SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
December 23, 1996
Phoenix Information Systems Corp.
(exact name of registrant as specified in its charter)
Delaware 0-26532 13-3337797
- --------------- ----------- -------------------
(State or other (Commission (IRS Employee
jurisdiction File No.) Identification No.)
of incorporation)
100 Second Avenue South, Suite 1100,
St. Petersburg, Florida 33701
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(Address of principal executive offices) (Zip code)
Registrant's telephone no., including area code: (813) 894-8021
TOTAL NUMBER OF PAGES: 34
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Item 2. Acquisition or Disposition of Assets
On December 23, 1996, the Registrant acquired for
$7,500,000 a 25% interest in American Aviation Limited ("American
Aviation"), through the exercise of an option. American Aviation
is a company owned by affiliates of Quantum Industrial Holdings
Ltd., George Soros and Purnendu Chatterjee. American Aviation's
primary asset is a 25% interest in China Hainan Airlines ("China
Hainan"), which it purchased for $25,000,000 in December 1995.
The acquisition of the interest in American Aviation
was financed by the sale to S-C Phoenix Partners ("S-C"), one of
the Registrant's major shareholders, of 833,333 shares of the
Registrant's Series C Convertible Preferred Stock ("Series C
Shares") for $15,000,000. S-C is an investment partnership
comprised of affiliates of Quantum Industrial Holdings Ltd.,
George Soros and Purnendu Chatterjee. W. James Peet, a director
of the Registrant, is a non-managing member of S-C Phoenix
Holdings, L.L.C. ("Holdings"), as respects its investment in the
Registrant. Holdings is a general partner of S-C.
From the date of issue until January 1, 2003, the
Series C Shares will accrue cumulative quarterly dividends of
0.0247935 additional Series C Shares for each Series C Share
outstanding and each dividend previously accrued on such Share.
The Series C Shares will also participate, on an as converted
basis, with the common stock, par value $.01 per share, of the
Registrant ("Common Stock") in dividends declared and paid on the
Common Stock.
Each Series C Share may be converted at any time at the
option of the holder into ten shares of Common Stock of the
Company and will be automatically converted on the date after
June 23, 1997, on which the market price of the Common Stock
shall be at least $3.60 per share for ten consecutive trading
days. Immediately prior to any conversion, the Series C Shares
shall receive all dividends which have accrued or would have
accrued from the date of issuance through January 1, 2003,
regardless of whether such conversion shall occur prior to such
date. The Series C Shares also have certain liquidation
preferences, the right to consent to certain transactions and the
same voting rights, on an as fully converted basis, applicable to
the Common Stock. S-C has certain demand and piggyback
registration rights with respect to the Common Stock it owns in
the Company. Such registration rights apply to Common Stock
issued upon conversion of the Series C Shares.
Item 7. Financial Statements and Exhibits
(a) and (b). It is impracticable to provide the
required financial statements and pro forma financial information
of American Aviation at this time. The Registrant shall file the
required financial statements and pro forma financial information
as soon as practicable, but not later than 75 days after the date
of this Current Report on Form 8-K.
(c) Exhibits
1. Series C Convertible Stock Purchase
Agreement, dated December 23, 1996, between
the Registrant and S-C.
2. Registration Rights Agreement, dated December
23, 1996, between the Registrant and S-C.
3. Certificate of Designation, Preferences and
Rights of Series C Convertible Preferred
Stock of the Registrant, filed with the
Secretary of State of Delaware on December
23, 1996.
<PAGE>
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)
Date: January 7, 1997 /s/ Leonard Ostfeld
---------------------------------
Leonard Ostfeld
Chief Financial Officer
EXHIBIT 1
=====================================
PHOENIX INFORMATION SYSTEMS CORP.
=====================================
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
=====================================
December 23, 1996
<PAGE>
SERIES C CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
THIS SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT, dated December 23, 1996, is by and between
PHOENIX INFORMATION SYSTEMS CORP., a Delaware corporation
(the "Company"), and S-C PHOENIX PARTNERS, a New York
general partnership ("Purchaser").
WHEREAS, the Company desires to issue and sell a
total of 833,333 of its shares of Series C Convertible
Preferred Stock, par value $0.01 per share ("Series C
Shares"), with such designations as are set forth on the
Certificate of Designation (the "Certificate of
Designation") annexed hereto as Exhibit A, which are con-
vertible into shares of its common stock, par value $0.01
per share ("Common Stock"), on the terms and conditions
provided in the Certificate of Designation;
WHEREAS, Purchaser desires and has agreed to
purchase the Series C Shares subject to the terms and
conditions set forth herein; and
WHEREAS, the parties desire to set forth their
mutual agreements with respect to the sale and purchase of
the Series C Shares.
NOW, THEREFORE, for good and valuable
consideration, the receipt and sufficiency of which is here-
by acknowledged, the parties agree as follows:
1. Sale and Purchase of the Series C Shares.
Subject to the terms and conditions hereof, the Company
hereby sells, transfers, assigns, conveys and delivers to
Purchaser, and Purchaser purchases from the Company, the
Series C Shares. Simultaneously herewith, the Company shall
deliver to Purchaser a stock certificate representing the
Series C Shares, duly executed by the Company against pay-
ment therefor in an amount equal to the $15,000,000 (or
$18.00 per share) by wire transfer of immediately available
funds to the Company's account as follows:
Account Name : Phoenix Information Systems
Corp.
Account No. : 1263680853
Bank : Barnett Bank of Pinellas
County
Address : One Progress Plaza
200 Central Avenue
St. Petersburg, FL 33701
(813) 892-1502
ABA No. : 063000047
or to such other account or accounts as the Company may
designate in writing.
2. Representations, Warranties and Covenants of
the Company. To induce Purchaser to enter into this Agree-
ment and to purchase the Series C Shares, the Company hereby
represents, warrants and covenants to Purchaser that:
2.1 Organization, Standing, etc. The Compa-
ny 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 issue the
Series C Shares and the shares of Common Stock issuable upon
conversion thereof (collectively, the "Securities") and to
otherwise perform its obligations hereunder and under the
Certificate of Designation and the Registration Rights
Agreement (the "Registration Rights Agreement") between the
Company and Purchaser being executed simultaneously herewith
in the form of Exhibit B hereto. The Company has all
requisite corporate power and authority to own, lease and
operate its business as presently conducted.
2.2 Corporate Acts and Proceedings. Each of
this Agreement and the Registration Rights Agreement has
been duly authorized by all necessary corporate action on
behalf of the Company, has been duly executed and delivered
by authorized officers of the Company, and is a valid and
binding agreement on the part of the Company that is
enforceable against the Company in accordance with its
terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, moratorium, fraudulent con-
veyance, 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. All corporate
action necessary to the authorization, creation, issuance
and delivery of the Series C Shares has been taken by the
Company and the Certificate of Designation has been filed in
the office of the Secretary of State of the State of
Delaware. The 833,333 Series C Shares, when issued and
fully paid for pursuant to this Agreement, the Share
Dividends (as defined in the Certificate of Designation) on
the Series C Shares and the Common Stock, when issued upon
conversion of the Series C Shares in accordance with the
terms thereof, will be duly and validly issued and fully
paid and nonassessable and will not subject the holders
thereof to statutory personal liability by reason of being
such holders.
2.3 Capitalization. As of December 5, 1996,
the authorized capital stock of the Company consisted of
125,000,000 shares of Common Stock, of which 48,214,739 are
issued and outstanding as of the date hereof, and 5,000,000
shares of preferred stock of which 1,250,000 shares are
designated as Series A Convertible Preferred Stock, par
value $.01 per share ("Series A Shares"), of which 818,750
which are issued and outstanding, 1,250,000 shares are
designated as Series B Convertible Preferred Stock, par
value $.01 per share ("Series B Shares"), all of which are
issued and outstanding, and 2,500,000 shares are designated
as Series C Shares, none of which are issued and
outstanding. The Common Stock, the Series A Shares, the
Series B Shares and the Series C Shares are collectively
referred to as the "Equity Securities." All outstanding
Equity Securities have been duly and validly issued and are
fully paid and nonassessable. Except as set forth on Sched-
ule 2.3, as of December 5, 1996, the Company has not issued
any options, warrants or other rights of any kind to acquire
shares of the Company's capital stock or securities convert-
ible into or exchangeable for such shares, or commit itself
to do any of the foregoing. Except as set forth on Sched-
ule 2.3, there are no contracts, commitments, agreements,
understandings, arrangements, registration rights, or
restrictions or preemptive rights to which the Company is a
party or by which it is bound relating to Equity Securities
or other securities of the Company, whether or not outstand-
ing.
