditions set forth in the Agreement, including, without
limitation, the occurrence of the Tranche D Target Date and the
Tranche E Target Date, respectively.
3. To the extent that the conditions set forth in
Section 3.2(n) of the Agreement to the issuance of the Tranche C and
Tranche D Notes referred to above have not been satisfied as of the
date hereof, S-C Partners hereby unconditionally waives the
requirement that such conditions be met and discharges the Company
from responsibility therefor, subject to the terms and conditions of
this letter agreement.
4. If the System has not been installed in China in
connection with an airline of comparable size to Hainan Airlines
and/or the System is not demonstrably operational in all material
respects within 90 days of the date hereof, the Company will issue to
S-C Partners, for no additional consideration, additional warrants to
purchase 140,000 shares of the Company's Common Stock (the "Additional
Warrants"). The Additional Warrants shall contain terms and
conditions substantially identical to those of the Warrants issued to
S-C Partners at the Initial Closing, except that the exercise price
thereof shall be equal to the product of (x) 0.85 multiplied by (y)
the lowest Average Weekly Closing Price (as defined below) during the
90 day period following the date hereof. As used herein, the term
"Average Weekly Closing Price" shall mean the average of the last
sales prices of the Company's Common Stock (as quoted on The NASDAQ
Stock Market) for the trading days on which there is such a sales
price during a calendar week (i.e., Monday through Friday, inclusive).
The Additional Warrants shall be substantially in the form attached
hereto as Exhibit A.
<PAGE> 3
3
5. S-C Partners hereby represents and warrants as
follows:
(a) The Tranche C and the Tranche D Notes, and
any shares of Common Stock issuable upon the conversion of
such Notes, (the "Securities") being acquired by S-C Partners
are being acquired for investment for its own account and not
with the view to, or for resale in connection with, any
distribution or public offering thereof. S-C Partners
understands that such Securities have not been registered
under the Securities Act of 1933, as amended (the "Securities
Act"), or any state securities laws by reason of their
contemplated issuance in transactions exempt from the
registration requirements of the Securities Act pursuant to
Section 4(2) thereof and applicable state securities laws, and
that the reliance of the Company and others upon these
exemptions is predicated in large part upon this
representation by S-C Partners. S-C Partners further
understands that such Securities may not be transferred or
resold without (i) registration under the Securities Act and
any applicable state securities laws, or (ii) an exemption
from the requirements of the Securities Act and applicable
state securities laws.
(b) The address of S-C Partner's principal office
is set forth on its Certificate of Representations, dated the
date hereof. S-C Partners qualifies as an "accredited
investor" for purposes of Regulation D promulgated under the
Securities Act for the reasons specified in such Certificate
of Representations. S-C Partners acknowledges that the
Company has made available to it at a reasonable time prior to
the execution of the Certificate of Representations the
opportunity to ask questions and receive satisfactory answers
concerning the terms and conditions of the sale of Securities
contemplated by the Agreement, and to obtain any additional
information (which the Company possesses or can acquire
without unreasonable effort or expense) as may be necessary to
verify the accuracy of the
<PAGE> 4
4
information furnished to it. S-C Partners (i) is able to bear
of loss of its entire investment in the Securities being
acquired by it without any material adverse effect on its
business, operations or prospects, and (ii) has such knowledge
and experience in financial and business matters that it is
capable of evaluating the merits and risks of the investment
to be made by it pursuant to the Agreement and pursuant
hereto.
6. The Company and S-C Partners hereby agree that all
shares of Common Stock issued pursuant to the conversion of the
Tranche A Note, the Tranche B Note and the Tranche C Note (in the
principal amount of $1,000,000), and all shares of Common Stock which
may be issued pursuant to the conversion of the Tranche C Note (in the
principal amount of $200,000) and the Tranche D Note (in the principal
amount of $150,000) referred to above, shall not be subject to the
provisions of Section 7.1 of the Agreement.
7. The Company and S-C Partners hereby agree that,
notwithstanding any contrary provisions contained in the Agreement or
that certain Warrant Agreement, dated as of December 9, 1994, by and
between the Company and S-C Partners (the "Warrant Agreement"),
Section 3(b)(1) of the Warrant Agreement is hereby amended to provide
that, in addition to the exercisability provisions presently contained
therein, 175,000 Warrants shall become exercisable on the date hereof
and an additional 175,000 Warrants shall become exercisable at the end
of each 30-day period if, at the end of such period, the System shall
not be in Commercial Operation (as such term is defined in Section 4
of that certain letter agreement, dated March 15, 1995, by and between
the Company and S-C Partners) in China in connection with an airline
of comparable size to Hainan Airlines; provided, however, that in no
event shall more than 4,000,000 Warrants be exercisable pursuant to
the Warrant Agreement.
8. Except as modified hereby, the Agreement remains in
full force and effect.
<PAGE> 5
5
9. This Agreement (a) represents the entire agreement
between the parties with respect to the subject matter hereof,
superseding all prior agreements and understandings, written or oral,
(b) may be amended only by a writing executed by both parties, (c) may
be executed in counterparts, each of which shall be deemed an original
and all of which shall constitute one agreement, (d) shall inure to
the benefit of, and be binding upon, the parties hereto and their
respective successors and assigns and (e) shall be governed by and
construed in accordance with the laws of the State of New York
applicable to contracts entered into and to be performed wholly within
such State.
If the foregoing accurately reflects our agreement, please
sign where indicated below, and return a copy to me as soon as possible.
Very truly yours,
PHOENIX INFORMATION
SYSTEMS CORP.
By:
-------------------------------------
Title:
AGREED:
S-C PHOENIX PARTNERS
By: S-C Phoenix Holdings, L.L.C.,
a general partner
By:
------------------------------
Name:
Title:
<PAGE> 6
EXHIBIT A
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of October 30, 1995 (the
"Agreement"), by and between PHOENIX INFORMATION SYSTEMS CORP., a Delaware
corporation (the "Company"), and S-C PHOENIX PARTNERS, a New York general
partnership ("S-C" and, together with its successors and permitted assigns, the
"Holder").
WHEREAS, the Company proposes to issue and deliver its warrant
certificates ("Warrant Certificates") evidencing 140,000 warrants (the
"Warrants") each to purchase one newly issued common stock, par value $0.01 per
share, of the Company ("Common Stock") in connection with that certain letter
agreement, dated July 31, 1995, by and between the Company and S-C.
NOW THEREFORE, in consideration of the foregoing and for the
purpose of defining the terms and provisions of the Warrants and the respective
rights and obligations thereunder of the Company and the Holder, the Company
and the Holder agree as follows:
1. Certain Definitions. The following terms, as used in
this Agreement, have the following meanings:
<PAGE> 7
2
(a) "Affiliate" means, with respect to any specified
Person, any other Person controlling, controlled by or under common control
with such specified Person. In addition, any Person controlled by or under
common control with Soros Fund Management shall be deemed to be an Affiliate of
the Holder. For purpose of this definition, the term "control," when used with
respect to any Person, shall include the power to exercise discretion over the
investments of such Person, and the terms "controlling" and "controlled" have
corresponding meanings.
(b) "Common Stock" has the meaning set forth in the
preamble.
(c) "Exercise Period" means the period beginning on the
date hereof and ending on the third anniversary of the date on which S-C (or
its permitted designee) shall have purchased Notes in the aggregate principal
amount of $10,000,000 pursuant to the terms of that certain Convertible Note
Purchase Agreement, dated December 9, 1994, as amended, by and between the
Company and S-C (the "Note Purchase Agreement")[; provided, however, that if
S-C shall not have purchased Notes in the aggregate principal amount of
$10,000,000, then the Exercise Period shall end on
].
<PAGE> 8
3
(d) "Exercise Price" means $______ per share. [The
Exercise Price shall equal the product of (x) 0.85 multiplied by (y) the lowest
Average Weekly Closing Price (as defined below) during the 90 day period
following July 31, 1995. As used herein, the term "Average Weekly Closing
Price" shall mean the average of the last sales prices of the Company's Common
Stock (as quoted on The NASDAQ Stock Market) for the trading days on which
there is such a sales price during a calendar week (i.e., Monday through
Friday, inclusive).]
(e) "Expiration Date" for the Warrants means the last day
of the Exercise Period.
(f) "Holder" has the meaning set forth in the preamble.
(g) "Investor Representative" shall be S-C Phoenix
Holdings, L.L.C., a Delaware limited liability company and a general partner of
S-C, or its successor in interest, or the assigned representative of such
Person (it being agreed that at all times there shall be no more than one
Investor Representative).
(h) "Person" means any individual, corporation, limited
liability company, partnership, limited liability company, joint venture,
association, joint-stock company,
<PAGE> 9
4
trust, unincorporated organization or government or any agency or political
subdivision thereof.
(i) "Underlying Common Stock" means the shares of Common
Stock purchasable by the Holder upon the exercise of the Warrants.
(j) "Warrants" has the meaning set forth in the preamble.
(k) "Warrant Certificates" means the certificates
evidencing the Warrants.
2. Issue of Warrants. The Warrant Certificates shall be
in registered form only and substantially in the form attached hereto as
Exhibit A, shall be dated the date on which signed by an authorized signatory
of the Company and may have such legends and endorsements typed, stamped or
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement. Warrant Certificates evidencing 140,000
Warrants may be executed by any authorized officer of the Company. Warrant
Certificates evidencing all 140,000 Warrants shall be delivered in the name of
the Holder to the Investor Representative at the Initial Closing (as defined in
the Note Purchase Agreement).
<PAGE> 10
5
3. Exercise Price; Exercise of Warrants.
(a) Exercise Price. Each Warrant shall entitle the
Holder, subject to the provisions of this Agreement, to purchase one share of
Common Stock at a purchase price per share equal to the Exercise Price.
(b) Exercise of Warrants Generally.
(1) Exercise During Exercise Period. The aggregate
number of Warrants that may be exercised at any time during the Exercise Period
shall be 140,000. All Warrants not exercised during the Exercise Period shall
expire on the Expiration Date.
(2) Liquidation Event. If the Company is liquidated in
accordance with the provisions of its Certificate of Incorporation, then the
Warrants shall be deemed to have been exercised.
(3) Method of Exercise; Payment of Exercise Price. In
order to exercise any or all of the Warrants represented by a Warrant
Certificate, the Holder must surrender the Warrant Certificate to the Company
for exercise, with the reverse side of the Warrant Certificate duly executed,
together with any required payment in full of the Exercise Price for each share
of Underlying Common Stock to which the Holder is entitled, any such payment of
the
<PAGE> 11
6
Exercise Price to be made by check or wire transfer to an account designated by
the Company. If the Holder elects to exercise only a portion of the Warrants
represented by the Warrant Certificate or Certificates registered in its name,
then the remaining portion of such Warrants shall be returned to the Holder in
the form of a new Warrant Certificate. Upon surrender of a Warrant Certificate
and the payment of the Exercise Price in conformity with the foregoing
provisions, the Company shall promptly issue to the Holder share certificates
representing the Underlying Common Stock to which the Holder is entitled,
registered in the name of the Holder or the name or names of such Affiliates of
the Holder as may be directed in writing by the Holder, and shall deliver such
share certificates to the Person or Persons entitled to receive the same. The
Company shall issue such share certificates within five business days after the
payment of the Exercise Price of the Warrants by the Holder, but such shares
shall be deemed issued and outstanding on the date the Warrant is exercised and
the Exercise Price is paid to the Company.
4. Adjustments. The Exercise Price shall be subject to
adjustment as follows:
<PAGE> 12
7
(a) In the event the Company shall issue additional
shares of Common Stock (or securities convertible into or exchangeable for
Common Stock) in a stock dividend, stock distribution or subdivision paid with
respect to Common Stock, or declare any dividend or other distribution payable
with additional shares of Common Stock (or securities convertible into or
exchangeable for Common Stock) with respect to Common Stock or effect a split
or subdivision of the outstanding shares of Common Stock, the Exercise Price
shall, concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, or the earlier declaration thereof, be
proportionately decreased.
(b) In the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Common Stock, the Exercise Price shall, concurrently
with the effectiveness of such combination or consolidation, be proportionately
increased.
(c) In the event of any consolidation or merger of the
Company with or into another corporation or the conveyance of all or
substantially all of the assets of the Company to another corporation or
entity, the Warrants shall
<PAGE> 13
8
thereafter be exercisable for the number of shares of capital stock or other
securities or property to which a holder of the number of shares of Common
Stock deliverable upon conversion hereof would have been entitled upon such
consolidation, merger or conveyance; and, in any such case, appropriate
adjustment shall be made in the application of the provisions herein set forth
with respect to the rights and interests of the Holder thereafter, to the end
that the provisions set forth herein (including provisions with respect to
adjustments in the Exercise Price) shall thereafter be applicable, as nearly as
may be practicable, in relation to any shares of stock or other property
thereafter deliverable upon the exercise of Warrants. At the request of the
Holder, the resulting or surviving entity in any such consolidation or merger,
if other than the Company, shall acknowledge in writing the Holder's rights
hereunder.
5. Loss or Mutilation. Upon receipt by the Company of
evidence satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate and of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation thereof, then, in the absence of notice to the Company that
<PAGE> 14
9
the Warrants represented thereby have been acquired by a bona fide purchaser,
the Company shall deliver to the Holder, in exchange for or in lieu of the
lost, stolen, destroyed or mutilated Warrant Certificate, a new Warrant
Certificate of the same tenor and for a like aggregate number of Warrants. Upon
the issuance of any new Warrant Certificate under this Section 5, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and other expenses
in connection herewith. Every new Warrant Certificate executed and delivered
pursuant to this Section 5 in lieu of any lost, stolen or destroyed Warrant
Certificate shall constitute a contractual obligation of the Company, whether
or not the allegedly lost, stolen or destroyed Warrant Certificate shall be at
any time enforceable by anyone, and shall be entitled to the benefit of this
Agreement equally and proportionately with any and all other Warrant
Certificates duly executed and delivered hereunder. The provisions of this
Section 5 are exclusive and shall preclude (to the extent lawful) all other
rights or remedies with respect to the replacement of mutilated, lost, stolen,
or destroyed Warrant Certificates.
<PAGE> 15
10
6. Reservation and Authorization of Common Stock. The
Company shall, at all times until the Warrants have been exercised or have
expired, reserve and keep available for issue upon the exercise of Warrants
such number of its authorized but unissued shares of Common Stock as is
sufficient for the purpose of permitting the exercise in full of all
outstanding Warrants.
7. Limitations on Transfer; Warrant Transfer Books. The
Warrants may be sold, transferred, pledged, assigned, hypothecated or otherwise
disposed of (collectively, "transferred") only to Affiliates of the Holder.
The Company shall cause to be kept at the principal executive office of the
Company a register in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide the registration of Warrant Certificates
and transfers or exchanges of Warrant Certificates as herein provided.
At the option of the Holder, Warrant Certificates may be
exchanged at such office upon payment of the charges hereinafter provided.
Whenever any Warrant Certificates are so surrendered for exchange, the Company
shall execute and deliver the Warrant Certificates that the Holder is entitled
to receive. All Warrant Certificates issued upon any regis-
<PAGE> 16
11
tration of transfer or exchange of Warrant Certificates shall be the valid
obligations of the Company, evidencing the same obligations, and entitled to
the same benefits under this Agreement, as the Warrant Certificates surrendered
for such registration of transfer or exchange.
Every Warrant Certificate surrendered for registration of
transfer or exchange shall (if so required by the Company) be duly endorsed, or
be accompanied by a written instrument of transfer in form satisfactory to the
Company duly executed by the Holder. No service charge shall be made for any
registration of transfer or exchange of Warrant Certificates. The Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer of
Warrant Certificates.
8. No Voting or Dividend Rights. Prior to the exercise
of the Warrants, the Holder, as a Holder of Warrant Certificates, shall not be
entitled to any rights of a shareholder of the Company, including, without
limitation, the right to vote, to receive dividends or other distributions or
to exercise any preemptive right, but each Holder of Warrant Certificates shall
receive all notices sent to shareholders of the Company, including any notice
of
<PAGE> 17
12
meetings of shareholders, and shall have the right to attend or observe such
meetings.
9. Notices. Any notice, demand or delivery authorized
by this Agreement shall be in writing and shall be sufficiently given or made
upon receipt thereof, if made by personal delivery or facsimile transmission
(with confirmed receipt thereof), or four business days after mailed, if sent
by first-class mail, postage prepaid, addressed to the Investor Representative
or the Company, as the case may be, at their respective addresses below, or
such other address as shall have been furnished to the party giving or making
such notice, demand or delivery:
(a) If to the Company, to it at:
Phoenix Information Systems Corp.
100 Second Avenue South, Suite 100
St. Petersburg, Florida 33701
Attention: Robert P. Gordon, Chairman
Facsimile: 813-821-7565
(b) If to the Holder, to the Investor
Representative at:
S-C Phoenix Holdings, L.L.C.
c/o The Chatterjee Group
888 Seventh Avenue, Suite 3300
New York, New York 10106
Attention: Peter A. Hurwitz, Esq.
Facsimile: 212-489-2005
with a copy to:
Soros Fund Management
<PAGE> 18
13
888 Seventh Avenue, Suite 3300
New York, New York 10106
Attention: Sean A. Warren, Esq.
Facsimile: 212-489-2005
10. Applicable Law. This Agreement and each Warrant
Certificate issued hereunder shall be governed by, and construed in accordance
with, the internal laws of the State of New York, without regard to the
conflicts of law principles thereof. The Company and the Holder hereby submit
to the nonexclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York State court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Agreement and the transactions contemplated hereby. The Company and the
Holder irrevocably waive, to the fullest extent permitted by law, any objection
which they may now or hereafter have to the laying of the venue of any such
proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
11. Successors and Assigns. The provisions of this
Agreement shall inure to benefit of and be binding upon the respective
successors and permitted assigns of the parties. The Holder may not assign any
of its rights here-
<PAGE> 19
14
under separate from a transfer of the Warrants in accordance with Section 7
hereof. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement.
12. Counterparts. This Agreement may be executed by one or
more the parties to this Agreement on any number of separate counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
13. Captions and Headings. The captions and headings used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
14. Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor
Representative. Any amendment or waiver effected in accordance with this
paragraph shall be binding
<PAGE> 20
15
upon the Holder, each future holder of the Warrants, and the Company.
15. Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provisions
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
PHOENIX INFORMATION
SYSTEMS CORP.
By
--------------------------------------
Name:
Title:
S-C PHOENIX PARTNERS
By S-C PHOENIX HOLDINGS,
L.L.C.,
a General Partner
By
--------------------------------------
Name:
Title:
<PAGE> 21
EXHIBIT A
FORM OF WARRANT CERTIFICATE
THIS WARRANT CERTIFICATE AND THE WARRANTS
REPRESENTED HEREBY ARE TRANSFERABLE ONLY
IN ACCORDANCE WITH THE PROVISIONS SET FORTH IN
THE WARRANT AGREEMENT REFERRED TO BELOW.
WARRANTS TO PURCHASE COMMON STOCK
OF PHOENIX INFORMATION SYSTEMS CORP.
No.___
140,000 Warrants
This certifies that __________________________, is the owner
of the number of Warrants set forth above, each of which represents the right
to purchase from PHOENIX INFORMATION SYSTEMS CORP., a Delaware corporation (the
"Company"), the number of shares of Common Stock, par value $0.01 per share, of
the Company ("Common Stock") determined in accordance with the Warrant
Agreement referred to below at the purchase price set forth in the Warrant
Agreement (the "Exercise Price"), upon surrender hereof at the office of the
Company at 100 Second Avenue South, Suite 1100, St. Petersburg, Florida 33701
with the Exercise Subscription Form on the reverse hereof duly executed and
with payment in full (by bank check or wire transfer to an account designated
by the Company) of the purchase price for the shares as to which the Warrant(s)
represented by this Warrant Certificate are exercised, all subject to the terms
and conditions hereof and of the Warrant Agreement referred to
<PAGE> 22
A-2
below. The Warrants will expire on the Expiration Date.
This Warrant Certificate is issued under and in accordance
with a Warrant Agreement, dated as of October 30, 1995 (the "Warrant
Agreement"), between the Company and S-C Phoenix Partners, and is subject to
the terms and provisions contained therein, to all of which terms and
provisions the holder of this Warrant Certificate consents by acceptance
hereof. The Warrant Agreement is hereby incorporated herein by reference and
made a part hereof. Reference is hereby made to the Warrant Agreement for a
full description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Company and the holders of the Warrants.
Capitalized defined terms used herein have the same meanings as in the Warrant
Agreement. Copies of the Warrant Agreement are on file at the office of the
Company and may be obtained by writing to the Company at the following address:
100 Second Avenue South
Suite 1100
St. Petersburg, Florida 33701
The number of shares of the Common Stock of the Company purchasable upon the
exercise of each Warrant and the price per share are set forth in the Warrant
Agreement.
<PAGE> 23
A-3
All shares of Common Stock issuable by the Company upon the
exercise of Warrants and the payment of the Exercise Price therefor shall be
validly issued, fully paid and nonassessable. The Company shall not be
required, however, to pay any tax, withholding or other charge imposed in
connection with the issuance of any shares of Common Stock upon the exercise of
Warrants, and, in such case, the Company shall not be required to issue or
deliver any stock certificate until such tax, withholding or other charge has
been paid or it has been established to the Company's satisfaction that no tax,
withholding or other charge is due. This Warrant Certificate and all rights
hereunder are transferable, subject to the terms of the Warrant Agreement, by
the registered holder hereof, in whole or in part, upon surrender of this
Warrant Certificate duly endorsed, or accompanied by a written instrument of
transfer in form satisfactory to the Company duly executed by the registered
holder and upon payment of any necessary transfer tax or other governmental
charge imposed upon such transfer. Upon any partial transfer, the Company will
issue and deliver to such holder a new Warrant Certificate or Certificates with
respect to any portion not so transferred.
<PAGE> 24
A-4
This Warrant Certificate shall be void and all rights
represented hereby shall cease on the Expiration Date.
Dated:___________, 19__
PHOENIX INFORMATION
SYSTEMS CORP.
By
--------------------------------------
Name:
Title:
<PAGE> 25
FORM OF REVERSE OF WARRANT CERTIFICATE
EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: Phoenix Information Systems Corp.
The undersigned irrevocably exercises ____________ of the
Warrants evidenced by this Warrant Certificate for the purchase of shares of
Common Stock, par value $0.01 per share, of PHOENIX INFORMATION SYSTEMS CORP.
and has arranged to make payment of $___________ (such payment being made by
bank check or wire transfer to the account designated by Phoenix Information
Systems Corp., all at the Exercise Price (as defined in the Warrant Agreement)
and on the terms and conditions specified in this Warrant Certificate and the
Warrant Agreement herein referred to. The undersigned hereby irrevocably
surrenders this Warrant Certificate and all right, title and interest therein
to Phoenix Information Systems Corp. and directs that the shares of Common
Stock deliverable upon the exercise of said Warrants be registered
<PAGE> 26
3
or placed in the name and at the address specified below and delivered thereto.
Date:_________, 19__.
*
----------------------------------------
Signature of Owner
----------------------------------------
(Street Address)
----------------------------------------
(City) (State) (Zip Code)
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
____________________
* The signature must correspond with the name as written upon the face of this
Warrant Certificate in every particular, without alteration or enlargement
or any change whatever.
<PAGE> 27
4
FORM OF ASSIGNMENT
For VALUE RECEIVED, the undersigned registered holder of this
Warrant Certificate hereby sells, assigns, and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants
constituting a part of the Warrants evidenced by this Warrant Certificate not
being assigned hereby) all of the right of the undersigned under this Warrant
Certificate, with respect to the number of Warrants set forth below:
Social Security
Names of or other Identifying Number of
Assignees Address Number of Assignee(s) Warrants
- --------- ------- --------------------- --------
and does hereby irrevocably constitute and appoint _______________ the
undersigned's attorney to make such transfer on the books of Phoenix
Information Systems Corp. maintained for the purpose, with full power of
substitution.
Dated: ___________, 19__
------------------------------------
- -------------------------
<PAGE> 28
5
_____________
(1) The signature must correspond with the name as written upon the face
of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
<PAGE> 1
EXHIBIT 10.36
PHOENIX INFORMATION SYSTEMS CORP.
September 15, 1995
S-C Phoenix Partners
888 Seventh Avenue
New York, New York 10106
Gentlemen:
Reference is made to the Convertible Note Purchase Agreement
(as amended, "Agreement") dated December 9, 1994 between the undersigned
("Company") and you ("S-C Partners"), as amended by letter agreements dated
March 15, 1995, and August 3, 1995 ("August Letter"). Capitalized terms are
used herein as therein defined. Pursuant to the Agreement, S-C Partners has
purchased, and the Company has issued, (i) the Tranche A Note, the Tranche B
Note and a Tranche C Note in the principal amount of $1,000,000, which Notes
have been converted into 10,666,666 shares of Common Stock, in the aggregate,
and (ii) a Tranche C Note in the principal of $200,000 and a Tranche D Note in
the principal amount of $150,000. As of the date hereof, S-C Partners is
purchasing, and the Company is issuing, an additional Tranche D Note in the
principal amount of $1,200,000.
This will confirm our agreement respecting the early
conversion of all outstanding Notes, the modification of certain existing
warrants and the issuance of a warrant to purchase shares of the Company's
Common Stock as follows:
1. Notwithstanding anything to the contrary contained
therein, the outstanding Tranche C Note and Tranche D Notes are being
converted effective on the date hereof in accordance with their
respective terms. The number of shares ("Conversion Shares") into
which the principal amount of each such Note is being converted and
the amount of cash payable in lieu of fractional shares, if any, are
set forth on Schedule A hereto; provided, however, that, in
consideration of S-C Partners' conversion of such Notes, the Company
agrees that, in the event the System has not been
<PAGE> 2
installed in China with an airline of comparable size to Hainan
Airlines and/or the System is not demonstrably operational in all
material respects on or before January 15, 1996, except due to
problems ("Remediable Problems") with the System that the Company can
demonstrate to the reasonable satisfaction of S-C Parners are
remediable in a short period of time (not to exceed 30 days), the
Conversion Price set forth in the Tranche D Note issued and purchased
on the date hereof shall be deemed to have been, upon conversion, $.60
per share ("Conversion Price Adjustment"). In the event that
Remediable Problems exist on January 15, 1995, and on each of the
dates set forth below, on each such date the Conversion Price shall be
deemed to have been, upon conversion, the amount set forth below
opposite such date.
<TABLE>
<CAPTION>
Date Conversion Price
<S> <C>
January 22, 1996 $.92
January 29, 1996 $.86
February 5, 1996 $.80
February 15, 1996 $.60
</TABLE>
Upon any deemed change in the Conversion Price, the Company shall
issue to S-C Partners certificates representing such additional number
of shares of Common Stock such that S-C Partners shall receive the
aggregate number of shares of Common Stock it would have received had
such change actually occurred on the date of conversion.
2. Notwithstanding the earlier issuance of the Tranche C
Note and Tranche D Notes being converted on the date hereof, the
purchase of the remaining Tranche D Note in the principal amount of
$1,150,000 and the Tranche E Note shall continue to be subject to the
conditions set forth in the Agreement, including, without limitation,
the occurrence of the Tranche D Target Date and Tranche E Target Date,
respectively.
3. Paragraph 3(a) of the form of Note attached as
Exhibit A to the Agreement is hereby amended to
<PAGE> 3
3
conform to Paragraph 3(a) of the Tranche D Note issued on the date
hereof.
4. To the extent that the conditions set forth in
Section 3.2(n) of the Agreement to the issuance of the Tranche D Note
referred to above on the date hereof have not been satisfied as of the
date hereof, S-C Partners hereby unconditionally waives the
requirement that such conditions be met and discharges the Company
from responsibility therefor, subject to the terms and conditions of
this letter agreement.
5. The Company and S-C Partners agree that,
notwithstanding any contrary provisions contained in the Agreement or
that certain Warrant Agreement, dated as of December 9, 1994, by and
between the Company and S-C Partners, as amended by the August Letter
(the "Initial Warrant Agreement"), Section 3(b)(i) of the Initial
Warrant Agreement is hereby further amended to provide that the
aggregate number of Warrants (as defined therein) that may be
exercised during the Exercise Period (as defined therein) shall be
equal to 4,000,000.
6. The Company and S-C Partners agree that,
notwithstanding any contrary provisions contained in the August
Letter, the Company shall become obligated to issue the Additional
Warrants referred to in paragraph 4 thereof only in the event that the
System has not been installed in China with an airline of comparable
size to Hainan Airlines and/or the System is not demonstrably
operational in all material respects on or before January 15, 1995.
7. In consideration of the foregoing, the Company is
issuing, on the date hereof, a three-year warrant ("Second Conversion
Warrant") to purchase 600,000 shares of its Common Stock for a
purchase price of $4.00 per share. The form of such warrant is
annexed hereto as Exhibit A.
8. S-C Partners hereby represents and warrants as
follows:
<PAGE> 4
4
(a) The Conversion Shares and the Second
Conversion Warrant ("Securities") being acquired by S-C
Partners are being acquired for investment for its own account
and not with the view to, or for resale in connection with,
any distribution or public offering thereof. S-C Partners
understands that such Securities have not been registered
under the Securities Act of 1933, as amended (the "Securities
Act") or any state securities laws by reason of their
contemplated issuance in transactions exempt from the
registration requirements of the Securities Act pursuant to
Section 4(2) thereof and applicable state securities laws, and
that the reliance of the Company and others upon these
exemptions is predicated in part upon this representation by
S-C Partners. S-C Partners further understands that such
Securities may not be transferred or resold without (i)
registration under the Securities Act and any applicable state
securities laws, or (ii) an exemption from the requirements of
the Securities Act and applicable state securities laws.
(b) S-C Partners understands that an exemption
from such registration is not presently available pursuant to
Rule 144 promulgated under the Securities Act by the
Securities and Exchange Commission (the "Commission") and
that, in any event, S-C Partners may not sell any such
Securities pursuant to Rule 144 prior to the expiration of a
two-year period after it has acquired such Securities. S-C
Partners understands that any sales pursuant to Rule 144 can
be made only in full compliance with the provisions of Rule
144.
(c) The address of S-C Partner's principal office
is set forth on its Certificate of Representations dated the
date hereof. S-C Partners qualifies as an "accredited
investor" for purposes of Regulation D promulgated under the
Securities Act for the reasons specified in such Certificate
of Representations. S-C Partners acknowledges that the
Company has made available
<PAGE> 5
5
to it at a reasonable time prior to the execution of the
Certificate of Representations the opportunity to ask
questions and receive answers concerning the terms and
conditions of the sale of securities contemplated by the
Agreement, and to obtain any additional information (which the
Company possesses or can acquire without unreasonable effort
or expense) as may be necessary to verify the accuracy of the
information furnished to it. S-C Partners (i) is able to bear
of loss of its entire investment in the Securities being
acquired by it without any material adverse effect on its
business, operations or prospects, and (ii) has such knowledge
and experience in financial and business matters that it is
capable of evaluating the merits and risks of the investment
to be made by it pursuant to the Agreement and pursuant
hereto.
9. Except as modified hereby, the Agreement remains in
full force and effect.
10. This Agreement (a) represents the entire agreement
among the parties with respect to the subject matter hereof,
superseding all prior agreements and understandings, written or oral,
(b) may be amended only in writing, (c) may be executed in
counterparts, each of which shall be deemed an original and all of
which shall constitute one agreement, (d) shall inure to the benefit
of, and be binding upon, the parties hereto and their respective
successors and assigns and (e) shall be governed by and construed in
accordance with the laws of the State of New York applicable to
contracts entered into and to be performed wholly within such State.
