<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission File Number: 0-26532
PHOENIX INFORMATION SYSTEMS CORP.
- ------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3337797
- -------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
-------------------------
Not Applicable
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
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 .
------- -------
As of January 31, 1996, the Registrant had 48,755,229 shares of common stock
issued and outstanding.
<PAGE> 2
PHOENIX INFORMATION SYSTEMS CORP.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1996 and
December 31, 1996 (Unaudited) 3
Unaudited Consolidated Statements of Operations
Three Months and Nine Months ended
December 31, 1996 and
December 31, 1995 and Inception to
December 31, 1996 4
Unaudited Consolidated Statements of Cash Flows
Nine Months ended
December 31, 1996 and
December 31, 1995 and Inception to
December 31, 1996 5 - 6
Notes to Financial Statements (Unaudited) 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 -10
PART II. OTHER INFORMATION 11-13
SIGNATURE PAGE 14
EXHIBIT INDEX 15
</TABLE>
<PAGE> 3
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, 1996 MARCH 31, 1996
------------------ ---------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,669,160 $ 2,078,510
Prepaids 522,289 135,474
Trade receivables 253,607 78,622
Receivable from related parties 91,176 65,469
-------------- --------------
Total current assets 10,536,232 2,358,075
Property and equipment, net 1,516,912 1,882,549
Deposits and other 137,622 110,360
Investment in American Aviation Ltd. 7,500,000 --
Due from joint venture partner -- 737,662
Goodwill, net 279,994 394,071
-------------- --------------
Total assets $ 19,970,760 $ 5,482,717
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 105,629 $ 300,773
Accounts payable 1,145,542 2,688,530
Accrued payroll and payroll taxes 313,680 272,582
Accrued interest -- 15,507
Dividend payable 110,659 --
-------------- --------------
Total current liabilities 1,675,510 3,277,392
Payable to related parties -- 1,046,633
Notes payable, less current portion 96,668 173,075
Accrued compensation expense 677,250 332,250
-------------- --------------
Total liabilities 2,449,428 4,829,350
-------------- --------------
Minority Interest 1,687,295 --
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
2,649,583 shares issued and outstanding at December 31, 1996 26,496 --
Common stock, $.01 par value, 125,000,000 shares authorized,
47,947,552 and 45,722,618 shares issued and outstanding
at December 31,1996 and March 31, 1996, respectively 479,475 457,226
Additional paid-in capital 43,552,647 20,176,237
Losses that have accumulated during the development stage (28,134,581) (19,980,096)
-------------- --------------
15,924,037 653,367
Treasury stock (90,000) --
-------------- --------------
Total stockholders' equity 15,834,037 653,367
-------------- --------------
Total liabilities and stockholders' equity $ 19,970,760 $ 5,482,717
============== ==============
</TABLE>
See accompanying notes.