2.4 Non-Contravention. Neither the execu-
tion, delivery and performance of this Agreement or the
Registration Rights Agreement nor the consummation of the
transactions contemplated herein or therein will violate or
be in conflict with any provision of the certificate of
incorporation or bylaws of the Company, or violate or be in
conflict with any material debt, note, bond, lease,
mortgage, indenture, license, obligation, contract, commit-
ment, franchise, permit, instrument or other agreement or
obligation to which the Company is a party, or violate or be
in conflict with any law, judgment, decree, order, regula-
tion or ordinance by which the Company is bound or affected.
2.5 Reports Under Securities Exchange Act of
1934. During the period that the Company has been subject
to the reporting requirements of the Securities Exchange Act
of 1934 ("1934 Act"), the Company has filed all reports re-
quired to be filed pursuant thereto (collectively,
"Reports"). As of their respective dates, all such Reports
filed by the Company (including all exhibits and schedules
thereto and documents incorporated by reference therein),
did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Purchaser shall be entitled to rely on all such Reports for
purposes of the transactions contemplated by this Agreement.
The Company covenants and agrees to continue to make all
required filings under the 1934 Act as may be necessary to
permit Purchaser to avail itself of the provisions of
Rule 144 promulgated under the Securities Act of 1933 ("1933
Act") at such time as Rule 144 shall become available to
Purchaser and to provide Purchaser with copies thereof prom-
ptly after filing. The Company has no knowledge of any
facts, particular to the Company, which are reasonably
likely to prevent or unreasonably delay the registration
under the 1933 Act of the Common Stock as contemplated by
the Registration Rights Agreement.
2.6 No Brokers or Finders. No person, firm
or corporation has or will have, as a result of any act or
omission by the Company, any right, interest or valid claim
against the Company or Purchaser for any commission, fee or
other compensation as a finder or broker, or in any similar
capacity, in connection with the transactions contemplated
by this Agreement except as set forth on Schedule 2.6. The
Company shall indemnify and hold Purchaser harmless against
any and all liability with respect to any such commission,
fee or other compensation which may be payable or which
shall be determined to be payable as a result of the actions
of the Company in connection with the transactions contem-
plated by this Agreement.
2.7 Governmental Authorization; Third Party
Consents. No approval, consent, compliance, exemption,
authorization or other action by, or notice to or filing
with, any governmental authority or any other entity, and no
lapse of a waiting period, is necessary or required in
connection with the execution, delivery or performance by
the Company, or enforcement against the Company, of this
Agreement and the Registration Rights Agreement or the
transactions contemplated hereby or thereby.
2.8 Litigation. Except as set forth in the
Reports, there are no legal actions, suits, proceedings,
claims or disputes pending, or to the knowledge of the
Company, overtly threatened, at law, in equity, in
arbitration or before any governmental authority against or
affecting the Company.
2.9 Compliance with Laws. The Company is in
compliance in all material respects with all laws,
ordinances, regulations and orders of all U.S. and foreign
governmental entities applicable to the Company, except as
disclosed in the Reports.
2.10 Intellectual Property. Except as
specifically set forth in the Reports, the Company owns or
is licensed or otherwise has the right to use all patents,
trademarks, service marks, trade names, copyrights, trade
secrets, licenses, franchises and other rights, all
products, processes and methods, computer software, computer
programs and similar intangible assets of the Company that
are material to the operation of its business as presently
conducted and as proposed to be conducted.
2.11 Taxes.
(a) Except as disclosed in the Reports, the
Company has filed all returns with respect to all
federal, state, county, local, foreign and other taxes,
whether or not measured in whole or in part by net
income (collectively, "Taxes"), required to be filed
through the date hereof in a manner consistent with
prior years. Except as disclosed in the Reports (and
any interest, additions to tax and penalties incurred
since the date of the last Report in connection with
matters disclosed therein), the Company has paid all
Taxes (including deficiencies, interest, additions to
tax and penalties with respect thereto) that are shown
as due through the date hereof, or that are claimed or
asserted by any taxing authority to be due through the
date hereof, with respect to the operations of the
Company in each case except for those Taxes that are
being contested in good faith by appropriate
proceedings and with respect to which adequate reserves
have been set aside. Except as disclosed in the
Reports (and any interest, additions to tax and
penalties incurred since the date of the Reports in
connection with matters disclosed therein), with
respect to any period for which Tax returns have not
yet been filed, or for which Taxes are not yet due or
owing, the Company has no liability for Taxes in each
case other than Taxes incurred in the ordinary course
of business or for which accruals are reflected in the
financial statements contained in the Reports.
(b) Except as disclosed in the Reports, no
audit or other proceedings by any court, taxing
authority, or similar entity is pending or, to the
knowledge of the Company, overtly threatened with
respect to any Taxes due from or with respect to the
operations of the Company or any Tax return filed by or
with respect to the operations of the Company. No
assessment of Taxes is proposed against the Company or
its assets.
2.12 Financial Condition. The Company has
furnished Purchaser with true and complete copies of its
latest Reports. The Company's financial statements con-
tained in the Reports fairly present the financial position
of the Company as of the dates thereof, and the results of
operations and cash flows of the Company for the periods set
forth therein, all in conformity with generally accepted ac-
counting principles consistently applied during the periods
involved, subject, with respect to quarterly periods, to
year-end adjustments.
2.13 Disclosure. This Agreement does not
contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make any
statement contained herein or therein, in the light of the
circumstances under which it was made, not misleading.
There is no fact known to the Company that has not been
disclosed to Purchaser orally or in writing or in the Re-
ports that materially adversely affects or, insofar as the
Company can reasonably foresee, will materially adversely
affect the Company or the ability of the Company to perform
its obligations under this Agreement or the Registration
Rights Agreement or to consummate the transactions
contemplated hereby or thereby; provided, however, that any
disclosure made herein with respect to any particular
representation or warranty shall be deemed a disclosure for
all purposes hereof.
2.14 Material Adverse Change. Since the date
of the last Report there has not been any material adverse
change nor, to the knowledge of the Company, is any such
change overtly threatened, in the assets, business,
operations or financial condition of the Company.
3. Representations of Purchaser. Purchaser
represents, warrants and covenants to the Company that:
3.1 Organization, etc. Purchaser is a
general partnership duly organized and validly existing
under the laws of the State of New York and has the requi-
site power and authority and has been duly authorized to
perform its obligations hereunder and under the Registration
Rights Agreement.
3.2 Investment Intent. (a) The Securities
being acquired by it are being 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. Purchaser understands that such Securities have
not been registered under the 1933 Act or any state
securities laws by reason of their contemplated issuance in
transactions exempt from the registration requirements of
the 1933 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 Purchaser. Purchaser further
understands that such Securities may not be transferred or
resold without (i) registration under the 1933 Act and any
applicable state securities laws, or (ii) an exemption from
the requirements of the 1933 Act and applicable state
securities laws.
(b) Purchaser understands that an exemption
from such registration is not presently available pursuant
to Rule 144 promulgated under the 1933 Act by the Securities
and Exchange Commission and that in any event Purchaser may
not sell any such Securities pursuant to Rule 144 prior to
the expiration of the period required under Rule 144 after
it has acquired such Securities. Purchaser understands that
any sales pursuant to Rule 144 can be made only in full
compliance with the provisions of Rule 144.
3.3 Location of Principal Office; Qualifica-
tions as an Accredited Investor. The address of Purchaser's
principal office is set forth in Section 7.1 hereof.