If the foregoing accurately reflects our agreement, please
sign where indicated below.
Very truly yours,
<PAGE> 6
6
AGREED:
S-C PHOENIX PARTNERS
By S-C Phoenix Holdings, L.L.C.,
its general partner
By:
------------------------------
Name:
Title:
<PAGE> 7
SCHEDULE A
CONVERSION SCHEDULE
<TABLE>
<CAPTION>
Principal Conversion Conversion Cash
Note Amount Price Shares Amount
---- --------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Tranche C $ 200,000 $ .60 333,333 $0.20
Tranche D $ 150,000 $ .60 250,000 $0.00
Tranche D $1,200,000 $1.00 1,200,000 $0.00
- --------------------------------------------------------------------------------
Total 1,350,000 1,783,333 0.20
================================================================================
</TABLE>
<PAGE> 8
EXHIBIT A
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of September 15, 1995 (the
"Agreement"), by and between PHOENIX INFORMATION SYSTEMS CORP., a Delaware
corporation (the "Company"), and S-C PHOENIX PARTNERS, a New York general
partnership ("S-C" and, together with its successors and permitted assigns, the
"Holder").
WHEREAS, the Company proposes to issue and deliver its warrant
certificates ("Warrant Certificates") evidencing 600,000 warrants (the
"Warrants") each to purchase one newly issued common stock, par value $0.01 per
share, of the Company ("Common Stock") in connection with that certain letter
agreement, dated September 15, 1995, by and between the Company and S-C.
NOW THEREFORE, in consideration of the foregoing and for the
purpose of defining the terms and provisions of the Warrants and the respective
rights and obligations thereunder of the Company and the Holder, the Company
and the Holder agree as follows:
1. Certain Definitions. The following terms, as used in
this Agreement, have the following meanings:
<PAGE> 9
(a) "Affiliate" means, with respect to any specified
Person, any other Person controlling, controlled by or under common control
with such specified Person. In addition, any Person controlled by or under
common control with Soros Fund Management shall be deemed to be an Affiliate of
the Holder. For purpose of this definition, the term "control," when used with
respect to any Person, shall include the power to exercise discretion over the
investments of such Person, and the terms "controlling" and "controlled" have
corresponding meanings.
(b) "Common Stock" has the meaning set forth in the
preamble.
(c) "Exercise Period" means the period beginning on the
date hereof and ending on September 15, 1998.
(d) "Exercise Price" means $4.00 per share.
(e) "Expiration Date" for the Warrants means the last day
of the Exercise Period.
(f) "Holder" has the meaning set forth in the preamble.
(g) "Investor Representative" shall be S-C Phoenix
Holdings, L.L.C., a Delaware limited liability company and a general partner of
S-C, or its successor in interest, or the assigned representative of such
Person (it
2
<PAGE> 10
being agreed that at all times there shall be no more than one Investor
Representative).
(h) "Person" means any individual, corporation, limited
liability company, partnership, limited liability company, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
(i) "Underlying Common Stock" means the shares of Common
Stock purchasable by the Holder upon the exercise of the Warrants.
(j) "Warrants" has the meaning set forth in the preamble.
(k) "Warrant Certificates" means the certificates
evidencing the Warrants.
2. Issue of Warrants. The Warrant Certificates shall be
in registered form only and substantially in the form attached hereto as
Exhibit A, shall be dated the date on which signed by an authorized signatory
of the Company and may have such legends and endorsements typed, stamped or
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement. Warrant Certificates evidencing 600,000
Warrants may be executed by any authorized officer of the Company.
3
<PAGE> 11
3. Exercise Price; Exercise of Warrants.
(a) Exercise Price. Each Warrant shall entitle the
Holder, subject to the provisions of this Agreement, to purchase one share of
Common Stock at a purchase price per share equal to the Exercise Price.
(b) Exercise of Warrants Generally.
(1) Exercise During Exercise Period. The aggregate
number of Warrants that may be exercised at any time during the Exercise Period
shall be 600,000. All Warrants not exercised during the Exercise Period shall
expire on the Expiration Date.
(2) Liquidation Event. If the Company is liquidated in
accordance with the provisions of its Certificate of Incorporation, then the
Warrants shall be deemed to have been exercised.
(3) Method of Exercise; Payment of Exercise Price. In
order to exercise any or all of the Warrants represented by a Warrant
Certificate, the Holder must surrender the Warrant Certificate to the Company
for exercise, with the reverse side of the Warrant Certificate duly executed,
together with any required payment in full of the Exercise Price for each share
of Underlying Common Stock to which the Holder is entitled, any such payment of
the
4
<PAGE> 12
Exercise Price to be made by check or wire transfer to an account designated by
the Company. If the Holder elects to exercise only a portion of the Warrants
represented by the Warrant Certificate or Certificates registered in its name,
then the remaining portion of such Warrants shall be returned to the Holder in
the form of a new Warrant Certificate. Upon surrender of a Warrant Certificate
and the payment of the Exercise Price in conformity with the foregoing
provisions, the Company shall promptly issue to the Holder share certificates
representing the Underlying Common Stock to which the Holder is entitled,
registered in the name of the Holder or the name or names of such Affiliates of
the Holder as may be directed in writing by the Holder, and shall deliver such
share certificates to the Person or Persons entitled to receive the same. The
Company shall issue such share certificates within five business days after the
payment of the Exercise Price of the Warrants by the Holder, but such shares
shall be deemed issued and outstanding on the date the Warrant is exercised and
the Exercise Price is paid to the Company.
4. Adjustments. The Exercise Price shall be subject to
adjustment as follows:
5
<PAGE> 13
(a) In the event the Company shall issue additional
shares of Common Stock (or securities convertible into or exchangeable for
Common Stock) in a stock dividend, stock distribution or subdivision paid with
respect to Common Stock, or declare any dividend or other distribution payable
with additional shares of Common Stock (or securities convertible into or
exchangeable for Common Stock) with respect to Common Stock or effect a split
or subdivision of the outstanding shares of Common Stock, the Exercise Price
shall, concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, or the earlier declaration thereof, be
proportionately decreased.
(b) In the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Common Stock, the Exercise Price shall, concurrently
with the effectiveness of such combination or consolidation, be proportionately
increased.
(c) In the event of any consolidation or merger of the
Company with or into another corporation or the conveyance of all or
substantially all of the assets of the Company to another corporation or
entity, the Warrants shall
6
<PAGE> 14
thereafter be exercisable for the number of shares of capital stock or other
securities or property to which a holder of the number of shares of Common
Stock deliverable upon conversion hereof would have been entitled upon such
consolidation, merger or conveyance; and, in any such case, appropriate
adjustment shall be made in the application of the provisions herein set forth
with respect to the rights and interests of the Holder thereafter, to the end
that the provisions set forth herein (including provisions with respect to
adjustments in the Exercise Price) shall thereafter be applicable, as nearly as
may be practicable, in relation to any shares of stock or other property
thereafter deliverable upon the exercise of Warrants. At the request of the
Holder, the resulting or surviving entity in any such consolidation or merger,
if other than the Company, shall acknowledge in writing the Holder's rights
hereunder.
5. Loss or Mutilation. Upon receipt by the Company of
evidence satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate and of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation thereof, then, in the absence of notice to the Company that
7
<PAGE> 15
the Warrants represented thereby have been acquired by a bona fide purchaser,
the Company shall deliver to the Holder, in exchange for or in lieu of the
lost, stolen, destroyed or mutilated Warrant Certificate, a new Warrant
Certificate of the same tenor and for a like aggregate number of Warrants. Upon
the issuance of any new Warrant Certificate under this Section 5, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and other expenses
in connection herewith. Every new Warrant Certificate executed and delivered
pursuant to this Section 5 in lieu of any lost, stolen or destroyed Warrant
Certificate shall constitute a contractual obligation of the Company, whether
or not the allegedly lost, stolen or destroyed Warrant Certificate shall be at
any time enforceable by anyone, and shall be entitled to the benefit of this
Agreement equally and proportionately with any and all other Warrant
Certificates duly executed and delivered hereunder. The provisions of this
Section 5 are exclusive and shall preclude (to the extent lawful) all other
rights or remedies with respect to the replacement of mutilated, lost, stolen,
or destroyed Warrant Certificates.
8
<PAGE> 16
6. Reservation and Authorization of Common Stock. The
Company shall, at all times until the Warrants have been exercised or have
expired, reserve and keep available for issue upon the exercise of Warrants
such number of its authorized but unissued shares of Common Stock as is
sufficient for the purpose of permitting the exercise in full of all
outstanding Warrants.
7. Limitations on Transfer; Warrant Transfer Books. The
Warrants may be sold, transferred, pledged, assigned, hypothecated or otherwise
disposed of (collectively, "transferred") only to Affiliates of the Holder.
The Company shall cause to be kept at the principal executive office of the
Company a register in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide the registration of Warrant Certificates
and transfers or exchanges of Warrant Certificates as herein provided.
At the option of the Holder, Warrant Certificates may be
exchanged at such office upon payment of the charges hereinafter provided.
Whenever any Warrant Certificates are so surrendered for exchange, the Company
shall execute and deliver the Warrant Certificates that the Holder is entitled
to receive. All Warrant Certificates issued upon any regis-
9
<PAGE> 17
tration of transfer or exchange of Warrant Certificates shall be the valid
obligations of the Company, evidencing the same obligations, and entitled to
the same benefits under this Agreement, as the Warrant Certificates surrendered
for such registration of transfer or exchange.
Every Warrant Certificate surrendered for registration of
transfer or exchange shall (if so required by the Company) be duly endorsed, or
be accompanied by a written instrument of transfer in form satisfactory to the
Company duly executed by the Holder. No service charge shall be made for any
registration of transfer or exchange of Warrant Certificates. The Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer of
Warrant Certificates.
8. No Voting or Dividend Rights. Prior to the exercise
of the Warrants, the Holder, as a Holder of Warrant Certificates, shall not be
entitled to any rights of a shareholder of the Company, including, without
limitation, the right to vote, to receive dividends or other distributions or
to exercise any preemptive right, but each Holder of Warrant Certificates shall
receive all notices sent to shareholders of the Company, including any notice
of
10
<PAGE> 18
meetings of shareholders, and shall have the right to attend or observe such
meetings.
9. Notices. Any notice, demand or delivery authorized
by this Agreement shall be in writing and shall be sufficiently given or made
upon receipt thereof, if made by personal delivery or facsimile transmission
(with confirmed receipt thereof), or four business days after mailed, if sent
by first-class mail, postage prepaid, addressed to the Investor Representative
or the Company, as the case may be, at their respective addresses below, or
such other address as shall have been furnished to the party giving or making
such notice, demand or delivery:
(a) If to the Company, to it at:
Phoenix Information Systems Corp.
100 Second Avenue South, Suite 100
St. Petersburg, Florida 33701
Attention: Robert P. Gordon, Chairman
Facsimile: 813-821-7565
(b) If to the Holder, to the Investor
Representative at:
S-C Phoenix Holdings, L.L.C.
c/o The Chatterjee Group
888 Seventh Avenue, Suite 3300
New York, New York 10106
Attention: Peter A. Hurwitz, Esq.
Facsimile: 212-489-2005
with a copy to:
Soros Fund Management
11
<PAGE> 19
888 Seventh Avenue, Suite 3300
New York, New York 10106
Attention: Sean A. Warren, Esq.
Facsimile: 212-489-2005
10. Applicable Law. This Agreement and each Warrant
Certificate issued hereunder shall be governed by, and construed in accordance
with, the internal laws of the State of New York, without regard to the
conflicts of law principles thereof. The Company and the Holder hereby submit
to the nonexclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York State court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Agreement and the transactions contemplated hereby. The Company and the
Holder irrevocably waive, to the fullest extent permitted by law, any objection
which they may now or hereafter have to the laying of the venue of any such
proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
11. Successors and Assigns. The provisions of this
Agreement shall inure to benefit of and be binding upon the respective
successors and permitted assigns of the parties. The Holder may not assign any
of its rights here-
12
<PAGE> 20
under separate from a transfer of the Warrants in accordance with Section 7
hereof. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement.
12. Counterparts. This Agreement may be executed by one or
more the parties to this Agreement on any number of separate counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
13. Captions and Headings. The captions and headings used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
14. Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor
Representative. Any amendment or waiver effected in accordance with this
paragraph shall be binding
13
<PAGE> 21
upon the Holder, each future holder of the Warrants, and the Company.
15. Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provisions
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
14
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
PHOENIX INFORMATION SYSTEMS CORP.
By
----------------------------------------
Name:
Title:
S-C PHOENIX PARTNERS
By S-C PHOENIX HOLDINGS, L.L.C.,
a General Partner
By
----------------------------------------
Name:
Title:
15
<PAGE> 23
EXHIBIT A
FORM OF WARRANT CERTIFICATE
THIS WARRANT CERTIFICATE AND THE WARRANTS
REPRESENTED HEREBY ARE TRANSFERABLE ONLY
IN ACCORDANCE WITH THE PROVISIONS SET FORTH IN
THE WARRANT AGREEMENT REFERRED TO BELOW.
WARRANTS TO PURCHASE COMMON STOCK
OF PHOENIX INFORMATION SYSTEMS CORP.
No.___ 600,000 Warrants
This certifies that __________________________, is the owner
of the number of Warrants set forth above, each of which represents the right
to purchase from PHOENIX INFORMATION SYSTEMS CORP., a Delaware corporation (the
"Company"), the number of shares of Common Stock, par value $0.01 per share, of
the Company ("Common Stock") determined in accordance with the Warrant
Agreement referred to below at the purchase price set forth in the Warrant
Agreement (the "Exercise Price"), upon surrender hereof at the office of the
Company at 100 Second Avenue South, Suite 1100, St. Petersburg, Florida 33701
with the Exercise Subscription Form on the reverse hereof duly executed and
with payment in full (by bank check or wire transfer to an account designated
by the Company) of the purchase price for the shares as to which the Warrant(s)
represented by this Warrant Certificate are exercised, all subject to the terms
and conditions hereof and of the Warrant Agreement referred to
<PAGE> 24
below. The Warrants will expire on the Expiration Date.
This Warrant Certificate is issued under and in accordance
with a Warrant Agreement, dated as of September 15, 1995 (the "Warrant
Agreement"), between the Company and S-C Phoenix Partners, and is subject to
the terms and provisions contained therein, to all of which terms and
provisions the holder of this Warrant Certificate consents by acceptance
hereof. The Warrant Agreement is hereby incorporated herein by reference and
made a part hereof. Reference is hereby made to the Warrant Agreement for a
full description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Company and the holders of the Warrants.
Capitalized defined terms used herein have the same meanings as in the Warrant
Agreement. Copies of the Warrant Agreement are on file at the office of the
Company and may be obtained by writing to the Company at the following address:
100 Second Avenue South
Suite 1100
St. Petersburg, Florida 33701
The number of shares of the Common Stock of the Company purchasable upon the
exercise of each Warrant and the price per share are set forth in the Warrant
Agreement.
A-2
<PAGE> 25
All shares of Common Stock issuable by the Company upon the
exercise of Warrants and the payment of the Exercise Price therefor shall be
validly issued, fully paid and nonassessable. The Company shall not be
required, however, to pay any tax, withholding or other charge imposed in
connection with the issuance of any shares of Common Stock upon the exercise of
Warrants, and, in such case, the Company shall not be required to issue or
deliver any stock certificate until such tax, withholding or other charge has
been paid or it has been established to the Company's satisfaction that no tax,
withholding or other charge is due. This Warrant Certificate and all rights
hereunder are transferable, subject to the terms of the Warrant Agreement, by
the registered holder hereof, in whole or in part, upon surrender of this
Warrant Certificate duly endorsed, or accompanied by a written instrument of
transfer in form satisfactory to the Company duly executed by the registered
holder and upon payment of any necessary transfer tax or other governmental
charge imposed upon such transfer. Upon any partial transfer, the Company will
issue and deliver to such holder a new Warrant Certificate or Certificates with
respect to any portion not so transferred.
A-3
<PAGE> 26
This Warrant Certificate shall be void and all rights
represented hereby shall cease on the Expiration Date.
Dated:___________, 19__
PHOENIX INFORMATION SYSTEMS CORP.
By
--------------------------------------
Name:
Title:
A-4
<PAGE> 27
FORM OF REVERSE OF WARRANT CERTIFICATE
EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: Phoenix Information Systems Corp.
The undersigned irrevocably exercises ____________ of the
Warrants evidenced by this Warrant Certificate for the purchase of shares of
Common Stock, par value $0.01 per share, of PHOENIX INFORMATION SYSTEMS CORP.
and has arranged to make payment of $___________ (such payment being made by
bank check or wire transfer to the account designated by Phoenix Information
Systems Corp., all at the Exercise Price (as defined in the Warrant Agreement)
and on the terms and conditions specified in this Warrant Certificate and the
Warrant Agreement herein referred to. The undersigned hereby irrevocably
surrenders this Warrant Certificate and all right, title and interest therein
to Phoenix Information Systems Corp. and directs that the shares of Common
Stock deliverable upon the exercise of said Warrants be registered
<PAGE> 28
or placed in the name and at the address specified below and delivered thereto.
Date:_________, 19__.
*
---------------------------------------
Signature of Owner
----------------------------------------
(Street Address)
----------------------------------------
(City) (State) (Zip Code)
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
____________________
* The signature must correspond with the name as written upon the face of
this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
3
<PAGE> 29
FORM OF ASSIGNMENT
For VALUE RECEIVED, the undersigned registered holder of this
Warrant Certificate hereby sells, assigns, and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants
constituting a part of the Warrants evidenced by this Warrant Certificate not
being assigned hereby) all of the right of the undersigned under this Warrant
Certificate, with respect to the number of Warrants set forth below:
Social Security
Names of or other Identifying Number of
Assignees Address Number of Assignee(s) Warrants
- --------- ------- --------------------- --------
and does hereby irrevocably constitute and appoint _______________ the
undersigned's attorney to make such transfer on the books of Phoenix
Information Systems Corp. maintained for the purpose, with full power of
substitution.
Dated: ___________, 19__
----------------------------------------
----------------------------------------
4
<PAGE> 30
________________
(1) The signature must correspond with the name as written upon the face
of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
5
<PAGE> 1
EXHIBIT 10.37
OPTIONS AGREEMENT
THIS OPTIONS AGREEMENT, dated December 7, 1995, is among
PHOENIX INFORMATION SYSTEMS CORP., a Delaware corporation ("Phoenix"), S-C
PHOENIX HOLDINGS, L.L.C., a limited liability company organized under the laws
of Delaware ("S-C"), and QUANTUM INDUSTRIAL PARTNERS LDC, a limited duration
company organized under the laws of the Cayman Islands ("Quantum").
WHEREAS, AMERICAN AVIATION LIMITED ("AA"), an offshore
limited life company organized under the laws of Mauritius, fifty (50%) percent
of which is owned by S-C and fifty (50%) percent of which is owned by Quantum,
has agreed to acquire ("Acquisition") twenty five (25%) percent of the equity
of HAINAN AIRLINES, a company limited by shares organized under the laws of the
People's Republic of China ("Hainan");
WHEREAS, S-C and Quantum own in the aggregate one hundred
(100%) percent of AA and, on or before the closing of the Acquisition, will
contribute to AA funds sufficient to enable AA to consummate the Acquisition;
WHEREAS, S-C and Quantum desire to grant to Phoenix an
option to acquire a fifty (50%) percent interest in AA on the terms and
conditions hereinbelow set forth;
WHEREAS, Phoenix desires to grant to each of S-C and
Quantum an option to sell Phoenix up to one hundred (100%) percent of its
interest in AA on the terms and conditions hereinbelow set forth.
NOW THEREFORE, in consideration of the premises, and the
mutual agreements herein contained, the parties hereby agree as follows:
SECTION 1. DEFINITIONS. For purposes of this Agreement, the
following terms shall have the meanings specified below:
"AA" shall have the meaning set forth in the recitals.
"AA AMOUNT" shall mean the greater of () the AA
<PAGE> 2
Investment or () eighty five (85%) percent of the aggregate AA Market Price for
all outstanding AA Shares owned by S-C and Quantum.
"AA INVESTMENT" shall mean twenty five million ($25,000,000)
dollars, in the event the Call Option has not been exercised, or ten million
($10,000,000) dollars, in the event that the Call Option has been exercised.
"AA MARKET PRICE" shall mean the average of the closing prices of
sales of AA Shares on all domestic exchanges on which AA Shares may at the time
be listed, or, if there shall have been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day AA Shares shall not be so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 3:30 P.M., New York time, or if on any day AA Shares shall
not be quoted in the NASDAQ System, the average of the high and low bid and
asked prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau, Incorporation, or any similar successor
organization, in each such case averaged over a period of 15 consecutive
business days prior to the day as of which the AA Market Price is being
determined; provided that if AA Shares are listed on any domestic exchange the
term "business days" as used in this sentence shall mean business days on which
such exchange is open for trading. If at any time AA Shares are not listed on
any domestic exchange or quoted in the NASDAQ System or the domestic
over-the-counter market, the AA Market Price shall be deemed to be the fair
market value thereof determined by an independent appraiser selected by S-C and
Quantum and acceptable to Phoenix, taking into account the share of Hainan
owned by AA, the underlying value of Hainan, the value of control, if any, of
AA and all other pertinent factors of value other than liquidity of AA Shares.
"AA PAYMENTS" shall mean the aggregate amount of all cash dividend
payments made by or on behalf of AA to S-C and Quantum, in respect of or
relating to the AA Shares, but expressly excluding the $2,000,000 financing fee
received or receivable by S-C, Quantum or any affiliate of S-C or Quantum in
connection with the Acquisition or any other fee or other
2
<PAGE> 3
compensation paid or payable to S-C, Quantum or any affiliate of S-C or Quantum
for services rendered.
"AA SHARES" shall mean shares of the capital of AA consisting of
ordinary shares of $1.00 each.
"ACTUAL PHOENIX VALUE" shall mean the amount resulting when the
Phoenix Share Price is multiplied by the Put Exercise Price.
"ACQUISITION DATE" shall mean the date on which the closing of the
Acquisition occurs.
"ACQUISITION" shall have the meaning set forth in the recitals.
"AFFILIATE" shall mean, with respect to S-C and Quantum, (A)(a) any
person or entity controlling, controlled by or under common control with S-C or
Quantum and (b) if (1) controlling S-C or Quantum, such person or entity has a
forty percent (40%) or more voting and beneficial ownership interest in S-C or
Quantum, (2) controlled by S-C or Quantum, has a forty percent (40%) or more
voting and beneficial ownership interest in such person or entity and (3) under
common control with S-C or Quantum, the person(s) or entity(ies) having such
common control have a forty percent (40%) or more voting and beneficial
ownership interest in S-C or Quantum and such person or entity, and (B) any
person or entity for which George Soros d/b/a Soros Fund Management or
Chatterjee Fund Management Co. LP, a Delaware limited partnership, is acting as
investment manager or investment adviser, in each case with investment
discretion.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or
day on which banks in New York City are closed for general business.
"CALL EXERCISE PRICE" shall have the meaning set forth in Section
2.1 hereof.
"CALL OPTION" shall have the meaning set forth in Section 2.1
hereof.
"CALL TERM" shall have the meaning set forth in Section
3
<PAGE> 4
2.1 hereof.
"DETERMINATION DATE" shall mean a date during the Put Term selected
by S-C or Quantum and identified in an Exercise Notice, which date shall be on
or before the date of the applicable Exercise Notice, but shall not be more
than ten Business Days prior to the date of such notice.
"EXERCISE NOTICE" shall have the meaning given in Section 3.3
hereof.
"FIRST PREFERENCE PERIOD" shall mean the time period commencing on
the Preference Date and ending on the earlier of the Flip or the 100% Put Date.
"FIRST PREFERENCE PERIOD AMOUNT" shall mean the amount equal to the
quotient of (x) $8,000,000 minus Pre-Preference Period Payments, divided by (y)
the sum of seventy-two (72%) percent plus ten (10%) percent of the aggregate
Percentage Interest in AA held by S-C and Quantum on the Preference Date.
"FLIP" shall have the meaning set forth in Section 2.4 hereof.
"HAINAN" shall have the meaning set forth in the recitals.
"LIQUIDATION AMOUNT" shall mean an amount equal to the excess, if
any, of $8,000,000 over AA Payments made prior to the Liquidation Date.
"LIQUIDATION DATE" shall have the meaning set forth in Section 2.6
hereof.
"LIQUIDATION DIFFERENTIAL" shall mean an amount equal to the sum
of the Pre-Liquidation Differential plus, if any, the Post-Liquidation
Differential.
"100% PUT" shall have the meaning given in Section 2.4 hereof.
"PAYMENT DIFFERENTIAL" shall mean an amount equal to
4
<PAGE> 5
the difference between (i) the Percentage Interest in AA owned by Phoenix on
the Preference Date multiplied by the total amount of dividend payments made by
AA during the time period following the Preference Date until the applicable
Determination Date, and (ii) all amounts received by Phoenix through such
Determination Date pursuant to Section 2.4; provided that any amounts paid to
Phoenix pursuant to Section 2.4(c) shall be excluded from the foregoing formula
for purposes of calculating the Payment Differential.
"PERCENTAGE INTEREST" shall mean the percentage obtained by
dividing the number of AA Shares owned by a party by the aggregate number of AA
Shares then outstanding.
"PHOENIX" shall have the meaning set forth in the preamble.
"PHOENIX MARKET PRICE" shall mean the average of the closing prices
of the Phoenix Stock sales on all domestic exchanges on which the Phoenix Stock
may at the time be listed, or, if there shall have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day the Phoenix Stock
shall not be so listed, the average of the representative bid and asked prices
quoted in the NASDAQ System as of 3:30 P.M., New York time, or if on any day
the Phoenix Stock shall not be quoted in the NASDAQ System, the average of the
high and low bid and asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporation, or any
similar successor organization, in each such case averaged over the business
days occurring during a period of 30 consecutive calendar days prior to the day
as of which the Phoenix Market Price is being determined; provided that if the
Phoenix Stock is listed on any domestic exchange the term "business days" as
used in this sentence shall mean business days on which such exchange is open
for trading. If at any time the Phoenix Stock is not listed on any domestic
exchange or quoted in the NASDAQ System or the domestic over-the-counter
market, the Phoenix Market Price shall be deemed to be the fair market value
thereof as of the Determination Date determined by an independent appraiser
selected by Phoenix and acceptable to S-C and Quantum taking
5
<PAGE> 6
into account the share of AA owned by Phoenix if any, the underlying value of
AA (if Phoenix owns any AA Shares), the value of control, if any, of Phoenix
and all other pertinent factors other than liquidity of Phoenix Stock.
"PHOENIX SHARE PRICE" shall mean eighty-five (85%) percent of the
Phoenix Market Price.
"PHOENIX STOCK" shall mean the common stock, par value $0.01, of
Phoenix.
"POST-LIQUIDATION DIFFERENTIAL" shall mean the amount resulting
when the Liquidation Amount is multiplied by a fraction, the numerator of which
is the Percentage Interest in AA held by Phoenix in the Preference Date and the
denominator of which is the aggregate Percentage Interest in AA held by S-C and
Quantum on the Preference Date.
"PREFERENCE DATE" shall have the meaning set forth in Section 2.4
hereof.
"PRE-LIQUIDATION DIFFERENTIAL" shall mean an amount equal to the
difference between (i) AA Payments made during the time period following the
Preference Date until (but not including) the Liquidation Date, multiplied by a
fraction, the numerator of which is equal to the Percentage Interest in AA held
by Phoenix on the Preference Date and the denominator of which is equal to the
aggregate Percentage Interest in AA held by S-C and Quantum on the Preference
Date, and (ii) all amounts received by Phoenix during the same time period;
provided that any amounts paid to Phoenix pursuant to Section 2.4(c) shall be
excluded from the foregoing formula for purposes of calculating the
Pre-Liquidation Differential.
"PRE-PREFERENCE PERIOD PAYMENTS" shall mean AA Payments made prior
to the Preference Date.
"PRINCIPAL DIFFERENTIAL" shall mean an amount equal to two times
the difference between (i) the Percentage Interest in AA owned by Phoenix on
the Preference Date multiplied by the First Preference Period Amount, and (ii)
all amounts received by Phoenix during the First Preference Period.
6
<PAGE> 7
"PUT CLOSING" shall mean the time at which (a) Phoenix shall cause
to be issued to S-C and Quantum the number of Phoenix Shares equal to the Put
Exercise Price and (b) S-C and Quantum shall cause to be issued to Phoenix the
AA Shares sold pursuant to the Put Option.
"PUT EXERCISE PRICE" shall have the meaning set forth in Section
3.1 hereof.
"PUT OPTION" shall have the meaning set forth in Section 3.1
hereof.
"PUT TERM" shall have the meaning set forth in Section 3.1 hereof.
"QUANTUM" shall have the meaning set forth in the preamble.
"S-C" shall have the meaning set forth in the preamble.
For purposes hereof, the term "dividends" shall include payments made by AA to
redeem AA Shares.
"SECOND PREFERENCE PERIOD AMOUNT" shall mean the number resulting
when the First Preference Period Amount is multiplied by a fraction, the
numerator of which is (x) eighty (80%) percent minus the Percentage Interest in
AA held by S-C and Quantum on the Preference Date, and the denominator of which
is (y) the Percentage Interest in AA held by S-C and Quantum on the Preference
Date minus twenty (20%) percent.
SECTION 2. CALL OPTION.
2.1 OPTION TERMS. S-C and Quantum hereby grant to
Phoenix an option ("Call Option") to purchase such number of AA Shares as
shall, upon exercise, equal a Percentage Interest in AA not to exceed fifty
(50%) percent in the aggregate. The Call Option shall be exercisable in
accordance with Section 2.3 hereof, in whole but not in part, on any Business
Day during the period ("Call Term") commencing on the Acquisition Date and
ending on the first anniversary thereof. The exercise price for the Call
Option shall be $15,000,000 ("Call Exercise Price").
7
<PAGE> 8
2.2 CONSIDERATION. In consideration of the issuance
of the Call Option by S-C and Quantum to Phoenix, Phoenix shall, on the
Acquisition Date, issue to S-C and Quantum warrants to acquire an aggregate of
four million (4,000,000) shares of Phoenix Stock pursuant to the warrant
agreements (the "Warrant Agreements") in the forms of Exhibits A-1 and A-2
hereto. S-C and Quantum will receive registration rights applicable to the
shares of common stock issued upon exercise of the warrants, as set forth in
the Registration Rights Agreement attached as Exhibit C hereto. Phoenix shall
enter into the First Amendment to the Registration Rights Agreement, attached
as Exhibit D hereto.
2.3 EXERCISE. At least five (5) Business Days prior
to the date upon which Phoenix desires to exercise the Call Option, Phoenix
shall deliver to S-C and Quantum written notice of such exercise. Such notice
shall specify the Business Day for the purchase of the AA Shares. On the date
specified in any such notice, Phoenix shall wire transfer the Call Exercise
Price in immediately available funds to such account or accounts as S-C and
Quantum shall designate to Phoenix. Promptly upon receipt thereof, S-C and
Quantum shall cause Phoenix to be issued, in Phoenix's name as set forth in the
notice, the AA Shares so purchased in certificated form and without legends
except in respect of such restrictions on transfer as may be imposed by
applicable Federal and state securities and "blue sky" laws.
