<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A No. 1
[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.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3337797
- -------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 Second Avenue South, Suite 1100
St. Petersburg, Florida 33701
- -------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,including area code: (813) 894-8021
--------------
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:
Common Stock,$.01 par value
- --------------------------------------------------------------------------------
(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 .
--- ---
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.
<PAGE> 2
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The Company has a Board of Directors (the "Board") which is comprised
of seven members. Each director holds office until the next annual meeting of
Shareholders or until a successor is elected or appointed. The members of the
Board and the executive officers of the Company and their respective age and
position are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert P. Gordon 45 Chairman of the Board, President and Chief
Executive Officer
Xenophon L. Sanders 50 Director; President of PSG and PSL
Frank A. Cappiello 70 Director
Robert J. Conrads 49 Director
Chen Feng 43 Director
Paul W. Henry 49 Director and Secretary
W. James Peet 41 Director
Leonard S. Ostfeld 53 Vice President, Chief Financial Officer
Leo O. Parisi 58 Vice President, Operations of PSG
Joseph M. Avila 54 Vice President, Sales for PSL
Vincent P. Gordon 39 President of Hainan-Phoenix
Larry E. McGee 48 Vice President, Operations for PSL
Jim Holder 57 Vice President, Finance and Administration
for PSL
Judith A. Schafers 53 Vice President, Product Marketing for PSL
</TABLE>
ROBERT P. GORDON, age 45, has been an officer and director of the
Company since March 1991. Mr. Gordon has been Chairman and Chief Executive
Officer of Harvest International of America, Inc. ("Harvest"), which has been
engaged in the development of global tourism and trade in China and the United
States since July 1989. Mr. Gordon founded Phoenix Systems Group, Inc. ("PSG")
in 1987 and serves as its Chairman. Since November 1992, Mr. Gordon has been
an executive officer, director and the beneficial owner of Visitors Services,
Inc., an operating company that is engaged in the business of providing
reservation sales and automated reservations and informational services in
support of the special needs of
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convention and visitors bureaus.
XENOPHON L. SANDERS, age 50, has been a Director of the Company since
January 1995 and has been President and Chief Operating Officer of PSG since
August 1993 and President and Chief Operating Officer of Phoenix Systems, Ltd.
("PSL") since February 1994. Prior to joining Phoenix, Mr. Sanders had been
President and owner of Xenco Incorporated, a company that was engaged in the
business of designing and developing an airline reservation system. Upon
becoming an officer of PSG, Mr. Sanders ceased the development of such
software. From 1989-1990, Mr. Sanders was a manager at Xerox Corporation where
he was responsible for the development, maintenance and support of all
applications software for the United States Marketing Group, a division of
Xerox Corporation. From 1988-1989, Mr. Sanders was Senior Vice President of
Technology for System One Corporation, a subsidiary of Texas Air Corporation,
where he managed the company's technology centers in Miami, Houston and Los
Angeles and directed the activities of over 1,900 employees. System One
Corporation is engaged in the business of supplying computer systems and
software to the travel industry. Prior to 1988, Mr. Sanders was President of
PARS Service Partnership and Staff Vice President - Applications at Trans World
Airlines ("TWA"). Pars Service Partnership was a TWA and Northwest Airlines
joint venture with over 850 employees and provided computer services for TWA,
Northwest, and travel agencies.
FRANK A. CAPPIELLO, age 70, has been a Director of the Company since
November 1993. Mr. Cappiello is President of an investment counseling firm:
McCullough, Andrews & Cappiello, Inc., providing asset management services to
funds in excess of $1 billion. He is Chairman of three No-Load Mutual Funds;
Founder and Principal of Closed-End Fund Advisors, Inc.; publisher of
Cappiello's Closed-End Fund Digest; author of several books and a regular
panelist on "Wall Street Week with Louis Rukeyser." For more than 12 years,
Mr. Cappiello was Chief Investment Officer for an insurance holding company
with overall responsibility for managing assets of $800 million. Prior to
that, he was the Research Director of a major stock brokerage firm.
ROBERT J. CONRADS, age 49, has been a Director of the Company since
March 1995 and is currently President of Conrads, Inc., an investment and
advisory services firm. Since March 1, 1996, Mr. Conrads has served on the
Board of Directors of Visitors Services Inc. Mr. Conrads also serves as
Executive Vice President, Chief Financial Officer and member of the Supervisory
Board of Indigo, N.V., and President of Indigo America, Inc., developers of the
Indigo E-Print 1000, the world's first digital offset color press.
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From 1987 to 1993, Mr. Conrads was Managing Director of The First Boston
Corporation and headed that firm's Investment Banking Technology Group based in
New York. During his career in the investment banking industry, Mr. Conrads
was involved in the execution of several strategic alliances, mergers and
acquisitions and financing transactions with technology based companies in the
U.S. and abroad. Prior to entering the investment banking industry, Mr.
Conrads was with McKinsey & Co. for twelve years where he was a Director and
headed that firm's Electronics Industry Practice. He has also conducted
research in atomic and molecular physics for the U.S. Atomic Energy Commission
and the National Science Foundation.
CHEN FENG, age 43, has been a Director of the Company since November
1993. Mr. Chen has been Chairman and President of China Hainan Airlines since
1992. From 1990 to 1992, Mr. Chen served as Deputy Director of Hainan World
Bank Loan Administration Office as well as Assistant Governor to Hainan Island.
From 1988 to 1990, Mr. Chen was Director of World Bank Rural Adjustment Loan
Administration Office. From 1986 to 1988, Mr. Chen was Chief of Planning and
Finance Division for the State Administration for Air Traffic Control, where he
was engaged in the economic and planning control for air traffic in China.
From 1975 to 1986, Mr. Chen worked for CAAC, where he advanced to Chief of
Statistics Division, Planning and Finance Department.
PAUL W. HENRY, age 49, has been Secretary and a Director of the
Company and PSG since April 1992. Since March 1, 1996, Mr. Henry has served on
the Board of Directors of Visitors Services Inc. During the past ten years,
Mr. Henry has been an independent financial consultant. From 1991 to 1992, he
was retained by Essex Investment Management Company, an institutional money
management firm. From 1988 to 1991, Mr. Henry was retained by the Caithness
Corporation, a natural resources development company. From 1988 to 1989 he was
an advisor to Veronex Resources, an international oil and gas exploration
company. From 1987 to 1989, Mr. Henry served as a consultant to Harvest.
W. JAMES PEET, age 41, has been a Director for the Company since March
1995 and has worked at The Chatterjee Group, a New York based investment group
directed by Mr. Purnendu Chatterjee, since 1991. Mr. Chatterjee, Mr. George
Soros, and affiliates of Quantum Industrial Holdings, Ltd. recently acquired a
significant equity interest in the Company. Prior to his association with The
Chatterjee Group, Mr. Peet was at McKinsey & Company where, as a core member of
the electronics and technology practices, he focused on projects involving
product and marketing strategies for
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<PAGE> 5
manufacturers of computers, semiconductors, software and other
electronic-related products. Mr. Peet has also been involved with
entrepreneurial activities in technology and real estate.