Purchaser qualifies as an "accredited investor" for purposes
of Regulation D promulgated under the 1933 Act. Purchaser
acknowledges that the Company has made available to it the
opportunity to ask questions and receive answers concerning
the terms and conditions of the sale of securities
contemplated by this 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.
Purchaser (a) is able to bear the risk 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 (b) has such knowledge and experience in
financial and business matters that it is capable of evalu-
ating the merits and risks of the investment to be made by
it pursuant to this Agreement.
3.4 Acts and Proceedings. This Agreement
has been duly authorized by all necessary action on the part
of Purchaser. This Agreement, with respect to Purchaser,
has been duly executed and delivered. This Agreement is a
valid and binding agreement of Purchaser, enforceable
against it in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, fraudulent conveyance, reorganiza-
tion 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.
3.5 No Brokers or Finders. No person, firm
or corporation has or will have, as a result of any act or
omission by Purchaser, any right, interest or valid claim
against the Company for any commission, fee or other compen-
sation as a finder or broker, or in any similar capacity, in
connection with the transactions contemplated by this Agree-
ment, except as set forth on Schedule 2.6. Purchaser shall
indemnify and hold the Company harmless against any and all
liability with respect to any such commission, fee or other
compensation which may be payable or which shall be
determined to be payable as a result of the actions of
Purchaser in connection with the transactions contemplated
by this Agreement.
4. Additional Agreements and Covenants.
4.1 Financial Statements. The Company shall
provide to Purchaser unaudited monthly and quarterly
financial statements, within 30 days after the last day of
each calendar month and within 45 days after the last day of
each fiscal quarter, respectively. In addition, the Company
shall provide to Purchaser audited annual financial
statements within 90 days after the end of each fiscal year.
The Company shall provide to Purchaser such additional
information regarding its business and financial condition
as Purchaser shall reasonably request.
4.2 Press Releases. The Company and
Purchaser shall consult with each other with respect to any
press release or public announcement pertaining to this
Agreement or the Registration Rights Agreement, and shall
not issue such press release or make any such public
announcement prior to such consultation, except that (a) the
Company may issue any such release or make any such public
announcement as it shall determine, in its sole discretion,
may be required by applicable law after consultation with
Purchaser to the extent references to Purchaser shall be
required to be disclosed and (b) Purchaser and its
affiliates may make disclosure on any reports Purchaser or
its affiliates shall furnish to their investors.
4.3 Confidentiality. Purchaser shall keep
confidential any and all confidential information regarding
the Company, including its business, financial condition,
operations, assets, employees and properties, except as may
be required by law.
4.4 Further Assurances. The Company, on the
one hand, and Purchaser, on the other hand, agree from time
to time after the date hereof, upon the request of the
other, to do, execute, acknowledge and deliver, or cause to
be done, executed, acknowledged or delivered, all such
further acts, documents and assurances as may be necessary
or appropriate to carry out the terms of this Agreement.
4.5 Additional Payments. At the option of
any Holder (as defined in the Certificate of Designation),
such Holder shall have the right to pay additional
consideration upon any conversion, liquidation or issuance
of Series C Shares or Common Stock to the extent necessary
to permit such conversion, liquidation or issuance to comply
with applicable law, but any such payment pursuant to such
option shall not in any way reduce the obligation of the
Company under this Agreement if such payment were not to be
made.
5. Restriction on Transfer of Securities
5.1 Restrictions. The Securities are only
transferable pursuant to (a) an offering registered under
the 1933 Act, (b) Rule 144 promulgated thereunder (or any
similar rule then in effect) if such rule is available, or
(c) subject to the conditions specified elsewhere in this
Section 5, any other legally available means of transfer.
5.2 Legend. Each certificate evidencing
Securities shall be endorsed with the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ISS-
UED WITHOUT REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATE-
MENT UNDER APPLICABLE FEDERAL AND STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT THE TRANSFER IS EXEMPT FROM REGISTRA-
TION UNDER APPLICABLE FEDERAL AND STATE SECURITIES
LAWS."
5.3 Removal of Legend. Any legend endorsed
on a certificate pursuant to Section 5.2 hereof shall be re-
moved, and the Company shall issue a Security without such
legend to the holder of such Security, if such Security is
being disposed of pursuant to a registration under the 1933
Act or pursuant to Rule 144 or any similar rule then in
effect or if such holder provides that Company with an
opinion of counsel satisfactory to the Company to the effect
that a transfer of such Security may be made without regis-
tration. In addition, if the holder of such Security deliv-
ers to the Company an opinion of such counsel to the effect
that no subsequent transfer of such Security shall require
registration under the 1933 Act, the Company shall promptly
upon such contemplated transfer deliver new Securities that
shall not bear the legend set forth in Section 5.2.
6. Indemnification.
6.1 Indemnitors; Indemnified Persons. For
purposes of this Section 6, each party which, pursuant to
this Section 6, agrees to indemnify any other person or
entity shall be referred to, as applicable, as the
"Indemnitor" with respect to such persons and entities, and
each such person and entity which shall be indemnified by
the Indemnitor shall be referred to as the "Indemnified
Person."
6.2 Company Indemnity. The Company hereby
agrees to indemnify and hold harmless Purchaser and its
directors, officers, controlling persons (within the meaning
of Section 15 of the 1933 Act or Section 20(a) of the 1934
Act), agents and employees from and against any and all
claims, liabilities, losses, damages and expenses incurred
by such Indemnified Person (including reasonable attorneys'
fees and disbursements) which shall be caused by or related
to or arise out of any material breach of any representa-
tion, warranty, covenant or agreement of the Company con-
tained in this Agreement, and shall reimburse such Indem-
nified Person for all costs and expenses (including
reasonable attorneys' fees and disbursements) as they shall
be incurred, in connection with investigating, preparing
for, or defending any action, claim, investigation, inquiry
or other proceeding, whether or not in connection with
pending or threatened litigation, which shall have been
caused by or related to or arise out of such breach, whether
or not such Indemnified Person shall be named as a party
thereto and whether or not any liability shall result there-
from. The Company shall not, however, be responsible for
any claims, liabilities, losses, damages, or expenses pursu-
ant to this Section 6.2 or otherwise which shall be finally
judicially determined to have resulted primarily from an
Indemnified Person's bad faith, willful misconduct or gross
negligence, or any material breach by Purchaser of this
Agreement. The Company further agrees that the Company
shall not, without the prior written consent of Purchaser,
settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceed-
ing in respect of which indemnification may be sought
hereunder unless such settlement, compromise or consent
shall include an unconditional release of each Indemnified
Person hereunder from all liability arising out of such
claim, action, suit or proceeding.
6.3 Purchaser Indemnity. Purchaser hereby
agrees to indemnify and hold harmless each of the Company
and its directors, officers, controlling persons (within the
meaning of Section 15 of the 1933 Act or Section 20(a) of
the 1934 Act), agents, including without limitation Robert
Conrads, and employees from and against any and all claims,
liabilities, losses, damages and expenses incurred by such
Indemnified Person (including reasonable attorneys' fees and
disbursements) which shall be caused by or related to or
arise out of such Purchaser's material breach of any
representation, warranty, covenant or agreement of such
Purchaser contained in this Agreement, and shall reimburse
such Indemnified Person for all costs and expenses
(including reasonable attorneys' fees and disbursements) as
they shall be incurred, in connection with investigating,
preparing for, or defending any action, claim,
investigation, inquiry or other proceeding, whether or not
in connection with pending or threatened litigation, which
shall be caused by or related to or arise out of such
breach, whether or not such Indemnified Person shall be
named as a party thereto and whether or not any liability
results therefrom. Purchaser shall not, however, be respon-
sible for any claims, liabilities, losses, damages, or
expenses pursuant to this Section 6.3 or otherwise which
shall be finally judicially determined to have resulted
primarily from an Indemnified Person's bad faith, willful
misconduct or gross negligence, or any material breach by
the Company of this Agreement. Purchaser further agrees
that it shall not, without the prior written consent of the
Company, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought
hereunder unless such settlement, compromise or consent
shall include an unconditional release of each Indemnified
Person hereunder from all liability arising out of such
claim, action, suit or proceeding.
