AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1997
REGISTRATION STATEMENT NO. 333-
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
H.T.E., INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 7389 59-2133858
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
DENNIS J. HARWARD
CHAIRMAN OF THE BOARD, PRESIDENT,
AND CHIEF EXECUTIVE OFFICER
H.T.E., INC.
390 NORTH ORANGE AVENUE, SUITE 2000 390 NORTH ORANGE AVENUE, SUITE 2000
ORLANDO, FLORIDA 32801 ORLANDO, FLORIDA 32801
(407) 841-3235 (407) 841-3235
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
- --------------------------------------------------------------------------------
COPIES OF COMMUNICATIONS TO:
RANDOLPH H. FIELDS, ESQ.
GREENBERG, TRAURIG, HOFFMAN, RICHARD A. HEINLE, ESQ.
LIPOFF, ROSEN & QUENTEL, P.A. FOLEY & LARDNER
111 NORTH ORANGE AVENUE, SUITE 2050 111 NORTH ORANGE AVENUE, SUITE 1800
ORLANDO, FLORIDA 32801 ORLANDO, FLORIDA 32801
PHONE (407) 420-1000 PHONE (407) 423-7656
FAX (407) 420-5909 FAX (407) 648-1743
- -----------------------------------------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Maximum
TITLE OF EACH CLASS Aggregate Amount of
OF SECURITIES TO BE REGISTERED Offering Price(1)(2) Registration Fee
- --------------------------------------------------------------------------------
Common Stock, $0.01 par value $37,375,500 $ 11,326
================================================================================
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
(2) Includes shares of Common Stock which may be purchased by the
Underwriters pursuant to an over-allotment option.
----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 28, 1997
2,500,000 SHARES
[LOGO]
H.T.E., INC.
COMMON STOCK
------------
Of the 2,500,000 shares of Common Stock offered hereby 1,950,000 are being
offered by H.T.E., Inc. ("HTE" or the "Company") and 550,000 shares are being
offered by certain selling shareholders (the "Selling Shareholders"). The
Company will not receive any proceeds from the sale of the shares from the
Selling Shareholders. See "Principal and Selling Shareholders." Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price of the Common
Stock will be between $11.00 and $13.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has made application to list the Common Stock on the
Nasdaq National Market under the symbol "HTEI."
----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES THROUGH .
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2) SELLING SHAREHOLDERS
- --------------------------------------------------------------------------------
Per Share ..... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)....... $ $ $ $
================================================================================
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $700,000.
(3) The Company has granted to the Underwriters a 45-day option to purchase
up to 375,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to the Company and Proceeds to the Selling Shareholders will be
$ , $ , $ and $ , respectively. See
"Underwriting."
----------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject
to certain conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part. It is expected
that the certificates for the shares of Common Stock will be available for
delivery at the offices of Volpe, Welty & Company L.L.C., One Maritime Plaza,
San Francisco, California on or about , 1997.
VOLPE, WELTY & COMPANY LLC JANNEY MONTGOMERY SCOTT INC.
The date of this Prospectus is , 1997
<PAGE>
INSIDE FLAP GRAPHIC
HTE TOTAL ENTERPRISE SOLUTION
[CIRCULAR REPRESENTATION]
PUBLIC FINANCIAL
SAFETY SYSTEMS
SYSTEMS
COMMUNITY UTILITIES
SERVICE
SYSTEMS
[INSIDE FOLDOUT COVER]
FINANCIAL APPLICATIONS [PICTURE]
UTILITY APPLICATIONS
[PICTURE]
OPPOSITE PAGE
COMMUNITY SERVICES APPLICATIONS
[PICTURE]
PUBLIC SAFETY
APPLICATIONS
[PICTURE]
----------
This Prospectus includes tradenames, trademarks and references to
intellectual property owned by other companies.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY
THE INFORMATION DISCUSSED UNDER "RISK FACTORS." EXCEPT AS SET FORTH IN THE
CONSOLIDATED FINANCIAL STATEMENTS AND UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THE PROSPECTUS (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION, (II) GIVES EFFECT TO A 53-FOR-ONE SPLIT (THE "STOCK
SPLIT") OF THE REDEEMABLE PREFERRED STOCK, CLASS A COMMON STOCK AND CLASS C
COMMON STOCK, (III) REFLECTS CONVERSION OF ALL OUTSTANDING REDEEMABLE PREFERRED
STOCK, CLASS A COMMON STOCK, AND CLASS C COMMON STOCK ON A ONE-FOR-ONE BASIS
INTO SHARES OF THE NEWLY AUTHORIZED COMMON STOCK ("CONVERSIONS"), (IV) GIVES
EFFECT TO THE RECAPITALIZATION (AS DEFINED IN "DESCRIPTION OF CAPITAL
STOCK--RECAPITALIZATION") TO BECOME EFFECTIVE CONCURRENTLY WITH THIS OFFERING,
AND (V) REFERENCE TO A "FISCAL" YEAR MEANS THE NINE MONTH PERIOD ENDED DECEMBER
31, 1996 AND THE TWELVE MONTH PERIODS ENDED MARCH 31 OF EACH YEAR ENDED PRIOR
THERETO. THE COMPANY HAS CHANGED ITS FISCAL YEAR END TO DECEMBER 31 EFFECTIVE
DECEMBER 31, 1996. SEE "UNDERWRITING."
THE COMPANY
HTE develops, markets, implements and supports fully-integrated
enterprise-wide software applications designed specifically for public sector
organizations, including state, county and city governments, other municipal
agencies and publicly owned utilities. For the past 15 years, the Company has
focused its applications, business and marketing exclusively on the public
sector and has established itself as a market leader. HTE's fully-integrated
enterprise-wide software applications are designed to enable public sector
organizations to improve delivery of services, reduce costs, enhance revenue
collection, operate successfully within budgetary constraints, comply with
government regulations and improve overall operating efficiencies. The Company's
Total Enterprise Solution currently includes 35 applications addressing four
functional areas: financial management, community services, public safety and
utility management. The Company's products operate as integrated suites of
applications or as stand-alone applications and function with a variety of
computer and network hardware, operating systems, database software and desktop
applications provided by other vendors.
The public sector marketplace is composed of state, county and city
governments, other municipal agencies and publicly owned utilities. Like many
private sector businesses, public sector organizations are facing increasing
pressure to improve delivery of goods and services while striving to reduce
costs and generate additional revenue. In response, public sector organizations
are employing information technology solutions in an effort to streamline and
automate administrative intensive processes, improve timeliness and quality of
services and generally enhance operating efficiencies. In 1996, state and local
government agencies spent approximately $34.5 billion on information technology
and related products according to G2 Research, Inc. This total included
approximately $5.0 billion for software, $6.7 billion for external services and
$7.4 billion for hardware. Approximately $15.4 billion was spent on internal
services such as in-house MIS departments.
In the 1970s and 1980s, local governments and utility companies
began to use computerized operations management systems principally based on
mainframe computers and later based on minicomputers. These legacy systems
typically were developed on a custom basis using proprietary operating systems
and database software. As a result, these systems are often difficult and
expensive to maintain, update and change. In recent years, a number of software
providers have offered "point solutions" that focus on a single function and are
not interoperable with other software applications. Additionally, certain
vendors offer generalized software applications that frequently are not
specifically tailored to the nuances of the public market and do not enable
information sharing across multiple departments. Many public sector
organizations currently are faced with a pressing need to integrate
mission-critical functions and databases by replacing stand-alone applications
and customized software with solutions that manage the flow of information
across the enterprise.
HTE offers fully-integrated enterprise-wide software solutions designed to
automate and integrate the operations of public sector organizations. The
applications in the Company's Financial Management System are
3
<PAGE>
based on government fund accounting and provide integrated financial management
functions including the general ledger, budgeting, purchasing and asset
management. The Company's Community Services System provides a centralized land
and location database solution which expedites access to property data, building
licenses and permits, planning and zoning processes and tax and billing
collections. Public Safety applications offer police, fire and rescue entities
and other emergency personnel a complete public safety solution through an
integrated suite of applications which provide immediate field access to vital
information. The Company's Utility Systems facilitates electric, water and gas
utility services by automating tasks such as customer location maintenance,
meter reading maintenance, bill processing, delinquencies, penalties, refunds
and write-offs. All of the Company's applications are designed to work together
seamlessly and allow users to share functions and eliminate redundent data and
repetitive tasks.
In addition to offering a comprehensive suite of applications, the Company
provides maintenance services and a complete range of professional services,
including system planning and implementation, project management, training and
education, and custom applications analysis, design and development. The Company
markets and sells its products through a direct sales force. The Company's focus
on the public sector has allowed it to develop significant expertise regarding
public sector organizations and to design feature-rich solutions that address
the specific needs of these organizations. As of December 31, 1996, the Company
had over 1,000 customers in the U.S. and Canada, including installations in all
50 U.S. states.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock offered by:
The Company ................................................. 1,950,000 shares
The Selling Shareholders ................................... 550,000 shares
Common Stock to be outstanding after this offering ........... 7,313,651 shares(1)
Use of Proceeds ............................................... Repayment of indebtedness, working capital and
other general corporate purposes and potential
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol ....................... HTEI
<FN>
- ----------
(1) Excludes 954,000 shares of Common Stock reserved for issuance pursuant to
the Company's 1997 Executive Incentive Compensation Plan and 53,000
options issued to an employee exercisable as of January 1, 1997. See
"Management--1997 Executive Incentive Compensation Plan."
</FN>
</TABLE>
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31,
-------------------------------------------- -------------------------------------
PRO FORMA
1993(1)(2) 1994(1)(2) 1995(1)(2) 1996(2) 1995(1)(2) 1996(2) 1996(3)
---------- ---------- ---------- ---------- ------------ ---------- ------------
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Total Revenue ................ $11,315 $14,584 $19,707 $30,200 $20,673 $28,688 $28,688
Income (loss) from operations 17 (1,019) 955 637 (1,393) 1,606 1,606
Net income (loss) ............ (86) (692) 463 299 (858) 834 953
Earnings (loss) per
common share ............... $ (0.03) $ (0.20) $ 0.11 $ 0.05 $ (0.16) $ 0.15 $ 0.13
Weighted average number
of common shares outstanding 3,106 3,504 4,311 5,481 5,481 5,481 7,431
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------
PRO FORMA
AS
ACTUAL ADJUSTED(4)
------ -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .............................................................. $ 740 $18,764
Working capital ........................................................................ (410) 19,979
Total assets ........................................................................... 24,781 42,804
Notes payable to related parties, less current portion ................................. 240 --
Total stockholders' equity (deficit) .................. ................................ (722) 24,329
</TABLE>
- ----------
(1) Net income (loss) is presented on a pro forma basis to reflect historical
data as adjusted for all income being taxed as a C corporation.
(2) Pro forma earnings (loss) per common share and the pro forma weighted
average number of common shares outstanding reflects the Company's
historical data as adjusted for the Stock Split, the options and stock
issued during the period commencing 12 months prior to the initial filing of
the proposed public offering, the Recapitalization and the Conversions. For
purposes of the pro forma earnings (loss) per common share, the treasury
stock method has been used assuming an initial offering price of $12.00 per
share.
(3) Reflects the historical statement of operations for the nine months ended
December 31, 1996, as adjusted for (i) the decrease in interest expense (and
related tax effect) as if the net proceeds of the initial public offering
were used to pay off the Company's line of credit, long-term debt and notes
payable to related parties as of April 1, 1996, and (ii) the conversion of
the Class C common stock as of the date it was issued. The pro forma
earnings (loss) per common share and weighted average number of shares
outstanding reflect the effects of the public offering in addition to the
adjustments described in (2) above.
(4) Reflects the Company's historical data adjusted for the Conversions and the
initial public offering as if they had occurred on December 31, 1996. The
net proceeds from the initial public offering assume a public offering price
of $12.00 per share, less underwriting discounts and commissions and
estimated offering expenses payable by the Company. The net proceeds of the
public offering have been applied to pay off the Company's line of credit
and notes payable to related parties.
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY.
UNEVEN PATTERNS OF QUARTERLY OPERATING RESULTS. The Company does not believe
that the percentage increases in revenues achieved in prior periods should be
indicative of anticipated results in future periods. The Company's revenues and
operating results are subject to quarterly and other fluctuations resulting from
a variety of factors, including the effect of budgeting and purchasing practices
of its customers, the length of customer evaluation processes for the Company's
solutions, the timing of customer system conversions, and the Company's sales
practices. Historically, the Company has recognized a decrease in software
licenses in the fiscal quarter ended June 30 and achieved its highest income
in the fiscal quarter ended March 31 primarily due to the Company's sales
practices. This quarterly trend may not continue in the future. Because a
substantial portion of revenues may not be generated until the end of each
quarter, the Company may not be able to adjust or reduce spending in response to
sales shortfalls or delays. These factors can cause significant variations in
operating results from quarter to quarter. The Company believes that quarter to
quarter comparisons of its financial results are not necessarily meaningful and
should not be relied upon as an indication of future performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Operating Results."
OPERATING LEVERAGE. Consistent with many companies in the software industry,
the Company's business model is characterized by a high degree of operating
leverage. The Company's expense levels are based, in significant part, on the
Company's expectations of future revenues and are therefore relatively fixed in
the short term. If revenue levels fall below expectations, net income is likely
to be adversely affected. There can be no assurance that the Company will be
able to increase or even maintain its current level of profitability on a
quarterly or annual basis in the future.
RISKS ASSOCIATED WITH PUBLIC SECTOR MARKET. Substantially all of the
Company's revenues to date have been attributable to sales of software and
services to state, county and city governments, other municipal agencies and
publicly owned utilities. The Company expects that sales to such public sector
customers will account for substantially all of the Company's revenues in the
future. Virtually all of these public sector organizations have existing
information processing systems. Accordingly, in order to continue to increase
its sales to this market, the Company must persuade these organizations to
replace or upgrade existing information processing systems. Change to an
organization's information system is a costly, time consuming and operationally
disruptive process for the customer. Conversion to a new information processing
system must typically be done without any disruption of service and,
accordingly, the Company's potential customers perceive a high degree of risk in
connection with the adoption of a new system. In addition, the purchase of the
Company's products involves a significant commitment of capital, with attendant
delays frequently associated with large capital expenditures by an organization.
For these and other reasons, the sales cycle associated with the purchase of the
Company's products is typically lengthy and subject to a number of significant
risks, including customers' budgetary constraints and internal acceptance
reviews, over which the Company has little or no control. There can be no
assurance that potential customers for the Company's products in the public
sector market will continue to make information processing system replacement
decisions at rates necessary to maintain demand for the Company's products and
sustain market growth or that the Company's products will be accepted by public
sector organizations that consider replacing their current information
processing systems. A significant reduction in demand or acceptance of the
Company's products could have a material adverse effect on the Company's
business, financial condition and results of operations.
COMPETITION. The Company faces competition from a variety of software vendors
which offer products and services similar to those offered by the Company and
from companies offering to develop custom software. Certain competitors have
greater technical, marketing and financial resources than the Company. The
Company also competes with in-house management information services staff. The
6
<PAGE>
Company believes competitive differentiators in the public sector market are
functionality, product flexibility, ease of implementation in adapting product
to individual customers' needs without custom programming, enterprise product
breadth, individual product features, service reputation and price.
The Company believes the market is highly fragmented with a large number of
competitors that vary in size, primary computer platforms and overall product
scope. Within its markets, the Company competes from time to time with (i)
custom software and services providers such as Andersen Consulting, KPMG Peat
Marwick and Oracle Corporation, (ii) companies which focus on selected segments
of the public sector market including PeopleSoft, Inc., Systems Computer &
Technology, Inc., J.D. Edwards & Company, Inc. and (iii) a significant number of
smaller private companies. Many of these companies currently do not focus
exclusively on the public sector or offer fully-integrated enterprise-wide
software applications. There can be no assurance that such competitors will not
develop products or offer services that are superior to the Company's products
or services or that achieve greater market acceptance.
The Company could face additional competition as other established and
emerging companies enter the public sector software application market and new
products and technologies are introduced. Increased competition could result in
price reductions, fewer customer orders, reduced gross margins and loss of
market share, any of which could materially adversely affect the Company's
business, operating results and financial condition. In addition, current and
potential competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third-parties, thereby increasing the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Further, competitive pressures could require the Company to reduce the
price of its software licenses and related services, which could materially
adversely affect the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
would have a material adverse effect upon the Company's business, operating
results and financial condition. See "Business--Competition."
ABILITY TO RESPOND TO TECHNOLOGICAL CHANGE. The Company's future success will
depend significantly on its ability to enhance its current products and develop
or acquire and market new products which keep pace with technological
developments and evolving industry standards as well as respond to changes in
customer needs. There can be no assurance that the Company will be successful in
developing or acquiring product enhancements or new products to address changing
technologies and customer requirements. See "Business--Strategy."
MANAGEMENT OF GROWTH. The Company has recently experienced a period of
significant revenue growth and an expansion in the number of its employees, the
scope of its operating and financial systems and the geographic area of its
operations. This growth has resulted in new and increased responsibility for
management personnel and has placed additional strain upon the Company's
operational, administrative and financial resources. To accommodate recent
growth, compete effectively and manage potential future growth, the Company must
continue to implement and improve information systems, procedures and controls
and expand, train, motivate and manage its staff. These demands will require the
addition of new management personnel. The Company's future success will depend
in part on the ability to attract and retain personnel. There can be no
assurance that the Company's personnel, systems, procedures and controls will be
adequate to support the Company's future operations. Any failure to implement
and improve the Company's operational, financial and management systems or to
expand, train, motivate or manage employees could have a material adverse effect
on the Company's business, operating results and financial condition. See "Risk
Factors--Dependence on Key Personnel" and "Business--Employees."
DEPENDENCE ON KEY PERSONNEL. The Company's continued success will depend upon
the availability and performance of its senior management team, particularly
Dennis J. Harward, President and Chief Executive Officer, and Jack L. Harward,
Executive Vice President, each of whom possess
7
<PAGE>
unique and extensive industry knowledge and experience. The Company currently
maintains a $3.0 million key-man life insurance policy on Dennis J. Harward.
Success will also depend to a significant degree upon the continuing
contributions of its key management, sales, marketing, customer support and
product development personnel. The loss of key management or technical personnel
could adversely affect the Company. The Company believes that its future success
will depend in large part upon its ability to attract and retain highly-skilled
managerial, sales, customer support and product development personnel. The
Company has at times experienced and continues to experience difficulty in
recruiting qualified personnel. Competition for qualified software development,
sales and other personnel is intense, and there can be no assurance that the
Company will be successful in attracting and retaining such personnel. See
"Management--Employment Agreements."
ACQUISITION RISK. As part of its growth strategy, the Company intends to
evaluate the acquisition of other companies, assets or product lines that would
complement or expand its existing business in attractive geographic or service
markets or that would broaden its customer relationships. Although the Company
periodically considers possible acquisitions, no specific acquisitions are being
negotiated. In addition, although the Company conducts due diligence reviews of
potential acquisition candidates, the Company may not be able to identify all
material liabilities or risks related to potential acquisition candidates. There
can be no assurance that the Company will be able to locate and acquire any
business, retain key personnel and customers of an acquired business or
integrate any acquired business successfully. Additionally, there can be no
assurance that financing for any acquisition, if necessary, will be available on
acceptable terms, if at all, or that the Company will be able to accomplish its
strategic objectives in connection with any acquisition. See
"Business--Strategy."
RISKS ASSOCIATED WITH EXPANDING SALES FORCE. To date, the Company has sold
its products and services through its direct sales force. The Company's ability
to achieve significant revenue growth in the future will depend in large part on
its success in recruiting and training sufficient sales personnel and
establishing and maintaining relationships with strategic partners. Although the
Company is currently investing, and plans to continue to invest, significant
resources to expand its sales force, the Company has at times experienced and
may continue to experience difficulty in recruiting qualified sales personnel.
There can be no assurance that the Company will be able to expand successfully
its sales force or that any such expansion will result in an increase in
revenues. Failure by the Company to expand its sales force could adversely
affect the Company's business, operating results and financial condition. See
"Business--Strategy" and "--Sales and Marketing."
DEPENDENCE ON KEY SUPPLIERS AND RELATIONSHIPS. The Company purchases certain
key components of its products, including the adapter code and certain
application development tools from single or limited source suppliers. For
certain of these components there are relatively few suppliers. The Company
currently has relatively few agreements that would assure delivery of such
components from such suppliers. Generally, these contracts are terminable by
either party upon 60 to 90 days notice. Establishing additional or replacement
suppliers for any of the numerous components used in the Company's products, if
required, may not be accomplished or could involve significant additional costs.
The ability of any of the Company's suppliers to provide functional components
in a timely manner, or the inability of the Company to locate qualified
alternative suppliers for components at a reasonable cost, could adversely
affect the Company's business, financial condition and results of operations.
The Company's success also depends in part upon its alliances and relationships
with leading hardware and software vendors. A change in these relationships
could have a material adverse effect on the results of operations and financial
condition while the Company seeks to establish alternative relationships. In
addition, substantially all of the Company's hardware revenues are derived from
the sale of IBM AS/400 systems in connection with the Company's Industry
Re-marketer agreement with IBM. Any change in this relationship potentially
could have an adverse effect on the Company's financial performance. The Company
may also need to establish additional alliances and relationships in order to
keep pace with evolutions in technology and enhance its service offerings, and
there can be no assurance such additional alliances will be established. See
"Business--HTE's Layered Software Architecture" and "--Sales and Marketing."
8
<PAGE>
RISKS ASSOCIATED WITH SALES TO GOVERNMENT AGENCIES. Government organizations
require compliance with various legal provisions and procurement regulations.
The adoption of new or modified procurement regulations could adversely affect
the Company by increasing costs to the Company of competing for sales or by
impacting the Company's ability to perform government contracts. Any violation
(intentional or otherwise) of these regulations could result in the imposition
of fines, and/or debarment from award of additional government contracts which
could have a material adverse effect on the Company.
RISK OF SOFTWARE DEFECTS. Software products as internally complex as those
developed by the Company may contain errors or defects, especially when first
introduced or when new versions or enhancements are released. Although the
Company has not experienced material adverse effects resulting from any such
defects or errors to date, there can be no assurance that defects and errors
will not be found after commencement of product shipments. Any such defects
could result in loss of revenues or delay market acceptance, which could have
a material adverse effect upon the Company's business, operating results and
financial condition. See "Business--Product Development."
PRODUCT LIABILITY. The Company markets to its customers complex,
mission-critical, enterprise-wide applications. The Company's license agreements
with its customers typically contain provisions designed to limit the Company's
exposure to potential product liability claims. It is possible, however, that
the limitation of liability provisions contained in the Company's license
agreements may not be effective as a result of existing or future federal, state
or local laws or ordinances or unfavorable judicial decisions. Although the
Company has not experienced any significant product liability claims to date,
the sale and support of software by the Company may entail the risk of such
claims, which may be substantial. A successful product liability claim brought
against the Company could have a material adverse effect upon the Company's
business, operating results and financial condition.
PROPRIETARY RIGHTS, RISKS OF INFRINGEMENT AND SOURCE CODE RELEASE. The
Company regards certain features of its internal operations, software and
documentation as confidential and proprietary, and relies on a combination of
contract and trade secret laws and other measures to protect its proprietary
intellectual property. The Company has no patents and, under existing copyright
laws, has only limited protection. The Company believes that, due to the rapid
rate of technological change in the computer software industry, trade secret and
copyright protection are less significant than factors such as the knowledge,
ability and experience of the Company's employees, frequent product enhancements
and timeliness and quality of support services.
The Company provides its products to customers under exclusive licenses,
which generally are non-transferable and have a perpetual term. The Company
generally licenses its products solely for the customer's internal operations
and only on designated computers. In certain circumstances, the Company makes
enterprise-wide licenses available for select applications. The Company provides
source code to its customers for several products and has escrowed its source
code for the benefit of all customers. The provision of source code may increase
the likelihood of misappropriation or other misuse of the Company's intellectual
property. See "Business--Intellectual Property, Proprietary Rights and
Licenses."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS; POSSIBLE ADVERSE EFFECT
ON FUTURE MARKET PRICES. Sales of a substantial number of shares of Common Stock
in the public market following this offering could adversely affect the market
price of the Common Stock. Upon completion of this offering, giving effect to
the Stock Split and Conversions and assuming no exercise of outstanding stock
options, the Company will have outstanding 7,313,651 shares of Common Stock
(based upon the number of shares outstanding as of December 31, 1996), of which
the 2,500,000 shares sold in this offering will be freely tradeable. Immediately
prior to the completion of the offering, it is expected that 5,363,651 shares of
Common Stock will be outstanding (based upon the number of shares outstanding as
of December 31, 1996), of which 550,000 shares will be sold in this offering by
the Selling Shareholders. Of the 4,813,651 such currently outstanding shares not
being sold in this offering, 4,558,494 shares are subject to agreements with the
Underwriters under which such shares may not be offered, sold or
9
<PAGE>
otherwise disposed of for a period of 180 days after the date of this
Prospectus without the prior written consent of Volpe, Welty & Company L.L.C.
The remaining 255,157 shares will not be transferable, pursuant to Rule 144 of
the Securities Act until the expiration of their two year holding periods. In
addition, outstanding options to purchase 53,000 shares of Common Stock were
fully vested as of December 31, 1996, all of which options are subject to
180-day lock-up agreements. In recent offerings in which it has served as lead
manager of underwriters, Volpe, Welty & Company L.L.C. has consented to early
releases from lock-up agreements only in a limited number of circumstances,
after considering all circumstances that it deemed to be relevant. Volpe, Welty
& Company L.L.C. will, however, have complete discretion in determining whether
to consent to early releases from the lock-up agreements delivered in connection
with this offering, and no assurance can be given that it will not consent to
the early release of all or a portion of the shares of Common Stock and options
covered by such lock-up agreements. After the date of this Prospectus, the
Company intends to register the Common Stock issued or to be issued under the
Company's 1997 Executive Incentive Compensation Plan (the "Executive Incentive
Plan"). See "Description of Capital Stock--Registration Rights" and "Shares
Eligible for Future Sale."
FORWARD-LOOKING INFORMATION. In connection with a January 1997 interview by a
Central Florida-area software industry publication, the Company's Chief
Executive Officer disclosed revenue forecasts of $42 million for the 12 months
ended March 31, 1997, $57 million for fiscal year 1998 and $100 million for
2000. Such revenue forecasts are forward-looking information and as such are
inherently subject to risk and uncertainty. Important factors which could cause
the Company's actual results to differ materially and adversely from the
projected revenue levels include each of those discussed elsewhere within this
"Risk Factors" section, as well as a failure by the Company to implement
successfully any aspect of its growth strategy during the applicable time
periods. See "Business--Strategy." Accordingly, there can be no assurance that
the Company will achieve such levels of revenues, or, if attained, what effect
such revenues will have on the Company's net earnings or earnings per share.
NO PRIOR TRADING MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK
PRICE. Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering. The initial public offering price
was determined through negotiations among the Company and the representatives of
the Underwriters based on several factors and may not be indicative of the
market price of the Common Stock after this offering. The market price of the
shares of Common Stock is likely to be highly volatile and may be significantly
affected by factors such as actual or anticipated fluctuations in the Company's
operating results, announcements of technological innovations, new products or
new contracts by the Company or its competitors, developments with respect to
patents, copyrights or proprietary rights, conditions and trends in the software
and other technology industries, adoption of new accounting standards affecting
the software industry, changes in financial estimates by securities analysts,
general market conditions and other factors. In addition, the stock market has
from time to time experienced significant price and volume fluctuations that
have particularly affected the market prices for the common stock of technology
companies. These broad market fluctuations may adversely affect the market price
of the Common Stock. In the past, following periods of volatility in the market
price of a particular company's securities, securities class action litigation
has often been brought against the company. There can be no assurance that such
litigation will not occur in the future with respect to the Company; such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect upon the
Company's business, operating results and financial condition. See
"Underwriting."
CONTROL BY PRINCIPAL SHAREHOLDERS, OFFICERS AND DIRECTORS. Upon completion of
this offering, the present directors, executive officers and principal
shareholders of the Company and their affiliates will beneficially own
approximately 65.8% of the outstanding Common Stock. As a result, these
shareholders will be able to exercise control over all matters requiring
shareholder approval, including the election of directors and approval of
significant corporate transactions. Such concentration of ownership may have the
effect of delaying or preventing a change in control of the Company. See
"Principal and Selling Shareholders."
10
<PAGE>
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS; ANTITAKEOVER EFFECTS. Certain
provisions of Florida law and the Company's Amended Articles of Incorporation
("Amended Articles") may deter or frustrate a takeover attempt of the Company
that a shareholder might consider in its best interest. The Company is subject
to the "affiliated transactions" and "control share acquisition" provisions of
the Florida Business Corporation Act. These provisions require, subject to
certain exceptions, that an "affiliated transaction" be approved by the holders
of two-thirds of the voting shares other than those beneficially owned by an
"interested shareholder" or by a majority of disinterested directors and that
voting rights be conferred on "control shares" acquired in specified control
share acquisitions generally only to the extent conferred by resolution approval
by the shareholders, excluding holders of shares defined as "interested shares."
The Company's Articles, among other things (i) provide that, any action required
or permitted to be taken by the shareholders of the Company may be effected only
at an annual or special meeting of shareholders, and not by written consent of
the shareholders, (ii) provide that special meetings of the shareholders may be
called only by the Board of Directors or upon the written demand of the holders
of not less than 50% of the votes entitled to be cast at a special meeting, and
(iii) establish certain advance notice procedures for nomination of candidates
for election as directors and for shareholder proposals to be considered at
annual shareholders' meetings. In addition, the Company will be authorized to
issue additional shares of Common Stock and five million shares of preferred
stock in one or more series, having terms fixed by the Board of Directors
without shareholder approval, including voting, dividend or liquidation rights
that could be greater than or senior to the rights of holders of Common Stock.
Issuance of additional shares of Common Stock or new shares of Preferred Stock
could also be used as an anti-takeover device. Except as set forth herein, the
Company has no current intentions or plans to issue additional Common Stock or
issue Preferred Stock. See "Description of Capital Stock."
BROAD MANAGEMENT DISCRETION AS TO USE OF PROCEEDS. The Company expects to use
the net proceeds from this offering to repay indebtedness, and for working
capital and general corporate purposes, including potential acquisitions. The
Company's management will retain broad discretion as to the allocation of a
substantial portion of the net proceeds from this offering. Pending such uses,
the Company intends to invest the net proceeds in short-term, investment-grade,
interest-bearing securities. See "Use of Proceeds."
DILUTION. Investors purchasing shares of Common Stock in this offering will
incur immediate and substantial dilution in the net tangible book value of the
Common Stock from the initial public offering price and will incur additional
dilution upon the exercise of stock options and warrants. See "Dilution."
THE COMPANY
HTE was incorporated in Florida in 1981. When used in this Prospectus,
unless the context requires otherwise, the terms "Company" and "HTE" refer to
H.T.E., Inc. The Company's principal executive offices are located at 390
North Orange Avenue, Suite 2000, Orlando, Florida 32801 and its telephone
number is (407) 841-3235.
USE OF PROCEEDS
The net proceeds from the sale of the 1,950,000 shares of Common Stock
offered by the Company will be approximately $21.1 million ($25.2 million if the
Underwriters' over-allotment option is exercised in full) at an assumed offering
price of $12.00 per share after deducting the aggregate underwriting discounts
and the estimated expenses of the offering. The Company intends to use a portion
of the proceeds to repay its revolving credit facility, which matures on June
30, 1998 and bears interest at the fluctuating prime rate plus 1 1/4 %. On
February 15, 1997, an aggregate of approximately $1.8 million was outstanding
under the revolving credit facility principally for working capital purposes.
Amounts repaid on the revolving credit facility may be reborrowed. The Company
further intends to
11
<PAGE>
repay $300,000 aggregate principal balance on notes payable to related parties
arising from the purchase of Bellamy Software Limited ("Bellamy") which notes
accrue interest at 10% per annum. The remainder of the net proceeds will be
retained for working capital and other general corporate purposes including, but
not limited to, future acquisitions. However, the Company does not currently
have any understanding or arrangement regarding any potential acquisition. Prior
to the use of the net proceeds of the offering, such proceeds will be placed in
interest-bearing bank accounts or invested in short-term United States
government securities or other short-term investment grade securities. The
Company will not receive any of the proceeds from the sale of Common Stock by
the Selling Shareholders.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently anticipates that it will retain future earnings, if any,
to fund the development and growth of its business and does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future. The
Company's revolving credit facility restricts the payment of dividends without
the consent of the bank.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996, (i) on an actual basis, and (ii) on a pro forma basis to
reflect the sale of 1,950,000 shares of Common Stock by the Company at an
assumed offering price of $12.00 per share (the midpoint of the estimated
initial public offering price range) after deducting estimated offering expenses
and underwriting discounts. Pro forma amounts give effect to the
Recapitalization and Conversions. See "Description of Capital Stock--
Recapitalization", "Use of Proceeds" and "Certain Transactions." This
information should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
PRO FORMA
AS
ACTUAL ADJUSTED(1)(2)
--------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to related parties, less current portion (3) .................. $ 240 $ --
------- --------
Mandatorily redeemable Preferred Stock, 7% cumulative, $.0002 par value,
convertible preferred stock (including accrued dividends of $432,542 at
December 31, 1996), 2,000,000 shares authorized; 1,769,494 shares issued
(liquidation preference of $3,246,000 at December 31, 1996), none
pro forma ................................................................. 4,303 --
Mandatorily redeemable Class C, Common Stock:
.0002 par value, 200,000 shares authorized;
63,600 shares issued; none pro forma ...................................... 119 --
------- --------
Stockholders' equity:
Preferred Stock, $.01 par value 5,000,000 shares authorized, no shares
outstanding .............................................................. -- --
Common Stock:
Class A:
$.0002 par value, 4,000,000 shares authorized; 3,530,557 shares issued; none
pro forma and pro forma as adjusted .................................... 1 --
Class B:
$.01 par value, 200,000 shares authorized; no shares outstanding ........ -- --
Common Stock, $.01 par value, 25,000,000 shares authorized, 7,313,651
shares pro forma(2)(4) .................................................. -- 73
Additional paid-in capital ................................................ 229 25,208
Accumulated deficit ....................................................... (947) (947)
Cumulative translation adjustment ......................................... (5) (5)
------- --------
Total stockholders' equity (deficit) ....................................... (722) 24,329
------- --------
Total capitalization ...................................................... $3,940 $24,329
======= ========
</TABLE>
- ----------
(1) Adjusted to give effect to the sale of 1,950,000 shares of Common
Stock offered by the Company at an estimated offering price of $12.00 per
share and the application of the net proceeds therefrom. See "Use of
Proceeds."
(2) Upon completion of this offering, assuming that the initial public
offering price is in excess of $10.25 per share, the Company's outstanding
Redeemable Preferred Stock, Class A Common Stock and Class C Common Stock
will be converted on a one-for-one basis into shares of newly authorized
Common Stock. Accordingly, the pro forma as adjusted column includes
adjustments to both the number of shares of Redeemable Preferred Stock,
Class A Common Stock and Class C Common Stock outstanding and additional
paid-in-capital resulting from the Conversions. See Notes 6, 7 and 16 of
Notes to Consolidated Financial Statements, "Company--Recapitalization",
"Use of Proceeds" and "Certain Transactions."
(3) For a description of the Company's debt, see Notes 3, 4 and 5 of Notes to
Consolidated Financial Statements.
(4) Excludes 954,000 shares of Common Stock reserved for issuance pursuant to
the 1997 Executive Incentive Compensation Plan. See "Management--1997
Executive Incentive Compensation Plan."
13
<PAGE>
DILUTION
The net tangible book value of the Company, at December 31, 1996, was
$(682,477) or $(0.13) per share of Common Stock. Net tangible book value per
share represents the total assets of the Company less intangible assets and
total liabilities, divided by 5,363,651 shares of Common Stock outstanding.
After giving effect to the sale of the 2,500,000 shares of Common Stock offered
hereby by the Company at an assumed initial public offering price of $12.00 per
share (the midpoint of the estimated initial public offering price range), and
after deducting estimated offering expenses and underwriting discounts, the pro
forma net tangible book value of the Company as of December 31, 1996 would have
been approximately $19.9 million or $2.73 per share of Common Stock. This
represents an immediate and substantial dilution to new investors purchasing
shares in this offering.
The following table illustrates the per share dilution:
<TABLE>
<CAPTION>
ASSUMED INITIAL PUBLIC OFFERING PRICE PER SHARE ..................... $12.00
<S> <C> <C>
Pro forma net tangible book value per share as of December 31, 1996 $(0.13)
Increase in net tangible book value per share attributable to this
offering and proceeds therefrom .................................. 2.86
----------
Pro forma net tangible book value per share after this offering .... 2.73
---------
Dilution per share to new investors (1) ............................. $ 9.27
=========
</TABLE>
(1) Determined by subtracting the pro forma net tangible book value per share
after this offering from the amount of cash paid by a new investor for a
share of Common Stock.
The following table summarizes on a pro forma basis as of December 31, 1996,
and after giving effect to this offering, the number of shares of Common Stock
purchased from the Company, the total consideration paid therefor (using an
assumed initial public offering price of $12.00 per share for the new investors)
and the average price per share paid by the existing shareholders and by the new
investors purchasing shares of Common Stock in this offering before deduction of
the estimated underwriting discounts and commissions and offering expenses
payable by the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1)
------------------------ -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders(2) 5,363,651 73.3% $ 3,731,876 13.8% $ 0.70
New investors ............ 1,950,000 26.7% 23,400,000 86.2% $12.00
------------ ---------- -------------- ----------
Total .................. 7,313,651 100.0% $27,131,876 100.0%
============ ========== ============== ==========
</TABLE>
- ----------
(1) Excludes 550,000 shares to be sold in this offering by certain Selling
Shareholders. See "Principal and Selling Shareholders." Sales by Selling
Shareholders in this offering will reduce the number of shares held by
existing shareholders to 4,813,651 or approximately 65.8% of the total
number of shares of Common Stock to be outstanding after this offering
(approximately 62.6% if the Underwriters' over-allotment option is exercised
in full), and will increase the number of shares held by new investors to
2,500,000, or approximately 34.2% of the total number of shares of Common
Stock to be outstanding after this offering (2,875,000 shares, or
approximately 37.4%, if the Underwriters' over-allotment option is exercised
in full).
(2) Includes shares of Common Stock issuable on Conversion of the Company's
outstanding Redeemable Preferred Stock, Class A Common Stock and Class C
Common Stock. See "Description of Capital Stock--Recapitalization",
"Description of Capital Stock" and Notes 6, 7 and 16 of Notes to
Consolidated Financial Statements.
The above computations assume (i) no exercise of the Underwriters'
over-allotment option, and (ii) no exercise of options outstanding as of
December 31, 1996. At December 31, 1996, the Company had options outstanding to
purchase 53,000 shares of Common Stock at a weighted average exercise price of
$1.81 per share. If all outstanding options as of December 31, 1996 are
exercised, there would be dilution of less than $0.01 per share to new
investors.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The following
selected consolidated financial data of the Company as of and for the nine
months ended December 31, 1995 and the fiscal years ended March 31, 1994 and
1993 have been derived from unaudited consolidated financial statements of the
Company. In the Company's opinion, such unaudited consolidated financial
statements reflect all adjustments, consisting only of normal recurring
adjustments (except for the effect of the change in the estimated life of
capitalized computer software development costs), necessary for a fair
presentation of the financial position and results of operations for such
periods. The results of operations for the nine months ended December 31, 1996
are not indicative of results that may be expected for the full year. The
selected consolidated financial data of the Company as of December 31, 1996 and
March 31, 1995 and 1996 and for the periods ended March 31, 1995 and 1996 and
December 31, 1996 have been derived from and are qualified by reference to the
Company's consolidated financial statements audited by Arthur Andersen LLP,
independent certified public accountants, included elsewhere herein.
The unaudited pro forma information for the nine month period ended December
31, 1996 set forth herein gives effect to the public offering, stock split,
Recapitalization and Conversions, as if such transactions had occurred on March
31, 1996. The unaudited pro forma information as of December 31, 1996, gives
effect to the public offering and Conversions as if such transactions had
occurred on December 31. 1996. For purposes of the pro forma presentation, the
public offering, Recapitalization and Conversions are based on an assumed
initial public offering price of $12.00 per share. The pro forma as adjusted
amounts give effect to this offering.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------
1993(1)(2) 1994(1)(2) 1995(1)(2) 1996(2)
---------- ----------- ---------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Software Licenses ................................... $ 4,834 $ 6,149 $ 9,808 $11,151
Professional Services ............................... 2,775 3,087 3,666 6,203
Hardware ............................................ 1,548 1,757 921 6,157
Maintenance And Other ............................... 2,158 3,591 5,311 6,689
---------- ----------- --------- ----------
Total Revenues ..................................... 11,315 14,584 19,706 30,200
---------- ----------- --------- ----------
Operating Expenses:
Cost of Software Licenses ........................... 536 1,379 1,280 3,396
Cost of Professional Services ....................... 2,567 2,942 3,452 5,029
Cost of Hardware .................................... 1,049 1,116 719 4,822
Cost of Maintenance and Other ....................... 1,183 2,090 3,246 3,118
Research and Development ............................ 1,162 1,604 2,006 3,491
Sales and Marketing ................................. 1,605 2,293 3,829 4,666
General and Administrative .......................... 3,196 4,179 4,219 5,041
---------- ----------- --------- ----------
Total Operating Expenses ........................... 11,298 15,603 18,751 29,563
---------- ----------- --------- ----------
Income (loss) From Operations ........................ 17 (1,019) 955 637
Other Expenses:
Interest Expense .................................... 161 135 104 127
---------- ----------- --------- ----------
Income (loss) Before Provision for Income Taxes ..... (144) (1,154) 851 510
Provision (benefit) for Income Taxes ................. 45 (109) 139 211
----------- --------- ---------- ----------
Net Income (loss) .................................... $ (189) $(1,045) $ 712 $ 299
=========== ========= ========== ==========
Pro Forma Provision (benefit) for Income Taxes ...... (103) (353) 249 --
---------- ----------- ---------- ----------
Pro Forma Net Income (loss) .......................... $ (86) $ (692) $ 463 $ 299
========== =========== ========== ==========
Pro Forma Net Income (loss) per
Common Share(3)(4) ................................. $ (0.03) $ (0.20) $ 0.11 $ 0.05
Pro Forma Weighted Average Number of Common and
Common Equivalents Shares Outstanding .............. 3,106 3,504 4,311 5,481
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
---------------------------------
PRO FORMA
1995(2) 1996(2) 1996(3)
------- --------- --------
<S> <C> <C> <C>
Income Statement Data:
Revenues:
Software Licenses ................................... $ 6,552 $ 9,139 $ 9,139
Professional Services ............................... 4,528 5,586 5,586
Hardware ............................................ 4,788 7,435 7,435
Maintenance And Other ............................... 4,805 6,528 6,528
---------- --------- ---------
Total Revenues ..................................... 20,673 28,688 28,688
---------- --------- ---------
Operating Expenses:
Cost of Software Licenses ........................... 2,647 2,402 2,402
Cost of Professional Services ....................... 3,823 3,223 3,223
Cost of Hardware .................................... 3,741 5,890 5,890
Cost of Maintenance and Other ....................... 2,317 2,216 2,216
Research and Development ............................ 2,586 3,729 3,729
Sales and Marketing ................................. 3,312 5,228 5,228
General and Administrative .......................... 3,640 4,394 4,394
---------- --------- --------
Total Operating Expenses ........................... 22,066 27,082 27,082
---------- --------- --------
Income (loss) From Operations ........................ (1,393) 1,606 1,606
Other Expenses:
Interest Expense .................................... 70 191 --
---------- --------- --------
Income (loss) Before Provision for Income Taxes ..... (1,463) 1,415 1,606
Provision (benefit) for Income Taxes ................. (605) 581 653
--------- --------- --------
Net Income (loss) .................................... $ (858) $ 834 $ 953
========= ========= ========
Pro Forma Provision (benefit) for Income Taxes ...... -- -- --
---------- --------- --------
Pro Forma Net Income (loss) .......................... $ (858) $ 834 $ 953
========== ========= ========
Pro Forma Net Income (loss) per
Common Share(3)(4) ................................. $ (0.16) $ 0.15 $ 0.13
Pro Forma Weighted Average Number of Common and
Common Equivalents Shares Outstanding .............. 5,481 5,481 7,431
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, AS OF DECEMBER 31, 1996
--------------------------------------------- -----------------------
PRO
1993 1994 1995 1996 ACTUAL FORMA(2)
---------- ---------- --------- ---------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............................. $ 599 $ 737 $ 1,653 $ 388 $ 740 $18,764
Working capital ....................................... (1,629) (3,188) (748) (916) (410) 19,979
Total assets .......................................... 8,980 8,180 13,786 17,941 24,781 42,804
Notes payable to related parties, less current portion 225 150 75 -- 240 --
Total stockholders' equity (deficit) .................. 714 (591) (629) (552) (722) 24,329
</TABLE>
(1) The pro forma net income (loss) for the years ended 1993, 1994 and 1995
reflects historical data as adjusted for all income being taxed as a C
corporation.
(2) Pro forma earnings (loss) per common share and the pro forma weighted
average number of common share outstanding reflects the Company's historical
data as adjusted for the Stock Split, the options and stock issued during
the period commencing 12 months prior to the initial filing of the proposed
public offering, the Recapitalization and the Conversions. For purposes of
the pro forma earnings (loss) per common share, the treasury stock method
has been used assuming an initial offering price of $12.00 per share.
(3) Reflects the historical statement of operations for the nine months ended
December 31, 1996, as adjusted for (i) the decrease in interest expense (and
related tax effect) as if the net proceeds of the initial public offering
were used to pay off the Company's line of credit, long-term debt and notes
payable to related parties as of April 1, 1996, and (ii) the conversion of
the Class C common stock as of the date it was issued. The pro forma
earnings (loss) per common share and weighted average number of shares
outstanding reflect the effects of the public offering in addition to the
adjustments described in (2) above.
(4) Reflects the Company's historical data adjusted for the Conversions and the
initial public offering as if they had occured on December 31, 1996. The net
proceeds from the initial public offering assume a public offering price of
$12.00 per share, less underwriting discounts and commissions and estimated
offering expenses payable by the Company. The net proceeds of the public
offering have been applied to pay off the Company's line of credit and notes
payable to related parties.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
HTE develops, markets, implements and supports fully-integrated
enterprise-wide software applications designed specifically for public sector
organizations, including state, county and city governments, other municipal
agencies and publicly owned utilities. HTE's software applications are designed
to enable public sector organizations to improve delivery of services, reduce
costs, enhance revenue collection, operate successfully within budgetary
constraints, comply with government regulations and improve overall operating
efficiencies. The Company's Total Enterprise Solution currently includes 35
applications addressing four functional areas: financial management, community
service, public safety and utility management. The Company's products operate as
integrated suites of applications or as stand-alone applications and function
with a variety of computer and network hardware, operating systems, database
software and desktop software provided by other vendors.