LEONARD S. OSTFELD, age 53, became Vice President and Chief Financial
Officer of the Company on November 1, 1995. From 1994 to 1995, Mr. Ostfeld was
Senior Vice President of Finance and Administration for Princeton Financial
Systems, Inc., a provider of investment software products. During 1994 and
1995, he was also an independent financial consultant. From 1985-1993, Mr.
Ostfeld was Vice President and Chief Financial Officer for AGS Computers, Inc.,
a $350 million software subsidiary of NYNEX Corporation. AGS Computers, Inc.
was engaged in the business of providing software consulting services and
products. From 1982 to 1985, Mr. Ostfeld was Vice President and Controller of
CGA Computer, Inc., a $50 million consulting services and software products
company. He began his career as a Certified Public Accountant at Coopers &
Lybrand L.L.P.
LEO O. PARISI, age 58, has served as Vice President of Operations for
PSG since November 1991. Since November 1992, Mr. Parisi has been an executive
officer and director of Visitors Services, Inc. During 1991, Mr. Parisi served
as an independent consultant to the travel industry. During 1990, Mr. Parisi
served as a Director of Operations for World ComNet where he was responsible
for network management, software and systems development, customer services and
operations. From 1988 to 1990, he was Senior Director, Application Department,
for System One Corporation, where he was responsible for all software
development, project management and support of airline reservations for 15
airlines, flight planning for 75 airlines and critical operational systems for
Continental Airlines. From 1969 to 1988, he was Vice President, Applications
Department, of Trans World Airlines/PARS Service Partnership, where he was
responsible for all software development in support of travel agency
functionality, airline reservations and critical operational systems.
JOSEPH M. AVILA, age 54, served as Vice President of Sales for PSG
from June 1992 through December 1994, and now serves in the same role for PSL.
Since November 1992, Mr. Avila has been an executive officer and director of
Visitors Services, Inc.. During 1990 to June 1, 1992, Mr. Avila was Director
of Sales for World ComNet, Inc. where he was responsible for establishing,
training and managing a national sales force of 15 regional sales managers.
From 1986 to 1990, he served as an independent consultant to the travel
industry. From 1982 to 1986, Mr. Avila was Vice President of FirstWorld Travel
Corp. where he was responsible for marketing,
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<PAGE> 6
operations, and travel industry relations of FirstWorld Travel Agencies in the
United States. From 1976 to 1982, Mr. Avila was owner of Del Mar Tours, a
wholesale/retail tour operation, specializing in ski tours for the western
United States.
VINCENT P. GORDON, age 39, became President of Hainan Phoenix
Information Systems Ltd. in January 1995 after serving as Vice President of
China Operations for PSG since November 1993. From 1978 to 1993, Mr. Gordon
worked in the information processing and telecommunications industry with the
IBM Corp. and as an independent consultant. In 1988, Mr. Gordon became the
Manager of Competitive Marketing for IBM's Mid-Atlantic Region. Since 1990,
Mr. Gordon has worked as an independent consultant and has traveled extensively
in China, Taiwan and Japan until he joined the Company in May, 1993.
LARRY E. MCGEE, age 48, has served as Vice President of Operations for
PSL since February 1995. From 1991 to 1995, he was a consultant to Worldspan
Inc. where he was responsible for designing and implementing OS/2 software for
testing network applications. From 1988 to 1991, he was a consultant to IBM
Corp. where he was responsible for designing and implementing software to
support Host-to-Host applications running in the IBM TPF operating system. The
work required interface with IBM Germany personnel, IBM USA and customer
contact in the US and Europe.
JIM HOLDER, age 57, has served as Vice President of Finance and
Administration for PSL since April 1995. From 1987 to 1994, he was Vice
President of Finance & Administration for the PARS Service Partnership, a
subsidiary of Trans World Airlines and Northwest Airlines where his
responsibilities included budgeting, corporate contracts, employee benefit
plans as well as distributed systems worldwide serving Travel Agency Accounting
requirements, major corporate customers and communications. From 1959 to 1986,
he worked for Trans World Airlines, Inc. where he was responsible for computer
applications development and implementation.
JUDITH A. SCHAFERS, age 53, has served as Vice President of Product
Marketing for PSL since April 1995. From 1986 to 1994, she was Sr. Vice
President of Customer Relations & Support Services for System One Corporation
where her responsibilities included customer services, re-engineering, the
corporate quality program, product installations, customer and internal
training, distribution services, product development and product
communications. From 1983 to 1986, she was Director of Automation Services for
Trans World Airlines, Inc. where her responsibilities included
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<PAGE> 7
development of all products and services for PARS CRS customers, developing and
implementing airline over-booking policies, aircraft capacity management,
spoilage objectives and passenger refusal rates, among others.
In 1995, the Company established a Compensation Committee comprised of
Frank Cappiello, as Chairman, Robert Conrads and W. James Peet as full members
and Robert P. Gordon as an ex officio member. The duties of the Compensation
Committee include reviewing and acting upon recommendations from Management
with respect to compensation levels of employees of the Company and to oversee
the stock option plans of the Company. During the fiscal year ended March 31,
1996, the Board of Directors continued to oversee this function in lieu of
committee meetings.
The Company has a Special Committee to administer the grant of
securities under its Consulting and Services Compensation Agreement dated
February 25, 1994. The members include Robert P. Gordon, Frank Cappiello and
Paul W. Henry.
In 1995, the Company established an Audit Committee comprised of
Robert Conrads, Chairman, Frank Cappiello and W. James Peet as members. The
Audit Committee has the power to (i) select the independent certified public
accountant, (ii) satisfy itself on behalf of the Board that the external and
internal auditing procedures assure reliable and informative accounting and
financial reporting, (iii) have meetings with management, or with the auditors,
or with both management and auditors, to review the scope of the auditor's
examination, audit reports and the Corporation's internal auditing procedures
and reviews, (iv) monitor policies established to prohibit unethical,
questionable, or illegal activities by those associated with the Corporation;
and (v) review the compensation paid to the auditors through annual audit and
non-audit fees and the effect on the independence on the auditors in relation
thereto, and it may exercise the powers and authority of the Board of Directors
to implement changes in connection with the foregoing or, at its option, may
make recommendations to the entire Board of Directors for its approval. During
fiscal 1996, the audit committee held one meeting.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
reports of ownership and
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<PAGE> 8
changes in ownership with the Securities and Exchange Commission (the
"Commission"). Officers, directors and greater than ten percent stockholders
are required by the Commission's regulations to furnish the Company with copies
of all Section 16(a) forms they file.
Robert P. Gordon failed to file Form 4's for August, September and
December 1995 and reported these transactions in May 1996 on Form 5. Robert J.
Conrads failed to file a Form 4 for August and September 1995 and February and
March 1996 and reported these transactions in May 1996 on Form 5. Xenophon L.
Sanders failed to file Form 4's for October 1995 and March 1996 and reported
these transactions in May 1996 on Form 5. Leo O. Parisi failed to file a Form
4 for October 1995 and February 1996 and reported these transactions in May
1996 on Form 5. Vincent P. Gordon failed to file a Form 4 for August 1995 and
reported these transactions in May 1996 on Form 5. Chen Feng failed to file a
Form 4 for September 1995 and reported these transactions in May 1996 on Form
5. Leonard S. Ostfeld filed a Form 3 for November 1, 1995 late in May 1996.
Joseph M. Avila failed to file Form 4's for September and October 1995 and
March 1996 and reported these transactions in May 1996 on Form 5. Larry E.