3
<PAGE> 4
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(a development stage company)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months and nine months ended December 31, 1996 and 1995
and cumulative for the period from inception of development
stage activities, April 1, 1989, through December 31, 1996
-----------
<TABLE>
<CAPTION>
Three Months Nine Months Cumulative
Ended December 31, Ended December 31, Since
1996 1995 1996 1995 April 1, 1989
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Start-up and organizational expenses $ (3,566,833) $ (2,598,347) $ (9,142,732) $ (6,604,124) $(31,509,076)
Travel commissions, net 81,649 89,560 280,153 265,910 804,209
Reservation revenues 155,527 164,672 406,427 249,394 765,530
License fee income 6,000 6,000 18,000 18,000 84,000
Interest and dividend income 27,848 6,279 94,410 21,618 144,436
Management fee income -- -- -- -- 138,021
Other revenues 19,764 -- 35,212 -- 35,212
------------ ------------ ------------ ------------ ------------
Net loss before minority interest
in net loss of subsidiary (3,276,045) (2,331,836) (8,308,530) (6,049,202) (29,537,668)
------------ ------------ ------------ ------------ ------------
Minority interest in net loss of subsidiary 154,045 221,446 154,045 595,861 1,403,087
------------ ------------ ------------ ------------ ------------
Net loss $ (3,122,000) $ (2,110,390) $ (8,154,485) $ (5,453,341) $(28,134,581)
============ ============ ============ ============ ============
Net loss per common share
outstanding $ ( . 07) $ (.05) $ (.18) $ (.13)
============ ============ ============ ============
Weighted average number of common
shares outstanding 46,944,500 42,606,773 46,374,262 41,027,365
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(a development stage company)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended December 31, 1996 and 1995
and cumulative for the period from inception of development
stage activities, April 1, 1989, through December 31, 1996
-----------
<TABLE>
<CAPTION>
Nine Months
Ended December 31, Cumulative
---------------------------- Since
1996 1995 April 1, 1989
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (8,154,485) $ (5,453,341) $(28,134,581)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense 834,568 587,579 2,239,175
Compensation paid through issuance of stock 345,000 225,000 925,452
Transaction fee -- -- 1,140,000
Services paid through issuance of stock 225,510 518,370 1,923,817
Rent paid through in-kind contribution 227,280 255,690 738,660
Minority interest in net loss of subsidiary (154,045) (595,861) (1,403,087)
Uncollectible receivable from Joint Venture Partner 510,382 -- 510,382
Other (21,277) -- 136,708
------------ ------------ ------------
(6,187,067) (4,462,563) (21,923,474)
Changes in assets and liabilities:
Prepaids, deposits and trade receivables (276,132) (258,960) (535,903)
Accounts payable (1,542,988) 847,166 522,134
Accrued payroll and payroll taxes 41,098 (46,738) 257,103
Accrued interest (15,507) (68,204) 200,885
------------ ------------ ------------
Net cash used in operating activities (7,980,596) (3,989,299) (21,479,255)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (395,162) (894,076) (2,619,978)
Investment in American Aviation Ltd. (7,500,000) -- (7,500,000)
------------ ------------ ------------
Net cash used in investing activities (7,895,162) (894,076) (10,119,978)
------------ ------------ ------------
</TABLE>
See accompanying notes.
5
<PAGE> 6
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(a development stage company)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended December 31, 1996 and 1995
and cumulative for the period from inception of development
stage activities, April 1, 1989, through December 31, 1996
-----------
<TABLE>
<CAPTION>
Nine Months
Ended December 31, Cumulative
---------------------------- Since
1996 1995 April 1, 1989
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from financing activities:
Issuance of common and preferred stock $ 8,750,557 $ 579,425 $ 10,608,652
Issuance of preferred stock-related party 14,690,522 -- 14,690,522
Investment by Joint Venture Partner 1,500,000 -- 1,500,000
Stock subscriptions -- -- 1,297,000
Proceeds from notes payable -- 423,000 538,000
Payments on notes payable (65,705) (200,469) (391,881)
Proceeds from related parties -- 2,454,865 15,529,818
Payments to related parties (1,272,340) -- (2,379,286)
Payments on capital lease obligation (5,851) (7,247) 6,343
Payments of preferred stock dividends (130,775) -- (130,775)
------------ ------------ ------------
Net cash provided by financing activities 23,466,408 3,249,574 41,268,393
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 7,590,650 (1,633,801) 9,669,160
Cash and cash equivalents, beginning of period 2,078,510 1,864,581 --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 9,669,160 $ 230,780 $ 9,669,160
============ ============ ============
</TABLE>
See accompanying notes.
6
<PAGE> 7
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(unaudited)
NOTE A
The accompanying consolidated financial statements include the accounts of
Phoenix Information Systems Corp. ("Phoenix Information") and its subsidiaries,
Phoenix Systems Group, Inc. (wholly owned since March 27, 1995), Phoenix
Systems Ltd. (wholly owned since November 11, 1993), Hainan Phoenix Information
Systems, Ltd. (70% owned since November 22, 1993 and 55% owned since November
15, 1996) and American International Travel Agency, Inc. (wholly owned since
September 15, 1994 and sold in November, 1996). The consolidated group of
companies is collectively referred to herein as "Phoenix". All significant
intercompany accounts and transactions have been eliminated.