2.4 AA PREFERENCE DISTRIBUTIONS. At such time (the
"Preference Date") as Phoenix shall first acquire a Percentage Interest in AA
greater than twenty (20%) percent (whether upon an exercise of the Call Option
or on an exercise of the Put Option, provided that if Phoenix first acquires
such Percentage Interest pursuant to an exercise of the Put Option, the
Preference Date will be deemed to be the applicable Determination Date for such
exercise), and until such time (the "100% Put") as S-C and Quantum shall have
exercised the Put Option with respect to one hundred (100%) percent of the
aggregate Percentage Interest in AA they then hold without regard to the
adjustment required by Section 3.2(c)(assuming that a Put Closing has occurred
with respect to such exercise and if so, effective as of the Determination Date
for such Put Closing), the Articles of Association of AA
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shall be amended, effective on the Preference Date, to provide that,
notwithstanding the respective Percentage Interests of S-C, Quantum and
Phoenix, AA will distribute all dividends in respect of AA Shares as follows:
(a) in the event that, as of such time, AA Payments are
less than $8,000,000, (i) the initial ten (10%) percent) of the First
Preference Period Amount shall be distributed in accordance with the
Percentage Interests in AA held on the Preference Date by S-C and
Quantum on the one hand, and Phoenix on the other hand; and (ii) the
remaining ninety (90%) percent of the First Preference Period Amount
shall be distributed eighty (80%) percent to S-C and Quantum and
twenty (20%) percent to Phoenix, in each case until the earlier of (x)
such time ("Flip") as AA Payments equal $8,000,000 or (y) the 100%
Put;
(b) from and after the Flip, (i) the initial ten (10%)
percent of the Second Preference Period Amount shall be distributed in
accordance with the Percentage Interests in AA held on the Preference
Date by S-C and Quantum on the one hand, and Phoenix on the other
hand; and (ii) the remaining ninety (90%) percent of the Second
Preference Period Amount shall be distributed twenty (20%) percent to
S-C and Quantum and eighty (80%) percent to Phoenix;
(c) thereafter, one hundred (100%) percent to Phoenix
until such time as Phoenix shall have received interest in an amount
equal to five (5%) percent (based on a 365/366 day year and actual
days elapsed) on the Principal Differential, calculated for the time
period commencing on the date on which the First Preference Period
Amount is first distributed eighty (80%) percent to S-C and Quantum
and twenty (20%) percent to Phoenix and ending on the date on which
Phoenix receives the amount it would have received prior to the Flip
if all distributions made pursuant to Section 2.4(a) were instead made
pursuant to Section 2.4(d); and
(d) thereafter, in accordance with the Percentage
Interests in AA then held by S-C and Quantum on the one
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hand and by Phoenix on the other hand.
2.5 Notwithstanding the foregoing, if, immediately
following the 100% Put, the sum of AA Payments plus the Aggregate Phoenix Value
(such sum, the "SCQ Amount") is less than $8 million, AA will distribute all
dividends in respect of AA Shares as follows:
(a)(i) first, the First Partial Payment Amount shall be
distributed in accordance with the respective Percentage Interests held by S-C,
Quantum and Phoenix; and (ii) thereafter, eighty (80%) percent to S-C and
Quantum and twenty (20%) percent to Phoenix; in each case until the SCQ Amount
is equal to $8 million (the "end date");
(b) from and after the end date, (i) the Second Partial
Payment Amount shall be distributed in accordance with the respective
Percentage Interests held by S-C, Quantum and Phoenix; and (ii) thereafter, the
Recapture Amount shall be distributed twenty (20%) percent to S-C and Quantum
and eighty (80%) percent to Phoenix, or, if the aggregate Percentage Interest
in AA held by S-C and Quantum is less than twenty (20%), to S-C, Quantum and
Phoenix in accordance with their respective Percentage Interests in AA;
(c) thereafter, in accordance with the respective
Percentage Interests in AA held by S-C, Quantum and Phoenix.
(d) For purposes of this Section 2.5, the following
terms shall have the meanings specified below:
"Aggregate Phoenix Value" shall mean the amount equal to
the sum of (x) the amount resulting when the number of Phoenix Shares received
by S-C and Quantum on an exercise of the Put Option is multiplied by the
Phoenix Share Price as of the Determination Date for such exercise, plus (y)
the amount resulting when the number of Phoenix Shares received by S-C and
Quantum on any other exercise of the Put Option is multiplied by the Phoenix
Share Price as of the Determination Date for such exercise.
"First Partial Payment Amount" shall mean an amount equal
to thirty-five (35%) percent of the number resulting when
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the difference between (x) the Percentage Interest in AA held by Phoenix
immediately following the 100% Put and (y) twenty (20%) percent, is multiplied
by (z) the excess, if any, of $8 million over the SCQ Amount immediately
following exercise of the 100% Put.
"Payment A Amount" shall mean the amount resulting when the
total amount of dividends paid by AA during the time period immediately
following the 100% Put and ending on the end date, but excluding the First
Partial Payment Amount, is multiplied by a fraction the numerator of which is
equal to (x) eighty (80%) percent minus the Percentage Interest in AA held by
S-C and Quantum immediately following the 100% Put, and the denominator of
which is equal to (y) the Percentage Interest in AA held by S-C and Quantum
immediately following the 100% Put minus twenty (20%) percent.
"Recapture Amount" shall mean the amount equal to the sum
of (i) the Payment A Amount plus (ii) the number resulting when (x) the total
amount of dividends paid by AA during the time period following the Preference
Date and ending immediately prior to the 100% Put, but excluding amounts paid
pursuant to Section 2.4(a)(i), is multiplied by (y) a fraction the numerator of
which is equal to eighty (80%) percent minus the Percentage Interest in AA held
by S-C and Quantum on the Preference Date, and the denominator of which is
equal to the Percentage Interest in AA held by S-C and Quantum immediately
following the 100% Put minus twenty (20%) percent.
"SCQ Amount" shall have the meaning given in this Section
2.5.
"Second Partial Payment Amount" shall mean an amount equal
to thirty-five (35%) of the number resulting when the excess, if any, of (x)
the aggregate Percentage Interest in AA held by S-C and Quantum immediately
following the 100% Put over (y) twenty (20%) percent, is multiplied by (z) the
Recapture Amount.
(e) For purposes of this Section 2.5, all calculations
based on the occurrence of the 100% Put shall apply solely following the Put
Closing for the 100% Put but, following such closing, shall be effective as of
the
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Determination Date for such 100% Put.
2.6 OTHER AA DISTRIBUTIONS. During any time period in
which Phoenix owns a Percentage Interest in AA equal to or less than twenty
(20%) percent or following the 100% Put Date, AA will make all dividend
payments in accordance with the Percentage Interests in AA then held by S-C and
Quantum, on the one hand, and by Phoenix, on the other hand.
2.7 LIQUIDATION, REORGANIZATION OR SALE. (a) In the
event of the sale, corporate reorganization or liquidation of AA on or
following the Preference Date (the date of such event, the "Liquidation Date"),
the proceeds of such sale, reorganization or liquidation shall be distributed
as follows: (i) one hundred (100%) percent of the Liquidation Amount to S-C
and Quantum; (ii) thereafter, one hundred (100%) percent of the Liquidation
Differential to Phoenix; and (iii) thereafter, to S-C, Quantum and Phoenix in
accordance with the amounts in their respective capital accounts with respect
to their ownership in AA immediately prior to such sale, reorganization or
liquidation. The Articles of Association of AA shall be amended following (but
effective as of) the Preference Date to reflect the provisions of this Section
2.6.
(b) The foregoing provisions of Section 2.6(a) shall
no longer apply following the 100% Put (assuming that a Put Closing has
occurred with respect to such exercise and, if so, effective as of the
Determination Date for such Put Closing); provided however, that the provisions
of Section 2.6(a) shall be applicable following such 100% Put if the SCQ Amount
is less than $8 million, in which case the definition of "Liquidation Amount"
shall be deemed to mean an amount equal to $8,000,000 minus the SCQ Amount.
SECTION 3. PUT OPTION.
3.1 OPTION TERMS. Phoenix hereby grants to S-C and
Quantum, effective as of the Acquisition Date, an option ("Put Option") to sell
to Phoenix such number of AA Shares as shall, upon exercise, equal (a) at the
sole option of S-C and Quantum, fifty (50%) percent or one hundred (100%)
percent of their aggregate Percentage Interest in AA (if S-C and Quantum then
own one hundred (100%) percent of AA) or (b) one hundred
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(100%) percent of their aggregate Percentage Interest in AA (if S-C and Quantum
then own less than one hundred (100%) percent of AA, either as a result of a
prior exercise of the Put Option or in the event the Call Option has been
exercised, subject in each case to adjustment as required by Section 3.2(c).
The Put Option shall be exercisable in accordance with Section 3.3 hereof at
any time during the period ("Put Term"), commencing on the second anniversary
of the Acquisition Date and ending on the fifth anniversary of the Acquisition
Date. The price payable by Phoenix upon exercise of the Put Option shall be
determined as set forth in Section 3.2 hereof ("Put Exercise Price"). The
effectiveness of the Put Option and the Call Option shall be conditioned on the
amendment to the certificate of incorporation of Phoenix referred to in Section
5.1(d) hereof.
3.2. PUT EXERCISE PRICE. (a) If upon exercising the
Put Option one hundred (100%) percent of the aggregate Percentage Interest in
AA then held by S-C and Quantum is to be sold to Phoenix, the Put Exercise
Price shall be a number of shares of Phoenix Stock, determined as of the
Determination Date, equal to the lower of () eight million (8,000,000) shares,
in the event the Call Option has not been exercised, or four million
(4,000,000) shares, in the event the Call Option has been exercised and () the
number obtained by dividing (x) the amount equal to the AA Amount minus the
Payment Differential by (y) the Phoenix Share Price.
(b) If upon the exercise of the Put Option fifty (50%)
percent of the aggregate Percentage Interest then held by S-C and Quantum in AA
is to be sold to Phoenix and the Call Option has not been exercised, the Put
Exercise Price shall be a number of shares of Phoenix Stock, determined as of
the Determination Date, equal to the lower of (i) four million (4,000,000)
shares and (ii) one-half of the number obtained by dividing (x) the amount
equal to the AA Amount minus the Payment Differential by (y) the Phoenix Share
Price.
(c) Notwithstanding any provision herein to the
contrary: (i) if, after determining the Put Exercise Price pursuant to Section
3.2(a), the Actual Phoenix Value is less than the AA Amount, then the
Percentage Interest in AA sold to Phoenix for such Put Exercise Price shall be
reduced, pro rata,
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by the same percentage by which the Actual Phoenix Value is less than the AA
Amount; and (ii) if, after determining the Put Exercise Price pursuant to
Section 3.2(b), the Actual Phoenix Value is less than one-half the AA Amount,
then the Percentage Interest in AA sold to Phoenix for such Put Exercise Price
shall be reduced, pro rata by the same percentage by which the Actual Phoenix
Value is less than one-half the AA Amount.
3.3. EXERCISE. The Put Option may be exercised by S-C
or Quantum at any time during the Put Term by delivery of a written notice of
exercise ("Exercise Notice") to Phoenix, irrevocable except as provided below,
which notice will set forth the Determination Date, the Percentage Interest in
AA held by S-C and Quantum, respectively, to be sold to Phoenix and the Put
Exercise Price as determined by S-C and Quantum. Unless S-C and Quantum
receive a written objection from Phoenix (an "objection notice") within five
Business Days of the date of delivery of an Exercise Notice, the Put Closing
shall occur on the sixth Business Day following the delivery date of such
Exercise Notice and the Put Exercise Price shall be the price specified in such
Exercise Notice. If S-C and Quantum receive a timely and complete objection
notice from Phoenix, the parties shall cooperate in good faith to determine the
Put Exercise Price in accordance with the provisions of Section 3.2 within
fifteen Business Days from the date S-C and Quantum receive such objection
notice and the Put Closing shall occur on the first Business Day following the
date on which the Put Exercise Price is so determined. The objection notice
delivered by Phoenix shall specify in detail the basis for the objection and
Phoenix's determination of the Put Exercise Price. If the parties cannot agree
to a determination of the Put Exercise Price within twenty Business Days of the
date of an Exercise Notice, S-C or Quantum may revoke such Exercise Notice.
The Phoenix Shares and the AA Shares shall be in certificated form and without
legends except in respect of such restrictions on transfer as may be imposed by
applicable Federal and state securities and "blue sky" laws. A Certificate of
Representations in the form of Exhibit B hereto shall be delivered to Phoenix
at the Put Closing. At the Put Closing the parties shall, if necessary, make
an adjustment with respect to any dividend payments made by AA between the
applicable Determination Date and date of such Put Closing so that any such
dividends shall be distributed to S-C, Quantum
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and Phoenix in accordance with the provisions of Sections 2.4, 2.5 and 2.6, as
then applicable, as if the Put Closing occurred on such Determination Date.
SECTION 4. SHARES. The Phoenix Shares issued to S-C or Quantum
upon exercise of the Put Option shall be, upon such issuance, fully paid and
non-assessable. The AA Shares conveyed by S-C and Quantum upon exercise of the
Call Option and/or Put Option shall be, upon such conveyance, fully paid,
non-assessable, subject to no call or right of redemption and free and clear of
all liens, claims and encumbrances of any nature.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
5.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
PHOENIX. Phoenix hereby represents, warrants and covenants to each of S-C and
Quantum that:
(a) Phoenix is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware,
and has the requisite corporate power and authority to own its
properties and to carry on its business in all material respects as it
is now being conducted. Phoenix has the requisite corporate power and
authority to perform its obligations hereunder.
(b) This Agreement has been duly authorized by all
necessary corporate action on behalf of Phoenix, has been duly
executed and delivered by authorized officers of Phoenix, and is a
valid and binding agreement on the part of Phoenix that is enforceable
against Phoenix in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, fraudulent conveyance, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and to
judicial limitations on the enforcement of the remedy of specific
performance and other equitable remedies.
(c) Neither the execution, delivery and performance of
this Agreement nor the consummation of the
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transactions contemplated herein or therein will violate or be in
conflict with any provision of the certificate of incorporation or
bylaws of Phoenix or violate or be in conflict with any material debt,
note, bond, lease, mortgage, indenture, license, obligation, contract,
commitment, franchise, permit, instrument or other agreement or
obligation to which Phoenix is a party, or violate or be in conflict
with any law, judgment, decree, order, regulation or ordinance by
which Phoenix is bound or affected.
(d) Phoenix shall use its best efforts to cause its
certificate of incorporation to be amended on or before February 15,
1996 to increase its authorized number of shares of capital stock so
that Phoenix will at all times have a sufficient number of shares of
Phoenix Stock authorized and reserved for issuance to enable it to pay
the Put Exercise Price and to issue the shares of Phoenix Stock
required upon an exercise of the Warrants under the Warrant
Agreements.
(e) The AA Shares which may be acquired by it will be
purchased for investment for its own account and not with the view to,
or for resale in connection with, any distribution or public offering
thereof. Phoenix understands that the AA Shares have not been and may
not be registered under the Securities Act of 1933, as amended (the
"Securities Act") or any state securities laws by reason of their
contemplated issuance in transactions exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof
and applicable state securities laws, and that the reliance of Phoenix
and others upon these exemptions is predicated in part upon this
representation by Phoenix. Phoenix further understands that the AA
Shares may not be transferred or resold without () registration under
the Securities Act and any applicable state securities laws, or () an
exemption from the requirements of the Securities Act and applicable
state securities laws.
Phoenix understands that an exemption from such
registration is not presently available pursuant to Rule 144
promulgated under the Securities Act by the
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Securities and Exchange Commission (the "Commission") and that in any
event Phoenix may not sell any AA Shares pursuant to Rule 144 prior to
the expiration of a two-year period after it has acquired such AA
Shares. Phoenix understands that any sales pursuant to Rule 144 can
be made only in full compliance with the provisions of Rule 144.
(f) At the date hereof Phoenix is, and at the time of
delivery of the Phoenix Stock to be delivered by it to S-C or Quantum
on the exercise of the Put Option and on the exercise of the warrants
will be, the sole lawful owner of and has, and will have, good and
marketable title to such Phoenix Stock free and clear of any liens,
charges, pledges, equities, encumbrances, security interests,
community property rights, restrictions on transfer or other defects
in title (collectively, "Liens"). Upon delivery of the Phoenix Stock
to be delivered to S-C and Quantum hereunder, good and marketable
title to such Phoenix Stock will pass to S-C and Quantum, free and
clear of all Liens.
5.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF S-C
AND QUANTUM. Each of S-C and Quantum, each with respect to itself, hereby
represents, warrants and covenants to Phoenix that:
(a) S-C is a limited liability company, duly organized
and validly existing under the laws of Delaware, and has the requisite
power and authority and has been duly authorized to perform its
obligations hereunder.
(b) Quantum is a limited duration company, duly organized
and validly existing under the laws of the Cayman Islands, and has the
requisite power and authority and has been duly authorized to perform
its obligations hereunder.
(c) This Agreement has been duly authorized by all
necessary action on the part of S-C and Quantum. This Agreement has
been duly executed and delivered. This Agreement is a valid and
binding agreement, enforceable
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against S-C and Quantum in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, fraudulent conveyance, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and to
judicial limitations on the enforcement of the remedy of specific
performance and other equitable remedies.
(d) The Phoenix Stock which may be acquired by S-C or
Quantum will be purchased for investment for the account of S-C or
Quantum and not with the view to, or for resale in connection with,
any distribution or public offering thereof. S-C and Quantum
understand that the Phoenix Stock has not been and may not be
registered under the Securities Act) or any state securities laws by
reason of its contemplated issuance in transactions exempt from the
registration requirements of the Securities Act pursuant to Section
4(2) thereof and applicable state securities laws, and that the
reliance of Phoenix upon these exemptions is predicated in part upon
this representation by S-C and Quantum. S-C and Quantum further
understand that the Phoenix Stock may not be transferred or resold
without () registration under the Securities Act and any applicable
state securities laws, or () an exemption from the requirements of the
Securities Act and applicable state securities laws.
S-C and Quantum understand that an exemption from such
registration is not presently available pursuant to Rule 144
promulgated under the Securities Act by the Commission and that in any
event Phoenix Stock may not be sold pursuant to Rule 144 prior to the
expiration of a two-year period after the acquisition of such Phoenix
Stock. S-C and Quantum understand that any sales pursuant to Rule 144
can be made only in full compliance with the provisions of Rule 144.
(e) At the date hereof each of S-C and Quantum is, and at
the time of delivery of the AA Shares to be sold by it to Phoenix will
be, the sole lawful owner of and has, and will have, good and
marketable title to such AA
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Shares free and clear of any liens, charges, pledges, equities,
encumbrances, security interests, community property rights,
restrictions on transfer or other defects in title (collectively,
"Liens"). Upon delivery of and payment for the AA Shares to be sold
by S-C or Quantum hereunder, good and marketable title to such shares
will pass to Phoenix, free and clear of all Liens. There are no
outstanding options, warrants, rights or other agreements or
arrangements to which S-C or Quantum is a party requiring S-C or
Quantum at any time to transfer any of the AA Shares to be sold to
Phoenix under the Call Option.
(f) S-C and Quantum shall cause AA to at all times during
the Call Term to own twenty-five (25%) percent or more of the
outstanding capital stock of Hainan.
(g) S-C and Quantum will not, during the Call Term, cause
AA to (i) amend, modify or supplement its Articles of Association in a
manner that would materially deprive Phoenix of the value it has
bargained for under this Agreement, (ii) conduct any business other
than the holding of the interests in Hainan or (iii) incur any
indebtedness.
(h) S-C and Quantum have delivered to Phoenix true and
complete copies of the Articles of Association of AA and of the
material agreements entered into by AA in connection with the
Acquisition.
SECTION 6. MISCELLANEOUS.
6.1. REPRESENTATIVE. S-C (or such other entity as S-C
and Quantum may designate in writing to Phoenix) shall serve as the
representative (the "Representative") of S-C and Quantum for purposes of
receiving or delivering notices and instructions hereunder or accepting, paying
or delivering the shares of stock or other consideration to be received, paid
or delivered to or by S-C Quantum pursuant to the terms of this Agreement.
Phoenix shall be entitled to deliver to the Representative notices addressed to
either or both of S-C and Quantum, and Phoenix may take such action (consistent
with the terms of this Agreement) as may be required by such notices or
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instructions as may be delivered to Phoenix by the Representative, including
instructions concerning the issuance of warrants or shares of stock or the
payment of other consideration as required hereby.
6.2. NOTICES. Every notice or other communication
provided for in this Agreement to be given by one party to the other shall be
in writing and shall be deemed given on the date delivered, if by hand
delivery, or on the fourth day from the date sent, if by registered mail,
postage prepaid to the other party at the address set forth below, or to such
other address as may hereafter be designated by a party in writing pursuant
hereto:
If to the Company, to:
Phoenix Information Systems Corp.
100 Second Avenue South, Suite 100
St. Petersburg, Florida 33701
Attention: Paul Henry
If to S-C and Quantum, to the
Representative at:
S-C Phoenix Holdings, L.L.C.
c/o The Chatterjee Group
888 Seventh Avenue, Suite 3000
New York, New York 10106
Attention: Peter Hurwitz, Esq.
6.3. ENTIRE AGREEMENT. This Agreement (including all
other documents or instruments required to be delivered in connection herewith)
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof, and supersedes any and all previous agreements between
them relating to the subject matter hereof whether written, oral or implied,
and may not be changed or modified except by written agreement, signed by the
party to be bound or his duly authorized representative.
6.4. WAIVERS. Failure of either party hereto to insist
upon strict performance of the terms, conditions and provisions of this
Agreement shall not be deemed a waiver of
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such terms, conditions or provisions or a waiver of future compliance
therewith. No waiver of any terms, conditions or provisions hereof shall be
deemed to have been made unless expressed in writing and signed by both
parties, and shall not be construed as, or constitute, a continuing waiver of
such term, condition or provision, or waiver of any other violation or, breach
of or default under any other term, condition or provision of this Agreement or
any other agreements provided for herein.
6.5. SECTION HEADINGS. The headings contained in this
Agreement are for reference purposes only and shall not be given any effect in
the construction or interpretation of this Agreement.
6.6. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the internal law of the State of New York,
without reference to any choice of law provisions thereof.
6.7. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors permitted transferees and assigns. No party may assign
or transfer any of its rights, benefits or obligations hereunder without the
prior written consent of each other party hereto, except that S-C and Quantum
may each transfer or assign its rights, benefits or obligations hereunder to
one or more of its Affiliates without the prior written consent of any other
party hereto.
6.8. FEES AND EXPENSES. Fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
including, without limitation, counsel fees, brokerage, finders or financial
advisor fees and accounting fees, regardless of whether any of the transactions
contemplated hereby are consummated ("Expenses") shall be paid as follows:
(a) Expenses incurred prior to July 5, 1995, shall be
paid by the party which incurred such Expenses;
(b) Expenses incurred after July 5, 1995, and
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prior to October 24, 1995, relating to the Acquisition will be
shared equally by Phoenix on the one hand and S-C and Quantum on
the other hand;
(c) Expenses incurred after October 24, 1995, relating
to the Acquisition shall be paid by S-C and Quantum;
(d) Expenses relating to the organization of AA,
whenever incurred, shall be paid by S-C and Quantum; and
(e) Expenses in the nature of legal fees and
disbursements relating to the preparation of this Agreement
(exclusive of any negotiations, term sheets or letters of intent
preliminary hereto) shall be paid () by Phoenix to the extent
incurred by Phoenix and () by Phoenix to the extent incurred by S-C
and Quantum, up to a maximum of $30,000.
(f) Expenses in the nature of brokerage, finders,
financial advisory and similar fees shall be paid by the party
initiating contact with such broker, finder or financial advisor.
6.9. TAX ELECTIONS. The parties agree that, upon the
written request of Phoenix following any acquisition of AA Shares, they shall
cause AA to make an election under Section 754 of the Internal Revenue Code of
1986, as amended, and any other similar election under any United States
Federal, state or local income tax laws requested by Phoenix.
6.10. COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
PHOENIX INFORMATION SYSTEMS CORP.
By:
-------------------------------------
Title:
S-C PHOENIX HOLDINGS, L.L.C.
By:
-------------------------------------
Title:
QUANTUM INDUSTRIAL PARTNERS LDC
By:
-------------------------------------
Title:
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EXHIBIT A-1
Form of Warrant
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of December 7, 1995 (the "Agreement"),
by and among PHOENIX INFORMATION SYSTEMS CORP., a Delaware corporation (the
"Company"), S-C PHOENIX HOLDINGS, L.L.C., a limited liability company organized
under the laws of Delaware ("S-C") and QUANTUM INDUSTRIAL PARTNERS LDC, a
limited duration company organized under the laws of the Cayman Islands
("Quantum," each of S-C and Quantum, together with the successors and permitted
assigns of each, a "Holder").
WHEREAS, the Company proposes to issue and deliver its warrant
certificates ("Warrant Certificates") evidencing 2,000,000 warrants (the
"Warrants") each to purchase one newly issued share of common stock, par value
$0.01 per share, of the Company ("Common Stock") in connection with that
certain Options Agreement, dated December 7, 1995, by and among the Company,
S-C and Quantum (the "Options Agreement").
NOW THEREFORE, in consideration of the foregoing and for the purpose
of defining the terms and provisions of the Warrants and the respective rights
and obligations thereunder of the Company and each Holder, the
<PAGE> 25
Company and each Holder agree as follows:
1. Certain Definitions. The following terms, as used in this
Agreement, have the following meanings:
(a) "Affiliate" means, with respect to S-C and Quantum, (A)(a)
any Person controlling, controlled by or under common control with S-C or
Quantum and (b) if (1) controlling S-C or Quantum, such Person has a forty
percent (40%) or more voting and beneficial ownership interest in S-C or
Quantum, (2) controlled by S-C or Quantum has a forty percent (40%) or more
voting and beneficial ownership interest in such Person and (3) under common
control with S-C or Quantum, the Person(s) having such common control have
forty percent (40%) or more voting and beneficial ownership interest in S-C or
Quantum and such Person, and (B) any Person for which George Soros d/b/a Soros
Fund Management or Chatterjee Fund Management Co. LP, a Delaware limited
partnership, is acting as investment manager or investment adviser, in each
case with investment discretion. For purposes of this definition, the term
"control," when used with respect to any Person, shall include the power to
exercise discretion over the investments of such Person, and the terms
"controlling"
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and "controlled" have corresponding meanings.
(b) "Business Day" means any day other than a Saturday, Sunday
or day on which banks in New York City are closed for general business.
(c) "Common Stock" has the meaning set forth in the preamble.
(d) "Exercise Period" means the period beginning on the second
anniversary of the Acquisition Date and ending at 5 p.m. New York City time on
the fifth anniversary of the Acquisition Date.
(e) "Exercise Price" means an amount per share equal to
eighty-five percent (85%) of the Market Price (as defined hereafter). As used
herein, "Market Price" shall mean the average of the closing prices of the
Common Stock sales on all domestic exchanges on which the Common Stock may at
the time be listed, or, if there shall have been no sales on any such exchange
on any day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day the Common Stock shall not
be so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 3:30 p.m. New York City time, or if on any day the
Common Stock shall not be quoted in the NASDAQ System, the average of the high
and low bid and asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporation or any
similar successor organization, in each such case averaged over the period of
10 consecutive Business Days immediately prior to through 20 Business Days
immediately following the Acquisition (as defined in the Options Agreement);
provided that if the Common Stock is listed on any domestic exchange the term
"Business Days" as used in this sentence shall mean business days on which such
exchange is open for trading. If at any time the Common Stock is not listed on
any
3
<PAGE> 27
domestic exchange or quoted in the NASDAQ System or the domestic
over-the-counter market, the Market Price shall be deemed to be the fair market
value thereof as of the date of exercise, determined by an independent
appraiser selected by the Company and acceptable to each Holder.
(f) "Expiration Date" for the Warrants means the last day of
the Exercise Period.
(g) "Holder" has the meaning set forth in the pre amble.
(h) "Investor Representative" shall be S-C Phoenix Holdings,
L.L.C., a Delaware limited liability company, or its successor in interest, or
the assigned representative of such Person (it being agreed that at all times
there shall be no more than one Investor Representative).
(i) "Person" means any individual, corporation, limited
liability company, partnership, limited liability company, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
(j) "Underlying Common Stock" means the shares of Common Stock
purchasable by each Holder upon the exercise of the Warrants.
(k) "Warrants" has the meaning set forth in the pream ble.
(l) "Warrant Certificates" means the certificates evidencing
4
<PAGE> 28
the Warrants.
2. Issue of Warrants. The Warrant Certificates shall be in
registered form only and substantially in the form attached hereto as Exhibit
A, shall be dated the date on which signed by an authorized signatory of the
Company and may have such legends and endorsements typed, stamped or printed
thereon as the Company may deem appropriate and as are not inconsistent with
the provisions of this Agreement and the Options Agreement. Warrant
Certificates evidencing 2,000,000 Warrants may be executed by any authorized
officer of the Company. Warrant Certificates evidencing all 2,000,000 Warrants
shall be delivered in the names of the Holders to the Investor Representative
at the closing of the Acquisition (as defined in the Options Agreement).
3. Exercise Price; Exercise of Warrants.
(a) Exercise Price. Each Warrant shall entitle the
Holder, subject to the provisions of this Agreement, to purchase one share of
Common Stock at a purchase price per share equal to the Exercise Price.
(b) Exercise of Warrants Generally.
(i) Exercise During Exercise Period. The
aggregate number of Warrants that may be exercised at any time during the
Exercise Period shall be 2,000,000. All Warrants not exercised during the
Exercise Period shall expire at 5 p.m. New York City time on the Expiration
Date.
(ii) Liquidation Event. If the Company is
liquidated
5
<PAGE> 29
in accordance with the provisions of its Certificate of Incorporation, then the
Warrants shall be deemed to have been exercised.
(iii) Method of Exercise; Payment of Exercise
Price. In order to exercise any or all of the Warrants repre sented by a
Warrant Certificate, the Holder thereof must surrender the Warrant Certificate
to the Company for exercise, with the reverse side of the Warrant Certificate
duly executed, together with any required payment in full of the Exercise Price
for each share of Underlying Common Stock to which such Holder is entitled, any
such payment of the Exercise Price to be made by check or wire transfer to an
account designated by the Company. If a Holder elects to exercise only a
portion of the Warrants represented by the Warrant Certificate or Certificates
registered in its name, then the remaining portion of such Warrants shall be
returned to such Holder in the form of a new Warrant Certificate. Upon
surrender of a Warrant Certificate and the payment of the Exercise Price in
conformity with the foregoing provisions, the Company shall promptly issue to
the Holder of such Warrant Certificate share certificates representing the
Underlying Common Stock to which such Holder is entitled, registered in the
name of such Holder or the name or names of such Affiliates of such Holder as
may be directed in writing by such Holder, and shall deliver such share
certificates to the Person or Persons entitled to receive the same. The
Company shall issue such share certificates within five Business Days after the
payment of the Exercise Price of the Warrants by such Holder, but such shares
shall be
6
<PAGE> 30
deemed issued and outstanding on the date the Warrant is exercised and the
Exercise Price is paid to the Company.