The Company provides its software applications and business solutions to
customers in public sector markets under license agreements and service
contracts. HTE's revenues are derived principally from (i) software licenses,
(ii) professional services, (iii) hardware and (iv) maintenance and other.
Revenues from software licenses are generated from contracts that grant the
right to use the Company's software products. Revenues from professional
services are derived from a variety of services, including project management,
custom programming, consulting, conversion and education programs, systems
planning and integration and other services. Hardware revenues include sales of
computers, data collection equipment, peripherals and related network and
communications products purchased from third-parties and sold by the Company to
its customers. Maintenance and other revenues include revenues associated with
software maintenance and support services.
The Company recognizes revenue from software licenses when the related
license agreement has been executed and the software has been shipped to the
customer, provided that no significant Company obligations remain related to the
software license and collection of the receivable is deemed probable. The
Company typically contracts professional services on a cost-plus-fixed-fee
basis, although the Company also provides certain services on a
time-and-material basis, depending on the overall project scope, project risks
and client requirements. Professional services are recognized as services are
performed. Hardware revenues are recognized at the time the products are
shipped. Revenues from maintenance and other are recognized ratably over the
term of the applicable maintenance agreement.
The sales cycle for the Company's systems is typically six to 18 months from
initial contact to contract signing. The product delivery cycle is variable
based on the customer's implementation plan. Complete product implementation
typically occurs within six to nine months, but can extend beyond nine months on
contracts involving significant and continuing customer service requirements,
particularly with enterprise-wide solutions. Accordingly, the product delivery
cycle depends upon the combination of products purchased and the defined
implementation plan.
The Company capitalizes software development for costs associated with the
development of product masters incurred subsequent to establishing technological
feasibility in accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." These costs relate primarily to the development of new
products and major enhancements to existing products to accommodate new markets
or platforms using existing technologies and programming methods. The
capitalized costs are amortized on a straight-line basis over a 36-month period,
commencing when each product is available to the market. Effective April 1,
1995, management changed the estimated useful life of capitalized computer
software development costs from 60 months to 36 months. As a result, the Company
recognized additional amortization expense of $1.3 million during the year ended
March 31, 1996. This change was reflected in the cost of software licenses and
resulted in an increase as a percentage of software licenses revenue from 18.8%
to 30.5% for the year ended March 31, 1996.
17
<PAGE>
In fiscal year 1995, the Company entered into a new Industry Re-marketer
agreement with IBM. Prior to fiscal 1996, the Company derived hardware revenues
primarily from royalties for customer referrals. This new arrangement resulted
in an increase of hardware revenues and associated costs of hardware. This
increase in revenue was derived principally from the sale of AS/400 systems.
The Company derives substantially all of its revenues from domestic
operations. In November 1996, HTE established a presence in Canada through the
acquisition of Bellamy. Effective December 31, 1996, the Company changed its
fiscal year end from March 31 to December 31 to conform to industry practices.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain revenue, expense and income items:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
----------------------------- -------------------
1994 1995 1996 1995 1996
--------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses ............................. 42.2% 49.8% 36.9% 31.7% 31.9%
Professional services ......................... 21.2 18.6 20.6 21.9 19.5
Hardware ...................................... 12.0 4.7 20.4 23.2 25.9
Maintenance and other ......................... 24.6 26.9 22.1 23.2 22.7
--------- -------- -------- --------- --------
Total revenues ............................... 100.0 100.0 100.0 100.0 100.0
--------- -------- -------- --------- --------
Operating expenses:
Cost of software licenses ..................... 9.5 6.5 11.2 12.8 8.4
Cost of professional services ................. 20.2 17.5 16.7 18.5 11.3
Cost of hardware .............................. 7.6 3.7 16.0 18.1 20.5
Cost of maintenance and other ................. 14.3 16.5 10.3 11.2 7.7
Research and development ...................... 11.0 10.2 11.6 12.5 13.0
Sales and marketing ........................... 15.7 19.4 15.4 16.0 18.2
General and administrative .................... 28.7 21.4 16.7 17.6 15.3
-------- -------- -------- -------- --------
Total operating expenses ..................... 107.0 95.2 97.9 106.7 94.4
-------- -------- -------- -------- --------
Income (loss) from operations .................. (7.0) 4.8 2.1 (6.7) 5.6
Other expenses:
Interest expense .............................. 0.9 0.5 0.4 0.3 0.7
-------- -------- -------- -------- --------
Income (loss) before provision for income taxes (7.9) 4.3 1.7 (7.0) 4.9
Provision (benefit) for income taxes
(pro forma 1994 and 1995) .................... (0.7) 0.7 0.7 (2.9) 2.0
-------- -------- -------- -------- --------
Net income (loss) (pro forma 1994 and 1995) ... (7.2)% 3.6% 1.0% (4.1)% 2.9%
======== ======== ======== ======== ========
</TABLE>
18
<PAGE>
COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
REVENUES. The Company's total revenues were $28.7 million for the nine months
ended December 31, 1996 compared to $20.7 million for the nine months ended
December 31, 1995, an increase of $8.0 million, or 38.8%. Revenues from software
licenses were $9.1 million for the nine months ended December 31, 1996 compared
to $6.6 million, an increase of $2.6 million or 39.5%, as a result of an
increase in the number of applications available for sale combined with the
benefits of an increased investment in sales and marketing. Revenues from
professional services were $5.6 million for the nine months ended December 31,
1996 compared to $4.5 million for the nine months ending December 31, 1995, an
increase of $1.1 million, or 23.4%, as the Company increased the number of its
service offerings. Hardware revenues were $7.4 million for the nine months ended
December 31, 1996 compared to $4.8 million for the nine months ended December
31, 1995, an increase of $2.6 million or 55.3%, as the Company expanded its
third-party re-marketing sales through IBM. Revenues from maintenance and other
were $6.5 million for the nine months ended December 31, 1996, compared to $4.8
million for the nine months ended December 31, 1995, an increase of $1.7
million, or 35.8%, as a result of maintenance contracts associated with new
software licenses, customer system upgrades and increases in the fees charged
for annual maintenance.
COST OF REVENUES. Cost of software licenses, which include third-party
royalties and amortization of computer software development costs, was $2.4
million for the nine months ended December 31, 1996 compared to $2.6 million for
the nine months ended December 31, 1995, a decrease of $245,000 or 9.3%. This
was due to the acceleration of amortization of computer software development
costs of $1.0 million during the year ended March 31, 1996 as a result of the
change in the estimated useful life from 60 months to 36 months. Taking into
account the change in estimated useful life adjustment, the normalized increase
was $755,000, or 45.8%, for the nine months ended December 31, 1996 compared to
the nine months ended December 31, 1995. This change was primarily due to
increased costs related to third-party public safety products. Cost of
professional services, which consists principally of personnel costs and other
costs related to the services business, was $3.2 million for the nine months
ended December 31, 1996 compared to $3.8 million for the nine months ended
December 31, 1995, a decrease of $600,000, or 15.7%, a result of minimizing
non-billable travel and other administrative costs as this line of business
expanded. Cost of hardware, which consists primarily of costs payable to vendors
for hardware, was $5.9 million for the nine months ended December 31, 1996
compared to $3.7 million for the nine months ended December 31, 1995, an
increase of $2.1 million, or 57.5%, which is directly related to increased sales
of hardware. Cost of maintenance and other, which includes cost of customer
support and documentation, for the nine months ended December 31, 1996 was $2.2
million compared to $2.3 million for the nine months ended December 31, 1995, a
decrease of $100,000 or 4.4%.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses are
comprised primarily of salaries and a portion of the Company's overhead for its
in-house staff and amounts paid to outside consultants to supplement the product
development efforts of its in-house staff. Research and development expenses
were $3.7 million for the nine months ended December 31, 1996 compared to $2.6
million for the nine months ended December 31, 1995, an increase of $1.1
million, or 44.2%, due to increased staffing levels and associated costs.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of salaries, commissions, travel and related benefits and
administrative costs allocated to the Company's sales and marketing
personnel. Sales and marketing expenses were $5.2 million for the nine months
ended December 31, 1996 compared to $3.3 million for the nine months ended
December 31, 1995, an increase of $1.9 million, or 57.8%. This increase was
attributable to the Company's expansion of its direct sales force, increased
marketing efforts, travel and other expenses related directly to increased
sales activity.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include the costs of corporate operations, finance and accounting, human
resources and other general operations of the Company. General and
administrative expenses were $4.4 million for the nine months ended December 31,
1996 compared to $3.6 million for the nine months ended December 31, 1995, an
increase
19
<PAGE>
of $754,000, or 20.7%. This increase was due to additional staffing in finance
and accounting, human resources and contract administration required to support
the Company's growth.
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1996 AND MARCH 31, 1995
REVENUES. The Company's total revenues were $30.2 million for the year ended
March 31, 1996 compared to $19.7 million for the year ended March 31, 1995, an
increase of $10.5 million, or 53.3%. Software licenses were $11.2 million for
the year ended March 31, 1996 compared to $9.8 million for the year ended March
31, 1995, an increase of $1.3 million, or 13.7%, as result of new software
licenses. Professional services were $6.2 million for the year ended March 31,
1996 compared to $3.7 million for the year ended March 31, 1995, an increase of
$2.5 million, or 69.2%, as the Company began to expand its professional services
business. Hardware revenues were $6.2 million for the year ended March 31, 1996
compared to $921,000 for the year ended March 31, 1995, an increase of $5.2
million, or 568.5%, as the Company entered into a new Industry Re-marketer
agreement with IBM. Revenues from maintenance and other were $6.7 million for
the year ended March 31, 1996 compared to $5.3 million for the year ended March
31, 1995, an increase of $1.4 million, or 25.9%, as a result of new software
licenses and customer system upgrades.
COST OF REVENUES. Cost of software licenses was $3.4 million for the year
ended March 31, 1996 compared to $1.3 million for the year ended March 31, 1995,
an increase of $2.1 million, or 165.3%. This increase is primarily due to the
acceleration of software development capitalization amortization of $1.3 million
during the year ended March 31, 1996 as a result of the change in useful life
from 60 months to 36 months. Taking into account the change in life adjustment,
the normalized increase from the year ended March 31, 1996 compared to the year
ended March, 31 1995 was $816,000, primarily due to additional costs associated
with third-party products. Cost of professional services was $5.0 million for
the year ended March 31, 1996 compared to $3.5 million for the year ended March
31, 1995, an increase of $1.6 million, or 45.7%, a result of expanding to offer
full service professional services. Cost of hardware revenues was $4.8 million
for the year ended March 31, 1996 compared to $719,000 for the year ended March
31, 1995, a $4.1 million increase, or 570.7%, directly related to the increased
revenue from year to year. Cost of maintenance and other for the year ended
March 31, 1996 was $3.1 million compared to $3.2 million for the year ended
March 31, 1995, a decrease of $128,000, or 4.0%.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$3.5 million for the year ended March 31, 1996 compared to $2.0 million for the
year ended March 31, 1995, an increase of $1.5 million, or 74.1%, due to
increased staffing levels and associated costs.
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $4.7
million for the year ended March 31, 1996, compared to the $3.8 million for
the year ended March 31, 1995, an increase of $837,000, or 21.9%. This
increase was attributable to travel and other expenses related directly to
increased sales activity.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$5.0 million for the year ended March 31, 1996 compared to $4.2 million for the
year ended March 31, 1995, an increase of $822,000, or 19.5%. This increase was
due to additional staffing and related expenses in finance and accounting, human
resources and contract administration required to support comparison expansion.
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1995 AND MARCH 31, 1994
REVENUES. The Company's total revenues were $19.7 million for the year ended
March 31, 1995 compared to $14.6 million for the year ended March 31, 1994, an
increase of $5.1 million, or 35.1%. Revenues from software licenses were $9.8
million for the year ended March 31, 1995 compared to $6.1 million for the year
ended March 31, 1994, an increase of $3.7 million, or 59.5%, as a result of
sales of new product offerings. Revenues from professional services were $3.7
million for the year ended March 31, 1995 compared to $3.1 million for the year
ended March 31, 1994, an increase of $579,000, or 18.8%, resulting from
increased training services related to new software licenses. Hardware revenues
20
<PAGE>
were $921,000 for the year ended March 31, 1995 compared to $1.8 million for the
year ended March 31, 1994, a decrease of $836,000, or 47.6%, due to changes in
royalty agreements from year to year. Revenues from maintenance and other were
$5.3 million for the year ended March 31, 1995 compared to $3.6 million for the
year ended March 31, 1994, an increase of $1.7 million, or 47.9% as a result of
new software licenses and customer system upgrades.
COST OF REVENUES. Cost of software licenses was $1.3 million for the year
ended March 31, 1995 compared to $1.4 million for the year ended March 31, 1994,
a decrease of $99,000 or 7.2%. Cost of professional services increased to $3.5
million for the year ended March 31, 1995 from $2.9 million for the year ended
March 31, 1994, an increase of $510,000, or 17.3%. Cost of hardware revenues was
$719,000 for the year ended March 31, 1995 compared to $1.1 million for the year
ended March 31, 1994, a decrease of $397,000, or 35.6%, related to change in
royalty agreements from year to year. Cost of maintenance and other increased to
$3.2 million for the year ended March 31, 1995 from to $2.1 million for the year
ended March 31, 1994, an increase of $1.2 million, or 55.3%.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$2.0 million for the year ended March 31, 1995 compared to $1.6 million for the
year ended March 31, 1994, an increase of $402,000, or 25.1%, due to increased
staffing levels and associated costs.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased to $3.8
million for the year ended March 31, 1995, from the $2.3 million for the year
ended March 31, 1994, an increase of $1.5 million, or 67.0%. The increase was
attributable to travel and other expenses related directly to increased sales
activity.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$4.2 million for the years ended March 31, 1995 and 1994.
21
<PAGE>
QUARTERLY OPERATING RESULTS
The following tables set forth certain unaudited quarterly results of
operations for each of the eight quarters ended December 31, 1996, together with
such data as a percentage of total revenue. In the opinion of management, this
quarterly information has been prepared on the same basis as the annual
Consolidated Financial Statements presented elsewhere in this Prospectus and
includes all material adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the information for the periods
presented when read in conjunction with the Consolidated Financial Statements
and the Notes thereto. The operating results for any quarter are not necessarily
indicative of results of the full year or of any future quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
------ ------- ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software Licenses ............................ $3,251 $ 1,435 $2,062 $3,055 $4,599 $1,036
Professional Services ........................ 965 1,602 1,574 1,352 1,675 1,701
Hardware ..................................... 251 872 1,412 2,504 1,369 2,300
Maintenance and Other ........................ 1,517 1,494 1,543 1,768 1,884 2,051
------ ------- ------ ------ ------ ------
Total Revenues .............................. 5,984 5,403 6,591 8,679 9,527 7,088
------ ------- ------ ------ ------ ------
Operating Expenses:
Cost of Software Licenses .................... 587 1,172 731 744 749 676
Cost of Professional Services ................ 917 1,314 1,259 1,250 1,206 1,056
Cost of Hardware ............................. 196 629 1,092 2,020 1,081 1,815
Cost of Maintenance and Other ................ 863 754 716 847 801 636
Research and Development ..................... 603 849 828 909 905 1,224
Sales and Marketing .......................... 1,097 1,039 1,011 1,262 1,354 1,332
General and Administrative ................... 1,292 1,121 1,152 1,367 1,401 1,251
------ ------- ------ ------ ------ ------
Total Operating Expenses .................... 5,555 6,878 6,789 8,399 7,497 7,990
------ ------- ------ ------ ------ ------
Income (loss) from Operations ................. 429 (1,475) (198) 280 2,030 (902)
Other Expenses:
Interest Expense ............................. 34 17 20 33 57 64
------ ------- ------ ------ ------ ------
Income (loss) before Provision for Income
Taxes ....................................... 395 (1,492) (218) 247 1,973 (966)
Provision (benefit) for Income Taxes ......... 65 (617) (90) 102 816 (397)
------ ------- ------ ------ ------ ------
Net Income (loss) ............................. $ 330 $ (875) $ (128) $ 145 $1,157 $ (569)
====== ======= ====== ====== ====== ======
</TABLE>
QUARTER ENDED
---------------------------
SEPT. 30, DEC. 31,
1996 1996
------------ -----------
Revenues:
Software Licenses ............................ $3,409 $ 4,694
Professional Services ........................ 1,578 2,307
Hardware ..................................... 1,914 3,221
Maintenance and Other ........................ 2,191 2,286
------------ -----------
Total Revenues .............................. 9,092 12,508
------------ -----------
Operating Expenses:
Cost of Software Licenses .................... 906 820
Cost of Professional Services ................ 1,109 1,058
Cost of Hardware ............................. 1,443 2,632
Cost of Maintenance and Other ................ 724 856
Research and Development ..................... 1,197 1,308
Sales and Marketing .......................... 2,098 1,798
General and Administrative ................... 1,355 1,788
------------ -----------
Total Operating Expenses .................... 8,832 10,260
------------ -----------
Income (loss) from Operations ................. 260 2,248
Other Expenses:
Interest Expense ............................. 61 66
------------ -----------
Income (loss) before Provision for Income
Taxes ....................................... 199 2,182
Provision (benefit) for Income Taxes ......... 82 896
----------- -----------
Net Income (loss) ............................. $ 117 $ 1,286
============ ===========
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
------------------------------------------------------------------------------------------
QUARTER ENDED
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
SOFTWARE LICENSES ................. 54.3% 26.6% 31.3% 35.2% 48.3% 14.6% 37.5% 37.5%
PROFESSIONAL SERVICES ............. 16.1 29.6 23.9 15.6 17.6 24.0 17.4 18.4
HARDWARE .......................... 4.2 16.1 21.4 28.8 14.3 32.5 21.0 25.8
MAINTENANCE AND OTHER ............. 25.4 27.7 23.4 20.4 19.8 28.9 24.1 18.3
----- ----- ----- ----- ----- ----- ----- -----
TOTAL REVENUES ................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- -----
OPERATING EXPENSES:
COST OF SOFTWARE LICENSES ......... 9.8 21.7 11.1 8.6 7.9 9.5 9.9 6.5
COST OF PROFESSIONAL SERVICES ..... 15.3 24.3 19.1 14.4 12.7 14.9 12.2 8.5
COST OF HARDWARE .................. 3.3 11.6 16.6 23.3 11.3 25.6 15.9 21.0
COST OF MAINTENANCE AND OTHER ..... 14.4 14.0 10.9 9.8 8.4 9.0 7.9 6.8
RESEARCH AND DEVELOPMENT .......... 10.1 15.7 12.6 10.5 9.5 17.3 13.2 10.5
SALES AND MARKETING ............... 18.3 19.2 15.3 14.5 14.2 18.8 23.1 14.4
GENERAL AND ADMINISTRATIVE ......... 21.6 20.8 17.5 15.7 14.7 17.6 14.9 14.3
--------------------- --------- ----------- ------------ -------- ------- -------
TOTAL OPERATING EXPENSES ......... 92.8 127.3 103.1 96.8 78.7 112.7 97.1 82.0
--------------------- --------- ----------- ------------ ------- ------- -------
INCOME (LOSS) FROM OPERATIONS ...... 7.2 (27.3) (3.1) 3.2 21.3 (12.7) 2.9 18.0
OTHER EXPENSES:
INTEREST EXPENSE .................. 0.6 0.3 0.3 0.4 0.6 0.9 0.7 0.5
--------------------- --------- ----------- ------------ -------- ------- -------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES................... 6.6 (27.6) (3.4) 2.8 20.7 (13.6) 2.2 17.5
PROVISION (BENEFIT) FOR
INCOME TAXES ...................... 1.1 (11.4) (1.4) 1.2 8.6 (5.6) 0.9 7.2
--------------------- --------- ----------- ------------ -------- ------- -------
NET INCOME (LOSS) .................. 5.5% (16.2)% (2.0)% 1.6% 12.1% (8.0)% 1.3% 10.3%
================================= =========== =========== ==============================
</TABLE>
22
<PAGE>
The Company's revenues and operating results are subject to quarterly and
other fluctuations resulting from a variety of factors, including the effect of
budgeting and purchasing practices of its customers, the length of the customer
evaluation process for Company's solutions, the timing of customer system
conversions, and the Company's sales practices. Historically, the Company has
experienced a decrease in software license fees in the fiscal quarter ended June
30 and achieved its highest income in the fiscal quarter ended March 31 due to
the Company's sales practices. Recently, the Company implemented a new sales and
marketing program which the Company believes will moderate such fluctuations.
Based on this change in sales practices combined with the change in fiscal
year-end, the Company believes that historical quarterly operating data should
not be relied upon as an indicator of future performance. However, the Company
has often recognized a substantial portion of its revenues during the last month
of each quarter. Since a significant portion of the Company's operating expenses
is relatively fixed, the Company may not be able to adjust or reduce spending in
response to sales shortfalls or delays. These factors can cause significant
variations in operating results from quarter to quarter. The Company believes
that quarter to quarter comparisons of its financial results are not necessarily
meaningful and should not be relied upon an indication of future performance. To
conform to industry standards, the Company has changed its fiscal year end from
March 31 to December 31 effective December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its operations primarily through cash
generated from operations, supplemented by borrowings under a bank line of
credit and the private sale of certain equity securities. Cash flow provided by
(used in) operating activities was $(887,000) and $2.1 million for the nine
months ended December 31, 1995 and 1996 on net income (loss) of $(858,000) and
$834,000, respectively. In 1996, cash flow provided by operating activities
reflected increases in deferred taxes, deferred revenue and accounts payable and
was partially offset by an increase in accounts receivable. Cash flow provided
by (used in) operating activities was $1.4 million and $(104,000) for the fiscal
years ended March 31, 1995 and 1996 on net income of $712,000 and $299,000,
respectively.
Cash used in investing activities (capital expenditures, software development
investments and acquisitions) totaled $2.2 million for the nine months ended
December 31, 1995 and 1996. Cash used in investing activities totaled $1.9
million and $2.8 million in the fiscal years ended March 31, 1995 and 1996,
respectively. Capital expenditures were primarily comprised of the Company's
investments in equipment and related software associated with increased
staffing. In addition, the Company made significant investments in upgrading
internal systems.
Cash flow from financing activities was $431,000 for the nine months ended
December 31, 1996, relating primarily to the issuance of capital stock which
raised $252,000 and net borrowings of $179,000. See "Certain Transactions."
The Company also recently expanded its available borrowing capacity. On
January 16, 1997, the Company entered into an Advised Line of Credit Agreement
(the "Loan Agreement") with Barnett Bank, N.A. (the "Bank"), under which the
Bank extended a line of credit of up to a maximum borrowing amount of $6.0
million with an expiration date of June 30, 1998. Borrowings under the Loan
Agreement are collateralized by accounts receivable, inventory, equipment,
furniture, furnishings, fixtures and intellectual property. The line of credit
bears interest at the Bank's prime interest rate per annum plus 1 1/4 % per
annum. The Company may not declare or pay any dividends on any shares of Common
Stock of the Company now or hereafter outstanding, without the Bank's prior
written consent.
The Company believes its cash balances, cash generated from operations,
borrowings available under its line of credit and proceeds from this offering
will satisfy the Company's working capital and capital expenditure requirements
for at least the next 12 months. In the longer term, the Company may require
additional sources of liquidity to fund future growth. Such sources of liquidity
may include additional equity offerings or debt financings. In the normal course
of business, the Company evaluates acquisitions of businesses, products and
technologies that complement the Company's business. The Company has no present
commitments or agreements with respect to any such transaction. However, the
Company may acquire businesses, products or technologies in the future.
23
<PAGE>
BUSINESS
OVERVIEW
HTE develops, markets, implements and supports fully-integrated
enterprise-wide software applications designed specifically for public sector
organizations, including state, county and city governments, other municipal
agencies and publicly owned utilities. For the past 15 years, the Company has
focused its applications, business and marketing exclusively on the public
sector and has established itself as a market leader. HTE's fully-integrated
enterprise-wide software applications are designed to enable public sector
organizations to improve delivery of services, reduce costs, enhance revenue
collection, operate within budgetary constraints, comply with government
regulations and improve overall operating efficiencies. The Company's Total
Enterprise Solution currently includes 35 applications addressing four
functional areas: financial management, community services, public safety and
utility management. The Company's products operate as integrated suites of
applications or as stand-alone applications and function with a variety of
computer and network hardware, operating systems, database software and desktop
applications provided by other vendors.
As of December 31, 1996, the Company had over 1,000 customers in the U.S. and
Canada, including installations in all 50 U.S. states. The Company markets and
sells its products through a direct sales force. The Company's focus on the
public sector has allowed it to develop significant expertise regarding public
sector organizations and to design feature-rich solutions that address the
specific needs of these organizations.
INDUSTRY BACKGROUND
The public sector marketplace is composed of state, county and city
governments, other municipal agencies and publicly owned utilities. The local
government market comprises over 3,000 counties and over 19,000 municipalities
in the U.S., not including school districts, townships and special governmental
districts. The utility market includes approximately 1,800 water, gas and
electric utilities, each serving between 25,000 and 500,000 consumers. With
respect to public safety agencies, there are approximately 50,000 police, fire
and emergency service agencies in the U.S. In 1996, state and local government
agencies spent approximately $34.5 billion on information technology and related
products according to G2 Research, Inc. This total included approximately $5.0
billion for software, $6.7 billion for external services and $7.4 billion for
hardware. Approximately $15.4 billion was spent on internal services such as
in-house MIS staff.
The public sector marketplace is currently undergoing significant
organizational and business changes. Recently, the federal government has ceded
additional program and funding responsibilities to state and local governments,
resulting in a growing requirement at the local level to fill the gap between
increasing constituent demands and limited resources. Like many private sector
businesses, public sector organizations are facing increasing pressure to
improve delivery of goods and services while striving to reduce costs and
generate additional revenue. In response, public sector organizations are
employing information technology solutions in an effort to streamline and
automate administrative intensive processes, improve timeliness and quality of
services and generally enhance operating efficiencies. In addition, public
organizations are seeking to use information technology to create new sources of
revenue and enhance existing revenue collection.
Certain information technology issues facing state and local governments also
impact public utilities, many of which are owned by municipalities. In addition,
recent deregulation in the utility market has resulted in greater competition
between public and private utilities. Consequently, public utilities are under
pressure to retain their customer bases and focus their efforts on enhancing the
level of service, improving operating practices and reducing costs.
Specifically, utilities seek to ensure timely and effective utilization of
inventory, equipment and human resources, along with improved customer service
levels. Utilities must also comply with government regulations covering
environmental, worker health and safety and other matters.
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In the 1970s and 1980s, local governments and utility companies began to
use computerized operations management systems principally based on mainframe
computers and later based on minicomputers. These legacy systems typically
use proprietary operating systems and database software and are frequently
developed on a custom basis to meet the specific needs of a customer. The
proprietary and custom nature of legacy systems often limits their
accessibility and interoperability with other software applications, systems
and resources. Further, these systems often do not address current needs and
are becoming increasingly difficult and expensive to maintain, update and
change. Currently, many public sector organizations are faced with a pressing
need to integrate mission-critical functions and databases by replacing
stand-alone applications and customized software with cost-effective
enterprise-wide solutions that improve overall operational efficiencies and
manage the flow of information between departments.
In recent years, the increased performance and lower cost of desktop
computers, together with improvements in network communications, have
contributed to a shift by organizations from centralized computer systems to
more distributed environments that support the integration of a variety of
"client" (end-user) and "server" (host-based) applications. The first generation
of client/server software applications primarily consisted of "point solutions"
that focused on a single function, such as the general ledger or human resource
management. Point solutions are not easily interoperable with point solutions
from other providers, making access to information between departments difficult
and requiring redundant data entry or expensive customization and maintenance.
Because point solutions frequently do not operate on the customer's existing
system, they often require a long implementation process involving the costly
migration of large amounts of data from existing systems and the purchase of new
hardware and software.
One alternative to replacing or upgrading a legacy system is to outsource
information technology needs to independent providers. Outsourcing generally
encompasses a wide array of services ranging from custom software development to
assuming full responsibility for information systems management, including both
equipment and personnel. Outsourcing often provides a solution to the problem
faced by public organizations of retaining the expertise and personnel necessary
to maintain legacy systems. Further, outsourcing often represents a means of
avoiding many of the costs associated with the in-house design, implementation
and management of complex information systems. However, in many cases,
outsourcing itself does not provide an enterprise-wide solution, but rather
simply represents a shift of the information management problems from the public
sector organization to an independent third-party service provider.
A number of software vendors have begun to offer generalized client/server
products to the public sector market, though these are frequently private sector
providers with little public sector industry expertise. Additionally, their
solutions typically are not enterprise-wide and as a result do not enable
multiple departments, such as police and court records departments, to share
information. These solutions often do not fulfill the specific functional
requirements of the public sector marketplace such as complying with government
fund accounting, procurement processes and regulated budgeting processes.
Consequently, public sector organizations frequently experience lengthy and
expensive customization and implementation cycles. Moreover, these solutions may
not be sufficiently flexible to cost-effectively accommodate the ongoing needs
of public sector organizations as they modify and improve their operations.
The deficiencies of these currently available solutions have become
increasingly apparent as organizations have attempted to reengineer their
operations management practices. Organizations are now attempting to identify
and implement preferred approaches within their specific organizations to manage
and control a broad range of operations and information. To implement this
re-engineering, public sector organizations are seeking software solutions that
allow them to manage enterprise-wide information and to distribute that
information to employees and the public. As a result of the increased complexity
and sophistication required to meet new computing challenges, public sector
organizations are demanding robust solutions to their information processing
needs which are based on proven technologies and incorporate the application
knowledge specific to the public sector market.
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HTE'S TOTAL ENTERPRISE SOLUTION
The Company's fully-integrated, enterprise-wide software solution enables
public sector organizations to improve delivery of services, reduce costs,
enhance revenue collection, operate successfully within budgetary constraints,
comply with government regulations and improve overall operating efficiencies.
HTE's Total Enterprise Solution is based on 15 years of public sector expertise
and consists of a full suite of software applications, as well as a complete
range of customer services, support and training. The Company's Total Enterprise
Solution provides the following:
INTEGRATED ENTERPRISE-WIDE SOLUTIONS AND DEPTH OF FUNCTIONALITY. HTE offers a
Total Enterprise Solution, currently consisting of 35 applications, which
provides feature-rich systems for financial management, community service,
public safety and utility management. HTE's products operate as stand-alone
applications or as integrated suites which provide users with a consistent
graphical user interface and the ability to easily access data and share
information between multiple departments and agencies. The Company's
applications are based upon proven technologies and are designed to function in
mission-critical environments.
ADAPTABILITY/FLEXIBILITY/SCALABILITY. HTE solutions are readily adaptable to
meet a customer's initial needs and are designed with sufficient flexibility to
respond to a customer's specific system refinements and ongoing changes once the
system is fully in service. The scalability of the Company's software
applications and the customer's ability to migrate within the Company's product
family allow public sector organizations to increase operating levels and expand
application functionality. In addition, the Company offers several application
programming interfaces to enable customers to develop customized reporting and
satisfy unique requirements.
MULTI-PLATFORM LAYERED SOFTWARE ARCHITECTURE. The Company's layered software
architecture isolates the application logic from the graphical user interface
and database. This feature enables the Company to utilize multiple platforms and
effectively integrate new technologies with existing software. The layered
architecture allows customers to protect their investments in information
systems while positioning them to adopt new object-based solutions, high
performance servers and database management systems with no loss of
functionality.
CENTRALIZED SYSTEM ADMINISTRATION. System administration is centralized in
HTE solutions, thereby simplifying system management, reducing the need for
in-house system administrators and programmers and mitigating the need for
third-party services. HTE's applications incorporate extensive security features
designed to protect data from unauthorized retrieval or modification. Simplified
menus and data access can be tailored to meet each organization's requirements.
COST EFFECTIVE PUBLIC SECTOR IMPLEMENTATION METHODOLOGY. The Company utilizes
a highly responsive implementation planning process and focused consulting and
training services specifically designed to satisfy the functionality and
deployment needs of public sector customers. By offering rapid product
deployment and easy migration among its product lines, the Company seeks to
minimize the productivity interruption to organizations that typically results
from the introduction of new technology, thereby enabling organizations to
realize more quickly the associated benefits.
STRATEGY
The Company's objective is to be the leading provider of enterprise-wide
information solutions to the public sector marketplace. Principal elements of
the Company's strategy include:
PROMOTE INTEGRATED ENTERPRISE-WIDE SOLUTIONS. HTE believes that the
fully-integrated suite of proven, feature-rich applications comprising the
Company's Total Enterprise Solution provides significant opportunities with its
existing customer base as well as with new customers. The Company believes
a substantial opportunity exists to sell additional products to current
customers who have only a few of the Company's applications. HTE also intends to
leverage its robust suite of applications
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to potential new customers that are currently looking for a point solution,
such as a single department-based application, but that prefer products which
may be easily integrated with other applications in the future. HTE will
continue to devote significant resources on marketing solutions to potential
customers seeking enterprise-wide alternatives.
CAPITALIZE ON PUBLIC SECTOR EXPERTISE. The Company intends to capitalize on
its public sector knowledge and experience to enhance sales in existing markets,
such as the utilities market, and expand into new market segments, such as
foreign governments and educational institutions. For the past 15 years, the
Company has focused exclusively on the public sector marketplace. The Company
believes this focus has resulted in the development of a core expertise and
background in areas such as government fund accounting, as well as the
"front-office" and "back-office" mission-critical activities of police, fire and
other emergency personnel. In addition, HTE believes its public sector focus has
allowed the Company to develop a large customer base, with over 1,000
installations across North America. The Company believes the size and geographic
breadth of its customer base offers significant leverage with regards to new
business, since references from existing customers often result in future sales
opportunities.
DELIVER NEW APPLICATIONS AND TECHNOLOGY TO THE PUBLIC SECTOR. The advantages
of open systems are being demanded in the public sector marketplace. The Company
intends to continue to serve these needs by maintaining its reputation for
proven and effective use of recent advances in technology as they emerge and
gain acceptance by the public sector market. The Company seeks to develop new
applications and incorporate new product functionality, such as Internet
integration, object technology, decision support and wireless communications.
EXPAND SALES FORCE AND MARKETING INITIATIVES. The Company intends to increase
its penetration of the public sector market by expanding the distribution of its
products into new and existing geographic markets. To accomplish this expansion,
the Company is actively increasing the size of its direct sales force and is
currently implementing a new multi-phased sales approach combining telemarketing
with field sales operations. In addition, the Company intends to continue to
build collaborative relationships with customers in order to develop new
applications and assist customers in keeping pace with technology and in
maintaining compliance with government regulations.
SUPPLEMENT INTERNAL GROWTH THROUGH STRATEGIC ACQUISITIONS. The Company views
acquisitions as a means of acquiring technology and application expertise,
broadening its customer base and expanding internationally. The Company believes
that the public sector application vendor market is highly fragmented with many
small point solution companies and that the industry is currently entering a
period of consolidation. The Company intends to pursue acquisition opportunities
which accomplish its objective of becoming the leading provider of
enterprise-wide information solutions to the public sector. Over the past three
years the Company has supplemented its internal growth with five strategic
acquisitions.
HTE'S INTEGRATED SOFTWARE PRODUCTS
HTE offers fully-integrated enterprise-wide software solutions designed to
automate and integrate the operations of public sector organizations. The
Company has designed its products based on the philosophy that complete
application integration is essential for the effective sharing of information
across an organization. Offering true enterprise-wide integration, the Company's
applications provide more than simple integration; they work together
seamlessly, sharing functions and eliminating redundant data and repetitive
tasks. Transactions are processed by a single application, and the information
is immediately ready for use by other interfaced applications. The license fee
for a typical sale ranges from approximately $80,000 to $400,000, depending on
hardware configurations, number of users and applications licensed.
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The following table summarizes the Company's applications and the principal
benefits of the integrated application system.
<TABLE>
<CAPTION>
FINANCIAL MANAGEMENT SYSTEMS
11 APPLICATIONS
----------------------------
<S> <C>
/bullet/ A comprehensive integrated financial reporting system designed to monitor organizational goals
and performance.
/bullet/ Eliminates redundant data entry and centralizes and minimizes record management and
retrieval of historical information through interfacing modules.
/bullet/ Complies with Governmental Accounting, Auditing, and Financial Reporting ("GAAFR") and
Government Finance Officers Account ("GFOA") standards.
/bullet/ Streamlines IRS reporting and offers custom budgeting tools.
</TABLE>
<TABLE>
<CAPTION>
COMMUNITY SERVICE SYSTEMS
7 APPLICATIONS
--------------------------
<S> <C>
/bullet/ A centralized information system which expedites access to property data, building licenses and
permits, code enforcement proceedings, planning and zoning processes and tax billing and collections.
/bullet/ Generates all documentation and improves revenue tracking, processing and payment collection.
/bullet/ Routes projects to various agencies and promotes communication between agencies.
/bullet/ Manages community parks and recreational facilities.
</TABLE>
<TABLE>
<CAPTION>
PUBLIC SAFETY SYSTEMS
12 APPLICATIONS
---------------------
<S> <C>
/bullet/ A complete suite of solutions which provides critical information to users in emergency
situations through mobile computing technologies.
/bullet/ Integrates police, fire and emergency medical service reporting and communications with state
and federal information systems and facilitates sharing of vital information.
/bullet/ Increases personnel safety and provides for better public service by allowing police and
emergency personnel to remain in the field.
</TABLE>
<TABLE>
<CAPTION>
UTILITY SYSTEMS
5 APPLICATIONS
---------------
<S> <C>
/bullet/ A broad utility management system designed to handle a full range of services including bill processing,
equipment management and customer service information.
/bullet/ Provides immediate access to customer information and work orders and tracks assets and resources.
</TABLE>
FINANCIAL MANAGEMENT SYSTEMS
The Company's Financial Management products provide key financial management
and accounting functions for public sector organizations. HTE's Integrated
Financial System ("INFISYS") and Government Management and Budgetary Accounting
("GMBA") software applications represent the core of HTE's Financial Management
System. These applications are based on fund accounting and are designed to take
full advantage of open systems. These two applications have similar
functionality but serve different tiers of the market.
GMBA SYSTEM. Targeted at smaller local governments and agencies, GMBA
integrates general ledger, budgeting, accounts payable, projects/grants
management, and investment tracking. GMBA
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is compliant with GAAFR and GFOA standards and offers interactive
processing, multiple security levels, and extensive reporting
capabilities.
INFYSIS SYSTEM. Targeted at larger organizations, INFISYS integrates
general ledger, budgeting, accounts payable, projects/grants management,
and investment tracking. Offers built-in extended reporting features with
flexible charts-of-accounts.
EXTENDED REPORTING. Creates user-defined financial reports which may be
downloaded to desktop business applications.
ACCOUNTS RECEIVABLE. Tracks all charges, produces invoices, and generates
statements. Features fee and penalty processing, third-party billing,
write-offs, aging control, and automatic charges.
CASH RECEIPTS. Offers rapid, accurate control over all cash transactions
and deposits and provides centralized cash collection of multiple payment
types.
PAYROLL/PERSONNEL. Provides a flexible, user-defined system for meeting
specialized public sector payroll requirements. Features automated accrual
tracking, direct deposit, and Equal Opportunity Employment Commission
reporting and easy data entry capabilities.
APPLICANT TRACKING. Tracks the recruitment process from requisition
through employee selection.
PURCHASING/INVENTORY. Features inventory control, vendor quote history,
account security and inventory allocation for specific projects and offers
bar code scanning capability. Creates purchase orders and provides
inventory requisition and bid processing.
FLEET MANAGEMENT. Tracks and reports equipment maintenance, related parts,
fuel and labor costs. Features automated scheduling of maintenance and
integrates with automated refueling systems.
ASSET MANAGEMENT I. Provides information relating to capital inventory and
tracks depreciable and nondepreciable assets and supports bar coding
capability.
ASSET MANAGEMENT II. Allows users access to construction-related
accounting procedures in addition to the capabilities of Asset Management I.
COMMUNITY SERVICE SYSTEMS
The Company's systems provide a centralized land and location database
solution which expedites access to property data, building licenses and permits,
code enforcement proceedings, planning and zoning processes and tax and billing
collections. The system also manages community parks and recreational
facilities.
LAND/PARCEL MANAGEMENT. Eliminates duplication of information across
applications by managing a shared database of land and location data for
utilization by all HTE land-based applications. Features a street
dictionary with location of liens and stores property valuations for
unlimited years. Offers user-defined property use, zoning and jurisdiction.
BUILDING PERMITS. Automates the permitting process by tracking plan
approval, storing structure specifications and assessing and processing
fees. Offers inspection scheduling and a comprehensive voice response
solution, enabling contractors to request or cancel inspections and
receive inspection results by remote access. Offers mobile, pen-enabled
graphical user interface software applications that allow building
inspectors to easily supply and receive timely, accurate information while
working in the field.
CODE ENFORCEMENT. Organizes, processes and tracks all complaints and code
violations. Offers mobile, pen-enabled software applications that allows
code enforcement inspectors to supply and receive timely, accurate
information while working in the field.
BUSINESS LICENSES. Generates various types of licenses, assesses fees and
penalties, processes renewals and offers contractor licensing and
certification.
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<PAGE>
PLANNING AND ZONING. Manages planning and zoning projects through review
and approval processes. Enables user to track reviews, create meeting and
project documents, generate notice letters and specify project conditions.
TAX BILLING AND COLLECTIONS. Provides flexible billing and collections for
single or multiple taxing entities. Uses property information from HTE's
Land Management database and information updated from appraisal district
or assessor's office to process tax bills. Automatically calculates
penalties, interest, collection fees and discounts and maintains special
payment plans.
PARKS AND RECREATION APPLICATIONS. Offers automation and management of
parks and recreational facilities by government organizations. Maintains
schedules of parks or facility use and manages membership and mailing
lists. Application modules available include activity registration and
tournament scheduling.
PUBLIC SAFETY SYSTEMS
The Public Safety applications offer police, fire and rescue entities and
other emergency personnel a complete public safety solution through an
integrated suite of applications which provide immediate in-the-field access to
vital information. Such dispatch information includes locations, equipment and
personnel response recommendations and current status of events or incidents.
Applications allow for mobile collection of incident data mandated by state and
federal regulatory agencies and promote greater safety of public service
personnel. Critical communication links for rapid information dissemination in
emergency situations are facilitated by the integration of mobile data
computers, Emergency-911 operations, state and federal computers, and alarm
panels.
COMPUTER AIDED DISPATCH IV ("CAD IV"). Combines state-of-the-art computer
aided dispatch software to integrate the needs of mobile communications
environments. three tier client/server technology to provide dispatchers
with up to 30 live task areas for dispatch, incident and unit status,
database inquiry and National Crime Information Center access and provides
integrated mapping. CAD IV functions independently or with HTE's CRIMES
Management System, FIRES Management System and Emergency Medical Services
applications to provide a complete public safety solution.
COMPUTER AIDED DISPATCH III ("CAD III"). Provides quick, accurate
equipment and personnel response recommendations and tracks the status of
police, fire and emergency medical service unit responses. Provides
routing, hazard, and hydrant information, address verification and
duplicate call detection. Interfaces with Emergency-911 phone systems and
state computer systems.
CRIMES MANAGEMENT. Tracks details for uniform crime reporting. Links all
related information concerning victim, suspect, property, and evidence
without redundant data entry. Includes extensive narrative and
cross-referencing capabilities, automatic warnings for active warrants and
a master name index. Provides mobile, pen-enabled software application
that allows police officers to easily supply and receive timely, accurate
information related to accidents, incidents, warrants, arrests and
dispatch.
CRACKDOWN. Provides investigative tool for law enforcement intelligence
units, narcotics investigators and organized crime bureaus by offering
event-oriented investigation history with automatic cross referencing.
Supports direct connection to National Crime Information Center to state
systems. Protects sensitive information while allowing multiple authorized
users access to the application.
FIRES MANAGEMENT. Tracks fire or emergency medical service incidents.
Automatically audits data for accuracy and consistency and adheres to
regulatory requirements. Accommodates organizations that do not have
state-mandated reporting requirements.
FIRE RESOURCES ACTIVITY TRACKING. Tracks both scheduled and emergency
activities for resources such as personnel, equipment, hydrants and
emergency transportation units.
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<PAGE>
FIRE PREVENTION. Records fire prevention information about commercial,
industrial and multi-family dwellings. Maintains information such as
hydrant location, shutoffs for utilities, location of hazardous materials
and emergency contact information.
EMERGENCY MEDICAL SERVICES. Tracks all information related to incidents
involving emergency medical response and adheres to state reporting
standards. Integrates with HTE's FIRES Management, Computer Aided
Dispatch, and Accounts Receivable applications to provide a complete
emergency medical services solution.
MOBILE DATA SYSTEMS. Works with other HTE mobile-enabled public safety
software applications and the mobile data network to provide wireless
communication between field personnel and the dispatch center. Provides
direct access to information in state and federal law enforcement
databases.
INTEGRATED MAPPING. Provides custom digitized pictorial reference of an
agency's jurisdiction by displaying streets and major land features on
individual workstations.
CASE MANAGEMENT. Provides a centralized system for managing municipal
court cases, including event tracking and payment collection.
CITATION MANAGEMENT. Centralizes citation entry, maintenance and payment
collection.
UTILITY SYSTEMS
The Company offers a suite of integrated products designed to handle a
full range of utility services including electric, water and gas. The
flexibility of these programs lets customers tailor applications to meet
specific business needs. HTE's Customer Information System ("CIS") is capable
of interfacing with software systems which run on open systems platforms and
with various databases, including Oracle for engineering purposes such as
plant maintenance.
CUSTOMER INFORMATION SYSTEM. Facilitates electric, water and gas utility
services by automating tasks such as customer location maintenance, meter
reading maintenance, bill processing, delinquencies, penalties, refunds
and write-offs. Accommodates requirements of public, private and
cooperative utilities. Interfaces with other HTE software applications
such as INFISYS to provide a complete utility solution.
CONTINUING PROPERTY RECORDS. Offers multiple depreciation methods, mass
asset records and detailed asset reporting. Provides construction assembly
standards, estimating, costing and unitization through an interface to
HTE's Work Orders/Facility Management application. Acts as a subsidiary
ledger for asset accounts in HTE's accounting software.
WORK ORDERS/FACILITY MANAGEMENT. Provides a complete facility management
and maintenance solution by offering complaint tracking and request
processing. Allows departments to send or receive requests, schedule jobs
and track costs.
DISTRIBUTION MANAGEMENT. Tracks detailed information related to utility
equipment. Links meters and transformers to calculate fault currents and
transformer loads in conjunction with CIS.
CONTRACT MANAGEMENT. Directs and handles customer calls and integrates
information with CIS and Work Orders/Facility Management to improve
customer service operations.
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<PAGE>
HTE'S LAYERED SOFTWARE ARCHITECTURE
The Company's layered software architecture isolates the application logic
from the graphical user interface and the database. While the layered
architecture enables the Company's products to run on a variety of platforms,
most of the Company's customers have selected the IBM AS/400 platform.