On November 15, 1996, in a trilateral agreement between Phoenix, China
Southern, and the Company's former Joint Venture partner, Hainan Airlines,
China Southern acquired the entire equity interest held by Hainan Airlines for
$2,580,000. Furthermore, China Southern agreed to invest an additional
$4,780,000 in cash and real estate capital contributions in exchange for an
additional 15% interest in the Joint Venture; raising China Southern's stake to
45%.
On November 20, 1996, the disinterested members of the Board of Directors of
Phoenix approved the sale of American International Travel Agency, Ltd. to
Visitors Services, Inc. (a Company controlled by Robert P. Gordon, Chairman of
the Board of Phoenix) for 31,579 shares of Phoenix's common stock valued at
$90,000.
NOTE B
On December 23, 1996, Phoenix acquired for $7,500,000 a 25% interest in
American Aviation Limited, 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, 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 Phoenix's major shareholders, of
833,333 shares of the Company'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 Company, is a non-managing member
of S-C Phoenix Holdings, L.L.C. ("Holdings"), with respect to its investment in
Phoenix. Holdings is a general partner of S-C.
7
<PAGE> 8
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 of Phoenix ("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.
NOTE C
The financial information reflects all normal recurring adjustments that,
in the opinion of management, are deemed necessary for a fair presentation of
the results for the interim periods. The results for the interim periods are
not necessarily indicative of the results to be expected for the year.
NOTE D
The attached summarized financial information does not include all
disclosures required to be included in a complete set of financial statements
prepared in conformity with generally accepted accounting principles. The Form
10-K, for the fiscal year ended March 31, 1996 should be read in conjunction
with the data herein.
8
<PAGE> 9
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
INTRODUCTORY STATEMENT
Phoenix Information Systems Corp. ("Phoenix" or the "Company") is a
development-stage information systems and services company that has developed
airline and hotel travel reservation systems.
In fiscal 1996, Phoenix commenced operations in the United States,
China and Russia. Efforts are under way to enlist additional airlines, hotels
and other travel service providers. While Phoenix has now commenced operations,
the Company has only a brief operating history and has yet to generate
significant revenues or earnings. Consequently, Phoenix's continued existence
has depended, primarily, upon its ability to raise capital.
In China, Phoenix has installed and begun to operate its advanced
computerized travel reservation system for domestic airlines. Phoenix provides
state-of-the-art, travel-related information services to China through its 55%
owned joint venture with China Southern Airlines Company, Ltd.
RESULTS OF OPERATIONS
During the nine months ended December 31, 1996, and the fiscal years
ended March 31, 1996, 1995 and 1994, the Company sustained net losses of
$8,154,485, $9,704,318, $4,841,824 and $2,567,932, respectively. These losses
may continue for a presently undetermined time.
While Phoenix has concentrated its sales efforts in China, Russia and
other countries, the Company has also focused on small domestic carriers that
could utilize the Company's reservation system. In fiscal 1995, Phoenix entered
into an Agreement with Eastwind Airlines, Inc. ("Eastwind") to provide Eastwind
with a complete reservation system to manage all sales, airport and operations
functions. In addition, Phoenix implemented a reservation center that processes
all Eastwind reservations as of the second quarter of fiscal 1996. Furthermore,
in May 1996, the Company commenced commercial operations with Laker Airlines.
For the quarter ended December 31, 1996, the Company had start-up and
organizational expenses of $3,566,833 compared to $2,598,347 for the quarter
ended December 31, 1995. The expanding start-up and organizational expenses in
the quarter ended December 31, 1996 as compared to the quarter ended December
31, 1995, reflects principally the addition of marketing and administrative
employees as the Company's focus shifts from product development to generation
of customers and sales and the write-off of an uncollectible receivable from
the former joint venture partner.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
Working Capital; Financial Instability
As of December 31, 1996, Phoenix had stockholders' equity of
$15,834,037 and working capital of $8,860,722. Furthermore, the balance sheet
reflects a $7,500,000 investment in American Aviation Ltd. (See Note B).