McGee failed to file Form 4's for August and September 1995 and reported these
transactions in May 1996 on Form 5.
8
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ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth all compensation, including bonuses, stock
option awards and other payments, paid or accrued by the Company during each of
the fiscal years ended March 31, 1996, 1995 and 1994, to the Company's Chief
Executive Officer and the four other most highly compensated executive officers
of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
========================================================================================================================
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
- ----------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) All
Name Year Other Restricted Other Compen-
and Ended Annual Stock Shares LTIP sation
Principal March Salary Bonus Compensation Award(s) Underlying Payouts ($)
Position 31 ($)(1) ($) ($) ($) Options ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert P. Gordon 1996 180,000 -0- -0- -0- -0- -0- -0-
Chairman of the Board 1995 336,420 -0- -0- -0- 108,000 -0- -0-
President & CEO (2) 1994 67,385 -0- -0- -0- 8,500,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------
Xenophon L. Sanders 1996 156,000 -0- -0- -0- -0- -0- -0-
Director for PISC 1995 151,385 -0- -0- -0- 208,000 -0- -0-
President-PSG/PSL (3) 1994 69,231 -0- -0- -0- 500,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------
Leo O. Parisi 1996 132,000 -0- -0- -0- -0- -0- -0-
Vice President of 1995 154,661 -0- -0- -0- -0- -0- - 0-
Operations - PSG (4) 1994 68,566 -0- -0- -0- 400,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------
Vincent P. Gordon 1996 120,000 -0- -0- -0- -0- -0- -0-
President of 1995 112,972 -0- -0- -0- 150,000 -0- -0-
Hainan-Phoenix (5) 1994 51,722 -0- -0- 124,826 150,000 -0- -0-
- ------------------------------------------------------------------------------------------------------------------------
Judith A. Schafers 1996 132,000 -0- -0- -0- -0- -0- -0-
Vice President of 1995 -0- -0- -0- -0- 216,000 -0- -0-
Product Marketing - PSL (6) 1994 -0- -0- -0- -0- -0- -0- -0-
========================================================================================================================
</TABLE>
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(1) Salary payments during the 1995 fiscal year include payments for 1994
salaries in arrears.
(2) Robert P. Gordon was granted options to purchase 8,500,000 shares of
the Company stock at an exercise price of $1.35 per share on December
22, 1993 and 108,000 shares of the Company stock at an exercise price
of $1.70 per share on February 15, 1995.
(3) Xenophon Sanders was granted options to purchase 500,000 shares of the
Company stock at an exercise price of $1.00 per share on August 16,
1993, 100,000 shares of the Company stock at an exercise price of
$1.70 per share on December 9, 1994 and an additional 108,000 shares
of the Company stock at an exercise price of $1.70 per share on
February 15, 1995.
(4) Leo Parisi was granted options to purchase 400,000 shares of the
Company stock at an exercise price of $1.00 per share on October 1,
1993.
(5) Vincent Gordon was granted options to purchase 150,000 shares of the
Company stock at an exercise price of $1.00 per share on November 1,
1993, 150,000 shares of the Company stock at an exercise price of
$1.06 per share on January 17, 1995. In addition, Mr. Gordon was
issued, in 1996, 50,000 common shares in accordance with his original
employment agreement of 1993.
(6) Judith A. Schafers was granted options to purchase 216,000 shares of
the Company stock at an exercise price of $1.70 per share (a 15%
discount to the February 15, 1995 closing price of $2.00 of the
Company's common stock) on February 15, 1995.
During the past three fiscal years, the Company has granted stock
options. However, the Company does not have a defined benefit or pension plan.
In the fiscal year ended March 31, 1996, the Company did not grant
stock options to any of the five executive officers listed in the table of the
highest paid executive officers.
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AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The information provided in the table below provides
information with respect to each exercise of stock option during fiscal 1996 by
the executive officers named in the Summary Compensation Table and the fiscal
year end value of unexercised options.
<TABLE>
<CAPTION>
=================================================================================================
(a) (b) (c) (d) (e)
Value of
Unexercised
Number of In-the-Money
Unexercised Options
Shares Value Options at FY-End (#) at FY-End($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($)(1) Unexercisable Unexercisable(1)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert P. Gordon 172,222 456,388 7,688,778/72,000 16,518,273/129,600
- -------------------------------------------------------------------------------------------------
Xenophon L. Sanders 50,000 90,000 430,448/227,552 1,050,920/448,480
- -------------------------------------------------------------------------------------------------
Leo O. Parisi -0- -0- 333,400/66,600 833,500/166,500
- -------------------------------------------------------------------------------------------------
Vincent P. Gordon -0- -0- 120,640/179,360 301,600/439,400
- -------------------------------------------------------------------------------------------------
Judith A. Schafers -0- -0- 66,000/150,000 118,800/270,000
=================================================================================================
</TABLE>
(1) The aggregate dollar values in columns (c) and (e) are calculated by
determining the difference between the fair market value of the Common
Stock underlying the options and the exercise price of the options at
exercise or fiscal year end, respectively. In calculating the dollar
value realized upon exercise, the value of any payment of the exercise
price is not included.
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EMPLOYMENT CONTRACTS
The Company has entered into employment agreements with each of its
principal officers and those of PSL and PSG. Unless otherwise noted, each of
the officers whose employment agreement is described below, has agreed not to
compete with the Company during the term of his respective employment agreement
and for a period of six months thereafter.
On November 1, 1993, Phoenix entered into an employment agreement to
retain Robert P. Gordon as Chairman and Chief Executive Officer of Phoenix.
Pursuant to a five-year employment contract, Mr. Gordon receives a salary of
$15,000 per month over the term of his contract. Mr. Gordon's compensation may
be increased by the Compensation Committee or by the other members of the Board
of Directors. Under the terms of the agreement, Mr. Gordon is also retained as
a full time employee of PSG. The Company has agreed to indemnify and hold Mr.
Gordon harmless in the event of any claims from legal actions brought against
him arising out of acts or decisions done or made in the scope of his
employment. Such indemnification is limited to the extent it is contrary to
applicable federal or state law within 30 days of his termination. In the
event that the Company terminates his employment contract without cause, Mr.
Gordon will be entitled to receive one year's salary as severance, payable in
12 monthly installments and a $5,000 relocation payment.
On August 16, 1993, Phoenix entered into an employment agreement to
retain Xenophon L. Sanders as President and Chief Operating Officer of PSG.
Pursuant to a three-year employment contract, Mr. Sanders received a salary of
$10,000 per month which increased to $13,000 per month as of August 16, 1994
for the remaining term of the agreement, subject to the Board's right to
accelerate Mr. Sanders' salary increase at any time during the first year of
his contract. Pursuant to the contract, Mr. Sanders was granted non-qualified
stock options to purchase 500,000 shares of Phoenix's Common Stock at an
exercise price of $1.00, as amended, per share over a period of up to five
years with vesting to take place in approximately 36 equal monthly
installments. The Company has agreed to indemnify and hold Mr. Sanders
harmless in the event any claims or legal actions are brought against him
arising out of acts or decisions done or made within the scope of his
employment. Such indemnification is limited to the extent it is contrary to
applicable federal or state law. In the event that the Company terminates his
employment contract without cause, Mr. Sanders will be entitled to receive six
months salary as severance and a $5,000 relocation payment.