6.4 Defense. Promptly after receipt by an
Indemnified Person of notice of the commencement of any
action or proceeding with respect to which indemnification
may be sought hereunder, such person shall notify the
Indemnitor of the commencement of such action or proceeding,
but failure so to notify the Indemnitor shall not relieve
the Indemnitor from any liability which the Indemnitor may
have hereunder or otherwise, unless the Indemnitor shall be
materially prejudiced by such failure. If the Indemnitor
shall so elect, the Indemnitor shall assume the defense of
such action or proceeding, including the employment of
counsel reasonably satisfactory to such Indemnified Person
and shall pay the fees and disbursements of such counsel.
In the event, however, that such Indemnified Person
reasonably shall determine in its judgment that having com-
mon counsel would present such counsel with a conflict of
interest or alternative defenses shall be available to an
Indemnified Person or if the Indemnitor shall fail to assume
the defense of the action or proceeding in a timely manner,
then such Indemnified Person may employ separate counsel to
represent or defend it in any such action or proceeding, and
the Indemnitor shall pay the reasonable fees and dis-
bursements of such counsel; provided, however, that the
Indemnitor shall not be required to pay the fees and
disbursements of more than one separate counsel for all
Indemnified Persons in any jurisdiction in any single action
or proceeding. In any action or proceeding the defense of
which the Indemnitor shall assume, the Indemnified Person
shall have the right to participate in such litigation and
to retain its own counsel at such Indemnified Person's own
expense, so long as such participation shall not interfere
with the Indemnitor's control of such litigation.
7. Miscellaneous.
7.1 Notices. All notices, requests, demands
and other communications required or permitted hereunder
shall be made in writing and shall be deemed to have been
duly given and effective: (i) on the date of delivery, if
delivered personally; (ii) on the earlier of the fourth
(4th) day after mailing or the date of the return receipt
acknowledgement, if mailed, postage prepaid, by certified or
registered mail, return receipt requested; or (iii) on the
date of transmission if sent by facsimile, telecopy, tele-
graph, telex or other similar telegraphic communications
equipment,
(a) if to Purchaser, at 888 Seventh Avenue,
New York, New York 10106, Attn: Peter Hurwitz, Esq.;
facsimile number: (212) 489-2005 or at such other
address or facsimile number as the Purchaser may
specify by written notice to the Company, or
(b) if the Company at 100 Second Avenue
South, Suite 1100, St. Petersburg, Florida 33701, At-
tention: Robert P. Gordon, Chairman or Paul W. Henry,
Director; facsimile number: (813) 895-0378 or at such
other address or facsimile number as the Company may
specify by written notice to Purchaser.
7.2 Benefit of Agreement. All terms and
provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
successors and assigns.
7.3 Governing Law. This Agreement and the
legal relations among the parties hereto shall be governed
by and construed in accordance with the internal law of the
State of New York (without regard to the laws of conflict
that might otherwise apply) as to all matters including
without limitation matters of validity, construction,
effect, performance and remedies.
7.4 Headings. The headings of the Sections
of this Agreement have been inserted for convenience of
reference only and do not constitute a part of this
Agreement.
7.5 Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall
constitute one and the same instrument.
7.6 Entire Agreement. This Agreement repre-
sents the entire agreement among the parties with respect to
the subject matter hereof superseding all prior agreements
and understandings, written or oral.
7.7 Expenses. Each party shall be
responsible and shall pay for all expenses incurred by it in
connection with the preparation, negotiation and execution
of this Agreement and the Registration Rights Agreement and
the consummation of the transactions contemplated herein and
therein; provided, however, that the Company shall reimburse
Purchaser for reasonable attorneys' fees which shall
actually be incurred by it in connection herewith (including
fees incurred in connection with the preparation,
negotiation and execution and delivery of this Agreement) up
to a maximum amount of $30,000.
7.8 Arbitration. Any dispute hereunder or
otherwise arising out of relating to this Agreement (except
for disputes directly relating to a third party claim for
which indemnification may be required to the extent an
action shall have been commenced by a third party in a court
or other forum) shall be resolved only by arbitration by a
single arbitrator. The arbitration shall be held in New
York, New York and shall be conducted by the American
Arbitration Association (the "AAA") pursuant to its
Commercial Arbitration Rules. The arbitrator shall be
selected by the Company and Purchaser, or, failing such
selection within ten days after any party shall have
requested such arbitration, shall be selected by the AAA.
The decision of the arbitrator shall be final and binding
upon the parties, and the judgment upon the arbitral award
may be entered by any court of competent jurisdiction, in
law or in equity. Such decision shall include an award to
the prevailing party of all costs and expenses (including,
without limitation, reasonable attorney's fees) incurred in
connection with the resolution of any such dispute. Any
award shall include interest payable thereon at a rate of
ten percent per annum from the date of the commencement of
the arbitration. The parties expressly agree that the
arbitrator shall have the power to incorporate injunctive
relief or require specific performance as part of any award.
7.9 Schedules. All Schedules referred to
herein refer to information provided in a separate
disclosure document but shall be deemed to be a part hereof
for purposes of representations and covenants herein.
Next Page is Signature Page
<PAGE>
IN WITNESS WHEREOF, the parties have caused
this Agreement to be executed by their duly authorized
representatives as of the day and year first stated above.
PHOENIX INFORMATION
SYSTEMS CORP.
By:______________________________
Title:
S-C PHOENIX PARTNERS
By:______________________________
Name:
Title:
EXHIBIT 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT dated as of
December 23, 1996, is by and between PHOENIX INFORMATION
SYSTEMS CORP., a Delaware corporation (the "Company"), and
S-C Phoenix Partners, a New York general partnership (the
"Rights Holder").
This Agreement is made pursuant to the Series C
Convertible Preferred Stock Purchase Agreement (the
"Purchase Agreement") dated the date hereof, between the
Company and the Rights Holder relating to the purchase by
the Rights Holder of 1,388,888.889 shares of Series C
Convertible Preferred Stock, par value $.01 per share, of
the Company (the "Shares"), which are convertible into
shares of common stock, par value $.01 per share, of the
Company ("Common Shares"). In order to induce the Rights
Holder to purchase the Shares, the Company has agreed to
provide registration rights with respect to the Common
Shares issuable upon conversion of the Shares, as set forth
herein.
Accordingly, the parties hereby agree as follows:
1. Definitions. For the purposes of this Agree-
ment:
(a) The terms, "register," "registered" and
"registration" refer to a registration effected by preparing
and filing a registration statement or similar document in
compliance with the Securities Act of 1933 (the "1933 Act"),
and the declaration or ordering of effectiveness of such
registration statement or document; and
(b) The term "Registrable Securities" means
(i) the Common Shares issued to the Rights Holder upon
conversion of the Shares, and (ii) any other Common Shares
issued by the Company that are acquired by the Rights Holder
by purchase or transfer or issued to the Rights Holder by
the Company upon the conversion or exercise of any warrant,
right or other security that is issued as a dividend or
other distribution with respect to, in exchange for or in
replacement of any Common Shares or other securities of the
Company.
2. Registration Rights.
2.1 Registration upon Demand. (a) At any time
after the date hereof, upon the written request of the
holders of fifty (50%) percent or more of the Registrable
Securities to which rights hereunder have been assigned in
accordance herewith (also "Rights Holders"), requesting that
the Company effect the registration under the 1933 Act of
all or part of the Registrable Securities, which request
shall specify the intended method of distribution thereof,
the Company shall use its best efforts to so register (a
"Demand Registration"), as expeditiously as may be
practicable, the Registrable Securities that such holders
have requested the Company to register; provided, however,
that the Rights Holders shall have the right to make only
two Demand Registrations; and provided further that at least
180 days shall have elapsed after the effective date of the
first Demand Registration before any Rights Holders may
request the second Demand Registration hereunder or under
any other registration rights agreement relating to
securities of the Company to which the Rights Holders are
parties.