APPLICATION BASED ARCHITECTURE
USER INTERFACES
/bullet/ HTE Graphical User Interface
/bullet/ Internet Browser
/bullet/ Character Based Interface
BUSINESS LOGIC
/bullet/ HTE Applications
/bullet/ Adapter Code
DATABASE MANAGEMENT SYSTEMS OPERATING SYSTEMS
/bullet/ IBM DB2/400 /bullet/ AIX (server)
/bullet/ Oracle /bullet/ HPUX (server)
/bullet/ Datagate /bullet/ OS/400 (server)
/bullet/ Windows/Windows 95 (client)
/bullet/ Windows NT (client, server*)
HARDWARE
/bullet/ Hewlett-Packard 9000
/bullet/ Siemens
/bullet/ IBM RS/6000
/bullet/ IBM AS/400
/bullet/ INTEL*
- -------------------
* under development
This approach permits application code containing the business logic to
operate across all supported platforms such as the Hewlett-Packard, Siemens, IBM
RS/6000 and AS/400 in their native runtime environments. Applications can be
implemented on multiple platforms with no loss of functionality. Additionally,
the applications operate on systems running databases such as IBM DB2/400,
ORACLE and Datagate. Currently, the client workstation software provides a
graphical user interface to the Company's applications. The applications may be
deployed on a variety of client operating systems, including Microsoft Windows,
Windows 95, Windows NT and IBM OS/2. The Company's layered software architecture
requires that only the adapter code layer, and not the application code, be
reconfigured to enable HTE applications to operate on additional platforms,
databases, or operating systems. This layered architecture allows customers to
protect their investments in information systems while positioning them to adapt
to emerging operating systems, high performance servers and databases. Also, the
scalability of the Company's applications allows users to extend their systems
to accommodate facility expansion. The Company is currently developing adapter
code for HTE server application implementation on the Intel platform using the
Windows NT operating system. The Company's architecture also allows for easy
implementation of an Internet-based browser interface. In addition, the Company
is currently developing its next generation of applications based upon a three
tiered object oriented approach. This approach utilizes existing database and
server code while utilizing a Windows NT-based application server.
CUSTOMER SERVICE
HTE offers a range of services, including implementation support, customer
support, education and training and professional consulting services. The
Company continues to devote substantial resources toward improvements in
customer service and has recently implemented a new Customer Care Program.
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<PAGE>
IMPLEMENTATION SUPPORT PROGRAM. HTE offers its customers an Implementation
Support Program with an initial system order or with a significant upgrade to an
existing system. The Implementation Support Program provides a variety of
project management and consulting services to assist in implementation and
deployment of HTE's enterprise solutions. The Company offers a variety of
site-specific technical and consulting services to assist in all phases of the
implementation process. HTE may also provide assistance in integrating its
products with the customer's existing software.
CUSTOMER SUPPORT PROGRAM. For ongoing support, HTE offers its customers a
Comprehensive Support Program. The Company provides product enhancements and
updates that maintain a customer's software and documentation. The Comprehensive
Support Program also includes hotline telephone support, which is available 24
hours per day, seven days per week. As a separately priced option, customers can
extend this support to personal computers, networks and hardware systems.
Recently, the Company expanded this service to include a Customer Care Program
whereby customers are called at predetermined time schedules to identify needs
for service, support or new product offerings.
Through its HTE User Group ("HUG"), the Company involves its customers and
end-users to help identify new functions and product features that offer the
greatest benefit. The Company believes that HUG seminars assist the Company in
the development and support of products.
EDUCATION AND TRAINING. HTE offers education and training services that
provide customers with a formalized program to ensure that applications are
implemented and utilized in an efficient and cost-effective manner. Customers
are also offered a variety of software installation, technical support and user
training services, both on-site and in HTE's training centers. Customized
education and training programs are also available to meet a customer's specific
development needs. Education and training services are priced separately.
PROFESSIONAL CONSULTING SERVICES. The Company offers professional consulting
services that extend beyond standard maintenance contracts. These services
include project management, hardware and software installation, classroom
education, on-site training, conversion planning and programming services.
Additional services include custom applications analysis, design, development,
training and deployment for most of HTE's applications.
CUSTOMER CASE STUDIES
BEND, OREGON. The city of Bend was seeking to increase efficiencies and
provide better service to residents with a system that would bring true
enterprise-wide integration to its financial systems. City officials were having
difficulty managing budgets and accurately forecasting expenditures since the
previous system was structured such that each department maintained its own
books and records. Few users had confidence in the information systems and with
financial forecasts. The installation of HTE's financial and utility systems in
1989 has enabled departments real-time access to budget information and has
provided the capability to estimate projections within a few percentage points.
City officials may now provide accurately calculated budget figures instead of
rough approximations. The system has provided Bend with the ability to provide
its citizens better services in a cost-effective manner and is attributed with
helping Bend decrease its tax rate by approximately 50% since 1988.
Additionally, although the population of Bend has doubled in the last decade,
only three people have been added to the city finance staff. HTE has been able
to provide true value to its customers with proven, integrated solutions.
Recently, the city of Bend purchased a full complement of public safety
services.
ALBANY/DOUGHERTY COUNTY, GEORGIA. For five days during the floods of 1994 in
Southwest Georgia, the Albany/Dougherty County Communications Center was
inundated with over 2,500 Emergency-911 calls a day, a 450% increase over normal
call loads. The computer aided dispatch system recently installed by HTE was
able to handle the enormous surge in call volume. The software application
automatically provided Albany/Dougherty County with quick, accurate equipment
and personnel response recommendations and tracked the status of all calls for
service. On-line routing, hazard and
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pre-arrival information enabled dispatchers to quickly handle all types of
calls, regardless of severity. The historical average call time of
approximately two to three minutes was dramatically reduced to 30 seconds
with HTE's system, a feature that ultimately helped save lives during this
crisis situation.
CLARK COUNTY, NEVADA. Clark County, one of the most aggressive areas of
building in the country, needed an integrated land management system to track
planning, zoning, public works, permitting and inspection. Builders and
contractors starting a new project had to communicate with at least five
departments, and the County was operating on various PC networks, mainframes and
even Macintoshes, with no integration. Since zoning did not share information
with planning, it was possible to apply for a restaurant building permit in a
land parcel that was zoned as residential. HTE helped eliminate such confusion
and reduce excess work by installing a truly integrated, time-saving solution.
Currently, nearly 1,200 requests for inspections are received daily, at least
30% of which are now made on an automated voice response system which is
integrated with the database. Callers may now retrieve specific inspection
information. Additionally, the system integrates with the power company,
providing faster meter installation for new builders and contractors.
Redundancies have now been minimized and information exchange between
departments is easily administered with HTE's total community service solution.
SALES AND MARKETING
The Company sells its products in North America through a direct sales force.
As of February 15, 1997, the Company had 48 full-time and two part-time
employees in its sales organization, including sales representatives, pre-sale
consultants, telemarketers, sales management, proposal specialists, product
demonstrators and systems hardware specialists. The Company employs a variety of
business development and marketing techniques to communicate directly with
current and prospective customers. These techniques include exhibiting at trade
shows, holding seminars for clients and prospective clients on technology and
industry issues, marketing through targeted mail campaigns and publishing
SOLUTIONS Magazine (a semi-annual Company publication).
The Company is currently implementing a new sales strategy which includes
sophisticated prospect development and sales cycle management processes. HTE
uses a combination of electronic prospective client databases, computer aided
telemarketing and field sales methodologies to identify potential candidates for
its Total Enterprise Solution systems. The Company believes this process
accounts for a large percentage of the Company's new accounts and lessens the
time spent by field sales representatives prospecting unqualified leads.
Prospective HTE customers are monitored through a comprehensive prospect
management system that segments the sales cycle into several phases, each with
multiple measurement points, to assess properly the prospective client base.
The Company's sales strategy also emphasizes a "regionalization" concept. HTE
believes a strong local presence is an important factor in addressing the needs
of local governments and establishing long-term relationships. Under the
Company's regionalization approach, the Company has decentralized much of its
client development, customer service and customer account responsibilities. HTE
has regional centers in Boston, Chicago, Houston, Irvine, Orlando and Phoenix.
In addition, HTE has local offices in eight other locations across the U.S. and
one in Canada.
A key aspect of the Company's sales and marketing strategy is to build and
maintain strong relationships with businesses that the Company believes play a
role in the successful marketing of its software products. The Company's
customers and potential customers often rely on third-party system integrators
to develop, deploy and manage information systems. These providers include
software and hardware vendors and technology consulting firms, some of which are
active in the selection and implementation of information systems for
organizations that comprise the Company's principal customer base. HTE has
maintained strategic relationships with companies such as IBM, Hewlett-Packard,
Software Corporation of America, Oracle Corporation and Seagull Software. The
Company believes that its marketing and sales efforts are enhanced by the
worldwide presence of many of these companies. HTE has conducted several joint
marketing and sales programs with these vendors, including seminars, direct mail
campaigns and trade show appearances.
34
<PAGE>
CUSTOMERS
The Company provides fully-integrated, enterprise-wide software solutions to
state, city and county governments, utilities, transportation authorities, parks
and recreation departments and police, fire and emergency personnel. As of
December 31, 1996, the Company had over 1,000 customers, including installations
in all 50 U.S. states. The following is a representative list of current
licensees and users of one or more of the Company's applications.
<TABLE>
<CAPTION>
NUMBER OF FINANCIAL COMMUNITY PUBLIC
CUSTOMER APPLICATIONS MANAGEMENT SERVICE SAFETY UTILITY
CUSTOMER NAME SINCE PURCHASED SYSTEMS SYSTEMS SYSTEMS SYSTEMS
------------- -------- ------------ ---------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Amherst Police Dept., MA 7/89 7 /bullet/
Amtrack Police National
Railroad, Philadelphia, PA 9/93 6 /bullet/
Atlantic City, NJ 9/96 4 /bullet/
Berkeley, CA 2/91 14 /bullet/ /bullet/
Billings, MT 10/89 10 /bullet/ /bullet/
Burlington Electric Dept., VT 9/86 13 /bullet/ /bullet/
Cocoa Beach, FL 3/94 14 /bullet/ /bullet/ /bullet/ /bullet/
Coos County, OR 12/92 2 /bullet/
Cortez, CO 1/95 17 /bullet/ /bullet/ /bullet/
Davis, CA 2/90 17 /bullet/ /bullet/ /bullet/
Enstar Natural Gas Company,
Anchorage, AK 10/94 4 /bullet/ /bullet/
Escambia County Utilities
Authority, FL 7/82 16 /bullet/ /bullet/
Eureka Police and Fire Dept., CA 8/88 16 /bullet/
Fargo, ND 9/96 10 /bullet/ /bullet/
Government of Bahamas,
Nassau, BA 10/93 5 /bullet/ /bullet/
Guelph Hydro, Ontario, CN 12/94 14 /bullet/
Kansas Highway Patrol, KS 7/94 2 /bullet/
Kauai County, HI 8/90 9 /bullet/ /bullet/
Kissimmee Utility Authority, FL 4/87 12 /bullet/ /bullet/
Laredo, TX 3/88 25 /bullet/ /bullet/ /bullet/
Manassas Police Dept., VA 3/90 12 /bullet/
Middlesex County, NJ 11/96 9 /bullet/ /bullet/
Naperville, IL 8/90 20 /bullet/ /bullet/ /bullet/
Roswell, NM 7/95 31 /bullet/ /bullet/ /bullet/ /bullet/
Yuma, AZ 3/96 16 /bullet/ /bullet/
</TABLE>
No customer accounted for more than 5% of total revenues for the period
ended December 31, 1996.
35
<PAGE>
PRODUCT DEVELOPMENT
HTE's product development efforts are focused on the enhancement of its
existing products and expansion of its enterprise system. At February 15, 1997,
HTE had 22 full-time employees in product development.
HTE plans to continue to enhance its applications to suit the evolving needs
of the public sector market. In particular, HTE intends to develop additional
functionality on existing application modules and to create new modules.
Additionally, HTE will seek to improve and expand its object development
environment, with two fundamental objectives: (i) continued user empowerment
with an emphasis on ease-of-use and (ii) increased flexibility to modify base
products in order to suit specific customer requirements. The Company
incorporates a System Change Program whereby if the development of a custom
feature for a particular client is practical or in demand, such a feature will
be deployed within the next version of the Company's software. The Company
believes that HUG seminars assist the Company in development and sale of
products. All product development enhancements of applications, regardless of
scope, are created using HTE's published guidelines for standards and
conventions.
HTE plans to continue to add new products and services, both through internal
development and potential acquisitions, to leverage the Company's core
technologies and expertise. In the development of new applications, the Company
intends to strive to allow customers to utilize existing systems while at the
same time allowing customers to take advantage of advances in network systems,
platforms, database and other relevant technologies. The Company's gross
development expenditures were $5.0 million, $3.8 million, and $5.7 million for
the nine months ended December 31, 1996, and for the years ended March 31, 1995
and 1996, respectively.
COMPETITION
The Company faces competition from a variety of software vendors that offer
products and services similar to those offered by the Company and from companies
offering to develop custom software. Certain competitors have greater technical,
marketing and financial resources than the Company. The Company also competes
with in-house management information services staffs. The Company believes
competitive differentiators in the public sector market are functionality,
product flexibility, ease of implementation in adapting product to individual
customers' needs without custom programming, enterprise product breadth,
individual product features, service reputation and price.
The Company believes the market is highly fragmented with a large number of
competitors that vary in size, primary computer platforms and overall product
scope. Within its markets, the Company competes from time to time with (i)
custom software and services providers such as Andersen Consulting, KPMG Peat
Marwick, and Oracle Corporation, (ii) companies which focus on selected segments
of the public sector market including PeopleSoft, Inc., Systems Computer &
Technology, Inc., J.D. Edwards & Company, Inc. and (iii) a significant number of
smaller private companies. Many of these companies do not focus exclusively on
the public sector or offer fully-integrated enterprise-wide software
applications. There can be no assurance that such competitors will not develop
products or offer services that are superior to the Company's products or
services or that achieve greater market acceptance.
The Company could face additional competition as other established and
emerging companies enter the Company's public sector software application market
and new products and technologies are introduced. Increased competition could
result in price reductions, fewer customer orders, reduced gross margins and
loss of market share, any of which could materially adversely affect the
Company's business, operating results and financial condition. In addition,
current and potential competitors may make strategic acquisitions or establish
cooperative relationships among themselves or with third-parties, thereby
increasing the ability of their products to address the needs of the Company's
prospective customers. Accordingly, it is possible that new competitors or
alliances among current and new competitors may emerge and rapidly gain
significant market share. Further, competitive pressures
36
<PAGE>
could require the Company to reduce the price of its software licenses and
related services, which could materially adversely affect the Company's
business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against
current and future competitors, and the failure to do so would have a
material adverse effect upon the Company's business, operating results and
financial condition. See "Business--Competition."
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES
The Company regards certain features of its internal operations, software and
documentation as confidential and proprietary, and relies on a combination of
contract and trade secret laws and other measures to protect its proprietary
intellectual property. The Company has no patents and, under existing copyright
laws, has only limited protection. The Company believes that, due to the rapid
rate of technological change in the computer software industry, trade secret and
copyright protection are less significant than factors such as knowledge,
ability and experience of the Company's employees, frequent product enhancements
and timeliness and quality of support services.
The Company provides its products to customers under exclusive licenses,
which generally are non-transferable and have a perpetual term. The Company
generally licenses its products solely for the customer's internal operations
and only on designated computers. In certain circumstances, the Company makes
enterprise-wide licenses available for select applications. The Company provides
source code to its customers for several products and has escrowed its source
code for the benefit of all customers. The provision of source code may increase
the likelihood of misappropriation or other misuse of the Company's intellectual
property. See "Risk Factors--Proprietary Rights, Risks of Infringement and
Source Code Release."
From time to time, the Company licenses software from third-parties for use
with its products. The Company believes that no such license agreement to which
it is presently a party is material and that if any such license agreement were
to terminate for any reason, the Company would be able to obtain a license or
otherwise acquire other comparable technology or software on terms that would
not be materially adverse to the Company.
EMPLOYEES
As of February 15, 1997, the Company employed 307 people, including 45 in
sales and marketing, 105 in product development, 67 in customer support and
field services, 54 in professional services and 36 in administration. The
Company's success will depend in large part upon its ability to continue to
attract and retain qualified employees. None of the Company's employees is
represented by a labor union or is subject to a collective bargaining agreement.
The Company believes that its relations with its employees are good. See "Risk
Factors--Dependence on Key Personnel."
FACILITIES
The Company is headquartered in Orlando, Florida, where it leases an
aggregate of approximately 33,000 square feet. Administrative, marketing,
product development and customer support and service operations are located in
this space. The Company also leases an aggregate of approximately 8,000
additional square feet of office space in various other locations which are used
for sales offices.
The Company has entered into a lease agreement pursuant to which the Company
shall lease a new three story building located in the Heathrow International
Business Center, Lake Mary, Florida, containing an aggregate of 87,000 square
feet. The Company plans to move its headquarters to this location upon
completion of construction, which is anticipated to be no later than June 30,
1997. The initial lease term for the new headquarters expires ten years from the
commencement date of the lease, and may be renewed by HTE for up to three
consecutive renewal terms of five years each. In connection with the lease, HTE
entered into an expansion agreement pursuant to which it may, at its option
during the term of the main lease, lease two additional office buildings in the
Heathrow Business Center, each of which would contain approximately 27,000 to
40,000 gross square feet of space.
37
<PAGE>
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not a party to any legal proceedings, the adverse outcome of which, individually
or in the aggregate, would have a material adverse effect on the Company's
results of operations or financial position.
38
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information is set forth below concerning the directors and executive
officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----- --- --------
<S> <C> <C>
Dennis J. Harward ............ 40 Chairman of the Board of Directors, President,
Chief Executive Officer and Director
Jack L. Harward .............. 65 Executive Vice President and Director
L.A. Gornto, Jr .............. 54 Executive Vice President, Chief Financial Officer
and General Counsel
Daniel E. Catan .............. 41 Vice President-Chief Marketing Officer
Charlotte B. Hill ............ 41 Vice President-Research and Development
Ronald E. Goodrow ............ 45 Vice President-Operations
Susan D. Falotico ............ 34 Vice President-Controller and Chief Accounting Officer
Bernard B. Markey(1) ......... 32 Director
Peter R. Roberts(1) .......... 42 Director
<FN>
- ----------
(1) Member of Compensation Committee.
</FN>
</TABLE>
Mr. Dennis J. Harward founded the Company in 1981 and has served as its
President and Chief Executive Officer, Chairman of the Board and a Director
since inception of the Company. From 1978 to 1980, he was employed by
Southeastern Academy, a private educational institution, where he was
responsible for developing its initial management information systems
environment and implementing "mid-range" relational database systems. From 1980
through 1981, he was employed as a consultant at an oil and gas company where he
was responsible for coordinating large-scale conversion of applications to a
relational database environment.
Mr. Jack L. Harward joined the Company in 1983 and since that time has
served as an Executive Vice President and a Director of the Company. Mr. Harward
also serves as the Chief Operating Officer of HTE-Bellamy, Ltd., a wholly-owned
subsidiary of the Company. From 1978 to 1983, Mr. Harward was employed by
Seminole County, Florida, where he served as Information Systems Director. From
1974 to 1978, Mr. Harward was responsible for systems development-information
technology management at Pepsi-Cola, Inc., a food and beverage company.
Mr. L.A. Gornto, Jr. joined the Company in January 1997 and serves as an
Executive Vice President, Chief Financial Officer and General Counsel. Since
1988, Mr. Gornto has been engaged in the private practice of law in central
Florida and provided legal services to the Company as General Counsel. From 1985
to 1987, Mr. Gornto served as Senior Vice President-Finance and Chief Financial
Officer of Jerrico, Inc., formerly a publicly-traded company and holding company
of Long John Silvers, a seafood restaurant chain. From 1977 to 1985, he was
engaged in the private practice of law and also served as a management
consultant. From 1968 to 1977, he served as Executive Vice President and Chief
Financial Officer and a director of Red Lobster Restaurants, a seafood
restaurant chain and formerly a subsidiary of General Mills, Inc. Mr. Gornto is
an attorney-at-law and certified public accountant licensed in the states of
Florida and Georgia and holds an L.L.M. degree from Emory University School of
Law.
Mr. Daniel E. Catan joined the Company in July 1996 and currently serves as
Vice President-Chief Marketing Officer. From 1991 to 1996, he was employed by
Atlanta Centennial Olympic Properties as its Vice President of Marketing, where
he was responsible for creating sponsorship packages to raise
39
<PAGE>
revenues for the 1996 Summer Olympic Games. Mr. Catan was also responsible
for managing the sales negotiation and sponsor support departments. From 1977 to
1991, he was employed by IBM Corporation, a computer manufacturer, in its Sales,
Marketing and Business Management department where he was responsible for
developing sales personnel, managing field business units, creating its software
and services business unit and national cross-industry strategies and producing
the launch of the AS/400 system in the Southeast.
Ms. Charlotte B. Hill joined the Company in February 1997 and currently
serves as its Vice President-Research and Development. From 1979 to 1996, Ms.
Hill was employed by IBM Corporation, and ISSC, a wholly-owned subsidiary of
IBM. During the period 1991 to 1996, Ms. Hill served as a Consulting and
Services Executive responsible for profit and loss, revenue growth, strategy
development, and management of field systems integration. From 1984 to 1992, Ms.
Hill served in various sales and technical management capacities.
Mr. Ronald E. Goodrow joined the Company in 1988, and currently serves as its
Vice President-Operations. From 1970 to 1988, he was employed by GCC Beverage
Corporation, where he was Vice President of Information Systems. From 1980 to
1987, he was Vice President of Dynamic Control Corporation (Baxter Travenol), a
healthcare company.
Ms. Susan D. Falotico joined the Company in 1995 and currently serves as Vice
President-Controller and Chief Accounting Officer. From 1988 to 1995, Mrs.
Falotico served as Controller of the Newtrend Division of EDS, Inc., a systems
integration company, where she headed the Financial Accounting and Corporate
Planning Department. From 1986 to 1988, Ms. Falotico was a Financial Analyst for
ISI, a division of Mars, Inc., a food company, where she was responsible for
monthly financial reporting and for coordinating a $70 million budget.
Mr. Bernard B. Markey, a Director of the Company since 1995, has been
employed since 1988 with Meridian Venture Partners, a privately-held venture
capital fund and has been a General Partner of the fund since 1995. Mr. Markey
also serves on the Board of Directors for several privately-held companies.
Mr. Peter R. Roberts, a Director of the Company since 1994, has served since
1993 as a Managing Director of BancBoston Ventures, Inc., a subsidiary of
BancBoston, Inc., an investment bank. From 1989 to 1993, Mr. Roberts was a
Managing Director of BancBoston Capital, Inc. in the London office. Mr. Roberts
also serves on the Board of Directors for several privately-held companies.
The Company's Board of Directors currently consists of four directors. Each
director holds office until the next annual meeting of shareholders or until his
successor is duly elected and qualified. Jack L. Harward is the father of Dennis
J. Harward. There are no other family relationships among the Company's
executive officers and directors. The Company's directors do not currently
receive any cash compensation for service on the Board of Directors but may be
reimbursed for certain expenses in connection with attendance at Board of
Directors meetings or other meetings on the Company's behalf.
Effective upon consummation of this offering, the Board of Directors shall
consist of three classes, each whose members will serve for a staggered
three-year term. The Board will consists of two Class I Directors, Messrs.
Markey and Roberts, one Class II Director, Jack L. Harward, and one Class III
Director, Dennis J. Harward. At each annual meeting of shareholders, a class of
directors will be elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. The terms of the Class I Directors,
Class II Director and Class III Director will expire upon the election and
qualification of successor directors at the annual meetings of shareholders to
be held in 1997, 1998 and 1999, respectively.
BOARD COMMITTEES
The Board of Directors has established a Compensation Committee consisting of
Messrs. Markey and Roberts, to establish the compensation of officers of the
Company and to administer the
40
<PAGE>
Executive Incentive Plan. Following the completion of this offering, the
Board of Directors will have an Audit Committee, which will review the results
and scope of the audit and other services provided by the Company's independent
certified public accountants.
Officers of the Company serve at the direction of the Board of Directors,
subject to the terms of any employment agreements with the Company. See
"Executive Compensation--Employment Agreements."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dennis J. Harward, Chairman of the Board, President and Chief Executive
Officer, and Jack L. Harward, Executive Vice President, of the Company,
participated in deliberations of the Company's Board of Directors concerning
executive officer compensation during 1994. Since 1995, the compensation of the
Company's executive officers has been determined by the Compensation Committee
of the Board of Directors.
41
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company during the fiscal year ended December 31, 1996 and for the fiscal years
ended March 31, 1996, and 1995, respectively, to the Chief Executive Officer and
to each of the four most highly compensated executive officers of the Company,
other than the Chief Executive Officer (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
---------------------- ------------
AWARDS
------------
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(2) SALARY BONUS OPTIONS COMPENSATION
- ------------------------------------ -------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Dennis J. Harward 12/31/96 $150,000 37,500 (4) -- 3,190(5)
Chairman of the Board of Directors, 3/31/96 175,000 $78,794 2,250
President, Chief Executive Officer 3/31/95 175,000 20,000 2,250
& Director
Jack L. Harward 12/31/96 $106,875 (4) -- 5,820(5)
Executive Vice President, 3/31/96 142,550 $73,980 2,250
Director 3/31/95 130,000 20,000 1,950
Daniel E. Catan 12/31/96 $ 75,000 (4) 1,000(3) $75,576(6)
Vice President-Chief
Marketing Officer(7)
Ronald E. Goodrow 12/31/96 $ 90,000 $ (4) -- 5,080(5)
Vice President-Operations 3/31/96 120,000 $45,698 3,680
3/31/95 120,000 -0- 3,680
Susan D. Falotico 12/31/96 $ 71,250 (4) 1,820(5)
Vice President-Controller 3/31/96 16,240 $ 635
and Chief Accounting Officer(8)
</TABLE>
- ----------------
(1) The amounts reflected in the above table do not include any amounts for
perquisites and other personal benefits extended to the Named Executive
Officers. The aggregate amount of such compensation for each Named
Executive Officer is less than 10% of the total annual salary and bonus.
(2) The annual compensation for each Named Executive Officer is included for
his or her employment during the nine-months ended December 31, 1996. On
a full calendar year basis, the Named Executive Officers current base
salaries are: Dennis J. Harward, $200,000; Jack L. Harward, $142,500;
Daniel E. Catan, $150,000; Ronald E. Goodrow, $120,000; and Susan D.
Falotico, $90,000.
(3) See the table under "Stock Options Granted in the Nine Months Ended
December 31, 1996" below for additional information concerning these
options.
(4) Bonuses for services rendered in the nine months ended December 31, 1996
have not been determined as of the date of this Prospectus. The Company
has had a policy of granting discretionary annual bonuses to its
executive officers and employees based primarily on certain performance
criteria. The Board of Directors intends to continue this policy in the
future.
(5) Represents matching contributions to the accounts of the Named Executive
Officers under the Company's 401(k) savings plan made on a calendar year
basis for the 12-month periods ended December 31, 1996, December 31, 1995,
and December 31, 1994, respectively.
(6) Represents $46,276 for relocation moving expenses and $29,300 for
commissions.
(7) Mr. Catan's employment began July 1, 1996.
(8) Ms. Falotico's employment began December 29, 1995.
42
<PAGE>
OPTION GRANTS, EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to grants of
options to purchase shares of Common Stock during the nine months ended
December 31, 1996 to the executive officers named in the Summary Compensation
Table. The amounts shown as potential realizable values on the options are
based on assumed annualized rates of appreciation in the price of the Common
Stock of 0%, 5% and 10% over the term of the options, as set forth in rules
of the Securities and Exchange Commission. Actual gains, if any, on stock
option exercises are dependent on future performance of the Common Stock.
There can be no assurance that the potential realizable values reflected in
this table will be achieved.
STOCK OPTION GRANTS IN THE NINE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
--------------------------------------------------------------------- ---------------------------------
PERCENT OF TOTAL
NUMBER OF OPTIONS GRANTED
SECURITIES TO EXERCISE OR
UNDERLYING OPTIONS EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED(#) IN 12/31/96 ($/SHARE) DATE 0%($) 5%($) 10%($)
-------------------- ---------------- ----------- ----------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
DANIEL E. CATAN 53,000 100% $1.81 6/30/01 $ - $26,523 $58,609
</TABLE>
- ------------------
(1) The Company determined that the Common Stock had a fair market value of
$1.81 per share on the date of grant.
The following table sets forth information concerning the value of
unexercised options as of December 31, 1996 held by the Company's executive
officers. No options were exercised during 1996.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
NAME OPTIONS AT YEAR-END AT YEAR-END
- --------------- ------------------------- ---------------------------
<S> <C> <C>
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
Daniel E. Catan .... --/53,000 --/$94,800
</TABLE>
- -----------------------------------------------------------------------------
(1) The Company determined that the Common Stock had a fair market value of
$3.60 per share on December 31, 1996.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL AGREEMENTS
Effective February 1997, the Company entered into employment agreements with
Dennis J. Harward, the Company's President, Chief Executive Officer and Chairman
of the Board and Jack L. Harward, the Company's Executive Vice President. These
agreements with Messrs. D. Harward and J. Harward provide for base salaries of
$250,000 and $142,500, respectively, to be reviewed annually by the Board of
Directors. Each of the agreements is for a term of three years, which
automatically renews for successive one-year periods unless either party gives
60 days notice of nonrenewal. The agreements also provide that, upon the
termination of the executive's employment for death, mental or physical
incapacity, illness or disability, the Company will pay to the executive any
unpaid base salary, any accrued but unpaid incentive compensation through the
date of termination and a pro rata portion of the incentive compensation for
such period. The Company has the right to terminate the agreements for "cause",
as defined therein, and shall be obligated to pay to the executive base salary
to the date of termination. In the event either executive is terminated "without
cause", the Company must pay to such
43
<PAGE>
executive any unpaid base salary, any accrued but unpaid incentive
compensation through the date of termination and the executive's base salary for
a period of 12 months as well as continue to provide the executive with
incentive compensation and the other benefits under the agreement for the same
period. Additionally, upon termination "without cause" the Company must pay to
each executive a single lump sum payment equal to the value of the portion of
his benefits under any savings, pension, profit sharing or deferred compensation
plans. These agreements also provide that Messrs. D. Harward and J. Harward may
receive stock options pursuant to the Company's Executive Incentive Plan. Each
of the employment agreements provide that, during the term of the agreement, and
for two-years thereafter, the executives shall not engage in or have any
interest in any business that competes with the Company in the U.S., Canada or
any foreign market where the Company markets or sells its applications or its
services (i.e. any business that engages in the development and/or marketing of
software applications in the public sector marketplace). Additionally, the
agreements provide that the executives shall not at any time divulge,
communicate, use to the detriment of the Company or for the benefit of any other
person or persons, or misuse in any way, any confidential information, as
defined therein, pertaining to the business of the Company. Further, while each
executive is employed by the Company and for a two-year period after the
termination of the executive's employment with the Company for any reason, the
executive shall not, (i) hire or attempt to hire any employee or former employee
of the Company, unless such employee or former employee has not been employed by
the Company for a period in excess of six months, or (ii) solicit any of the
actual or targeted prospective clients of the Company, in connection with any
business competitive with the business of the Company, (iii) or disclose the
names and addresses of such clients. At any time, the executives have the right
to resign and terminate the agreement upon 60 days notice. Upon such
resignation, the Company must pay to such executive any unpaid base salary and
any accrued but unpaid incentive compensation through the date of resignation.
Effective February 1997, the Company also entered into severance agreements
with Dennis J. Harward and Jack L. Harward. The severance agreements will become
effective on, and provide for continued employment or retention following, a
"Change in Control" (as defined in the agreement) of HTE. Such agreements
generally provide that upon (i) termination by HTE of the executive's employment
for any reason other than death, mental or physical incapacity, illness or
disability or "cause", (as defined), (ii) termination by the executive for "Good
Reason" (generally defined as the diminution of the executive's duties or other
breach by HTE of the agreement), or (iii) termination by the executive during a
30-day period commencing one year after the Change in Control, he will receive,
in addition to base salary, bonus, and other compensation accrued through the
date of termination, a lump sum cash payment equal to 2.5 times his
then-existing base salary and incentive compensation provided however that, in
the event of a Change in Control, such severance provision shall not apply to an
executive who votes any shares in favor of any such Change in Control.
Effective as of January 17, 1997 the Company entered into an employment
agreement with L.A. Gornto, Jr. Pursuant to the agreement, Mr. Gornto serves
full-time as Executive Vice President, Chief Financial Officer and General
Counsel to the Company. The agreement is for a term of one year and
automatically renews for successive one-year periods. Either party may terminate
this agreement upon 60 days prior notice to the other. The agreement provides
for an annual salary of $75,000 for his services as Chief Financial Officer and
for additional payments based on hourly rates for his services rendered as
Executive Vice President or a General Counsel to the Company. The agreement also
provides that Mr. Gornto shall be reimbursed for all reasonable expenses
incurred by him in the performance of his duties. Mr. Gornto has waived
participation in the Company's annual executive bonus compensation plan.
However, Mr. Gornto is eligible to receive stock option grants pursuant to the
Company's Executive Incentive Plan. During the term of the agreement, and for
one year thereafter, Mr. Gornto shall not engage in or have any interest in any
business that competes with the Company in the U.S., Canada or any
foreign market where the Company markets or sells its applications or its
services. Additionally, the agreement provides that Mr. Gornto shall not at any
time divulge, communicate, use to the detriment of the Company or for the
benefit of any other person or persons, or misuse in any way, any confidential
information, as defined therein, pertaining to the business of the Company.
44
<PAGE>
The Company has also entered into employment agreements with Daniel E. Catan,
Vice President-Chief Marketing Officer, Charlotte B. Hill, Vice President,
Research and Development, Ronald E. Goodrow, Vice President-Operations and Susan
D. Falotico, Vice President, Controller and Chief Accounting Officer. The
Company's agreements with Mr. Catan, Ms. Hill, Mr. Goodrow and Ms. Falotico
provide for base salaries of $150,000, $135,000, $120,000 and $90,000,
respectively, with each eligible for incentive compensation payments based on
performance. Each of the agreements is for a term of one year, which
automatically renew for successive one-year periods. Either party may terminate
this agreement upon 60 days prior notice to the other. The agreements also
provide that, upon the termination of the executive's employment for death,
mental or physical incapacity, illness or disability, the Company will pay to
the executive any unpaid base salary, any accrued but unpaid incentive
compensation through the date of termination. The Company has the right to
terminate the agreements for "cause" as defined therein and shall be obligated
to pay to the executive base salary to the date of termination. In the event an
executive is terminated "without cause" the Company will pay to such executive
any unpaid base salary, any accrued but unpaid incentive compensation through
the date of termination, and in certain circumstances, additional payment of
salary and benefits for up to six months after the date of termination. These
agreements also provide that the executives may receive stock options pursuant
to the Executive Incentive Plan. Each of the agreements provide that, during the
term of the agreement, and for one year thereafter, the executive shall not
engage in or have any interest in any business that competes with the Company in
the United States, Canada or any foreign market where the Company markets or
sells its applications or its services. Additionally, the agreements provide
that the executive shall not at any time disclose or misuse any confidential
information pertaining to the business of the Company. Further, while each
executive is employed by the Company and for a one year period after the
termination of the executive's employment with the Company for any reason, for
the executive shall not, directly or indirectly, (i) hire or attempt to hire any
employee or former employee of the Company, unless such employee or former
employee has not been employed by the Company for a period in excess of six
months, or (ii) solicit any of the actual or targeted prospective clients of the
Company or (iii) disclose the names and addresses of such clients. Upon
resignation, the Company shall pay to such executive any unpaid base salary and
any accrued but unpaid incentive compensation through the date of resignation.
ANNUAL INCENTIVE COMPENSATION BONUS PLAN
The Company has an incentive compensation bonus plan for its executive
officers pursuant to which distributions may be made annually based on the
Company's earning growth and on each participating officer's contributions to
the Company's profits and other corporate goals. Distributions are made from a
pool, the amount of which is established by the Company's Board of Directors.
Individual distributions from the pool are determined by the Company's
Compensation Committee.
1997 EXECUTIVE INCENTIVE COMPENSATION PLAN
The Executive Incentive Plan was adopted by the Board of Directors in January
1997. The purpose of the Executive Incentive Plan is to attract and retain key
employees and consultants of the Company, to provide an incentive for them to
achieve long-range performance goals, and to enable them to participate in the
long-term growth of the Company.
The Executive Incentive Plan authorizes the grant of stock options (incentive
and nonstatutory), stock appreciation rights ("SARs") and restricted stock to
employees and consultants of the Company subject to adjustment capable of
contributing to the Company's performance. The Company has reserved an aggregate
of 954,000 shares of Common Stock for grants under the Executive Incentive Plan.
Incentive stock options may be granted only to employees eligible to receive
them under the Internal Revenue Code of 1986, as amended. Nonstatutory options
to purchase 567,100 shares of Common Stock were granted on February 7, 1997 at
an exercise price of $9.43 per share. Of the options issued, 116,600 were
immediately vested, 106,000 vest over a four-year period and 344,500 vest over a
five-year period.
45
<PAGE>
CERTAIN TRANSACTIONS
On November 1, 1996, the Company acquired all of the outstanding common stock
of Bellamy by paying cash of $375,000, issuing notes totaling $300,000 and by
issuing 63,600 shares of Class C Common Stock of the Company (see Note 7 of
Notes to Consolidated Financial Statements). Such notes are included in notes
payable to related parties on the accompanying consolidated balance sheet as of
December 31, 1996, since the former owners are now employees of the Company. The
notes bear annual interest at 10% and are payable in annual installments
totaling $60,000, $90,000 and $150,000 on November 1, 1997, 1998 and 1999,
respectively. The Company currently proposes to repay such notes with
proceeds from this offering.
In November 1994, BancBoston Ventures, Inc. purchased 20,572 shares of
Redeemable Preferred Stock of the Company for an aggregate purchase price of
$2.0 million. Mr. Roberts, a Director of the Company, is a Managing Director of
BancBoston Ventures, Inc. As of March 1995, Meridian Venture Partners purchased
10,286 shares of Redeemable Preferred Stock of the Company for an aggregate
purchase price of $1.0 million. Mr. Markey, a Director of the Company, is a
General Partner of Meridian Venture Partners. In June 1996, Meridian Venture
Partners purchased 2,529 shares of Redeemable Preferred Stock of the Company for
an aggregate purchase price of $246,545.
On October 31, 1994, HTE acquired all the outstanding stock of HTE-Public
Safety Corporation, Inc. ("PSC") from the two majority stockholders of HTE,
Dennis Harward and Jack Harward, in exchange for 5,140 shares of HTE's Class A
Common Stock issued to Jack Harward and a note in the principal amount of
$500,000 (which was paid in full prior to March 31, 1995) issued to Dennis
Harward. On October 24, 1994, HTE acquired all the outstanding stock of
HTE-Public Safety Illinois, Inc. ("PSI") from Dennis Harward and Jack Harward in
exchange for 10,280 shares of HTE's Class A Common Stock. Since HTE, PSC and PSI
were all under common control, the acquisitions have been accounted for in the
same manner as a pooling-of-interests. The $500,000 paid Dennis Harward arising
from the PSC acquisition has been recorded as a return of capital in the
accompanying consolidated financial statements.
During the 12 months ended March 31 1996, the Company advanced $169,270 to
Dennis Harward and $93,105 to Jack Harward. During the nine month period
ended December 31, 1996, the Company advanced $1,194 to Jack Harward. These
advances were evidenced by unsecured, non-interest bearing notes and had no
specified maturity date. As of December 31, 1996, the notes were forgiven by the
Company. See Note 8 to Notes to Consolidated Financial Statements.
Mr. Gornto, the Company's Executive Vice President, Chief Financial Officer
and General Counsel has performed certain legal services for the Company. Mr.
Gornto was paid approximately $109,270, $30,120 and $106,160 for services
rendered during the nine month period ended December 31, 1996 and the 12 month
periods ended March 31, 1996 and March 31, 1995, respectively.
46
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of February 15, 1997 and as adjusted
to reflect the sale of the Common Stock offered hereby, by (i) each shareholder
who is known by the Company to own beneficially more than 5% of the Common
Stock, (ii) each Named Executive Officer of the Company, and (iii) each director
of the Company; (iv) all executive officers and directors of the Company as a
group; and (v) the Selling Shareholders.
<TABLE>
<CAPTION>
SHARES SHARES BENEFICIALLY
BENEFICIALLY OWNED OWNED
PRIOR TO OFFERING(3) NUMBER OF AFTER OFFERING(4)
-------------------- SHARES BEING --------------------------
NAME OF BENEFICIAL OWNER(1)(2) NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------- --------- -------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
Dennis J. Harward ................. 1,976,423 36.8% 110,000 1,866,423 24.9%
Jack L. Harward. .................. 1,362,577 25.4 110,000 1,252,577 16.7
BancBoston Ventures, Inc. ......... 1,090,316 20.3 220,000 870,316 11.6
175 Federal Street, 10th Floor
Boston, Massachusetts 02110
Meridian Venture Partners ......... 679,178 12.7 110,000 569,178 7.6
259 Radnor Chestor Road-Suite 140
Radnor, Pennsylvania 19087
L.A. Gornto, Jr.(5) ............... 79,500 1.4 -- 79,500 1.1
Ronald E. Goodrow(6) .............. 79,500 1.4 -- 79,500 1.1
Daniel E. Catan(7) ................ 53,000 * -- 53,000 *
Executive Officers and Directors
as a group (9 persons)(8) ....... 5,187,995 96.7 4,770,494 63.8
</TABLE>
- --------------------
* Less than one percent.
(1) Except as otherwise noted, and subject to community property laws where
applicable, each person named in the table has sole voting and investment
power with respect to all securities owned by him, her or it.
(2) Unless otherwise noted, the address of each person or entity listed is
H.T.E., Inc., 390 North Orange Avenue, Suite 2000, Orlando, Florida
32801.
(3) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof either from
the exercise of options or from the conversion of a security.
(4) Excludes an aggregate of 375,000 shares subject to the Underwriters' over
allotment option.
(5) Includes 26,500 shares of Common Stock that Mr. Gornto may acquire within
60 days upon the exercise of stock options.
(6) Includes 53,000 shares of Common Stock that Mr. Goodrow may acquire
within 60 days upon the exercise of stock options.
(7) Includes 53,000 shares of Common Stock that Mr. Catan may acquire within
60 days upon exercise of stock options.
(8) See footnotes (1) through (7).
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
As of the date of this Prospectus, the outstanding capital stock of the
Company consisted of (i) 1,769,494 shares of mandatorily redeemable preferred
stock, par value $.0002 per share ("Redeemable Preferred Stock") held by two
shareholders of record, (ii) 3,530,557 shares of Class A common stock, par value
$.0002 per share ("Class A Common Stock") held by 12 shareholders of record,
(iii) no shares of Class B common stock par value $.01 per share ("Class B
Common Stock"), and (iv) 63,600 shares of Class C common stock, par value $.0002
per share ("Class C Common Stock") held by five shareholders of record.
Immediately prior to the consummation of this offering the Company will complete
a recapitalization (the "Recapitalization") pursuant to which (i) all
outstanding shares of Redeemable Preferred Stock, Class A Common Stock and Class
C Common Stock will be split 53-for-one and exchanged simultaneously on a
one-for-one basis for shares of the Company's newly authorized Common Stock,
(ii) the Company shall pay in cash all accrued dividends on the Redeemable
Preferred Stock to the date of the stock splits and exchanges described above,
and (iii) following the exchanges described above, the Redeemable Preferred
Stock, Class A Common Stock, Class B Common Stock and Class C Common Stock will
be cancelled, retired and eliminated from the shares the Company is authorized
to issue. Certain holders of the Company's capital stock have the right to
require the Company to register their shares of Common Stock under the
Securities Act. See, "Registration Rights."
The Company's Board of Directors and shareholders have approved the Amended
Articles and the Amended and Restated Bylaws ("Bylaws") to become effective upon
this offering, and the following discussions describe the provisions of the
Company's capital stock, Amended Articles and Bylaws that will be in effect
after this offering. The following summary description relating to the capital
stock does not purport to be complete and is qualified in its entirety by
reference to the Amended Articles and Bylaws of the Company which are filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
Upon consummation of the offering, (i) the authorized capital stock of the
Company will consist of 25,000,000 shares of common stock, $.01 par value
("Common Stock"), and 5,000,000 shares of "blank check" preferred stock, $.01
par value ("Preferred Stock") (ii) there will be 7,313,651 shares of Common
Stock outstanding and no shares of Preferred Stock outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the shareholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor.
Holders of Common Stock have no preemptive, conversion or other subscription
rights. There are no redemption or sinking fund provisions available to the
Common Stock. In the event of liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
Preferred Stock, if any, then outstanding.
PREFERRED STOCK
The Board of Directors has the authority without further action by the
stockholders to issue up to 5,000,000 shares of Preferred Stock in one or more
series. The Board of Directors is authorized to establish from time to time the
number of shares to be included in and the designation of, any such series, to
determine or alter the rights, preferences, privileges and restrictions, there
of without further action by the shareholders. The Board of Directors of the
Company has not designated any new series of Preferred Stock. Satisfaction of
any dividend preferences of outstanding Preferred Stock, if any, would reduce
the amount of funds available for the payment of dividends on Common Stock.
Also, the holders of Preferred Stock, if any, would normally be entitled to
receive a preference payment in the event of any liquidation or other
dissolution or winding up of the Company before any payment is made
48
<PAGE>
to the holders of Common Stock. In addition, any outstanding shares of Preferred
Stock having conversion rights would potentially increase the number of shares
of Common Stock outstanding.
REGISTRATION RIGHTS
Following the consummation of the offering, BancBoston Ventures, Inc. and
Meridian Venture Partners (the "Investors") will hold 870,316 and 569,178 shares
of Common Stock, respectively, issued upon conversion of their holdings of
Redeemable Preferred Stock and will be entitled to certain rights with respect
to the registration of such shares under the Securities Act as well as holders
of shares issuable upon options upon exercise of such options. Under the terms
of the Registration Rights Agreement between the Company and the Investors,
after the earlier of (i) the third anniversary of the date of the Registration
Rights Agreement or (ii) the closing of this offering, subject to certain
limitations, the Investors have the right to require the Company to file a
registration statement under the Securities Act in order to register the sale of
all or any part of its shares of Common Stock (such right is defined as a
"Demand Right"). See "Shares Eligible For Future Sale." The Investors, as a
group, are entitled to demand that the Company register their shares of Common
Stock on three occasions at the Company's expense, provided that such demand for
registration on Form S-1 is made by the Investors for at least 25% of the
registrable securities, or at least 15% of the registrable securities for demand
on any other form. Additionally, the Investors and, under certain circumstances
other shareholders who have executed instruments of accession (the "Other
Shareholders"), have the right, subject to certain limitations, to include their
shares issuable upon exercise of options among those securities registered as
part of an offering initiated by the Company whether or not for the sale of its
own account or for other shareholders (such right is defined as a "Piggyback
Right"). The Company may in certain circumstances defer such registrations, and
the underwriters with respect to such sale have the right, subject to certain
limitations, to limit the number of shares included in such registrations. In
the event that the Company proposes to register the sale of any of its
securities under the Securities Act, the Company is required to promptly give
the Investors and the Other Shareholders written notice, at which point the
Investors and the Other Shareholders will have ten days to make a written
request of the Company to include such Investor's shares of Common Stock in such
registration, subject to the underwriter's right to limit such shares described
above, and certain other limitations. Generally, the Company is required to bear
the expense of all such registrations except for transfer taxes. The Company
intends to file a registration statement under the Securities Act approximately
180 days after the effective date of this offering covering the shares of Common
Stock reserved for issuance under the Executive Incentive Plan.