Phoenix has not generated any significant revenues, earnings or history of
operations from inception through December 31, 1996. Accordingly, the Company
has periodically issued equity securities to fund its operating activities.
In December 1996, Phoenix issued 833,333 shares of the Series C
Convertible Preferred Stock for $15,000,000 and purchased a 25% interest in
American Aviation Ltd. for $7,500,000 (See Note B). The balance of the funds
raised will be utilized for operations.
Reference is made to the Company's Form 10-K for the fiscal year ended
March 31, 1996, for a complete description of certain financing transactions
entered into by the Company to meet its operating and investing activities.
10
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings:
Ungerleider v. Robert P. Gordon, Phoenix Information Systems Inc., et al.
On August 7, 1996, the District Court granted Phoenix's motion to dismiss
substantial portions of Plaintiff's claims. The court rejected Plaintiff's
claims of fraudulent inducement to enter into the Settlement Agreement, which
effectively precludes Plaintiff from trying to enforce a finders fee agreement
or any of the options, payments, or other rights which he released as part of
the Settlement Agreement. Plaintiff was given leave to amend his Complaint, but
the court's order required him to do so in a manner consistent with the court's
order, which precludes Plaintiff's claims related to alleged oral promises made
prior to the signing of the Settlement Agreement. On August 22, 1996, Plaintiff
filed a Second Amended Complaint, which in its first eight counts essentially
reiterated the claims which the District Court dismissed on August 7, 1996.
Plaintiff also has sued Phoenix for allegedly participating in repossessing 1.2
million shares of Phoenix stock from Plaintiff and failing to perform oral
promises which Plaintiff contends were part of the Settlement Agreement. The
Defendants have moved to dismiss or strike the Second Amended Complaint, in
part because the allegations contradict the rulings contained in the District
Court's August 7, 1996 order. The case was referred to mediation for settlement
discussions. However, mediation has been postponed because Plaintiff's counsel
moved for and was granted leave to withdraw from the case as reflected by the
court's September 2, 1996 order. On January 16, 1997, new counsel entered an
appearance on behalf of Plaintiff.
Reference is made to Item 3 of the Company's Form 10-K, for the fiscal year
ended March 31, 1996, for additional information regarding this proceeding.
Charles Chang and Juliette Chang v. Robert P. Gordon and Phoenix Information
Systems Corp.
The motion of defendants Robert P. Gordon and Phoenix to dismiss the Amended
Complaint in this action has been fully submitted and is awaiting decision. The
Court has stayed discovery in the action pending a decision on the motion to
dismiss.
Reference is made to Item 3 of the Company's Form 10-K for the fiscal year
ended March 31, 1996, for additional information regarding this proceeding.
ITEM 2. Changes in Securities: None
ITEM 3. Defaults Upon Senior Securities: None
ITEM 4. Submissions of Matters to a Vote of Security Holders:
The Annual Meeting of shareholders of Phoenix Information Systems Corp. was
held on November 20, 1996 at the Four Seasons Hotel, New York, N.Y. On the
record date, there were 46,376,563 Common Shares of the Company issued and
outstanding.
11
<PAGE> 12
The following individuals were declared duly elected as directors of the
Company:
<TABLE>
<CAPTION>
Votes Votes
For Against
--- -------
<S> <C> <C>
Robert P. Gordon 40,178,692 982,973
Xenophon L. Sanders 40,178,692 982,973
Frank A. Cappiello 40,178,692 982,973
Robert J. Conrads 40,178,692 982,973
Chen Feng 40,178,692 982,973
Paul W. Henry 40,178,692 982,973
W. James Peet 40,178,692 982,973
</TABLE>
On November 20, 1996, Captain Yu Yan'en, President of China Southern Airlines
Company Ltd. was appointed a member of the Board of Directors to replace Chen
Feng who resigned, effective November 1, 1996.