On November 1, 1995 Phoenix entered into an employment contract to
retain Leonard S. Ostfeld as Vice President of Finance and Chief Financial
Officer for Phoenix. Mr. Ostfeld receives a
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base salary of $11,500 per month over the term of the three-year contract,
subject to periodic salary adjustments as determined by the Board of Directors.
As further compensation, Mr. Ostfeld received non-qualified options to purchase
225,000 shares of the Company's Common Stock at an exercise price of $4.00 per
share over a period up to five years (a 15% discount to the November 1, 1995
closing price of $4.71 of the Company's Common Stock) with vesting to take
place in 36 equal monthly installments beginning December 1, 1995. The Company
has agreed to indemnify and hold Mr. Ostfeld harmless in the event any claims
or legal actions are brought against him arising out of acts or decisions done
or made within the scope of his employment. Such indemnification is limited to
the extent it is contrary to applicable federal or state law. In the event
that the Company terminates his employment contract without cause, Mr. Ostfeld
will be entitled to receive the lesser of six months salary or the time
remaining on the contract as severance. Pursuant to the Employment Agreement,
any unexercised portion of the 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.
On October 1, 1993, Phoenix entered into an employment agreement to
retain Leo O. Parisi as Vice President of Operations of PSG. Pursuant to a
three-year employment contract, Mr. Parisi received a salary of $9,000 per
month which increased to $11,000 per month as of April 1, 1994 through the end
of the term of the agreement. In addition, Mr. Parisi was granted
non-qualified stock options to purchase 400,000 shares of Common Stock in
Phoenix at an exercise price of $1.00, as amended, per share over a period of
up to five years with vesting to take place in approximately 36 equal monthly
installments. Under a previous employment agreement with the Company, Mr.
Parisi received 50,000 shares of the Company's Common Stock. In the event that
the Company terminates his employment contract without cause, Mr. Parisi will
be entitled to receive six months salary as severance and a $5,000 relocation
payment.
On October 1, 1993, Phoenix entered into an employment agreement to
retain Joseph M. Avila as Vice President of Sales of PSG. As of January 1,
1995, Mr. Avila assumed the same role for PSL in place of his position with
PSG. Pursuant to a three-year employment contract, Mr. Avila received a salary
of $6,666 per month which increased to $7,500 per month beginning October 1,
1994. In August 1995, Mr. Avila received an increase to $8,417 per month
through the end of the term of the agreement. In addition, Mr. Avila was
granted non-qualified stock options to purchase 100,000 shares of Common Stock
at an exercise price of $1.00, as amended, per share over a period of up to
five years with vesting to take place in approximately 36 equal monthly
installments. Furthermore, Mr. Avila was granted non-qualified stock options
to purchase 125,000 shares of common stock at an exercise price of
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$5.00 on September 28, 1995. These shares vest in approximately 36 equal
monthly installments. In the event that the Company terminates his employment
contract without cause, Mr. Avila will be entitled to receive six months salary
as severance and a $5,000 relocation payment. Phoenix has also agreed to
indemnify and hold Mr. Avila harmless in the event any claims or legal actions
are brought against him arising out of acts or decisions done or made within
the scope of his employment. Such indemnification is limited to the extent it
is contrary to applicable federal or state law.
On November 1, 1993, Phoenix entered into an employment contract to
retain Vincent P. Gordon as Vice President of PSG. Mr. Gordon received a base
salary of $7,500 per month over the term of the original three-year contract.
Compensation may be increased by the Board of Directors or the Compensation
Committee. A plan may be instituted whereby the Executive could earn a bonus
based on performance or earnings. As further compensation, Mr. Gordon received
50,000 shares of Common Stock and five-year non-qualified options to purchase
150,000 shares of Common Stock of Phoenix at an exercise price of $1.00, as
amended, per share over a period of up to five years with vesting to take place
in approximately 36 equal monthly installments.
On January 17, 1995, Vincent P. Gordon's employment contract was
amended because Mr. Gordon moved to China as President of the Joint Venture.
Mr. Gordon presently receives a salary of $10,000 per month over the remaining
term of the original employment contract as well as a one year extension. In
the event that the Company terminates his employment contract without cause,
Mr. Gordon will be entitled to receive six months salary as severance and a
$5,000 relocation payment. Mr. Gordon was also granted 150,000 options, at an
exercise price of $1.06 per share, with an expiration date of November 1, 1998,
for achieving certain performance targets: 1) 50,000 options when and if
PHOENIX-AIR and PHOENIX-HOTEL systems commence commercial operation in China;
2) 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; 3)
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 4) 50,000
options which shall vest on the first day of each month of the one year
extension to the employment contract.
On February 15, 1995, PSL entered into an employment contract to
retain Larry E. McGee as Vice President of Operations for PSL. Mr. McGee
receives a base salary of $9,000 per month over the term of the three-year
contract. As further compensation, Mr. McGee received non-qualified options to
purchase 180,000 shares of the
14
<PAGE> 15
Company's Common Stock at an exercise price of $1.70 per share (a 15% discount
to the February 15, 1995 closing price of $2.00 of the Company's Common Stock)
with vesting to take place in 36 equal monthly installments beginning March 1,
1995. In the event that the Company terminates his employment agreement
without cause, Mr. McGee will be entitled to receive the lesser of six months
salary or the time remaining on the balance of the contract as severance.
Pursuant to the Employment Agreement, any unexercised portion of the stock
options shall be null and void upon the earlier of April 1, 1998 or the 90th
day following the termination date of his employment.
On February 15, 1995, PSL entered into an employment contract to
retain Jim Holder as Vice President of Finance and Administration for PSL. Mr.
Holder receives a base salary of $8,000 per month over the term of the
three-year contract. In the event that the Company terminates his employment
agreement without cause, Mr. Holder will be entitled to receive the lesser of
six months salary or the time remaining on the balance of the contract as
severance. As further compensation, Mr. Holder received non-qualified options
to purchase 180,000 shares of the Company's Common Stock at an exercise price
of $1.70 per share (a 15% discount to the February 15, 1995 closing price of
$2.00 of the Company's Common Stock) with vesting to take place in 36 equal
monthly installments beginning April 1, 1995. Pursuant to the Employment
Agreement, any unexercised portion of the stock options shall be null and void
upon the earlier of May 1, 1998 or the 90th day following the termination date
of his employment.
On February 15, 1995, PSL entered into an employment contract to
retain Judith A. Schafers as Vice President of Product Marketing for PSL. Ms.
Schafers receives a base salary of $11,000 per month over the term of the
three-year contract. In the event that the Company terminates her employment
agreement without cause, Judith Schafers will be entitled to receive the lesser
of six months salary or the time remaining on the balance of the contract as
severance. As further compensation, Ms. Schafers received non-qualified
options to purchase 216,000 shares of the Company's Common Stock at an exercise
price of $1.70 per share (a 15% discount to the February 15, 1995 closing price
of $2.00 of the Company's Common Stock) with vesting to take place in 36 equal
monthly installments beginning May 1, 1995. Pursuant to the Employment
Agreement, any unexercised portion of the stock options shall be null and void
upon the earlier of May 31, 1998 or the 90th day following the termination date
of her employment.