ANTI-TAKEOVER EFFECTS OF FLORIDA LAW, CHARTER PROVISIONS, UNISSUED STOCK
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. Certain provisions of Florida law, the Company's Amended
Articles and Bylaws, may deter or frustrate a takeover attempt of the Company
that a shareholder might consider in its best interest, including attempts that
might result in a premium over the market price for the shares held by
shareholders. The Company is subject to several anti-takeover provisions under
Florida law that apply to a public corporation organized under Florida law,
unless the corporation has elected to opt out of such provisions in its articles
or bylaws. The Company is subject to the "affiliated transactions" and
"control-share acquisition" provisions of the Florida Business Corporation Act
(the "FBCA"). These provisions require, subject to certain exceptions, that an
"affiliated transaction" be approved by the holders of two-thirds of the voting
shares other than those beneficially owned by an "interested shareholder" or by
a majority of disinterested directors and that voting rights be conferred on
"control shares" acquired in specified control share acquisitions generally only
to the extent conferred by resolution approval by the shareholders, excluding
holders of shares defined as "interested shares."
In addition, certain provisions of the Company's Amended Articles or Bylaws
provide (i) that, commencing with the consummation of this offering, any action
required or permitted to be taken by the shareholders of the Company may be
effected only at an annual or special meeting of shareholders, and not by
written consent of the shareholders, (ii) that any meeting of shareholders may
be called only by the Chairman of the Board, or upon the affirmative vote of at
least a majority of the members of the
49
<PAGE>
Board of Directors, or upon the written demand of the holders of not less than
50% of the votes entitled to be cast at a special meeting, and (iii) for an
advance notice procedure for the nomination, other than by or at the direction
of the Board of Directors or a Committee of the Board of Directors, of
candidates for election as directors, as well as for other shareholder proposals
to be considered at annual meetings of shareholders. In general, notice of
intent to nominate a director or raise business at such meetings must be
received by the Company not less than 60 nor more than 90 days before the
meeting, and must contain certain information concerning the person to be
nominated or the matters to be brought before the meeting and concerning the
shareholder submitting the proposal. The affirmative vote of at least a majority
of the directors or the holders of at least 66 2/3 % of the voting power of the
Company's voting stock is required to alter, amend or repeal, or adopt any
provision inconsistent with, the Bylaw provisions described in this paragraph.
The directors of the Company are subject to the "general standards for
directors" provisions set forth in the FBCA. These provisions provide that in
discharging his or her duties and determining what is in the best interests of
the Company, a director may consider such factors as the director deems
relevant, including the long-term prospects and interests of the Company and its
shareholders and the social, economic, legal or other effects of any proposed
action on the employees, suppliers or customers of the Company, the community in
which the Company operates and the economy in general. Consequently, in
connection with any proposed action, the Board of Directors is empowered to
consider interests of other constituencies in addition to the Company's
shareholders, and directors who take into account these other factors may make
decisions which are less beneficial to some, or a majority, of the shareholders
than if the law did not permit consideration of such other factors. The Board of
Directors is divided into three classes, with the directors of each class to be
elected for staggered terms of three years and to serve until their successors
are duly elected and qualified or until their earlier resignation, death or
removal from office.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Company's Articles of Incorporation provide that shareholders
seeking to bring business before an annual meeting of shareholders, or to
nominate candidates for election as directors at an annual or special meeting of
shareholders, must provide timely notice thereof in writing. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 120 days nor more than
180 days prior to the first anniversary of the date of the Company's notice of
annual meeting provided with respect to the previous year's annual meeting;
provided, however, that if no annual meeting was held in the previous year or
the date of the annual meeting has been changed to be more than 30 calendar days
earlier than the date contemplated by the previous year's notice of annual
meeting, such notice by the shareholder to be timely must be so delivered or
received not later than the close of business on the fifth day following the
date on which notice of the date of the annual meeting is given to shareholders
or made public, whichever first occurs. The Company's Amended Articles also
specify certain requirements for a shareholder's notice to be in proper written
form. These provisions may preclude shareholders from bringing matters before
the shareholders at an annual or special meeting or from making nominations for
directors at an annual or special meeting.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK. Upon consummation of this
offering, the Company will be authorized to issue additional Common Stock and up
to five million shares of preferred stock in one or more series, having terms
fixed by the Board of Directors without shareholder approval, including voting,
dividend or liquidation rights that could be greater than or senior to the
rights of holders of Common Stock. The existence of authorized but unissued and
unreserved shares of Common Stock and Preferred Stock may enable the Board of
Directors to issue shares to persons friendly to current management which would
render more difficult or discourage an attempt to obtain control of the Company
by means of a proxy contest, tender offer, merger or otherwise, and thereby
protect the continuity of the Company's management. Issuance of shares of Common
Stock or Preferred Stock could also be used as an anti-takeover device. The
Company has no current intentions or plans to issue any such shares of Common
Stock or Preferred Stock. See "Description of Capital Stock."
50
<PAGE>
LIMITED LIABILITY AND INDEMNIFICATION
Under the FBCA, a director is not personally liable for monetary damages to
the corporation or any other person for any statement, vote, decision, or
failure to act unless (i) the director breached or failed to perform his duties
as a director and (ii) a director's breach of, or failure to perform, those
duties constitutes (1) a violation of the criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful, (2) a transaction from which the director
derived an improper personal benefit, either directly or indirectly, (3) a
circumstance under which an unlawful distribution is made, (4) in a proceeding
by or in the right of the corporation or procure a judgment in its favor or by
or in the right of a shareholder, conscious disregard for the best interest of
the corporation or willful misconduct, or (5) in a proceeding by or in the right
of someone other than the corporation or a shareholder, recklessness or an act
or omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property. A corporation may purchase and maintain insurance on behalf of any
director or officer against any liability asserted against him and incurred by
him in his capacity or arising out of his status as a director, whether or not
the corporation would have the power to indemnify him against such liability
under the FBCA.
The Amended Articles of the Company provide that the Company shall, to the
fullest extent permitted by applicable law, as amended from time to time,
indemnify all directors of the Company, as well as any officers or employees of
the Company to whom the Company has agreed to grant indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Co.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 7,313,651 shares of
Common Stock outstanding (assuming no exercise of the Underwriters'
overallotment option or outstanding options). Of these shares, the 2,500,000
shares sold in this offering will be freely transferable without restriction or
registration under the Securities Act, except for any shares purchased by an
existing "affiliate" of the Company, as that term is defined by the Securities
Act (an "Affiliate"), which shares will be subject to the resale limitations of
Rule 144 adopted under the Securities Act. The remaining 4,813,651 outstanding
shares are "restricted shares" (as defined in Rule 144). Beginning 90 days after
the date of this Prospectus, and without consideration of the contractual
restrictions described below, approximately 4,558,494 shares would be eligible
for sale in reliance upon Rule 144 promulgated under the Securities Act. Without
consideration of the contractual restrictions described below, the remaining
255,157 restricted shares will not be transferable pursuant to Rule 144 until
the expiration of their two-year holding periods.
After the offering pursuant to this Prospectus, the holders of approximately
4,813,651 shares of Common Stock, or their transferees, will be entitled to
certain rights with respect to the registration of such shares under the
Securities Act subject to certain limitations and restoration. See "Description
of Capital Stock--Registration Rights." Registration of such shares under the
Securities Act would result in such shares becoming freely tradeable without
restriction under the Securities Act (except for shares purchased by Affiliates)
immediately upon the effectiveness of such registration.
All directors and certain executive officers and the Selling Shareholder have
agreed with the Underwriters not to sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the closing of this offering (the
"Lockup Period") without the prior written consent of the Representatives. Upon
expiration of the Lockup Period, the shares held by such persons will be
eligible for sale in the public market without restriction pursuant to Rule 144.
Additional shares of Common Stock, as well as shares issuable under the
Executive Incentive Plan will also become eligible for sale in the public market
from time to time in the future upon expiration of the holding periods
prescribed by Rule 144. See "Management--Executive Incentive Plan" and
"Underwriting."
In general, under Rule 144 as currently in effect, if two years have elapsed
since the later of the date of acquisition of restricted shares from the Company
or any "affiliate" of the Company, as that term is defined under the Securities
Act, the acquiror or subsequent holder is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the then outstanding shares of the Company's Common Stock or the average weekly
trading volume of the Company's Common Stock on all exchanges and/or reported
through the automated quotation system of a registered securities association
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission (the "Commission"). Sales
under Rule 144 are also subject to certain manner of sales provisions, notice
requirements and the availability of current public information about the
Company. If three years have elapsed since the later of the date of acquisition
of restricted shares from the Company or from any affiliate of the Company, and
the acquiror or subsequent holder thereof is deemed not to have been an
affiliate of the Company at any time during the 90 days preceding a sale, such
person would be entitled to sell such shares in the public market under Rule
144(k) without regard to the volume limitations, manner of sale provisions,
public information requirements or notice requirements.
The Company is unable to predict the effect that sales of Common Stock made
under Rule 144, pursuant to future registration statements or otherwise, may
have on any then prevailing market price for shares of the Common Stock.
Nevertheless, sales of a substantial amount of the Common Stock in the public
market, or the perception that such sales could occur, could materially
adversely affect the market price of the Common Stock as well as the Company's
ability to raise additional capital through the sale of its equity securities.
52
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of such Underwriters,
for whom Volpe, Welty & Company L.L.C. and Janney Montgomery Scott Inc.
(together, the "Representatives") are acting as representatives, has agreed
severally to purchase from the Company and the Selling Shareholders, the
respective number of shares of Common Stock set forth opposite its name below.
The Underwriters are committed to purchase and pay for all shares if any shares
are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
---------
<S> <C>
Volpe, Welty & Company L.L.C. ..................................
Janney Montgomery Scott Inc. ..................................
---------
Total ........................................................
=========
</TABLE>
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of ______ per share, of which _______ may be reallocated to other dealers. After
the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such reduction
shall change the amount of proceeds to be received by the Company and the
Selling Shareholders as set forth on the cover page of this Prospectus.
The Company has granted the Underwriters an option for 45 days after the date
of this Prospectus to purchase, at the initial public offering price, less the
underwriting discounts and commissions as set forth on the cover page of this
Prospectus, up to 375,000 additional shares of Common Stock at the same price
per share as the Company and the Selling Shareholders receive for the 2,500,000
shares of Common Stock offered hereby, solely to cover over-allotments, if any.
If the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by each of them, as shown in the foregoing table, bears to the
2,500,000 shares of Common Stock offered hereby. The Underwriters may exercise
such option only to cover the over-allotments in connection with the sale of the
2,500,000 shares of Common Stock offered hereby.
Each of the Company's directors and certain executive officers have agreed
not to offer, sell, contract to sell or otherwise dispose of Common Stock or
securities convertible into or exchangeable for, or any rights to purchase or
acquire, Common Stock for a period of 180 days following the date of this
Prospectus, without the prior written consent of Volpe, Welty & Company L.L.C.
The Company also has agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable for, or any rights to purchase or acquire, Common Stock for a
period of 180 days following the date of this Prospectus without the prior
written consent of Volpe, Welty & Company L.L.C., except for the granting of
options or the issuance of stock pursuant to the Company's existing stock option
plans. Volpe, Welty & Company L.L.C. in its discretion, may waive the foregoing
restrictions in whole or in part, with or without a public announcement of such
action. In recent offerings in which it has served as lead manager of
underwriters, Volpe, Welty & Company
53
<PAGE>
L.L.C. has consented to early releases from lock-up agreements only in a limited
number of circumstances, after considering all circumstances that it deemed to
be relevant. Volpe, Welty & Company L.L.C. will, however, have complete
discretion in determining whether to consent to early releases from the lock-up
agreements delivered in connection with this offering, and no assurance can be
given that it will not consent to the early release of all or a portion of the
shares of Common Stock and options covered by such lock-up agreements.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which the Underwriters have
discretionary authority.
Prior to the offering, there has been no public market for the Common Stock.
The initial public offering price of the Common Stock was determined by
negotiations between the Company, the Selling Shareholders and the
Representatives. Among the factors considered in determining the initial public
offering price of the Common Stock, in addition to prevailing market conditions,
were the Company's historical performance, estimates of the business potential
and earnings prospects of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuations of
companies in related businesses.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection with
the offering, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
The foregoing contains a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement that is on file as an exhibit to the Registration
Statement of which this Prospectus is a part.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Greenberg, Traurig, Hoffman, Lipoff Rosen & Quentel, P.A., Orlando,
Florida. Certain legal matters relating to the offering will be passed upon for
the Underwriters by Foley & Lardner, Orlando, Florida.
EXPERTS
The financial statements and schedules included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent certified public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement") under
the Securities Act with respect to the Securities offered by this Prospectus.
This Prospectus does not contain all of the information set forth in such
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. For further information,
reference is made to such registration statement,
54
<PAGE>
including the exhibits thereto, which may be inspected without charge at the
Commission's principal office at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549; and at the following Regional Offices of the Commission, except that
copies of the exhibits may not be available at certain of the Regional Offices:
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and New York Regional Office, 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of all or any part of such material may be obtained from
the Commission at 450 Fifth Street, N.W. Room 1024, Washington, D.C. 20549, upon
payment of certain fees prescribed by the Commission. The Commission maintains a
World Wide Web site on the Internet at http://www.sec.gov that contains reports,
proxy, information statements, and registration statements and other information
filed electronically with the Commission.
The Company is not presently a reporting company and does not file reports or
other information with the Commission. However, on the effective date of the
Registration Statement, the Company will become a reporting company. Further,
the Company will register its securities under the Securities Exchange Act of
1934 ("Exchange Act"). Accordingly, the Company will become subject to the
additional reporting requirements of the Exchange Act and in accordance
therewith will file reports, proxy statements and other information with the
Commission. In addition, after the completion of this offering, the Company
intends to furnish its shareholders with annual reports containing audited
financial statements and such interim reports, in each case as it may determine
to furnish or as may be required by law.
55
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Certified Public Accountants .................................... F-2
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1996 ............... F-3
Consolidated Statements of Operations for the years ended March 31, 1995 and 1996,
and the nine months ended December 31, 1996 and (unaudited) 1995 .................... F-6
Consolidated Statements of Stockholders' Deficit for the years ended March 31, 1996
and 1995 and the nine months ended December 31, 1996 ................................ F-7
Consolidated Statements of Cash Flows for the years ended March 31, 1995 and 1996
and the nine months ended December 31, 1996 and (unaudited) 1995 .................... F-8
Notes to Consolidated Financial Statements ............................................ F-10
</TABLE>
F-1
<PAGE>
NOTE:
After the stock split discussed in Note 1 to H.T.E., Inc.'s consolidated
financial statements is effected, we expect to be in a position to render the
following audit report.
February 28, 1997, Arthur Andersen LLP
Orlando, Florida
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To H.T.E., Inc.:
We have audited the accompanying consolidated balance sheets of H.T.E.,
Inc. (a Florida corporation) and subsidiaries as of March 31 and December 31,
1996, and the related consolidated statements of operations, stockholders'
deficit and cash flows for the years ended March 31, 1995 and 1996, and the
nine months ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of H.T.E., Inc. and
subsidiaries as of March 31 and December 31, 1996, and the results of their
operations and their cash flows for the years ended March 31, 1995 and 1996,
and the nine months ended December 31, 1996, in conformity with generally
accepted accounting principles.
Orlando, Florida
[date]
F-2
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
UNAUDITED
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1996 1996
-------------- --------------- ---------------
(NOTE 16)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 387,550 $ 740,263 $18,763,539
Trade accounts receivable, less allowance of $300,000
and $520,000 for doubtful accounts at March 31 and
December 31, 1996, respectively (Note 5) .............. 11,578,553 16,767,214 16,767,214
Deferred income taxes (Note 11) ......................... 736,590 666,855 666,855
Other current assets .................................... 470,309 515,470 515,470
-------------- --------------- ---------------
Total current assets .................................. 13,173,002 18,689,802 36,713,078
-------------- --------------- ---------------
COMPUTER EQUIPMENT, FURNITURE AND FIXTURES, net (Note 2) 1,384,737 1,592,323 1,592,323
-------------- --------------- ---------------
OTHER ASSETS:
Computer software development costs, net of accumulated
amortization of $4,828,824 and $6,312,312 at March 31
and December 31, 1996, respectively ................... 3,239,387 3,656,533 3,656,533
Other intangible assets, net of accumulated amortization
of $22,347 and $61,625 at March 31 and December 31,
1996, respectively (Note 3) ........................... 89,388 725,667 725,667
Deposits ................................................ 54,780 116,474 116,474
-------------- --------------- ---------------
3,383,555 4,498,674 4,498,674
-------------- --------------- ---------------
$17,941,294 $24,780,799 $42,804,075
============== =============== ===============
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
F-3
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31 AND DECEMBER 31, 1996
(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
UNAUDITED
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1996 1996
------------- --------------- ---------------
(NOTE 16)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable ......................................... $ 2,047,102 $ 2,845,208 $ 2,845,208
Accrued liabilities ...................................... 2,941,406 3,413,121 3,413,121
Line of credit (Note 5) .................................. 1,970,000 2,306,182 --
Deferred revenue ......................................... 6,845,748 10,377,888 10,377,888
Current portion of long-term debt (Note 4) ............... 75,000 -- --
Current portion of obligations under capital leases
(Note 12) .............................................. 31,568 31,367 31,367
Current portion of notes payable to related parties
(Note 3) ............................................... 50,000 60,000 --
Current portion of deferred lease commitment (Note 12) .. 128,113 66,082 66,082
------------- --------------- ---------------
Total current liabilities .............................. 14,088,937 19,099,848 16,733,666
------------- --------------- ---------------
LONG-TERM LIABILITIES:
Notes payable to related parties, less current portion
(Note 3) ............................................... -- 240,000 --
Obligations under capital leases, less current portion
(Note 12) .............................................. 33,426 10,433 10,433
Deferred lease commitment (Note 12) ...................... 42,886 -- --
Deferred income taxes (Note 11) .......................... 1,274,250 1,730,795 1,730,795
------------- --------------- ---------------
Total long-term liabilities ............................ 1,350,562 1,981,228 1,741,228
------------- --------------- ---------------
COMMITMENTS AND CONTINGENCIES
(Notes 6, 7, 10 and 12)
MANDATORILY REDEEMABLE PREFERRED STOCK, 7% cumulative
convertible preferred stock (including accrued
dividends of $267,918 and $432,542 at March 31 and
December 31, 1996, respectively), $.0002 par value,
2,000,000 shares authorized, 1,635,474 and 1,769,494
shares issued and outstanding at March 31 and December
31, 1996, respectively (liquidation preference of
$3,246,000 at December 31, 1996) (Note 6) ............. 3,054,033 4,303,213 --
------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
F-4
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31 AND DECEMBER 31, 1996
(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
UNAUDITED
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1996 1996
-------------- --------------- ---------------
(NOTE 16)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)--(CONTINUED)
MANDATORILY REDEEMABLE CLASS C COMMON STOCK, $.0002 par
value, 200,000 shares authorized, 63,600 shares
issued and outstanding at December 31, 1996 (Note 7) -- 118,714 --
-------------- --------------- ---------------
STOCKHOLDERS' EQUITY (DEFICIT) (Note 8):
Common stock--
Class A, $.0002 par value, 4,000,000 shares
authorized, 3,527,528 and 3,530,557 shares issued
and outstanding at March 31 and December 31, 1996,
respectively ...................................... 666 666 --
Class B, $.01 par value, 200,000 shares authorized,
none issued and outstanding ......................... -- -- --
Common Stock, $.01 par value, 25,000,000 authorized,
7,313,651 shares issued and outstanding on a pro
forma basis ......................................... -- -- 73,137
Additional paid-in capital ............................. 223,724 228,724 25,207,638
Accumulated deficit .................................... (514,253) (946,755) (946,755)
Cumulative translation adjustment ...................... -- (4,839) (4,839)
-------------- --------------- ---------------
(289,863) (722,204) 24,329,181
Notes receivable from stockholders (Note 8) ........... (262,375) -- --
-------------- --------------- ---------------
Total stockholders' equity (deficit) ................. (552,238) (722,204) 24,329,181
-------------- --------------- ---------------
$17,941,294 $24,780,799 $42,804,075
============== =============== ===============
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
F-5
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1995 AND 1996,
AND THE NINE MONTHS ENDED DECEMBER 31, 1996 AND (UNAUDITED) 1995
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1995 1996 1995 1996
------------- -------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Software licenses ................... $ 9,808,075 $11,150,854 $ 6,551,753 $ 9,139,411
Professional services ............... 3,666,000 6,203,099 4,527,750 5,586,480
Hardware ............................ 921,069 6,157,367 4,788,147 7,434,828
Maintenance and other ............... 5,311,357 6,689,274 4,805,310 6,527,655
------------- -------------- --------------- ---------------
Total revenues .................... 19,706,501 30,200,594 20,672,960 28,688,374
------------- -------------- --------------- ---------------
EXPENSES:
Cost of software licenses ........... 1,280,000 3,396,000 2,646,722 2,401,452
Cost of professional services ...... 3,452,610 5,029,403 3,823,151 3,222,951
Cost of hardware .................... 718,933 4,821,588 3,741,000 5,890,302
Cost of maintenance and other ...... 3,246,483 3,118,119 2,316,806 2,215,984
Research and development ............ 2,005,679 3,490,919 2,586,000 3,729,217
Sales and marketing ................. 3,828,839 4,666,000 3,312,000 5,227,782
General and administrative .......... 4,218,922 5,040,896 3,640,000 4,394,089
------------- -------------- --------------- ---------------
Total operating expenses ........... 18,751,466 29,562,925 22,065,679 27,081,777
------------- -------------- --------------- ---------------
INCOME (LOSS) FROM OPERATIONS ....... 955,035 637,669 (1,392,719) 1,606,597
OTHER EXPENSES:
Interest (Notes 4, 5, 7 and 12) .... 103,536 127,143 70,117 191,212
------------- -------------- --------------- ---------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES ....................... 851,499 510,526 (1,462,836) 1,415,385
PROVISION (BENEFIT) FOR INCOME TAXES
(Note 11) .......................... 139,262 211,183 (605,113) 581,683
------------- -------------- --------------- ---------------
NET INCOME (LOSS) .................... 712,237 299,343 (857,723) 833,702
------------- -------------- --------------- ---------------
ACCRETION AND ACCRUAL OF DIVIDENDS ON
MANDATORILY REDEEMABLE PREFERRED
STOCK .............................. (83,990) (183,928) (137,946) (1,002,635)
------------- -------------- --------------- ---------------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS ................ $ 628,247 $ 115,415 $ (995,669) $ (168,933)
============= ============== =============== ===============
NET INCOME (LOSS) AS REPORTED ....... $ 712,237 $ 299,343 $ (857,723) $ 833,702
PRO FORMA ADJUSTMENT TO PROVISION FOR
INCOME TAXES (Note 11) ............. 248,738 -- -- --
------------- -------------- --------------- ---------------
PRO FORMA NET INCOME (LOSS) .......... $ 463,499 $ 299,343 $ (857,723) $ 833,702
============= ============== =============== ===============
PRO FORMA NET INCOME (LOSS) PER SHARE $ 0.11 $ 0.05 $ (0.16) $ 0.15
============= ============== =============== ===============
PRO FORMA WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 4,311,280 5,480,974 5,480,974 5,480,974
============= ============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995 AND
THE NINE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CLASS A NOTES
COMMON STOCK COMMON STOCK ADDITIONAL CUMULATIVE RECEIVABLE
-------------- -------------- PAID-IN ACCUMULATED TRANSLATION FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT STOCKHOLDERS TOTAL
------ ------- ------ ------ --------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1994 .............. -- $ 1,647 15,400 $154 $ 142,748 $(735,197) $ -- $ -- $(590,648)
Exchange of stock due to
recapitalization (Note 6) ......... -- (1,647) 48,600 486 1,161 -- -- -- --
Stockholder distribution in
connection with PSC combination
(Note 3) .......................... -- -- -- -- (143,909) (356,091) -- -- (500,000)
Stockholder distributions ........... -- -- -- -- -- (166,627) -- -- (166,627)
Accretion of mandatorily redeemable
preferred stock to redemption value -- -- -- -- -- (26,072) -- -- (26,072)
Accrual of mandatorily redeemable
preferred stock dividends ......... -- -- -- -- -- (57,918) -- -- (57,918)
Net income .......................... -- -- -- -- -- 712,237 -- -- 712,237
---- ------- ------ ---- --------- --------- ------- -------- ---------
BALANCE, March 31, 1995 .............. -- -- 64,000 640 -- (629,668) -- -- (629,028)
Issuance of common stock ............ -- -- 2,557 26 223,724 -- -- -- 223,750
Accretion of mandatorily redeemable
preferred stock to redemption value -- -- -- -- -- 26,072 -- -- 26,072
Accrual of mandatorily redeemable
preferred stock dividends ......... -- -- -- -- -- (210,000) -- -- (210,000)
Advances on notes receivable from
stockholders ...................... -- -- -- -- -- -- -- (262,375) (262,375)
Net income .......................... -- -- -- -- -- 299,343 -- -- 299,343
---- ------- ------ ---- --------- --------- ------- -------- ---------
BALANCE, March 31, 1996 .............. -- -- 66,557 666 223,724 (514,253) -- (262,375) (552,238)
Issuance of common stock ............ -- -- 57 -- 5,000 -- -- -- 5,000
Accretion of mandatorily redeemable
preferred stock to redemption value -- -- -- -- -- (838,011) -- -- (838,011)
Accrual of mandatorily redeemable
preferred stock dividends ......... -- -- -- -- -- (164,624) -- -- (164,624)
Advances on notes receivable from
stockholders ...................... -- -- -- -- -- -- -- (1,194) (1,194)
Forgiveness of notes receivable from
stockholders ...................... -- -- -- -- -- (263,569) -- 263,569 --
Cumulative translation adjustment .. -- -- -- -- -- -- (4,839) -- (4,839)
Net income .......................... -- -- -- -- -- 833,702 -- -- 833,702
---- ------- ------ ---- --------- --------- ------- -------- ---------
BALANCE, December 31, 1996 ........... -- $ -- 66,614 $666 $ 228,724 $(946,755) $(4,839) $ -- $(722,204)
==== ======= ====== ==== ========= ========= ======= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1995 AND 1996,
AND THE NINE MONTHS ENDED DECEMBER 31, 1996 AND (UNAUDITED) 1995
(NOTE 15)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1995 1996 1995 1996
-------------- -------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................... $ 712,237 $ 299,343 $ (857,723) $ 833,702
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities--
Depreciation and amortization ............ 1,209,931 2,971,525 2,373,893 1,764,931
Accretion of mandatorily redeemable Class C
common stock charged to interest expense .. -- -- -- 6,682
Foreign currency translation loss ........... -- -- -- (4,839)
Loss on disposal of computer equipment,
furniture and fixtures .................... 76,371 2,989 2,989 6,462
Gain on forgiveness of account payable ..... -- (210,264) -- --
Deferred income taxes ....................... 120,007 144,988 -- 237,014
Changes in operating assets and liabilities--
Decrease (increase) in assets--
Trade accounts receivable, net ...... ...... (3,642,366) (5,049,254) (6,211,573) (5,064,542)
Other current assets ....................... (67,843) (334,341) (112,670) (43,034)
Deposits ................................... (59,072) 30,148 (173,698) (61,694)
Increase (decrease) in liabilities--
Accounts payable ........................... 233,672 1,096,170 1,566,212 674,944
Accrued liabilities ........................ 1,070,493 775,147 (70,956) 471,715
Deferred revenue ........................... 1,905,243 339,799 2,724,453 3,403,736
Deferred lease commitment .................. (155,538) (170,641) (127,936) (104,917)
-------------- -------------- --------------- ---------------
Net cash provided by (used in) operating
activities .............................. 1,403,135 (104,391) (887,009) 2,120,160
-------------- -------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................... (281,194) (617,920) (485,637) (386,497)
Proceeds from sale of computer equipment,
furniture and fixtures ..................... 84,279 -- -- --
Proceeds from sale of investments ............ -- 118,955
Acquisition of net assets of
Programmed-For-Success, Inc. ............... -- (5,796) (5,796) --
Acquisition of net assets of Bellamy
Software, Ltd. ............................. -- -- -- (375,000)
Computer software development costs ......... (1,728,959) (2,195,385) (1,675,766) (1,555,744)
-------------- -------------- --------------- ---------------
Net cash used in investing activities .... (1,925,874) (2,819,101) (2,167,199) (2,198,286)
-------------- -------------- --------------- ---------------
</TABLE>
F-8
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1995 AND 1996,
AND THE NINE MONTHS ENDED DECEMBER 31, 1996 AND (UNAUDITED) 1995
(CONTINUED)
(NOTE 15)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1995 1996 1995 1996
------------- -------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from issuance of
preferred stock ................. 2,786,115 -- -- 246,545
Net proceeds from issuance of
common stock ..................... -- 223,750 -- 5,000
Net proceeds (repayment) under line
of credit ........................ (204,228) 1,970,000 2,118,822 336,182
Repayments of long-term debt ...... (75,000) (75,000) (75,000) (82,500)
Repayments of obligations under
capital leases ................... (343,465) (148,488) (141,147) (23,194)
Net repayments of notes payable to
related parties .................. (58,000) (50,000) -- (50,000)
Shareholder distributions .......... (666,627) -- -- --
Advances on notes receivable from
shareholders ..................... -- (262,375) (146,666) (1,194)
------------- -------------- --------------- ---------------
Net cash provided by financing
activities .................... 1,438,795 1,657,887 1,756,009 430,839
------------- -------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .................. 916,056 (1,265,605) (1,298,199) 352,713
CASH AND CASH EQUIVALENTS, beginning
of period ......................... 737,099 1,653,155 1,653,155 387,550
------------- -------------- --------------- ---------------
CASH AND CASH EQUIVALENTS,
end of period ..................... $1,653,155 $ 387,550 $ 354,956 $740,263
============= ============== =============== ===============
SUPPLEMENTAL SCHEDULES OF CASH FLOW
INFORMATION:
Cash paid for interest ............ $ 103,536 $ 127,143 $ 68,555 $184,530
Cash paid for income taxes ........ 46,890 160,400 135,600 14,200
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-9
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
The accompanying consolidated financial statements include the accounts of
H.T.E., Inc. (HTE), a Florida corporation, and its wholly-owned subsidiaries,
HTE Public Safety Illinois, Inc. (PSI), a Florida corporation, HTE-Software
Management, Inc. (SMI), a Florida corporation, HTE-Programmed For Success,
Inc. (PFS), a Florida corporation, and Bellamy Software Ltd. (Bellamy), a
Canadian corporation (collectively, the Company). HTE develops, markets,
implements and supports fully-integrated enterprise-wide software
applications designed specifically for public sector organizations, including
state, county and city governments, other municipal agencies and publicly
owned utilities. The Company is also engaged in remarketing IBM hardware
systems to run in concert with their application software. The effect of the
Company's foreign operations on the accompanying financial statements was
immaterial due to the timing of the purchase of Bellamy.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned domestic and foreign subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The accompanying statement of operations and cash flows for the nine month
period ended December 31, 1995, included herein have been prepared by the
Company and are unaudited. The information furnished in the unaudited
financial statements referred to above includes all adjustments which are, in
the opinion of management, necessary for a fair presentation of such
financial statements. These adjustments are all of normal, recurring nature,
except for the effect of the change in the estimated life of capitalized
computer software development costs.
CHANGE IN FISCAL YEAR
The Company changed its fiscal year from March 31 to December 31 effective
with the year ended December 31, 1996. As a result, the fiscal period ended
December 31, 1996, presented herein is a nine-month period.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
COMPUTER EQUIPMENT, FURNITURE AND FIXTURES
Computer equipment, furniture and fixtures are recorded at cost.
Depreciation and amortization are recorded for financial statement purposes
on a straight-line basis over the estimated useful lives of the assets.
Repair and maintenance costs which do not extend the useful lives of the
related assets are expensed as incurred.
F-10
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
(CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
The estimated useful lives of computer equipment, furniture and fixtures
are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Computer equipment and furniture under capital leases ... 6-10
Computer equipment ....................................... 3-10
Office furniture and fixtures ............................ 3-10
Leasehold improvements ................................... 6-10
</TABLE>
Depreciation and amortization expense related to computer equipment,
furniture and fixtures of $199,865, $220,672 and $242,165, is included in
general and administrative expenses on the accompanying statements of
operations for the years ended March 31, 1995 and 1996, and the nine months
ended December 31, 1996, respectively.
COMPUTER SOFTWARE DEVELOPMENT COSTS
All costs incurred to establish the technological feasibility of a
computer software product to be sold, leased or otherwise marketed are
charged to research and development as incurred. Technological feasibility of
a computer software product is established when the Company has completed all
planning, designing, coding and testing activities that are necessary to
establish that the product can be produced to meet its design specifications
including functions, features and technical performance requirements.
Costs of producing product masters incurred subsequent to establishing
technological feasibility are capitalized and are amortized on a straight
line basis once the product is available for general release to customers.
Such capitalized costs are reported at the lower of unamortized cost or net
realizable value.
The Company ceases capitalization of computer software costs when the
product is available for general release to customers. Costs of maintenance
and customer support is charged to expense when the related revenue is
recognized or when those costs are incurred, whichever occurs first.
Effective April 1, 1995, management changed the estimated useful life of
capitalized computer software development costs from 60 months to 36 months.
The effect of this change in accounting estimate was to reduce net income by
approximately $798,000, net of the related tax benefit of $532,000, or $.15
per share for the year ended March 31, 1996.
Amortization expense related to computer software development costs of
$1,010,066, $2,728,506 and $1,483,488 is included in cost of software license
fees in the accompanying statements of operations for the years ended March
31, 1995 and 1996, and the nine months ended December 31, 1996, respectively.
F-11
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
(CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
OTHER INTANGIBLE ASSETS
Other intangible assets consisted of the following as of March 31, 1996,
and December 31, 1996:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
DESCRIPTION 1996 1996
- ----------- ------------ ---------------
<S> <C> <C>
Goodwill ....................... $111,735 $401,001
Customer list .................. -- 386,291
------------ ---------------
111,735 787,292
Less-Accumulated amortization . (22,347) (61,625)
------------ ---------------
$ 89,388 $725,667
============ ===============
</TABLE>
Goodwill represents amounts paid in excess of the fair market value of net
tangible and identifiable intangible assets purchased in the acquisitions of
SMI and Bellamy and is amortized using the straight-line method over a period
of 60 months. The customer list represents an identifiable intangible asset
purchased in connection with the acquisition of Bellamy and is amortized over
a period of 60 months. Amortization expense related to the other intangible
assets of $22,347 and $39,278 is included in general and administrative
expenses in the accompanying statements of operations for the year ended
March 31, 1996 and the nine months ended December 31, 1996, respectively.
There was no amortization expense related to the other intangible assets for
the year ended March 31, 1995.
DEFERRED REVENUE AND REVENUE RECOGNITION
Deferred revenue represents advance payments by customers for license
fees, maintenance fees and custom contract service fees. Revenue from
software license fees is recognized when a contract has been executed, the
product has been shipped, all significant contractual obligations related to
the license fees have been satisfied and collection of the related receivable
is probable. Maintenance fees are deferred and recognized ratably over the
service period. Custom contract service fees are recognized as the work is
performed at a contractually agreed upon rate. Hardware sales are recognized
upon shipment.
INCOME TAXES
The Company accounts for income taxes using an asset and liability
approach in accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes," which requires the recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. Deferred tax assets and liabilities are measured
by applying enacted statutory tax rates applicable to the future years in
which the related deferred tax assets or liabilities are expected to be
settled or realized. Income tax expense consists of the taxes payable for the
current period and the change during the period in deferred tax assets and
liabilities.
F-12
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
(CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
SIGNIFICANT CONCENTRATIONS
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of accounts receivable from
governmental entities. To minimize this risk, the Company generally requires
a significant cash deposit upon contract signing. In addition, the Company
maintains reserves for potential credit losses.
Substantially all of the Company's hardware revenues are derived from the
sale of IBM AS/400 systems in connection with the Company's Industry
Re-marketing agreement with IBM. Any change in this relationship could
potentially have an adverse effect on the Company's financial performance.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's foreign subsidiary is the
Canadian dollar. The financial statements of the Company's foreign affiliates
have been translated into U.S. dollars in accordance with SFAS No. 52.
Accordingly, assets and liabilities of foreign operations are translated at
period-end rates of exchange, with any resultant translation adjustments
reported as a separate component of stockholders' equity. Income statement
accounts are translated at average exchange rates for the period and gains
and losses from foreign currency transactions are included in net income.
PRO FORMA NET INCOME (LOSS) PER SHARE
Pro forma net income (loss) per common share is determined by dividing net
income (loss), as adjusted for the effects of the assumed conversion of the
mandatorily redeemable Class C common stock as of the date it was first
issued, by the pro forma weighted average number of common and common
equivalent shares outstanding during the period. Common share equivalents are
computed using the treasury stock method and consist of common stock which
may be issuable upon the exercise of outstanding common stock options, when
dilutive.
The pro forma weighted average number of common and common equivalent
shares outstanding during the period assumes the conversion of the
mandatorily redeemable preferred stock and mandatorily redeemable Class C
common stock into Class A common stock as of the date the preferred stock and
Class C common stock were first issued. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, stock issued and common stock
options granted by the Company during the 12 months preceding the initial
filing date have been included in the calculation of pro forma weighted
average common and common equivalent shares outstanding, using the treasury
stock method based on the initial public offering price of $12.00, as if the
stock and options were outstanding for all periods presented.
All share and per share information in the financial statements have been
adjusted to give effect to the 53-to-1 common stock split and par value
restatement which will become effective concurrent with the effectiveness of
the registration statement.
F-13
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
(CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial assets and liabilities,
including cash and cash equivalents, accounts receivable, accounts payable,
notes payable to related parties and line of credit at March 31, 1996, and
December 31, 1996, approximate fair value because of the short maturity of
these instruments. The carrying amounts of the Company's long-term debt
approximates fair value at March 31, 1996, based on quoted market prices for
the same or similar issues.
NEWLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123 was
adopted during the nine-month period ending December 31, 1996. SFAS 123
requires that the Company's financial statements include certain disclosures
about stock-based employee compensation arrangements and permits the adoption
of a change in accounting for such arrangements. Changes in accounting for
stock-based compensation are optional and the Company decided to adopt only
the disclosure requirements.
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS 121). SFAS 121 was adopted during the
nine-month period ended December 31, 1996. SFAS 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. SFAS
121 also requires that long-lived assets and certain identifiable intangibles
to be disposed of be reported at the lower of carrying amount or fair value
less cost to sell. The impact of adopting this statement did not have a
material impact upon the Company's results of operations or financial
position.
RECLASSIFICATIONS
Certain prior-year balances have been reclassified in order to conform to
the current-period financial statement presentation.
F-14
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
(CONTINUED)
2. COMPUTER EQUIPMENT, FURNITURE AND FIXTURES:
Computer equipment, furniture and fixtures consisted of the following as
of March 31, 1996, and December 31, 1996:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
-------------- ---------------
<S> <C> <C>
Computer equipment and furniture under
capital leases ...................... $ 98,702 $ 98,702
Computer equipment .................... 2,215,787 2,786,854
Office furniture and fixtures ......... 549,720 655,729
Leasehold improvements ................ 96,526 96,526
-------------- ---------------
2,960,735 3,637,811
Less-Accumulated depreciation
and amortization .................... (1,575,998) (2,045,488)
-------------- ---------------
$ 1,384,737 $ 1,592,323
============== ===============
</TABLE>
Included in accumulated depreciation and amortization is $20,877 and
$30,190 as of March 31, 1996, and December 31, 1996, respectively, of
accumulated amortization related to computer equipment and furniture under
capital leases.
3. BUSINESS COMBINATIONS:
On October 31, 1994, HTE acquired all the outstanding stock of HTE Public
Safety Corporation, Inc. (PSC) from the two majority stockholders of HTE in
exchange for 272,420 shares of HTE's Class A common stock issued to one of
the stockholders and a note payable of $500,000 (which was paid in full prior
to March 31, 1995) issued to the other stockholder. HTE also acquired all the
outstanding stock of PSI from the two majority stockholders of HTE in
exchange for 544,840 shares of HTE's Class A common stock. Since HTE, PSC and
PSI were all under common control, the acquisitions have been accounted for
in the same manner as a pooling-of-interests. The $500,000 paid to one of the
stockholders arising from the PSC acquisition has been recorded as a return
of capital in the accompanying consolidated financial statements. In
connection with the acquisition, the accounts and operations of PSC were
merged into HTE and PSC was dissolved. PSI continues to operate as a
wholly-owned subsidiary of HTE.
Since the acquisitions of PSC and PSI have been accounted for in the same
manner as a pooling-of-interests, the accompanying consolidated statements of
income include the results of operations of PSC and PSI as if these companies
had been acquired on March 31, 1994. Revenues and net income (loss) of the
separate companies for the period preceding the acquisition (April 1, 1994,
through October 31, 1994) were as follows:
<TABLE>
<CAPTION>
HTE PSC PSI COMBINED
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues .......... $6,415,476 $2,148,325 $ 745,653 $9,309,454
Net income (loss) (432,071) 431,695 (450,654) (451,030)
</TABLE>
The above revenue and net income (loss) amounts reflect the elimination of
all intercompany transactions which are eliminated in consolidation in the
accompanying statements of income.
F-15
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
(CONTINUED)
3. BUSINESS COMBINATIONS:--(CONTINUED)
During the year ended March 31, 1995, the Company created SMI as a
wholly-owned subsidiary. In February 1995, SMI purchased immaterial net
assets of Software Management, Inc. During the year ended March 31, 1996
(within one year of the purchase date), SMI identified certain customer
service liabilities in the amount of $111,735 that it was previously unaware
of which it had assumed as a result of the net asset purchase. As the
identified net assets were stated at fair market value at the date of the
original purchase, these additional liabilities were recorded as goodwill.
During the year ended March 31, 1996, the Company created PFS as a
wholly-owned subsidiary. In September 1995, PFS purchased the net assets of
Programmed-For-Success, Inc. by paying $5,796 in cash and issuing a note
payable for $100,000. The assets purchased consisted of computer equipment,
furniture and fixtures, miscellaneous deposits and computer software
development costs. The amount recorded as computer software development costs
is being amortized over a period of 36 months. As part of the purchase, PFS
also assumed various customer service liabilities. Additionally, the Company
entered into an employment agreement with the owner of
Programmed-For-Success, Inc. for a period of at least one year. As of March
31, 1996, the Company's remaining obligation under the note payable was
$50,000, which was paid in September 1996.
On November 1, 1996, the Company acquired all of the outstanding common
stock of Bellamy by paying cash of $375,000, issuing notes payable totaling
$300,000 and by issuing 63,600 shares of mandatorily redeemable Class C
common stock of the Company (see Note 7) valued at $93.36 per share. The
assets purchased consisted primarily of investments, accounts receivable and
other receivables, computer equipment, furniture and fixtures, prepaid
expenses, software development costs, goodwill and other intangible assets.
Additionally, the Company assumed various liabilities including accounts
payable and accrued expenses, certain customer service liabilities, deferred
taxes and bank loan payable. The acquisition has been accounted for as a
purchase in the accompanying consolidated financial statements. Accordingly,
Bellamy's operating results are included in the consolidated results of
operations for the period from acquisition through December 31, 1996.
Goodwill of $289,266 was recognized in connection with the purchase.
Revenues, net income and earnings per share presented on a pro forma basis,
as if the entities had combined at the beginning of each period presented,
are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
-------------- ---------------
<S> <C> <C>
Revenues ........... $33,223,964 $29,244,736
Net income ......... 148,479 750,432
Earnings per share.. $ 0.03 $ 0.14
</TABLE>
The notes payable issued in connection with the Bellamy acquisition are
included in notes payable to related parties on the accompanying consolidated
balance sheet as of December 31, 1996, since the former owners are now
employees of the Company. The notes bear interest at 10 percent per annum and
are payable in annual installments totaling $60,000, $90,000 and $150,000 on
November 1, 1997, 1998 and 1999, respectively.
F-16
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
(CONTINUED)
4. LONG-TERM DEBT:
At March 31, 1996, long-term debt consisted of installment notes payable
maturing August 1996. The notes, which bear interest at 8 percent per annum,
are payable in annual installments of $75,000 and are collateralized by HTE's
common stock. These notes were repaid in full during the period ended
December 31, 1996.
5. LINE OF CREDIT:
Through August 1996, the Company had a $3,000,000 revolving line of credit
with a commercial bank. The line was increased to $4,000,000 in September
1996 and is collateralized by the Company's trade accounts receivable and
intangible assets. The line of credit bears interest at the bank's prime rate
(8.25 percent at December 31, 1996) plus 1.5 percent and can be used, within
specific limits, for letters of credit and working capital. At March 31,
1996, and December 31, 1996, respectively, borrowings of $1,970,000 and
$2,030,000 were outstanding under the line of credit. The line of credit was
refinanced with a different bank subsequent to December 31, 1996 (See Note
14).
6. MANDATORILY REDEEMABLE PREFERRED STOCK:
Effective October 31, 1994, the Company's stockholders authorized a
recapitalization of the Company (the Recapitalization). As a result of the
Recapitalization, the Company authorized 200,000 shares of mandatorily
redeemable preferred stock. The preferred stock has full voting rights and is
convertible into common stock at any time based on a formula defined in the
Company's Articles of Incorporation that results in a 1:1 conversion rate as
of March 31 and December 31, 1996. Annual dividends, which are cumulative,
are computed at 7 percent per annum and totaled $267,918 and $432,542 as of
March 31 and December 31, 1996, respectively. The dividends have not been
paid and are reflected as an increase in the preferred stock and accumulated
deficit. The preferred stock may be "put" to the Company at the holder's
option at any time after November 9, 1999, or earlier upon the occurrence of
certain events as more fully described in the Articles of Incorporation and
the Securities Purchase Agreement. Upon exercise of the put, the Company
would be required to repurchase the shares of preferred stock at a price
based on the greater of (1) the liquidation preference, (2) the fair value of
the Company or (3) a formula based on a multiple of earnings adjusted for
debt, capital loan obligations, and cash and cash investments. In the event
of a qualified public offering, as defined in the Articles of Incorporation,
(a Qualified IPO), all outstanding shares of preferred stock automatically
convert into shares of common stock as discussed above and the put option
will no longer be in effect. In addition, dividends and accretion will cease.