Coopers and Lybrand L.L.P. was approved as the Company's independent
accountants to audit the Company's books for the fiscal year ending March 31,
1997 by the following votes:
<TABLE>
<CAPTION>
Votes Votes
For Against Abstained
--- ------- ---------
<S> <C> <C> <C>
Coopers & Lybrand L.L.P. 39,368,824 1,769,038 23,803
</TABLE>
The Certificate of Incorporation was amended to increase the number of
authorized shares of Common Stock, $ .01 par value, from 75,000,000 shares to
125,000,000 shares by the following votes:
<TABLE>
<CAPTION>
For Against Abstained
--- ------- ---------
<S> <C> <C> <C>
Increase of shares 38,526,523 2,538,564 75,403
</TABLE>
ITEM 5. Other Information:
Effective February 10, 1997, Mr. Delbert F. Bloss has been appointed Chief
Executive Officer. As CEO, Mr. Bloss will oversee all aspects of daily
operations, including marketing, sales, financial, and administrative matters.
Mr. Robert P. Gordon, Phoenix's Chairman, will remain actively involved in the
Company and will continue to direct the Company's long term strategic plan.
On November 20, 1996, the Registrant re-elected its auditor, Coopers &
Lybrand L.L.P. ("Coopers & Lybrand"). On January 17, 1997, Coopers & Lybrand
notified the Registrant that the client-auditor relationship between the
Registrant and Coopers & Lybrand had ceased.
There were no disagreements between Coopers & Lybrand and Phoenix on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure. Phoenix hereby reiterates, as required by the
Form 8-K rules, the previously disclosed fact that Coopers & Lybrand rendered
an opinion, for the year ended March 31, 1996, that there was substantial doubt
as to the Registrant's ability to continue as a going concern. However, neither
Coopers & Lybrand nor the Company has cited this or any other reason for the
cessation of the client-auditor relationship.
12
<PAGE> 13
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
3) Certificate of Amendment of the Certificate of Incorporation
increasing the number of authorized common shares dated December 10,
1996
Certificate of Amendment of Certificate of Designation of Series A
Convertible Preferred Stock dated November 20, 1996
Certificate of Designation of Series C Convertible Preferred Stock
dated December 23, 1996
Certificate of Correction to the Certificate of Designation of Series
C Convertible Preferred Stock dated December 23, 1996
11) Earnings Per Share - See Consolidated Statement of Operations
27) Financial Data Schedule
(b) Reports on Form 8-K
See Note B for the acquisition of a 25% interest in American Aviation
Limited.
See Item 5 for a change in auditors.
13
<PAGE> 14
PHOENIX INFORMATION SYSTEMS CORP.
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: February 13, 1997 /s/ ROBERT P. GORDON
--------------------------------------
Robert P. Gordon, Chairman of the Board
/s/ LEONARD S. OSTFELD
--------------------------------------
Leonard S. Ostfeld, Vice President and
Chief Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- -------------- -------------------
<S> <S>
3 Certificate of Amendment of the Certificate of Incorporation
increasing the number of authorized common shares dated December 10,
1996
Certificate of Amendment of Certificate of Designation of Series A
Convertible Preferred Stock dated November 20, 1996
Certificate of Designation of Series C Convertible Preferred Stock
dated December 23, 1996
Certificate of Correction to the Certificate of Designation of Series
C Convertible Preferred Stock dated December 23, 1996
11 Earnings Per Share - See Consolidated Statement of Operations
27 Financial Data Schedule
</TABLE>
15
<PAGE> 1
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
PHOENIX INFORMATION SYSTEMS CORP.