(b) If at any time after the date hereof the
Company is eligible to file a Registration Statement on
Form S-3 under the 1933 Act, upon written request of any
Rights Holder, the Company shall use its best efforts to
prepare and file such Registration Statement with the
Securities and Exchange Commission (the "Commission"),
registering all or part of the Registrable Securities, at
such Rights Holder's expense; provided, that in each such
registration the price of the Registrable Securities being
offered, without regard to any discounts or commissions,
shall be at least $1,000,000.
2.2 "Piggy-back" Registrations. If, at any time
after the date hereof, the Company proposes to register any
securities under the 1933 Act in connection with any
offering of its securities, whether or not for its own
account, the Company shall furnish prompt written notice to
the Rights Holders of the Company's intention to effect such
registration and the intended method of distribution in
connection therewith. Upon the written request of the
Rights Holders made to the Company within 30 days after the
receipt of such notice, the Company shall include in such
registration the number of Registrable Securities requested
to be registered by such Rights Holders (a "Piggy-back
Registration").
2.3 Obligations of the Company. Whenever the
Company is required under this Section 2 to effect the
registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a
registration statement with respect to such Registrable
Securities and use its best efforts to cause such
registration statement to become effective and keep such
registration statement effective for up to 60 days;
(b) Prepare and file with the SEC such amendments
and supplements to such registration statement and the
prospectus used in connection with such registration
statement as may be necessary to comply with the provisions
of applicable law with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to each Rights Holder such numbers of
copies of a prospectus, including a preliminary prospectus,
in conformity with the requirements of applicable law, and
such other documents as it may reasonably request in order
to facilitate the disposition of Registrable Securities
owned by such Rights Holder;
(d) Use its best efforts to register and qualify
the securities covered by such registration statement under
such other securities laws of such states as shall be
reasonably requested by the Rights Holders or the
underwriters, in the case of an underwritten offering;
provided that the Company shall not be required in connec-
tion therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process
in any such jurisdictions;
(e) In the event of any underwritten public
offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with
the managing underwriter of such offering. The managing
underwriter shall be selected by Rights Holders holding a
majority of the Registrable Securities to be included in
such registration in the case of a Demand Registration,
which managing underwriter shall be reasonably satisfactory
to the Company. The Rights Holders also shall enter into
and perform their obligations under such an agreement; and
(f) Notify the Rights Holders, at any time when a
prospectus relating thereto is required to be delivered
under applicable law, of the happening of any event as a
result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading in the light of the
circumstances then existing.
(g) Use commercially reasonable efforts to list
such Registrable Securities on any national securities
exchange on which any Common Shares are listed or, if the
Common Shares are not listed on a national securities
exchange, use commercially reasonable efforts to qualify
such Registrable Securities for inclusion on the automated
quotation system of the National Association of Securities
Dealers, Inc.
2.4 Furnish Information. It shall be a condition
precedent to the obligation of the Company to take any
action pursuant to this Section 2 that each Rights Holder
shall furnish to the Company such information regarding such
Rights Holders, the Registrable Securities held by it and
the intended method of disposition of such Registrable
Securities as shall be required to effect the registration
of the Registrable Securities.
2.5 Expenses of Registration. With respect to a
Demand Registration or Piggy-back Registration, the Company
shall bear and pay all expenses incurred in connection with
any registration, filing or qualification of Registrable
Securities including (without limitation) all registration,
filing and qualification fees, printers' and accounting
fees, fees and disbursements of counsel for the Company and,
in the case of a Demand Registration, one counsel selected
by the Rights Holders, but excluding underwriting discounts
and commissions relating to Registrable Securities.
2.6 Underwriting Requirements. In connection
with any offering involving an underwriting of Common Shares
in which a Rights Holder has "piggy-back" rights, the
Company shall not be required under Section 2.2 to include
any of the Registrable Securities of the Rights Holder in
the registration of the securities to be included in such
underwriting unless the Rights Holder accepts the terms of
the underwriting as agreed upon between the Company and the
underwriters selected by it, and then only in such quantity
as the underwriters determine in their reasonable discretion
will not jeopardize the success of the offering by the
Company. If the total amount of securities, including
Registrable Securities requested by the Rights Holders and
any other shareholder to be included in such offering,
exceeds the number of securities that the underwriters
determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required
to include in the offering up to 105,000 Common Shares held
by Robert Conrads ("Conrads") and only such number of
Registrable Securities as, together with the securities, if
any, being registered by all other shareholders, including
Robert P. Gordon ("Gordon") and the other holders of
registration rights with respect to securities of the
Company on the date hereof (the "Other Rights Holders"), the
underwriters determine in their reasonable discretion will
not jeopardize the success of the offering. The securities
of all other shareholders (other than Gordon, Conrads and
the Other Rights Holders) shall be reduced (or eliminated)
in order to satisfy the reduction required by the
underwriters before any Registrable Securities of the Rights
Holder are reduced (or eliminated). For so long as a Rights
Holder has rights pursuant to Sections 2.1 and 2.2 hereof,
if the Company grants to any person any rights to have his
or its securities included in any registration statement to
be filed by the Company, such rights shall be subordinate to
the rights granted to the Rights Holder herein.
2.7 Indemnification. In the event any
Registrable Securities are included in a registration state-
ment under this Section 2:
(a) To the extent permitted by law, the Company
shall indemnify and hold harmless the Rights Holder, any
underwriter (as defined in the 1933 Act or other applicable
law) for the Rights Holder, each person, if any, who
controls the Rights Holder or underwriter within the meaning
of the 1933 Act or the Securities Exchange Act of 1934 (the
"1934 Act") or other applicable law, and any officer,
director, partner or other person who controls such entity
within the meaning of the 1933 Act or other applicable law
or agent thereof, against any and all losses, claims,
damages or liabilities (joint or several) to which any of
the foregoing persons may become subject under the 1933 Act
or other applicable law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"):
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement,
including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto,
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to
make the statements therein not misleading or (iii) any
violation or alleged violation by the Company of the 1933
Act or other applicable law, or any rule or regulation
promulgated under the 1933 Act or other applicable law; and
the Company shall pay to the Rights Holder, underwriter or
controlling person any reasonable legal or other expenses
incurred by it in connection with investigating or defending
any such loss, claim, damage, liability or action; provided
that the indemnity agreement contained in this Section
2.7(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such
loss, claim, damage, liability or action to the extent that
it arises out of or is based upon (A) a Violation that
occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with
such registration by the Rights Holder or such underwriter
or controlling person or (B) the use by any party, after
receipt of a notice from the Company pursuant to Section
2.3(f) above, of the prospectus referred to in such notice.
(b) To the extent permitted by law, the Rights
Holder shall indemnify and hold harmless the Company, each
of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls
the Company within the meaning of the 1933 Act or other
applicable law, any underwriter and any controlling person
of any such underwriter, against any losses, claims, damages
or liabilities (joint or several) to which any of the
foregoing persons may become subject under the 1933 Act or
other applicable law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise
out of or are based upon (i) any Violation, in each case to
the extent (and only to the extent) that such Violation
occurs in reliance upon and in conformity with written
information furnished by the Rights Holder expressly for use
in connection with such registration, or (ii) the use by the
Rights Holder, after receipt of a notice from the Company
pursuant to Section 2.3(f) above, of the prospectus referred
to in such notice; and the Rights Holder shall pay any
reasonable legal or other expenses incurred by any person to
be indemnified pursuant to this Section 2.7(b) in connection
with investigating or defending any such loss, claim,
damage, liability or action; provided that the indemnity
agreement contained in this Section 2.7(b) shall not apply
to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected
without the consent of the Rights Holder, which consent
shall not be unreasonably withheld; and provided, further,
that in no event shall any indemnity under this Section
2.7(b) exceed the proceeds from the offering received by the
Rights Holder.