For the year ended March 31, 1996, and the nine months ended December 31,
1996, the amount of accretion related to the preferred stock totaled
$(26,072) and $838,011, respectively, which is reflected as an increase
(decrease) in mandatorily redeemable preferred stock, with the offset going
to accumulated deficit.
F-17
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
(CONTINUED)
7. MANDATORILY REDEEMABLE CLASS C COMMON STOCK:
Effective with the Recapitalization, the Company authorized 200,000 shares
of Class C common stock. On November 1, 1996, the Company issued 1,200 shares
of Class C common stock as partial consideration in connection with the
acquisition of Bellamy (see Note 3). Class C common stock is convertible into
Class A common stock in the event of a Qualified IPO. At such time, all
outstanding shares of Class C common stock shall automatically convert into
shares of Class A common stock based on a 1:1 conversion rate.
In the event the Company does not complete a Qualified IPO by November 1,
2000, the Class C common stock may be put to the Company at a cost of
approximately $375 per share. As of December 31, 1996, the amount of
accretion related to the Class C common stock totaled $6,682 and is reflected
as a component of interest expense in the accompanying consolidated statement
of operations for the nine months ended December 31, 1996, with an increase
to mandatorily redeemable Class C common stock.
8. STOCKHOLDERS' EQUITY (DEFICIT):
Effective with the Recapitalization, the Company authorized 200,000 shares
each of Class A common stock, Class B common stock and Class C common stock.
Class A common stock has full voting rights. Class B common stock has a par
value of $.01 per share and no voting rights. Class C common stock has a par
value of $.01 per share and no voting rights. Pursuant to the
Recapitalization, the common stock issued and outstanding under the previous
capital structure was exchanged for newly authorized shares of Class A common
stock.
During the periods ended March 31, 1996, and December 31, 1996, the
Company made advances to its principal shareholders under notes receivable.
The notes receivable from stockholders were unsecured, non-interest bearing
and had no specified maturity date. Effective December 31, 1996, notes
receivable from stockholders of $263,569 were forgiven by the Company. The
notes receivable from stockholders have been classified as an increase to
stockholders' deficit in the accompanying consolidated balance sheet as of
March 31, 1996. The forgiveness of the notes receivable from stockholders was
reflected as an increase to the accumulated deficit as of December 31, 1996.
9. EMPLOYEE STOCK OPTIONS:
On July 1, 1996, the Company granted options to an employee to purchase up
to 53,000 shares of the Company's Class A common stock. The options are
exercisable beginning January 1, 1997 at $1.81 per share, which approximates
the fair market value of the stock at the date of grant. The options expire
the earlier of five years from the date of grant or seven months from the
employee's date of termination. The Company determined there would be no
material effect on the amount of compensation expense recorded in the
accompanying consolidated statements of operations had the Company adopted
the accounting treatment prescribed under SFAS 123 for the year ended March
31, 1996, and the nine months ended December 31, 1996.
F-18
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
(CONTINUED)
10. EMPLOYEE RETIREMENT PLAN:
The Company has established an employee retirement savings plan that
covers substantially all employees who have met certain service and age
requirements. Employees may contribute from 2 percent to 10 percent of their
annual compensation to the plan as limited by Internal Revenue Service
regulations. The Company will match contributions up to 3 percent of each
individual's compensation. Contributions made by the Company totaled
$242,596, $277,314, and $278,362 for the years ended March 31, 1995 and 1996,
and for the nine months ended December 31, 1996, respectively. These
contributions are included in salaries and related expenses in the
accompanying statements of income.
11. INCOME TAXES:
The provision for income taxes is as follows for the years ended March 31,
1995 and 1996, and for the nine months ended December 31, 1996:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1995 1996 1996
------------ ------------ ---------------
<S> <C> <C> <C>
Current:
Federal.... $ 19,255 $ 40,275 $ 284,030
State...... -- 25,920 60,639
------------ ------------ ---------------
19,255 66,195 344,669
------------ ------------ ---------------
Deferred:
Federal.... 102,467 123,797 221,953
State...... 17,540 21,191 15,061
------------ ------------ ---------------
120,007 144,988 237,014
------------ ------------ ---------------
$139,262 $211,183 $581,683
============ ============ ===============
</TABLE>
Included in the current federal portion of the provision for income taxes
for the nine months ended December 31, 1996, are foreign taxes of $33,059
arising from the operations of Bellamy.
The provision for income taxes differs from the amount computed by
applying the U.S. federal corporate tax rate of 34 percent to income before
provision for income taxes for the years ended March 31, 1995 and 1996, and
for the nine months ended December 31, 1996, as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1995 1996 1996
------------ ------------ ---------------
<S> <C> <C> <C>
U.S. federal income tax rate ........................ 34.00% 34.00% 34.00%
Deferred taxes recorded in connection with change
in tax status from S corporation to C corporation (45.30) -- --
Portion of year taxed as an S corporation ......... 16.08 -- --
State taxes ........................................ 3.63 3.63 3.63
Effect of graduated rates .......................... 3.71 -- --
Meals and entertainment ............................ 2.83 2.40 2.87
Other .............................................. 1.40 1.34 .59
------------ ------------ ---------------
Effective tax rate .................................. 16.35% 41.37% 41.09%
============ ============ ===============
</TABLE>
Prior to the business combinations that occurred on October 31, 1994, PSC
and PSI were S corporations. Concurrent with the business combinations, PSC
and PSI changed from an
F-19
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
(CONTINUED)
11. INCOME TAXES:--(CONTINUED)
S corporation to a C corporation. As reflected above, the provision for
income taxes for the year ended March 31, 1995, includes the effects of
recording deferred taxes in connection with the change in tax status from S
corporation to C corporation and excludes the benefit for the loss incurred
during the portion of the year PSC and PSI were taxed as S corporations. Had
PSC and PSI been a C corporation at the beginning of the year ended March 31,
1995, the provision for income taxes included in the statement of operations
would have been approximately $388,000.
Deferred income taxes consisted of the following as of December 31, 1996:
<TABLE>
<CAPTION>
CURRENT NONCURRENT TOTAL
----------- --------------- --------------
<S> <C> <C> <C>
Tax assets:
Cumulative change in tax accounting method $ 33,897 $ -- $ 33,897
Accrued liabilities ........................ 431,334 -- 431,334
Allowance for doubtful accounts ............ 195,676 -- 195,676
Deferred lease commitment .................. -- 24,867 24,867
Other ...................................... 6,965 9,810 16,775
----------- --------------- --------------
Total assets .............................. 667,872 34,677 702,549
----------- --------------- --------------
Tax liabilities:
Basis difference in fixed assets ........... -- (203,626) (203,626)
Capitalized software development costs .... (1,393,810) (1,393,810)
Other intangible assets .................... -- (168,036) (168,036)
Other ...................................... (1,017) -- (1,017)
----------- --------------- --------------
Total liabilities ......................... (1,017) (1,765,472) (1,766,489)
----------- --------------- --------------
Net deferred tax asset (liability) .......... $666,855 $(1,730,795) $(1,063,940)
=========== =============== ==============
</TABLE>
Deferred income taxes consisted of the following as of March 31, 1996:
<TABLE>
<CAPTION>
CURRENT NONCURRENT TOTAL
----------- --------------- --------------
<S> <C> <C> <C>
Tax assets:
Cumulative change in tax accounting method $135,587 $ -- $ 135,587
Accrued liabilities ........................ 480,037 -- 480,037
Allowance for doubtful accounts ............ 112,890 -- 112,890
Deferred lease commitment .................. -- 64,347 64,347
Alternative minimum tax (AMT) credit
carryforward ............................. -- 80,202 80,202
Other ...................................... 8,076 5,606 13,682
----------- --------------- --------------
Total assets .............................. 736,590 150,155 886,745
----------- --------------- --------------
Tax liabilities:
Basis difference in fixed assets ........... -- (205,423) (205,423)
Capitalized software development costs .... -- (1,218,982) (1,218,982)
----------- --------------- --------------
Total liabilities ......................... -- (1,424,405) (1,424,405)
----------- --------------- --------------
Net deferred tax asset (liability) .......... $736,590 $(1,274,250) $ (537,660)
=========== =============== ==============
</TABLE>
F-20
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
(CONTINUED)
12. COMMITMENTS AND CONTINGENCIES:
CAPITAL LEASES
Computer equipment and furniture are leased under capital leases with
terms of up to 60 months. Under the terms of the leases, the Company is
required to provide maintenance and insurance on the leased property. Minimum
future payments on the obligations under capital leases are as follows as of
December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ ----------
<S> <C>
1997 ...................................................................... $ 37,404
1998 ...................................................................... 8,015
-----------
Total payments ............................................................ 45,419
Less--Portion applicable to interest at rates ranging from 4 percent to 17
percent ................................................................. (3,619)
-----------
Obligations under capital leases .......................................... 41,800
Less--Current portion ..................................................... (31,367)
-----------
$ 10,433
===========
</TABLE>
OPERATING LEASES
The Company leases office space, furniture, automobiles and equipment
under certain long-term noncancelable operating lease agreements with varying
terms and conditions.
Future aggregate minimum rental payments under these agreements are as
follows as of December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ ------------
<S> <C>
1997 .................... $ 794,766
1998 .................... 240,156
1999 .................... 30,836
------------
$1,065,758
============
</TABLE>
Additionally, the Company leases its main office space under a seven-year,
noncancelable operating lease which began in April 1990. The Company expenses
the total estimated cash payments on a straight-line basis over the life of
the lease. The cumulative difference between the amount expensed and the
amount actually paid is recorded as deferred lease commitment on the
accompanying consolidated balance sheets at March 31, 1996, and December 31,
1996. As of December 31, 1996, the future minimum rental payments under this
agreement totaled $275,946.
Rent expense under operating leases totaled approximately $911,000,
$1,179,000 and $967,000 for the years ended March 31, 1995 and 1996, and for
the nine months ended December 31, 1996, respectively.
NEW LEASE
In April 1996, the Company entered into a lease agreement for office space
under a 10-year, noncancelable operating lease to begin on or around May 1,
1997. The lease agreement also provides
F-21
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
(CONTINUED)
12. COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
the Company with three renewal options to extend the lease term five years
each. The Company intends to recognize expense related to this lease on a
straight-line basis over the life of the lease.
Future aggregate minimum rental payments under this agreement are as
follows as of December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ -------------
<S> <C>
1997 .................... $ 561,069
1998 .................... 839,304
1999 .................... 975,712
2000 .................... 1,064,236
2001 .................... 1,074,396
Thereafter .............. 5,901,847
-------------
$10,416,564
=============
</TABLE>
PRODUCT ROYALTY AGREEMENTS
The Company has entered into several product royalty agreements with
various entities who have sold their application rights or product designs to
the Company. The majority of these agreements are similar in nature in that
they each state that royalties shall be paid on the basis of applicable
license fee revenues collected by the Company. However, each agreement may
have a different percentage upon which the product royalty is based. The
Company accrues these product royalties as the applicable license fee
revenues are recognized. The Company has recorded $371,542 and $369,949 as
accrued liabilities for product royalties as of March 31, 1996, and December
31, 1996, respectively. Royalty expense was approximately $352,000, $163,000
and $263,000 for the years ended March 31, 1995 and 1996, and for the nine
months ended December 31, 1996, respectively, and is included in cost of
software license fees. As discussed further below, royalty expense for the
year ended March 31, 1996, was reduced due to the forgiveness of an account
payable which was offset against royalty expense in that year.
During the year ended March 31, 1996, an account payable for outstanding
product royalties under an application development agreement with IBM, which
totaled $210,264 as of March 31, 1995, was forgiven. In consideration of this
forgiveness of debt, the agreement was amended to provide for a 5 percent
royalty on software license fees of the "work orders" application for a
period of two years beginning April 1996 and a 10 percent royalty on software
license fees of the "courts" application for a period of three years
beginning April 1996. This forgiveness was recorded as a reduction in royalty
expense in the accompanying consolidated statement of operations for the year
ended March 31, 1996.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL AGREEMENTS
Effective February 1997, the Company entered into employment agreements with
Dennis J. Harward, the Company's President, Chief Executive Officer and Chairman
of the Board and Jack L. Harward, the Company's Executive Vice President. Each
of the agreements is for a term of three years, and automatically renews for
successive one-year periods. In the event either executive is terminated
F-22
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
(CONTINUED)
12. COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
"without cause", the Company must pay to such executive any unpaid base
salary, any accrued but unpaid incentive compensation through the date of
termination and continue to pay the executive's base salary for a period of
12 months as well as continue to provide the executive with incentive
compensation and the other benefits under the agreement for the same period.
Additionally, upon termination "without cause" the Company must pay to each
executive a single lump sum payment equal to the value of the portion of his
benefits under any savings, pension, profit sharing or deferred compensation
plans.
PRODUCT LIABILITY
The Company markets to its customers complex, mission-critical,
enterprise-wide applications. The Company's license agreements with its
customers typically contain provisions designed to limit the Company's
exposure to potential product liability claims. It is possible, however, that
the limitation of liability provisions contained in the Company's license
agreements may not be effective as a result of existing or future federal,
state or local laws or ordinances or unfavorable judicial decisions. Although
the Company has not experienced any significant product liability claims to
date, the sale and support of software by the Company may entail the risk of
such claims, which may be substantial. A successful product liability claim
brought against the Company could have a material adverse effect upon the
Company's business, operating results and financial condition.
13. LITIGATION:
The Company is involved in various legal actions arising in the normal
course of business, as both a claimant and a defendant. While it is not
possible to determine with certainty the outcome of these matters, in the
opinion of management, the eventual resolution of these claims and actions
outstanding will not have a material adverse effect on the Company's
financial position or operating results.
14. SUBSEQUENT EVENTS:
On January 16, 1997, the Company refinanced its existing line of credit
(LOC) with a commercial bank in which the bank agreed to make available a
principal amount equal to a percentage of qualified accounts receivable not
to exceed $6,000,000. The LOC extends through June 30, 1998, at which time
the entire unpaid principal balance and any accrued interest is payable in
full. In accordance with the agreement, the LOC bears interest at the bank's
prime rate plus 1.25 percent and is collateralized by the Company's accounts
receivable, inventory, intangible assets and equipment.
The Company's 1997 Executive Incentive Compensation Plan (the "Executive
Incentive Plan") was adopted by the Board of Directors in January 1997. The
purpose of the Incentive Plan is to attract and retain key employees and
consultants of the Company, to provide an incentive for them to achieve
long-range performance goals and to enable them to participate in the long-term
growth of the Company. The Incentive Plan authorizes the grant of stock options
(incentive and nonstatutory), stock appreciation rights and restricted stock
subject to adjustment to employees and consultants of the Company, capable of
contributing to the Company's performance. The Company has reserved an aggregate
of 954,000 shares (subject to adjustment for stock splits and similar capital
changes) of Common Stock for grants
F-23
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
(CONTINUED)
14. SUBSEQUENT EVENTS:--(CONTINUED)
under the Executive Incentive Plan. Incentive stock options may be granted only
to employees eligible to receive them under the Internal Revenue Code of 1986,
as amended. Options to purchase 567,100 shares of Common Stock were granted on
February 7, 1997, at an exercise price of $9.43 per share. Of the options
issued, 116,600 were immediately vested, 106,000 vest over a 4 year period and
344,500 vest over a 5 year period.
15. SUPPLEMENTAL NONCASH TRANSACTIONS:
The Company includes depreciation on computer equipment used in the
process of producing product masters in the costs capitalized as computer
software development costs. During the years ended March 31, 1995 and 1996,
and the nine months ended December 31, 1996, depreciation of $67,144, $86,043
and $88,367, respectively, was capitalized as computer software development
costs.
During the year ended March 31, 1996, the Company capitalized $52,900 of
computer, furniture and fixtures acquired under capital lease obligations.
During the year ended March 31, 1996 (within one year of the purchase date
(see Note 3)), SMI identified certain customer service liabilities in the
amount of $111,735 that the Company was previously unaware it had assumed as
a result of the net asset purchase. As the identified net assets were stated
at fair market value at the date of the original purchase, these additional
liabilities were recorded as goodwill.
During the year ended March 31, 1996, PFS purchased the net assets of
Programmed-For-Success, Inc. (the PFS Acquisition). PFS paid $5,796 in cash
and issued a note payable of $100,000 in connection with the PFS Acquisition.
During the nine months ended December 31, 1996, the Company purchased all of
the outstanding common stock of Bellamy (the Bellamy Acquisition). The
Company paid $375,000 in cash, issued notes payable with an aggregate value
of $300,000 and issued 63,600 shares of mandatorily redeemable Class C common
stock with a value of $112,032 in connection with the Bellamy Acquisition.
F-24
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996, AND DECEMBER 31, 1996
(CONTINUED)
15. SUPPLEMENTAL NONCASH TRANSACTIONS:--(CONTINUED)
The acquisitions had the following noncash effects for the year ended March
31, 1996, and the nine months ended December 31, 1996:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
------------ ---------------
<S> <C> <C>
Investments .................................................... $ -- $ 118,955
Trade accounts receivable ...................................... -- 124,119
Other current assets ........................................... -- 2,127
Computer equipment, furniture and fixtures ..................... 19,840 158,083
Computer software development costs ............................ 130,160 256,523
Other intangible assets ........................................ -- 386,291
Goodwill established due to recognition of deferred income
taxes (included in other intangible assets) .................. -- 289,266
Deposits ....................................................... 611 --
Accounts payable ............................................... -- (123,162)
Deferred revenue ............................................... (44,815) (128,404)
Notes payable to related parties ............................... (100,000) (300,000)
Long-term debt ................................................. -- (7,500)
Deferred income taxes (long-term liability) .................... -- (289,266)
Mandatorily redeemable Class C common stock .................... -- (112,032)
</TABLE>
16. UNAUDITED PRO FORMA INFORMATION:
The Company's Board of Directors authorized management to prepare and file
a registration statement with the U.S. Securities and Exchange Commission on
Form S-1 to pursue an initial public offering of the Company's Common Stock.
In connection with this offering, the Company will complete a
recapitalization pursuant to which (i) all outstanding shares of Redeemable
Preferred Stock, Class A Common Stock and Class C Common Stock will be split
53-for-one and exchanged simultaneously on a one-for-one basis for shares of
the Company's newly authorized Common Stock, (ii) the Company will pay in
cash all accrued dividends on the Redeemable Preferred Stock to the date of
the stock splits and exchanges described above and (iii) following the
exchanges described above, the Redeemable Preferred Stock, Class A Common
Stock, Class B Common Stock and Class C Common Stock will be cancelled,
retired and eliminated from the shares the Company is authorized to issue.
The accompanying unaudited pro forma consolidated balance sheet as of
December 31, 1996, is based on the Company's historical balance sheet as of
December 31, 1996, as adjusted to reflect the conversion of the Company's
mandatorily redeemable preferred stock and mandatorily redeemable Class C
common stock to Class A common stock and the application of the net proceeds
of the Company's initial public offering to repay certain indebtedness as if
the initial public offering had occurred on December 31, 1996.
For purposes of the pro forma financial information, the estimated net
proceeds to the Company of the initial public offering is $21,062,000 which
represents gross proceeds of $23,400,000 less an underwriters discount of 7
percent and other offering costs of $700,000.
F-25
<PAGE>
[INSIDE BACK COVER]
PHOTO AND LOGO
<PAGE>
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR BY THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ..................
Risk Factors ........................
Use of Proceeds .....................
Dividend Policy .....................
Capitalization ......................
Dilution ............................
Selected Financial Data .............
Management's Discussion and Analysis
of Financial Condition and
Results of Operations .............
Business ............................
Management ..........................
Certain Transactions ................
Principal Shareholders and
Selling Shareholder ...............
Description of Capital Stock .......
Shares Eligible for Future Sale ....
Underwriting ........................
Legal Matters .......................
Experts .............................
Additional Information ..............
Index to Financial Statements ...... F-1
</TABLE>
--------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
2,500,000 SHARES
[LOGO]
H.T.E., INC.
COMMON STOCK
----------------
PROSPECTUS
March , 1997
----------------
VOLPE, WELTY & COMPANY LLC
JANNEY MONTGOMERY SCOTT INC.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this registration statement (other
than underwriting discounts and commissions) will be as follows:
Securities and Exchange Commission registration fee .................. $11,326
NASD filing fee ...................................................... 4,238
Nasdaq National Market listing fee ................................... 25,000
Printing and engraving expenses ...................................... *
Accounting fees and expenses ......................................... *
Legal fees and expenses .............................................. *
Fees and expenses (including legal fees) for qualifications under
state securities laws .............................................. *
Registrar and Transfer Agent's fees and expenses ..................... *
Miscellaneous ........................................................ *
----------
Total .............................................................. $ *
==========
- -------------
* To be provided by amendment.
All amounts except the Securities and Exchange Commission registration
fee, the NASD filing fee and the Nasdaq listing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under the Florida Business Corporation Act to
indemnify its directors and officers to the extent provided in such statute.
The Registrant's Articles of Incorporation provide that the Registrant shall
indemnify its executive officers and directors to the fullest extent
permitted by law either now or hereafter. The Registrant is also entering
into an agreement with each of its directors and certain of its officers
wherein it is agreeing to indemnify each of them to the fullest extent
permitted by law. In general, Florida law permits a Florida corporation to
indemnify its directors, officers, employees and agents, and persons serving
at the corporation's request in such capacities for another enterprise
against liabilities arising from conduct that such persons reasonably
believed to be in, or not opposed to, the best interests of the corporation
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe their conduct was unlawful.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director and, in
appropriate circumstances, equitable remedies such as injunctive or other
forms of nonmonetary relief will remain available under Florida law. In
addition, each director will continue to be subject to liability for (a)
violations of the criminal law, unless the director had reasonable cause to
believe his conduct was lawful or had no reasonable cause to believe his
conduct was unlawful, (b) deriving an improper personal benefit from a
transaction, (c) voting for or assenting to an unlawful distribution, and (d)
willful misconduct or a conscious disregard for the best interests of the
Registrant in a proceeding by or in the right of the Registrant to procure a
judgment in its favor or in a proceeding by or in the right of a shareholder.
The statute does not affect a director's responsibilities under any other
law, such as the Federal securities laws or state or Federal environmental
laws.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought from the Registrant, nor is the Registrant aware of any threatened
litigation that may result in claims for indemnification from the Registrant
by any officer or director.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In January, 1997, the Board of Directors and shareholders of the Company
adopted and approved the 1997 Executive Incentive Compensation Plan. Pursuant
to the Plan, the Company issued stock options with respect to, in the
aggregate, 10,700 shares of the Company's Class A Common Stock, as of
February 7, 1997. Certain of the stock options are vested as of the date of
issuance, and certain of the stock options vest over a five-year period. The
exercise price to shareholders is determined by a committee designated by the
Board of Directors.
On July 1, 1996, the Company executed a stock option agreement with Daniel
E. Catan pertaining to the purchase of 1,000 shares of Class A Common Stock
of the Company. The exercise price per share is $96.00 and such shares became
exercisable as of January 1, 1997.
As of November 1, 1996, the Company purchased all of the issued and
outstanding capital stock of Bellamy Software, Ltd., an Alberta, Canada
corporation ("Bellamy"). In consideration for the purchase of such shares,
the Company paid $375,000 in cash, issued notes totaling $300,000 and also
issued 1,200 shares in the aggregate of its Class C Common Stock to
shareholders of Bellamy.
In August, 1996, Meridian Venture Partners purchased 2528.69 shares of
redeemable preferred stock of the Company for an aggregate purchase price
equal to $246,545.
In April, 1996, the Company issued in the aggregate 57.14 shares of Class
A Common Stock to certain individuals. In March, 1996, the Company issued in
the aggregate 2557.14 shares of Class A Common Stock to certain individuals.
In each case, the consideration paid for the shares was $87.50 per share.
Pursuant to the November 1994 reorganization of the Company, (i)
BancBoston Ventures, Inc. purchased 20,572 shares of redeemable preferred
stock of the Company for an aggregate purchase price of $2,000,000 as of
November 1994, (ii) Meridian Venture Partners purchased 10,286 shares of
redeemable preferred stock of the Company for an aggregate purchase price of
$1,000,000 as of March 1995, (iii) Dennis J. Harward received (x) 37,291
shares of Class A Common Stock of the Company in exchange for all of the
shares of HTE common stock owned by him prior to the reorganization and all
of the shares of common stock of HTE-Public Safety Illinois, Inc. owned by
him prior to the stock purchase by HTE, and (y) $500,000 evidenced by a
promissory note in exchange for the common stock of HTE Public Safety
Corporation owned by him prior to the stock purchase by HTE; and (iv) Jack L.
Harward received 26,709 shares of Class A Common Stock of the Company in
exchange for (x) all of the shares of HTE common stock owned prior to the
reorganization, (y) all of the shares of HTE-Public Safety Corporation owned
by him prior to the merger of HTE-Public Safety Corporation with and into the
Company, and (z) all of the shares of Public Safety Illinois, Inc. owned by
him prior to the stock purchase by HTE.
The issuance of such shares pursuant to the Reorganization was exempt from
the Registration requirements of the Securities Act, as amended, pursuant to
the exemption set forth in Section 4(2).
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
1.1 Proposed form of Underwriting Agreement**
3.1 Registrant's Form of Amended Articles of Incorporation**
3.2 Registrant's Form of Amended and Restated Bylaws**
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to the validity of the Common
Stock being registered*
10.1 Registrant's 1997 Executive Incentive Compensation Plan**
10.2 Executive Bonus Plan*
10.3 Catan Option Agreement*
10.4 Registration Rights Agreement*
10.5 Form of Stock Option Agreement*
10.6 Form of Indemnification Agreement between the Registrant and each of its directors and certain executive
officers**
10.7 Form of Employment Agreement for Dennis Harward and Jack Harward*
10.8 Form of Employment Agreement for L.A. Gornto, Jr*
10.9 Form of Employment Agreement for certain other employees*
10.10 Form of Severance Agreement*
10.11 Lease Agreement (Heathrow International Business Center Lake Mary, Florida)*
11.0 Statement re Computation per share earnings**
21.0 Subsidiaries of Registrant**
23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (to be included in its opinion
to be filed as Exhibit 5.1)*
23.2 Consent of Arthur Andersen LLP**
24.1 Reference is made to the Signatures section of this Registration Statement for the Power of Attorney
contained therein**
27.1 Financial Data Schedule
27.2 Financial Data Schedule
<FN>
- ----------------
* To be filed by amendment.
** Filed herewith.
</FN>
</TABLE>
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions
or are not applicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registration of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(c) The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Orlando, State of Florida, on February 28, 1997.
H.T.E., INC.
By: /s/ DENNIS J. HARWARD
-------------------------------------
Dennis J. Harward
Chairman of the Board, Director
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Dennis J. Harward and Jack L. Harward,
his true and lawful attorneys-in-fact, each acting alone, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments, including any
post-effective amendments, to this registration statement, and to file the
same, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that said attorneys-in-fact or their substitutes, each acting alone, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ DENNIS J. HARWARD
- ---------------------
Dennis J. Harward Chairman of the Board of Directors February 28, 1997
President and Chief Executive Officer
and Director (principal executive officer)
/s/ JACK L. HARWARD
- ---------------------
Jack L. Harward Executive Vice President, and Director February 28, 1997
/s/ L.A. GORNTO, JR.
- ---------------------
L.A. Gornto, Jr. Executive Vice President, February 28, 1997
Chief Financial Officer
(principal financial officer)
/s/ SUSAN D. FALOTICO
- ---------------------
Susan D. Falotico Vice President, Controller February 28, 1997
Chief Accounting Officer
(chief accounting officer)
/s/ BERNARD B. MARKEY
- ---------------------
Bernard B. Markey Director February 28, 1997
/s/ PETER R. ROBERTS
- ---------------------
Peter R. Roberts Director February 28, 1997
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
1.1 Proposed form of Underwriting Agreement
3.1 Registrant's Form of Amended Articles of Incorporation
3.2 Registrant's Form of Amended and Restated Bylaws
10.1 Registrant's 1997 Executive Incentive Compensation Plan
10.6 Form of Indemnification Agreement between the Registrant and each of
its directors and certain executive officers
11 Statement re Computation per share earnings
21 Subsidiaries of Registrant
23.2 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
27.2 Financial Data Schedule
EXHIBIT 1.1
2,500,000 Shares 1
HTE, INC.
Common Stock
UNDERWRITING AGREEMENT
____________, 1997
Volpe, Welty & Company LLC
As Representatives of the several Underwriters
c/o Volpe, Welty & Company
One Maritime Plaza, 11th Floor
San Francisco, California 94111
Dear Sirs and Madams:
HTE, Inc., a Florida corporation (the "Company"), proposes to issue and
sell 1,950,000 shares of its authorized but unissued Common Stock, $0.01 par
value (the "Common Stock"), and the shareholders of the Company named in
Schedule II hereto propose to sell an aggregate of 550,000 shares of Common
Stock of the Company (the "Firm Shares"). The Company proposeS to grant to the
Underwriters (as defined below) an option to purchase up to 375,000 additional
shares of Common Stock (the "Optional Shares" and, with the Firm Shares,
collectively, the "Shares"). The Common Stock is more fully described in the
Registration Statement and the Prospectus hereinafter mentioned.
The Company and Dennis Howard and Jack Harward (such individuals being
collectively referred to as the "founding Shareholders") and BancBoston Ventures
and Meridien Venture Partners (such entities being collectively referred to as
"Institutional Shareholders") severally hereby confirm the agreements made with
respect to the purchase of the Shares by the several underwriters, for whom you
are acting, named in Schedule I hereto (collectively, the "Underwriters," which
term shall also include any underwriter purchasing Shares pursuant to Section
3(b) hereof). You represent and warrant that you have been authorized by each of
the other Underwriters to enter into this Agreement on its behalf and to act for
it in the manner herein provided.
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SELLING SECURITYHOLDERS. The Company and the Founding Shareholders and, to the
best of their knowledge,
- --------
1 Plus an option to purchase from the Company up to 375,000 additional
shares to cover over-allotments.
<PAGE>
the Institutional Shareholders hereby represent and warrant to
the several Underwriters as of the date hereof and as of each Closing Date (as
defined below) that:
(A) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No.
333-_____), including the related preliminary prospectus, for the registration
under the Securities Act of 1933, as amended (the "Securities Act") of the
Shares. Copies of such registration statement and of each amendment thereto, if
any, including the related preliminary prospectus (meeting the requirements of
Rule 430A of the rules and regulations of the Commission) heretofore filed by
the Company with the Commission have been delivered to you.
The term Registration Statement as used in this Agreement shall mean
such registration statement, including all exhibits and financial statements,
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, in the form in which it became effective, and
any registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Shares (a "Rule 462(b)
registration statement"), and, in the event of any amendment thereto after the
effective date of such registration statement (the "Effective Date"), shall also
mean (from and after the effectiveness of such amendment) such registration
statement as so amended (including any Rule 462(b) registration statement). The
term Prospectus as used in this Agreement shall mean the prospectus relating to
the Shares first filed with the Commission pursuant to Rule 424(b) and Rule 430A
(or if no such filing is required, as included in the Registration Statement)
and, in the event of any supplement or amendment to such prospectus after the
Effective Date, shall also mean (from and after the filing with the Commission
of such supplement or the effectiveness of such amendment) such prospectus as so
supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus included in such registration
statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
(B) Each of the Company and its subsidiaries have been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has full corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement and the Prospectus as being conducted, and is duly
qualified as a foreign corporation and in good standing in all jurisdictions in
which the character of the property owned or leased or the nature of the
business transacted by it makes qualification necessary (except where the
failure to be so qualified would not have a material adverse effect on the
business, business prospects, properties, condition (financial or otherwise) or
results of operations of the Company and its subsidiaries, taken as a whole).
(C) The Company does not own or control, directly or indirectly,
any corporation, association or other entity other than the subsidiaries listed
in Exhibit 21 to the Registration Statement. The Company owns all of the
outstanding capital stock of its subsidiaries free and clear of all claims,
liens, charges and encumbrances. The Company and each of its subsidiaries are in
possession of and operating in compliance with all material authorizations,
licenses, permits, consents, certificates and orders material to the conduct of
their respective businesses as described in the Prospectus, all of which are
valid and in full force and effect.
2.
<PAGE>
(D) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, business prospects, properties,
condition (financial or otherwise) or results of operations of the Company and
its subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, other than as set forth in the Registration
Statement and the Prospectus, and since such dates, except in the ordinary
course of business, neither the Company nor any of its subsidiaries has entered
into any material transaction not referred to in the Registration Statement and
the Prospectus.
(E) The Registration Statement and the Prospectus comply, and on
the Closing Date (as hereinafter defined) and any later date on which Optional
Shares are to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the rules and
regulations of the Commission thereunder (the "Rules and Regulations"); on the
Effective Date, the Registration Statement did not contain any untrue statement
of a material fact and did not omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date the Prospectus did not and, on the
Closing Date and any later date on which Optional Shares are to be purchased,
will not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that none of the representations and warranties in this subparagraph (e) shall
apply to statements in, or omissions from, the Registration Statement or the
Prospectus made in reliance upon and in conformity with information herein or
otherwise furnished in writing to the Company by or on behalf of the
Underwriters for use in the Registration Statement or the Prospectus.
(F) The Company has authorized and outstanding capital stock as
set forth under the heading "Capitalization" in the Prospectus. The issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company and the related notes
thereto included in the Prospectus, neither the Company nor any subsidiary has
any outstanding options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the information
required by the Securities Act and the Rules and Regulations to be shown with
respect to such plans, arrangements, options and rights.
(G) The Shares are duly authorized, are (or, in the case of
Shares to be sold by the Company, will be, when issued and sold to the
Underwriters as provided herein) validly issued, fully paid and nonassessable
and conform to the description thereof in the Prospectus. No further approval or
authority of the shareholders or the Board of Directors of the Company will be
required for the transfer and sale of the Shares to be sold by the Selling
Securityholders or the issuance and sale of the Shares to be sold by the Company
as contemplated herein.
(H) The Shares to be sold by the Founding Shareholders and the
Institutional Shareholders are listed and duly admitted to trading on the Nasdaq
National Market, and prior to the Closing Date, the
3.
<PAGE>
Shares to be issued and sold by the Company will be authorized for listing on
the Nasdaq National Market upon official notice of issuance.
(I) The Shares to be sold by the Company will be sold free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest, and will conform to the description thereof contained in the
Prospectus. No preemptive right, co-sale right, registration right, right of
first refusal or other similar right to subscribe for or purchase securities of
the Company exists with respect to the issuance and sale of the Shares by the
Company pursuant to this Agreement. No shareholder of the Company has any right
which has not been waived, or complied with, to require the Company to register
the sale of any shares owned by such shareholder under the Securities Act in the
public offering contemplated by this Agreement.
(J) The Company has full corporate power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and
constitutes a valid and binding obligation of the Company enforceable in
accordance with its terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium laws
affecting creditors' rights generally and except as to those provisions relating
to indemnity or contribution for liabilities arising under federal and state
securities laws. The making and performance of this Agreement by the Company and
the consummation of the transactions contemplated hereby (i) will not violate
any provisions of the Articles of Incorporation, Bylaws or other organizational
documents of the Company or any of its subsidiaries, and (ii) will not conflict
with, result in a material breach or violation of, or constitute, either by
itself or upon notice or the passage of time or both, a material default under
(A) any agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
any of their respective properties may be bound or affected, or (B) any statute
or any authorization, judgment, decree, order, rule or regulation of any court
or any regulatory body, administrative agency or other governmental body
applicable to the Company or any of its subsidiaries or any of their respective
properties. No consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body that has not
already been obtained is required for the execution and delivery of this
Agreement or the consummation of the transactions contemplated by this
Agreement, except for compliance with the Securities Act, the Blue Sky laws
applicable to the public offering of the Common Shares by the several
Underwriters and the clearance of such offering with the NASD.
(K) The consolidated financial statements and schedules of the
Company and the related notes thereto included in the Registration Statement and
the Prospectus present fairly on a consolidated basis the financial position of
the Company and its subsidiaries as of the respective dates of such financial
statements and schedules, and the results of operations and cash flows of the
Company and its subsidiaries for the respective periods covered thereby. Such
statements, schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods specified, as certified by the independent accountants
named in Section 10(g). No other financial statements or schedules are required
to be included in the Registration Statement. The selected financial data set
forth in the Prospectus under the captions "Capitalization" and "Selected
Consolidated Financial Information" fairly present the information set forth
therein on the basis stated in the Registration Statement.
(L) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
4.
<PAGE>
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The representations and warranties given by the
Company and its officers to its independent public accountants for the purpose
of supporting the letters referred to in Section 10(f) are true and correct.
(M) Neither the Company nor any of its subsidiaries is (i) in
violation or default of any provision of its Articles of Incorporation, Bylaws
or other organizational documents, or (ii) in a material breach of or default
with respect to any provision of any agreement, judgment, decree, order,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its properties are
bound; and there does not exist any state of facts which, with notice or lapse
of time or both would constitute such a breach or default on the part of the
Company and its subsidiaries, taken as a whole.
(N) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and Regulations
which have not been described or filed as required. The contracts so described
in the Prospectus are in full force and effect on the date hereof.
(O) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or threatened to which the
Company or any of its subsidiaries is or is threatened to be made a party or of
which property owned or leased by the Company or any of its subsidiaries is or
is threatened to be made the subject, which actions, suits or proceedings could,
individually or in the aggregate, prevent or adversely affect the transactions
contemplated by this Agreement or result in a material adverse change in the
business, business prospects, properties, condition (financial or otherwise), or
results of operations of the Company or its subsidiaries; and no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent which could materially adversely affect the business, business
prospects, properties, condition (financial or otherwise), or results of
operations of the Company or its subsidiaries. Neither the Company nor any of
its subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body. Except as disclosed in the
Prospectus, there are no material legal or governmental actions, suits or
proceedings pending or, to the Company's and the Selling Securityholders'
knowledge, threatened against any executive officers or directors of the
Company.
(P) The Company or the applicable subsidiary has good and
marketable title to all the properties and assets reflected as owned in the
financial statements hereinabove described (or elsewhere in the Prospectus),
subject to no lien, mortgage, pledge, charge or encumbrance of any kind except
(i) those, if any, reflected in such financial statements (or elsewhere in the
Prospectus), or (ii) those which are not material in amount to the Company or
its subsidiaries, and do not adversely affect the use made and proposed to be
made of such property by the Company or its subsidiaries. The Company or the
applicable subsidiary holds its leased properties under valid and binding
leases. Except as disclosed in the Prospectus, the Company owns or leases all
such properties as are necessary to its operations as now conducted or as
proposed to be conducted.
5.
<PAGE>
(Q) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company and its
subsidiaries have not (A) incurred any liabilities or obligations, indirect,
direct or contingent, or (B) entered into any oral or written agreement or other
transaction, which in the case of (A) or (B) is not in the ordinary course of
business; (ii) the Company and its subsidiaries have not sustained any material
loss or interference with their respective businesses or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company and its subsidiaries have not paid or declared any
dividends or other distributions with respect to their respective capital stock
and the Company and its subsidiaries are not in default in the payment of
principal or interest on any outstanding debt obligations; (iv) there has not
been any change in the capital stock of the Company or its subsidiaries (other
than upon the sale of the Shares hereunder or upon the exercise of any options
or warrants disclosed in the Prospectus); (v) there has not been any material
increase in the short- or long-term debt of the Company and its subsidiaries;
and (vi) there has not been any material adverse change or any development
involving or which may reasonably be expected to involve a prospective material
adverse change, in the business, business prospects, condition (financial or
otherwise), properties, or results of operations of the Company or its
subsidiaries.
(R) The Company is and its subsidiaries are conducting business
in compliance with all applicable laws, rules and regulations of the
jurisdictions in which they are conducting business, except where the failure to
be so in compliance would not have a material adverse effect on the business,
business prospects, properties, condition (financial or otherwise) or results of
operations of the Company or its subsidiaries.
(S) The Company and its subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns, and all such tax
returns are complete and correct in all material respects, and the Company and
its subsidiaries have not failed to pay any taxes which were payable pursuant to
said returns or any assessments with respect thereto. The Company has no
knowledge of any tax deficiency which has been or is likely to be threatened or
asserted against the Company or its subsidiaries.
(T) The Company has not distributed, and will not distribute
prior to the later to occur of (i) completion of the distribution of the Shares,
or (ii) the expiration of any time period within which a dealer is required
under the Securities Act to deliver a prospectus relating to the Shares, any
offering material in connection with the offering and sale of the Shares other
than the Prospectus, the Registration Statement and any other materials
permitted by the Securities Act and consented to by the Underwriters.
(U) Each of the Company and its subsidiaries maintains insurance
of the types and in the amounts generally deemed adequate for their business,
including, but not limited to, directors' and officers' insurance, insurance
covering real and personal property owned or leased by the Company and its
subsidiaries against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect. The Company has not been refused any insurance coverage sought or
applied for, and the Company has no reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially adversely affect the business,
business prospects, properties, condition (financial or otherwise) or results of
operations of the Company or its subsidiaries.
6.
<PAGE>
(V) Neither the Company nor any of its subsidiaries nor, to the
best of the Company's or the Founding Shareholders' knowledge, any of their
employees or agents has at any time during the last five years (i) made any
unlawful contribution to any candidate for foreign office, or failed to disclose
fully any contribution in violation of law, or (ii) made any payment to any
foreign, federal or state governmental officer or official or other person
charged with similar public or quasi-public duties, other than payments required
or permitted by the laws of the United States or any jurisdiction thereof.
(W) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(X) The Company has caused (i) each of its executive officers and
directors as set forth in the Prospectus and (ii) each holder of 1% of the
outstanding Common Stock (including shares issuable upon the exercise or
conversion of any option, warrant or other security) to furnish to the
Underwriters an agreement in form and substance satisfactory to Volpe, Welty &
Company LLC pursuant to which each such party has agreed that during the period
of one hundred eighty (180) days after the date the Registration Statement
becomes effective, without the prior written consent of Volpe, Welty & Company
LLC, such party will not (i) offer, sell, contract to sell, make any short sale
(including without limitation short against the box), pledge or otherwise
dispose of, directly or indirectly, any shares of the Company's Common Stock,
options to acquire Common Stock or securities convertible into or exchangeable
for, or any other rights to purchase or acquire, the Company's Common Stock
(including, without limitation, Common Stock of the Company which may be deemed
to be beneficially owned in accordance with the rules and regulations of the
Commission) other than the exercise or conversion of outstanding options,
warrants or convertible securities; or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic consequences
or ownership of Common Stock, whether any such transaction described in (i) or
(ii) is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise PROVIDED, HOWEVER, that bona fide gift transactions and
transfers which will not result in any change in beneficial ownership may be
permitted if the transferee enters into a lock-up agreement in substantially the
same form covering the remainder of the lock-up period.
(Y) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba.
(Z) Except as specifically disclosed in the Prospectus, the
Company and its subsidiaries have sufficient trademarks, trade names, patent
rights, copyrights, licenses, approvals and governmental authorizations to
conduct their businesses as now conducted; the expiration of any trademarks,
trade names, patent rights, copyrights, licenses, approvals or governmental
authorizations would not have a material adverse effect on the business,
business prospects, properties, condition (financial or otherwise) or results of
operations have been of the Company or its subsidiaries; neither the Company nor
any Selling Securityholder has any knowledge of any infringement by the Company
or its subsidiaries of trademark, trade name rights, patent rights, copyrights,
licenses, trade secret or other similar rights of others; and no claims have
been made or are threatened against the Company or its subsidiaries regarding
trademark, trade name, patent, copyright, license, trade secret or other
infringement which could have a material adverse effect on the business,
business prospects, properties, condition (financial or otherwise) or results of
operations or prospects of the Company and its subsidiaries.
7.
<PAGE>
(AA) Except as disclosed in the Prospectus, (i) the Company and
its subsidiaries are in compliance in all material respects with all rules, laws
and regulation relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to their business, (ii) neither the Company nor any of its
subsidiaries has received any notice from any governmental authority or third
party of an asserted claim under Environmental Laws, (iii) no facts currently
exist that will require the Company or any of its subsidiaries to make future
material capital expenditures to comply with Environmental Laws, and (iv) to the
knowledge of the Company and the Selling Securityholders, no property which is
or has been owned, leased or occupied by the Company or any of its subsidiaries
has been designated as a Superfund site pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. ss. 9601, ET SEQ.), or otherwise designated as a contaminated site under
applicable state or local law.
(BB) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
SECTION 2. ADDITIONAL REPRESENTATIONS AND WARRANTIES, AND COVENANTS, OF
THE FOUNDING SHAREHOLDERS AND THE INSTITUTIONAL SHAREHOLDERS.
Each of the Founding Shareholders and the Institutional
Shareholders (the "Selling Securityholders") represents and warrants and
covenants to the several Underwriters as of the date hereof and as of each
Closing Date hereinafter mentioned that:
(A) Such Selling Securityholder has good and marketable title to
the Shares to be sold by such Selling Securityholder hereunder, free and clear
of all liens, encumbrances, equities, security interests and claims whatsoever,
with full right and authority to deliver the same hereunder, subject, in the
case of each Selling Securityholder, to the rights of _____________ , as
Custodian (the "Custodian"), and that upon the delivery of and payment for such
Shares hereunder, the several Underwriters will receive good and marketable
title thereto, free and clear of all liens, encumbrances, equities, security
interests and claims whatsoever.
(B) Certificates in negotiable form for the Shares to be sold by
such Selling Securityholder have been placed in custody under a Custody
Agreement for delivery under this Agreement with the Custodian; such Selling
Securityholder specifically agrees that the Shares represented by the
certificates so held in custody for such Selling Securityholder are subject to
the interests of the several Underwriters and the Company, that the arrangements
made by such Selling Securityholder for such custody, including the Power of
Attorney provided for in such Custody Agreement, are to that extent irrevocable,
and that the obligations of such Selling Securityholder shall not be terminated
by any act of such Selling Securityholder or by operation of law, whether by the
death or incapacity of such Selling Securityholder (or, in the case of a Selling
Securityholder that is not an individual, the dissolution or liquidation of such
Selling Securityholder) or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur before the
delivery of such shares of the shares hereunder, certificates for the Shares
shall be delivered by the Custodian in accordance with the terms and conditions
of this Agreement as if such death, incapacity, dissolution, liquidation or
other event had not occurred, regardless of whether the Custodian shall have
received notice of such death, incapacity, dissolution, liquidation or other
event.
(C) Such Selling Securityholder has reviewed the Registration
Statement and Prospectus and, although such Selling Securityholder has not
independently verified the accuracy or completeness of
8.
<PAGE>
all the information contained therein, nothing has come to the attention of such
Selling Securityholder that would lead such Selling Securityholder to believe
that (i) on the Effective Date, the Registration Statement contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading; and, (ii) on the Effective Date the Prospectus contained and, on the
Closing Date and any later date on which Optional Shares are to be purchased
contains, any untrue statement of a material fact or omitted or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(D) All information in the Registration Statement or the
Prospectus, or any amendment or supplement thereto, relating to such Selling
Securityholder (including, without limitation, the information relating to the
Selling Securityholder which is set forth in the Prospectus under the caption
"Principal and Selling Shareholders"), and all representations and warranties of
such Selling Securityholder in the Custody Agreement are true and correct in all
respects and do not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
information in the light of the circumstances under which they were made not
misleading. The sale of the Shares by such Selling Securityholder pursuant
hereto is not prompted by such Selling Securityholder's knowledge of any
material information concerning the Company or any subsidiary which is not set
forth in the Prospectus.