(c) Exercise by Surrender of Warrant; Exercise with
Shares of Common Stock. In addition to the method of exercise set forth in
Section 3(b)(3) above and in lieu of any cash payment required thereunder, each
Holder shall have the right at any time and from time to time to exercise the
Warrants in full or in part (i) by surrendering its Warrant Certificate in the
manner specified in Section 3(b)(3) in exchange for the number of shares of
Common Stock equal to the product of (x) the number of shares as to which the
Warrants are being exercised multiplied by (y) a fraction, the numerator of
which is the Market Price (as defined hereafter) of the Common Stock less the
Exercise Price and the denominator of which is such Market Price, or (ii) by
surrendering the Warrant Certificate in the manner specified in Section 3(b)(3)
above and making any required payment in whole or in part of the Exercise Price
for each share of Underlying Common Stock to which such Holder is entitled with
shares of Common Stock (valued at the Market Price).
4. Adjustments. The Exercise Price shall be subject to
adjustment as follows:
(a) In the event the Company shall issue additional
7
<PAGE> 31
shares of Common Stock (or securities convertible into or exchangeable for
Common Stock) in a stock dividend, stock distribution or subdivision paid with
respect to Common Stock, or declare any dividend or other distribution payable
with additional shares of Common Stock (or securities convertible into or
exchangeable for Common Stock) with respect to Common Stock or effect a split
or subdivision of the outstanding shares of Common Stock, the Exercise Price
shall, concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, or the earlier declaration thereof, be
proportionately decreased, and the number of Underlying Common Stock shall be
proportionately adjusted so that, to avoid dilution of each Holder's position,
each Holder shall thereafter be entitled to receive at such adjusted price an
additional number of shares of the Company's Common Stock which such Holder
would have owned or would have been entitled to receive upon or by reason of
any of the events described above, had the Warrants been exercised immediately
prior to the happening of such event.
(b) In the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Common Stock, the Exercise Price shall, concurrently
with the effectiveness of such
8
<PAGE> 32
combination or consolidation, be proportionately increased and the number of
Underlying Common Stock shall be proportionately adjusted so that each Holder
of any Warrant exercised after such date shall be entitled to receive, upon
payment of the same aggregate amount as would have been payable before such
date, the aggregate number of shares of Common Stock which each Holder would
have owned upon such exercise and been entitled to receive, if such Warrant had
been exercised immediately prior to the happening of such combination or
consolidation.
(c) In the event of any consolidation or merger of the
Company with or into another corporation or the conveyance of all or
substantially all of the assets of the Company to another corporation or
entity, the Warrants shall thereafter be exercisable for the number of shares
of capital stock or other securities or property to which a holder of the
number of shares of Common Stock deliverable upon conversion hereof would have
been entitled upon such consolidation, merger or conveyance; and, in any such
case, appropriate adjustment shall be made in the application of the provisions
herein set forth with respect to the rights and interests of each Holder
thereafter, to the end that the provisions set forth herein (including
provisions with respect to adjustments in the Exercise Price) shall thereafter
9
<PAGE> 33
be applicable, as nearly as may be practicable, in relation to any shares of
stock or other property thereafter deliverable upon the exercise of Warrants.
At the request of a Holder, the resulting or surviving entity in any such
consolidation or merger, if other than the Company, shall acknowledge in
writing such Holder's rights hereunder.
5. Loss or Mutilation. Upon receipt by the Company of
evidence satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate and of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation thereof, then, in the absence of notice to the Company that the
Warrants represented thereby have been acquired by a bona fide purchaser, the
Company shall deliver to the Holder of such Warrant Certificate, in exchange
for or in lieu of the lost, stolen, destroyed or mutilated Warrant Certificate,
a new Warrant Certificate of the same tenor and for a like aggregate number of
Warrants. Upon the issuance of any new Warrant Certificate under this Section
5, the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and other
expenses in connection herewith. Every new Warrant Certificate executed and
delivered pursuant to this Section 5 in lieu of any lost, stolen or destroyed
Warrant Certificate shall constitute a contractual obligation of the Company,
whether or not the allegedly lost, stolen or destroyed
10
<PAGE> 34
Warrant Certificate shall be at any time enforceable by anyone, and shall be
entitled to the benefit of this Agreement equally and proportionately with any
and all other Warrant Certificates duly executed and delivered hereunder. The
provisions of this Section 5 are exclusive and shall preclude (to the extent
lawful) all other rights or remedies with respect to the replacement of
mutilated, lost, stolen, or destroyed Warrant Certificates.
6. Reservation and Authorization of Common Stock. The Company
shall, at all times until the Warrants have been exercised or have expired,
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as is sufficient for the
purpose of permitting the exercise in full of all outstanding Warrants.
7. Limitations on Transfer; Warrant Transfer Books. The
Warrants may be sold, transferred, pledged, assigned, hypothecated or otherwise
disposed of (collectively, "transferred") only to Affiliates of a Holders. The
Company shall cause to be kept at the principal executive office of the Company
a register in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide the registration of Warrant Certificates
and transfers or exchanges of Warrant Certificates as herein provided.
The Holder of a Warrant Certificate, by its acceptance thereof,
covenants and agrees that the Warrants are being acquired, and the Underlying
Common Stock to be purchased upon the exercise of this
11
<PAGE> 35
Warrant will be acquired, as an investment and not with a view to the
distribution thereof and will not be sold or transferred except in accordance
with the applicable provisions of the Securities Act of 1933, as amended (the
"Act") and the rules and regulations promulgated thereunder, and that neither
this Warrant nor any of the Underlying Common Stock may be offered or sold
except (i) pursuant to an effective registration statement under the Act, (ii)
to the extent applicable, pursuant to Rule 144 under the Act (or any similar
rule under the Act relating to the disposition of securities), or (iii)
pursuant to an exemption from registration under the Act. Upon exercise of any
Warrant, the Holder thereof shall deliver to the Company a Certificate of
Representation as set forth in the Options Agreement.
The Warrant Certificates and, upon exercise of the Warrants, in part
or in whole, certificates representing the Underlying Common Stock shall bear a
legend substantially similar to the following:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "Act"), and may not be offered or sold except
(i) pursuant to an effective registration statement under
the Act, (ii) to the extent applicable, pursuant to Rule
144 under the Act (or any similar rule under the Act
relating to the disposition of securities), or (iii)
pursuant to an exemption from registration under the Act."
At the option of a Holder, Warrant Certificates may be exchanged at
such office upon payment of the charges hereinafter provided. Whenever any
Warrant Certificates are so surrendered for exchange, the
12
<PAGE> 36
Company shall execute and deliver the Warrant Certificates that the Holder
thereof is entitled to receive. All Warrant Certificates issued upon any
registration of transfer or exchange of Warrant Certificates shall be the valid
obligations of the Company, evidencing the same obligations, and entitled to
the same benefits under this Agreement, as the Warrant Certificates surrendered
for such registration of transfer or exchange.
Every Warrant Certificate surrendered for registration of transfer
or exchange shall (if so required by the Company) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company duly executed by the Holder thereof. No service charge shall be made
for any registration of transfer or exchange of Warrant Certificates. The
Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer of Warrant Certificates.
8. No Voting or Dividend Rights. Prior to the exercise of the
Warrants, neither Holder, as a Holder of Warrant Certificates, shall be
entitled to any rights of a shareholder of the Company, including, without
limitation, the right to vote, to receive dividends or other distributions or
to exercise any preemptive right, but each Holder of Warrant Certificates shall
receive all notices sent to shareholders of the Company, including any notice
of meetings of shareholders, and shall have the right to attend or observe such
meetings.
13
<PAGE> 37
9. Termination. Notwithstanding anything in this Agreement to
the contrary, if a Holder materially breaches its obligations under the Options
Agreement with respect to the Call Option (as such term is defined in the
Option Agreement), this Agreement shall terminate upon such breach with respect
to the breaching Holder. In the event of termination as provided herein, this
Agreement, including all unexercised Warrants issued to such breaching Holder,
shall become void with respect to such Holder. Nothing in this Section 9 shall
be construed to limit any right or remedy of the Company in the event of such
breach.
10. Notices. Any notice, demand or delivery authorized by this
Agreement shall be in writing and shall be sufficiently given or made upon
receipt thereof, if made by personal delivery or facsimile transmission (with
confirmed receipt thereof), or four Business Days after mailed, if sent by
first-class mail, postage prepaid, addressed to the Investor Representative or
the Company, as the case may be, at their respective addresses below, or such
other address as shall have been furnished in accordance with this Section 10
to the party giving or making such notice, demand or delivery:
(a) If to the Company, to it at:
Phoenix Information Systems Corp.
100 Second Avenue South, Suite 100
St. Petersburg, Florida 33701
Attention: Robert P. Gordon, Chairman
Facsimile: 813-821-7565
14
<PAGE> 38
(b) If to the Holder, to the Investor
Representative at:
S-C Phoenix Holdings, L.L.C.
c/o The Chatterjee Group
888 Seventh Avenue, Suite 3000
New York, New York 10106
Attention: Mr. James Peet
Facsimile: 212-489-2005
With a copy to: Peter A. Hurwitz, Esq.
With a Copy to:
Soros Fund Management
888 Seventh Avenue, Suite 3300
New York, New York 10106
Attention: Sean A. Warren, Esq.
Facsimile: 212-489-20056
11. Applicable Law. This Agreement and each Warrant
Certificate issued hereunder shall be governed by, and construed in accordance
with, the internal laws of the State of New York, without regard to the
conflicts of law principles thereof. The Company and each Holder hereby submit
to the nonexclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York State court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Agreement and the transactions contemplated hereby. The Company and each
Holder irrevocably waive, to the fullest extent permitted by law, any objection
which they may now or hereafter have to the laying of the venue of any such
proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
15
<PAGE> 39
12. Successors and Assigns. The provisions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties. Neither Holder may assign any of its rights
hereunder separate from a transfer of the Warrants in accordance with Section 7
hereof. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
13. Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement in any number of separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
14. Captions and Headings. The captions and headings used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
15. Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and each Holder.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each Holder, each future holder of the Warrants and the Company.
16. Severability. If one or more provisions of this Agreement
16
<PAGE> 40
are held to be unenforceable under applicable law, such provisions shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
17
<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
PHOENIX INFORMATION SYSTEMS CORP.
By
-----------------------------------------
Name:
Title:
S-C PHOENIX HOLDINGS, L.L.C.
By
-----------------------------------------
Name:
Title:
QUANTUM INDUSTRIAL PARTNERS LDC
By
-----------------------------------------
Name:
Title:
18
<PAGE> 42
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE
AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE
THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT
APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT.
THIS WARRANT CERTIFICATE AND THE WARRANTS
REPRESENTED HEREBY ARE TRANSFERABLE ONLY
IN ACCORDANCE WITH THE PROVISIONS SET FORTH IN
THE WARRANT AGREEMENT REFERRED TO BELOW.
WARRANTS TO PURCHASE COMMON STOCK
OF PHOENIX INFORMATION SYSTEMS CORP.
No.___ 1,000,000 Warrants
This certifies that S-C Phoenix Holdings, L.L.C. is the owner of the
number of Warrants set forth above, each of which represents the right to
purchase from PHOENIX INFORMATION SYSTEMS CORP., a Delaware corporation (the
"Company"), the number of shares of Common Stock, par value $0.01 per share, of
the Company ("Common Stock") determined in accordance with the Warrant
Agreement referred to below at the purchase price set forth in the Warrant
Agreement (the "Exercise Price"), upon surrender hereof at the office of the
Company at 100 Second Avenue South, Suite 1100, St. Petersburg, Florida 33701
with the Exercise Subscription Form on the reverse hereof duly executed and
with payment in full (by bank check or wire transfer to an account designated
by the Company) of the purchase price for the
19
<PAGE> 43
shares as to which the Warrant(s) represented by this Warrant Certificate are
exercised, all subject to the terms and conditions hereof and of the Warrant
Agreement referred to below. The Warrants will expire at 5:00 p.m. New York
City time on the Expiration Date.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement, dated as of December 7, 1995 (the "Warrant Agreement"),
among the Company and S-C Phoenix Holdings, L.L.C. and Quantum Industrial
Partners LDC, and is subject to the terms and provisions contained therein, to
all of which terms and provisions the holder of this Warrant Certificate
consents by acceptance hereof. The Warrant Agreement is hereby incorporated
herein by reference and made a part hereof. Reference is hereby made to the
Warrant Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Company and the holders of
the Warrants. Capitalized defined terms used herein have the same meanings as
in the Warrant Agreement. Copies of the Warrant Agreement are on file at the
office of the Company and may be obtained by writing to the Company at the
following address:
100 Second Avenue South
Suite 1100
St. Petersburg, Florida 33701
The number of shares of the Common Stock of the Company purchasable upon the
exercise of each Warrant and the price per share are set forth in the Warrant
Agreement.
All shares of Common Stock issuable by the Company upon the
20
<PAGE> 44
exercise of Warrants and the payment of the Exercise Price therefor shall be
validly issued, fully paid and nonassessable. The Company shall not be
required, however, to pay any tax, withholding or other charge imposed in
connection with the issuance of any shares of Common Stock upon the exercise of
Warrants, and, in such case, the Company shall not be required to issue or
deliver any stock certificate until such tax, withholding or other charge has
been paid or it has been established to the Company's satisfaction that no tax,
withholding or other charge is due. This Warrant Certificate and all rights
hereunder are transferable, subject to the terms of the Warrant Agreement, by
the registered holder hereof, in whole or in part, upon surrender of this
Warrant Certificate duly endorsed, or accompanied by a written instrument of
transfer in form satisfactory to the Company duly executed by the registered
holder and upon payment of any necessary transfer tax or other governmental
charge imposed upon such transfer. Upon any partial transfer, the Company will
issue and deliver to such holder a new Warrant Certificate or Certificates with
respect to any portion not so transferred.
This Warrant Certificate shall be void and all rights represented
hereby shall cease on the Expiration Date.
Dated:___________, 19__
21
<PAGE> 45
PHOENIX INFORMATION SYSTEMS CORP.
By
-----------------------------------------
Name:
Title:
22
<PAGE> 46
REVERSE OF WARRANT CERTIFICATE
EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: Phoenix Information Systems Corp.
The undersigned irrevocably exercises ____________ of the Warrants evidenced by
this Warrant Certificate for the purchase of shares of Common Stock, par value
$0.01 per share, of PHOENIX INFORMATION SYSTEMS CORP. and has arranged to make
payment of $___________ (such payment being made by bank check or wire transfer
to the account designated by Phoenix Information Systems Corp.), all at the
Exercise Price (as defined in the Warrant Agreement) and on the terms and
conditions specified in this Warrant Certificate and the Warrant Agreement
herein referred to. The undersigned has delivered to the Company the
Certificate of Representations as set forth in the Warrant Agreement. The
undersigned hereby irrevocably surrenders this Warrant Certificate and all
right, title and interest therein to Phoenix Information Systems Corp. and
directs that the shares of Common Stock deliverable upon the exercise of said
Warrants be registered or placed in the name and at the address specified below
and delivered thereto.
Date:_________, 19__.
1
-----------------------------------
____________________
1/ The signature must correspond with the name as written upon the face of
this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
23
<PAGE> 47
----------------------------------------
Signature of Owner
----------------------------------------
(Street Address)
----------------------------------------
(City) (State) (Zip Code)
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
24
<PAGE> 48
FORM OF ASSIGNMENT
For VALUE RECEIVED, the undersigned registered holder of this
Warrant Certificate hereby sells, assigns and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants
constituting a part of the Warrants evidenced by this Warrant Certificate not
being assigned hereby) all of the right of the undersigned under this Warrant
Certificate, with respect to the number of Warrants set forth below:
Social Security
Names of or other Identifying Number of
Assignees Address Number of Assignee(s) Warrants
- --------- ------- --------------------- --------
and does hereby irrevocably constitute and appoint _______________ the
undersigned's attorney to make such transfer on the books of Phoenix
Information Systems Corp. maintained for the purpose, with full power of
substitution.
Dated: ___________, 19__
-----------------------------------------
- ------------------------------
_____________
(1) The signature must correspond with the name as written upon the face of
this Warrant Certificate in every particular, without
25
<PAGE> 49
alteration or enlargement or any change whatever.
26
<PAGE> 50
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE
AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE
THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT
APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT.
THIS WARRANT CERTIFICATE AND THE WARRANTS
REPRESENTED HEREBY ARE TRANSFERABLE ONLY
IN ACCORDANCE WITH THE PROVISIONS SET FORTH IN
THE WARRANT AGREEMENT REFERRED TO BELOW.
WARRANTS TO PURCHASE COMMON STOCK
OF PHOENIX INFORMATION SYSTEMS CORP.
No.___ 1,000,000 Warrants
This certifies that Quantum Industrial Partners LDC is the
owner of the number of Warrants set forth above, each of which represents the
right to purchase from PHOENIX INFORMATION SYSTEMS CORP., a Delaware
corporation (the "Company"), the number of shares of Common Stock, par value
$0.01 per share, of the Company ("Common Stock") determined in accordance with
the Warrant Agreement referred to below at the purchase price set forth in the
Warrant Agreement (the "Exercise Price"), upon surrender hereof at the office
of the Company at 100 Second Avenue South, Suite 1100, St. Petersburg, Florida
33701 with the Exercise Subscription Form on the reverse hereof duly executed
and with payment in full (by bank check or wire transfer to an account
designated by the Company) of the purchase
27
<PAGE> 51
price for the shares as to which the Warrant(s) represented by this Warrant
Certificate are exercised, all subject to the terms and conditions hereof and
of the Warrant Agreement referred to below. The Warrants will expire at 5:00
p.m. New York City time on the Expiration Date.
This Warrant Certificate is issued under and in accordance
with a Warrant Agreement, dated as of December 7, 1995 (the "Warrant
Agreement"), among the Company and S-C Phoenix Holdings, L.L.C. and Quantum
Industrial Partners LDC, and is subject to the terms and provisions contained
therein, to all of which terms and provisions the holder of this Warrant
Certificate consents by acceptance hereof. The Warrant Agreement is hereby
incorporated herein by reference and made a part hereof. Reference is hereby
made to the Warrant Agreement for a full description of the rights, limitations
of rights, obligations, duties and immunities thereunder of the Company and the
holders of the Warrants. Capitalized defined terms used herein have the same
meanings as in the Warrant Agreement. Copies of the Warrant Agreement are on
file at the office of the Company and may be obtained by writing to the Company
at the following address:
100 Second Avenue South
Suite 1100
St. Petersburg, Florida 33701
The number of shares of the Common Stock of the Company purchasable upon the
exercise of each Warrant and the price per share are set forth in the Warrant
Agreement.
28
<PAGE> 52
All shares of Common Stock issuable by the Company upon the
exercise of Warrants and the payment of the Exercise Price therefor shall be
validly issued, fully paid and nonassessable. The Company shall not be
required, however, to pay any tax, withholding or other charge imposed in
connection with the issuance of any shares of Common Stock upon the exercise of
Warrants, and, in such case, the Company shall not be required to issue or
deliver any stock certificate until such tax, withholding or other charge has
been paid or it has been established to the Company's satisfaction that no tax,
withholding or other charge is due. This Warrant Certificate and all rights
hereunder are transferable, subject to the terms of the Warrant Agreement, by
the registered holder hereof, in whole or in part, upon surrender of this
Warrant Certificate duly endorsed, or accompanied by a written instrument of
transfer in form satisfactory to the Company duly executed by the registered
holder and upon payment of any necessary transfer tax or other governmental
charge imposed upon such transfer. Upon any partial transfer, the Company will
issue and deliver to such holder a new Warrant Certificate or Certificates with
respect to any portion not so transferred.
This Warrant Certificate shall be void and all rights
represented hereby shall cease on the Expiration Date.
Dated:___________, 19__
29
<PAGE> 53
PHOENIX INFORMATION SYSTEMS CORP.
By
--------------------------------------
Name:
Title:
30
<PAGE> 54
REVERSE OF WARRANT CERTIFICATE
EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: Phoenix Information Systems Corp.
The undersigned irrevocably exercises ____________ of the
Warrants evidenced by this Warrant Certificate for the purchase of shares of
Common Stock, par value $0.01 per share, of PHOENIX INFORMATION SYSTEMS CORP.
and has arranged to make payment of $___________ (such payment being made by
bank check or wire transfer to the account designated by Phoenix Information
Systems Corp.), all at the Exercise Price (as defined in the Warrant Agreement)
and on the terms and conditions specified in this Warrant Certificate and the
Warrant Agreement herein referred to. The undersigned has delivered to the
Company the Certificate of Representations as set forth in the Warrant
Agreement. The undersigned hereby irrevocably surrenders this Warrant
Certificate and all right, title and interest therein to Phoenix Information
Systems Corp. and directs that the shares of Common Stock deliverable upon the
exercise of said Warrants be registered or placed in the name and at the
address specified below and delivered thereto.
Date:_________, 19__.
2
---------------------------------------
____________________
2/ The signature must correspond with the name as written upon the face of
this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
31
<PAGE> 55
----------------------------------------
Signature of Owner
----------------------------------------
(Street Address)
----------------------------------------
(City) (State) (Zip Code)
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
32
<PAGE> 56
FORM OF ASSIGNMENT
For VALUE RECEIVED, the undersigned registered holder of this
Warrant Certificate hereby sells, assigns and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants
constituting a part of the Warrants evidenced by this Warrant Certificate not
being assigned hereby) all of the right of the undersigned under this Warrant
Certificate, with respect to the number of Warrants set forth below:
Social Security
Names of or other Identifying Number of
Assignees Address Number of Assignee(s) Warrants
- --------- ------- --------------------- --------
and does hereby irrevocably constitute and appoint _______________ the
undersigned's attorney to make such transfer on the books of Phoenix
Information Systems Corp. maintained for the purpose, with full power of
substitution.
Dated: ___________, 19__
---------------------------------------
- -------------------------
_____________
(1) The signature must correspond with the name as written upon the face of
this Warrant Certificate in every particular, without
33
<PAGE> 57
alteration or enlargement or any change whatever.
34
<PAGE> 58
EXHIBIT A-2
Form of Warrant
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of December 7, 1995 (the "Agreement"),
by and among PHOENIX INFORMATION SYSTEMS CORP., a Delaware corporation (the
"Company"), S-C PHOENIX HOLDINGS, L.L.C., a limited liability company organized
under the laws of Delaware ("S-C") and QUANTUM INDUSTRIAL PARTNERS LDC, a
limited duration company organized under the laws of the Cayman Islands
("Quantum," each of S-C and Quantum, together with the successors and permitted
assigns of each, a "Holder").
WHEREAS, the Company proposes to issue and deliver its warrant
certificates ("Warrant Certificates") evidencing 2,000,000 warrants (the
"Warrants") each to purchase one newly issued share of common stock, par value
$0.01 per share, of the Company ("Common Stock") in connection with that
certain Options Agreement, dated December 7, 1995, by and among the Company,
S-C and Quantum (the "Options Agreement").
NOW THEREFORE, in consideration of the foregoing and for the purpose
of defining the terms and provisions of the Warrants and the respective rights
and obligations thereunder of the Company and each Holder, the Company and each
Holder agree as follows:
1. Certain Definitions. The following terms, as used in this
Agreement, have the following meanings:
(a) "Affiliate" means, with respect to S-C and Quantum, (A)(a)
<PAGE> 59
any Person controlling, controlled by or under common control with S-C or
Quantum and (b) if (1) controlling S-C or Quantum, such Person has a forty
percent (40%) or more voting and beneficial ownership interest in S-C or
Quantum, (2) controlled by S-C or Quantum has a forty percent (40%) or more
voting and beneficial ownership interest in such Person and (3) under common
control with S-C or Quantum, the Person(s) having such common control have
forty percent (40%) or more voting and beneficial ownership interest in S-C or
Quantum and such Person, and (B) any Person for which George Soros d/b/a Soros
Fund Management or Chatterjee Fund Management Co. LP, a Delaware limited
partnership, is acting as investment manager or investment adviser, in each
case with investment discretion. For purposes of this definition, the term
"control," when used with respect to any Person, shall include the power to
exercise discretion over the investments of such Person, and the terms
"controlling" and "controlled" have corresponding meanings.
(b) "Business Day" means any day other than a Saturday, Sunday
or day on which banks in New York City are closed for general business.
(c) "Common Stock" has the meaning set forth in the preamble.
(d) "Exercise Period" means the period beginning on the Seventh
Business Day following the date hereof (as defined in the Options Agreement)
and ending at 5 p.m. New York City time on the earlier to occur of (i) the 25th
Business Day following the Acquisition Date (as defined in the Options
Agreement) and (ii) the 120th day following such Seventh Business Day from the
date hereof.
2
<PAGE> 60
(e) "Exercise Price" means $4 per share (as provided in Section
3 and subject to adjustment as provided in Section 4).
(f) "Expiration Date" for the Warrants means the last day of
the Exercise Period.
(g) "Holder" has the meaning set forth in the pre amble.
(h) "Investor Representative" shall be S-C Phoenix Holdings,
L.L.C., a Delaware limited liability company, or its successor in interest, or
the assigned representative of such Person (it being agreed that at all times
there shall be no more than one Investor Representative).
(i) "Person" means any individual, corporation, limited
liability company, partnership, limited liability company, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
(j) "Underlying Common Stock" means the shares of Common Stock
purchasable by each Holder upon the exercise of the Warrants.
(k) "Warrants" has the meaning set forth in the pream ble.
(l) "Warrant Certificates" means the certificates evidencing
the Warrants.
2. Issue of Warrants. The Warrant Certificates shall be in
registered form only and substantially in the form attached hereto as Exhibit
A, shall be dated the date on which signed by an authorized signatory of the
Company and may have such legends and endorsements
3
<PAGE> 61
typed, stamped or printed thereon as the Company may deem appropriate and as
are not inconsistent with the provisions of this Agreement and the Options
Agreement. Warrant Certificates evidencing 2,000,000 Warrants may be executed
by any authorized officer of the Company. Warrant Certificates evidencing all
2,000,000 Warrants shall be delivered in the names of the Holders to the
Investor Representative at the closing of the Acquisition (as defined in the
Options Agreement).
3. Exercise Price; Exercise of Warrants.
(a) Exercise Price. Each Warrant shall entitle the
Holder, subject to the provisions of this Agreement, to purchase one share of
Common Stock at a purchase price per share equal to the Exercise Price.
(b) Exercise of Warrants Generally.
(i) Exercise During Exercise Period. The
aggregate number of Warrants that may be exercised at any time during the
Exercise Period shall be 2,000,000. All Warrants not exercised during the
Exercise Period shall expire at 5 p.m. New York City time on the Expiration
Date.
(ii) Liquidation Event. If the Company is
liquidated in accordance with the provisions of its Certificate of
Incorporation, then the Warrants shall be deemed to have been exercised.
(iii) Method of Exercise; Payment of Exercise
Price. In order to exercise any or all of the Warrants represented by a
Warrant Certificate, the Holder thereof must surrender the Warrant
4
<PAGE> 62
Certificate to the Company for exercise, with the reverse side of the Warrant
Certificate duly executed, together with any required payment in full of the
Exercise Price for each share of Underlying Common Stock to which such Holder
is entitled, any such payment of the Exercise Price to be made by check or wire
transfer to an account designated by the Company. If a Holder elects to
exercise only a portion of the Warrants represented by the Warrant Certificate
or Certificates registered in its name, then the remaining portion of such
Warrants shall be returned to such Holder in the form of a new Warrant
Certificate. Upon surrender of a Warrant Certificate and the payment of the
Exercise Price in conformity with the foregoing provisions, the Company shall
promptly issue to the Holder of such Warrant Certificate share certificates
representing the Underlying Common Stock to which such Holder is entitled,
registered in the name of such Holder or the name or names of such Affiliates
of such Holder as may be directed in writing by such Holder, and shall deliver
such share certificates to the Person or Persons entitled to receive the same.
The Company shall issue such share certificates within five Business Days after
the payment of the Exercise Price of the Warrants by such Holder, but such
shares shall be deemed issued and outstanding on the date the Warrant is
exercised and the Exercise Price is paid to the Company.
(c) Exercise by Surrender of Warrant; Exercise with
Shares of Common Stock. In the event that the Acquisition (as defined in the
Options Agreement) is consummated, in addition to the method of exercise
5
<PAGE> 63
set forth in Section 3(b)(3) above and in lieu of any cash payment required
thereunder, each Holder shall have the right at any time and from time to time
to exercise the Warrants in full or in part (i) by surrendering its Warrant
Certificate in the manner specified in Section 3(b)(3) in exchange for the
number of shares of Common Stock equal to the product of (x) the number of
shares as to which the Warrants are being exercised multiplied by (y) a
fraction, the numerator of which is the Market Price (as defined hereafter) of
the Common Stock less the Exercise Price and the denominator of which is such
Market Price, or (ii) by surrendering the Warrant Certificate in the manner
specified in Section 3(b)(3) above and making any required payment in whole or
in part of the Exercise Price for each share of Underlying Common Stock to
which such Holder is entitled with shares of Common Stock (valued at the Market
Price). As used herein, "Market Price" shall mean the average of the closing
prices of the Common Stock sales on all domestic exchanges on which the Common
Stock may at the time be listed, or, if there shall have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day the
Common Stock shall not be so listed, the average of the representative bid and
asked prices quoted in the NASDAQ System as of 3:30 p.m. New York City time, or
if on any day the Common Stock shall not be quoted in the NASDAQ System, the
average of the high and low bid and asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation
6
<PAGE> 64
Bureau, Incorporation or any similar successor organization, in each such case
averaged over a period of 10 consecutive Business Days immediately prior to
through 20 Business Days immediately following the Acquisition (as defined in
the Options Agreement); provided that if the Common Stock is listed on any
domestic exchange the term "Business Days" as used in this sentence shall mean
business days on which such exchange is open for trading. If at any time the
Common Stock is not listed on any domestic exchange or quoted in the NASDAQ
System or the domestic over-the-counter market, the Market Price shall be
deemed to be the fair market value thereof as of the date of exercise,
determined by an independent appraiser selected by the Company and acceptable
to the Holders.
4. Adjustments. The Exercise Price shall be subject to
adjustment as follows:
(a) In the event the Company shall issue additional
shares of Common Stock (or securities convertible into or exchangeable for
Common Stock) in a stock dividend, stock distribution or subdivision paid with
respect to Common Stock, or declare any dividend or other distribution payable
with additional shares of Common Stock (or securities convertible into or
exchangeable for Common Stock) with respect to Common Stock or effect a split
or subdivision of the outstanding shares of Common Stock, the Exercise Price
shall, concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, or the earlier declaration thereof, be
7
<PAGE> 65
proportionately decreased, and the number of Underlying Common Stock shall be
proportionately adjusted so that, to avoid dilution of each Holder's position,
each Holder shall thereafter be entitled to receive at such adjusted price an
additional number of shares of the Company's Common Stock which such Holder
would have owned or would have been entitled to receive upon or by reason of
any of the events described above, had the Warrants been exercised immediately
prior to the happening of such event.
(b) In the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Common Stock, the Exercise Price shall, concurrently
with the effectiveness of such combination or consolidation, be proportionately
increased and the number of Underlying Common Stock shall be proportionately
adjusted so that each Holder of any Warrant exercised after such date shall be
entitled to receive, upon payment of the same aggregate amount as would have
been payable before such date, the aggregate number of shares of Common Stock
which each Holder would have owned upon such exercise and been entitled to
receive, if such Warrant had been exercised immediately prior to the happening
of such combination or consolidation.