The Company has $5,000,000 in director and officer liability insurance
coverage. The Company is contemplating obtaining key man life insurance of
between $1 million and $5 million on the life of Robert P. Gordon with the
Company named as the beneficiary of such policy.
15
<PAGE> 16
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
The Board of Directors is responsible for reviewing and determining
the annual salary and other compensation of the executive officers and key
employees of the Company and for monitoring the performance of such personnel.
The goals of the Board of Directors in determining compensation levels are to
align compensation with business objectives and performance and to enable the
Company to attract, retain and reward executive officers and other key
employees who contribute to the long-term success of the Company. The Company
has provided base salaries and, in certain cases, stock options to its
executive officers and key employees which the Board considered sufficient to
provide motivation to achieve certain operating goals, although such
compensation is not tied specifically to individual performance.
The Company intends to develop a comprehensive incentive plan based
upon performance to reward its executive officers and key employees with
additional compensation. These forms of compensation may include cash bonuses,
common stock option grants, common stock award grants, and stock appreciation
rights. In addition, the Company is implementing a 401K defined contribution
plan.
On January 17, 1995, the Board granted non-qualified stock options to
purchase 150,000 shares of Phoenix's Common Stock at an exercise price of $1.06
(a 15% discount to the January 17, 1995 closing price of $1.25 of Phoenix's
Common Stock) with an expiration date of November 1, 1998 to Mr. Vincent Gordon
as follows: 50,000 when the PHOENIX-AIR and PHOENIX-HOTEL reservations system
commence commercial operation in China; 25,000 when the Company's joint venture
in China has succeeded in signing up as customers one or more airlines with a
cumulative total of 25 or more aircraft with capacity of 100 passengers or more
(or the equivalent daily passenger capacity with smaller aircraft); 25,000 when
the Joint Venture has succeeded in signing as customers Air China or one of the
CAAC regional affiliates; and 50,000 to be earned in approximately equal
installments over the twelve months of the contract extension.
The Board also approved the Company's repricing of an aggregate of
1,990,000 non-qualified options previously granted to a total of 15 employees,
officers, directors and key consultants from $1.50 to $1.00 in lieu of issuing
additional options to such personnel.
During fiscal 1996, the compensation of the Company's CEO consisted of
a monthly salary of $15,000 based upon the terms of his employment contract
that was entered into in November 1993. The compensation of the Company's
other executive officers and key
16
<PAGE> 17
employees were also based upon the terms of various employment contracts.
During fiscal 1996, no cash bonuses were paid.
The foregoing report has been approved by all members of the Board.
Robert P. Gordon
Paul W. Henry
Xenophon L. Sanders
Frank A. Cappiello
Chen Feng
Robert J. Conrads
W. James Peet
17
<PAGE> 18
COMPENSATION OF DIRECTORS
On November 1, 1993, Phoenix entered into a Consulting Agreement with
Paul W. Henry to retain Mr. Henry as a Director through March 1995. Mr.
Henry's duties include: participating in Phoenix's strategic planning and
helping formulate Phoenix's business plan; assisting in efforts to arrange
adequate financing to carry out Phoenix's business plan; rendering consulting
services to any joint venture, subsidiary or affiliated business of Phoenix;
and promoting Phoenix's relationships with its employees, customers and others
in the business and financial communities. Effective October 1, 1993, Phoenix
paid Mr. Henry a fee of $10,000 per month. At such time as Phoenix completes a
major financing, Phoenix shall pay Mr. Henry a one-time fee of $15,000 for
various services rendered in connection with Phoenix's financing efforts. The
fee was paid in April 1996. Mr. Henry also received five-year non-qualified
options to purchase 100,000 shares of Phoenix Common Stock at an exercise price
of $1.00 per share, as amended. The options expire on November 1, 1998 and
vest as follows: 25,000 shares on December 15, 1993 and 5,000 shares per month
for each of the 15 months thereafter, beginning on January 15, 1994 and
continuing through March 15, 1995. In addition, Mr. Henry received, on
January 17, 1995, non-qualified options to purchase 120,000 shares of the
Common Stock of Phoenix at an exercise price of $1.06 per share. The options
expire on November 1, 1998 and vest at the rate of 5,000 shares per month over
the first twenty-four months of the March 10, 1995 extension to Mr. Henry's
Consulting Agreement. Pursuant to the three-year extension, Mr. Henry's
monthly consulting fee was increased to $10,600 effective April 1, 1995,
$11,250 effective April 1, 1996 and will increase to $12,000 as of April 1,
1997 through the end of the term of the contract on March 31, 1998. In the
event that the Company terminates his consulting agreement without cause, Mr.
Henry will be entitled to receive six months salary as severance.
On November 11, 1993, Phoenix entered into a Consulting Agreement to
retain Mr. Frank A. Cappiello as a Director and Consultant from November 15,
1993 through December 31, 1995. As a Director, Mr. Cappiello performs such
functions as are typically carried out by a Director. He participates in
Phoenix's strategic and business planning, monitors Phoenix's progress towards
carrying out its plans and reaching its goals, renders advice relative to any
affiliated business of Phoenix, promotes Phoenix's relationships with its
employees, customers and others in the business and financial communities, and
takes steps to maximize the value of Phoenix for its shareholders. As a
Consultant, Mr. Cappiello performs the following duties: (i) interfacing with
investment groups and other members of the financial community to inform them
about Phoenix and assisting Phoenix in developing relationships with portfolio
managers; and (ii) appearing when schedules permit at Securities Analysts'
Group Meetings. In
18
<PAGE> 19
consideration of Mr. Cappiello's services as a Director through December 31,
1995, Phoenix granted him as of November 15, 1993 the right and option to
purchase 60,000 shares of Phoenix, exercisable over 5 years at an exercise
price of $1.00 per share, as amended. 12,000 of these options vested as of
November 15, 1993, and the 48,000 share balance vest at the rate of 2,000
shares per month over the 24-month period that commenced on January 1, 1994.
For Mr. Cappiello's services as a Consultant through December 31, 1995, Phoenix
granted him (a) 50,000 shares of Phoenix's Common Stock and (b) options to
purchase 150,000 shares of Phoenix's Common Stock, exercisable over 5 years at
an exercise price of $1.00 per share, as amended. The options for serving as a
Consultant vest at the rate of 6,000 shares per month over the 25-month period
that commenced on December 1, 1993.
On November 11, 1993, Phoenix entered into a Consulting Agreement to
retain Chen Feng as a Director and a Consultant from November 15, 1993 through
December 31, 1996. Mr. Chen is Chairman of Hainan Airlines. As a Director,
Mr. Chen is performing such functions as are typically carried out by a
Director, as described above for Mr. Cappiello. As a consultant initially and
later as an employee, Mr. Chen is performing the following duties: (i)
advising Phoenix how best to conduct itself in its dealings with the Chinese
airline community; (ii) assisting Phoenix in matters relating to Chinese
government authorities, at both the provincial and national levels; and (iii)
assisting Phoenix in establishing and developing its relationships with Chinese
airlines, hotels and other entities that could further Phoenix's business
interests in China. In consideration of Mr. Chen's services as a Director
through December 31, 1996, Phoenix is paying him a salary of $5,000 per month.