(E) Such Selling Securityholder has full power and authority to
enter into this Agreement and the Custody Agreement and perform the transactions
contemplated hereby and thereby. This Agreement and the Custody Agreement have
been duly authorized, executed and delivered by or on behalf of such Selling
Securityholder and the form of such Custody Agreement has been delivered to you.
(F) The making and performance of this Agreement and the Custody
Agreement and the consummation of the transactions contemplated hereby and
thereby will not result in a breach or violation by such Selling Securityholder
of any of the terms or provisions of, or constitute a default by such Selling
Securityholder under, any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Securityholder is a party or by
which such Selling Securityholder or any of its properties is bound, any
statute, or any judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to such Selling Securityholder or any of
its properties.
(G) Such Selling Securityholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
SECTION 3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(A) On the basis of the representations and warranties and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell 1,950,000 of the Firm Shares to the several Underwriters, each
Selling Securityholder agrees to sell to the several Underwriters the number of
the Firm Shares set forth in Schedule II opposite the name of such Selling
Securityholder, and each of the Underwriters agrees to purchase from the Company
and the Selling Securityholders the respective aggregate number of Firm Shares
set forth opposite its name in Schedule I. The price at which such Firm Shares
shall be sold by the Company and the Selling Securityholders and purchased by
the several Underwriters shall be $___ per share. The obligation of each
Underwriter to the Company and each of the Selling Securityholders
9.
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shall be to purchase from the Company and the Selling Securityholders that
number of Firm Shares which represents the same proportion of the total number
of Firm Shares to be sold by each of the Company and the Selling Securityholders
pursuant to this Agreement as the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto represents of the total number of
shares of the Firm Shares to be purchased by all Underwriters pursuant to this
Agreement, as adjusted by you in such manner as you deem advisable to avoid
fractional shares. In making this Agreement, each Underwriter is contracting
severally and not jointly; except as provided in paragraphs (b) and (c) of this
Section 3, the agreement of each Underwriter is to purchase only the respective
number of shares of the Firm Shares specified in Schedule I.
(B) If for any reason one or more of the Underwriters shall fail
or refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 9 or 10 hereof) to purchase and
pay for the number of Shares agreed to be purchased by such Underwriter or
Underwriters, the Company or the Selling Securityholders shall immediately give
notice thereof to you, and the non-defaulting Underwriters shall have the right
within 24 hours after the receipt by you of such notice to purchase, or procure
one or more other Underwriters to purchase, in such proportions as may be agreed
upon between you and such purchasing Underwriter or Underwriters and upon the
terms herein set forth, all or any part of Shares which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of Shares which each non-defaulting Underwriter is
otherwise obligated to purchase under this Agreement shall be automatically
increased on a pro rata basis to absorb the remaining shares and portion which
the defaulting Underwriter or Underwriters agreed to purchase; PROVIDED,
HOWEVER, that the non-defaulting Underwriters shall not be obligated to purchase
the portion which the defaulting Underwriter or Underwriters agreed to purchase
if the aggregate number of such Shares exceeds 10% of the total number of Shares
which all Underwriters agreed to purchase hereunder. If the total number of
Shares which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company and the Selling Securityholders shall have the right, within 24 hours
next succeeding the 24-hour period above referred to, to make arrangements with
other underwriters or purchasers satisfactory to you for purchase of such Shares
and portion on the terms herein set forth. In any such case, either you or the
Company and the Selling Securityholders shall have the right to postpone the
Closing Date determined as provided in Section 5 hereof for not more than seven
business days after the date originally fixed as the Closing Date pursuant to
Section 5 in order that any necessary changes in the Registration Statement, the
Prospectus or any other documents or arrangements may be made. If neither the
non-defaulting Underwriters nor the Company and the Selling Securityholders
shall make arrangements within the 24-hour periods stated above for the purchase
of all of the Shares which the defaulting Underwriter or Underwriters agreed to
purchase hereunder, this Agreement shall be terminated without further act or
deed and without any liability on the part of the Company or the Selling
Securityholders to any non-defaulting Underwriter and without any liability on
the part of any non-defaulting Underwriter to the Company or the Selling
Securityholders. Nothing in this paragraph (b), and no action taken hereunder,
shall relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
(C) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company grants an option to the several Underwriters to purchase, severally and
not jointly, up to 375,000 Optional Shares from the Company at the same price
per share as the Underwriters shall pay for the Firm Shares. Said option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time on or before
the thirtieth day after the date of this Agreement upon written or telegraphic
notice by you
10.
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to the Company setting forth the aggregate number of Optional Shares as to which
the several Underwriters are exercising the option. Delivery of certificates for
the Optional Shares, and payment therefor, shall be made as provided in Section
5 hereof. The number of Optional Shares to be purchased by each Underwriter
shall be the same percentage of the total number of Optional Shares to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Firm Shares, as adjusted by you in such manner as you deem advisable to avoid
fractional shares.
SECTION 4. OFFERING BY UNDERWRITERS.
(A) The terms of the initial public offering by the Underwriters
of the Shares to be purchased by them shall be as set forth in the Prospectus.
The Underwriters may from time to time change the public offering price after
the closing of the initial public offering and increase or decrease the
concessions and discounts to dealers as they may determine.
(B) The information (insofar as such information relates to the
Underwriters) set forth in the last paragraph on the front cover page and under
"Underwriting" in the Registration Statement, any Preliminary Prospectus and the
Prospectus relating to the Shares constitutes the only information furnished by
the Underwriters to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus, and the Prospectus, and you on behalf of the respective
Underwriters represent and warrant to the Company that the statements made
therein are correct.
SECTION 5. DELIVERY OF AND PAYMENT FOR THE SHARES.
(A) Delivery of certificates for the Firm Shares and the Optional
Shares (if the option granted by Section 3(c) hereof shall have been exercised
not later than 7:00 A.M., San Francisco time, on the date two business days
preceding the Closing Date), and payment therefor, shall be made at the office
of Volpe, Welty & Company, LLC, One Maritime Plaza, 11th Floor, San Francisco,
California, at 7:00 a.m., San Francisco time, on the [fourth]1 business day
after the date of this Agreement, or at such time on such other day, not later
than seven full business days after such [fourth] business day, as shall be
agreed upon in writing by the Company, the Selling Securityholders and you. The
date and hour of such delivery and payment (which may be postponed as provided
in Section 3(b) hereof) are herein called the "Closing Date".
(B) If the option granted by Section 3(c) hereof shall be
exercised after 7:00 a.m., San Francisco time, on the date two business days
preceding the Closing Date, delivery of certificates for the shares of Optional
Shares, and payment therefor, shall be made at the office of [Volpe, Welty &
Company, One Maritime Plaza, 11th Floor, San Francisco, California], at 7:00
a.m., San Francisco time, on the third business day after the exercise of such
option.
(C) Payment for the shares purchased from the Company shall be
made to the Company or its order, and payment for the shares purchased from the
Selling Securityholders shall be made, in the discretion of the Underwriters, to
them or to the Custodian, for the account of the Selling Securityholders, in
each case by federal funds wire transfer. Such payment shall be made upon
delivery of certificates for the
- --------
1 THIS ASSUMES THAT THE TRANSACTION WILL BE PRICED AFTER THE CLOSE OF MARKET AND
THAT T + 4 WILL APPLY TO THE TRANSACTION. IF THE PRICING TOOK PLACE BEFORE OR
DURING MARKET HOURS (WHICH WILL GENERALLY NOT BE THE CASE), THE CLOSING WOULD BE
THREE BUSINESS DAYS AFTER PRICING.
11.
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Shares to you for the respective accounts of the several Underwriters (including
without limitation by "full-fast" electronic transfer by Depository Trust
Company) against receipt therefor signed by you. Certificates for the Shares to
be delivered to you shall be registered in such name or names and shall be in
such denominations as you may request at least one business day before the
Closing Date, in the case of Firm Shares, and at least one business day prior to
the purchase thereof, in the case of the Optional Shares. Such certificates will
be made available to the Underwriters for inspection, checking and packaging at
the offices of agent of Volpe, Welty & Company's clearing agent, Bear Sterns
Securities Corp., on the business day prior to the Closing Date or, in the case
of the Optional Shares, by 3:00 p.m., New York time, on the business day
preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any later
date on which Optional Shares are purchased for the account of such Underwriter.
Any such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
SECTION 6. COVENANTS OF THE COMPANY AND THE FOUNDING SHAREHOLDERS. Each
of the Company and the Founding Shareholders respectively covenants and agrees
as follows:
(A) The Company will (i) prepare and timely file with the
Commission under Rule 424(b) a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been advised
and furnished with a copy or to which you shall have reasonably objected in
writing or which is not in compliance with the Securities Act or the rules and
regulations of the Commission.
(B) The Company will promptly notify each Underwriter in the
event of (i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional information,
(ii) the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, (iii) the institution or notice of
intended institution of any action or proceeding for that purpose, (iv) the
receipt by the Company of any notification with respect to the suspension of the
qualification of the shares for sale in any jurisdiction, or (v) the receipt by
it of notice of the initiation or threatening of any proceeding for such
purpose. The Company and the Selling Securityholders will make every reasonable
effort to prevent the issuance of such a stop order and, if such an order shall
at any time be issued, to obtain the withdrawal thereof at the earliest possible
moment.
(C) The Company will (i) on or before the Closing Date, deliver
to you a signed copy of the Registration Statement as originally filed and of
each amendment thereto filed prior to the time the Registration Statement
becomes effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any
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amended prospectus, filed by the Company with the Commission, as you may
reasonably request for the purposes contemplated by the Securities Act.
(D) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event relating
to or affecting the Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement or
amend the Prospectus in order to make the Prospectus not misleading in the light
of the circumstances existing at the time it is delivered to a purchaser of the
shares, the Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended prospectus so that the Prospectus as
so supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading. If, after the initial
public offering of the Shares by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the Prospectus or
an amended prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the shares may be sold by the
several Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the shares in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(E) Prior to the filing thereof with the Commission, the Company
will submit to you, for your information, a copy of any post-effective amendment
to the Registration Statement and any supplement to the Prospectus or any
amended prospectus proposed to be filed.
(F) The Company will cooperate, when and as requested by you, in
the qualification of the Shares for offer and sale under the securities or Blue
Sky laws of such jurisdictions as you may designate and, during the period in
which a prospectus is required by law to be delivered by an Underwriter or
dealer, in keeping such qualifications in good standing under said securities or
Blue Sky laws; PROVIDED, HOWEVER, that the Company shall not be obligated to
file any general consent to service of process or to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified. The Company
will, from time to time, prepare and file such statements, reports, and other
documents as are or may be required to continue such qualifications in effect
for so long a period as you may reasonably request for distribution of the
Shares.
(G) During a period of five years commencing with the date
hereof, the Company will furnish to you, and to each Underwriter who may so
request in writing, copies of all periodic and special reports furnished to
shareholders of the Company and of all information, documents and reports filed
with the Commission (including the Report on Form SR required by Rule 463 of the
Commission under the Securities Act).
(H) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.
13.
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(I) The Company and the Founding Shareholders jointly and
severally agree to pay all costs and expenses incident to the performance of
their obligations under this Agreement, including all costs and expenses
incident to (i) the preparation, printing and filing with the Commission and the
National Association of Securities Dealers, Inc. ("NASD") of the Registration
Statement, any Preliminary Prospectus and the Prospectus, (ii) the furnishing to
the Underwriters and the persons designated by them of copies of any Preliminary
Prospectus and of the several documents required by paragraph (c) of this
Section 6 to be so furnished, (iii) the printing of this Agreement and related
documents delivered to the Underwriters, (iv) the preparation, printing and
filing of all supplements and amendments to the Prospectus referred to in
paragraph (d) of this Section 6, (v) the furnishing to you and the Underwriters
of the reports and information referred to in paragraph (g) of this Section 6
and (vi) the printing and issuance of stock certificates, including the transfer
agent's fees.
(J) The Company and the Founding Shareholders jointly and
severally agree to reimburse you, for the account of the several Underwriters,
for Blue Sky fees and related disbursements (including counsel fees and
disbursements and cost of printing memoranda for the Underwriters) paid by or
for the account of the Underwriters or their counsel in qualifying the Shares
under state securities or Blue Sky laws and in the review of the offering by the
NASD.
(K) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and costs
which the Company and the Founding Shareholders hereby agree to pay and shall
not affect any agreement which the Company and the Founding Shareholders may
make, or may have made, for the sharing of any such expenses and costs.
(N) If at any time during the 25-day period after the
Registration Statement becomes effective any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price for the shares has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(O) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, and the rules and regulations thereunder.
(O) The Company agrees to maintain directors' and officers'
insurance in [amounts customary for the size and nature of the Company's
business] [the amount of not less than $____________] for a period of two years
from the date of this Agreement.]
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(A) The Company and the Selling Securityholders jointly and
severally agree to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Securities Act from and against any and all
losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the
common law or otherwise, and the Company and the Selling Securityholders jointly
and severally
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agree to reimburse each such Underwriter and controlling person for any legal or
other expenses (including, except as otherwise hereinafter provided, reasonable
fees and disbursements of counsel) incurred by the respective indemnified
parties in connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that (1) the indemnity agreements of the Company
and the Selling Securityholders contained in this paragraph (a) shall not apply
to any such losses, claims, damages, liabilities or expenses if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated or otherwise furnished in writing to the Company by
or on behalf of any Underwriter for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, and (2) the indemnity agreement contained in this paragraph
(a) with respect to any Preliminary Prospectus shall not inure to the benefit of
any Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Shares which are the subject thereof (or
to the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof. The indemnity agreements of
the Company and the Selling Securityholders contained in this paragraph (a) and
the representations and warranties of the Company and the Selling
Securityholders contained in Section 2 hereof shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the shares.
(B) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its officers who signs the Registration Statement
on his own behalf or pursuant to a power of attorney, each of its directors,
each other Underwriter and each person (including each partner or officer
thereof) who controls the Company or any such other Underwriter within the
meaning of Section 15 of the Securities Act, and the Selling Securityholders
from and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act, or the common law or otherwise and
to reimburse each of them for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any Rule 462(b) registration statement) or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
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(ii) any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus (as amended or as supplemented if the Company shall
have filed with the Commission any amendment thereof or supplement thereto) or
the omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of such
indemnifying Underwriter for use in the Registration Statement or the Prospectus
or any such amendment thereof or supplement thereto. The indemnity agreement of
each Underwriter contained in this paragraph (b) shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any indemnified party and shall survive the delivery of and payment for the
shares.
(C) Each party indemnified under the provision of paragraphs (a)
and (b) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (the "Notice") of such service
or notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the Notice, but the omission so to notify such indemnifying
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party shall
be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (the "Notice of Defense") to the indemnified
party, to assume (alone or in conjunction with any other indemnifying party or
parties) the entire defense of such action, suit, investigation, inquiry or
proceeding, in which event such defense shall be conducted, at the expense of
the indemnifying party or parties, by counsel chosen by such indemnifying party
or parties and reasonably satisfactory to the indemnified party or parties;
PROVIDED, HOWEVER, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceeding or that there
may be legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or parties,
then counsel for the indemnified party or parties shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect the interests of the indemnified party or parties and (ii) in any
event, the indemnified party or parties shall be entitled to have counsel chosen
by such indemnified party or parties participate in, but not conduct, the
defense. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through (c) of this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(A) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the proviso to the preceding sentence and (B) the indemnifying party or
parties shall bear such other expenses as it or they have authorized to be
incurred by the indemnified party or parties. If, within a reasonable time after
receipt of the Notice, no Notice of Defense has been given, the indemnifying
party or
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parties shall be responsible for any legal or other expenses incurred by the
indemnified party or parties in connection with the defense of the action, suit,
investigation, inquiry or proceeding.
(D) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7, (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Securityholders on the one hand and the Underwriters on
the other shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Shares received by the Company and the
Selling Securityholders and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the Shares. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by each indemnifying party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this Section 7 and Section 8, no Underwriter shall be required to pay an amount
on any indemnity obligation or contribute any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter and
no Institutional Shareholder shall be required to pay an amount on any
indemnity obligation or to contribute any amount in excess of the proceeds
received by such Institutional Shareholder from the sale of its Firm Shares to
the Underwriters. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service
of a summons or other initial legal process upon it in any action instituted
against it in respect of which contribution may be sought, it will promptly give
written notice of such service to the party or parties from whom contribution
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought from
any obligation it may have hereunder or otherwise (except as specifically
provided in paragraph (c) of this Section 7).
(E) Neither the Company nor the Selling Securityholders will,
without the prior written consent of each Underwriter, settle or compromise or
consent to the entry of any judgment in any pending
17.
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or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of such Underwriter and each such controlling
person from all liability arising out of such claim, action, suit or proceeding.
SECTION 8. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their
other obligations under Section 7 of this Agreement, the Company and the Selling
Securityholders hereby jointly and severally agree to reimburse on a monthly
basis the Underwriters for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in paragraph (a) of
Section 7 of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 8 and the possibility that such payments might later be held to be
improper; PROVIDED, HOWEVER, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
SECTION 9. TERMINATION. This Agreement may be terminated by you at any
time prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders in accordance with Section 13, or if after the date of
this Agreement trading in the Common Stock shall have been suspended, or if
there shall have occurred (i) the engagement in hostilities or an escalation of
major hostilities by the United States or the declaration of war or a national
emergency by the United States on or after the date hereof, (ii) any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, calamity,
crisis or change in economic or political conditions in the financial markets of
the United States or the Company's industry sector would, in the Underwriters'
reasonable judgment, make the offering or delivery of the shares impracticable,
(iii) suspension of trading in securities generally or a material adverse
decline in value of securities generally on the New York Stock Exchange, the
American Stock Exchange, or The Nasdaq Stock Market, or limitations on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such exchange or system, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order
of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated pursuant to
this Section 9, there shall be no liability of the Company or the Selling
Securityholders to the Underwriters and no liability of the Underwriters to the
Company or the Selling Securityholders; PROVIDED, HOWEVER, that in the event of
any such termination the Company and the Selling Securityholders agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
18.
<PAGE>
SECTION 10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters to purchase and pay for the Shares shall be subject to
the performance by the Company and by the Selling Securityholders of all their
respective obligations to be performed hereunder at or prior to the Closing Date
or any later date on which Optional Shares are to be purchased, as the case may
be, and to the following further conditions:
(A) The Registration Statement shall have become effective; and
no stop order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(B) The legality and sufficiency of the sale of the Shares
hereunder and the validity and form of the certificates representing the Shares,
all corporate proceedings and other legal matters incident to the foregoing, and
the form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior to
the Closing Date by Foley & Lardner, counsel for the Underwriters.
(C) You shall have received from Greenberg Traurig Hoffman,
Lipoff Rosen & Quentel, P.A., counsel for the Company and the Selling
Securityholders, an opinion, addressed to the Underwriters and dated the Closing
Date, covering the matters set forth in Annex A hereto, and if Optional Shares
are purchased at any date after the Closing Date, additional opinions from each
such counsel, addressed to the Underwriters and dated such later date,
confirming that the statements expressed as of the Closing Date in such opinions
remain valid as of such later date.
(D) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct, and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, respectively, not misleading; (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in such a
supplement or amendment; (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole, whether or not arising from transactions in the ordinary course of
business, and, since such dates, except in the ordinary course of business,
neither the Company nor any of its subsidiaries has entered into any material
transaction not referred to in the Registration Statement in the form in which
it originally became effective and the Prospectus contained therein; (iv) the
Commission has not issued any order preventing or suspending the use of the
Prospectus or any Preliminary Prospectus filed as a part of the Registration
Statement or any amendment thereto; no stop order suspending the effectiveness
of the Registration Statement has been issued; and to the best knowledge of the
respective signers, no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act; (v) neither the Company nor
any of its subsidiaries has any material contingent obligations which are not
disclosed in the Registration Statement and the Prospectus; (vi) there are not
any pending or known threatened legal proceedings to which the Company or any of
its subsidiaries is a party or of which property of the Company or any of its
subsidiaries is the subject which are material and which are not disclosed in
the Registration Statement and the Prospectus; (vii) there are not any
franchises, contracts, leases or other documents which are required to be filed
as exhibits to the Registration Statement which have not been filed as required;
and (viii) the representations and warranties of the Company and the Selling
19.
<PAGE>
Securityholders herein are true and correct in all material respects as of the
Closing Date or any later date on which Optional Shares are to be purchased, as
the case may be.
(E) You shall have received on the Closing Date and on any later
date on which Optional Shares are purchased a certificate, dated the Closing
Date or such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, stating that the respective signers of
said certificate have carefully examined the Registration Statement in the form
in which it originally became effective and the Prospectus contained therein and
any supplements or amendments thereto, and that the statements included in
clauses (i) through (viii) of paragraph (d) of this Section 10 are true and
correct. [Consider certificate from Selling Securityholders]
(F) You shall have received from Arthur Andersen LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any later
date on which Optional Shares are purchased, confirming that they are
independent public accountants with respect to the Company within the meaning of
the Securities Act and the applicable published rules and regulations thereunder
and based upon the procedures described in their letter delivered to you
concurrently with the execution of this Agreement (the "Original Letter"), but
carried out to a date not more than three business days prior to the Closing
Date or such later date on which Optional Shares are purchased (i) confirming,
to the extent true, that the statements and conclusions set forth in the
Original Letter are accurate as of the Closing Date or such later date, as the
case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of the Original Letter or to reflect the availability of more recent
financial statements, data or information. The letters shall not disclose any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company or any of its subsidiaries which, in your
sole judgment, makes it impractical or inadvisable to proceed with the public
offering of the shares or the purchase of the Optional Shares as contemplated by
the Prospectus.
(G) You shall have received from Arthur Andersen LLP a letter
stating that their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing the scope of their
examination of the Company's financial statements as at _____________, 19__, did
not disclose any weakness in internal controls that they considered to be
material weaknesses.
(H) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(I) Prior to the Closing Date, the shares to be issued and sold
by the Company shall have been duly authorized for listing by the Nasdaq
National Market upon official notice of issuance.
(J) On or prior to the Closing Date, you shall have received from
all directors, officers, and beneficial holders of more than 1% of the
outstanding Common Stock shareholders agreements, in form reasonably
satisfactory to Volpe, Welty & Company LLC, stating that without the prior
written consent of Volpe, Welty & Company LLC, such person or entity will not,
for a period of 180 days following the date the Registration Statement became
effective (i) offer, sell, contract to sell, make any short sale (including
without limitation short against the box), pledge, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any options to acquire
shares of Common Stock or securities convertible into or exchangeable or
exercisable for or any other rights to purchase or acquire Common Stock
(including without
20.
<PAGE>
limitation, Common Stock of the Company which may be deemed to be beneficially
owned in accordance with the rules and regulations of the Commission) other than
the exercise or conversion of outstanding options, warrants or convertible
securities or (ii) enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences or ownership of Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise; PROVIDED, HOWEVER, that bona fide gift transactions and transfers
which will not result in any change in beneficial ownership may be permitted if
the transferee enters into a lock-up agreement in substantially the same form
covering the remainder of the lock-up period.
All the agreements, opinions, certificates and letters mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if Foley & Lardner, counsel for the Underwriters,
shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 10 shall
not be fulfilled, this Agreement may be terminated by you by giving notice to
the Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; PROVIDED, HOWEVER, that (i) in the event of such
termination, the Company and the Selling Securityholders agree to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, including all costs and expenses referred to in paragraphs
(i) and (j) of Section 6 hereof, and (ii) if this Agreement is terminated by you
because of any refusal, inability or failure on the part of the Company or the
Selling Securityholders to perform any agreement herein, to fulfill any of the
conditions herein, or to comply with any provision hereof other than by reason
of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the transactions contemplated hereby.
SECTION 11. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. The obligation of the Company and the Selling Securityholders
to deliver the Shares shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 11
shall not be fulfilled, this Agreement may be terminated by the Company and the
Selling Securityholders by giving notice to you. Any such termination shall be
without liability of the Company and the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; PROVIDED, HOWEVER, that in the event of any such
termination the Company and the Selling Securityholders jointly and severally
agree to indemnify and hold harmless the Underwriters from all costs or expenses
incident to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
SECTION 12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of the Company, the Selling Securityholders and the
several Underwriters and, with respect to the provisions of Section 7 hereof,
the several parties (in addition to the Company, the Selling Securityholders and
the several Underwriters) indemnified under the provisions of said Section 7,
and their respective personal representatives, successors and assigns. Nothing
in this Agreement is intended or shall be construed
21.
<PAGE>
to give to any other person, firm or corporation any legal or equitable remedy
or claim under or in respect of this Agreement or any provision herein
contained. The term "successors and assigns" as herein used shall not include
any purchaser, as such purchaser, of any of the shares from any of the several
Underwriters.
SECTION 13. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to Volpe, Welty &
Company LLC, One Maritime Plaza, 11th Floor, San Francisco, California 94111,
Attention: Steven D. Piper; and if to the Company, shall be mailed, telegraphed
or delivered to it at its office, _____________, Attention: _____________; and
if to the Selling Securityholders, shall be mailed, telegraphed or delivered to
the Selling Securityholders in care of _____________ at _____________. All
notices given by telegraph shall be promptly confirmed by letter.
SECTION 14. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation made
by or on behalf of any Underwriter or controlling person thereof, or by or on
behalf of the Company or the Selling Securityholders or their respective
directors or officers, and (c) delivery and payment for the Shares under this
Agreement; PROVIDED, HOWEVER, that if this Agreement is terminated prior to the
Closing Date, the provisions of paragraph (l) of Section 6 hereof shall be of no
further force or effect.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 17. GENERAL. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and
the singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Securityholders and you.
Any person executing and delivering this Agreement as
Attorney-in-fact for the Selling Securityholders represents by so doing that he
has been duly appointed as Attorney-in-fact by such Selling Securityholder
pursuant to a validly existing and binding Power of Attorney which authorizes
such Attorney-in-fact to take such action. Any action taken under this Agreement
by any of the Attorneys-in-fact will be binding on all of the Selling
Securityholders.
22.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company and the several Underwriters,
including you, all in accordance with its terms.
Very truly yours,
HTE, INC.
By: _______________________________
Title: ____________________________
DENNIS J. HARWARD
JACK L. HARWARD
MERIDIAN VENTURE PARTNERS
BANCBOSTON VENTURES
By: _______________________________
Attorney-in-fact
The foregoing Underwriting
Agreement is hereby confirmed
and accepted by us in San
Francisco, California as of
the date first above written.
VOLPE, WELTY & COMPANY LLC
Acting for ourselves and as
Representatives of the several
Underwriters named in the
attached Schedule A
By: _________________________
Principal
23.
<PAGE>
SCHEDULE I
UNDERWRITERS
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
- -------------------------------------------------------------------------------
Volpe, Welty & Company LLC.....................................
Janney Montgomery Scott, Inc...................................
Total .........................................................
==============
I-1.
<PAGE>
SCHEDULE II
SELLING SECURITYHOLDERS
NAME AND ADDRESS NUMBER OF
OF SELLING SECURITYHOLDERS SHARES
TO BE SOLD
- -------------------------------------------------------------------------------
Dennis J. Harward
4645 Albritton Road
St. Cloud, FL 34772.............................................. 110,000
Jack L. Harward
1286 Hill Stream Drive
Geneva, FL 32732...................................................110,000
Meridian Venture Partners
259 Radnor-Chester Road
Radnor, PA 19087...................................................110,000
BancBoston Ventures
01-32-01
100 Federal Street
Boston, MA 02110...................................................220,000
Total...............................................................550,000
==========
II-1.
<PAGE>
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF GREENBERG TRAURIG
COUNSEL FOR THE COMPANY
AND THE SELLING SECURITYHOLDERS
(I) each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, is duly qualified as a foreign
corporation and in good standing in each state of the United States of America
in which the nature of its business or its ownership or leasing of property
requires such qualification and has full corporate power and authority to own or
lease its properties and conduct its business as described in the Registration
Statement; all the issued and outstanding capital stock of each of the
subsidiaries of the Company has been duly authorized and validly issued and is
fully paid and nonassessable, and is owned by the Company free and clear of all
liens, encumbrances and security interests, and to the best of such counsel's
knowledge, no options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into shares of
capital stock or ownership interests in such subsidiaries are outstanding;
(II) the authorized capital stock of the Company consists of
_____________ shares of _____________ Stock, $_____ par value, of which there
are outstanding _____________ shares, and _____________ shares of Common Stock,
$____ par value, of which there are outstanding _____________ shares; all of the
outstanding shares of such capital stock (including the Firm Shares and the
Optional Shares issued, if any) have been duly authorized and validly issued and
are fully paid and nonassessable; any Optional Shares purchased after the
Closing Date have been duly authorized and, when issued and delivered to, and
paid for by, the Underwriters as provided in the Underwriting Agreement, will be
validly issued and fully paid and nonassessable; and no preemptive rights of, or
rights of refusal in favor of, shareholders exist with respect to the Shares, or
the issue and sale thereof, pursuant to the Articles of Incorporation or Bylaws
of the Company or any other instrument and, to the knowledge of such counsel,
there are no contractual preemptive rights that have not been waived, rights of
first refusal or rights of co-sale which exist with respect to the Shares being
sold by the Selling Securityholders or the issue and sale of the Shares by the
Company;
(III) the Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and no proceedings for that
purpose have been instituted or are pending or contemplated by the Commission;
(IV) the Registration Statement and the Prospectus (except as to
the financial statements and schedules and other financial data contained
therein, as to which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the Securities Act and with the
rules and regulations of the Commission thereunder;
A-1.
<PAGE>
(V) such counsel have no reason to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial and statistical data contained by reference
therein, as to which such counsel need not express any opinion or belief) at the
Effective Date contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (except as to the
financial statements and schedules and other financial and statistical data
contained therein, as to which such counsel need not express any opinion or
belief) as of its date or at the Closing Date (or any later date on which
Optional Shares are purchased), contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading;
(VI) the information required to be set forth in the Registration
Statement in answer to Items [9, 10 (insofar as it relates to such counsel) and
11(c) of Form S-1 is to the best of such counsel's knowledge accurately and
adequately set forth therein in all material respects or no response is required
with respect to such Items, and the description of the Company's stock option
plans and the options granted and which may be granted thereunder and the
options granted otherwise than under such plans set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to said plans and options to the extent required by the Securities Act and the
rules and regulations of the Commission thereunder;
(VII) such counsel do not know of any franchises, contracts,
leases, documents or legal proceedings, pending or threatened, which in the
opinion of such counsel are of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not described and filed as required;
(VIII) the Underwriting Agreement has been duly authorized,
executed and delivered by the Company;
(IX) the Underwriting Agreement has been duly executed and
delivered by or on behalf of the Selling Securityholders and the Custody
Agreement between the Selling Securityholders and _____________, as Custodian,
and the Power of Attorney referred to in such Custody Agreement have been duly
executed and delivered by the several Selling Securityholders;
(X) the Company has full corporate power and authority to enter
into the Underwriting Agreement and to sell and deliver the Shares to be sold by
it to the several Underwriters; the Underwriting Agreement is a valid and
binding agreement of the Company enforceable in accordance with its terms,
except as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditor's rights generally and except as to those provisions relating to
indemnity or contribution for liabilities arising under federal and state
securities laws (as to which no opinion need be expressed).
(XI) the Underwriting Agreement, the Custody Agreement and the
Power of Attorney are valid and binding agreements of each of the Selling
Securityholders enforceable in
A-2.
<PAGE>
accordance with their terms except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and except with respect to
those provisions relating to indemnity or contribution for liabilities under the
Securities Act, as to which no opinion need be expressed, and each Selling
Securityholder has full legal right and authority to enter into the Underwriting
Agreement, the Custody Agreement and the Power of Attorney and to sell, transfer
and deliver in the manner provided in the Underwriting Agreement the Shares sold
by such Selling Securityholder hereunder;
(XII) the issue and sale by the Company of the Shares sold by the
Company as contemplated by the Underwriting Agreement will not conflict with, or
result in a breach of, or constitute a default under the Articles of
Incorporation or Bylaws of the Company or any of its subsidiaries or any
agreement or instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which any of its properties may be bound or any
applicable law or regulation, or so far as is known to such counsel, any order,
writ, injunction or decree, of any jurisdiction, court or governmental
instrumentality;
(XIII) the transfer and sale by the Selling Stockholders of the
Shares to be sold by the Selling Stockholders as contemplated by the
Underwriting Agreement, the Power of Attorney and the Custody Agreement will not
conflict with, result in a breach of, or constitute a default under any
agreement or instrument known to such counsel to which any of the Selling
Stockholders is a party or by which any of the Selling Stockholders or any of
their properties may be bound, or any applicable law or regulation, or so far is
known to such counsel, order, writ, injunction or decree of any jurisdiction,
court or governmental instrumentality body.
(XIV) all holders of securities of the Company having rights to
the registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;
(XV) good and marketable title to the Shares under the
Underwriting Agreement, free and clear of all liens, encumbrances, equities,
security interests and claims, has been transferred to the Underwriters who have
severally purchased such Shares under the Underwriting Agreement, assuming for
the purpose of this opinion that the Underwriters purchased the same in good
faith without notice of any adverse claims; and
(XVI) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as have
been obtained under the Securities Act and such as may be required under state
securities or blue sky laws in connection with the purchase and distribution of
the Shares by the Underwriters and the clearance of the offering with the NASD;
and
(XVII) the Shares sold by the Selling Securityholders are listed
and duly admitted to trading on the Nasdaq National Market, and the shares
issued and sold by the Company will been duly authorized for listing by the
Nasdaq National Market upon official notice of issuance.
A-3.
<PAGE>
------------------------------------
Counsel rendering the foregoing opinion may rely as to questions
of law not involving the laws of the United States or of the State of Florida,
upon opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to rely upon the opinions of such local counsel.
A-4.
AMENDED
ARTICLES OF INCORPORATION
OF
H.T.E, INC.
Pursuant to Sections 607.1003, 607.1004 and 607.1006 of the Florida
Business Corporation Act, the Articles of Incorporation of H.T.E., Inc. (the
"Corporation") are hereby amended as follows:
FIRST: AMENDMENTS, DELETIONS AND RESTATEMENTS ADOPTED:
ARTICLE IV CAPITAL STOCK IS AMENDED TO DELETE THE INTRODUCTION THERETO AND
SECTIONS 1 THROUGH 4 THEREOF AND TO INCLUDE THE FOLLOWING PROVISIONS:
1. INITIAL AUTHORIZED CAPITAL STOCK. Subject to Section 2 hereof, the total
number of shares of all classes of stock which the Corporation shall have
authority to issue is 6,400,000, consisting solely of:
(i) two million (2,000,000) shares of preferred stock, par
value $0.0002 per share (the "Preferred Stock"); and
(ii) four million (4,000,000) shares of Class A common stock, par
value $0.0002 per share (the "Class A Common Stock");and
(iii) two hundred thousand (200,000) shares of Class B common stock,
par value $0.01 per share (the "Class B Common Stock"); and
(iv) two hundred thousand (200,000) shares of Class C common stock,
par value $0.0002 per share (the "Class C Common Stock").
2. ADDITIONAL AUTHORIZED CAPITAL STOCK. Upon the Reclassification as set forth
in Article IV Section E, the aggregate number of shares of all classes of stock
which the Corporation shall have authority to issue is thirty million
(30,000,000) shares, consisting solely of:
(i) twenty-five million (25,000,000) shares of common stock,
par value $0.01 per share (the "New Common Stock"); and
(ii) five million (5,000,000) shares of preferred stock, par value
$0.01 per share (the "New Preferred Stock").
No shareholder of any stock of the Corporation shall have
preemptive rights. There shall be no cumulative voting by the shareholders of
the Corporation.
<PAGE>
(x) PROVISIONS RELATING TO NEW PREFERRED STOCK.
1. GENERAL. The New Preferred Stock may be
issued from time to time in one or more classes or series, the shares of each
class or series to have such designations and powers, preferences and rights,
and qualifications, limitations and restrictions thereof as are stated and
expressed herein and in the resolution or resolutions providing for the issue
of such class or series adopted by the Board of Directors (the "Board") as
hereinafter prescribed.
2. PREFERENCES. Authority is hereby expressly
granted to and vested in the Board to authorize the issuance of the New
Preferred Stock from time to time in one or more classes or series, to determine
and take necessary proceedings fully to effect the issuance and redemption of
any such New Preferred Stock and, with respect to each class or series of the
New Preferred Stock, to fix and state, by resolution or resolutions from time to
time adopted providing for the issuance thereof, the following:
(a) whether or not the class or series
is to have voting rights, full or limited, or is to be without voting rights;
(b) the number of shares to constitute
the class or series and the designations thereof;
(c) the preferences and relative,
participating, optional or other special rights, if any, and the qualifications,
limitations or restrictions thereof, if any, with respect to any class or
series;
(d) whether or not the shares of any
class or series shall be redeemable and if redeemable the redemption price or
prices, and the time or times at which and the terms and conditions upon which,
such shares shall be redeemable and the manner of redemption;
(e) whether or not the shares of a class
or series shall be subject to the operation of retirement or sinking funds to be
applied to the purchase or redemption of such shares for retirement, and if
such retirement or sinking fund or funds be established, the annual amount
thereof and the terms and provisions relative to the operation thereof;
(f) the dividend rate, whether dividends
are payable in cash, stock of the Corporation or other property, the conditions
upon which and the times when such dividends are payable, the preference to or
the relation to the payment of the dividends payable on any other class or
classes or series of stock, whether or not such dividend shall be cumulative or
noncumulative, and, if cumulative, the date or dates from which such dividends
shall accumulate;
(g) the preferences, if any, and the
amounts thereof that the holders of any class or series thereof shall be
entitled to receive upon the voluntary or involuntary dissolution of, or upon
any distribution of the assets of, the Corporation;
(h) whether or not the shares of any class
or series shall be convertible into, or exchangeable for, the shares of any
other class or classes or of any other series of the same or any other class or
classes of the Corporation and the conversion price or prices or ratio or ratios
or the rate or rates at which such conversion or exchange may be made, with such
adjustments, if any, as shall be stated and expressed or provided for in such
resolution or resolutions; and
2
<PAGE>
(i) such other special rights and protective
provisions with respect to any class or series as the Board may deem advisable.
The shares of each class or series of the New Preferred Stock may vary from
the shares of any other class or series thereof in any or all of the foregoing
respects. The Board may increase the number of shares of New Preferred Stock
designated for any existing class or series by a resolution adding to such class
or series authorized and unissued shares of the New Preferred Stock not
designated for any other class or series. The Board may decrease the number of
shares of the New Preferred Stock designated for any existing class or series by
a resolution, subtracting from such series unissued shares of the New Preferred
Stock designated for such class or series, and the shares so subtracted shall
become authorized, unissued and undesignated shares of the New Preferred Stock.
ARTICLE IV SECTION B 1.1.1 IS DELETED AND AMENDED AND RESTATED AS FOLLOWS:
1.1 PROVISIONS RELATING TO THE NEW COMMON STOCK AND COMMON STOCK.
(a) DIVIDENDS, VOTING, ETC. The Common Stock and New Common
Stock shall be subject to the express terms of the New Preferred Stock,
Preferred Stock and any class or series thereof. Subject to the preferential
dividend rights applicable to shares of any series of New Preferred Stock or
Preferred Stock, the holders of shares of Common Stock and New Common Stock
shall be entitled to receive when, as and if declared by the Board, out of funds
legally available therefor, dividends and other distributions payable in cash,
property, stock (including shares of any class or series of the Corporation,
whether or not shares of such class or series are already outstanding) or
otherwise. In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, after distribution in full of the preferential
amounts to be distributed to the holders of shares of the New Preferred Stock
and/or Preferred Stock, the holders of shares of Common Stock and New Common
Stock shall be entitled to receive all of the remaining assets of the
Corporation available for distribution to its shareholders, ratably in
proportion to the number of shares of the Common Stock and New Common Stock held
by them. If dividends are declared which are payable in shares of Common Stock
such dividends shall be payable in shares of Class A Common Stock to holders of
Class A Common Stock, in shares of Class B Common Stock to holders of Class B
Common Stock, and in shares of Class C Common Stock to holders of Class C Common
Stock.
Shares of Common Stock or New Common Stock may be issued by
the Corporation for such consideration, having a value of not less than the par
value thereof, as is determined by the Board of Directors.
(b) MERGERS AND CONSOLIDATIONS. In the event of a merger,
consolidation or combination of the Corporation with another entity (whether or
not the Corporation is the surviving entity), the holders of Common Stock and
New Common Stock shall be entitled to receive their respective pro rata share of
the consideration received in respect of that transaction.
(c) LIQUIDATING DISTRIBUTIONS. Upon any liquidation,
dissolution or winding-up of the Corporation, whether voluntary or involuntary,
and after the holders of the Preferred Stock and New Preferred Stock shall have
been paid in full the amounts to which they shall be entitled, if any, or a sum
sufficient for such payment in full shall have been set aside, the remaining net
assets of the Corporation, if any, shall be divided among and paid ratably to
the holders of Common Stock and New Common Stock.
(d) SALES AND REPURCHASES. The Board shall have the power to
cause the Corporation to issue and sell shares of Common Stock or New Common
Stock to such individuals,
3
<PAGE>
partnerships, joint ventures, limited liability companies, associations,
corporations, trusts or other legal entities (collectively, "persons") and for
such consideration as the Board shall from time to time in its discretion
determine, and as otherwise permitted by law. The Board shall have the power to
cause the Corporation to purchase, out of funds legally available therefor,
shares of Common Stock and New Common Stock from such persons and for such
consideration as the Board shall from time to time in its discretion determine,
and as otherwise permitted by law.
ARTICLE B 1.1.2 IS AMENDED TO INCLUDE THE FOLLOWING PROVISION:
(d) NEW COMMON STOCK. Each share of New Common Stock shall have one
(1) vote on all matters that are submitted to shareholders for vote.
ARTICLE IV IS AMENDED TO INCLUDE THE FOLLOWING PROVISIONS:
E. SHARE RECLASSIFICATION. Immediately prior to the effective date (the
"Effective Date") of the Corporation's Registration Statement on Form S-1,
relating to a proposed underwritten public offering of Common Stock and
initially filed with the Securities and Exchange Commission on February 28, 1997
(the "Registration Statement"), (a) all of the outstanding shares of Preferred
Stock (the "Existing Preferred Stock"), Class A Common Stock and Class C Common
Stock (the Class A Common Stock and Class C Common Stock are hereinafter
collectively referred to as the "Existing Common Stock") will be split
53-for-one and exchanged simultaneously on a one-for-one basis for shares of the
Corporation's New Common Stock, (b) the Corporation shall pay in cash all
accrued dividends on the Existing Preferred Stock to the date of the stock
splits and exchanges described above, and (c) following the exchanges described
above, the Preferred Stock, Class A Common Stock, Class B Common Stock and Class
C Common Stock will be canceled, retired and eliminated from the shares the
Corporation is authorized to issue. Each certificate that theretofore
represented shares of Existing Common Stock and Existing Preferred Stock shall
thereafter represent the number of shares of New Common Stock into which the
shares of Existing Common Stock and Existing Preferred Stock represented by such
certificate were reclassified and converted hereby; provided, however, that each
person holding of record a stock certificate or certificates that represented
shares of Existing Common Stock and Existing Preferred Stock shall receive, upon
surrender of each such certificate or certificates, a new certificate or
certificates evidencing and representing the number of shares of New Common
Stock to which such person is entitled. Upon consummation of the
reclassification of the Existing Common Stock and Existing Preferred Stock of
the Corporation provided for in this Section E (the "Reclassification"), the
holders of New Common Stock of the Corporation shall have all rights accorded
them by law and the Corporation's Amended Articles of Incorporation. The
issuance of certificates representing shares of New Common Stock issuable upon
the Reclassification shall be made without charge to the holders of Existing
Common Stock and Existing Preferred Stock; provided, however, that if any
certificate is to be issued in a name other than that of the record holder of
the shares of Existing Common Stock and Existing Preferred Stock being
reclassified pursuant to the Reclassification, the Corporation shall not be
required to issue or deliver any such certificate unless and until the person
requesting the issuance thereof shall have paid to the Corporation the amount of
any tax that may be payable with respect to any transfer involved in the
issuance and delivery of such certificate or has established to the satisfaction
of the Corporation that such tax has been paid. If so required by the
Corporation or the transfer agent, any certificate for shares of Existing Common
Stock and Existing Preferred Stock surrendered in connection with the
Reclassification shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation or the transfer agent, duly executed by the
holder of such shares or the duly authorized representative of such holder,
together with funds for the payment of any transfer tax required as set forth
above. As promptly as practicable following the surrender of a certificate
representing shares of
4
<PAGE>
Existing Common Stock and Existing Preferred Stock in the foregoing manner,
any required instruments of transfer and the payment in cash of any amount for
the payment of any transfer tax, the Corporation shall issue and deliver or
cause to be issued and delivered to such holder or such holder's nominee or
nominees, a certificate or certificates representing the number of shares of New
Common Stock issued upon the Reclassification to which such holder is entitled,
in such name or names as such holder may direct.
F. ELIMINATION FROM AUTHORIZED SHARES. Immediately following the
Reclassification in Article IV Section E, the Preferred Stock, Class A Common
Stock, Class B Common Stock and Class C Common Stock will be canceled, retired
and eliminated from the shares the Corporation is authorized to issue.
ARTICLE VI IS DELETED AND AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
ARTICLE VI I
A. NUMBER AND TERM OF DIRECTORS. The Corporation's Board shall consist of not
less than three (3) nor more than nine (9) members, with the exact number to be
fixed from time to time by resolution of the Board. No decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director. The Board shall be divided into three classes, Class I, Class II and
Class III with the directors of each class to be elected for a staggered term of
three years and to serve until their successors are duly elected and qualified
or until their earlier resignation, death or removal from office. The number of
directors elected to each class shall be as nearly equal in number as possible.
The Board shall apportion any increase or decrease in the number of
directorships among the classes so as to make the number of directors in each
class as nearly equal as possible.
B. DIRECTOR VACANCIES. Whenever any vacancy on the Board shall occur due to
death, resignation, retirement, disqualification, removal, increase in the
number of directors or otherwise, a majority of directors in office, although
less than a quorum of the entire Board, may fill the vacancy or vacancies for
the balance of the unexpired term or terms, at which time a successor or
successors shall be duly elected by the shareholders and qualified.
Notwithstanding the provisions of any other Article herein, only the remaining
directors of the Corporation shall have the authority, in accordance with the
procedure stated above, to fill any vacancy that exists on the Board for the
balance of the unexpired term or terms. The Company's shareholders shall not,
and shall have no power to, fill any vacancy on the Board.