(c) In the event of any consolidation or merger of the
Company with or into another corporation or the conveyance of all or
substantially all of the assets of the Company to another corporation or
entity, the Warrants shall thereafter be exercisable for the number
8
<PAGE> 66
of shares of capital stock or other securities or property to which a holder of
the number of shares of Common Stock deliverable upon conversion hereof would
have been entitled upon such consolidation, merger or conveyance; and, in any
such case, appropriate adjustment shall be made in the application of the
provisions herein set forth with respect to the rights and interests of each
Holder thereafter, to the end that the provisions set forth herein (including
provisions with respect to adjustments in the Exercise Price) shall thereafter
be applicable, as nearly as may be practicable, in relation to any shares of
stock or other property thereafter deliverable upon the exercise of Warrants.
At the request of a Holder, the resulting or surviving entity in any such
consolidation or merger, if other than the Company, shall acknowledge in
writing such Holder's rights hereunder.
5. Loss or Mutilation. Upon receipt by the Company of
evidence satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate and of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation thereof, then, in the absence of notice to the Company that the
Warrants represented thereby have been acquired by a bona fide purchaser, the
Company shall deliver to the Holder of such Warrant Certificate, in exchange
for or in lieu of the lost, stolen, destroyed or mutilated Warrant Certificate,
a new Warrant Certificate of the same tenor and for a like aggregate number of
Warrants. Upon the issuance of any new Warrant Certificate under this Section
5, the Company may
9
<PAGE> 67
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and other expenses in connection
herewith. Every new Warrant Certificate executed and delivered pursuant to
this Section 5 in lieu of any lost, stolen or destroyed Warrant Certificate
shall constitute a contractual obligation of the Company, whether or not the
allegedly lost, stolen or destroyed Warrant Certificate shall be at any time
enforceable by anyone, and shall be entitled to the benefit of this Agreement
equally and proportionately with any and all other Warrant Certificates duly
executed and delivered hereunder. The provisions of this Section 5 are
exclusive and shall preclude (to the extent lawful) all other rights or
remedies with respect to the replacement of mutilated, lost, stolen, or
destroyed Warrant Certificates.
6. Reservation and Authorization of Common Stock. The Company
shall, at all times until the Warrants have been exercised or have expired,
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as is sufficient for the
purpose of permitting the exercise in full of all outstanding Warrants.
7. Limitations on Transfer; Warrant Transfer Books. The
Warrants may be sold, transferred, pledged, assigned, hypothecated or otherwise
disposed of (collectively, "transferred") only to Affiliates of a Holder. The
Company shall cause to be kept at the principal executive office of the Company
a register in which, subject to such
10
<PAGE> 68
reasonable regulations as it may prescribe, the Company shall provide the
registration of Warrant Certificates and transfers or exchanges of Warrant
Certificates as herein provided.
The Holder of a Warrant Certificate, by its acceptance thereof,
covenants and agrees that the Warrants are being acquired, and the Underlying
Common Stock to be purchased upon the exercise of this Warrant will be
acquired, as an investment and not with a view to the distribution thereof and
will not be sold or transferred except in accordance with the applicable
provisions of the Securities Act of 1933, as amended (the "Act") and the rules
and regulations promulgated thereunder, and that neither this Warrant nor any
of the Underlying Common Stock may be offered or sold except (i) pursuant to an
effective registration statement under the Act, (ii) to the extent applicable,
pursuant to Rule 144 under the Act (or any similar rule under the Act relating
to the disposition of securities), or (iii) pursuant to an exemption from
registration under the Act. Upon exercise of any Warrant, the Holder thereof
shall deliver to the Company a Certificate of Representation as set forth in
the Options Agreement.
The Warrant Certificates and, upon exercise of the Warrants, in part
or in whole, certificates representing the Underlying Common Stock shall bear a
legend substantially similar to the following:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "Act"), and may not be offered or sold except
(i) pursuant to an effective registration statement under
the Act,
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<PAGE> 69
(ii) to the extent applicable, pursuant to Rule 144 under
the Act (or any similar rule under the Act relating to the
disposition of securities), or (iii) pursuant to an
exemption from registration under the Act."
At the option of a Holder, Warrant Certificates may be exchanged at
such office upon payment of the charges hereinafter provided. Whenever any
Warrant Certificates are so surrendered for exchange, the Company shall execute
and deliver the Warrant Certificates that the Holder thereof is entitled to
receive. All Warrant Certificates issued upon any registration of transfer or
exchange of Warrant Certificates shall be the valid obligations of the Company,
evidencing the same obligations, and entitled to the same benefits under this
Agreement, as the Warrant Certificates surrendered for such registration of
transfer or exchange.
Every Warrant Certificate surrendered for registration of transfer
or exchange shall (if so required by the Company) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company duly executed by the Holder thereof. No service charge shall be made
for any registration of transfer or exchange of Warrant Certificates. The
Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer of Warrant Certificates.
8. No Voting or Dividend Rights. Prior to the exercise of the
Warrants, neither Holder, as a Holder of Warrant Certificates, shall be
12
<PAGE> 70
entitled to any rights of a shareholder of the Company, including, without
limitation, the right to vote, to receive dividends or other distributions or
to exercise any preemptive right, but each Holder of Warrant Certificates shall
receive all notices sent to shareholders of the Company, including any notice
of meetings of shareholders, and shall have the right to attend or observe such
meetings.
9. Termination. Notwithstanding anything in this Agreement to
the contrary, if a Holder materially breaches its obligations under the Options
Agreement with respect to the Call Option (as such term is defined in the
Option Agreement), this Agreement shall terminate upon such breach with respect
to the breaching Holder. In the event of termination as provided herein, this
Agreement, including all unexercised Warrants issued to such breaching Holder,
shall become void with respect to such Holder. Nothing in this Section 9 shall
be construed to limit any right or remedy of the Company in the event of such
breach.
10. Notices. Any notice, demand or delivery authorized by this
Agreement shall be in writing and shall be sufficiently given or made upon
receipt thereof, if made by personal delivery or facsimile transmission (with
confirmed receipt thereof), or four Business Days after mailed, if sent by
first-class mail, postage prepaid, addressed to the Investor Representative or
the Company, as the case may be, at their respective addresses below, or such
other address as shall have been furnished in accordance with this Section 10
to the party giving or making such notice, demand or delivery:
(a) If to the Company, to it at:
Phoenix Information Systems Corp.
100 Second Avenue South, Suite 100
St. Petersburg, Florida 33701
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Attention: Robert P. Gordon, Chairman
Facsimile: 813-821-7565
(b) If to the Holder, to the Investor
Representative at:
S-C Phoenix Holdings, L.L.C.
c/o The Chatterjee Group
888 Seventh Avenue, Suite 3000
New York, New York 10106
Attention: Mr. James Peet
Facsimile: 212-489-2005
With a copy to: Peter A. Hurwitz, Esq.
With a copy to:
Soros Fund Management
888 Seventh Avenue, Suite 3300
New York, New York 10106
Attention: Sean A. Warren, Esq.
Facsimile: 212-489-2005
11. Applicable Law. This Agreement and each Warrant
Certificate issued hereunder shall be governed by, and construed in accordance
with, the internal laws of the State of New York, without regard to the
conflicts of law principles thereof. The Company and each Holder hereby submit
to the nonexclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York State court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Agreement and the transactions contemplated hereby. The Company and each
Holder irrevocably waive, to the fullest extent permitted by law, any objection
which they may now or hereafter have to the laying of the venue of any such
proceeding brought in such a court and any claim that any such
14
<PAGE> 72
proceeding brought in such a court has been brought in an inconvenient forum.
12. Successors and Assigns. The provisions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties. Neither Holder may assign any of its rights
hereunder separate from a transfer of the Warrants in accordance with Section 7
hereof. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
13. Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement in any number of separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
14. Captions and Headings. The captions and headings used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
15. Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and each Holder.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each Holder, each future holder of the
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<PAGE> 73
Warrants and the Company.
16. Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provisions shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
PHOENIX INFORMATION SYSTEMS CORP.
By
-----------------------------------------
Name:
Title:
S-C PHOENIX HOLDINGS, L.L.C.
By
-----------------------------------------
Name:
Title:
QUANTUM INDUSTRIAL PARTNERS LDC
By
-----------------------------------------
Name:
Title:
16
<PAGE> 74
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE
AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE
THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT
APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE ACT.
THIS WARRANT CERTIFICATE AND THE WARRANTS
REPRESENTED HEREBY ARE TRANSFERABLE ONLY
IN ACCORDANCE WITH THE PROVISIONS SET FORTH IN
THE WARRANT AGREEMENT REFERRED TO BELOW.
WARRANTS TO PURCHASE COMMON STOCK
OF PHOENIX INFORMATION SYSTEMS CORP.
No.___ 1,000,000 Warrants
This certifies that Quantum Industrial Partners LDC is the owner of
the number of Warrants set forth above, each of which represents the right to
purchase from PHOENIX INFORMATION SYSTEMS CORP., a Delaware corporation (the
"Company"), the number of shares of Common Stock, par value $0.01 per share, of
the Company ("Common Stock") determined in accordance with the Warrant
Agreement referred to below at the purchase price set forth in the Warrant
Agreement (the "Exercise Price"), upon surrender hereof at the office of the
Company at 100 Second Avenue South, Suite 1100, St. Petersburg, Florida 33701
with the Exercise Subscription Form on the reverse hereof duly executed and
with payment in full (by bank check or wire
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<PAGE> 75
transfer to an account designated by the Company) of the purchase price for the
shares as to which the Warrant(s) represented by this Warrant Certificate are
exercised, or by surrender of this Warrant Certificate in lieu of cash payment,
all subject to the terms and conditions hereof and of the Warrant Agreement
referred to below. The Warrants will expire at 5 p.m. New York City time on
the Expiration Date.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement, dated as of December 7, 1995 (the "Warrant Agreement"),
among the Company and S-C Phoenix Holdings, L.L.C. and Quantum Industrial
Partners LDC, is subject to the terms and provisions contained therein, to all
of which terms and provisions the holder of this Warrant Certificate consents
by acceptance hereof. The Warrant Agreement is hereby incorporated herein by
reference and made a part hereof. Reference is hereby made to the Warrant
Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Company and the holders of
the Warrants. Capitalized defined terms used herein have the same meanings as
in the Warrant Agreement. Copies of the Warrant Agreement are on file at the
office of the Company and may be obtained by writing to the Company at the
following address:
100 Second Avenue South
Suite 1100
St. Petersburg, Florida 33701
The number of shares of the Common Stock of the Company purchasable
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<PAGE> 76
upon the exercise of each Warrant and the price per share are set forth in the
Warrant Agreement.
All shares of Common Stock issuable by the Company upon the exercise
of Warrants and the payment of the Exercise Price therefor shall be validly
issued, fully paid and nonassessable. The Company shall not be required,
however, to pay any tax, withholding or other charge imposed in connection with
the issuance of any shares of Common Stock upon the exercise of Warrants, and,
in such case, the Company shall not be required to issue or deliver any stock
certificate until such tax, withholding or other charge has been paid or it has
been established to the Company's satisfaction that no tax, withholding or
other charge is due. This Warrant Certificate and all rights hereunder are
transferable, subject to the terms of the Warrant Agreement, by the registered
holder hereof, in whole or in part, upon surrender of this Warrant Certificate
duly endorsed, or accompanied by a written instrument of transfer in form
satisfactory to the Company duly executed by the registered holder and upon
payment of any necessary transfer tax or other governmental charge imposed upon
such transfer. Upon any partial transfer, the Company will issue and deliver
to such holder a new Warrant Certificate or Certificates with respect to any
portion not so transferred.
This Warrant Certificate shall be void and all rights represented
hereby shall cease on the Expiration Date.
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Dated:___________, 19__
PHOENIX INFORMATION SYSTEMS CORP.
By
-----------------------------------------
Name:
Title:
20
<PAGE> 78
REVERSE OF WARRANT CERTIFICATE
EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: Phoenix Information Systems Corp.
The undersigned irrevocably exercises ____________ of the Warrants
evidenced by this Warrant Certificate for the purchase of shares of Common
Stock, par value $0.01 per share, of PHOENIX INFORMATION SYSTEMS CORP. and has
arranged to make payment of $___________ (such payment being made by bank check
or wire transfer to the account designated by Phoenix Information Systems
Corp., and constituting the Exercise Price (as defined in the Warrant
Agreement) for the shares as to which the Warrants evidenced by this Warrant
Certificate are exercised) or has surrendered this Warrant Certificate in lieu
of cash payment in accordance with the terms of Section 3(c) of the Warrant
Agreement, all on the terms and conditions specified in this Warrant
Certificate and the Warrant Agreement herein referred to. The undersigned has
delivered to the Company the Certificate of Representations as set forth in the
Warrant Agreement. The undersigned hereby irrevocably surrenders this Warrant
Certificate and all right, title and interest therein to Phoenix Information
Systems Corp. and directs that the shares of
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<PAGE> 79
Common Stock deliverable upon the exercise of said Warrants be registered or
placed in the name and at the address specified below and delivered thereto.
Date:_________, 19__.
3
---------------------------------------
Signature of Owner
----------------------------------------
(Street Address)
----------------------------------------
(City) (State) (Zip Code)
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
____________________
3/ The signature must correspond with the name as written upon the face of
this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
22
<PAGE> 80
FORM OF ASSIGNMENT
For VALUE RECEIVED, the undersigned registered holder of this
Warrant Certificate hereby sells, assigns and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants
constituting a part of the Warrants evidenced by this Warrant Certificate not
being assigned hereby) all of the right of the undersigned under this Warrant
Certificate, with respect to the number of Warrants set forth below:
Social Security
Names of or other Identifying Number of
Assignees Address Number of Assignee(s) Warrants
- --------- ------- --------------------- --------
and does hereby irrevocably constitute and appoint _______________ the
undersigned's attorney to make such transfer on the books of Phoenix
Information Systems Corp. maintained for the purpose, with full power of
substitution.
Dated: ___________, 19__
---------------------------------------
- -------------------------
_____________
(1) The signature must correspond with the name as written upon the
23
<PAGE> 81
face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatever.
24
<PAGE> 82
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE
AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE
THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT
APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE ACT.
THIS WARRANT CERTIFICATE AND THE WARRANTS
REPRESENTED HEREBY ARE TRANSFERABLE ONLY
IN ACCORDANCE WITH THE PROVISIONS SET FORTH IN
THE WARRANT AGREEMENT REFERRED TO BELOW.
WARRANTS TO PURCHASE COMMON STOCK
OF PHOENIX INFORMATION SYSTEMS CORP.
No.___ 1,000,000 Warrants
This certifies that S-C Phoenix Holdings, L.L.C. is the owner
of the number of Warrants set forth above, each of which represents the right
to purchase from PHOENIX INFORMATION SYSTEMS CORP., a Delaware corporation (the
"Company"), the number of shares of Common Stock, par value $0.01 per share, of
the Company ("Common Stock") determined in accordance with the Warrant
Agreement referred to below at the purchase price set forth in the Warrant
Agreement (the "Exercise Price"), upon surrender hereof at the office of the
Company at 100 Second Avenue South, Suite 1100, St. Petersburg, Florida 33701
with the Exercise Subscription Form on the reverse hereof duly executed and
with payment in full (by bank check or wire
25
<PAGE> 83
transfer to an account designated by the Company) of the purchase price for the
shares as to which the Warrant(s) represented by this Warrant Certificate are
exercised, or by surrender of this Warrant Certificate in lieu of cash payment,
all subject to the terms and conditions hereof and of the Warrant Agreement
referred to below. The Warrants will expire at 5 p.m. New York City time on
the Expiration Date.
This Warrant Certificate is issued under and in accordance
with a Warrant Agreement, dated as of December 7, 1995 (the "Warrant
Agreement"), among the Company and S-C Phoenix Holdings, L.L.C. and Quantum
Industrial Partners LDC, is subject to the terms and provisions contained
therein, to all of which terms and provisions the holder of this Warrant
Certificate consents by acceptance hereof. The Warrant Agreement is hereby
incorporated herein by reference and made a part hereof. Reference is hereby
made to the Warrant Agreement for a full description of the rights, limitations
of rights, obligations, duties and immunities thereunder of the Company and the
holders of the Warrants. Capitalized defined terms used herein have the same
meanings as in the Warrant Agreement. Copies of the Warrant Agreement are on
file at the office of the Company and may be obtained by writing to the Company
at the following address:
100 Second Avenue South
Suite 1100
St. Petersburg, Florida 33701
The number of shares of the Common Stock of the Company purchasable
26
<PAGE> 84
upon the exercise of each Warrant and the price per share are set forth in the
Warrant Agreement.
All shares of Common Stock issuable by the Company upon the
exercise of Warrants and the payment of the Exercise Price therefor shall be
validly issued, fully paid and nonassessable. The Company shall not be
required, however, to pay any tax, withholding or other charge imposed in
connection with the issuance of any shares of Common Stock upon the exercise of
Warrants, and, in such case, the Company shall not be required to issue or
deliver any stock certificate until such tax, withholding or other charge has
been paid or it has been established to the Company's satisfaction that no tax,
withholding or other charge is due. This Warrant Certificate and all rights
hereunder are transferable, subject to the terms of the Warrant Agreement, by
the registered holder hereof, in whole or in part, upon surrender of this
Warrant Certificate duly endorsed, or accompanied by a written instrument of
transfer in form satisfactory to the Company duly executed by the registered
holder and upon payment of any necessary transfer tax or other governmental
charge imposed upon such transfer. Upon any partial transfer, the Company will
issue and deliver to such holder a new Warrant Certificate or Certificates with
respect to any portion not so transferred.
This Warrant Certificate shall be void and all rights
represented hereby shall cease on the Expiration Date.
27
<PAGE> 85
Dated:___________, 19__
PHOENIX INFORMATION SYSTEMS CORP.
By
--------------------------------------
Name:
Title:
28
<PAGE> 86
REVERSE OF WARRANT CERTIFICATE
EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: Phoenix Information Systems Corp.
The undersigned irrevocably exercises ____________ of the
Warrants evidenced by this Warrant Certificate for the purchase of shares of
Common Stock, par value $0.01 per share, of PHOENIX INFORMATION SYSTEMS CORP.
and has arranged to make payment of $___________ (such payment being made by
bank check or wire transfer to the account designated by Phoenix Information
Systems Corp., and constituting the Exercise Price (as defined in the Warrant
Agreement) for the shares as to which the Warrants evidenced by this Warrant
Certificate are exercised) or has surrendered this Warrant Certificate in lieu
of cash payment in accordance with the terms of Section 3(c) of the Warrant
Agreement, all on the terms and conditions specified in this Warrant
Certificate and the Warrant Agreement herein referred to. The undersigned has
delivered to the Company the Certificate of Representations as set forth in the
Warrant Agreement. The undersigned hereby irrevocably surrenders this Warrant
Certificate and all right, title and interest therein to Phoenix Information
Systems Corp. and directs that the shares of
29
<PAGE> 87
Common Stock deliverable upon the exercise of said Warrants be registered or
placed in the name and at the address specified below and delivered thereto.
Date:_________, 19__.
4
---------------------------------------
Signature of Owner
---------------------------------------
(Street Address)
---------------------------------------
(City) (State) (Zip Code)
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
____________________
4/ The signature must correspond with the name as written upon the face of
this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
30
<PAGE> 88
FORM OF ASSIGNMENT
For VALUE RECEIVED, the undersigned registered holder of this
Warrant Certificate hereby sells, assigns and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants
constituting a part of the Warrants evidenced by this Warrant Certificate not
being assigned hereby) all of the right of the undersigned under this Warrant
Certificate, with respect to the number of Warrants set forth below:
Social Security
Names of or other Identifying Number of
Assignees Address Number of Assignee(s) Warrants
- --------- ------- --------------------- --------
and does hereby irrevocably constitute and appoint _______________ the
undersigned's attorney to make such transfer on the books of Phoenix
Information Systems Corp. maintained for the purpose, with full power of
substitution.
Dated: ___________, 19__
------------------------------------------
- -------------------------
_____________
31
<PAGE> 89
(1) The signature must correspond with the name as written upon the face of
this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
32
<PAGE> 90
EXHIBIT B
Form of Certificate of Representations
The undersigned, in connection with the Options Agreement, dated December 7,
1995 (the "Agreement"), among Phoenix Information Systems Corp., a Delaware
corporation (the "Company"), and S-C Phoenix Holdings, L.L.C., a limited
liability company organized under the laws of ____________, hereby makes each
of the representations contained in Section 5.2 of the Agreement and further
represents that it has performed, in all material respect, each of its
obligations thereunder.
The undersigned further represents that it qualifies as an "accredited
investor" as that term is used in Regulation D promulgated under the Securities
Act of 1933, as amended , because it is an entity, all of whose equity owners
are accredited investors.
S-C PHOENIX HOLDINGS, L.L.C.
By: Title:
----------------------------------
33
<PAGE> 91
EXHIBIT C
Form of Registration Rights Agreement
34
<PAGE> 92
Form of Certificate of Representations
The undersigned, in connection with the Options Agreement, dated December 7,
1995 (the "Agreement"), among Phoenix Information Systems Corp., a Delaware
corporation (the "Company"), and Quantum Industrial Partners LDC, a limited
duration company organized under the laws of ____________, hereby makes each of
the representations contained in Section 5.2 of the Agreement and further
represents that it has performed, in all material respect, each of its
obligations thereunder.
The undersigned further represents that it qualifies as an "accredited
investor" as that term is used in Regulation D promulgated under the Securities
Act of 1933, as amended , because it is an entity, all of whose equity owners
are accredited investors.
QUANTUM INDUSTRIAL PARTNERS LDC
By:
-------------------------------------------
Title:
35
<PAGE> 1
EXHIBIT 10.38
PHOENIX INFORMATION SYSTEMS CORP.
February 12, 1996
S-C Phoenix Partners
888 Seventh Avenue
New York, New York 10106
Additional Warrant
Gentlemen:
Reference is made to the Convertible Note Purchase Agreement
(as amended, "Agreement") dated December 9, 1994 between the undersigned
("Company") and you ("S-C Partners"), as most recently amended by letter
agreement dated September 15, 1995 ("September Letter"). Capitalized terms are
used herein as defined in the Agreement and September Letter. Pursuant to the
September Letter, the Company agreed to issue to S-C Partners Additional
Warrants, and to adjust the Conversion Price of the Tranche D Note converted
pursuant to the September Letter, in the event that a certain event or events
did not occur by January 15, 1996.
The parties wish to modify the September Letter as follows:
1. The Company will issue the Additional Warrants, the
exercise price for which shall be $3.23 per share, pursuant to the Warrant
Agreement annexed hereto as Exhibit A.
2. The Conversion Price for the Tranche D Note issued
and converted pursuant to the September Letter shall be deemed to have been
$.80 per share and the Company shall issue an additional 300,000 shares
("Adjusted Conversion Shares") to S-C Partners to reflect such adjustment.
<PAGE> 2
2
3. S-C Partners hereby represents and warrants
as follows:
(a) The Adjusted Conversion Shares and the
Additional Warrants ("Securities") being acquired by S-C
Partners are being acquired for investment for its own account
and not with the view to, or for resale in connection with,
any distribution or public offering thereof. S-C Partners
understands that such Securities have not been registered
under the Securities Act of 1933, as amended (the "Securities
Act") or any state securities laws by reason of their
contemplated issuance in transactions exempt from the
registration requirements of the Securities Act pursuant to
Section 4(2) thereof and applicable state securities laws, and
that the reliance of the Company and others upon these
exemptions is predicated in part upon this representation by
S-C Partners. S-C Partners further understands that such
Securities may not be transferred or resold without (i)
registration under the Securities Act and any applicable state
securities laws, or (ii) an exemption from the requirements of
the Securities Act and applicable state securities laws.
(b) S-C Partners understands that an exemption
from such registration is not presently available pursuant to
Rule 144 promulgated under the Securities Act by the
Securities and Exchange Commission (the "Commission") and
that, in any event, S-C Partners may not sell any such
Securities pursuant to Rule 144 prior to the expiration of a
two-year period after it has acquired such Securities. S-C
Partners understands that any sales pursuant to Rule 144 can
be made only in full compliance with the provisions of Rule
144.
(c) The address of S-C Partner's principal office
is set forth on its Certificate of Representations dated the
date hereof. S-C Partners qualifies as an "accredited
investor" for purposes of Regulation D promulgated under the
<PAGE> 3
3
Securities Act for the reasons specified in such Certificate
of Representations. S-C Partners acknowledges that the
Company has made available to it at a reasonable time prior to
the execution of the Certificate of Representations the
opportunity to ask questions and receive answers concerning
the terms and conditions of the sale of securities
contemplated by the Agreement, and to obtain any additional
information (which the Company possesses or can acquire
without unreasonable effort or expense) as may be necessary to
verify the accuracy of the information furnished to it. S-C
Partners (i) is able to bear of loss of its entire investment
in the Securities being acquired by it without any material
adverse effect on its business, operations or prospects, and
(ii) has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits
and risks of the investment to be made by it pursuant to the
Agreement and pursuant hereto.
4. Except as modified hereby, the Agreement
remains in full force and effect.
5. This Agreement (a) represents the entire
agreement among the parties with respect to the subject matter hereof,
superseding all prior agreements and understandings, written or oral,
(b) may be amended only in writing, (c) may be executed in
counterparts, each of which shall be deemed an original and all of
which shall constitute one agreement, (d) shall inure to the benefit
of, and be binding upon, the parties hereto and their respective
successors and assigns and (e) shall be governed by and construed in
accordance with the laws of the State of New York applicable to
contracts entered into and to be performed wholly within such State.
If the foregoing accurately reflects our agreement, please
sign where indicated below.
Very truly yours,
<PAGE> 4
4
AGREED:
S-C PHOENIX PARTNERS
By S-C Phoenix Holdings, L.L.C.,
its general partner
By:
------------------------------
Name:
Title:
<PAGE> 5
5
EXHIBIT A
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of February 12, 1996 (the "Additional
Warrant Agreement"), by and between PHOENIX INFORMATION SYSTEMS CORP., a
Delaware corporation (the "Company") S-C PHOENIX PARTNERS, a New York general
partnership ("S-C" and, together with its successors and permitted assigns, the
"Holder").
WHEREAS, the Company proposes to issue and deliver its warrant
certificates ("Warrant Certificates") evidencing 140,000 warrants (the
"Warrants") each to purchase one newly issued share of common stock, par value
$0.01 per share, of the Company ("Common Stock") in connection with that
certain Convertible Note Purchase Agreement, dated as of December 9, 1994, by
and between the Company and S-C (the "Note Purchase Agreement") and that
certain letter agreement referencing the "Additional Warrants", dated the date
hereof, by and between the Company and S-C.
NOW THEREFORE, in consideration of the foregoing and for the purpose
of defining the terms and provisions of the Warrants and the respective rights
and obligations
<PAGE> 6
6
thereunder of the Company and the Holder, the Company and the Holder agree as
follows:
1. Certain Definitions. The following terms, as used in this
Additional Warrant Agreement, have the following meanings:
(a) "Affiliate" means, with respect to S-C, (A)(a) any Person
controlling, controlled by or under common control with S-C and (b) if (1)
controlling S-C, such Person has a forty percent (40%) or more voting and
beneficial ownership interest in S-C, (2) controlled by S-C has a forty percent
(40%) or more voting and beneficial ownership interest in such Person and (3)
under common control with S-C, the Person(s) having such common control have
forty percent (40%) or more voting and beneficial ownership interest in S-C and
such Person, and (B) any Person for which George Soros d/b/a Soros Fund
Management or Chatterjee Fund Management Co. LP, a Delaware limited
partnership, is acting as investment manager or investment adviser, in each
case with investment discretion. For purposes of this definition, the term
"control," when used with respect to any Person, shall include the power to
exercise discretion over the investments of such Person, and the terms
"controlling" and "controlled" have corresponding meanings.
<PAGE> 7
7
(b) "Business Day" means any day other than a Saturday, Sunday
or day on which banks in New York City are closed for general business.
(c) "Common Stock" has the meaning set forth in the preamble.
(d) "Exercise Period" means the period beginning on the date
hereof and ending at 5 p.m. New York City time on the third anniversary of the
date on which the Company shall have satisfied the conditions contained in
clauses (a) and (b) of the definition of "Tranche E Target Date" set forth in
the Note Purchase Agreement.
(e) "Exercise Price" means $3.23 per share (as provided in
Section 3 and subject to adjustment as provided in Section 4).
(f) "Expiration Date" for the Warrants means the last day of
the Exercise Period.
(g) "Holder" has the meaning set forth in the pre amble.
(h) "Investor Representative" shall be S-C Phoenix Holdings,
L.L.C., a Delaware limited liability company and a ganeral partner of S-C, or
its successor in interest, or the assigned representative of such Person (it
being agreed that
<PAGE> 8
8
at all times there shall be no more than one Investor Representative).
(i) "Person" means any individual, corporation, limited
liability company, partnership, limited liability company, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
(j) "Underlying Common Stock" means the shares of Common Stock
purchasable by the Holder upon the exercise of the Warrants.
(k) "Warrants" has the meaning set forth in the pream ble.
(l) "Warrant Certificates" means the certificates evidencing
the Warrants.
2. Issue of Warrants. The Warrant Certificates shall be in
registered form only and substantially in the form attached hereto as Exhibit
A, shall be dated the date on which signed by an authorized signatory of the
Company and may have such legends and endorsements typed, stamped or printed
thereon as the Company may deem appropriate and as are not inconsistent with
the provisions of this Additional Warrant Agreement and the Options Agreement.
Warrant Certificates evidencing 140,000 Warrants may be executed by any
authorized officer of the Company. Warrant Certificates
<PAGE> 9
9
evidencing all 140,000 Warrants shall be delivered in the name of the Holder to
the Investor Representative on the date hereof.
3. Exercise Price; Exercise of Warrants.
(a) Exercise Price. Each Warrant shall entitle the
Holder, subject to the provisions of this Additional Warrant Agreement, to
purchase one share of Common Stock at a purchase price per share equal to the
Exercise Price.
(b) Exercise of Warrants Generally.
(i) Exercise During Exercise Period. The
aggregate number of Warrants that may be exercised at any time during the
Exercise Period shall be 140,000. All Warrants not exercised during the
Exercise Period shall expire at 5 p.m. New York City time on the Expiration
Date.
(ii) Liquidation Event. If the Company is
liquidated in accordance with the provisions of its Certificate of
Incorporation, then the Warrants shall be deemed to have been exercised.
(iii) Method of Exercise; Payment of Exercise
Price. In order to exercise any or all of the Warrants repre sented by a
Warrant Certificate, the Holder must surrender the Warrant Certificate to the
Company for exercise, with the reverse side of the Warrant Certificate
<PAGE> 10
10
duly executed, together with any required payment in full of the Exercise Price
for each share of Underlying Common Stock to which the Holder is entitled, any
such payment of the Exercise Price to be made by check or wire transfer to an
account designated by the Company. If the Holder elects to exercise only a
portion of the Warrants represented by the Warrant Certificate or Certificates
registered in its name, then the remaining portion of the Warrants shall be
returned to the Holder in the form of a new Warrant Certificate. Upon
surrender of a Warrant Certificate and the payment of the Exercise Price in
conformity with the foregoing provisions, the Company shall promptly issue to
the Holder share certificates representing the Underlying Common Stock to which
the Holder is entitled, registered in the name of the Holder or the name or
names of such Affiliates of the Holder as may be directed in writing by the
Holder, and shall deliver such share certificates to the Person or Persons
entitled to receive the same. The Company shall issue such share certificates
within five Business Days after the payment of the Exercise Price of the
Warrants by the Holder, but such shares shall be deemed issued and outstanding
on the date the Warrant is exercised and the Exercise Price is paid to the
Company.