For his services as a Director and a consultant and later as an employee,
Phoenix granted him a total of 300,000 shares of Phoenix's Common Stock, to be
received as follows: (1) for his services as a Director, 90,000 shares, which
shall vest at the rate of 2,500 shares per month for 36 months beginning on
December 1, 1993 (through November 1, 1996); and (2) for his services as a
consultant/employee, 210,000 shares, of which 17,500 shares vested on December
1, 1993 and the balance to vest at the rate of 5,500 shares per month for the
remaining 35 months, through November 1, 1996.
On February 25, 1994, Phoenix entered into a Consulting Agreement to
retain Mr. Robert J. Conrads as a Consultant effective as of February 25, 1994,
which agreement continued through February 24, 1996. As a Consultant, Mr.
Conrads has agreed to perform the following duties: (i) assisting in
developing business relationships; (ii) providing financial advisory services;
and (iii) assisting management in developing business plans. In consideration
of Mr. Conrads' services as a Consultant, Phoenix granted him the right and
option to purchase 200,000 shares of Phoenix Common Stock, exercisable over 5
years at an exercise price
19
<PAGE> 20
of $1.00 per share, as amended. In addition, on February 15, 1995, Mr. Conrads
was granted the right to purchase 20,000 shares as Director to the Board of
Hainan Phoenix Joint Venture as compensation for services at $1.70 per share
expiring on February 14, 1997.
On December 9, 1994, the Board granted to Xenophon L. Sanders
non-qualified stock options to purchase 100,000 shares of the Company's Common
Stock at an exercise price of $1.70 per share (a 15% discount to the December
8, 1994 closing price of $2.00 of the Company's Common Stock) over a period of
up to five years with vesting to take place as follows: 50,000 shares if
Phoenix Systems Ltd. ("PSL"), a wholly-owned subsidiary of the Company, signs a
definitive joint venture agreement with India and 50,000 shares if PSL signs a
definitive joint venture agreement with Russia.
On December 9, 1994, the Board granted to Chen Feng non-qualified
stock options to purchase 100,000 shares of the Company's Common Stock at an
exercise price of $1.70 per share (a 15% discount to the December 8, 1994
closing price of $2.00 of the Company's Common Stock) over a period of up to
five years with vesting to take place as follows: 100,000 shares upon the
signing of any CAAC airline to become a customer of the Company's reservation
system in China.
On February 15, 1995, the Board of Directors approved the
establishment of a uniform compensation plan for those individuals who serve on
the Company's Board of Directors. Under this plan, the Company granted five
year non-qualified stock options to purchase shares of Common Stock at an
exercise price of $1.70 per share (which was based on a 15% discount to market
value) to each of Robert P. Gordon, Frank A. Cappiello, Paul W. Henry, Chen
Feng, Xenophon L. Sanders, W. James Peet and Robert J. Conrads. If, under
prior agreements with the Company, a Director had been granted less than 3,000
options per month for his services as a Director, then such Director shall be
granted a sufficient number of new options such that a total of 3,000 options
shall vest for each month of his service as a Director. Such new options vest
for a period of 36 months commencing April 1, 1995 and expire on February 15,
2000. Since Robert P. Gordon, Xenophon L. Sanders and Paul W. Henry had not
previously been granted options for their service as Directors, and since W.
James Peet and Robert J. Conrads became Directors on March 31, 1995, these five
Directors each were granted 108,000 options, such options to vest for a period
of 36 months, commencing April 1, 1995, and expiring on February 15, 2000.
Chen Feng was granted new options, such options to vest at the rate of 500 per
month for 21 months commencing April 1, 1995 and at the rate of 3,000 per month
on the remaining 15 months commencing January 1, 1997. Frank A. Cappiello was
granted 81,000 new options, such options to vest at the rate of 3,000 per month
for the final 27 months commencing on January 1, 1996. The options
20
<PAGE> 21
granted provide for the respective options to immediately terminate as to all
unexercised options commencing on or after April 1, 1995 in the event such
person is not a director of Phoenix at all times during the period from April
1, 1995 until March 31, 1998.
On September 28, 1995, the Board granted 2,000,000 non-qualified stock
options to Chen Feng, a director of the Company, to purchase shares of
Phoenix's Common Stock at an exercise price of $3.60 (equal to a $1.25 discount
from September 27, 1995's closing price of $4.85). These options shall vest in
their entirety in nine years and shall expire in ten years. In the event of
accelerated vesting of options, such accelerated options shall expire at the
end of the later of a) three years from the date of grant or b) one year from
the date of vesting. The conditions upon which acceleration and immediate
vesting shall occur are as follows: 500,000 options for attaining formal
approval of CAAC in regard to the implementation of the Hainan-Phoenix airline
reservation system in China and the cut-over into commercial operation of the
first airline customer in China; 100,000 options each for signing up as
customers, and cutting over into commercial operation, Air China and its five
regional affiliates (China Southern, China Eastern, China Northern, China
Southwest, and China Northwest); 25,000 options each for signing up as
customers, and cutting over into commercial operation, up to twelve other
scheduled air carriers in China; and up to 600,000 options for international
sales of up to 2,500,000 CAAC-affiliate airline seats through PSL in calendar
years 1996, 1997 and 1998, on a prorated basis.
On September 28, 1995, the Board granted 125,000 non-qualified stock
options to Joseph M. Avila to purchase shares of Phoenix's Common Stock at an
exercise price of $5.00. These options vest in approximately 36 equal monthly
installments.
On September 28, 1995, the Board granted 400,000 non-qualified stock
options to Robert J. Conrads, a director of the Company, to purchase shares of
Phoenix's Common Stock at an exercise price of $3.60 (equal to a $1.25 discount
from September 27, 1995's closing stock price of $4.85). These options shall
vest in their entirety in nine years and shall expire in ten years. In the
event of accelerated vesting of options, such accelerated options shall expire
at the end of the later of a) three years from the date of grant or b) one
year from the date of vesting. If Mr. Conrads is responsible for the Company
receiving gross proceeds of $80,000,000 in financing, these options shall
accelerate and immediately vest according to the following schedule: 280,000
options for the first $40,000,000 raised; and 120,000 options for the second
$40,000,000 raised, on a prorated basis.
21
<PAGE> 22
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER COMPENSATION
The Board of Directors is composed of Robert P. Gordon, Chairman of
the Board, President and Chief Executive Officer of the Company; Paul W. Henry,
Secretary of the Company; Xenophon L. Sanders, President of PSG and PSL; Frank
A. Cappiello, Chen Feng, Robert J. Conrads and W. James Peet. Mr. Gordon and
Mr. Sanders are full-time employees of the Company and Mr. Chen is a part-time
employee of the Company. Mr. Henry, Mr. Cappiello and Mr. Conrads have acted
as paid consultants to the Company.