C. SHAREHOLDER NOMINATIONS OF DIRECTOR CANDIDATES. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors of the Corporation. Nominations of persons for election to
the Board at an annual or special meeting of shareholders may be made by or at
the direction of the Board by any nominating committee or person appointed by
the Board or by any shareholder of the Corporation entitled to vote for the
election of directors at such meeting who complies with the procedures set forth
in this Section C; provided, however, that nominations of persons for election
to the Board at a special meeting may be made only if the election of directors
is one of the purposes described in the special meeting notice required by
Section 607.0705 of the Florida Business Corporation Act. Nominations of persons
for election at a special meeting, other than nominations made by or at the
direction of the Board, shall be made pursuant to notice in writing delivered to
or mailed and received at the principal executive offices of the Corporation not
later than the close of business on the fifth (5th) day following the date on
which notice of such meeting is given to shareholders or made public, whichever
first occurs. Nominations of persons for election at an annual meeting, other
than nominations made by or at the direction of the Board, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice must be delivered to or mailed
5
<PAGE>
and received at the principal executive offices of the Corporation not less
than one hundred twenty (120) days nor more than one hundred eighty (180) days
prior to the first anniversary of the date of the Corporation's notice of annual
meeting provided with respect to the previous year's annual meeting; provided,
however, that if no annual meeting was held in the previous year or the date of
the annual meeting has been changed to be more than thirty (30) calendar days
earlier than the date contemplated by the previous year's notice of annual
meeting, such notice by the shareholder to be timely must be so delivered or
received not later than the close of business on the fifth (5th) day following
the date on which notice of the date of the annual meeting is given to
shareholders or made public, whichever first occurs. Such shareholder's notice
to the Secretary shall set forth the following information: (a) as to each
person whom the shareholder proposes to nominate for election or re-election as
a director at the annual meeting, (i) the name, age, business address and
residence address of the proposed nominee, (ii) the principal occupation or
employment of the proposed nominee, (iii) the class and number of shares of
capital stock of the Corporation which are beneficially owned by the proposed
nominee, and (iv) any other information relating to the proposed nominee that is
required to be disclosed in solicitations for proxies for election of directors
pursuant to Rule 14a under the Securities Exchange Act of 1934, as amended; and
(b) as to the shareholder giving the notice of nominees for election at the
annual meeting, (i) the name and record address of the shareholder, and (ii) the
class and number of shares of capital stock of the Corporation which are
beneficially owned by the shareholder. The Corporation may require any proposed
nominee for election at an annual or special meeting of shareholders to furnish
such other information as may reasonably be required by the Corporation to
determine the eligibility of such proposed nominee to serve as a director of the
Corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth herein.
The Chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the
requirements of this Section C, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
D. BOARD CLASSIFICATION. Initial classes of the Board of Directors shall
consist of the following members of the Board of Directors with terms expiring
at the annual meeting of shareholders in the year indicated:
CLASS I DIRECTORS TERM EXPIRING
----------------- -------------
Peter R. Roberts 1997
Bernard Markey 1997
CLASS II DIRECTOR
-------------------
Jack L. Harward 1998
CLASS III DIRECTOR
------------------
Dennis J. Harward 1999
ARTICLE XII IS ADDED TO INCLUDE THE FOLLOWING PROVISIONS:
ARTICLE XII
A. CALL OF SPECIAL SHAREHOLDERS MEETING. Except as otherwise required
by law, the Corporation shall not be required to hold a special meeting of
shareholders of the Corporation unless (in addition to any other requirements of
law) (i) the holders of not less than fifty (50) percent of all the votes
entitled to be cast on any issue proposed to be considered at the proposed
special meeting sign, date and deliver to the Corporation's Secretary one or
more written demands for the meeting describing the purpose or purposes for
which it is to be held; (ii) the meeting is called by the Board pursuant to a
6
<PAGE>
resolution approved by a majority of the entire Board; or (iii) the meeting is
called by the Chairman of the Board of Directors. Only business within the
purpose or purposes described in the special meeting notice required by Section
607.0705 of the Florida Business Corporation Act may be conducted at a special
shareholders' meeting.
B. ADVANCE NOTICE OF SHAREHOLDER-PROPOSED BUSINESS FOR ANNUAL MEETING.
At an annual meeting of the shareholders, only such business shall be conducted
as shall have been properly brought before the meeting. To be properly brought
before an annual meeting, business must be either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board,
(b) otherwise properly brought before the meeting by or at the direction of the
Board, or (c) otherwise properly brought before the meeting by a shareholder. In
addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, not less than one hundred
twenty (120) days nor more than one hundred eighty (180) days prior to the first
anniversary of the date of the Corporation's notice of annual meeting provided
with respect to the previous year's annual meeting; provided, however, that if
no annual meeting was held in the previous year or the date of the annual
meeting has been changed to be more than thirty (30) calendar days earlier than
the date contemplated by the previous year's notice of annual meeting, such
notice by the shareholder to be timely must be so delivered or received not
later than the close of business on the fifth (5th) day following the date on
which notice of the date of the annual meeting is given to shareholders or made
public, whichever first occurs. Such shareholder's notice to the Secretary shall
set forth as to each matter the shareholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of the shareholder proposing such
business, (iii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the shareholder, and (iv) any
material interest of the shareholder in such business. The Chairman of an annual
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
requirements of this Section B, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
* * * * *
SECOND: The foregoing Amended Articles of Incorporation of this Corporation were
duly approved by the Board of Directors by unanimous written consent, dated
February 27, 1997.
THIRD: The foregoing Amended Articles of Incorporation of this Corporation were
duly approved by written consent of the holders of a majority of the
Corporation's issued and outstanding capital stock entitled to vote, dated
February 27, 1997, representing the number of votes sufficient for approval of
these Amended Articles of Incorporation.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned, for the purpose of
amending the Corporation's Articles of Incorporation pursuant to the laws of the
State of Florida, has executed these Amended Articles of Incorporation as of
March , 1997.
H.T.E., INC.
By:_________________________
Name: Dennis J. Harward
Title: President
8
AMENDED AND RESTATED BYLAWS
OF
H.T.E., INC.
(A FLORIDA CORPORATION)
<PAGE>
INDEX
-----
PAGE
NUMBER
------
ARTICLE ONE - OFFICES..........................................................1
1. Registered Office..............................................1
2. Other Offices..................................................1
ARTICLE TWO - MEETINGS OF SHAREHOLDERS.........................................1
1. Place......................................................... 1
2. Time of Annual Meeting.........................................1
3. Call of Special Meetings.......................................1
4. Conduct of Meetings............................................1
5. Notice and Waiver of Notice....................................1
6. Business and Nominations for Annual and Special Meetings.......2
7. Quorum........................................................ 2
8. Voting Rights Per Share........................................2
9. Voting of Shares...............................................2
10. Proxies....................................................... 3
11. Shareholder List...............................................3
12. Action Without Meeting.........................................4
13. Fixing Record Date.............................................4
14. Inspectors and Judges..........................................4
15. Voting for Directors...........................................4
ARTICLE THREE - DIRECTORS......................................................5
1. Number; Term; Election; Qualification..........................5
2. Resignation; Vacancies; Removal................................5
3. Powers.........................................................5
4. Place of Meetings..............................................5
5. Annual Meetings................................................5
6. Regular Meetings...............................................5
7. Special Meetings and Notice....................................5
8. Quorum and Required Vote.......................................6
9. Action Without Meeting.........................................6
10. Conference Telephone or Similar Communications Equipment
Meetings......................................................6
11. Committees.................................................... 6
12. Compensation of Directors......................................6
ARTICLE FOUR - OFFICERS........................................................7
1. Positions......................................................7
2. Election of Specified Officers by Board........................7
3. Election or Appointment of Other Officers......................7
4. Compensation...................................................7
5. Term; Resignation; Removal; Vacancies..........................7
6. Chairman of the Board..........................................8
<PAGE>
7. President......................................................8
8. Vice Presidents................................................8
9. Secretary......................................................8
10. Chief Financial Officer........................................8
11. Treasurer......................................................8
12. Other Officers; Employees and Agents...........................8
ARTICLE FIVE - CERTIFICATES FOR SHARES.........................................9
1. Issue of Certificates..........................................9
2. Legends for Preferences and Restrictions on Transfer...........9
3. Facsimile Signatures...........................................9
4. Lost Certificates..............................................9
5. Transfer of Shares............................................10
6. Registered Shareholders.......................................10
7. Redemption of Control Shares..................................10
ARTICLE SIX - GENERAL PROVISIONS..............................................10
1. Dividends.....................................................10
2. Reserves......................................................10
3. Checks........................................................10
4. Fiscal Year...................................................10
5. Seal..........................................................11
6. Gender........................................................11
ARTICLE SEVEN - AMENDMENT OF BYLAWS...........................................11
(ii)
<PAGE>
H.T.E., INC.
AMENDED AND RESTATED BYLAWS
ARTICLE ONE
OFFICES
-------
Section 1. REGISTERED OFFICE. The registered office of H.T.E., INC., a
Florida corporation (the "Corporation"), shall be located at 390 North Orange
Avenue, Orlando, Florida 32801, unless otherwise determined by the Board of
Directors of the Corporation (the "Board of Directors") in accordance with
applicable law.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other places, either within or without the State of Florida, as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE TWO
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. PLACE. All annual meetings of shareholders shall be held at
such place, within or without the State of Florida, as may be designated by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof. Special meetings of shareholders may be held at such
place, within or without the State of Florida, and at such time as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. TIME OF ANNUAL MEETING. Annual meetings of shareholders
shall be held on such date and at such time fixed, from time to time, by the
Board of Directors, provided, that there shall be an annual meeting held every
calendar year at which the shareholders shall elect a board of directors and
transact such other business as may properly be brought before the meeting.
Section 3. CALL OF SPECIAL MEETINGS. Special meetings of the
shareholders shall be held if called in accordance with the procedures set forth
in the Corporation's Amended and Restated Articles of Incorporation (the
"Articles of Incorporation") for the call of a special meeting of shareholders.
Section 4. CONDUCT OF MEETINGS. The Chairman of the Board (or in his
absence, the President or such other designee of the Chairman of the Board)
shall preside at the annual and special meetings of shareholders and shall be
given full discretion in establishing the rules and procedures to be followed in
conducting the meetings, except as otherwise provided by law or in these Bylaws.
Section 5. NOTICE AND WAIVER OF NOTICE. Except as otherwise provided by
law, written or printed notice stating the place, date and time of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (10) nor more than sixty
(60) days before the date of the meeting, either personally or by first-class
mail or other legally sufficient means, by or at the direction of the Chairman
of the Board, President, the Secretary, or the officer or person calling the
meeting, to each shareholder of record entitled to vote at such meeting. If the
notice is mailed at least thirty (30) days before the date of the meeting, it
may be done by a class of United States mail other than first class. If mailed,
such notice shall be deemed to be delivered when
<PAGE>
deposited in the United States mail addressed to the shareholder at his
address as it appears on the stock transfer books of the Corporation, with
postage thereon prepaid. If a meeting is adjourned to another time and/or place,
and if an announcement of the adjourned time and/or place is made at the
meeting, it shall not be necessary to give notice of the adjourned meeting
unless the Board of Directors, after adjournment, fixes a new record date for
the adjourned meeting. Whenever any notice is required to be given to any
shareholder, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether signed before, during or after the time of the
meeting stated therein, and delivered to the Corporation for inclusion in the
minutes or filing with the corporate records, shall constitute an effective
waiver of such notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the shareholders need be specified in any
written waiver of notice. Attendance of a person at a meeting shall constitute a
waiver of (a) lack of or defective notice of such meeting, unless the person
objects at the beginning to the holding of the meeting or the transacting of any
business at the meeting, or (b) lack of or defective notice of a particular
matter at a meeting that is not within the purpose or purposes described in the
meeting notice, unless the person objects to considering such matter when it is
presented.
Section 6. BUSINESS AND NOMINATIONS FOR ANNUAL AND SPECIAL MEETINGS.
Business transacted at any special meeting shall be confined to the purposes
stated in the notice thereof. At any annual meeting of shareholders, only such
business shall be conducted as shall have been properly brought before the
meeting in accordance with the requirements and procedures set forth in the
Articles of Incorporation. Only such persons who are nominated for election as
directors of the Corporation in accordance with the requirements and procedures
set forth in the Articles of Incorporation shall be eligible for election as
directors of the Corporation.
Section 7. QUORUM. Shares entitled to vote as a separate voting group
may take action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. Except as otherwise provided in the Articles of
Incorporation or applicable law, shares representing a majority of the votes
pertaining to outstanding shares which are entitled to be cast on the matter by
the voting group constitute a quorum of that voting group for action on that
matter. If less than a quorum of shares are represented at a meeting, the
holders of a majority of the shares so represented may adjourn the meeting from
time to time. After a quorum has been established at any shareholders' meeting,
the subsequent withdrawal of shareholders, so as to reduce the number of shares
entitled to vote at the meeting below the number required for a quorum, shall
not affect the validity of any action taken at the meeting or any adjournment
thereof. Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
Section 8. VOTING RIGHTS PER SHARE. Each outstanding share, regardless
of class, shall be entitled to vote on each matter submitted to a vote at a
meeting of shareholders, except to the extent that the voting rights of the
shares of any class are limited or denied by or pursuant to the Articles of
Incorporation or the Florida Business Corporation Act.
Section 9. VOTING OF SHARES. A shareholder may vote at any meeting of
shareholders of the Corporation, either in person or by proxy. Shares standing
in the name of another corporation, domestic or foreign, may be voted by the
officer, agent or proxy designated by the bylaws of such corporate shareholder
or, in the absence of any applicable bylaw, by such person or persons as the
board of directors of the corporate shareholder may designate. In the absence of
any such designation, or, in case of conflicting designation by the corporate
shareholder, the chairman of the board, the president, any vice president, the
secretary and the treasurer of the corporate shareholder, in that order, shall
be
-2-
<PAGE>
presumed to be fully authorized to vote such shares. Shares held by an
administrator, executor, guardian, personal representative, or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name or the name of his
nominee. Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by such person without the transfer thereof into his name. If shares stand of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the Corporation is given
notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, then
acts with respect to voting shall have the following effect: (a) if only one
votes, in person or by proxy, his act binds all; (b) if more than one vote, in
person or by proxy, the act of the majority so voting binds all; (c) if more
than one vote, in person or by proxy, but the vote is evenly split on any
particular matter, each faction is entitled to vote the share or shares in
question proportionally; or (d) if the instrument or order so filed shows that
any such tenancy is held in unequal interest, a majority or a vote evenly split
for purposes hereof shall be a majority or a vote evenly split in interest. The
principles of this paragraph shall apply, insofar as possible, to execution of
proxies, waivers, consents, or objections and for the purpose of ascertaining
the presence of a quorum.
Section 10. PROXIES. Any shareholder of the Corporation, other person
entitled to vote on behalf of a shareholder pursuant to law, or attorney-in-fact
for such persons may vote the shareholder's shares in person or by proxy. Any
shareholder of the Corporation may appoint a proxy to vote or otherwise act for
him by signing an appointment form, either personally or by his
attorney-in-fact. An executed telegram or cablegram appearing to have been
transmitted by such person, or a photographic, photostatic, or equivalent
reproduction of an appointment form, shall be deemed a sufficient appointment
form. An appointment of a proxy is effective when received by the Secretary of
the Corporation (the "Secretary") or such other officer or agent which is
authorized to tabulate votes, and shall be valid for up to 11 months, unless a
longer period is expressly provided in the appointment form. The death or
incapacity of the shareholder appointing a proxy does not affect the right of
the Corporation to accept the proxy's authority unless notice of the death or
incapacity is received by the Secretary or other officer or agent authorized to
tabulate votes before the proxy exercises his authority under the appointment.
An appointment of a proxy is revocable by the shareholder unless the appointment
form conspicuously states that it is irrevocable and the appointment is coupled
with an interest.
Section 11. SHAREHOLDER LIST. After fixing a record date for a meeting
of shareholders, the Corporation shall prepare an alphabetical list of the names
of all its shareholders who are entitled to notice of the meeting, arranged by
voting group with the address of, and the number and class and series, if any,
of shares held by each. The shareholders' list must be available for inspection
by any shareholder for a period of ten (10) days prior to the meeting or such
shorter time as exists between the record date and the meeting and continuing
through the meeting at the Corporation's principal office, at a place identified
in the meeting notice in the city where the meeting will be held, or at the
office of the Corporation's transfer agent or registrar. Any shareholder of the
Corporation or his agent or attorney is entitled on written demand to inspect
the shareholders' list (subject to the requirements of law), during regular
business hours and at his expense, during the period it is available for
inspection. The Corporation shall make the shareholders' list available at the
meeting of shareholders, and any shareholder or his agent or attorney is
entitled to inspect the list at any time during the meeting or any adjournment.
The shareholders' list is prima facie evidence of the identity of shareholders
entitled to examine the shareholders' list or to vote at a meeting of
shareholders.
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<PAGE>
Section 12. ACTION WITHOUT MEETING. Any action required or permitted by
law to be taken at a meeting of shareholders may be taken without a meeting or
notice if a consent, or consents, in writing, setting forth the action so taken,
shall be dated and signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all voting groups and shares entitled to vote
thereon were present and voted with respect to the subject matter thereof, and
such consent shall be delivered to the Corporation, within the period required
by Section 607.0704 of the Florida Business Corporation Act, by delivery to its
principal office in the State of Florida, its principal place of business, the
Secretary or another officer or agent of the Corporation having custody of the
book in which proceedings of meetings of shareholders are recorded. Within ten
(10) days after obtaining such authorization by written consent, notice must be
given to those shareholders who have not consented in writing or who are not
entitled to vote on the action, in accordance with the requirements of Section
607.0704 of the Florida Business Corporation Act.
Section 13. FIXING RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purposes, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than seventy
(70) days, and, in case of a meeting of shareholders, not less than ten (10)
days, before the meeting or action requiring such determination of shareholders.
If no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders or the determination of
shareholders entitled to receive payment of a dividend, the date before the day
on which the first notice of the meeting is mailed or the date on which the
resolutions of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof, except where the Board of Directors fixes a
new record date for the adjourned meeting.
Section 14. INSPECTORS AND JUDGES. The Board of Directors in advance of
any meeting may, but need not, appoint one or more inspectors of election or
judges of the vote, as the case may be, to act at the meeting or any adjournment
thereof. If any inspector or inspectors, or judge or judges, are not appointed,
the person presiding at the meeting may, but need not, appoint one or more
inspectors or judges. In case any person who may be appointed as an inspector or
judge fails to appear or act, the vacancy may be filled by the Board of
Directors in advance of the meeting, or at the meeting by the person presiding
thereat. The inspectors or judges, if any, shall determine the number of shares
of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots and consents, hear and determine
all challenges and questions arising in connection with the right to vote, count
and tabulate votes, ballots and consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all shareholders.
On request of the person presiding at the meeting, the inspector or inspectors
or judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them, and execute a certificate of any
fact found by him or them.
Section 15. VOTING FOR DIRECTORS. Unless otherwise provided in the
Articles of Incorporation, directors shall be elected by a plurality of the
votes cast by the shares entitled to vote in the election at a meeting at which
a quorum is present.
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<PAGE>
ARTICLE THREE
DIRECTORS
---------
Section 1. NUMBER; TERM; ELECTION; QUALIFICATION. The number of
directors of the Corporation shall be fixed from time to time, within the limits
specified by the Articles of Incorporation, by resolution of the Board of
Directors. Directors shall be elected in the manner and hold office for the term
as prescribed in the Articles of Incorporation. Directors must be natural
persons who are 18 years of age or older but need not be residents of the State
of Florida, shareholders of the Corporation or citizens of the United States;
provided, however, that at all times at least one (1) director shall be a
resident of the State of Florida and a citizen of the United States.
Section 2. RESIGNATION; VACANCIES; REMOVAL. A director may resign at
any time by giving written notice to the Board of Directors or the Chairman of
the Board. Such resignation shall take effect at the date of receipt of such
notice or at any later time specified therein; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. In the event the notice of resignation specifies a later effective
date, the Board of Directors may fill the pending vacancy (subject to the
provisions of the Corporation's Articles of Incorporation) before the effective
date if they provide that the successor does not take office until the effective
date. Director vacancies shall be filled, and directors may be removed, in the
manner prescribed in the Corporation's Articles of Incorporation.
Section 3. POWERS. The business and affairs of the Corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these Bylaws directed or required to be
exercised and done by the shareholders.
Section 4. PLACE OF MEETINGS. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of Florida.
Section 5. ANNUAL MEETINGS. Unless scheduled for another time by the
Board of Directors, the first meeting of each newly elected Board of Directors
shall be held, without call or notice, immediately following each annual meeting
of shareholders.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may also be held without notice at such time and at such place as shall from
time to time be determined by the Board of Directors.
Section 7. SPECIAL MEETINGS AND NOTICE. Special meetings of the Board
of Directors may be called by the President or Chairman of the Board and shall
be called by the Secretary on the written request of any two directors. At least
forty-eight (48) hours' prior written notice of the date, time and place of
special meetings of the Board of Directors shall be given to each director.
Except as required by law, neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting. Notices to
directors shall be in writing and delivered to the directors at their addresses
appearing on the books of the Corporation by personal delivery, mail or other
legally sufficient means. Notice by mail shall be deemed to be given at the time
when the same shall be received. Notice to directors may also be given by
telegram, teletype or other form of electronic communication. Whenever any
notice is required to be given to any director, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before, during
or after the meeting, shall constitute an effective waiver of such notice.
-5-
<PAGE>
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and a waiver of any and all objections to the place of the meeting,
the time of the meeting and the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting or promptly upon
arrival at the meeting, any objection to the transaction of business because the
meeting is not lawfully called or convened.
Section 8. QUORUM AND REQUIRED VOTE. A majority of the prescribed
number of directors determined as provided in the Articles of Incorporation
shall constitute a quorum for the transaction of business and the act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors, unless a greater number is required
by the Articles of Incorporation. Whenever, for any reason, a vacancy occurs in
the Board of Directors, a quorum shall consist of a majority of the remaining
directors until the vacancy has been filled. If a quorum shall not be present at
any meeting of the Board of Directors, a majority of the directors present
thereat may adjourn the meeting to another time and place, without notice other
than announcement at the time of adjournment. At such adjourned meeting at which
a quorum shall be present, any business may be transacted that might have been
transacted at the meeting as originally notified and called.
Section 9. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the Board of Directors or committee thereof may be
taken without a meeting if a consent in writing, setting forth the action taken,
is signed by all of the members of the Board of Directors or the committee, as
the case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting. Action taken under this Section 9 is effective when
the last director signs the consent, unless the consent specifies a different
effective date. A consent signed under this Section 9 shall have the effect of a
meeting vote and may be described as such in any document.
Section 10. CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT
MEETINGS. Directors and committee members may participate in and hold a meeting
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in such a meeting shall constitute presence in person at the
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground the
meeting is not lawfully called or convened.
Section 11. COMMITTEES. The Board of Directors, by resolution adopted
by a majority of the whole Board of Directors, may designate from among its
members an executive committee and one or more other committees, each of which,
to the extent provided in such resolution, shall have and may exercise all of
the authority of the Board of Directors in the business and affairs of the
Corporation except where the action of the full Board of Directors is required
by statute. Each committee must have two or more members who serve at the
pleasure of the Board of Directors. The Board of Directors, by resolution
adopted in accordance with this Article Three, may designate one or more
directors as alternate members of any committee, who may act in the place and
stead of any absent member or members at any meeting of such committee.
Vacancies in the membership of a committee may be filled only by the Board of
Directors at a regular or special meeting of the Board of Directors. The
executive committee shall keep regular minutes of its proceedings and report the
same to the Board of Directors when required. The designation of any such
committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed
upon it or him by law.
Section 12. COMPENSATION OF DIRECTORS. The directors may be paid their
expenses, if any, of attendance at
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<PAGE>
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings. Directors may receive such other compensation as may be
approved by the Board of Directors.
ARTICLE FOUR
OFFICERS
--------
Section 1. POSITIONS. The officers of the Corporation shall consist of
a Chairman of the Board, a President, one or more Vice Presidents (any one or
more of whom may be given the additional designation of rank of Executive Vice
President or Senior Vice President), a Secretary, a Chief Financial Officer and
a Treasurer. Any two or more offices may be held by the same person. Officers
other than the Chairman of the Board need not be members of the Board of
Directors. The Chairman of the Board must be a member of the Board of Directors.
Section 2. ELECTION OF SPECIFIED OFFICERS BY BOARD. The Board of
Directors at its first meeting after each annual meeting of shareholders shall
elect a Chairman of the Board, President, one or more Vice Presidents (including
any Senior or Executive Vice Presidents), a Secretary, a Chief Financial Officer
and a Treasurer.
Section 3. ELECTION OR APPOINTMENT OF OTHER OFFICERS. Such other
officers and assistant officers and agents as may be deemed necessary may be
elected or appointed by the Board of Directors, or, unless otherwise specified
herein, appointed by the Chairman of the Board. The Board of Directors shall be
advised of appointments by the Chairman of the Board at or before the next
scheduled Board of Directors meeting.
Section 4. COMPENSATION. The salaries, bonuses and other compensation
of the Chairman of the Board and all officers of the Corporation to be elected
by the Board of Directors pursuant to Section 2 of this Article Four shall be
fixed from time to time by the Board of Directors or pursuant to its direction.
The salaries of all other elected or appointed officers of the Corporation shall
be fixed from time to time by the Chairman of the Board or pursuant to his
direction.
Section 5. TERM; RESIGNATION; REMOVAL; VACANCIES. The officers of the
Corporation shall hold office until their successors are chosen and qualified.
Any officer or agent elected or appointed by the Board of Directors or the
Chairman of the Board may be removed, with or without cause, by the Board of
Directors, but such removal shall be without prejudice to the contract rights,
if any, of the person so removed. Any officer or agent appointed by the Chairman
of the Board pursuant to Section 3 of this Article Four may also be removed from
such office or position by the Board of Directors or the Chairman of the Board,
with or without cause. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise shall be filled by the Board of
Directors, or, in the case of an officer appointed by the Chairman of the Board,
by the Chairman of the Board or the Board of Directors. Any officer of the
Corporation may resign from his respective office or position by delivering
notice to the Corporation. Such resignation shall be effective when delivered
unless the notice specifies a later effective date. If a resignation is made
effective at a later date and the Corporation accepts the future effective date,
the Board of Directors may fill the pending vacancy before the effective date if
the Board provides that the successor does not take office until such effective
date.
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<PAGE>
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be
the Chief Executive Officer of the Corporation. Subject to the control of the
Board of Directors, the Chairman of the Board shall have general and active
management of the business of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. The Chairman of
the Board shall preside at all meetings of the shareholders and the Board of
Directors. The Chairman of the Board shall also serve as the chairman of any
executive committee.
Section 7. PRESIDENT. The President shall be the Chief Operating
Officer of the Corporation. In the absence of the Chairman of the Board or in
the event the Board of Directors shall not have designated a Chairman of the
Board, the President shall preside at meetings of the shareholders and the Board
of Directors. The President shall have such powers and perform such duties as
may be prescribed by the Board of Directors or the Chairman of the Board. The
President shall also serve as the vice-chairman of any executive committee.
Section 8. VICE PRESIDENTS. The Vice Presidents, in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President. They shall perform such other duties and have such
other powers as the Board of Directors or Chairman of the Board shall prescribe
or as the President may from time to time delegate. Executive Vice Presidents
shall be senior to Senior Vice Presidents, and Senior Vice Presidents shall be
senior to all other Vice Presidents.
Section 9. SECRETARY. The Secretary shall attend all meetings of the
shareholders and all meetings of the Board of Directors and record all the
proceedings of the meetings of the shareholders and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the Board of
Directors and shall keep in safe custody the seal of the Corporation and, when
authorized by the Board of Directors, affix the same to any instrument requiring
it. He shall perform such other duties as may be prescribed by the Board of
Directors, the Chairman of the Board or the President.
Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
be responsible for maintaining the financial integrity of the Corporation, shall
prepare the financial plans for the Corporation and shall monitor the financial
performance of the Corporation and its subsidiaries, as well as performing such
other duties as may be prescribed by the Board of Directors, the Chairman of the
Board or the President.
Section 11. TREASURER. The Treasurer shall have the custody of
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Chairman of the Board and the Board of Directors at its regular
meetings or when the Board of Directors so requires an account of all his
transactions as Treasurer and of the financial condition of the Corporation. The
Treasurer shall perform such other duties as may be prescribed by the Board of
Directors, the Chairman of the Board or the President.
Section 12. OTHER OFFICERS; EMPLOYEES AND AGENTS. Each and every other
officer, employee and agent of the Corporation shall possess, and may exercise,
such power and authority, and shall perform such duties, as may from time to
time be assigned to him by the Board of Directors, the officer
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<PAGE>
so appointing him or such officer or officers who may from time to time
be designated by the Board of Directors to exercise such supervisory authority.
ARTICLE FIVE
CERTIFICATES FOR SHARES
-----------------------
Section 1. ISSUE OF CERTIFICATES. The shares of the Corporation shall
be represented by certificates, provided that the Board of Directors of the
Corporation may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates (and upon request every holder of uncertificated shares) shall
be entitled to have a certificate signed by or in the name of the Corporation by
the Chairman of the Board or a Vice Chairman of the Board, or the President or
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, representing the number of shares
registered in certificate form.
Section 2. LEGENDS FOR PREFERENCES AND RESTRICTIONS ON TRANSFER. The
designations, relative rights, preferences and limitations applicable to each
class of shares and the variations in rights, preferences and limitations
determined for each series within a class (and the authority of the Board of
Directors to determine variations for future series) shall be summarized on the
front or back of each certificate. Alternatively, each certificate may state
conspicuously on its front or back that the Corporation will furnish the
shareholder a full statement of this information on request and without charge.
Every certificate representing shares that are restricted as to the sale,
disposition, or transfer of such shares shall also indicate that such shares are
restricted as to transfer, and there shall be set forth or fairly summarized
upon the certificate, or the certificate shall indicate that the Corporation
will furnish to any shareholder upon request and without charge, a full
statement of such restrictions. If the Corporation issues any shares that are
not registered under the Securities Act of 1933, as amended, or not registered
or qualified under the applicable state securities laws, the transfer of any
such shares shall be restricted substantially in accordance with the following
legend:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1)
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND ANY
APPLICABLE STATE LAW, OR (2) AT HOLDER'S EXPENSE, AN OPINION
(SATISFACTORY TO THE CORPORATION) OF COUNSEL (SATISFACTORY TO
THE CORPORATION) THAT REGISTRATION IS NOT REQUIRED"
Section 3. FACSIMILE SIGNATURES. Any and all signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation
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<PAGE>
alleged to have been lost or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost or
destroyed. When authorizing such issue of a new certificate or certificates, the
Corporation may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost or destroyed.
Section 5. TRANSFER OF SHARES. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. REGISTERED SHAREHOLDERS. The Corporation shall be entitled
to recognize the exclusive rights of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of the State
of Florida.
Section 7. REDEMPTION OF CONTROL SHARES. As provided by the Florida
Business Corporation Act, if a person acquiring control shares of the
Corporation does not file an acquiring person statement with the Corporation,
the Corporation may, at the discretion of the Board of Directors, redeem the
control shares at the fair value thereof at any time during the 60-day period
after the last acquisition of such control shares. If a person acquiring control
shares of the Corporation files an acquiring person statement with the
Corporation, the control shares may be redeemed by the Corporation, at the
discretion of the Board of Directors, only if such shares are not accorded full
voting rights by the shareholders as provided by law.
ARTICLE SIX
GENERAL PROVISIONS
------------------
Section 1. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
cash, property, stock (including its own shares) or otherwise pursuant to law
and subject to the provisions of the Articles of Incorporation.
Section 2. RESERVES. The Board of Directors may by resolution create a
reserve or reserves out of earned surplus for any proper purpose or purposes,
and may abolish any such reserve in the same manner.
Section 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. FISCAL YEAR. Effective as of December 31, 1996, the fiscal
year of the Corporation shall end on December 31 of each year, unless otherwise
fixed by resolution of the Board of Directors.
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<PAGE>
Section 5. SEAL. The corporate seal shall have inscribed thereon the
name and state of incorporation of the Corporation. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
Section 6. GENDER. All words used in these Bylaws in the masculine
gender shall extend to and shall include the feminine and neuter genders.
ARTICLE SEVEN
AMENDMENT OF BYLAWS
-------------------
These Bylaws may be altered, amended or repealed or new Bylaws may be
adopted at any meeting of the Board of Directors at which a quorum is present,
by the affirmative vote of a majority of the directors present at such meeting.
* * *
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H.T.E., INC.
1997 EXECUTIVE INCENTIVE COMPENSATION PLAN
<PAGE>
<TABLE>
<CAPTION>
H.T.E., INC.
1997 EXECUTIVE INCENTIVE COMPENSATION PLAN
<C> <C>
1. Purpose..........................................................................1
2. Definitions......................................................................1
3. Administration...................................................................4
(a) Authority of the Committee..............................................4
(b) Manner of Exercise of Committee Authority...............................5
(c) Limitation of Liability.................................................5
4. Stock Subject to Plan............................................................5
(a) Limitation on Overall Number of Shares Subject to Awards................5
(b) Application of Limitations..............................................6
5. Eligibility; Per-Person Award Limitations........................................6
6. Specific Terms of Awards.........................................................6
(a) General.................................................................6
(b) Options.................................................................6
(c) Stock Appreciation Rights...............................................7
(d) Restricted Stock........................................................8
(e) Deferred Stock..........................................................9
(f) Bonus Stock and Awards in Lieu of Obligations..........................10
(g) Dividend Equivalents...................................................10
(h) Other Stock-Based Awards...............................................10
7. Certain Provisions Applicable to Awards.........................................11
(a) Stand-Alone, Additional, Tandem, and Substitute Awards.................11
(b) Term of Awards.........................................................11
(i)
<PAGE>
(c) Form and Timing of Payment Under Awards; Deferrals.....................11
(d) Exemptions from Section 16(b) Liability................................12
8. Performance and Annual Incentive Awards.........................................12
(a) Performance Conditions.................................................12
(b) Performance Awards Granted to Designated Covered Employees.............12
(c) Annual Incentive Awards Granted to Designated Covered Employees........14
(d) Written Determinations.................................................15
(e) Status of Section 8(b) and Section 8(c) Awards
Under Code Section 162(M)............................................15
9. Change in Control...............................................................15
(a) Effect of "Change in Control.".........................................15
(b) Definition of "Change in Control.......................................16
(c) Definition of "Change in Control Price."...............................18
10. General Provisions..............................................................18
(A) Compliance With Legal and Other Requirements...........................18
(b) Limits on Transferability; Beneficiaries...............................18
(c) Adjustments............................................................19
(d) Taxes..................................................................19
(e) Changes to the Plan and Awards.........................................20
(f) Limitation on Rights Conferred Under Plan..............................20
(g) Unfunded Status of Awards; Creation of Trusts..........................20
(h) Nonexclusivity of the Plan.............................................21
(i) Payments in the Event of Forfeitures; Fractional Shares................21
(j) Governing Law..........................................................21
(k) Plan Effective Date and Stockholder Approval; Termination of Plan......21
</TABLE>
(ii)
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H.T.E., INC.
1997 EXECUTIVE INCENTIVE COMPENSATION PLAN
1. PURPOSE. The purpose of this 1997 Executive Incentive Compensation
Plan (the "Plan") is to assist H.T.E., Inc. (the "Company") and its subsidiaries
in attracting, motivating, retaining and rewarding high-quality executives and
other employees, officers, Directors and independent contractors enabling such
persons to acquire or increase a proprietary interest in the Company in order to
strengthen the mutuality of interests between such persons and the Company's
stockholders, and providing such persons with annual and long term performance
incentives to expend their maximum efforts in the creation of shareholder value.
The Plan is also intended to qualify certain compensation awarded under the Plan
for tax deductibility under Section 162(m) of the Code (as hereafter defined) to
the extent deemed appropriate by the Committee (or any successor committee) of
the Board of Directors of the Company.
2. DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof.
(a) "Annual Incentive Award" means a conditional right granted
to a Participant under Section 8(c) hereof to receive a cash payment, Stock or
other Award, unless otherwise determined by the Committee, after the end of a
specified fiscal year.
(b) "Award" means any Option, SAR (including Limited SAR),
Restricted Stock, Deferred Stock, Stock granted as a bonus or in lieu of another
award, Dividend Equivalent, Other Stock-Based Award, Performance Award or Annual
Incentive Award, together with any other right or interest granted to a
Participant under the Plan.
(c) "Beneficiary" means the person, persons, trust or trusts
which have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards or
other rights are transferred if and to the extent permitted under Section 10(b)
hereof. If, upon a Participant's death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary means the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(d) "Beneficial Owner", "Beneficially Owning" and "Beneficial
Ownership" shall have the meanings ascribed to such terms in Rule 13d-3 under
the Exchange Act and any successor to such Rule.
(e) "Board" means the Company's Board of Directors.
(f) "Change in Control" means Change in Control as defined
with related terms in Section 9 of the Plan.
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(g) "Change in Control Price" means the amount calculated in
accordance with Section 9(c) of the Plan.
(h) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, including regulations thereunder and successor provisions and
regulations thereto.
(i) "Committee" means a committee designated by the Board to
administer the Plan; provided, however, that the Committee shall consist solely
of at least two directors, each of whom shall be (i) a "non-employee director"
within the meaning of Rule 16b-3 under the Exchange Act, unless administration
of the Plan by "non-employee directors" is not then required in order for
exemptions under Rule 16b-3 to apply to transactions under the Plan, and (ii) an
"outside director" as defined under Section 162(m) of the Code, unless
administration of the Plan by "outside directors" is not then required in order
to qualify for tax deductibility under Section 162(m) of the Code.
(j) "Corporate Transaction" means a transaction as defined in
Section 9(b) of the Plan.
(k) "Covered Employee" means an Eligible Person who is a
Covered Employee as specified in Section 8(e) of the Plan.
(l) "Deferred Stock" means a right, granted to a Participant
under Section 6(e) hereof, to receive Stock, cash or a combination thereof at
the end of a specified deferral period.
(m) "Director" means a member of the Board.
(n) "Disability" means a permanent and total disability
(within the meaning of Section 22(e) of the Code), as determined by a medical
doctor satisfactory to the Committee.
(o) "Dividend Equivalent" means a right, granted to a
Participant under Section 6(g) hereof, to receive cash, Stock, other Awards or
other property equal in value to dividends paid with respect to a specified
number of shares of Stock, or other periodic payments.
(p) "Effective Date" means the effective date of the Plan,
which shall be January 29, 1997.
(q) "Eligible Person" means each executive officer of the
Company (as defined under the Exchange Act) and other officers, Directors and
employees of the Company or of any subsidiary, and independent contractors with
the Company or any subsidiary. The foregoing notwithstanding, no independent
contractor shall be an Eligible Person for purposes of receiving any Awards
other than Options under Section 6(b) of the Plan. An employee on leave of
absence may be considered as still in the
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<PAGE>
employ of the Company or a subsidiary for purposes of eligibility for
participation in the Plan.
(r) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, including rules thereunder and successor
provisions and rules thereto.
(s) "Executive Officer" means an executive officer of the
Company as defined under the Exchange Act.
(t) "Fair Market Value" means the fair market value of Stock,
Awards or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee, the
Fair Market Value of Stock as of any given date shall be the closing sale price
per share reported on a consolidated basis for stock listed on the principal
stock exchange or market on which Stock is traded on the date as of which such
value is being determined or, if there is no sale on that date, then on the last
previous day on which a sale was reported.
(u) "Incentive Stock Option" or "ISO" means any Option
intended to be designated as an incentive stock option within the meaning of
Section 422 of the Code or any successor provision thereto.
(v) "Incumbent Board" means the Board as defined in Section
9(b) of the Plan.
(w) "Limited SAR" means a right granted to a Participant under
Section 6(c) hereof.
(x) "Option" means a right granted to a Participant under
Section 6(b) hereof, to purchase Stock or other Awards at a specified price
during specified time periods.
(y) "Other Stock-Based Awards" means Awards granted to a
Participant under Section 6(h) hereof.
(z) "Parent Corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company, if each
of the corporations in the chain (other than the Company) owns stock possessing
50% or more of the combined voting power of all classes of stock in one of the
other corporations in the chain.
(aa) "Participant" means a person who has been granted an
Award under the Plan which remains outstanding, including a person who
is no longer an Eligible Person.
(bb) "Performance Award" means a right, granted to a Eligible
Person under Section 8 hereof, to receive Awards based upon performance
criteria specified by the Committee.
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<PAGE>
(cc) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and
14(d) thereof, and shall include a "group" as defined in Section 13(d)
thereof.
(dd) "Restricted Stock" means Stock granted to a Participant
under Section 6(d) hereof, that is subject to certain restrictions and
to a risk of forfeiture.
(ee) "Rule 16b-3" and "Rule 16a-1(c)(3)" means Rule 16b-3 and
Rule 16a-1(c)(3), as from time to time in effect and applicable to the
Plan and Participants, promulgated by the Securities and Exchange
Commission under Section 16 of the Exchange Act
(ff) "Stock" means the Company's Common Stock, and such other
securities as may be substituted (or resubstituted) for Stock pursuant
to Section 10(c) hereof.
(gg) "Stock Appreciation Rights" or "SAR" means a right
granted to a Participant under Section 6(c) hereof.
(hh) "Subsidiary" means any corporation or other entity in
which the Company has a direct or indirect ownership interest of 50% or
more of the total combined voting power of the then outstanding
securities or interests of such corporation or other entity entitled to
vote generally in the election of directors or in which the Company has
the right to receive 50% or more of the distribution of profits or 50%
or more of the assets on liquidation or dissolution.
3. ADMINISTRATION
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee. The Committee shall have full and final authority, in each case
subject to and consistent with the provisions of the Plan, to select Eligible
Persons to become Participants, grant Awards, determine the type, number and
other terms and conditions of, and all other matters relating to, Awards,
prescribe Award agreements (which need not be identical for each Participant)
and rules and regulations for the administration of the Plan, construe and
interpret the Plan and Award agreements and correct defects, supply omissions or
reconcile inconsistencies therein, and to make all other decisions and
determinations as the Committee may deem necessary or advisable for the
administration of the Plan. In exercising any discretion granted to the
Committee under the Plan or pursuant to any Award, the Committee shall not be
required to follow past practices, act in a manner consistent with past
practices, or treat any Eligible Person in a manner consistent with the
treatment of other Eligible Persons.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. The Committee shall
exercise sole and exclusive discretion on any matter relating to a Participant
then subject to Section 16 of the Exchange Act with respect to the Company to
the extent necessary in order that transactions by such Participant shall be
exempt under Rule 16b-3 under the Exchange Act. Any action of the Committee
shall be final, conclusive and binding on all persons, including the Company,
its subsidiaries, Participants, Beneficiaries, transferees under Section 10(b)
hereof or
4
<PAGE>
other persons claiming rights from or through a Participant, and stockholders.
The express grant of any specific power to the Committee, and the taking of any
action by the Committee, shall not be construed as limiting any power or
authority of the Committee. The Committee may delegate to officers or managers
of the Company or any subsidiary, or committees thereof, the authority, subject
to such terms as the Committee shall determine, (i) to perform administrative
functions, (ii) with respect to Participants not subject to Section 16 of the
Exchange Act, to perform such other functions as the Committee may determine,
and (iii) with respect to Participants subject to Section 16, to perform such
other functions of the Committee as the Committee may determine to the extent
performance of such functions will not result in the loss of an exemption under
Rule 16b-3 otherwise available for transactions by such persons, in each case to
the extent permitted under applicable law and subject to the requirements set
forth in Section 8(d). The Committee may appoint agents to assist it in
administering the Plan.
(c) LIMITATION OF LIABILITY. The Committee and each member thereof
shall be entitled to, in good faith, rely or act upon any report or other
information furnished to him or her by any executive officer, other officer or
employee of the Company or a subsidiary, the Company's independent auditors,
consultants or any other agents assisting in the administration of the Plan.
Members of the Committee and any officer or employee of the Company or a
subsidiary acting at the direction or on behalf of the Committee shall not be
personally liable for any action or determination taken or made in good faith
with respect to the Plan, and shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action or
determination.
4. STOCK SUBJECT TO PLAN.
(a) LIMITATION ON OVERALL NUMBER OF SHARES SUBJECT TO Awards. Subject
to adjustment as provided in Section 10(c) hereof, the total number of shares of
Stock reserved and available for delivery in connection with Awards under the
Plan shall be the sum of (i) ______, plus (ii) the number of shares with respect
to Awards previously granted under the Plan that terminate without being
exercised, expire, are forfeited or canceled, and the number of shares of Stock
that are surrendered in payment of any Awards or any tax withholding with regard
thereto. Any shares of Stock delivered under the Plan may consist, in whole or
in part, of authorized and unissued shares or treasury shares. Subject to
adjustment as provided in Section 10(c) hereof, in no event shall the aggregate
number of shares of Stock which may be issued pursuant to ISOs exceed ______
shares.
(b) APPLICATION OF LIMITATIONS. The limitation contained in Section
4(a) shall apply not only to Awards that are settleable by the delivery of
shares of Stock but also to Awards relating to shares of Stock but settleable
only in cash (such as cash-only SARs). The Committee may adopt reasonable
counting procedures to ensure appropriate counting, avoid double counting (as,
for example, in the case of tandem or substitute awards) and make adjustments if
the number of shares of Stock actually delivered differs from the number of
shares previously counted in connection with an Award.
5
<PAGE>
5. ELIGIBILITY; PER-PERSON AWARD LIMITATIONS5.. Awards may be granted
under the Plan only to Eligible Persons. In each fiscal year during any part of
which the Plan is in effect, an Eligible Person may not be granted Awards
relating to more than 2,500 shares of Stock, subject to adjustment as provided
in Section 10(c), under each of Sections 6(b), 6(c), 6(d), 6(e), 6(f), 6(g),
6(h), 8(b) and 8(c). In addition, the maximum amount that may be earned as an
Annual Incentive Award or other cash Award in any fiscal year by any one
Participant shall be $1,000,000, and the maximum amount that may be earned as a
Performance Award or other cash Award in respect of a performance period by any
one Participant shall be $2,000,000.
6. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter (subject to Section
10(e)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment by the
Participant and terms permitting a Participant to make elections relating to his
or her Award. The Committee shall retain full power and discretion to
accelerate, waive or modify, at any time, any term or condition of an Award that
is not mandatory under the Plan. Except in cases in which the Committee is
authorized to require other forms of consideration under the Plan, or to the
extent other forms of consideration must be paid to satisfy the requirements of
Florida law, no consideration other than services may be required for the grant
(but not the exercise) of any Award.
(b) OPTIONS. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee,
provided that such exercise price shall not, in the case of Incentive
Stock Options, be less than 100% of the Fair Market Value of the Stock
on the date of grant of the Option and shall not, in any event, be less
than the par value of a share of Stock on the date of grant of such
Option. If an employee owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more
than 10% of the combined voting power of all classes of stock of the
Company or any Parent Corporation and an Incentive Stock Option is
granted to such employee, the option price of such Incentive Stock
Option (to the extent required by the Code at the time of grant) shall
be no less than 110% of the Fair Market Value of the Stock on the date
such Incentive Stock Option is granted.