<PAGE> 11
11
(c) Exercise by Surrender of Warrant; Exercise with
Shares of Common Stock. In addition to the method of exercise set forth in
Section 3(b)(3) above and in lieu of any cash payment required thereunder, the
Holder shall have the right at any time and from time to time to exercise the
Warrants in full or in part (i) by surrendering its Warrant Certificate in the
manner specified in Section 3(b)(3) in exchange for the number of shares of
Common Stock equal to the product of (x) the number of shares as to which the
Warrants are being exercised multiplied by (y) a fraction, the numerator of
which is the Market Price (as defined hereafter) of the Common Stock less the
Exercise Price and the denominator of which is such Market Price, or (ii) by
surrendering the Warrant Certificate in the manner specified in Section 3(b)(3)
above and making any required payment in whole or in part of the Exercise Price
for each share of Underlying Common Stock to which the Holder is entitled with
shares of Common Stock (valued at the Market Price). As used herein, "Market
Price" shall mean the average of the closing prices of the Common Stock sales
on all domestic exchanges on which the Common Stock may at the time be listed,
or, if there shall have been no sales on any such exchange on any day, the
average of the highest bid and
<PAGE> 12
12
lowest asked prices on all such exchanges at the end of such day, or, if on any
day the Common Stock shall not be so listed, the average of the representative
bid and asked prices quoted in the NASDAQ System as of 3:30 p.m. New York City
time, or if on any day the Common Stock shall not be quoted in the NASDAQ
System, the average of the high and low bid and asked prices on such day in the
domestic over-the-counter market as reported by the National Quotation Bureau,
Incorporation or any similar successor organization, in each such case averaged
over a period of 30 consecutive Business Days immediately prior to the date of
exercise; provided that if the Common Stock is listed on any domestic exchange
the term "Business Days" as used in this sentence shall mean business days on
which such exchange is open for trading. If at any time the Common Stock is
not listed on any domestic exchange or quoted in the NASDAQ System or the
domestic over-the-counter market, the Market Price shall be deemed to be the
fair market value thereof as of the date of exercise, determined by an
independent appraiser selected by the Company and acceptable to the Holder.
4. Adjustments. The Exercise Price shall be subject to
adjustment as follows:
<PAGE> 13
13
(a) In the event the Company shall issue additional
shares of Common Stock (or securities convertible into or exchangeable for
Common Stock) in a stock dividend, stock distribution or subdivision paid with
respect to Common Stock, or declare any dividend or other distribution payable
with additional shares of Common Stock (or securities convertible into or
exchangeable for Common Stock) with respect to Common Stock or effect a split
or subdivision of the outstanding shares of Common Stock, the Exercise Price
shall, concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, or the earlier declaration thereof, be
proportionately decreased, and the number of Underlying Common Stock shall be
proportionately adjusted so that, to avoid dilution of the Holder's position,
the Holder shall thereafter be entitled to receive at such adjusted price an
additional number of shares of the Company's Common Stock which such Holder
would have owned or would have been entitled to receive upon or by reason of
any of the events described above, had the Warrants been exercised immediately
prior to the happening of such event.
(b) In the event the outstanding shares of Common Stock
shall be combined or consolidated, by
<PAGE> 14
14
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Exercise Price shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately increased and the number of
Underlying Common Stock shall be proportionately adjusted so that the Holder of
any Warrant exercised after such date shall be entitled to receive, upon
payment of the same aggregate amount as would have been payable before such
date, the aggregate number of shares of Common Stock which the Holder would
have owned upon such exercise and been entitled to receive, if such Warrant had
been exercised immediately prior to the happening of such combination or
consolidation.
(c) In the event of any consolidation or merger of the
Company with or into another corporation or the conveyance of all or
substantially all of the assets of the Company to another corporation or
entity, the Warrants shall thereafter be exercisable for the number of shares
of capital stock or other securities or property to which a holder of the
number of shares of Common Stock deliverable upon conversion hereof would have
been entitled upon such consolidation, merger or conveyance; and, in any such
case, appropriate adjustment shall be made in the application of
<PAGE> 15
15
the provisions herein set forth with respect to the rights and interests of the
Holder thereafter, to the end that the provisions set forth herein (including
provisions with respect to adjustments in the Exercise Price) shall thereafter
be applicable, as nearly as may be practicable, in relation to any shares of
stock or other property thereafter deliverable upon the exercise of Warrants.
At the request of the Holder, the resulting or surviving entity in any such
consolidation or merger, if other than the Company, shall acknowledge in
writing the Holder's rights hereunder.
5. Loss or Mutilation. Upon receipt by the Company of
evidence satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate and of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation thereof, then, in the absence of notice to the Company that the
Warrants represented thereby have been acquired by a bona fide purchaser, the
Company shall deliver to the Holder, in exchange for or in lieu of the lost,
stolen, destroyed or mutilated Warrant Certificate, a new Warrant Certificate
of the same tenor and for a like aggregate number of Warrants. Upon the
issuance of any new Warrant Certificate under this
<PAGE> 16
16
Section 5, the Company may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and
other expenses in connection herewith. Every new Warrant Certificate executed
and delivered pursuant to this Section 5 in lieu of any lost, stolen or
destroyed Warrant Certificate shall constitute a contractual obligation of the
Company, whether or not the allegedly lost, stolen or destroyed Warrant
Certificate shall be at any time enforceable by anyone, and shall be entitled
to the benefit of this Additional Warrant Agreement equally and proportionately
with any and all other Warrant Certificates duly executed and delivered
hereunder. The provisions of this Section 5 are exclusive and shall preclude
(to the extent lawful) all other rights or remedies with respect to the
replacement of mutilated, lost, stolen, or destroyed Warrant Certificates.
6. Reservation and Authorization of Common Stock. The Company
shall, at all times until the Warrants have been exercised or have expired,
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as is sufficient for the
purpose of permitting the exercise in full of all outstanding Warrants.
<PAGE> 17
17
7. Limitations on Transfer; Warrant Transfer Books. The
Warrants may be sold, transferred, pledged, assigned, hypothecated or otherwise
disposed of (collectively, "transferred") only to Affiliates of the Holder.
The Company shall cause to be kept at the principal executive office of the
Company a register in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide the registration of Warrant Certificates
and transfers or exchanges of Warrant Certificates as herein provided.
The Holder of a Warrant Certificate, by its acceptance thereof,
covenants and agrees that the Warrants are being acquired, and the Underlying
Common Stock to be purchased upon the exercise of this Warrant will be
acquired, as an investment and not with a view to the distribution thereof and
will not be sold or transferred except in accordance with the applicable
provisions of the Securities Act of 1933, as amended (the "Act") and the rules
and regulations promulgated thereunder, and that neither this Warrant nor any
of the Underlying Common Stock may be offered or sold except (i) pursuant to an
effective registration statement under the Act, (ii) to the extent applicable,
pursuant to Rule 144 under the Act (or any
<PAGE> 18
18
similar rule under the Act relating to the disposition of securities), or (iii)
pursuant to an exemption from registration under the Act.
The Warrant Certificates and, upon exercise of the Warrants, in part
or in whole, certificates representing the Underlying Common Stock shall bear a
legend substantially similar to the following:
"The securities represented by this certificate
have not been registered under the Securities
Act of 1933, as amended (the "Act"), and may not
be offered or sold except (i) pursuant to an
effective registration statement under the Act,
(ii) to the extent applicable, pursuant to Rule
144 under the Act (or any similar rule under the
Act relating to the disposition of securities), or
(iii) pursuant to an exemption from registration
under the Act."
At the option of the Holder, Warrant Certificates may be exchanged
at such office upon payment of the charges hereinafter provided. Whenever any
Warrant Certificates are so surrendered for exchange, the Company shall execute
and deliver the Warrant Certificates that the Holder is entitled to receive.
All Warrant Certificates issued upon any registration of transfer or exchange
of Warrant Certificates shall be the valid obligations of the Company,
evidencing the same obligations, and entitled to the same benefits under this
<PAGE> 19
19
Additional Warrant Agreement, as the Warrant Certificates surrendered for such
registration of transfer or exchange.
Every Warrant Certificate surrendered for registration of transfer
or exchange shall (if so required by the Company) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company duly executed by the Holder. No service charge shall be made for any
registration of transfer or exchange of Warrant Certificates. The Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer of
Warrant Certificates.
8. No Voting or Dividend Rights. Prior to the exercise of the
Warrants, the Holder, as a Holder of Warrant Certificates, shall not be
entitled to any rights of a shareholder of the Company, including, without
limitation, the right to vote, to receive dividends or other distributions or
to exercise any preemptive right, but each Holder of Warrant Certificates shall
receive all notices sent to shareholders of the Company, including any notice
of meetings of shareholders, and shall have the right to attend or observe such
meetings.
9. Notices. Any notice, demand or delivery authorized by this
Additional Warrant Agreement shall be in writing and shall be sufficiently
given or made upon receipt thereof, if
<PAGE> 20
20
made by personal delivery or facsimile transmission (with confirmed receipt
thereof), or four Business Days after mailed, if sent by first-class mail,
postage prepaid, addressed to the Investor Representative or the Company, as
the case may be, at their respective addresses below, or such other address as
shall have been furnished in accordance with this Section 10 to the party
giving or making such notice, demand or delivery:
(a) If to the Company, to it at:
Phoenix Information Systems Corp.
100 Second Avenue South, Suite 1100
St. Petersburg, Florida 33701
Attention: Robert P. Gordon, Chairman
Facsimile: 813-821-7565
(b) If to the Holder, to the Investor
Representative at:
S-C Phoenix Holdings, L.L.C.
c/o The Chatterjee Group
888 Seventh Avenue, Suite 3000
New York, New York 10106
Attention: Mr. James Peet
Facsimile: 212-489-2005
With a copy to: Peter A. Hurwitz, Esq.
With an additional copy to:
Soros Fund Management
888 Seventh Avenue, Suite 3300
New York, New York 10106
Attention: Sean A. Warren, Esq.
Facsimile: 212-489-2005
10. Applicable Law. This Additional Warrant Agreement and each
Warrant Certificate issued hereunder shall be governed by, and construed in
accordance with, the internal laws of the State of New York, without regard to
the conflicts
<PAGE> 21
21
of law principles thereof. The Company and each Holder hereby submit to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York State court sitting in New York City
for purposes of all legal proceedings arising out of or relating to this
Additional Warrant Agreement and the transactions contemplated hereby. The
Company and the Holder irrevocably waive, to the fullest extent permitted by
law, any objection which they may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim that any
such proceeding brought in such a court has been brought in an inconvenient
forum.
11. Successors and Assigns. The provisions of this Additional
Warrant Agreement shall inure to the benefit of and be binding upon the
respective successors and permitted assigns of the parties. The Holder may not
assign any of its rights hereunder separate from a transfer of the Warrants in
accordance with Section 7 hereof. Nothing in this Additional Warrant
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Additional
Warrant Agreement.
<PAGE> 22
22
12. Counterparts. This Additional Warrant Agreement may be
executed by one or more of the parties to this Additional Warrant Agreement in
any number of separate counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
13. Captions and Headings. The captions and headings used in
this Additional Warrant Agreement are used for convenience only and are not to
be considered in construing or interpreting this Additional Warrant Agreement.
14. Amendments and Waivers. Any term of this Additional
Warrant Agreement may be amended and the observance of any term of this
Additional Warrant Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Holder. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon the Holder, each future
holder of the Warrants and the Company.
15. Severability. If one or more provisions of this Additional
Warrant Agreement are held to be unenforceable under applicable law, such
provisions shall be excluded from this Additional Warrant Agreement and the
balance of the
<PAGE> 23
23
Agreement shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have caused this Additional
Warrant Agreement to be duly executed as of the day and year first above
written.
PHOENIX INFORMATION SYSTEMS CORP.
By
-----------------------------------------
Name:
Title:
S-C PHOENIX PARTNERS
By S-C PHOENIX HOLDINGS, L.L.C.,
a General Partner
By
-----------------------------------------
Name:
Title:
<PAGE> 24
24
EXHIBIT A
FORM OF WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE
AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE
THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT
APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE ACT.
THIS WARRANT CERTIFICATE AND THE WARRANTS
REPRESENTED HEREBY ARE TRANSFERABLE ONLY
IN ACCORDANCE WITH THE PROVISIONS SET FORTH IN
THE ADDITIONAL WARRANT AGREEMENT REFERRED TO BELOW.
WARRANTS TO PURCHASE COMMON STOCK
OF PHOENIX INFORMATION SYSTEMS CORP.
No.___ 140,000 Warrants
This certifies that _______________________ is the owner of the
number of Warrants set forth above, each of which represents the right to
purchase from PHOENIX INFORMATION SYSTEMS CORP., a Delaware corporation (the
"Company"), the number of shares of Common Stock, par value $0.01 per share, of
the Company ("Common Stock") determined in accordance with the Additional
Warrant Agreement referred to below at the purchase price set forth in the
Additional Warrant Agreement (the "Exercise Price"), upon surrender hereof at
the office of the Company at 100 Second Avenue South, Suite 1100, St.
<PAGE> 25
25
Petersburg, Florida 33701 with the Exercise Subscription Form on the reverse
hereof duly executed and with payment in full (by bank check or wire transfer
to an account designated by the Company) of the purchase price for the shares
as to which the Warrant(s) represented by this Warrant Certificate are
exercised, or by surrender of this Warrant Certificate in lieu of cash payment,
all subject to the terms and conditions hereof and of the Additional Warrant
Agreement referred to below. The Warrants will expire at 5 p.m. New York City
time on the Expiration Date.
This Warrant Certificate is issued under and in accordance with a
Additional Warrant Agreement, dated as of February 12, 1996 (the "Additional
Warrant Agreement"), between the Company and S-C Phoenix Partners, is subject
to the terms and provisions contained therein, to all of which terms and
provisions the holder of this Warrant Certificate consents by acceptance
hereof. The Additional Warrant Agreement is hereby incorporated herein by
reference and made a part hereof. Reference is hereby made to the Additional
Warrant Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Company and the holders of
the Warrants. Capitalized defined terms used herein have the same meanings
<PAGE> 26
26
as in the Additional Warrant Agreement. Copies of the Additional Warrant
Agreement are on file at the office of the Company and may be obtained by
writing to the Company at the following address:
100 Second Avenue South
Suite 1100
St. Petersburg, Florida 33701
The number of shares of the Common Stock of the Company purchasable upon the
exercise of each Warrant and the price per share are set forth in the
Additional Warrant Agreement.
All shares of Common Stock issuable by the Company upon the exercise
of Warrants and the payment of the Exercise Price therefor shall be validly
issued, fully paid and nonassessable. The Company shall not be required,
however, to pay any tax, withholding or other charge imposed in connection with
the issuance of any shares of Common Stock upon the exercise of Warrants, and,
in such case, the Company shall not be required to issue or deliver any stock
certificate until such tax, withholding or other charge has been paid or it has
been established to the Company's satisfaction that no tax, withholding or
other charge is due. This Warrant Certificate and all rights hereunder are
transferable, subject to the terms of the Additional Warrant Agreement, by the
registered holder hereof, in whole or in part, upon surrender of this
<PAGE> 27
27
Warrant Certificate duly endorsed, or accompanied by a written instrument of
transfer in form satisfactory to the Company duly executed by the registered
holder and upon payment of any necessary transfer tax or other governmental
charge imposed upon such transfer. Upon any partial transfer, the Company will
issue and deliver to such holder a new Warrant Certificate or Certificates with
respect to any portion not so transferred.
This Warrant Certificate shall be void and all rights represented
hereby shall cease on the Expiration Date.
<PAGE> 28
28
Dated:___________, 19__
PHOENIX INFORMATION SYSTEMS CORP.
By:
-------------------------------------
Name:
Title:
<PAGE> 29
29
FORM OF REVERSE OF WARRANT CERTIFICATE
EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: Phoenix Information Systems Corp.
The undersigned irrevocably exercises ____________ of the Warrants
evidenced by this Warrant Certificate for the purchase of shares of Common
Stock, par value $0.01 per share, of PHOENIX INFORMATION SYSTEMS CORP. and has
arranged to make payment of $___________ (such payment being made by bank check
or wire transfer to the account designated by Phoenix Information Systems
Corp., and constituting the Exercise Price (as defined in the Additional
Warrant Agreement) for the shares as to which the Warrants evidenced by this
Warrant Certificate are exercised) or has surrendered this Warrant Certificate
in lieu of cash payment in accordance with the terms of Section 3(c) of the
Additional Warrant Agreement, all on the terms and conditions specified in this
Warrant Certificate and the Additional Warrant Agreement herein referred to.
The undersigned hereby irrevocably surrenders this Warrant Certificate and all
right, title and interest therein to Phoenix Information Systems Corp. and
directs that
<PAGE> 30
30
the shares of Common Stock deliverable upon the exercise of said Warrants be
registered or placed in the name and at the address specified below and
delivered thereto.
Date:_________, 19__.
*/
--------------------------------------
Signature of Owner
----------------------------------------
(Street Address)
----------------------------------------
(City) (State) (Zip Code)
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
____________________
*/ The signature must correspond with the name as written upon the face of
this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
<PAGE> 31
31
FORM OF ASSIGNMENT
For VALUE RECEIVED, the undersigned registered holder of this
Warrant Certificate hereby sells, assigns and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants
constituting a part of the Warrants evidenced by this Warrant Certificate not
being assigned hereby) all of the right of the undersigned under this Warrant
Certificate, with respect to the number of Warrants set forth below:
Social Security
Names of or other Identifying Number of
Assignees Address Number of Assignee(s) Warrants
- --------- ------- --------------------- --------
and does hereby irrevocably constitute and appoint _______________ the
undersigned's attorney to make such transfer on the books of Phoenix
Information Systems Corp. maintained for the purpose, with full power of
substitution.
Dated: ___________, 19__
-----------------------------------
- -------------------------
<PAGE> 32
32
_____________
(1) The signature must correspond with the name as written upon the face of
this Warrant Certificate in every
particular, without alteration or enlargement or any change whatever.
<PAGE> 1
EXHIBIT 10.39
PHOENIX INFORMATION SYSTEMS CORP.
March 15, 1996
S-C Phoenix Partners
888 Seventh Avenue
New York, New York 10106
Tranche E Note
Gentlemen:
Reference is made to the Convertible Note Purchase Agreement
(as amended, "Agreement") dated December 9, 1994 between the undersigned
("Company") and you ("S-C Partners"), as amended by letter agreements dated
March 15, 1995, August 3, 1995 and September 15, 1995 and February 12, 1996.
Capitalized terms are used herein as defined in the Agreement. Pursuant to the
Agreement, S-C Partners has purchased, and the Company has issued, the Tranche
A Note, the Tranche B Note, the Tranche C Notes and the Tranche D Notes, which
Notes have been converted into 12,900,000 shares of Common Stock, in the
aggregate. As of the date hereof, S-C Partners is purchasing, and the Company
is issuing, the Tranche E Note in the principal amount of $2,100,000 (the
"Tranche E Note").
This will confirm our agreement respecting the issuance and
conversion of the Tranche E Note and a warrant to purchase shares of the
Company's Common Stock as follows:
1. Notwithstanding anything to the contrary contained
therein, the Tranche E Note is being purchased and converted effective
on the date hereof in accordance with its terms. The number of shares
("Conversion Shares") into which the principal amount of the Note is
being converted is 1,400,000 (subject to adjustment as provided in the
Note); provided, however, that, in consideration of S-C Partners'
conversion of the Tranche E Note, the Company agrees that the
<PAGE> 2
2
Conversion Price shall be deemed to have been, upon conversion,
reduced to an amount or amounts agreed to by the parties in good faith
based on the number of the following goals that the Company can
demonstrate have been fully and completely achieved within the time
frames specified, provided, however, that in no event shall the
Conversion Price be below $1.00:
(a) Execution of a letter of intent with a second Chinese
airline with at least three 737 class airplanes by
April 30, 1996 which shall become a binding agreement
approved by the Civil Aviation Administration in
China ("CAAC") within 60 days from the date of
execution.
(b) The System becomes Fully Operational with Hainan
Airlines by May 31, 1996
(c) Execution of a letter of intent with a second U.S.
airline by May 31, 1996 which shall become a binding
agreement within 60 days from the date of execution
and which airline shall be in operation by July 31,
1996.
(d) Execution of a letter of intent with a CAAC carrier
by May 31, 1996 which shall become a binding
agreement within 60 days from the date of execution.
(e) Completion of one or more financings aggregating $2.5
million or more by May 10, 1996, if common stock, at
a price of $2.50 or more, or, if a convertible
security, with a floor (minimum conversion price) of
not less than $1.50
Upon any deemed change in the Conversion Price, the Company shall
issue to S-C Partners certificates representing such additional number
of shares of Common Stock such that S-C Partners shall receive the
aggregate number of shares of Common Stock it would have received had
such change actually occurred on the date of conversion.
<PAGE> 3
3
2. To the extent that the conditions set forth in
Section 3.2(n) of the Agreement to the issuance of the Tranche E Note
have not been satisfied as of the date hereof, S-C Partners hereby
unconditionally waives the requirement that such conditions be met and
discharges the Company from responsibility therefor, subject to the
terms and conditions of this letter agreement.
3. In consideration of the foregoing, the Company is
issuing to S-C Partners, on the date hereof, a warrant ("Early
Purchase Warrant") to purchase 700,000 shares of its Common Stock, in
the form of Exhibit A hereto.
4. S-C Partners hereby represents and warrants as
follows:
(a) The Tranche E Note, the Conversion Shares and
the Early Purchase Warrant ("Securities") being acquired by
S-C Partners are being acquired for investment for its own
account and not with the view to, or for resale in connection
with, any distribution or public offering thereof. S-C
Partners understands that such Securities have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act") or any state securities laws by reason of
their contemplated issuance in transactions exempt from the
registration requirements of the Securities Act pursuant to
Section 4(2) thereof and applicable state securities laws, and
that the reliance of the Company and others upon these
exemptions is predicated in part upon this representation by
S-C Partners. S-C Partners further understands that such
Securities may not be transferred or resold without (i)
registration under the Securities Act and any applicable state
securities laws, or (ii) an exemption from the requirements of
the Securities Act and applicable state securities laws.
(b) S-C Partners understands that an exemption
from such registration is not presently
<PAGE> 4
4
available pursuant to Rule 144 promulgated under the
Securities Act by the Securities and Exchange Commission (the
"Commission") and that, in any event, S-C Partners may not
sell any such Securities pursuant to Rule 144 prior to the
expiration of a two-year period after it has acquired such
Securities. S-C Partners understands that any sales pursuant
to Rule 144 can be made only in full compliance with the
provisions of Rule 144.
(c) The address of S-C Partner's principal office
is set forth on its Certificate of Representations dated the
date hereof. S-C Partners qualifies as an "accredited
investor" for purposes of Regulation D promulgated under the
Securities Act for the reasons specified in such Certificate
of Representations. S-C Partners acknowledges that the
Company has made available to it at a reasonable time prior to
the execution of the Certificate of Representations the
opportunity to ask questions and receive answers concerning
the terms and conditions of the sale of securities
contemplated by the Agreement, and to obtain any additional
information (which the Company possesses or can acquire
without unreasonable effort or expense) as may be necessary to
verify the accuracy of the information furnished to it. S-C
Partners (i) is able to bear of loss of its entire investment
in the Securities being acquired by it without any material
adverse effect on its business, operations or prospects, and
(ii) has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits
and risks of the investment to be made by it pursuant to the
Agreement and pursuant hereto.
5. Except as modified hereby, the Agreement
remains in full force and effect.
6. This Agreement (a) represents the entire
agreement among the parties with respect to the subject matter hereof,
superseding all prior agreements and understandings, written or oral,
(b) may be amended
<PAGE> 5
5
only in writing, (c) may be executed in counterparts, each of which
shall be deemed an original and all of which shall constitute one
agreement, (d) shall inure to the benefit of, and be binding upon, the
parties hereto and their respective successors and assigns and (e)
shall be governed by and construed in accordance with the laws of the
State of New York applicable to contracts entered into and to be
performed wholly within such State.
If the foregoing accurately reflects our agreement, please
sign where indicated below.
Very truly yours,
AGREED:
S-C PHOENIX PARTNERS
By S-C Phoenix Holdings, L.L.C.,
its general partner
By:
------------------------------
Name:
Title:
<PAGE> 6
6
EXHIBIT A
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of March 15, 1996 (the "Agreement"), by
and between PHOENIX INFORMATION SYSTEMS CORP., a Delaware corporation (the
"Company") S-C PHOENIX PARTNERS, a New York general partnership ("S-C" and,
together with its successors and permitted assigns, the "Holder").
WHEREAS, the Company proposes to issue and deliver its warrant
certificates ("Warrant Certificates") evidencing 700,000 warrants (the
"Warrants") each to purchase one newly issued share of common stock, par value
$0.01 per share, of the Company ("Common Stock") in connection with that
certain Convertible Note Purchase Agreement, dated as of December 9, 1994, by
and between the Company and S-C (the "Note Purchase Agreement") and that
certain letter agreement, dated the date hereof, by and between the Company and
S-C.
NOW THEREFORE, in consideration of the foregoing and for the purpose
of defining the terms and provisions of the Warrants and the respective rights
and obligations thereunder of the Company and the Holder, the Company and the
Holder agree as follows:
<PAGE> 7
7
1. Certain Definitions. The following terms, as used in this
Agreement, have the following meanings:
(a) "Affiliate" means, with respect to S-C, (A)(a) any Person
controlling, controlled by or under common control with S-C and (b) if (1)
controlling S-C, such Person has a forty percent (40%) or more voting and
beneficial ownership interest in S-C, (2) controlled by S-C has a forty percent
(40%) or more voting and beneficial ownership interest in such Person and (3)
under common control with S-C, the Person(s) having such common control have
forty percent (40%) or more voting and beneficial ownership interest in S-C and
such Person, and (B) any Person for which George Soros d/b/a Soros Fund
Management or Chatterjee Fund Management Co. LP, a Delaware limited
partnership, is acting as investment manager or investment adviser, in each
case with investment discretion. For purposes of this definition, the term
"control," when used with respect to any Person, shall include the power to
exercise discretion over the investments of such Person, and the terms
"controlling" and "controlled" have corresponding meanings.
<PAGE> 8
8
(b) "Business Day" means any day other than a Saturday, Sunday
or day on which banks in New York City are closed for general business.
(c) "Common Stock" has the meaning set forth in the preamble.
(d) "Exercise Period" means the period beginning on the date
hereof and ending at 5 p.m. New York City time on the third anniversary of the
date on which the Company shall have satisfied the conditions contained in
clauses (a) and (b) of the definition of "Tranche E Target Date" set forth in
the Note Purchase Agreement.
(e) "Exercise Price" means $3.00 per share (as provided in
Section 3 and subject to adjustment as provided in Section 4).
(f) "Expiration Date" for the Warrants means the last day of
the Exercise Period.
(g) "Holder" has the meaning set forth in the pre amble.
(h) "Investor Representative" shall be S-C Phoenix Holdings,
L.L.C., a Delaware limited liability company and a general partner of S-C, or
its successor in interest, or the assigned representative of such Person (it
being agreed that
<PAGE> 9
9
at all times there shall be no more than one Investor Representative).
(i) "Person" means any individual, corporation, limited
liability company, partnership, limited liability company, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
(j) "Underlying Common Stock" means the shares of Common Stock
purchasable by the Holder upon the exercise of the Warrants.
(k) "Warrants" has the meaning set forth in the preamble.
(l) "Warrant Certificates" means the certificates evidencing
the Warrants.
2. Issue of Warrants. The Warrant Certificates shall be in
registered form only and substantially in the form attached hereto as Exhibit
A, shall be dated the date on which signed by an authorized signatory of the
Company and may have such legends and endorsements typed, stamped or printed
thereon as the Company may deem appropriate and as are not inconsistent with
the provisions of this Agreement and the Options Agreement. Warrant
Certificates evidencing
<PAGE> 10
10
700,000 Warrants may be executed by any authorized officer of the Company.
Warrant Certificates evidencing all 700,000 Warrants shall be delivered in the
name of the Holder to the Investor Representative on the date hereof.
3. Exercise Price; Exercise of Warrants.
(a) Exercise Price. Each Warrant shall entitle the
Holder, subject to the provisions of this Agreement, to purchase one share of
Common Stock at a purchase price per share equal to the Exercise Price.
(b) Exercise of Warrants Generally.
(i) Exercise During Exercise Period. The
aggregate number of Warrants that may be exercised at any time during the
Exercise Period shall be 700,000. All Warrants not exercised during the
Exercise Period shall expire at 5 p.m. New York City time on the Expiration
Date.
(ii) Liquidation Event. If the Company is
liquidated in accordance with the provisions of its Certificate of
Incorporation, then the Warrants shall be deemed to have been exercised.
(iii) Method of Exercise; Payment of Exercise
Price. In order to exercise any or all of the Warrants repre sented by a
Warrant Certificate, the Holder
<PAGE> 11
11
must surrender the Warrant Certificate to the Company for exercise, with the
reverse side of the Warrant Certificate duly executed, together with any
required payment in full of the Exercise Price for each share of Underlying
Common Stock to which the Holder is entitled, any such payment of the Exercise
Price to be made by check or wire transfer to an account designated by the
Company. If the Holder elects to exercise only a portion of the Warrants
represented by the Warrant Certificate or Certificates registered in its name,
then the remaining portion of the Warrants shall be returned to the Holder in
the form of a new Warrant Certificate. Upon surrender of a Warrant Certificate
and the payment of the Exercise Price in conformity with the foregoing
provisions, the Company shall promptly issue to the Holder share certificates
representing the Underlying Common Stock to which the Holder is entitled,
registered in the name of the Holder or the name or names of such Affiliates of
the Holder as may be directed in writing by the Holder, and shall deliver such
share certificates to the Person or Persons entitled to receive the same. The
Company shall issue such share certificates within five Business Days after the
payment of the Exercise Price of the Warrants by
<PAGE> 12
12
the Holder, but such shares shall be deemed issued and outstanding on the date
the Warrant is exercised and the Exercise Price is paid to the Company.