PURSUANT TO SECTION 242 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------------------
The undersigned, being a duly elected officer of Phoenix
Information Systems Corp., a Delaware corporation (the "Corporation"), for the
purpose of amending the Certificate of Incorporation of the Corporation
pursuant to Section 242 of the General Corporation Law of the State of
Delaware, do hereby certify as follows:
1. The name of the Corporation is Phoenix Information Systems
Corp.
2. The Corporation's Certificate of Incorporation was filed
on April 7, 1986 with the Secretary of State and was amended from time to time
thereafter and the Board of Directors deem it advisable to further amend such
Certificate of Incorporation as permitted by Section 242 of the General
Corporation Law of the State of Delaware to increase the number of authorized
shares of Common Stock of the Corporation from 75,000,000 to 125,000,00 shares
of Common Stock.
3. Article "FOURTH" of the Corporation's Certificate of
Incorporation is herby amended by changing the first paragraph thereof to
increase the number of authorized shares of the Common Stock of the
Corporation. As further amended, the first paragraph of such Article shall
read as follows:
"FOURTH: The aggregate number of shares which the Corporation
shall have authority to issue is one hundred thirty million
(130,000,000) shares, of which one hundred twenty-five million
(125,000,000) shares shall be Common Stock, par value of one
($.01) cent per share and five million (5,000,000) shares shall
be Preferred Stock, par value of one ($.01) cent per share."
4. The amendment was authorized by the Board of Directors at
a duly held special meeting of the Board of Directors of the Corporation on
September 25, 1996, and by a majority of the stockholders of the Corporation
present at a duly held annual meeting of stockholders on November 20, 1996.
<PAGE> 2
2
IN WITNESS WHEREOF, the undersigned executed this Certificate of
Amendment this 10th day of December, 1996 and affirms that the statements
contained herein are true under penalties of perjury.
PHOENIX INFORMATION SYSTEMS CORP.
/s/ Robert P. Gordon
----------------------------------------------------
Robert P. Gordon
Chairman/Chief Executive Officer
ATTEST:
/s/ Paul W. Henry
- ------------------------------------------------
Paul W. Henry
Secretary
<PAGE> 3
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATION OF
SERIES A CONVERTIBLE PREFERRED
STOCK, AS AMENDED ON SEPTEMBER 30, 1996
OF
PHOENIX INFORMATION SYSTEMS CORP.
PURSUANT TO SECTION 242 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
------------------------------
The undersigned being a duly elected officer of Phoenix
Information Systems Corp., a Delaware corporation (the "Corporation"), for the
purpose of amending the Certificate of Designation of Series A Convertible
Preferred Stock of the Corporation pursuant to Section 242 of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
i. The name of the Corporation is Phoenix Information Systems
Corp.
ii. The Corporation's Certificate of Designation of Series A
Convertible Preferred Stock was filed on April 4, 1996 with the Secretary of
State and was amended as filed with the Secretary of State on September 30,
1996 and the Board of Directors deem it advisable to further amend said
Certificate of Designation as permitted by Section 242 of the General Corpora-
tion Law of the State of Delaware to provide for the automatic conversion of
the Series A Convertible Preferred Stock on September 30, 1998.
iii. Section 4.A. of the Corporation's Certificate of
Designation of Series A Convertible Preferred Stock is to be amended to provide
for automatic conversion of Series A Convertible Preferred Stock into Common
Stock. As further amended, such Section shall read as follows:
"4. Conversion Rights - Common Stock
A. Number of Series A Shares. Each Series A Share
shall be convertible, at the option of the Holder thereof, at any
time and from time to time into that number of shares of Common
Stock obtained by dividing the Liquidation Preference of such
Series A Share by the "Conversion Price" determined in accordance
with Paragraph 4.B as follows: (1) one-quarter of the Series A
Shares remaining outstanding (981,150 shares) as of the date of
this Certificate of Designation shall be convertible commencing
October 1, 1996; (ii) one-quarter shall be convertible commencing
November 1, 1996; (iii) one-quarter shall be convertible
<PAGE> 4
4
commencing December 1, 1996; and (iv) one-quarter shall be
convertible commencing January 1, 1997; provided, however,
notwithstanding the foregoing, the conversion right of each
Holder shall be limited, solely to the extent required, from time
to time, such that in no instance shall the maximum number of
shares of Common Stock into which the Holder may convert the
Series A Shares exceed, at any time, an amount equal to the
remainder of (1) 4.99% of the then issued and outstanding shares
of Common Stock of the Corporation following such conversion,
minus (ii) the number of shares of Common Stock of the
Corporation held by such Holder. Notwithstanding the foregoing,
each Series A Share outstanding on September 30, 1998, shall
automatically be converted into Common Stock on such date at the
Conversion Price, and September 30, 1998 shall be deemed the
Conversion Date (as hereafter defined) with respect to such
conversion without the requirement of a delivery of a Notice of
Conversion."
