-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E3pFdydoRx8Y4j0DrmQIYm6SKBKRpZOQowJIx/CHh/XG46UHPlcejG2dWS35/0TE F05NWraZTx3D7U2qZ7zIDQ== 0000950134-97-001107.txt : 19970222 0000950134-97-001107.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950134-97-001107 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHOENIX INFORMATION SYSTEMS CORP CENTRAL INDEX KEY: 0000792157 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 133337797 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26532 FILM NUMBER: 97534993 BUSINESS ADDRESS: STREET 1: 100 SECOND AVE SOUTH STREET 2: STE 1100 CITY: ST PETERSBURG STATE: FL ZIP: 33701 BUSINESS PHONE: 8138947674 MAIL ADDRESS: STREET 1: 100 SECOND AVE STREET 2: STE 1100 CITY: ST PETERSBERG STATE: FL ZIP: 33701 FORMER COMPANY: FORMER CONFORMED NAME: DYNASTY TRAVEL GROUP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CS PRIMO CORP DATE OF NAME CHANGE: 19910718 10-Q 1 PHOENIX INFORMATION SYSTEMS, CORP. 10-Q 12/31/96 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. 2 PHOENIX INFORMATION SYSTEMS CORP. INDEX
PART I. FINANCIAL INFORMATION 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
3 PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS
ASSETS DECEMBER 31, 1996 MARCH 31, 1996 ------------------ --------------- (UNAUDITED) 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 ============== ==============
See accompanying notes. 3 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 -----------
Three Months Nine Months Cumulative Ended December 31, Ended December 31, Since 1996 1995 1996 1995 April 1, 1989 ------------ ------------ ------------ ------------ ------------- 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 ============ ============ ============ ============
See accompanying notes. 4 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 -----------
Nine Months Ended December 31, Cumulative ---------------------------- Since 1996 1995 April 1, 1989 ------------ ------------ ------------- 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) ------------ ------------ ------------
See accompanying notes. 5 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 -----------
Nine Months Ended December 31, Cumulative ---------------------------- Since 1996 1995 April 1, 1989 ------------ ------------ ------------- 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 ============ ============ ============
See accompanying notes. 6 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 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 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 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 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 12 The following individuals were declared duly elected as directors of the Company:
Votes Votes For Against --- ------- 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
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:
Votes Votes For Against Abstained --- ------- --------- Coopers & Lybrand L.L.P. 39,368,824 1,769,038 23,803
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:
For Against Abstained --- ------- --------- Increase of shares 38,526,523 2,538,564 75,403
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 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 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 15 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT DESCRIPTION - -------------- ------------------- 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
15 EX-3 2 CERT. OF AMENDMENT OF CERT. OF INC. OF PHOENIX 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. 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 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 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 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 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 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 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). 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 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 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 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. 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 EX-27 3 FINANCIAL DATA SCHEDULE
5 9-MOS MAR-31-1997 APR-01-1996 DEC-31-1996 9,669,160 0 253,607 0 0 10,536,232 3,383,901 0 19,970,760 1,675,510 0 0 26,496 479,475 15,328,066 19,970,760 686,580 834,202 0 9,142,732 0 0 0 (8,154,485) 0 0 0 0 0 (8,154,485) (.18) 0
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