The Board of Directors is responsible for reviewing and determining
the compensation paid by the Company. While the Board of Directors in
September 1995 established a compensation committee, the Board of Directors
maintained responsibility through the Company's fiscal year ended March 31,
1996. As a result, all current members of the Board of Directors participated
in deliberations relating to executive compensation for the 1996 fiscal year.
Robert J. Conrads and Paul Henry serve as directors and, Robert P.
Gordon, Leo O. Parisi and Joseph M. Avila serve as directors and as Chairman,
Vice President and Secretary, respectively, of Visitors Services Inc. (VSI).
VSI is a company offering visitor information for certain destinations in the
support of local Chambers of Commerce. VSI is beneficially owned by Robert P.
Gordon. In addition, the Company and VSI have entered into a software license
and maintenance agreement pursuant to which VSI licenses the Company's software
on a non-exclusive basis at a rate of $2,000 per month subject to the Company's
right to increase the monthly fee after a period of one year in the event the
Company is able to enter into similar licensing arrangements with
non-affiliated third parties at higher fees.
INDEMNIFICATION AND LIMITATION OF DIRECTORS' LIABILITY
The Company's Certificate of Incorporation provides that Phoenix shall
indemnify, in the manner and to the extent permitted by law, any person (or
that person's testator or intestate successor) made or threatened to be made a
party to any action or proceeding, whether domestic or foreign, civil or
criminal, judicial or administrative, or federal or state, by reason of the
fact that the person was a director or officer of Phoenix or served any other
corporation in any capacity at the request of Phoenix, in the manner and to the
extent permitted by law. Further, Phoenix has entered into employment
contracts with various officers and directors to indemnify and hold such
persons harmless, to the extent permitted by law, if at all, in the event any
claims or legal actions are brought against such person arising out of his acts
or decisions done or made in the authorized scope of such
22
<PAGE> 23
person's employment or position with Phoenix. Phoenix has obtained $5,000,000
in director and officer liability insurance.
The General Corporation Law of Delaware permits a corporation through
its Certificate of Incorporation to eliminate the personal liability of its
directors to the corporation or its stockholders for monetary damages for
breach of fiduciary duty of loyalty and care as a director, with certain
exceptions. The exceptions include a breach of the director's duty of loyalty,
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, improper declarations of dividends, and transactions
from which the directors derived an improper personal benefit. Phoenix amended
its Certificate of Incorporation to include a provision to exonerate its
directors from monetary liability to the fullest extent permitted by this
statutory provision.
Phoenix has been advised that it is the position of the Securities and
Exchange Commission that insofar as the foregoing provisions may be invoked to
disclaim liability for damages arising under the Act, that such provisions are
against public policy as expressed in the Act and are therefore unenforceable.
EMPLOYEE BENEFIT PLAN
The Company 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 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 or 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.
23
<PAGE> 24
COMPARATIVE PERFORMANCE BY THE COMPANY
The Securities and Exchange Commission requires the Company to present
a chart comparing the cumulative total shareholder return on its Common Stock
with the cumulative shareholder return of (1) a broad equity market index, and
(2) a published industry index or peer group for the past five years. Such
chart compares the performance of the Company's Common Stock with (1) the
NASDAQ Stock Market Index and (2) a group of public companies each of whom are
listed in the peer group computer programming and data processing services and
assumes an investment of $100 on June 1, 1991 in each of the Company's Common
Stock, the stock comprising the NASDAQ Stock Market index and the stocks of the
computer programming and data processing services.
24
<PAGE> 25
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
------------------------------------------------
COMPANY 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PHOENIX INFORMATION SYSTEMS 100 433.33 433.33 216.67 666.67 516.67
INDUSTRY INDEX 100 139.03 157.53 167.49 221.52 322.19
BROAD MARKET 100 110.02 123.12 142.29 150.96 203.05
</TABLE>
25
<PAGE> 26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information known to the
Company regarding the beneficial ownership of the Company's Common Stock as of
April 30, 1996 (except as indicated below) by (a) each stockholder known by the
Company to be the beneficial owner of more than five percent of the Company's
Common Stock, (b) each of the Company's directors, (c) each of the Company's
executive officers and (d) all executive officers and directors of the Company
as a group. The shareholders listed below have sole voting and investment
power except as noted. The number of shares owned beneficially by certain
persons named in the table below includes shares issuable upon the exercise of
options and warrants that were presently exercisable at April 30, 1996 or
within 60 days thereafter. In calculating the percentage of beneficial
ownership owned by any person, it is assumed that the number of shares subject
to any option beneficially owned by such person are outstanding but are not
outstanding for determining the percentage of ownership beneficially owned by
any other person.
<TABLE>
<CAPTION>
===========================================================================
Amount and Nature of Percent Owned
Name and Address of Beneficial Ownership Beneficially
Beneficial Owner (1) (2) and of Record
- ---------------------------------------------------------------------------
<S> <C> <C>
S-C Phoenix Partners (3)
c/o Chatterjee Group 25,944,999 46.3
888 7th Avenue, Ste 3300
New York, N.Y. 10106
- ---------------------------------------------------------------------------
Robert P. Gordon (4)
100 Second Avenue South 11,639,249 21.8
City Center, Suite 1100
St. Petersburg, FL 33701
- ---------------------------------------------------------------------------
Robert J. Conrads (5)
38 Meadow Wood Drive 1,409,110 3.0
Greenwich, CT 06830
- ---------------------------------------------------------------------------
Paul Henry (6)
56 Lawrence Road 475,000 1.0
Chestnut Hill, MA 02167
- ---------------------------------------------------------------------------
Xenophon Sanders (7)
100 Second Avenue South 481,112 1.0
City Center, Suite 1100
St. Petersburg, FL 33701
- ---------------------------------------------------------------------------
Leo O. Parisi (8)
100 Second Avenue South 341,700 *
City Center, Suite 1100
St. Petersburg, FL 33701
- ---------------------------------------------------------------------------
Vincent P. Gordon (9)
100 Second Avenue South 283,120 *
City Center, Suite 1100
St. Petersburg, FL 33701
- ---------------------------------------------------------------------------
Frank Cappiello (10)
10751 Falls Rd, Ste 250 278,000 *
Lutherville, MD 21093
- ---------------------------------------------------------------------------
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------
Chen Feng (11)
100 Second Avenue South 195,500 *
City Center, Suite 1100
St. Petersburg, FL 33701
- ---------------------------------------------------------------------------
W. James Peet (12)
c/o Chatterjee Group 45,000 *
888 7th Avenue, Ste 3300
New York, N.Y. 10106
- ---------------------------------------------------------------------------
Joseph Avila (13)
100 Second Avenue South 134,998 *
City Center, Suite 1100
St. Petersburg, FL 33701
- ---------------------------------------------------------------------------
Larry McGee (14)
100 Second Avenue South 55,000 *
City Center, Suite 1100
St. Petersburg, FL 33701
- ---------------------------------------------------------------------------
Leonard Ostfeld (15)
100 Second Avenue South 43,750 *
City Center, Suite 1100
St. Petersburg, FL 33701
- ---------------------------------------------------------------------------
James Holder (16)
100 Second Avenue South 75,000 *
City Center, Suite 1100
St. Petersburg, FL 33701
- ---------------------------------------------------------------------------
Judith Schafers (17)
100 Second Avenue South 84,000 *
City Center, Suite 1100
St. Petersburg, FL 33701
- ---------------------------------------------------------------------------
All officers and directors of
the Company and Phoenix as a 41,485,538 62.9
group (fifteen persons) (18)
===========================================================================
</TABLE>
- ---------------
* Represents less than one percent of the outstanding Common Stock.