(c) Promptly after receipt by an indemnified
party under this Section 2.7 of notice of the commencement
of any action (including any governmental action), such
indemnified party shall, if a claim in respect thereof is to
be made against any indemnifying party under this Section
2.7, deliver to the indemnifying party a written notice of
the commencement thereof, and the indemnifying party shall
have the right to participate in and, to the extent the
indemnifying party so desires, to assume the defense
thereof; provided that an indemnified party (together with
all other indemnified parties that may be represented
without conflict by one counsel) shall have the right to
retain one separate counsel, with the fees and expenses to
be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or
potential differing interests between indemnified party and
any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time after the
commencement of any such action, if prejudicial to the
ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party
under this Section 2.7, but the omission so to deliver
written notice to the indemnifying party shall not relieve
it of any liability that it may have to any indemnified
party otherwise than under this Section 2.7.
(d) The obligations of the Company to the Rights
Holder under this Section 2.7 shall survive the completion
of any offering of Registrable Securities under any
registration statement pursuant to this Section 2 or
otherwise.
2.8 "Market Stand-off" Agreement. The Rights
Holder hereby agrees that, during the period specified by
the Company and the managing underwriter in connection with
any underwritten public offering of any of the Company's
securities, the Rights Holder shall not, to the extent
reasonably requested by the Company and such underwriter,
directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of any
securities of the Company held by the Rights Holder at any
time during such period, except for any Common Shares
included in such registration; provided, that private
transfers of such securities shall not be restricted during
such period; and provided further, that such period shall
not extend more than 15 days prior to or beyond 120 days
after the closing of the offering and, provided, further,
that, with the exception of Conrads, such restriction shall
be no more extensive in scope or duration than the
restrictions imposed on any other person who has been
granted registration rights or is an officer or director of
the Company. In order to enforce the foregoing covenant,
the Company may impose stop transfer instructions with
respect to the Registrable Securities of the Rights Holder
(and the shares or securities of every other person subject
to the foregoing restriction) until the end of such period.
3. Miscellaneous.
3.1 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 hereto; provided, however, that the Company shall
not assign any of its obligations hereunder without the
prior written consent of the Rights Holder and that the
Rights Holder may not assign any of its rights hereunder
except to transferees to which it has transferred any
Registrable Securities, in accordance the Purchase
Agreement. Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns
any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided
herein.
3.2 Governing Law. This Agreement 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.
3.3 Counterparts. This Agreement may be executed
by one or more of the parties to this Agreement on separate
counterparts, each of which shall be deemed an original, but
both of which together shall constitute one and the same
instrument.
3.4 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 inter-
preting this Agreement.
3.5 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 Rights Holder 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: 813-895-0378
(b) If to the Rights Holder, to it at:
S-C Phoenix Partners
c/o S-C Phoenix Holdings, L.L.P.
888 Seventh Avenue
New York, New York 10106
Facsimile: (212) 489-2005
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
[Next Page is Signature Page]
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed as of the date first above
written.
S-C Phoenix Partners
By S-C PHOENIX HOLDINGS, L.L.C.,
a General Partner
By________________________________
Name:
Title:
PHOENIX INFORMATION SYSTEMS CORP.
By________________________________
Name:
Title:
EXHIBIT 3
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF SERIES C
CONVERTIBLE PREFERRED STOCK OF PHOENIX INFORMATION SYSTEMS
CORP.
The undersigned, being a duly elected officer of
Phoenix Information Systems Corp. (the "Corporation"), a
corporation organized and existing under the General
Corporation Law of the State of Delaware, in accordance with
the provisions of Section 151 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the
Board of Directors by the Certificate of Incorporation of
the Corporation, the Board of Directors adopted the
following resolution creating a series of 1,500,000 shares
of preferred stock designated as Series C Convertible
Preferred Stock.
NOW, THEREFORE, BE IT RESOLVED, that pursuant to
the authority conferred upon the Board of Directors of this
Corporation in accordance with the provisions of the
Certificate of Incorporation, there is hereby established a
series of the authorized preferred stock of the Corporation,
$.01 par value per share, which series shall be designated
as "Series C Convertible Preferred Stock," and which shall
consist of 1,500,000 shares (collectively, the "Series C
Shares" or singularly, a "Series C Share") and shall have
the following dividend rights, voting rights, liquidation
preferences and other rights, qualifications, limitations
and restrictions:
1. Dividend Rights
1.1 Share Dividends. The holder of record of
each Series C Share (a "Holder") as of the Record Date (as
hereinafter defined) shall be entitled to receive on each
January 1, April 1, July 1 and October 1 during the period
commencing on April 1, 1997 and ending on January 1, 2003
(each, a "Dividend Payment Date") cumulative dividends
("Share Dividends") of additional Series C Shares equal to
0.0247935 additional Series C Shares (a) for each such
Series C Share held by such Holder on such Record Date and
(b) for each Series C Share accrued as a Share Dividend
(whether or not declared or paid).
1.2 Share Dividend Payment. To the extent
permitted by applicable law and not prohibited pursuant to
the terms of applicable credit instruments, senior
securities or the Certificate of Incorporation of the
Corporation, Share Dividends, if and when declared on each
Series C Share, shall be declared at least twenty (20)
business days prior to the next Dividend Payment Date for
payment on the next Dividend Payment Date to the Holders of
record on the date determined in such declaration, which
date shall in no event be more than ten (10) business days
after the date of declaration (the "Record Date").
1.3 Participatory Dividends. The Series C Shares
shall participate in all dividends declared and paid on
shares of Common Stock to the same extent as though and as
if the Series C Shares had been converted on the day
immediately preceding the record date for the payment of
such dividends.
1.4 No Other Dividends. Except as set forth in
this Section 1 and Section 2 below, the Series C Shares
shall be entitled to no other dividends or distributions.
2. Rights on Liquidation and Ranking. In the event
of any liquidation, dissolution or winding up (collectively,
a "Liquidation") of the Corporation, whether voluntary or
involuntary, each issued and outstanding Series C Share
shall be entitled to receive an amount equal to the greater
of (a) the amount such Series C Share would receive if it
were converted into Common Stock pursuant to Section 4.2
immediately prior to the Record Date for distribution upon
liquidation or (b) the lesser of (i) eighteen dollars
($18.00) or (ii) an amount obtained by dividing (A) the
difference between (1) fifteen million dollars ($15,000,000)
and (2) the product of the shares of Common Stock, par value
$.01 per share, of the Corporation ("Common Stock") into
which Series C Shares shall have been converted pursuant to
Section 4 hereof and the Target Threshold (as defined in
Section 4.3(d) hereof) at which each of such Series C Shares
shall have been converted by (B) the number of Series C
Shares issued and outstanding, which amount shall be paid in
cash (the "Liquidation Preference"). The full Liquidation
Preference shall be paid, or determined and set apart, prior
to any distribution in respect of the Common Stock. In the
event that the assets of the Corporation available for
distribution to its stockholders shall be insufficient to
pay the full liquidation preferences (including the
Liquidation Preference) for each series of the Corporation's
securities entitled thereto, the entire amount of assets of
the Corporation available for distribution to stockholders
shall be paid first, ratably in respect of liquidation
preferences applicable to the Corporation's Series A
Convertible Preferred Stock, par value $.01 per share, and
Series B Convertible Preferred Stock, par value $.01 per
share, and such other securities of the Corporation which,
by their terms, shall rank senior, as to liquidation, to the
Series C Shares, second, ratably in respect of the
liquidation preferences applicable to the Series C Shares
and such other securities of the Corporation which, by their
terms, shall rank on a parity with the Series C Shares as to
liquidation, third, in respect of liquidation preferences
applicable to shares of such other securities which shall
rank junior, as to liquidation, to the Series C Shares, and
holders of Common Stock shall receive nothing. A
reorganization or any other consolidation, share exchange or
merger of the Corporation with or into any other corporation
(collectively, a "Merger"), or any other sale of all or
substantially all of the assets of the Corporation, shall
not be deemed to be a Liquidation of the Corporation within
the meaning of this Section 2, and the Series C Shares shall
be entitled only to the rights contained in the Delaware
General Corporation Law and the rights contained in other
Sections hereof.