(c) Exercise by Surrender of Warrant; Exercise with
Shares of Common Stock. In addition to the method of exercise set forth in
Section 3(b)(3) above and in lieu of any cash payment required thereunder, the
Holder shall have the right at any time and from time to time to exercise the
Warrants in full or in part (i) by surrendering its Warrant Certificate in the
manner specified in Section 3(b)(3) in exchange for the number of shares of
Common Stock equal to the product of (x) the number of shares as to which the
Warrants are being exercised multiplied by (y) a fraction, the numerator of
which is the Market Price (as defined hereafter) of the Common Stock less the
Exercise Price and the denominator of which is such Market Price, or (ii) by
surrendering the Warrant Certificate in the manner specified in Section 3(b)(3)
above and making any required payment in whole or in part of the Exercise Price
for each share of Underlying Common Stock to which the Holder is entitled with
shares of Common Stock (valued at the Market Price). As used herein, "Market
Price" shall mean the average of the
<PAGE> 13
13
closing prices of the Common Stock sales on all domestic exchanges on which the
Common Stock may at the time be listed, or, if there shall have been no sales
on any such exchange on any day, the average of the highest bid and lowest
asked prices on all such exchanges at the end of such day, or, if on any day
the Common Stock shall not be so listed, the average of the representative bid
and asked prices quoted in the NASDAQ System as of 3:30 p.m. New York City
time, or if on any day the Common Stock shall not be quoted in the NASDAQ
System, the average of the high and low bid and asked prices on such day in the
domestic over-the-counter market as reported by the National Quotation Bureau,
Incorporation or any similar successor organization, in each such case averaged
over a period of 30 consecutive Business Days immediately prior to the date of
exercise; provided that if the Common Stock is listed on any domestic exchange
the term "Business Days" as used in this sentence shall mean business days on
which such exchange is open for trading. If at any time the Common Stock is
not listed on any domestic exchange or quoted in the NASDAQ System or the
domestic over-the-counter market, the Market Price shall be deemed to be the
fair market value thereof as
<PAGE> 14
14
of the date of exercise, determined by an independent appraiser selected by the
Company and acceptable to the Holder.
4. Adjustments. The Exercise Price shall be subject to
adjustment as follows:
(a) If, in connection with a financing or series of
financings in an aggregate amount exceeding $1 million or at any time following
any financing or series of financings by the Company in an aggregate amount
exceeding $1 million, the Company issues additional shares of Common Stock (or
other securities convertible into or exchangeable for Common Stock) for a price
lower than $3.00 per share, the Exercise Price with respect to the Warrants
shall be automatically and immediately reduced to such lower price, without any
action or request on the part of the Holder. The Company shall notify the
Holder of such reduced Exercise Price in writing prior to any such issuance or
additional shares of Common Stock (or other securities convertible into or
exchangeable for Common Stock); provided that if the Company should enter into
any agreement in connection with such issuance of additional shares of Common
Stock (or other securities convertible into or exchangeable for Common
<PAGE> 15
15
Stock), the Company shall immediately notify the Holder in writing thereof and,
upon such issuance of shares of Common Stock (or other securities convertible
into or exchangeable for Common Stock), the Exercise Price shall be
automatically reduced to such reduced Exercise Price, effective retroactively
to the effective date of such agreement, whether or not the Warrants have been
exercised during the time period between the effective date of such agreement
and the date of such issuance (and if the Warrants have been exercised during
such period, the Company shall promptly pay to the Holder the difference
between the payment made by the Holder on such exercise and the payment that
would have been required if the Warrants were exercised at such reduced
Exercise Price).
(b) In the event the Company shall issue additional
shares of Common Stock (or securities convertible into or exchangeable for
Common Stock) in a stock dividend, stock distribution or subdivision paid with
respect to Common Stock, or declare any dividend or other distribution payable
with additional shares of Common Stock (or securities convertible into or
exchangeable for Common Stock) with respect to Common Stock or effect a split
or
<PAGE> 16
16
subdivision of the outstanding shares of Common Stock, the Exercise Price
shall, concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, or the earlier declaration thereof, be
proportionately decreased, and the number of Underlying Common Stock shall be
proportionately adjusted so that, to avoid dilution of the Holder's position,
the Holder shall thereafter be entitled to receive at such adjusted price an
additional number of shares of the Company's Common Stock which such Holder
would have owned or would have been entitled to receive upon or by reason of
any of the events described above, had the Warrants been exercised immediately
prior to the happening of such event.
(c) In the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Common Stock, the Exercise Price shall, concurrently
with the effectiveness of such combination or consolidation, be proportionately
increased and the number of Underlying Common Stock shall be proportionately
adjusted so that the Holder of any Warrant exercised after such date
<PAGE> 17
17
shall be entitled to receive, upon payment of the same aggregate amount as
would have been payable before such date, the aggregate number of shares of
Common Stock which the Holder would have owned upon such exercise and been
entitled to receive, if such Warrant had been exercised immediately prior to
the happening of such combination or consolidation.
(d) In the event of any consolidation or merger of the
Company with or into another corporation or the conveyance of all or
substantially all of the assets of the Company to another corporation or
entity, the Warrants shall thereafter be exercisable for the number of shares
of capital stock or other securities or property to which a holder of the
number of shares of Common Stock deliverable upon conversion hereof would have
been entitled upon such consolidation, merger or conveyance; and, in any such
case, appropriate adjustment shall be made in the application of the provisions
herein set forth with respect to the rights and interests of the Holder
thereafter, to the end that the provisions set forth herein (including
provisions with respect to adjustments in the Exercise Price) shall thereafter
be applicable, as nearly as may be practicable,
<PAGE> 18
18
in relation to any shares of stock or other property thereafter deliverable
upon the exercise of Warrants. At the request of the Holder, the resulting or
surviving entity in any such consolidation or merger, if other than the
Company, shall acknowledge in writing the Holder's rights hereunder.
5. Loss or Mutilation. Upon receipt by the Company of
evidence satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate and of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation thereof, then, in the absence of notice to the Company that the
Warrants represented thereby have been acquired by a bona fide purchaser, the
Company shall deliver to the Holder, in exchange for or in lieu of the lost,
stolen, destroyed or mutilated Warrant Certificate, a new Warrant Certificate
of the same tenor and for a like aggregate number of Warrants. Upon the
issuance of any new Warrant Certificate under this Section 5, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and other expenses in connection
herewith. Every new Warrant Certificate
<PAGE> 19
19
executed and delivered pursuant to this Section 5 in lieu of any lost, stolen
or destroyed Warrant Certificate shall constitute a contractual obligation of
the Company, whether or not the allegedly lost, stolen or destroyed Warrant
Certificate shall be at any time enforceable by anyone, and shall be entitled
to the benefit of this Agreement equally and proportionately with any and all
other Warrant Certificates duly executed and delivered hereunder. The
provisions of this Section 5 are exclusive and shall preclude (to the extent
lawful) all other rights or remedies with respect to the replacement of
mutilated, lost, stolen, or destroyed Warrant Certificates.
6. Reservation and Authorization of Common Stock. The Company
shall, at all times until the Warrants have been exercised or have expired,
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as is sufficient for the
purpose of permitting the exercise in full of all outstanding Warrants.
7. Limitations on Transfer; Warrant Transfer Books. The
Warrants may be sold, transferred, pledged, assigned, hypothecated or otherwise
disposed of (collectively,
<PAGE> 20
20
"transferred") only to Affiliates of the Holder. The Company shall cause to be
kept at the principal executive office of the Company a register in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide the registration of Warrant Certificates and transfers or exchanges of
Warrant Certificates as herein provided.
The Holder of a Warrant Certificate, by its acceptance thereof,
covenants and agrees that the Warrants are being acquired, and the Underlying
Common Stock to be purchased upon the exercise of this Warrant will be
acquired, as an investment and not with a view to the distribution thereof and
will not be sold or transferred except in accordance with the applicable
provisions of the Securities Act of 1933, as amended (the "Act") and the rules
and regulations promulgated thereunder, and that neither this Warrant nor any
of the Underlying Common Stock may be offered or sold except (i) pursuant to an
effective registration statement under the Act, (ii) to the extent applicable,
pursuant to Rule 144 under the Act (or any similar rule under the Act relating
to the disposition of
<PAGE> 21
21
securities), or (iii) pursuant to an exemption from registration under the Act.
The Warrant Certificates and, upon exercise of the Warrants, in part
or in whole, certificates representing the Underlying Common Stock shall bear a
legend substantially similar to the following:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "Act"), and may not be offered or sold except
(i) pursuant to an effective registration statement under
the Act, (ii) to the extent applicable, pursuant to Rule
144 under the Act (or any similar rule under the Act
relating to the disposition of securities), or (iii)
pursuant to an exemption from registration under the Act."
At the option of the Holder, Warrant Certificates may be exchanged
at such office upon payment of the charges hereinafter provided. Whenever any
Warrant Certificates are so surrendered for exchange, the Company shall execute
and deliver the Warrant Certificates that the Holder is entitled to receive.
All Warrant Certificates issued upon any registration of transfer or exchange
of Warrant Certificates shall be the valid obligations of the Company,
evidencing the same obligations, and entitled to the same benefits under this
<PAGE> 22
22
Agreement, as the Warrant Certificates surrendered for such registration of
transfer or exchange.
Every Warrant Certificate surrendered for registration of transfer
or exchange shall (if so required by the Company) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company duly executed by the Holder. No service charge shall be made for any
registration of transfer or exchange of Warrant Certificates. The Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer of
Warrant Certificates.
8. No Voting or Dividend Rights. Prior to the exercise of the
Warrants, the Holder, as a Holder of Warrant Certificates, shall not be
entitled to any rights of a shareholder of the Company, including, without
limitation, the right to vote, to receive dividends or other distributions or
to exercise any preemptive right, but each Holder of Warrant Certificates shall
receive all notices sent to shareholders of the Company, including any notice
of meetings of shareholders, and shall have the right to attend or observe such
meetings.
<PAGE> 23
23
9. Notices. Any notice, demand or delivery authorized by this
Agreement shall be in writing and shall be sufficiently given or made upon
receipt thereof, if made by personal delivery or facsimile transmission (with
confirmed receipt thereof), or four Business Days after mailed, if sent by
first-class mail, postage prepaid, addressed to the Investor Representative or
the Company, as the case may be, at their respective addresses below, or such
other address as shall have been furnished in accordance with this Section 10
to the party giving or making such notice, demand or delivery:
(a) If to the Company, to it at:
Phoenix Information Systems Corp.
100 Second Avenue South, Suite 100
St. Petersburg, Florida 33701
Attention: Robert P. Gordon, Chairman
Facsimile: 813-821-7565
(b) If to the Holder, to the Investor
Representative at:
S-C Phoenix Holdings, L.L.C.
c/o The Chatterjee Group
888 Seventh Avenue, Suite 3000
New York, New York 10106
Attention: Mr. James Peet
Facsimile: 212-489-2005
With a copy to: Peter A. Hurwitz, Esq.
With an additional copy to:
<PAGE> 24
24
Soros Fund Management
888 Seventh Avenue, Suite 3300
New York, New York 10106
Attention: Sean A. Warren, Esq.
Facsimile: 212-489-2005
10. Applicable Law. This Agreement and each Warrant
Certificate issued hereunder shall be governed by, and construed in accordance
with, the internal laws of the State of New York, without regard to the
conflicts of law principles thereof. The Company and each Holder hereby submit
to the nonexclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York State court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Agreement and the transactions contemplated hereby. The Company and the
Holder irrevocably waive, to the fullest extent permitted by law, any objection
which they may now or hereafter have to the laying of the venue of any such
proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
11. Successors and Assigns. The provisions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties. The Holder may not assign any of its rights
<PAGE> 25
25
hereunder separate from a transfer of the Warrants in accordance with Section 7
hereof. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
12. Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement in any number of separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
13. Captions and Headings. The captions and headings used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
14. Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holder.
Any amendment or waiver effected in accordance with this paragraph
<PAGE> 26
26
shall be binding upon the Holder, each future holder of the Warrants and the
Company.
15. Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provisions shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
PHOENIX INFORMATION SYSTEMS CORP.
By
-------------------------------------
Name:
Title:
S-C PHOENIX PARTNERS
By S-C PHOENIX HOLDINGS, L.L.C.,
a General Partner
By
-------------------------------------
Name:
Title:
<PAGE> 27
27
EXHIBIT A
FORM OF WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE
AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE
THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT
APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE ACT.
THIS WARRANT CERTIFICATE AND THE WARRANTS
REPRESENTED HEREBY ARE TRANSFERABLE ONLY
IN ACCORDANCE WITH THE PROVISIONS SET FORTH IN
THE WARRANT AGREEMENT REFERRED TO BELOW.
WARRANTS TO PURCHASE COMMON STOCK
OF PHOENIX INFORMATION SYSTEMS CORP.
No.___ 700,000 Warrants
This certifies that _______________________ is the owner of the
number of Warrants set forth above, each of which represents the right to
purchase from PHOENIX INFORMATION SYSTEMS CORP., a Delaware corporation (the
"Company"), the number of shares of Common Stock, par value $0.01 per share, of
the Company ("Common Stock") determined in accordance with the Warrant
Agreement referred to below at the purchase price set forth in the Warrant
Agreement (the "Exercise Price"), upon surrender hereof at the office of the
Company at 100
<PAGE> 28
28
Second Avenue South, Suite 1100, St. Petersburg, Florida 33701 with the
Exercise Subscription Form on the reverse hereof duly executed and with payment
in full (by bank check or wire transfer to an account designated by the
Company) of the purchase price for the shares as to which the Warrant(s)
represented by this Warrant Certificate are exercised, or by surrender of this
Warrant Certificate in lieu of cash payment, all subject to the terms and
conditions hereof and of the Warrant Agreement referred to below. The Warrants
will expire at 5 p.m. New York City time on the Expiration Date.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement, dated as of March 15, 1996 (the "Warrant Agreement"),
between the Company and S-C Phoenix Partners, is subject to the terms and
provisions contained therein, to all of which terms and provisions the holder
of this Warrant Certificate consents by acceptance hereof. The Warrant
Agreement is hereby incorporated herein by reference and made a part hereof.
Reference is hereby made to the Warrant Agreement for a full description of the
rights, limitations of rights, obligations, duties and immunities thereunder of
the Company and the holders of the Warrants. Capitalized defined terms used
herein have the same meanings
<PAGE> 29
29
as in the Warrant Agreement. Copies of the Warrant Agreement are on file at
the office of the Company and may be obtained by writing to the Company at the
following address:
100 Second Avenue South
Suite 1100
St. Petersburg, Florida 33701
The number of shares of the Common Stock of the Company purchasable upon the
exercise of each Warrant and the price per share are set forth in the Warrant
Agreement.
All shares of Common Stock issuable by the Company upon the exercise
of Warrants and the payment of the Exercise Price therefor shall be validly
issued, fully paid and nonassessable. The Company shall not be required,
however, to pay any tax, withholding or other charge imposed in connection with
the issuance of any shares of Common Stock upon the exercise of Warrants, and,
in such case, the Company shall not be required to issue or deliver any stock
certificate until such tax, withholding or other charge has been paid or it has
been established to the Company's satisfaction that no tax, withholding or
other charge is due. This Warrant Certificate and all rights hereunder are
transferable, subject to the terms of the Warrant Agreement, by the registered
holder hereof, in whole or in part, upon surrender of this Warrant
<PAGE> 30
30
Certificate duly endorsed, or accompanied by a written instrument of transfer
in form satisfactory to the Company duly executed by the registered holder and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. Upon any partial transfer, the Company will issue and
deliver to such holder a new Warrant Certificate or Certificates with respect
to any portion not so transferred.
This Warrant Certificate shall be void and all rights represented
hereby shall cease on the Expiration Date.
<PAGE> 31
31
Dated:___________, 19__
PHOENIX INFORMATION SYSTEMS CORP.
By
-------------------------------------
Name:
Title:
<PAGE> 32
32
FORM OF REVERSE OF WARRANT CERTIFICATE
EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: Phoenix Information Systems Corp.
The undersigned irrevocably exercises ____________ of the Warrants
evidenced by this Warrant Certificate for the purchase of shares of Common
Stock, par value $0.01 per share, of PHOENIX INFORMATION SYSTEMS CORP. and has
arranged to make payment of $___________ (such payment being made by bank check
or wire transfer to the account designated by Phoenix Information Systems
Corp., and constituting the Exercise Price (as defined in the Warrant
Agreement) for the shares as to which the Warrants evidenced by this Warrant
Certificate are exercised) or has surrendered this Warrant Certificate in lieu
of cash payment in accordance with the terms of Section 3(c) of the Warrant
Agreement, all on the terms and conditions specified in this Warrant
Certificate and the Warrant Agreement herein referred to. The undersigned
hereby irrevocably surrenders this Warrant Certificate and all right, title and
interest therein to Phoenix Information Systems Corp. and directs that the
shares of Common Stock deliverable
<PAGE> 33
33
upon the exercise of said Warrants be registered or placed in the name and at
the address specified below and delivered thereto.
Date:_________, 19__.
*/
---------------------------------
Signature of Owner
---------------------------------
(Street Address)
---------------------------------
(City) (State) (Zip Code)
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
__________________
*/ The signature must correspond with the name as written upon the face of
this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
<PAGE> 34
34
FORM OF ASSIGNMENT
For VALUE RECEIVED, the undersigned registered holder of this
Warrant Certificate hereby sells, assigns and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants
constituting a part of the Warrants evidenced by this Warrant Certificate not
being assigned hereby) all of the right of the undersigned under this Warrant
Certificate, with respect to the number of Warrants set forth below:
<TABLE>
<CAPTION>
Social Security
Names of or other Identifying Number of
Assignees Address Number of Assignee(s) Warrants
- --------- ------- --------------------- ---------
<S> <C> <C> <C>
</TABLE>
and does hereby irrevocably constitute and appoint _______________ the
undersigned's attorney to make such transfer on the books of Phoenix
Information Systems Corp. maintained for the purpose, with full power of
substitution.
Dated: , 19
------------ --
----------------------------------------
- --------------------------
<PAGE> 35
35
_________________
(1) The signature must correspond with the name as written upon the face of
this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
<PAGE> 1
EXHIBIT 10.40
OFFSHORE CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
OF PHOENIX INFORMATION SYSTEMS CORP.
THIS OFFSHORE CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
(hereinafter the "Agreement") has been executed by the undersigned in
connection with the sale of certain shares of preferred stock (hereinafter the
"Preferred Shares"), convertible into shares of common stock (hereinafter the
"Common Shares") of PHOENIX INFORMATION SYSTEMS CORP., a corporation organized
under the laws of the State of Delaware (hereinafter "Seller") to INFINITY
INVESTORS, LTD., a corporation organized under the laws of Nevis, British
Virgin Islands (hereinafter "Buyer"). Seller and Buyer (hereinafter
collectively the "parties") each hereby represents, warrants and agrees as
follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(i) Buyer hereby subscribes for 1,250,000 Preferred
Shares, containing the rights, preferences and terms set forth in the
Certificate of Designation attached hereto as Exhibit A to this
Agreement (the Certificate of Designation"), which may not be amended
without the written consent of the holders of 66-2/3% or more of the
outstanding Preferred Shares.
(ii) Buyer shall pay Five Million Dollars ($5 million
U.S.) as the purchase price (the "Purchase Price") for the Preferred
Shares. The Purchase Price shall be paid by Buyer delivering same day
funds in United States dollars against counter-delivery of the
Preferred Shares by Seller, pursuant to the Instruction Letter
attached hereto as Exhibit B (the "Instruction Letter").
2. BUYER'S REPRESENTATIONS AND COVENANTS.
Buyer represents, warrants and covenants to Seller as follows:
(i) Buyer is not a "U.S. Person" as defined by Rule 902
of Regulation S ("Regulation S") promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), was not organized under
the laws of any U.S. jurisdiction and it is not acquiring the
Preferred Shares for the account or benefit of any U.S. Person.
(ii) At the time the buy order for this transaction was
originated, Buyer was outside the United States.
(iii) No offer by Buyer to purchase the Preferred Shares
was made in the United States. Buyer did not receive an offer to
purchase the Preferred Shares nor was it solicited to purchase the
Preferred Shares in the United States. This Agreement has
OFFSHORE CONVERTIBLE SECURITIES
SUBSCRIPTION AGREEMENT - PAGE 1
(PHOENIX INFORMATION SYSTEMS CORP.)
<PAGE> 2
not been executed by Buyer in the United States. Neither Buyer, nor
any affiliate nor any person acting on its behalf, has made any
"directed selling efforts" (as defined under Regulation S) in the
United States. Buyer will not be, immediately prior to the closing of
the purchase and sale hereunder, and will not become, as a result of
such purchase and sale, an affiliate of the Company.
(iv) Buyer is purchasing the Preferred Shares for its own
account for investment purposes and not with a view towards
distribution. Buyer understands and agrees that it must bear the
economic risk of its investment for an indefinite period of time.
Buyer acknowledges and agrees that neither the Preferred Shares nor
the Common Shares have been registered under the Securities Act or any
state securities or blue sky laws.
(v) All subsequent offers and sales of the Preferred
Shares or the Common Shares will be made (a) outside the United States
in compliance with Rule 903 or Rule 904 of Regulation S, (b) pursuant
to registration of the Preferred Shares or the Common Shares under the
Securities Act, or (c) pursuant to an exemption from such
registration. In any case, Buyer will not resell the Preferred Shares
or the Common Shares to U.S. Persons or within the United States
until after the end of the forty (40) day period commencing on the
date of purchase by Buyer of the Preferred Shares (the "Restricted
Period"). Certificates representing the Preferred Shares shall
contain a legend to such effect.
(vi) Buyer has no existing short position with respect to
the common stock of Seller and agrees not to enter into any short
sales or other hedging transactions with respect to the common stock
of Seller at any time after the execution of this Agreement by Buyer
and prior to the expiration of the Restricted Period. Buyer further
agrees that, at all times after the execution of this Agreement by
Buyer and prior to the expiration of the Restricted Period, it will
keep its purchase of the Preferred Shares or the Common Shares
confidential, except for quarterly or annual reports delivered by
Buyer to its equity holders in the ordinary course of Buyer's
business.
(vii) Buyer understands that the Preferred Shares are being
offered and sold to it in reliance on specific provisions of federal
and state securities laws and that Seller is relying upon the truth
and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Buyer set forth herein in order
to determine the applicability of such provisions. Buyer agrees to
notify Seller of any events which would cause the representations and
warranties of Buyer to be untrue or breached at any time after the
execution of this Agreement by Buyer and prior to the expiration of
the Restricted Period.
(viii) Any offering documents received by Buyer include
statements to the effect that neither the Preferred Shares nor the
Common Shares have been registered under the
OFFSHORE CONVERTIBLE SECURITIES
SUBSCRIPTION AGREEMENT - PAGE 2
(PHOENIX INFORMATION SYSTEMS CORP.)
<PAGE> 3
Securities Act and such securities may not be offered or sold in the
United States or to U.S. Persons during the Restricted Period.
(ix) Buyer has received and carefully reviewed copies of
the Public Documents (as defined below). Buyer understands that the
offer and sale of the Preferred Shares are being made only by means of
this Agreement. No representations or warranties have been made to
Buyer by Seller, the officers or directors of Seller, or any agent,
employee or affiliates of any of them except as set forth herein. In
deciding to subscribe for Preferred Shares, Buyer has not considered
any information other than that contained in this Agreement and the
Public Documents. In particular, Buyer understands that Seller has
not authorized the use of, and Buyer confirms that it is not relying
upon, any other information, written or oral, other than material
contained in this Agreement and the Public Documents. Buyer is aware
that the purchase of the Shares involves a high degree of risk and
that Buyer may sustain, and has the financial ability to sustain, the
loss of its entire investment. Buyer understands that Seller has
generated no significant net income to date and that no
representations have been made to it as to the viability of Seller or
its products and services. Buyer has had the opportunity to ask
questions of, and receive answers satisfactory to it from, Seller's
management regarding Seller. Buyer understands that no Federal or
state governmental authority has made any finding or determination
relating to the fairness or investment in the Preferred Shares or
Common Shares and that no Federal or state governmental authority has
recommended or endorsed, or will recommend or endorse the investment
therein. Buyer, in making the decision to purchase the Preferred
Shares subscribed for, has relied upon independent investigations made
by it and has not relied on any information or representations made by
third parties.
(x) In the event of resale of the Preferred Shares or the
Common Shares during the Restricted Period, Buyer shall provide a
written confirmation or other written notice to any distributor,
dealer, or person receiving a selling concession, fee, or other
remuneration in respect of the Preferred Shares or the Common Shares
stating that such purchaser is subject to the same restrictions on
offers and sales that apply to Buyer, and shall require that any such
purchaser shall provide written confirmation or other notice upon
resale during the Restricted Period.
(xi) Buyer's purchase of the Preferred Shares pursuant to
this Agreement is not part of a plan or a scheme by Buyer to evade the
registration provisions of the Securities Act. Buyer has the full
right, power and authority to enter into this Agreement and to carry
out and consummate the transactions contemplated herein. This
Agreement constitutes the legal, valid and binding obligation of Buyer
enforceable in accordance with its terms.
OFFSHORE CONVERTIBLE SECURITIES
SUBSCRIPTION AGREEMENT - PAGE 3
(PHOENIX INFORMATION SYSTEMS CORP.)
<PAGE> 4
(xii) Buyer has taken no action which would give rise to
any claim by any person for compensation relating to this Agreement or
the transactions contemplated hereby (other than amounts to be paid by
Seller as specified in the Instruction Letter).
(xiii) Buyer has significant assets and, upon consummation
of the purchase of the Preferred Shares, will continue to have
significant assets exclusive of the Preferred Shares. Buyer has not
been organized for the purpose of acquiring the Preferred Shares.
(xiv) Buyer is not a "distributor" as defined in Rule 902
of Regulation S.
(xv) Buyer has not entered into any agreement or
understanding with respect to the sale, transfer, pledge,
hypothecation or other disposition of the Preferred Shares or the
Common Shares, and at the time of any conversion will have no such
arrangement with any person not legally authorized or legally able to
perform its applicable obligations.
3. SELLER'S REPRESENTATIONS AND COVENANTS.
Seller represents, warrants and covenants to Buyer as follows:
(i) Seller has been duly incorporated and is validly
existing and in good standing under the laws of the State of Delaware.
Seller is a "Domestic Issuer" and a "Reporting Issuer," as such terms
are defined by Rule 902 of Regulation S. Seller's common stock trades
over the counter.
(ii) Seller has furnished Buyer with copies of Seller's
most recent Annual Report on its Form 10-K filed with the Securities
and Exchange Commission and all Forms 10-Q and 8-K filed thereafter
(the "Public Documents"). The Public Documents do not include an
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
Seller currently has 45,722,618 shares of common stock issued and
outstanding; and no shares of any series of preferred stock issued and
outstanding.
(iii) Seller has not offered the Preferred Shares to any
person in the United States, any identifiable group of U.S. citizens
abroad, or to any U.S. Person.
(iv) Seller did not deliver an offer to Buyer to purchase
Preferred Shares and did not solicit Buyer to purchase the Preferred
Shares, in the United States.
(v) Seller has not conducted any "directed selling
efforts" with respect to the Preferred Shares in the United States.
OFFSHORE CONVERTIBLE SECURITIES
SUBSCRIPTION AGREEMENT - PAGE 4
(PHOENIX INFORMATION SYSTEMS CORP.)
<PAGE> 5
(vi) The Preferred Shares, and the Common Shares when
issued and delivered upon conversion thereof, have been and will be
duly and validly authorized and issued, are fully-paid and
nonassessable and will not subject the holders thereof to personal
liability by reason of being such holders. The relative rights,
preferences, restrictions and other provisions relating to the
Preferred Shares are set forth in the Certificate of Designation.
There are no preemptive rights of any shareholder of Seller which
would prevent Seller from issuing to Buyer the Preferred Shares or the
Common Shares.
(vii) This Agreement has been duly authorized, validly
executed and delivered on behalf of Seller and is a valid and binding
agreement in accordance with its terms, subject to general principles
of equity and to bankruptcy or other laws affecting the enforcement of
creditors' rights generally.
(viii) The execution and delivery of this Agreement and the
consummation of the issuance of the Preferred Shares pursuant to the
Certificate of Designation, and the Common Shares upon conversion
thereof, and the transactions contemplated by this Agreement do not
and will not conflict with or result in a breach by Seller of any of
the terms or provisions of, or constitute a default under, the
articles of incorporation or bylaws of Seller, or any indenture,
mortgage, deed of trust or other material agreement or instrument to
which Seller is a party or by which it or any of its properties or
assets are bound, or any existing applicable decree, judgment or order
of any court, Federal or State regulatory body, administrative agency
or other governmental body having jurisdiction over Seller or any of
its properties or assets.
(ix) No authorization, approval, filing with or consent of
any governmental body is required for the issuance and sale of the
Preferred Shares, or the Common Shares upon conversion thereof, as
contemplated by this Agreement.
(x) Seller will issue one or more certificates
representing the Preferred Shares in the name of Buyer in such
denominations to be specified by Buyer prior to closing. Upon
conversion of the Preferred Shares, Seller will issue one or more
certificates representing the Common Shares in the name of Buyer
without a restrictive legend and in such denominations to be specified
by Buyer prior to conversion. Seller has authorized and reserved for
issuance upon exercise of Buyer's conversion right a sufficient number
of Common Shares. Seller further warrants that no instructions other
than these instructions, and instructions for a "stop transfer" until
the end of the Restricted Period, have been given to the transfer
agent and also warrants that the Preferred Shares and the Common
Shares shall otherwise be freely transferable by the Buyer on the
books and records of Seller subject to compliance with Federal and
State securities laws. Seller will notify the transfer agent of the
date of purchase of the Preferred Shares and of the date of expiration
of the Restricted Period. Nothing in this section shall affect in any
way Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of the Preferred Shares and Common Shares.
OFFSHORE CONVERTIBLE SECURITIES
SUBSCRIPTION AGREEMENT - PAGE 5
(PHOENIX INFORMATION SYSTEMS CORP.)
<PAGE> 6
(xi) Seller has taken and will take no action that will
affect in any way the running of the Restricted Period or the ability
of Buyer to resell the Preferred Shares or the Common Shares in
accordance with applicable securities laws and this Agreement.
(xii) Seller will comply with all applicable securities
laws and regulations with respect to the sale and issuance of the
Preferred Shares (and the Common Shares into which they are
convertible) to Buyer, including but not limited to the filing of all
reports required to be filed in connection therewith with the
Securities and Exchange Commission ("SEC") or any stock exchange or
any other regulatory authority.
(xiii) Seller has taken no action which would give rise to
any claim by any person for compensation relating to this Agreement or
the transactions contemplated hereby (other than amounts to be paid by
Seller as specified in the Escrow Agreement).
(xiv) The offer of the Preferred Shares to Buyer is not
part of any ongoing or additional offering of similar securities to
any other party.
(xv) Seller agrees that it will not issue a press release
or other communications to the public containing Buyer's name or other
identifying information without Buyer's written consent, except as
required by law.
4. REGISTRATION. If upon conversion of the Preferred Shares
effected by Buyer pursuant to the terms of this Agreement and the Certificate
of Designation following the expiration of the Restricted Period, Seller fails
to issue certificates for Common Shares issuable upon such conversion to Buyer
bearing no restrictive legend for any reason other than Seller's reasonable
good faith belief that the representations and warranties made by Buyer in this
Agreement were untrue when made or Buyer has not complied with its agreements
herein contained, then Seller shall be required, at the request of Buyer and at
Seller's expense, to effect the registration of the Common Shares issuable upon
conversion of the Preferred Shares under the Securities Act and relevant Blue
Sky laws as promptly as is practicable. Seller and Buyer shall cooperate in
good faith in connection with the furnishing of information required for such
registration and the taking of such other actions as may be legally or
commercially necessary in order to effect such registration. Seller shall file
a registration statement within 45 days of Buyer's demand therefore and shall
use its best efforts to cause such registration statement to become effective
as soon as practicable thereafter and in any event within 105 days of the date
of the initial filing thereof. Such best efforts shall include, but not be
limited to, promptly responding to all comments received from the staff of the
SEC and promptly preparing and filing amendments to such registration statement
which are responsive to the comments received from the staff of the SEC. Once
declared effective by the SEC, Seller shall cause such registration statement
to remain effective until the earlier of (i) the sale by Buyer of all Common
Shares registered or (ii) 120 days after the effective date of such
registration statement. In the event that Seller has not effected the
registration of the Common Shares issued upon the conversion of the Preferred
Shares under the Act and relevant Blue Sky Laws within 120 days after the
OFFSHORE CONVERTIBLE SECURITIES
SUBSCRIPTION AGREEMENT - PAGE 6
(PHOENIX INFORMATION SYSTEMS CORP.)