(1) Unless otherwise indicated, all shares are directly owned and
investing power is held by the persons named.
(2) Based upon 45,747,618 shares issued and outstanding as of April 30,
1996.
(3) Includes warrants to purchase 10,285,000 shares of the Company's
Common Stock at exercise prices of $2.00 to $4.00 per share. It does
not include up to 700,000 shares that may be issued if certain targets
are not met in China.
(4) Includes the following shares deemed to be beneficially owned by Mr.
Gordon (a) 3,257,367 shares of the Company's Common Stock,
representing 7.1% of the issued and outstanding shares, held by
Harvest/Mr. Gordon and (b) 714,104 shares of the Company's Common
Stock, representing 1.6% of the issued and outstanding shares, held by
Visitors Services, Inc. Also includes options to purchase a balance
of 7,622,778 shares of the Company's Common Stock at an exercise price
of $1.35 per share (which does not reflect options to purchase 705,000
shares assigned to family members and non-affiliated persons) and
45,000 shares subject to options exercisable commencing on or before
June 30, 1996 at $1.70 per share.
27
<PAGE> 28
(5) Includes (a) warrants to purchase 200,000 shares of the Company's
Common Stock at an exercise price of $2.00 per share, (b) options to
purchase 200,000 shares of the Company's Common Stock at an exercise
price of $1.00 per share and (c) 59,110 shares subject to options
exercisable commencing on or before June 30, 1996 at $1.70 per share.
(6) Includes (a) options to purchase 100,000 shares at an exercise price
of $1.00 per share, (b) 75,000 shares subject to options exercisable
commencing on or before June 30, 1996 at $1.06 per share and (c)
45,000 shares subject to options exercisable commencing on or before
June 30, 1996 at $1.70 per share.
(7) Includes 416,112 shares subject to options exercisable commencing on
or before June 30, 1996 at $1.00 per share and 45,000 shares subject
to options exercisable commencing on or before June 30, 1996 at $1.70
per share.
(8) Includes 341,700 shares subject to options exercisable commencing on
or before June 30, 1996 at $1.00 per share.
(9) Includes 133,120 shares subject to options exercisable commencing on
or before June 30, 1996 at $1.00 per share.
(10) Includes 210,000 shares subject to options exercisable commencing on
or before June 30, 1996 at $1.00 per share and 18,000 shares subject
to options exercisable commencing on or before June 30, 1996 at $1.70
per share.
(11) Includes 24,000 shares issuable commencing on or before June 30, 1996
for services rendered and to be rendered and 7,500 shares subject to
options exercisable commencing on or before June 30, 1996 at $1.70 per
share.
(12) Includes 45,000 shares subject to options exercisable commencing on or
before June 30, 1996 at $1.70 per share.
(13) Includes 91,750 shares subject to options exercisable commencing on or
before June 30, 1996 at $1.00 per share and 31,248 shares subject to
options exercisable commencing on or before June 30, 1996 at $5.00 per
share.
(14) Includes 55,000 shares subject to options exercisable commencing on or
before June 30, 1996 at $1.70 per share.
(15) Includes 43,750 shares subject to options exercisable commencing on or
before June 30, 1996 at $4.00 per share.
(16) Includes 75,000 shares subject to options exercisable commencing on or
before June 30, 1996 at $1.70 per share.
(17) Includes 84,000 shares subject to options exercisable commencing on or
before June 30, 1996 at $1.70 per share.
(18) Includes (a) 24,000 shares issuable on or before June 30, 1996 for
services rendered, (b) warrants to purchase 10,485,000 shares of the
Company's Common Stock and (c) options to purchase 9,744,068 shares of
the Company's Common Stock.
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The Company does not know of any arrangement or pledge of its
securities by persons now considered in control of the Company that might
result in a change of control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In June 1993, Robert P. Gordon offered the Company the opportunity to
purchase VSI from him at a purchase price to be determined by an independent
appraisal. The Board of Directors of the Company rejected Mr. Gordon's offer
primarily due to financial constraints. Mr. Gordon abstained from voting on
this matter. The Board of Directors of the Company did, however, authorize the
Company to enter into a software license and maintenance agreement pursuant to
which VSI licenses the Company's software on a nonexclusive basis at a rate of
$2,000 per month subject to the Company's right to increase the monthly fee
after a period of one year in the event the Company is able to enter into
similar licensing arrangements with non-affiliated third parties at higher
fees.
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.
In February 1994, the Company sold privately to Robert J. Conrads, an
accredited investor who has since become a member of the Company's Board of
Directors, 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
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price of $2.00 per share from March 1, 1994 through the expiration date.
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-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.
In November 1994, the Company exchanged 200,000 shares of PSG issued
in 1989 to 17 investors for 533,333 shares of the Common Stock of the Company.
As a result, PSG is a wholly-owned subsidiary of Phoenix.
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 Holding,
Ltd., George Soros and Purnendu Chatterjee. The Agreement provided for the
sale of up to $10,000,000 of Phoenix's convertible notes ("Notes"). Reference
is made to Note 5 of the Consolidated Financial Statements in the Company's
Form 10-K for the fiscal year ended March 31, 1996 for additional details.
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 to the
Consolidated Financial Statements in the Company's Form 10-K for the fiscal
year ended March 31, 1996. Interest expense on the demand note amounted to
$12,007 in fiscal 1996.
Other Matters
In November 1994, the Board of Directors directed that an aggregate of
$30,000 in cash be collected promptly from Harvest and/or Robert P. Gordon as
their share of approximately 50% of the total costs of the legal fees and
expenses paid or to be paid by Phoenix in connection with a Securities and
Exchange Commission informal investigation. This investigation culminated on
September 30, 1994 with the issuance of a cease and desist order against
Harvest and Robert P. Gordon, to which the parties consented, without admitting
or denying liability. Robert P. Gordon and Harvest have paid the Company the
requested sum.
In January 1995, the Board discussed the granting of registration
rights to Robert P. Gordon and the entities that he controls, Harvest and VSI,
in light of the registration rights that
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were granted to S-C as part of the Convertible Note Financing of December 9,
1994. S-C was granted piggyback registration rights as well as two demand
registrations at the expense of Phoenix. The two demand registrations must be
at least 180 days apart and must each be for at least 15% of the total stock
held by S-C. With Robert P. Gordon absent from the meeting and not
participating in the discussion or the vote, the Board approved that Mr. Gordon
(including Harvest and VSI) be granted the same registration rights as the
Soros Group.
Reference is made to Note 6 of the Consolidated Financial Statements
in the Company's Form 10-K for the fiscal year ended March 31, 1996 for
additional details of related party transactions between the Company and its
affiliated parties.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHOENIX INFORMATION SYSTEMS CORP.
-----------------------------------
(Registrant)
Dated: July 24, 1996 By: /s/Leonard S.Ostfeld
--------------------------------
LEONARD S. OSTFELD
Vice President and Chief
Financial Officer
32