3. Voting Rights.
3.1 Voting Rights. In addition to the rights
hereinafter specified in this Section 3 and any other rights
provided by law or the By-laws of the Corporation, each
Series C Share shall entitle the Holder to such number of
votes per share as shall equal the number of shares of
Common Stock which would have been obtained upon the
conversion of such Series C Share at the time in question as
provided in Section 4 hereof, and shall further entitle the
Holder to vote on all matters, including, without
limitation, the election of directors of the Corporation, as
to which holders of Common Stock shall be entitled to vote
(with the number of votes specified in this Section 3.1),
together with such holders of Common Stock as one class and
in the same manner and with the same effect as such holders
of Common Stock. Copies of all notices sent to the holders
of Common Stock shall be simultaneously sent to each Holder.
3.2 Voting as a Class. The Corporation shall not
without the affirmative consent or approval of the Holders
of a majority of the outstanding Series C Shares, given by
written consent in lieu of a meeting or by vote at a meeting
called for such purpose for which notice shall have been
given to the Holders of the Series C Shares in the manner
provided by law (i) in any manner authorize, create,
designate, issue or sell any class or series of capital
stock (including any shares of treasury stock) or rights,
options, warrants or other securities convertible into or
exercisable for capital stock or any debt security which by
its terms shall be convertible into or exchangeable for any
equity security or shall have any other equity feature or
any security that shall be a combination of debt and equity,
which, in each case, as to the payment of dividends and
distributions to be made upon a Liquidation shall be on
parity with or senior to the Series C Shares; (ii) effect a
sale of all or substantially all of the Corporation's
assets, a Merger or a Liquidation; (iii) repurchase or
redeem any Common Stock other than pursuant to employee
vesting or repurchase agreements in effect from time to time
and purchases from officers, directors and employees upon
termination of their relationship with the Corporation and
other than as may be required by any binding commitment of
the Corporation which shall have existed as of the first
date of issuance of the Series C Shares; or (iv) declare or
pay any dividends on Common Stock.
4. Conversion Rights--Common Stock.
4.1 Dividends on Conversion. The Holder of any
Series C Shares which shall be the subject of a conversion
pursuant to this Section 4 hereof shall, on the Conversion
Date (as defined in Section 4.6 hereof), receive on the day
immediately preceding such Conversion Date, an amount of
Series C Shares equal to the difference between (a) the
amount of Share Dividends that would have accrued under
Section 1.1 hereof from the date of issuance of such Series
C Shares until January 1, 2003, as if such Series C Shares
shall have remained outstanding until January 1, 2003, and
(b) Share Dividends actually paid to such Holder.
4.2 Optional Conversion. Each Series C Share
shall be convertible, together with all Share Dividends
thereon, at the option of the Holder thereof, at any time
and from time to time into that number of fully paid and
non-assessable shares of Common Stock obtained by
multiplying ten by the Conversion Rate then in effect. For
purposes hereof, "Conversion Rate" shall mean the reciprocal
of the Target Threshold (as defined below), expressed as an
absolute number.
4.3 Automatic Conversion. Upon the occurrence of
an Event of Conversion, each outstanding Series C Share, by
virtue of, and simultaneously with the occurrence of the
Event of Conversion and without any action on the part of
the Holder, shall be deemed automatically converted into
such number of fully paid and nonassessable shares of Common
Stock as shall have been obtained by the Holder upon the
voluntary conversion of such Series C Share on the date of
the Event of Conversion as provided in Section 4.2. For
purposes hereof, (a) "Event of Conversion" means the earlier
of (i) January 1, 2003, or (ii) the date on which the Market
Price of the Common Stock shall be at least $3.60 per share;
provided, however, that such date shall not occur prior to
June 23, 1997; (b) Market Price" on any day means the
average of the closing bid prices per share of Common Stock
on the National Association of Securities Dealers Inc. Over-
The-Counter Bulletin Board (the "Nasdaq System"), or on the
principal exchange where the Common Stock is then traded, in
each case, for the ten (10) consecutive Trading Days
immediately preceding the date of determination; and (c)
"Trading Day" means a business day in which the principal
market on which the Common Stock is traded is open for
trading for at least four hours. If at the time of any
computation pursuant to this paragraph the Common Stock is
not then traded on any trading market, the "Market Price"
for the purposes hereof shall be the fair value as
reasonably determined in good faith by the Board of
Directors of the Corporation.
4.4 Adjustments Upon Issuances of Shares and
Certain Events.
(a) If the Common Stock issuable on
conversion of the Series C Shares 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 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 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 C Shares immediately before that
change.
(b) If at any time there shall be a Merger,
then, as a part of such Merger, lawful provision shall be
made so that the Holders thereafter shall be entitled to
receive upon conversion of the Series C Shares, the number
of shares of stock or other securities or property of the
Corporation, or of the successor corporation resulting from
such Merger to which holders of Common Stock deliverable
upon conversion of the Series C Shares would have been
entitled on such Merger if the Series C Shares had been
converted immediately before that Merger to the end that the
provisions of this Section shall be applicable after that
event as nearly equivalently as may be practicable.
(c) Any adjustment made pursuant to
paragraphs (a) or (b) above shall become effective at the
close of business on the day upon which such
reclassification, Merger or similar transaction shall become
effective.
(d) In case the Corporation shall sell or
issue shares (including by way of stock dividend,
distribution, stock split or reverse split) of Common Stock,
warrants, options, or other rights to purchase Common Stock
or securities convertible or exchangeable into any of the
foregoing excluding shares of Common Stock any of the
foregoing issued or reserved for issuance by the
Corporation:
(i) in any transaction described in
paragraphs (a) or (b) above;
(ii) upon conversion of the Series C Shares;
(iii) upon conversion, exercise or
exchange of rights, options, warrants or convertible or
exchangeable securities outstanding or as to which a
binding commitment shall have existed as of the first
date of the issuance of the Series C Shares or which
may be issued to employees, consultants and directors
of such Corporation in such capacities pursuant to any
plan approved by the Board of Directors of the
Corporation from time to time; or
(iv) as compensation to officers, directors,
consultants and others performing services to the
Corporation, provided the number of such shares of
Common Stock shall not be in excess, in the aggregate,
of 10% of the outstanding shares of Common Stock from
time to time.
and the price per share (determined in the case of rights,
options, warrants or convertible or exchangeable securities
as the quotient of (x) the aggregate consideration received
or receivable by the Corporation upon the sale and issuance
of such rights, options, warrants or convertible or
exchangeable securities plus the total consideration payable
to the Corporation upon such exercise or conversion divided
by (y) the total number of shares of Common Stock covered by
such rights, options, warrants or convertible or
exchangeable securities) shall be lower than the Target
Threshold (as defined below) on the date of such issuance,
then the Target Threshold in effect immediately prior to
such issuance shall upon such issuance be reduced to equal
the number determined by multiplying such Target Threshold
by a fraction, the numerator of which shall be an amount
equal to the sum of (A) the number of shares of Common Stock
outstanding on a fully-diluted basis (except with respect to
shares of Common Stock issuable on conversion of Series C
Shares) immediately prior to such issuance plus (B) the
number of shares of Common Stock which the aggregate
consideration received for the issuance of such additional
shares of Common Stock would purchase at such Target
Threshold, and the denominator of which shall be the total
number of shares of Common Stock outstanding, on a fully
diluted basis (except with respect to shares of Common Stock
issuable on conversion of Series C Shares), immediately
after such issuance. Such adjustment shall be made
successively whenever such an issuance shall be made
hereunder and, in the event any adjustment shall be made in
respect of the issuance of any rights, options warrants or
convertible or exchangeable securities, which shall lapse or
terminate unexercised or converted, the Target Threshold
shall be readjusted to the amount it would have been had no
such issuance occurred. For purposes hereof, "Target
Threshold" means $1.00 or such lower number to which it may
be adjusted, from time to time, pursuant to this Section
4.4(d).
(e) For the purposes of any computation to
be made in accordance with Section 4.4(d), the following
provisions shall be applicable:
(i) In case of the issuance or sale of
shares of Common Stock for a consideration part or all
of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount
of cash received by the Corporation for such shares
(or, if the shares of Common Stock shall be offered by
the Corporation for subscription, the subscription
price, or, if shares of Common Stock shall be sold to
underwriters or dealers for public offering without a
subscription offering, the public offering price,
before deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing
similar services, or any expenses incurred in
connection therewith).