<PAGE> 7
date of Buyer's delivery to Seller of a demand to file such registration
statement, then Seller shall pay to Buyer, as liquidated damages for such
failure and not as a penalty the "Damage Amount". The Damage Amount shall mean
the difference between the amount of dividends accruing and payable on the
Preferred Shares set forth in the Certificate of Designation (6% or $.24 per
share) and the amount of dividends that would have accrued and been payable if
such rate were 10% or $.40 per share for the period commencing as of the date
Seller is required to file with the SEC a registration statement as described
herein and continuing until such registration statement becomes effective. The
Damage Amount shall be payable in cash to Buyer on the last day of each
calendar quarter. The payment of such Damage Amount shall not relieve Seller
from its obligations to cause Buyer to be issued certificates representing the
Common Shares without restrictive legend in accordance with the terms of this
Agreement. In the event the issuance of the Preferred Shares, or the Common
Shares upon conversion thereof, does not qualify under Regulation S solely as a
result of the inaccuracy of Buyer's representation and warranties with respect
to Buyer's qualification under Regulation S, then in that event Seller shall
not be responsible for the cost of registration of Buyer's Common Shares with
the SEC or any State Blue Sky agency as may be required.
5. CLOSING. The Preferred Shares shall be dated and delivered
and the Purchase Price shall be paid on April 4, 1996, or at such time to be
mutually agreed, in accordance with the Instruction Letter.
6. CONDITIONS TO CLOSING. Buyer's obligation to consummate the
transactions contemplated herein is subject to its receipt of the following at
closing:
(a) an executed Instruction Letter;
(b) certificates representing the Preferred Shares; and
(c) an opinion of Seller's counsel in the form of Exhibit
C hereto.
7. ADDITIONAL AGREEMENTS.
(i) Seller hereby grants to Buyer a right of first
refusal on all Regulation S financing offered by Seller within a
period of 180 days following the date of this Agreement. Such right
of first refusal shall authorize Buyer or any affiliate of Buyer which
is not a U. S. Person, at its option, to participate in all or a
portion of such financing. Seller shall afford Buyer at least 15 days
to exercise said option following delivery of the written terms of the
proposed financing, during which period Buyer shall be entitled to
obtain all available information from Seller with respect to the
financing and Seller's current reports as filed with the SEC.
Notwithstanding the foregoing, Buyer acknowledges that its right to
participate in such financing is subject to (i) a preexisting right of
certain investors of Seller to participate in up to 36% of such
financing and (ii) Buyer and/or its affiliates executing an Offshore
Convertible Securities Subscription
OFFSHORE CONVERTIBLE SECURITIES
SUBSCRIPTION AGREEMENT - PAGE 7
(PHOENIX INFORMATION SYSTEMS CORP.)
<PAGE> 8
Agreement applicable to such financing containing representations and
warranties substantially similar to those contained in this Agreement.
(ii) Notwithstanding Buyer's conversion rights specified
in the Certificate of Designation, Buyer hereby agrees that the
conversion right of Buyer set forth therein shall be limited, solely
to the extent required, from time to time, such that in no instance
shall the maximum number of Common Shares into which it may convert
the Preferred Shares shall not exceed, at any time, an amount equal to
the remainder of (A) 4.99% of the issued and outstanding shares of
Seller's common stock following such conversion minus (B) the number
of Common Shares then held by Buyer. Buyer should promptly advise
Seller of any sale, transfer or other disposition of the Preferred
Shares and Common Shares and, at the time of any conversion of the
Preferred Shares, the number of Common Shares then held by Buyer.
(iii) If at any time, Seller shall propose a public
offering of its securities, it may, by written notice to Buyer,
request Buyer to cease all sales of Preferred Shares and Common Shares
for a period of up to thirty (30) days, during which period Buyer
shall not sell, transfer, convey, pledge or otherwise dispose of any
such securities or enter into any agreement with respect thereto.
8. MISCELLANEOUS.
(i) This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New York. Facsimile
signatures of this Agreement shall be binding on all parties hereto.
All terms used herein that are defined in Regulation S under the
Securities Act shall have the meanings set forth therein.
(ii) This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(iii) This Agreement represents the entire agreement
between the parties superseding any prior understandings, written or
oral.
[Signature page follows]
OFFSHORE CONVERTIBLE SECURITIES
SUBSCRIPTION AGREEMENT - PAGE 8
(PHOENIX INFORMATION SYSTEMS CORP.)
<PAGE> 9
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
Official Signatory of Buyer:
INFINITY INVESTORS, LTD.
By:
-------------------------------------
Title:
----------------------------------
Executed at .
---------------------------
Address:
27 Wellington Road
Cork, Ireland
(Fax) 353 21 501 255
Attn: Mr. James G. O'Brien
Official Signatory of Seller:
PHOENIX INFORMATION SYSTEMS CORP.
By:
-------------------------------------
Title:
----------------------------------
Executed at .
---------------------------
Address:
100 Second Avenue South, Ste. 1100
St. Petersburg, Florida 33711
(Fax) 813/895-0378
Attn: Robert Gordon
OFFSHORE CONVERTIBLE SECURITIES
SUBSCRIPTION AGREEMENT - PAGE 9
(PHOENIX INFORMATION SYSTEMS CORP.)
<PAGE> 10
EXHIBIT A
CERTIFICATE OF DESIGNATION
<PAGE> 11
EXHIBIT B
INSTRUCTION LETTER
<PAGE> 12
EXHIBIT C
OPINION LETTER
<PAGE> 13
CERTIFICATE OF CORRECTION
FILED TO CORRECT CERTAIN ERROR IN THE
CERTIFICATE OF DESIGNATION
OF
PHOENIX INFORMATION SYSTEMS CORP.
FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE
ON APRIL 4, 1996
PHOENIX INFORMATION SYSTEMS CORP., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware
DOES HEREBY CERTIFY:
1. The name of the corporation is Phoenix Information Systems
Corp.
2. That a Certificate of Designation was filed with the Secretary
of State of the State of Delaware on April 4, 1996 and that
said Certificate of Designation requires correction as
permitted by Section 103 of the General Corporation Law of the
State of Delaware.
3. The inaccuracy or defect of said Certificate of Designation to
be corrected is as follows:
The number of shares of Series A Convertible Preferred Stock
stated in the first paragraph of Section 5(a)(1) of the
Certificate of Designation was incorrectly stated as 612,500.
The correct number shares of Series A Convertible Preferred
Stock in such section 5(a)(1) of the Certificate of
Designation should be corrected to state 625,000.
4. The first paragraph of Section 5(a)(1) of the Certificate of
Designation is corrected to read in its entirety as follows:
"5. Conversion Provisions. The holders of Series
A Convertible Preferred Stock shall have conversion rights as
follows ("Conversion Rights"):
(a) Right to Convert.
(1) Each share of Series A Convertible
Preferred Stock shall be convertible, at the option
of its Holder, at any time, and from time to time,
into a number of shares of Common Stock of the
Company at the conversion rate, hereafter described
then in effect in cumulative amounts of Series A
Convertible Preferred Stock increments as follows:
<PAGE> 14
<TABLE>
<CAPTION>
NUMBER OF SHARES OF SERIES A
TIME PERIOD CONVERTIBLE PREFERRED STOCK
<S> <C>
Until June 4, 1996 No shares of Series A Convertible
Preferred Stock
On June 4, 1996
to July 5, 1996 Up to 625,000 (50%) of all shares
of Series A Convertible Preferred
Stock issued on April 4, 1996
From and after July 5, 1996 All shares of Series A Convertible
Preferred Stock issued on April 4,
1996 (no restriction)"
</TABLE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Correction to be executed, as of the ____ day of April, 1996.
PHOENIX INFORMATION SYSTEMS CORP.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 15
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
PHOENIX INFORMATION SYSTEM CORP.
________________________________________
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
________________________________________
LEONARD F. OSTFELD, Vice President of PHOENIX INFORMATION SYSTEM
CORP., hereinafter called the "Corporation" or the "Company", a corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify that the following resolution was duly adopted by
the Board of Directors of the Corporation at a meeting thereof, effective April
3, 1996, and that such resolution is in full force and effect on the date of
this Certificate.
RESOLVED, that the Board of Directors hereby creates, from the
authorized but unissued shares of preferred stock of the Corporation,
$.01 par value (the "Preferred Stock"), a series of Preferred Stock to
consist of 1,250,000 shares which shall be designated Series A
Convertible Preferred Stock (the "Series A Convertible Preferred
Stock") and hereby fixes the designations, powers, preferences and
relative participating, optional or other special rights, and the
qualifications, limitations and restrictions of the shares of such
series, in addition to those set forth in the Certificate of
Incorporation, as follows:
1. Voting Provisions. Except as otherwise expressly provided or
required by law, the Series A Convertible Preferred Stock shall not entitle the
holders thereof (each a "Holder" and collectively, the "Holders") to any voting
rights, and the consent of the Holders thereof shall not be required for the
taking of any corporate action.
2. Dividend Provisions.
(a) Dividends. So long as any Series A Convertible Preferred
Stock shall be outstanding, the Holders thereof shall be entitled to receive
dividends at the annual rate of $.24 per share (or 6% per annum), payable in as
nearly as possible equal proportions in cash quarterly in arrears as of the
last day of March, June, September and December of each year,
CERTIFICATE OF DESIGNATION - PAGE 1
<PAGE> 16
the first dividend being payable on June 30, 1996 (and being prorated for the
number of days during such initial quarter that such shares are outstanding).
Each such quarterly period is hereinafter referred to as the "Dividend Period."
Dividends shall be payable to the Holders of record at the start of the date
which is ten (10) calendar days preceding the last day of each Dividend Period
(the "Dividend Date"). Dividends on the Series A Convertible Preferred Stock
shall be paid only out of those assets of the Corporation legally available
therefor and shall be paid in cash.
(b) Dividends Cumulative. Dividends upon the Series A Convertible
Preferred Stock shall be cumulative, whether or not in any Dividend Period or
Periods there shall be assets of the Corporation legally available for the
payment of such dividends. If sufficient assets of the Corporation legally
available for the payment of dividends during a Dividend Period exist, and the
Corporation fails to pay any portion of the dividend due for that Dividend
Period, the unpaid portion of such dividend to the extent of those available
assets, shall bear interest at the rate of 10% per annum until paid.
(c) Dividends Paid with Series on Parity. So long as any Series A
Convertible Preferred Stock shall be outstanding, no dividend shall be declared
or paid or set apart for payment on any other series of stock ranking on a
parity with the Series A Convertible Preferred Stock as to dividends, unless
there shall also be or have been declared and paid or set apart for payment on
the Series A Convertible Preferred Stock, like dividends for all Dividend
Periods of the Series A Convertible Preferred Stock ending on or before the
dividend payment date of such parity stock, ratably in proportion to the
respective amounts of dividends accumulated and unpaid through such Dividend
Period on the Series A Convertible Preferred Stock and accumulated and unpaid
or payable on such parity stock through the dividend payment period on such
parity stock next preceding such dividend payment date.
(d) Distributions for Other Classes. Dividends shall be payable
under the Series A Convertible Preferred Stock before any sum or sums shall be
set aside for the purchase or redemption of any class or series of stock
ranking on a parity with the Series A Convertible Preferred Stock as to
dividends or distribution or assets, and before any dividends shall be declared
or paid upon or set apart for, or any other distribution shall be ordered or
made in respect of, or any payment shall be made on account of common stock,
par value $.01 per share, of the Corporation ("Common Stock") or any class or
series of stock ranking junior to the Series A Convertible Preferred Stock as
to dividends or distribution of assets. If at any time dividends upon the
outstanding Series A Convertible Preferred Stock at the per annum rate
hereinabove specified from the date of cumulation to the end of the preceding
Dividend Period shall not have been paid or declared, whether in whole or in
part, or a sum sufficient thereof set apart for such payment, then, the amount
of the deficiency shall be fully paid but without interest, or dividends in
such amount declared and a sum sufficient for the payment thereof set apart for
such payment, before any sums shall be paid or set aside for the purchase or
redemption of any class or series of stock ranking on a parity with the Series
A Convertible Preferred Stock as to dividends or distribution of assets and
before any dividends shall be declared or paid upon or set apart for any other
distribution in respect of or any payment shall
CERTIFICATE OF DESIGNATION - PAGE 2
<PAGE> 17
be made on the account of the Common Stock or any class or series of stock
ranking junior to the Series A Convertible Preferred Stock as to dividends or
distribution of assets.
(e) Date of Cumulation. The term "date of cumulation" as used in
this resolution with reference to the Series A Convertible Preferred Stock
shall be deemed to mean (i) the most recent Dividend Date on which dividends
have been paid, or (ii) if no dividends have been paid, April 4, 1996.
3. Automatic Conversion. Each share of Series A Convertible
Preferred Stock outstanding on April 4, 1998, shall automatically be converted
into Common Stock on such date at the Conversion Price, and April 4, 1998 shall
be deemed to be Conversion Date (as hereafter defined) with respect to such
conversion without the requirement of delivery of a conversion notice described
in Section 5 below.
4. Liquidation Provisions. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the Series A Convertible Preferred Stock shall be entitled to receive an amount
equal to four dollars ($4.00) per share, plus all accrued and unpaid dividends
thereon to the date of such liquidation, dissolution or winding up of the
affairs of the Corporation, which amount shall be paid in cash. After the
full preferential liquidation amount has been paid to, or determined and set
apart for, all other series of Preferred Stock hereafter authorized and issued,
if any, the remaining assets of the Corporation available for distribution to
stockholders shall be paid to the Common Stock, which amount shall be
distributed ratably to the holders of Common Stock. In the event the assets of
the Corporation available for distribution to its stockholders are insufficient
to pay the full preferential liquidation amount per share required to be paid
on the Corporation's Series A Convertible Preferred Stock, the entire amount of
assets of the Corporation available for distribution to stockholders shall be
paid up to their respective full liquidation amounts first to the Series A
Convertible Preferred Stock, then to any other series of Preferred Stock
hereafter authorized and issued, all of which amounts shall be distributed
ratably among holders of each such series of Preferred Stock, and the Common
Stock shall receive nothing. A reorganization or any other consolidation or
merger of the Corporation with or into any other corporation, or any other sale
of all or substantially all for its assets of the Corporation, shall not be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this Section, and the Series A Convertible Preferred Stock shall
be entitled only to (i) the right provided in any agreement or plan governing
the reorganization or other consolidation, merger or sale of assets
transactions, (ii) the rights contained in the Delaware General Corporation Law
and (iii) the rights contained in other Sections hereof.
5. Conversion Provisions. The holders of Series A Convertible
Preferred Stock shall have conversion rights as follows ("Conversion Rights"):
(a) Right to Convert.
(1) Each share of Series A Convertible Preferred Stock
shall be convertible, at the option of its Holder, at any time, and
from time to time, into a number of shares
CERTIFICATE OF DESIGNATION - PAGE 3
<PAGE> 18
of Common Stock of the Company at the conversion rate, hereafter
described then in effect in cumulative amounts of Series A Convertible
Preferred Stock increments as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF SERIES A
TIME PERIOD CONVERTIBLE PREFERRED STOCK
<S> <C>
Until June 4, 1996 No shares of Series A Convertible
Preferred Stock
On June 4, 1996
to July 5, 1996 Up to 612,500 (50%) of all shares
of Series A Convertible Preferred
Stock issued on April 4, 1996
From and after July 5, 1996 All shares of Series A Convertible
Preferred Stock issued on April 4,
1996 (no restriction)
</TABLE>
For each share of Series A Convertible Preferred Stock, upon
conversion thereof the Holder shall be entitled to receive a number of
shares of Common Stock, subject to the adjustments described below,
equal to (A) four dollars ($4.00) divided by (B) the Conversion Price
(as hereafter defined). The Conversion Price shall be eighty-five
percent (85%) of the Market Price, as defined below, per share of
Common Stock; provided, however, that in no event shall the Conversion
Price be less than $2.00 or greater than $4.00 per share. "Market
Price" per share of Common Stock shall be the average closing bid
price per share of Common Stock during the ten (10) trading days
immediately preceding the Conversion Date, as defined below, as such
bid price is reported by the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), or the average closing
bid price in the over-the-counter market if other than NASDAQ, or in
the event the Common Stock is listed on a stock exchange during such
ten (10) day trading period, the last reported sales price on such
exchange during such ten (10) day trading period, as reported in the
Wall Street Journal.
Such conversion shall be effected by surrendering the
certificate or certificates representing the shares of Series A
Convertible Preferred Stock to be converted to the principal corporate
office of the Company (located at 100 Second Avenue South, Suite 1100,
St. Petersburg, Florida 33701; Telecopy: 813/895-0378, Attention:
Corporate Secretary), with the form of conversion notice attached
hereto as Exhibit A, executed by the Holder evidencing such Holder's
intention to convert those Series A Convertible Preferred Stock or a
specified portion (as above provided) thereof. The date on which a
conversion is effected (the "Conversion Date") shall be the date on
which the Corporation has received the certificate or certificates
representing the Series A Convertible Preferred Stock so to be
converted, together with conversion notice duly executed, and the
Company shall complete the issuance of the shares of Common Stock
CERTIFICATE OF DESIGNATION - PAGE 4
<PAGE> 19
as promptly as reasonably practical and in no event later than three
(3) trading days after the Conversion Date. At the option of the
Holder, the conversion notice, together with a copy of the face of the
certificate or certificates representing the Series A Convertible
Preferred Stock so to be converted, may be delivered to the Company by
telecopy or facsimile transmission, and in such event, the Conversion
Date shall be deemed to be the date of receipt by the Company of the
same by such telecopy or facsimile transmission. Any Holder electing
to deliver such notice by telecopy or facsimile shall promptly mail or
cause to be delivered to the Company the original executed notice of
conversion, together with the original certificates representing the
shares of Series A Convertible Preferred Stock to be so converted.
Each conversion notice delivered by a Holder shall be irrevocable.
The Corporation shall accept and act upon one or more
conversion notices delivered prior to July 5, 1996 in the order in
which such notices are received by the Corporation in accordance with
the foregoing notice procedures. In the event the Corporation
receives conversion notices for more than 612,500 shares of Series A
Convertible Preferred Stock on or prior to July 5, 1996, the
Corporation shall not be required to honor such notice(s). In
addition, the Corporation shall not be required to honor any
conversion notice(s) received prior to June 4, 1996.
(2) No fractional shares of Series A Convertible
Preferred Stock may be converted. No fractional shares of Common
Stock shall be issued upon conversion of the Series A Convertible
Preferred Stock. However, in lieu of the Company's permitting the
conversion for fractional shares of Common Stock, it shall pay a cash
adjustment in respect of such fractional interest in an amount equal
to such fractional interest multiplied by the Conversion Price.
(3) The Company shall pay in cash all accrued and unpaid
dividends to the Conversion Date on all shares of Series A Convertible
Preferred Stock that are to be converted, together with the cash
payment, if any, due as provided in clause (a)(2) above, which cash
payments shall be due on the date that the certificate or certificates
representing the shares of Common Stock to be issued in connection
with such conversion are due to be issued.
(4) The Company shall have no responsibility to pay any
taxes with respect to the Series A Convertible Preferred Stock or the
conversion thereof.
(b) Adjustments to the Conversion Rate.
(1) RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the
Common Stock issuable on conversion of the Series A Convertible
Preferred Stock shall be changed into the same or a different number
of shares of any other class or classes of stock, whether by capital
reorganization, reclassification, or otherwise, the holders of Series
A Convertible Preferred Stock shall, upon its conversion, be entitled
to receive, in lieu of the Common Stock which the Holders would have
become entitled to receive but for such
CERTIFICATE OF DESIGNATION - PAGE 5
<PAGE> 20
change, a number of shares of such other class or classes of stock
that would have been subject to receipt by the Holders if they had
exercised their rights of conversion of the Series A Convertible
Preferred Stock immediately before that change.
(2) REORGANIZATIONS, MERGERS, CONSOLIDATION OR SALE OF
ASSETS. If at any time there shall be a capital reorganization of the
Corporation's Common Stock or merger or consolidation of the
Corporation into another corporation, then, as a part of such
reorganization, merger or consolidation, lawful provision shall be
made so that the holders of the Series A Convertible Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series
A Convertible Preferred Stock, the number of shares of stock or other
securities or property of the Corporation, or of the successor
corporation resulting from such merger or consolidation, to which
holders of the Common Stock deliverable upon conversion of the Series
A Convertible Preferred Stock would have been entitled on such capital
reorganization, merger or consolidation if the Series A Convertible
Preferred Stock had been converted immediately before that capital
reorganization, merger or consolidation to the end that the provisions
of this paragraph (b)(2) (including adjustment of the Conversion Rate
then in effect and number of shares purchasable upon conversion of the
Series A Convertible Preferred Stock) shall be applicable after that
event as nearly equivalently as may be practicable.
(3) Any adjustment made pursuant to this paragraph (b)
shall become effective at the close of business on the day upon which
such capital reorganization, reclassification, merger or
consolidation, or other event becomes effective.
(c) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, merger, dissolution or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 5 and in
taking all such actions as may be necessary or appropriate in order to protect
the conversion rights of the Holders against impairment. The Corporation shall
not have the right to voluntarily redeem all or any portion of the Series A
Convertible Preferred Stock without the prior written consent of holders of
more than 66-2/3% of the issued and outstanding shares of Series A Convertible
Preferred Stock.
(d) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Rate for any shares of Series A
Convertible Preferred Stock pursuant to Section 5(b) above, the Corporation at
its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each Holder
effected thereby a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based.
(e) Notices of Record Date. In the event of the establishment by
the Corporation of a record of the holders of common stock for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, the Corporation shall mail to each
CERTIFICATE OF DESIGNATION - PAGE 6
<PAGE> 21
holder of Series A Convertible Preferred Stock at least twenty (20) days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purposes of such dividend or distribution and the
amount and character of such dividend or distribution.
(f) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Series A Convertible Preferred Stock such number of
its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all then outstanding shares of the Series A Convertible
Preferred Stock; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of Series A Convertible Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(g) Notices. Any notices required by the provisions of this
Section 5 to be given to the Holders of shares of Series A Convertible
Preferred Stock shall be deemed given if hand delivered, sent by recognized
overnight courier, or sent by facsimile to each Holder at such Holder's address
appearing on the books of the Corporation.
6. Required Shares. Any shares of Series A Convertible Preferred
Stock converted, purchased or otherwise acquired by the Company in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof, and, if necessary, to provide for the lawful purchase of such shares,
the capital represented by such shares shall be reduced in accordance with the
Delaware General Corporation Law. All such shares upon their cancellation
shall become authorized but unissued shares of Preferred Stock of the Company
and may be reissued as part of another series of Preferred Stock of the
Company.
7. Amendment. This Certificate of Designation may only be
amended by the Company with the prior written consent of Holders of at least
66-2/3% of the issued and outstanding shares of Series A Convertible Preferred
Stock.
8. Certain Definitions. For the purposes of the Certificate of
Designation of Series A Convertible Preferred Stock which embodies this
resolution:
"business day" means any day other than a Saturday, Sunday, or a day
on which banking institutions in the State of Florida are authorized or
obligated by law or executive order to close; and
"trading day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted
to trading on any national securities exchange any day other than a Saturday,
Sunday, or a day on which banking institutions in the States of New York or
Florida are authorized or obligated by law or executive order to close.
CERTIFICATE OF DESIGNATION - PAGE 7
<PAGE> 22
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation of Series A Convertible Preferred Stock to be duly executed by its
President and attested to by its Secretary and has caused its corporate seal to
be affixed hereto as of this __ day of April, 1996.
PHOENIX INFORMATION SYSTEMS CORP.
----------------------------------------
Leonard F. Ostfeld, Vice President
ATTEST:
- ------------------------------
Paul Henry, Secretary
CERTIFICATE OF DESIGNATION - PAGE 8
<PAGE> 23
EXHIBIT A
FORM OF CONVERSION NOTICE
[Please Type or Print]
Phoenix Information Systems Corp. Date: ______________, 199_
100 Second Avenue South, Ste. 1100
St. Petersburg, Florida 33711
Attention: Corporate Secretary
Facsimile No.: (813) 895-0378 [Note: if telecopied, deliver the
original form and Series A Convertible Preferred
Stock Certificate(s) by mail to the Company.]
Name:
-----------------------------
Address:
-----------------------------
Telephone: (___) ___-____ Telecopier: (___) ___-____
Taxpayer Identification No. (if applicable):
-----------------------------------
The undersigned holder of the following shares of Series A Convertible
Preferred Stock of Phoenix Information Systems Corp., a Delaware corporation
(the "Company"), hereby requests that such shares be converted into shares of
common stock, par value $.01 per share, of the Company, in accordance with the
terms of such Series A Convertible Preferred Stock.
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK TO BE CONVERTED
<TABLE>
<CAPTION>
Number of Shares of Series A Name and Address for Issuance
Convertible Preferred Stock of Shares of Common Stock
Certificate No. to be Converted (if different from above)
<S> <C> <C>
- --------------- ----------------------------- --------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
</TABLE>
Printed or Typed
Name of Holder: (Must be signed by
-----------------------------------
By (execute here): registered holder)
-----------------------------------
Title:
-----------------------------------
(If signature is by a spouse, administrator, guardian, attorney-in-fact,
officer of a corporation or other officer or capacity, please specify such
capacity.)
CERTIFICATE OF DESIGNATION - PAGE 9
<PAGE> 24
PHOENIX INFORMATION SYSTEMS CORP.
---------------------------
---------------------------
TELEFAX:
---------
April __, 1996
VIA FACSIMILE - 35 321 501 255
Infinity Investors, Ltd.
27 Wellington Road
Cork Ireland
Re: Escrow Agreement with respect to consummation of Offshore
Convertible Securities Subscription Agreement (the
"Agreement").
Gentlemen:
Of even date herewith, Infinity Investors, Ltd. ("Buyer") and Phoenix
Information Systems Corp. ("Seller") have entered into the Agreement providing
for the purchase by Buyer of 1,250,000 shares of convertible preferred stock
(the "Preferred Shares") of Seller. Pursuant to Section 1 of the Agreement,
Buyer and Seller have agreed to enter into this letter, establishing an escrow
arrangement to consummate the closing. ________________, ________________
(Address), ______________ (Fax Number), will act as escrow agent for this
transaction (the "Escrow Agent").
1. DELIVERY OF DOCUMENTS.
(a) Buyer shall deliver via telecopy to the Escrow Agent
a fully executed copy of the Agreement.
(b) Seller shall deliver via telecopy to the Escrow Agent
a fully executed copy of the Agreement.
(c) Seller shall deliver to the Escrow Agent the opinion
of counsel appended to the Agreement as Exhibit C.
2. DELIVERY OF FUNDS. Buyer shall wire transfer funds in the
amount of $5 million (the "Escrow Funds") to the Escrow Agent at the following
account:
<PAGE> 25
--------------------------
--------------------------
3. DELIVERY OF SHARES. Seller shall deliver to the Escrow Agent
share certificates representing the Preferred Shares in the name of Buyer.
Buyer and Seller have agreed to issue _____ share certificates, each in an
amount of ______ shares.
4. ESCROW AGENT FUNCTIONS.
(a) The Escrow Agent shall, upon receipt of all items
specified above, deliver the Preferred Shares to Buyer at its address specified
on this letter and remit to Seller the Escrow Funds, less $600,000 to be paid
by Seller to [Evan Bines] for services rendered to Seller. Such sum shall be
paid by Escrow Agent to [Mr. Bines] pursuant to separately submitted wire
transfer instructions.
(b) Buyer and Seller agree that the Escrow Agent shall
assume no responsibility to any person, other than to follow the instructions
specified herein, in accordance with the provisions hereof. It is further
agreed that:
(i) the Escrow Agent shall be protected in
relying upon the accuracy, acting in reliance upon the contents, and assuming
the genuiness, of any notice, demand, certificate, signature or other document
which is given to the Escrow Agreement without the necessity of the Escrow
Agent verifying the truth or accuracy of any such notice, demand, certificate,
signature, instrument or other document;
(ii) the Escrow shall not be bound in any way by
any other agreement or understanding between any other party, whether or not
the Escrow Agent has knowledge thereof or consents thereto, unless consent is
given in writing;
(iii) the Escrow Agent's sole duties and
responsibilities shall be to receive the documents specified herein, convey the
Preferred Shares to Buyer, and disburse the Escrow Funds to Seller and [Mr.
Bines] in accordance with the terms of this letter; and
ESCROW AGREEMENT - PAGE 2
(PHOENIX MANAGEMENT SYSTEMS CORP.)
<PAGE> 26
(iv) Seller shall indemnify the Escrow Agent
against any liabilities, damages, losses, costs or expenses incurred by, or
claims or charges made against, the Escrow Agent (including reasonable counsel
fees and court costs) by reason of the Escrow Agent's acting or failing to act
in connection with any matters contemplated by this letter or in carrying out
the terms of this letter, except as a result of Escrow Agent's gross negligence
or willful misconduct.
Sincerely,
PHOENIX INFORMATION SYSTEMS CORP.
By:
------------------------------------
Title:
---------------------------------
ACKNOWLEDGED AND AGREED:
INFINITY INVESTORS, LTD.
By:
--------------------------------
Title:
-----------------------------
By:
--------------------------------
[Escrow Agent]
ESCROW AGREEMENT - PAGE 3
(PHOENIX MANAGEMENT SYSTEMS CORP.)
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
AS OF MARCH 31, 1996
Phoenix Systems Ltd. (Bermuda)
Phoenix Systems Group, Inc. (Delaware)
American International Travel Agency Inc. (Florida)
Hainan Phoenix Information Systems, Ltd. (China)
<PAGE> 1
EXHIBIT 23
COOPERS COOPERS & LYBRAND L.L.P.
&LYBRAND a professional services firm
CONSENT OF INDEPENDENT ACCOUNTS
We consent to the incorporation by reference in the registration statement of
Phoenix Information Systems Corp. on Form S-8 related to the Consulting and
Services Compensation Agreement, as amended, of our report dated May 30, 1996,
on our audits of the consolidated financial statements of Phoenix Information
Systems Corp. and subsidiaries as of March 31, 1996 and 1995 and for the years
ended March 31, 1996, 1995 and 1994 and cumulative for the period from April 1,
1991, through March 31, 1996, which report is included in the annual report on
Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
- -----------------------------------
Tampa, Florida
June 19, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 2,078,510
<SECURITIES> 0
<RECEIVABLES> 78,622
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,358,075
<PP&E> 2,995,315
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,482,717
<CURRENT-LIABILITIES> 3,277,392
<BONDS> 0
<COMMON> 457,226
0
0
<OTHER-SE> 196,141
<TOTAL-LIABILITY-AND-EQUITY> 5,482,717
<SALES> 746,535
<TOTAL-REVENUES> 796,239
<CGS> 0
<TOTAL-COSTS> 11,404,534
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,704,318)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,704,318)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> 0
</TABLE>