iv. The amendment was authorized by the unanimous written
consent of the Board of Directors and the holders of the Corporation's Series A
Convertible Preferred Shares on November 20, 1996.
IN WITNESS WHEREOF, the undersigned executed this Certificate of
Amendment this 20th day of November 1996 and affirms that the statements
contained herein are true under penalties of perjury.
PHOENIX INFORMATION SYSTEMS CORP.
By: /s/Robert P. Gordon
----------------------------------
Name: Robert P. Gordon
--------------------------------
Title:Chairman/Chief Executive Officer
--------------------------------
ATTEST:
/s/ Paul W. Henry
- -----------------
Paul W. Henry
Secretary
<PAGE> 5
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.a 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.b 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.c 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.d 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
<PAGE> 6
6
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.a 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.b 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 (A)
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; (B)
effect a sale of all or substantially all of the Corporation's assets, a Merger
or a Liquidation; (C) 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 (D) declare or pay any dividends on
Common Stock.
4. Conversion Rights--Common Stock.
4.a 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 (i) the amount of Share
Dividends that would have accrued under
<PAGE> 7
7
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 (ii) Share Dividends actually paid to such Holder.
4.b 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.c 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.d Adjustments Upon Issuances of Shares and Certain
Events.
(i) 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.
(ii) 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.
(iii) 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.
(iv) 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
<PAGE> 8
8
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:
(A) in any transaction described in paragraphs (a)
or (b) above;
(B) upon conversion of the Series C Shares;
(C) 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
(D) 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).
(v) For the purposes of any computation to be made
in accordance with Section 4.4(d), the following provisions shall be
applicable:
(A) 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).
<PAGE> 9
9
(B) 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.
(C) 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.
(D) 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).
(E) 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.e 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.f 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
<PAGE> 10
10
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.g 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.h 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.i 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.j 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.k 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
<PAGE> 11
11
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: /s/ Robert P. Gordon
-----------------------
Title: Chairman/Chief Executive Officer
--------------------------------
/s/ Paul W. Henry
- -----------------
Secretary
<PAGE> 12
12
CERTIFICATE OF CORRECTION
TO THE CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF
SERIES C CONVERTIBLE PREFERRED STOCK OF
PHOENIX INFORMATION SYSTEMS CORP.
PHOENIX INFORMATION SYSTEMS CORP., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware,
This Certificate of Correction to the Certificate of
Designation, Preferences and Rights of Series C Convertible Preferred Stock of
Phoenix Information Systems Corp., filed with the Secretary of State of
Delaware on December 20, 1996, is being filed to make null and void said
Certificate.
Said Certificate was filed without proper authorization from
the Board of Directors of the Corporation.
<PAGE> 13
13
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: /s/ Robert P. Gordon
----------------------
Title: Chairman/Chief Executive Officer
---------------------------------
/s/ Paul W. Henry
- -----------------
Secretary
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<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,669,160
<SECURITIES> 0
<RECEIVABLES> 253,607
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0
26,496
<COMMON> 479,475
<OTHER-SE> 15,328,066
<TOTAL-LIABILITY-AND-EQUITY> 19,970,760
<SALES> 686,580
<TOTAL-REVENUES> 834,202
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