(ii) In case of the issuance or sale
(otherwise than as a dividend or other distribution on
any stock of the Corporation) of shares of Common Stock
for a consideration part or all of which shall be other
than cash, the amount of the consideration therefor
other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board
of Directors of the Corporation.
(iii) Shares of Common Stock issuable by
way of dividend or other distribution on any stock of
the Corporation shall be deemed to have been issued
immediately after the opening of business on the day
following the record date for the determination of
stockholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued
without consideration.
(iv) The reclassification of securities of
the Corporation, other than shares of Common Stock,
into securities including shares of Common Stock shall
be deemed to involve the issuance of such shares of
Common Stock for a consideration other than cash
immediately after the opening of business on the day
following the record date for the determination of
security holders entitled to receive such shares, and
the value of the consideration allocable to such shares
of Common Stock shall be determined as provided in
clause (ii) of this Section 4.4(e).
(v) The number of shares of Common Stock at
any one time outstanding shall include the aggregate
number of shares issued or issuable (other than in
respect of the Series C Shares) upon the exercise of
then outstanding options, rights, warrants and upon the
conversion or exchange for then outstanding convertible
or exchangeable securities.
4.5 No Impairment. The Corporation shall not, by
amendment of its Certificate of Incorporation or through any
recapitalization, transfer of assets, Merger, dissolution or
any other voluntary action or inaction, avoid or seek to
avoid the observance or performance of any of the terms to
be observed or performed hereunder by the Corporation, but
shall at all times in good faith assist in the carrying out
of all the provisions of this Certificate of Designation and
in taking all such actions as may be necessary or
appropriate in order to protect the conversion rights of the
Holders against impairment.
4.6 Conversion Method. Any Holder of Series C
Shares may, at any time, exercise the conversion rights as
to such Series C Shares by delivering to the Corporation
during regular business hours, care of the then transfer
agent (the "Transfer Agent") for the Corporation, a notice
requesting conversion on a specified date and the number of
Series C Shares that the Holder shall elect to convert (a
"Notice of Conversion"), with a copy of such Notice of
Conversion transmitted via facsimile to the Corporation.
The Notice of Conversion shall also state the names and
address of the persons to whom certificates for shares of
Common Stock shall be issued, the denominations of such
certificates and reasonable delivery instructions with
respect thereto. Each conversion shall be deemed to have
been effected immediately on the close of business on the
date such Notice of Conversion shall be received (including
receipt via facsimile) by the Transfer Agent (the
"Conversion Date"); provided, that the Holder shall be
required to deliver to the Corporation the certificate or
certificates representing the Series C Shares so to be
converted, within four (4) Trading Days after the Conversion
Date. The person in whose name any certificate for shares
of Common Stock shall be issuable upon the conversion shall
be deemed to have become the holder of record of the Common
Stock at such time. If the stock transfer books of the
Corporation shall be closed on the Conversion Date, the
Conversion Date for purposes of determining record ownership
shall be the next succeeding day on which the stock transfer
books shall be open (and the conversion shall be deemed to
have been effected immediately prior to the close of
business on that day), but in all cases the conversion shall
be at the Conversion Rate in effect on the Conversion Date.
As promptly as practicable after the Conversion Date, the
Corporation shall cause the Transfer Agent to issue and
deliver to such Holder, at the expense of the Corporation
and in accordance with such Holder's delivery instructions,
a certificate or certificates for the number of full shares
of Common Stock to which such Holder shall be entitled and
cash with respect to any fractional interest in a share of
Common Stock as provided in Section 4.7 below. The
Corporation shall accept and act upon one or more Notices of
Conversion in the order in which such notices shall be
received by the Transfer Agent in accordance with the
foregoing notice procedures.
4.7 Fractional Shares of Common Stock. No
fractional shares of Common Stock or scrip shall be issued
upon conversion of Series C Shares. If more than one Series
C Share shall be surrendered for conversion at any one time
by the same Holder, the number of full shares of Common
Stock issuable upon conversion of such Series C Shares shall
be computed on the basis of the aggregate number of Series C
Shares so surrendered. Instead of any fractional shares of
Common Stock which otherwise would be issuable upon
conversion of any Series C Shares, the Corporation shall pay
a cash adjustment in respect of such fractional interest
based upon the Market Price in effect at the close of
business on the last business day prior to the Conversion
Date.
4.8 Taxes. All shares of Common Stock issued
upon conversion of Series C Shares shall be validly issued,
fully paid and nonassessable. The Corporation shall pay any
and all documentary stamp or similar issue or transfer taxes
that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of Series C Shares
pursuant hereto. The Corporation shall not, however, be
required or pay any tax which may be payable in respect of
any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the Series C
Shares so converted shall have been registered, and no such
issue or delivery shall be made unless and until the person
requesting such transfer shall have paid to the Corporation
the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax shall have
been paid or that no such tax shall be payable.
4.9 Surrendered Series C Shares. All
certificates representing Series C Shares which shall be
converted shall be appropriately cancelled on the books of
the Corporation, and the Series C Shares so converted
represented by such certificates shall be restored to the
status of authorized but unissued Series C Shares.
4.10 Available Common Stock and Series C Shares.
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 Series C Shares, such number of shares of
Common Stock as shall from time to time be sufficient to
effect a conversion of all outstanding Series C Shares under
this Section 4, as such number may from time to time be
adjusted pursuant thereto, 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
Series C Shares, the Corporation shall promptly take such
corporate action as may, in the opinion of its counsel and
subject to any necessary approval of its stockholders, be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient
for such purpose. The Corporation shall at all times
reserve and keep available out of its authorized but
unissued Series C Shares, solely for the purpose of issuing
Share Dividends, such number of Series C Shares as shall
from time to time be sufficient to issue all such Share
Dividends, and if at any time the number of authorized but
unissued Series C Shares shall not be sufficient to issue
all such Share Dividends, the Corporation shall promptly
take such corporate action as may, in the opinion of its
counsel and subject to any necessary approval of its
stockholders, be necessary to increase its authorized but
unissued shares of Series C Shares to such number of shares
as shall be sufficient for such purpose.
4.11 Notice to Holders. Promptly upon the
occurrence of any event which shall require an adjustment to
the conversion rights of the Series C Shares, the
Corporation shall mail to each Holder at the Holder's
address as it appears in the stock records of the
Corporation, a notice describing such event and the
adjustment. Upon any adjustment in the Conversion Rate or
Target Threshold, the Corporation shall mail to each Holder
at the Holder's address as it appears in the stock records
of the Corporation a notice setting forth the adjusted
Conversion Rate or Target Threshold and the method of
calculation thereof. Any such adjustment shall be
conclusive evidence of the correctness of the adjustment,
absent manifest error. In the event that the Company shall
(a) propose at any time to offer for subscription pro rata
to the holders of any class or series of its stock any
additional shares of stock of any class or series or other
rights or (b) effect any transaction of the type described
in Section 4.4 hereof involving a change in the Common
Stock, then, in connection with each such event, the Company
shall send to the Holders of the Series C Shares at least 10
days' prior written notice of the date on which a record
shall be taken for making such offer or, in the case of (b),
for voting on any such transaction or, if no vote of
stockholders shall be required, when such transaction shall
take place (and specifying the time on which the holders of
Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such
event).
RESOLVED FURTHER, that the President or Vice
President and the Secretary or any Assistant Secretary of
the Corporation are each authorized to do or cause to be
done all such acts or things and to make, execute and
deliver or cause to be made, executed and delivered all such
agreements, documents, instruments and certificates in the
name and on behalf of the Corporation or otherwise as they
deem necessary, desirable or appropriate to execute or carry
out the purpose and intent of the foregoing resolution.
IN WITNESS WHEREOF, we have executed and
subscribed this Certificate and do affirm the foregoing as
true under the penalties of perjury as of this 23rd day of
December, 1996.
PHOENIX INFORMATION SYSTEMS CORP.
By:______________________________
Title:________________________
_________________________
Secretary