(ii) TIME AND METHOD OF EXERCISE. The Committee shall
determine the time or times at which or the circumstances under which
an Option may be exercised in whole or in part (including based on
achievement of performance goals and/or future service requirements),
the time or times at which Options shall cease to be or become
exercisable following termination of employment or upon
6
<PAGE>
other conditions, the methods by which such exercise price may be paid
or deemed to be paid (including in the discretion of the Committee a
cashless exercise procedure), the form of such payment, including,
without limitation, cash, Stock, other Awards or awards granted under
other plans of the Company or any subsidiary, or other property
(including notes or other contractual obligations of Participants to
make payment on a deferred basis), and the methods by or forms in which
Stock will be delivered or deemed to be delivered to Participants.
(iii) ISOS. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Section 422 of the Code.
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to ISOs (including any SAR in tandem therewith) shall be
interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify either the
Plan or any ISO under Section 422 of the Code, unless the Participant
has first requested the change that will result in such
disqualification. Thus, if and to the extent required to comply with
Section 422 of the Code, Options granted as Incentive Stock Options
shall be subject to the following special terms and conditions:
(A) the Option shall not be exercisable more than ten
years after the date such Incentive Stock Option is granted; provided,
however, that if a Participant owns or is deemed to own (by reason of
the attribution rules of Section 424(d) of the Code) more than 10% of
the combined voting power of all classes of stock of the Company or any
Parent Corporation and the Incentive Stock Option is granted to such
Participant, the term of the Incentive Stock Option shall be for no
more than five years from the date of grant; and
(B) The aggregate Fair Market Value (determined as of
the date the Incentive Stock Option is granted) of the shares of stock
with respect to which Incentive Stock Options granted under the Plan
and all other option plans of the Company or its Parent Corporation
during any calendar year exercisable for the first time by the
Participant during any calendar year shall not exceed $100,000.
(c) STOCK APPRECIATION RIGHTS. The Committee is authorized to grant
SAR's to Participants on the following terms and conditions:
(i) RIGHT TO PAYMENT. A SAR shall confer on the Participant to
whom it is granted a right to receive, upon exercise thereof, the
excess of (A) the Fair Market Value of one share of stock on the date
of exercise (or, in the case of a "Limited SAR", the Fair Market Value
determined by reference to the Change in Control Price, as defined
under Section 9(c) hereof), over (B) the grant price of the SAR as
determined by the Committee. The grant price of an SAR shall not be
less than the Fair Market Value of a share of Stock on the date of
grant except as provided under Section 7(a) hereof.
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<PAGE>
(ii) OTHER TERMS. The Committee shall determine at the date of
grant or thereafter, the time or times at which and the circumstances
under which a SAR may be exercised in whole or in part (including based
on achievement of performance goals and/or future service
requirements), the time or times at which SARs shall cease to be or
become exercisable following termination of employment or upon other
conditions, the method of exercise, method of settlement, form of
consideration payable in settlement, method by or forms in which Stock
will be delivered or deemed to be delivered to Participants, whether or
not a SAR shall be in tandem or in combination with any other Award,
and any other terms and conditions of any SAR. Limited SARs that may
only be exercised in connection with a Change in Control or other event
as specified by the Committee may be granted on such terms, not
inconsistent with this Section 6(c), as the Committee may determine.
SARs and Limited SARs may be either freestanding or in tandem with
other Awards.
(d) RESTRICTED STOCK. The Committee is authorized to grant
Restricted Stock to Participants on the following terms and conditions:
(i) GRANT AND RESTRICTIONS. Restricted Stock shall be subject
to such restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, which restrictions
may lapse separately or in combination at such times, under such
circumstances (including based on achievement of performance goals
and/or future service requirements), in such installments or otherwise,
as the Committee may determine at the date of grant or thereafter.
Except to the extent restricted under the terms of the Plan and any
Award agreement relating to the Restricted Stock, a Participant granted
Restricted Stock shall have all of the rights of a stockholder,
including the right to vote the Restricted Stock and the right to
receive dividends thereon (subject to any mandatory reinvestment or
other requirement imposed by the Committee). During the restricted
period applicable to the Restricted Stock, subject to Section 10(b)
below, the Restricted Stock may not be sold, transferred, pledged,
hypothecated, margined or otherwise encumbered by the Participant.
(ii) FORFEITURE. Except as otherwise determined by the
Committee at the time of the Award, upon termination of a Participant's
employment during the applicable restriction period, the Participant's
Restricted Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company; provided that the Committee
may provide, by rule or regulation or in any Award agreement, or may
determine in any individual case, that restrictions or forfeiture
conditions relating to Restricted Stock shall be waived in whole or in
part in the event of terminations resulting from specified causes, and
the Committee may in other cases waive in whole or in part the
forfeiture of Restricted Stock, and the Committee may in other cases
waive in whole or in part the forfeiture of Restricted Stock.
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<PAGE>
(iii) CERTIFICATES FOR STOCK. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are registered
in the name of the Participant, the Committee may require that such
certificates bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Restricted Stock, that
the Company retain physical possession of the certificates, and that
the Participant deliver a stock power to the Company, endorsed in
blank, relating to the Restricted Stock.
(iv) DIVIDENDS AND SPLITS. As a condition to the grant of an
Award of Restricted Stock, the Committee may require that any cash
dividends paid on a share of Restricted Stock be automatically
reinvested in additional shares of Restricted Stock or applied to the
purchase of additional Awards under the Plan. Unless otherwise
determined by the Committee, Stock distributed in connection with a
Stock split or Stock dividend, and other property distributed as a
dividend, shall be subject to restrictions and a risk of forfeiture to
the same extent as the Restricted Stock with respect to which such
Stock or other property has been distributed.
(e) DEFERRED STOCK. The Committee is authorized to grant Deferred Stock
to Participants, which are rights to receive Stock, cash, or a combination
thereof at the end of a specified deferral period, subject to the following
terms and conditions:
(i) AWARD AND RESTRICTIONS. Satisfaction of an Award of
Deferred Stock shall occur upon expiration of the deferral period
specified for such Deferred Stock by the Committee (or, if permitted by
the Committee, as elected by the Participant). In addition, Deferred
Stock shall be subject to such restrictions (which may include a risk
of forfeiture) as the Committee may impose, if any, which restrictions
may lapse at the expiration of the deferral period or at earlier
specified times (including based on achievement of performance goals
and/or future service requirements), separately or in combination, in
installments or otherwise, as the Committee may determine. Deferred
Stock may be satisfied by delivery of Stock, cash equal to the Fair
Market Value of the specified number of shares of Stock covered by the
Deferred Stock, or a combination thereof, as determined by the
Committee at the date of grant or thereafter. Prior to satisfaction of
an Award of Deferred Stock, an Award of Deferred Stock carries no
voting or dividend or other rights associated with share ownership.
(ii) FORFEITURE. Except as otherwise determined by the
Committee, upon termination of a Participant's employment during the
applicable deferral period thereof to which forfeiture conditions apply
(as provided in the Award agreement evidencing the Deferred Stock), the
Participant's Deferred Stock that is at that time subject to deferral
(other than a deferral at the election of the Participant) shall be
forfeited; provided that the Committee may provide, by rule
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<PAGE>
or regulation or in any Award agreement, or may determine in any
individual case, that restrictions or forfeiture conditions relating to
Deferred Stock shall be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of Deferred Stock.
(iii) DIVIDEND EQUIVALENTS. Unless otherwise determined by the
Committee at date of grant, Dividend Equivalents on the specified
number of shares of Stock covered by an Award of Deferred Stock shall
be either (A) paid with respect to such Deferred Stock at the dividend
payment date in cash or in shares of unrestricted Stock having a Fair
Market Value equal to the amount of such dividends, or (B) deferred
with respect to such Deferred Stock and the amount or value thereof
automatically deemed reinvested in additional Deferred Stock, other
Awards or other investment vehicles, as the Committee shall determine
or permit the Participant to elect.
(f) BONUS STOCK AND AWARDS IN LIEU OF Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of Company obligations to pay cash or deliver other property under the Plan or
under other plans or compensatory arrangements, provided that, in the case of
Participants subject to Section 16 of the Exchange Act, the amount of such
grants remains within the discretion of the Committee to the extent necessary to
ensure that acquisitions of Stock or other Awards are exempt from liability
under Section 16(b) of the Exchange Act. Stock or Awards granted hereunder shall
be subject to such other terms as shall be determined by the Committee.
(g) DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend
Equivalents to a Participant entitling the Participant to receive cash, Stock,
other Awards, or other property equal in value to dividends paid with respect to
a specified number of shares of Stock, or other periodic payments. Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award. The Committee may provide that Dividend Equivalents shall be paid
or distributed when accrued or shall be deemed to have been reinvested in
additional Stock, Awards, or other investment vehicles, and subject to such
restrictions on transferability and risks of forfeiture, as the Committee may
specify.
(h) OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock, as deemed by the Committee to
be consistent with the purposes of the Plan, including, without limitation,
convertible or exchangeable debt securities, other rights convertible or
exchangeable into Stock, purchase rights for Stock, Awards with value and
payment contingent upon performance of the Company or any other factors
designated by the Committee, and Awards valued by reference to the book value of
Stock or the value of securities of or the performance of specified subsidiaries
or business units. The Committee shall determine the terms and conditions of
such Awards. Stock delivered pursuant to an Award in the nature of a purchase
right granted under this Section 6(h) shall be purchased for such consideration,
paid
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for at such times, by such methods, and in such forms, including, without
limitation, cash, Stock, other Awards or other property, as the Committee shall
determine. Cash awards, as an element of or supplement to any other Award under
the Plan, may also be granted pursuant to this Section 6(h).
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE Awards.
Awards granted under the Plan may, in the discretion of the Committee, be
granted either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of the
Company, any subsidiary, or any business entity to be acquired by the Company or
a subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Such additional, tandem, and substitute or exchange
Awards may be granted at any time. If an Award is granted in substitution or
exchange for another Award or award, the Committee shall require the surrender
of such other Award or award in consideration for the grant of the new Award. In
addition, Awards may be granted in lieu of cash compensation, including in lieu
of cash amounts payable under other plans of the Company or any subsidiary, in
which the value of Stock subject to the Award is equivalent in value to the cash
compensation (for example, Deferred Stock or Restricted Stock), or in which the
exercise price, grant price or purchase price of the Award in the nature of a
right that may be exercised is equal to the Fair Market Value of the underlying
Stock minus the value of the cash compensation surrendered (for example, Options
granted with an exercise price "discounted" by the amount of the cash
compensation surrendered).
(b) TERM OF AWARDS. The term of each Award shall be for such
period as may be determined by the Committee; provided that in no event shall
the term of any Option or SAR exceed a period of ten years (or such shorter term
as may be required in respect of an ISO under Section 422 of the Code).
(c) FORM AND TIMING OF PAYMENT UNDER AWARDS; Deferrals.
Subject to the terms of the Plan and any applicable Award agreement, payments to
be made by the Company or a subsidiary upon the exercise of an Option or other
Award or settlement of an Award may be made in such forms as the Committee shall
determine, including, without limitation, cash, Stock, other Awards or other
property, and may be made in a single payment or transfer, in installments, or
on a deferred basis. The settlement of any Award may be accelerated, and cash
paid in lieu of Stock in connection with such settlement, in the discretion of
the Committee or upon occurrence of one or more specified events (in addition to
a Change in Control). Installment or deferred payments may be required by the
Committee (subject to Section 10(e) of the Plan) or permitted at the election of
the Participant on terms and conditions established by the Committee. Payments
may include, without limitation, provisions for the payment or crediting of a
reasonable interest rate on installment or deferred payments or the grant or
crediting of Dividend Equivalents or other amounts in respect of installment or
deferred payments denominated in Stock.
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(d) EXEMPTIONS FROM SECTION 16(B) LIABILITY. It is the intent
of the Company that this Plan comply in all respects with applicable provisions
of Rule 16b-3 or Rule 16a-1(c)(3) to the extent necessary to ensure that neither
the grant of any Awards to nor other transaction by a Participant who is subject
to Section 16 of the Exchange Act is subject to liability under Section 16(b)
thereof (except for transactions acknowledged in writing to be non-exempt by
such Participant). Accordingly, if any provision of this Plan or any Award
agreement does not comply with the requirements of Rule 16b-3 or Rule
16a-1(c)(3) as then applicable to any such transaction, such provision will be
construed or deemed amended to the extent necessary to conform to the applicable
requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such Participant shall
avoid liability under Section 16(b). In addition, the purchase price of any
Award conferring a right to purchase Stock shall be not less than any specified
percentage of the Fair Market Value of Stock at the date of grant of the Award
then required in order to comply with Rule 16b-3.
8. PERFORMANCE AND ANNUAL INCENTIVE AWARDS.
(a) PERFORMANCE CONDITIONS. The right of a Participant to
exercise or receive a grant or settlement of any Award, and the timing thereof,
may be subject to such performance conditions as may be specified by the
Committee. The Committee may use such business criteria and other measures of
performance as it may deem appropriate in establishing any performance
conditions, and may exercise its discretion to reduce the amounts payable under
any Award subject to performance conditions, except as limited under Sections
8(b) and 8(c) hereof in the case of a Performance Award or Annual Incentive
Award intended to qualify under Code Section 162(m).
(b) PERFORMANCE AWARDS GRANTED TO DESIGNATED COVERED
Employees. If and to the extent that the Committee determines that a Performance
Award to be granted to an Eligible Person who is designated by the Committee as
likely to be a Covered Employee should qualify as "performance-based
compensation" for purposes of Code Section 162(m), the grant, exercise and/or
settlement of such Performance Award shall be contingent upon achievement of
preestablished performance goals and other terms set forth in this Section 8(b).
(i) PERFORMANCE GOALS GENERALLY. The performance goals for
such Performance Awards shall consist of one or more business criteria
and a targeted level or levels of performance with respect to each of
such criteria, as specified by the Committee consistent with this
Section 8(b). Performance goals shall be objective and shall otherwise
meet the requirements of Code Section 162(m) and regulations thereunder
including the requirement that the level or levels of performance
targeted by the Committee result in the achievement of performance
goals being "substantially uncertain." The Committee may determine that
such Performance Awards shall be granted, exercised and/or settled upon
achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to grant, exercise
and/or settlement of such Performance Awards. Performance goals may
differ for Performance Awards granted to any one Participant or to
different Participants.
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(ii) BUSINESS CRITERIA. One or more of the following business
criteria for the Company, on a consolidated basis, and/or specified
subsidiaries or business units of the Company (except with respect to
the total stockholder return and earnings per share criteria), shall be
used exclusively by the Committee in establishing performance goals for
such Performance Awards: (1) total stockholder return; (2) such total
stockholder return as compared to total return (on a comparable basis)
of a publicly available index such as, but not limited to, the Standard
& Poor's 500 Stock Index or the S&P Specialty Retailer Index; (3) net
income; (4) pretax earnings; (5) earnings before interest expense,
taxes, depreciation and amortization; (6) pretax operating earnings
after interest expense and before bonuses, service fees, and
extraordinary or special items; (7) operating margin; (8) earnings per
share; (9) return on equity; (10) return on capital; (11) return on
investment; (12) operating earnings; (13) working capital or inventory;
and (14) ratio of debt to stockholders' equity. One or more of the
foregoing business criteria shall also be exclusively used in
establishing performance goals for Annual Incentive Awards granted to a
Covered Employee under Section 8(c) hereof.
(iii) PERFORMANCE PERIOD; TIMING FOR ESTABLISHING PERFORMANCE
GOALS. Achievement of performance goals in respect of such Performance
Awards shall be measured over a performance period of up to ten years,
as specified by the Committee. Performance goals shall be established
not later than 90 days after the beginning of any performance period
applicable to such Performance Awards, or at such other date as may be
required or permitted for "performance-based compensation" under Code
Section 162(m).
(iv) PERFORMANCE AWARD POOL. The Committee may establish a
Performance Award pool, which shall be an unfunded pool, for purposes
of measuring Company performance in connection with Performance Awards.
The amount of such Performance Award pool shall be based upon the
achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 8(b)(ii) hereof during the given
performance period, as specified by the Committee in accordance with
Section 8(b)(iii) hereof. The Committee may specify the amount of the
Performance Award pool as a percentage of any of such business
criteria, a percentage thereof in excess of a threshold amount, or as
another amount which need not bear a strictly mathematical relationship
to such business criteria.
(v) SETTLEMENT OF PERFORMANCE AWARDS; OTHER TERMS. Settlement
of such Performance Awards shall be in cash, Stock, other Awards or
other property, in the discretion of the Committee. The Committee may,
in its discretion, reduce the amount of a settlement otherwise to be
made in connection with such Performance Awards. The Committee shall
specify the circumstances in which such Performance Awards shall be
paid or forfeited in the event of termination of
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employment by the Participant prior to the end of a performance period
or settlement of Performance Awards.
(c) ANNUAL INCENTIVE AWARDS GRANTED TO DESIGNATED COVERED
Employees. If and to the extent that the Committee determines that an Annual
Incentive Award to be granted to an Eligible Person who is designated by the
Committee as likely to be a Covered Employee should qualify as
"performance-based compensation" for purposes of Code Section 162(m), the grant,
exercise and/or settlement of such Annual Incentive Award shall be contingent
upon achievement of preestablished performance goals and other terms set forth
in this Section 8(c).
(i) ANNUAL INCENTIVE AWARD POOL. The Committee may establish
an Annual Incentive Award pool, which shall be an unfunded pool, for
purposes of measuring Company performance in connection with Annual
Incentive Awards. The amount of such Annual Incentive Award pool shall
be based upon the achievement of a performance goal or goals based on
one or more of the business criteria set forth in Section 8(b)(ii)
hereof during the given performance period, as specified by the
Committee in accordance with Section 8(b)(iii) hereof. The Committee
may specify the amount of the Annual Incentive Award pool as a
percentage of any such business criteria, a percentage thereof in
excess of a threshold amount, or as another amount which need not bear
a strictly mathematical relationship to such business criteria.
(ii) POTENTIAL ANNUAL INCENTIVE AWARDS. Not later than the end
of the 90th day of each fiscal year, or at such other date as may be
required or permitted in the case of Awards intended to be
"performance-based compensation" under Code Section 162(m), the
Committee shall determine the Eligible Persons who will potentially
receive Annual Incentive Awards, and the amounts potentially payable
thereunder, for that fiscal year, either out of an Annual Incentive
Award pool established by such date under Section 8(c)(i) hereof or as
individual Annual Incentive Awards. In the case of individual Annual
Incentive Awards intended to qualify under Code Section 162(m), the
amount potentially payable shall be based upon the achievement of a
performance goal or goals based on one or more of the business criteria
set forth in Section 8(b)(ii) hereof in the given performance year, as
specified by the Committee; in other cases, such amount shall be based
on such criteria as shall be established by the Committee. In all
cases, the maximum Annual Incentive Award of any Participant shall be
subject to the limitation set forth in Section 5 hereof.
(iii) PAYOUT OF ANNUAL INCENTIVE AWARDS. After the end of each
fiscal year, the Committee shall determine the amount, if any, of (A)
the Annual Incentive Award pool, and the maximum amount of potential
Annual Incentive Award payable to each Participant in the Annual
Incentive Award pool, or (B) the amount of potential Annual Incentive
Award otherwise payable to each Participant. The Committee may, in its
discretion, determine that the amount payable to any Participant as a
final Annual Incentive Award shall be reduced
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from the amount of his or her potential Annual Incentive Award,
including a determination to make no final Award whatsoever. The
Committee shall specify the circumstances in which an Annual Incentive
Award shall be paid or forfeited in the event of termination of
employment by the Participant prior to the end of a fiscal year or
settlement of such Annual Incentive Award.
(d) WRITTEN DETERMINATIONS. All determinations by the
Committee as to the establishment of performance goals, the amount of any
Performance Award pool or potential individual Performance Awards and as to the
achievement of performance goals relating to Performance Awards under Section
8(b), and the amount of any Annual Incentive Award pool or potential individual
Annual Incentive Awards and the amount of final Annual Incentive Awards under
Section 8(c), shall be made in writing in the case of any Award intended to
qualify under Code Section 162(m). The Committee may not delegate any
responsibility relating to such Performance Awards or Annual Incentive Awards.
(e) STATUS OF SECTION 8(b) AND SECTION 8(c) AWARDS UNDER CODE
SECTION 162(m). It is the intent of the Company that Performance Awards and
Annual Incentive Awards under Section 8(b) and 8(c) hereof granted to persons
who are designated by the Committee as likely to be Covered Employees within the
meaning of Code Section 162(m) and regulations thereunder shall, if so
designated by the Committee, constitute "qualified performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder. Accordingly, the terms of Sections 8(b), (c), (d) and (e), including
the definitions of Covered Employee and other terms used therein, shall be
interpreted in a manner consistent with Code Section 162(m) and regulations
thereunder. The foregoing notwithstanding, because the Committee cannot
determine with certainty whether a given Participant will be a Covered Employee
with respect to a fiscal year that has not yet been completed, the term Covered
Employee as used herein shall mean only a person designated by the Committee, at
the time of grant of Performance Awards or an Annual Incentive Award, as likely
to be a Covered Employee with respect to that fiscal year. If any provision of
the Plan or any agreement relating to such Performance Awards or Annual
Incentive Awards does not comply or is inconsistent with the requirements of
Code Section 162(m) or regulations thereunder, such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements.
9. CHANGE IN CONTROL.
(a) EFFECT OF "CHANGE IN CONTROL."(a)Effectof""2" If and to
the extent provided in the Award, in the event of a "Change in Control," as
defined in Section 9(b), the following provisions shall apply:
(i) Any Award carrying a right to exercise that was not
previously exercisable and vested shall become fully exercisable and
vested as of the time of the Change in Control, subject only to
applicable restrictions set forth in Section 10(a) hereof;
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(ii) Limited SARs (and other SARs if so provided by their
terms) shall become exercisable for amounts, in cash, determined by
reference to the Change in Control Price.
(iii) The restrictions, deferral of settlement, and forfeiture
conditions applicable to any other Award granted under the Plan shall
lapse and such Awards shall be deemed fully vested as of the time of
the Change in Control, except to the extent of any waiver by the
Participant and subject to applicable restrictions set forth in Section
10(a) hereof; and
(iv) With respect to any such outstanding Award subject to
achievement of performance goals and conditions under the Plan, such
performance goals and other conditions will be deemed to be met if and
to the extent so provided by the Committee in the Award agreement
relating to such Award.
(b) DEFINITION OF "CHANGE IN CONTROL. A "Change in Control"
shall be deemed to have occurred upon:
(i) An acquisition by any Person of Beneficial Ownership of
the shares of Common Stock of the Company then outstanding (the
"Company Common Stock Outstanding") or the voting securities of the
Company then outstanding entitled to vote generally in the election of
directors (the "Company Voting Securities Outstanding") if such
acquisition of Beneficial Ownership results in the Person's
Beneficially Owning 30% or more of the Company Common Stock Outstanding
or 30% or more of the combined voting power of the Company Voting
Securities Outstanding; PROVIDED, HOWEVER, that the event described in
this paragraph (i) shall not be deemed to be a Change in Control by
virtue of any of the following acquisitions: (A) by the Company or any
Parent Corporation or any Subsidiary, (B) by any employee benefit plan
sponsored or maintained by the Company or any Parent Corporation or any
Subsidiary, (C) by any underwriter temporarily holding securities
pursuant to an offering of such securities, (D) pursuant to a
Non-Qualifying Transaction (as defined in paragraph below), (E)
pursuant to any acquisition by one or more Participants (or any entity
controlled by one or more Participants); or (F) a transaction (other
than one described in (ii) below) in which Company Voting Securities
Outstanding are acquired from the Company or any other person, if a
majority of the Incumbent Board (as defined in (iii) below) approve a
resolution providing expressly that the acquisition pursuant to this
clause (F) does not constitute a Change in Control under this paragraph
(i); or
(ii) The approval by the stockholders of the Company of a
reorganization, merger, consolidation, complete liquidation or
dissolution of the Company, sale or disposition of all or substantially
all of the assets of the Company, or similar corporate transaction (in
each case referred to in this Section
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9(b) as a "Corporate Transaction") or, if consummation of such
Corporate Transaction is subject, at the time of such approval by
stockholders, to the consent of any government or governmental agency,
the obtaining of such consent (either explicitly or implicitly);
provided, however, that any merger, consolidation, sale, disposition or
other similar transaction to or with one or more Participants or
entities controlled by one or more Participants shall not constitute a
Corporate Transaction in respect of such Participant(s); or
(iii) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (such
Board shall be hereinafter referred to as the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board;
provided, however, for purposes of this Section 9(b), that any
individual who becomes a member of the Board subsequent to the
Effective Date whose election, or nomination for election by the
Company's stockholders, was approved by a vote (either by specific vote
or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such
nomination) of at least a majority of those individuals who are members
of the Board and who were also members of the Incumbent Board (or
deemed to be such pursuant to this proviso) shall be considered as
though such individual were a member of the Incumbent Board; and,
provided, further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election
contest subject to Rule 14a-11 of Regulation 14A under the Exchange
Act, including any successor to such Rule, or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall in no event be considered as a member
of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii)
of this Section 9(b), the following transactions ("Non-Qualifying Transactions")
shall not constitute a Change in Control for purposes of the Plan: (1) any
acquisition by, or consummation of a Corporate Transaction with, any entity that
was a Parent Corporation or a Subsidiary of the Company immediately prior to the
transaction or an employee benefit plan (or related trust) sponsored or
maintained by the Company or an entity that was a Parent Corporation or a
Subsidiary of the Company immediately prior to the transaction if, immediately
after such transaction (including consummation of all related transactions), the
surviving entity is controlled by no Person other than such Parent Corporation
or Subsidiary, employee benefit plan (or related trust) and/or other Persons who
controlled the Company immediately prior to such transaction; (2) any
acquisition or consummation of a Corporate Transaction following which more than
50% of, respectively, the shares then outstanding of common stock of the
corporation resulting from such acquisition or Corporate Transaction and the
combined voting power of the voting securities then outstanding of such
corporation entitled to vote generally in the election of directors is then
Beneficially Owned, directly or indirectly, by all or substantially all of the
individuals and entities who were Beneficial Owners, respectively, of the
Company Common Stock Outstanding and Company Voting Securities Outstanding
immediately prior to such acquisition or Corporate Transaction in substantially
the same proportions as their ownership, immediately prior to such
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acquisition or Corporate Transaction, of the Company Common Stock Outstanding
and Company Voting Securities Outstanding, as the case may be; or (3) any person
acquires Beneficial Ownership of 30% or more of the Company Common Stock
Outstanding or 30% or more of the Company Voting Securities Outstanding as a
result of the acquisition by the Company of Company Common Stock Outstanding or
Company Voting Securities Outstanding which reduces the number of Company Common
Stock Outstanding or Company Voting Securities Outstanding.
(c) DEFINITION OF "CHANGE IN CONTROL PRICE." The "Change in
Control Price" means an amount in cash equal to the higher of (i) the amount of
cash and fair market value of property that is the highest price per share paid
(including extraordinary dividends) in any Corporate Transaction triggering the
Change in Control under Section 9(b)(ii) hereof or any liquidation of shares
following a sale of substantially all assets of the Company, or (ii) the highest
Fair Market Value per share at any time during the 60-day period preceding and
60-day period following the Change in Control.
10. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LEGAL AND OTHER REQUIREMENTS. The Company
may, to the extent deemed necessary or advisable by the Committee, postpone the
issuance or delivery of Stock or payment of other benefits under any Award until
completion of such registration or qualification of such Stock or other required
action under any federal or state law, rule or regulation, listing or other
required action with respect to any stock exchange or automated quotation system
upon which the Stock or other Company securities are listed or quoted, or
compliance with any other obligation of the Company, as the Committee may
consider appropriate, and may require any Participant to make such
representations, furnish such information and comply with or be subject to such
other conditions as it may consider appropriate in connection with the issuance
or delivery of Stock or payment of other benefits in compliance with applicable
laws, rules, and regulations, listing requirements, or other obligations. The
foregoing notwithstanding, in connection with a Change in Control, the Company
shall take or cause to be taken no action, and shall undertake or permit to
arise no legal or contractual obligation, that results or would result in any
postponement of the issuance or delivery of Stock or payment of benefits under
any Award or the imposition of any other conditions on such issuance, delivery
or payment, to the extent that such postponement or other condition would
represent a greater burden on a Participant than existed on the 90th day
preceding the Change in Control.
(b) LIMITS ON TRANSFERABILITY; BENEFICIARIES. No Award or
other right or interest of a Participant under the Plan, including any Award or
right which constitutes a derivative security as generally defined in Rule
16a-1(c) under the Exchange Act, shall be pledged, hypothecated or otherwise
encumbered or subject to any lien, obligation or liability of such Participant
to any party (other than the Company or a subsidiary), or assigned or
transferred by such Participant otherwise than by will or the laws of descent
and distribution or to a Beneficiary upon the death of a Participant, and such
Awards or rights that may be exercisable shall be exercised during the lifetime
of the Participant only by the Participant or his or her
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guardian or legal representative, except that Awards and other rights (other
than ISOs and SARs in tandem therewith) may be transferred to one or more
Beneficiaries or other transferees during the lifetime of the Participant, and
may be exercised by such transferees in accordance with the terms of such Award,
but only if and to the extent such transfers and exercises are permitted by the
Committee pursuant to the express terms of an Award agreement (subject to any
terms and conditions which the Committee may impose thereon, and further subject
to any prohibitions or restrictions on such transfers pursuant to Rule 16b-3). A
Beneficiary, transferee, or other person claiming any rights under the Plan from
or through any Participant shall be subject to all terms and conditions of the
Plan and any Award agreement applicable to such Participant, except as otherwise
determined by the Committee, and to any additional terms and conditions deemed
necessary or appropriate by the Committee.
(c) ADJUSTMENTS. In the event that any dividend or other
distribution (whether in the form of cash, Stock, or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution or other similar corporate transaction or event affects the Stock
such that a substitution or adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the rights of
Participants under the Plan, then the Committee shall, in such manner as it may
deem equitable, substitute or adjust any or all of (i) the number and kind of
shares of Stock which may be delivered in connection with Awards granted
thereafter, (ii) the number and kind of shares of Stock by which annual
per-person Award limitations are measured under Section 5 hereof, (iii) the
number and kind of shares of Stock subject to or deliverable in respect of
outstanding Awards and (iv) the exercise price, grant price or purchase price
relating to any Award and/or make provision for payment of cash or other
property in respect of any outstanding Award. In addition, the Committee is
authorized to make adjustments in the terms and conditions of, and the criteria
included in, Awards (including Performance Awards and performance goals, and
Annual Incentive Awards and any Annual Incentive Award pool or performance goals
relating thereto) in recognition of unusual or nonrecurring events (including,
without limitation, events described in the preceding sentence, as well as
acquisitions and dispositions of businesses and assets) affecting the Company,
any subsidiary or any business unit, or the financial statements of the Company
or any subsidiary, or in response to changes in applicable laws, regulations,
accounting principles, tax rates and regulations or business conditions or in
view of the Committee's assessment of the business strategy of the Company, any
subsidiary or business unit thereof, performance of comparable organizations,
economic and business conditions, personal performance of a Participant, and any
other circumstances deemed relevant; provided that no such adjustment shall be
authorized or made if and to the extent that such authority or the making of
such adjustment would cause Options, SARs, Performance Awards granted under
Section 8(b) hereof or Annual Incentive Awards granted under Section 8(c) hereof
to Participants designated by the Committee as Covered Employees and intended to
qualify as "performance-based compensation" under Code Section 162(m) and the
regulations thereunder to otherwise fail to qualify as "performance-based
compensation" under Code Section 162(m) and regulations thereunder.
(d) TAXES. The Company and any subsidiary is authorized to
withhold from any Award granted, any payment relating to an Award under the
Plan, including from a
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distribution of Stock, or any payroll or other payment to a Participant, amounts
of withholding and other taxes due or potentially payable in connection with any
transaction involving an Award, and to take such other action as the Committee
may deem advisable to enable the Company and Participants to satisfy obligations
for the payment of withholding taxes and other tax obligations relating to any
Award. This authority shall include authority to withhold or receive Stock or
other property and to make cash payments in respect thereof in satisfaction of a
Participant's tax obligations, either on a mandatory or elective basis in the
discretion of the Committee.
(e) CHANGES TO THE PLAN AND AWARDS. The Board may amend,
alter, suspend, discontinue or terminate the Plan or the Committee's authority
to grant Awards under the Plan without the consent of stockholders or
Participants, except that any amendment or alteration to the Plan shall be
subject to the approval of the Company's stockholders not later than the annual
meeting next following such Board action if such stockholder approval is
required by any federal or state law or regulation (including, without
limitation, Rule 16b-3 or Code Section 162(m)) or the rules of any stock
exchange or automated quotation system on which the Stock may then be listed or
quoted, and the Board may otherwise, in its discretion, determine to submit
other such changes to the Plan to stockholders for approval; provided that,
without the consent of an affected Participant, no such Board action may
materially and adversely affect the rights of such Participant under any
previously granted and outstanding Award. The Committee may waive any conditions
or rights under, or amend, alter, suspend, discontinue or terminate any Award
theretofore granted and any Award agreement relating thereto, except as
otherwise provided in the Plan; provided that, without the consent of an
affected Participant, no such Committee action may materially and adversely
affect the rights of such Participant under such Award. Notwithstanding anything
in the Plan to the contrary, if any right under this Plan would cause a
transaction to be ineligible for pooling of interest accounting that would, but
for the right hereunder, be eligible for such accounting treatment, the
Committee may modify or adjust the right so that pooling of interest accounting
shall be available, including the substitution of Stock having a Fair Market
Value equal to the cash otherwise payable hereunder for the right which caused
the transaction to be ineligible for pooling of interest accounting.
(f) LIMITATION ON RIGHTS CONFERRED UNDER PLAN. Neither the
Plan nor any action taken hereunder shall be construed as (i) giving any
Eligible Person or Participant the right to continue as an Eligible Person or
Participant or in the employ of the Company or a subsidiary; (ii) interfering in
any way with the right of the Company or a subsidiary to terminate any Eligible
Person's or Participant's employment at any time, (iii) giving an Eligible
Person or Participant any claim to be granted any Award under the Plan or to be
treated uniformly with other Participants and employees, or (iv) conferring on a
Participant any of the rights of a stockholder of the Company unless and until
the Participant is duly issued or transferred shares of Stock in accordance with
the terms of an Award.
(g) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant or
obligation to deliver Stock pursuant to an Award, nothing contained in the Plan
or any Award shall give any such Participant any rights that are
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greater than those of a general creditor of the Company; provided that the
Committee may authorize the creation of trusts and deposit therein cash, Stock,
other Awards or other property, or make other arrangements to meet the Company's
obligations under the Plan. Such trusts or other arrangements shall be
consistent with the "unfunded" status of the Plan unless the Committee otherwise
determines with the consent of each affected Participant. The trustee of such
trusts may be authorized to dispose of trust assets and reinvest the proceeds in
alternative investments, subject to such terms and conditions as the Committee
may specify and in accordance with applicable law.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the
Plan by the Board nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board or a committee thereof to adopt such other incentive arrangements as it
may deem desirable including incentive arrangements and awards which do not
qualify under Code Section 162(m).
(i) PAYMENTS IN THE EVENT OF FORFEITURES; FRACTIONAL SHARES.
Unless otherwise determined by the Committee, in the event of a forfeiture of an
Award with respect to which a Participant paid cash or other consideration, the
Participant shall be repaid the amount of such cash or other consideration. No
fractional shares of Stock shall be issued or delivered pursuant to the Plan or
any Award. The Committee shall determine whether cash, other Awards or other
property shall be issued or paid in lieu of such fractional shares or whether
such fractional shares or any rights thereto shall be forfeited or otherwise
eliminated.
(j) GOVERNING LAW. The validity, construction and effect of
the Plan, any rules and regulations under the Plan, and any Award agreement
shall be determined in accordance with the laws of the State of Florida without
giving effect to principles of conflicts of laws, and applicable federal law.
(k) PLAN EFFECTIVE DATE AND STOCKHOLDER APPROVAL; TERMINATION
OF PLAN. The Plan shall become effective on the Effective Date, subject to
subsequent approval within 12 months of its adoption by the Board by
stockholders of the Company eligible to vote in the election of directors, by a
vote sufficient to meet the requirements of Code Section 162(m) and 422, Rule
16b-3 under the Exchange Act, applicable NASDAQ requirements, and other laws,
regulations, and obligations of the Company applicable to the Plan. Awards may
be granted subject to stockholder approval, but may not be exercised or
otherwise settled in the event stockholder approval is not obtained. The Plan
shall terminate at such time as no shares of Common Stock remain available for
issuance under the Plan and the Company has no further rights or obligations
with respect to outstanding Awards under the Plan.
21
EXHIBIT 10.6
FORM OF
INDEMNIFICATION AGREEMENT
This Indemnification Agreement dated as of this ___ day of
________________, 1997 ("Agreement"), is made and entered into by and between
H.T.E., INC., a Florida corporation ("Company"), and _____________________
("Indemnitee").
RECITALS
1. Competent and experienced persons are becoming increasingly
reluctant to serve publicly-held corporations as directors, officers, or in
other capacities unless they are provided with adequate protection through
liability insurance or adequate indemnification against inordinate risks of
claims and actions against them arising out of their service to the corporation;
and
2. The current unavailability, inadequacy, and extraordinary cost of
adequate insurance and the uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons; and
3. The Board of Directors of the Company (the "Board") has determined
that the inability to attract and retain such persons is detrimental to the best
interests of the Company's shareholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
4. Section 607.0850 of the Florida Business Corporation Act (the "Act")
and the Bylaws of the Company empower the Company to indemnify its officers,
directors, employees and agents by agreement and to indemnify persons who serve,
at the request of the Company, as directors, officers, employees, or agents or
other corporations or enterprises, and Section 607.0850(7) of the Act and the
Bylaws expressly provide that the indemnification provided therein is not
exclusive; and
5. It is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
6. Indemnitee is willing to serve, or continue to serve and to take on
additional service for or on behalf of the Company on the condition that he be
so indemnified.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
DEFINITIONS. For purposes of this Agreement:
(a) "CHANGE OF CONTROL" means a change in control of the Company
occurring after the Effective Date (as hereinafter defined) of a nature that
would be required to be reported in response to Item 1 of the Current Report on
Form 8-K (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or
not the Company is then subject to such reporting requirement; and, in addition,
a Change of Control shall be deemed to have occurred if after the Effective Date
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing thirty percent
(30%) or more of the combined voting power of the Company's then outstanding
securities without the prior approval of at least two-thirds of the members of
the Board of Directors in office immediately prior to such person attaining such
percentage; (ii) the Company is a party to a merger, consolidation, sale of
assets or other reorganization, or a proxy contest, as a consequence of which
members of the board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
thereafter; or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors (including
for this purpose any new director whose election or nomination for election by
the Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors.
(b) "CORPORATE STATUS" describes the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
(c) "DISINTERESTED DIRECTOR" means a director of the Company who is not
and was not a party to the Proceeding (as
-2-
<PAGE>
hereinafter defined) in respect of which indemnification is sought by
Indemnitee.
(d) "EFFECTIVE DATE" means the date first above written.
(e) "EXPENSES" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
proceeding.
(f) "INDEPENDENT COUNSEL" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
(g) "PROCEEDING" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, including
any appeal thereof, whether or not initiated prior to the Effective Date, except
a proceeding initiated by an Indemnitee pursuant to Section 11 of this agreement
to enforce his rights under this Agreement.
2. AGREEMENT TO SERVE. Indemnitee agrees to serve as a director of the
Company. Indemnitee may at any time and for any reason resign from such position
(subject to any other contractual obligation or any obligation imposed by
operation of law). The Company shall have no obligation under this Agreement to
continue Indemnitee in any position with the Company.
3. INDEMNIFICATION - GENERAL. The Company shall indemnify, and advance
Expenses to Indemnitee as provided in this Agreement and to the fullest extent
permitted by applicable law in effect on the date hereof and to such greater
extent as applicable law may thereafter from time to time permit. The
-3-
<PAGE>
rights of Indemnitee provided under the preceding sentence shall include, but
shall not be limited to, the rights set forth in the other sections of this
Agreement.
4. THIRD PARTY ACTIONS. Indemnitee shall be entitled to the rights of
indemnification provided in this section 4 if, by reason of his Corporate
Status, he is, or is threatened to be made, a party to any threatened, pending
or completed Proceeding, other than a Proceeding by or in the right of the
Company. Pursuant to this section 4, Indemnitee shall be indemnified against
Expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by him or on his behalf in connection with any such
Proceeding or any claim, issue or matter therein, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company, and, with respect to any criminal Proceeding, had no reasonable
cause to believe his conduct was unlawful.
5. DERIVATIVE ACTIONS. Indemnitee shall be entitled to the rights of
indemnification provided in this section 5 if by reason of his Corporate Status
he is or is threatened to be made, a party to any threatened, pending or
completed Proceeding brought by or in the right of the Company to procure a
judgment in its favor. Pursuant to this section, Indemnitee shall be indemnified
against Expenses and amounts paid in settlement not exceeding, in the judgment
of the Company's Board of Directors, the estimated expense of litigating the
proceeding to conclusion, actually and reasonably incurred by him or on his
behalf in connection with such Proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company. Notwithstanding the foregoing, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company if applicable law prohibits such indemnification; provided, however,
that, if applicable law so permits, indemnification against Expenses shall
nevertheless be made by the Company in such event if and only to the extent that
the Circuit Court of the State of Florida, or the court in which such Proceeding
shall have been brought or is pending, shall determine.
6. INDEMNIFICATION FOR EXPENSES OF AN INDEMNITEE. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by reason
of his Corporate Status, a party to and is successful on the merits or
otherwise, in any Proceeding, he shall be indemnified against all Expenses
actually and reasonably incurred by him or on his behalf in connection
therewith. If Indemnitee is not wholly successful in such
-4-
<PAGE>
Proceeding but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such Proceeding, the Company shall
indemnify Indemnitee against all Expenses actually and reasonably incurred by
him or on his behalf in connection with each successfully resolved claim, issue
or matter. For purposes of this section 6 and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
7. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is by reason of his
Corporate Status, a witness in any Proceeding, he shall be indemnified against
all Expenses actually and reasonably incurred by him or on his behalf in
connection therewith.
8. ADVANCEMENT OF EXPENSES. The Company shall advance all reasonable
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within twenty (20) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
9. INDEMNIFICATION PROCEDURE.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Secretary of the Company (or to such other officer as may be
designated by the Board of Directors) a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary, or other designated
officer, of the Company shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that Indemnitee has
requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant
to section 9(a) hereof, a determination, if required by applicable law, with
respect to Indemnitee's
-5-
<PAGE>
entitlement thereto shall be made in the specific case: (i) if a Change of
Control (as herein defined) shall have occurred, by Independent Counsel (as
herein defined) (unless Indemnitee shall request that such determination be made
by the Board of Directors or the shareholders, in which case by the person or
persons or in the manner provided for in clauses (ii) or (iii) of this section
9(b)) in a written opinion to the Board of Directors, a copy of which shall be
delivered to Indemnitee; (ii) if a Change of Control shall not have occurred,
(A) by the Board of Directors by a majority vote of a quorum consisting of
Disinterested Directors or (B) if a quorum of the Board of Directors consisting
of Disinterested Directors is not obtainable or, even if obtainable, such quorum
of Disinterested Directors so directs, by Independent Counsel in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee or (C) if directed by the Directors, by the shareholders of the
Company; or (iii) as provided in section 10(b) of this Agreement; and, if it is
so determined that Indemnitee is entitled to indemnification, payment to or on
behalf of Indemnitee shall be made within ten (10) days after such
determination. Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Expenses incurred by Indemnitee in so cooperating with the person, persons or
entity making such determination shall be borne by the Company (irrespective of
the determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to section 9(b) hereof, the
Independent Counsel shall be selected as provided in this section 9(c). If a
Change of Control shall not have occurred, the Independent Counsel shall be
selected by the Board of Directors, and the Company shall give written notice to
Indemnitee advising him of the identity of the independent counsel so selected.
If a Change of Control shall have occurred, the Independent Counsel shall be
selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board of Directors, in which event the preceding sentence shall
apply), and Indemnitee shall give written notice to the Company advising it of
the identity of the Independent Counsel so selected. In either event, Indemnitee
or the Company, as the case may be, may, within seven (7) days after such
written notice of selection
-6-
<PAGE>
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection. Such objection may be asserted only
on the ground that the Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in section 1 of this Agreement,
and the objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, the Independent Counsel so
selected may not serve as Independent Counsel unless and until a court has
determined that such objection is without merit. If, within twenty (20) days
after submission by Indemnitee of a written request for indemnification pursuant
to section 9(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Circuit Court of
the State of Florida for the County of Brevard for resolution of any objection
which shall have been made by the Company or Indemnitee to the other's selection
of Independent Counsel and/or for the appointment as Independent Counsel of a
person selected by the Court or by such other person as the Court shall
designate, and the person with respect to whom an objection is so resolved or
the person so appointed shall act as Independent Counsel under section 9(b)
hereof. The Company shall pay any and all reasonable fees and expenses of
Independent Counsel incurred by such Independent Counsel in connection with
acting pursuant to section 9(b) hereof, and the Company shall pay all reasonable
fees and Expenses incident to the procedures of this section 9(c), regardless of
the manner in which such Independent Counsel was selected or appointed. Upon the
due commencement of any judicial Proceeding pursuant to section 11(a) of this
Agreement, Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
10. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with section 9(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
section 9 of this Agreement to determine whether
-7-
<PAGE>
Indemnitee is entitled to indemnification shall not have made a determination
within sixty (60) days after receipt by the Company of the request therefor, the
requisite determination of entitlement to indemnification shall be deemed to
have been made and Indemnitee shall be entitled to such indemnification, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law; provided, however,
that such 60-day period may be extended for a reasonable time, not to exceed an
additional thirty (30) days, if the person, persons or entity making the
determination with respect to entitlement to indemnification in good faith
requires such additional time for the obtaining or evaluating of documentation
and/or information relating thereto; and provided, further, that the foregoing
provisions of this section 10(b) shall not apply (i) if the determination of
entitlement to indemnification is to be made by the shareholders pursuant to
section 9(b) of this Agreement and if (A) within fifteen (15) days after receipt
by the Company of the request for such determination the Board of Directors has
resolved to submit such determination to the shareholders for their
consideration at an annual meeting thereof to be held within seventy-five (75)
days after such receipt and such determination is made thereat or (B) a special
meeting of shareholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat, or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to section 9(b) of
this Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
11. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to
section 9 of this Agreement that Indemnitee is not
-8-
<PAGE>
entitled to indemnification under this Agreement, (ii) advancement of Expenses
is not timely made pursuant to section 8 of this Agreement, (iii) the
determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to section 9(b) of this Agreement and such determination shall
not have been made and delivered in a written opinion within ninety (90) days
after receipt by the Company, of the request for indemnification, (iv) payment
of indemnification is not made pursuant to section 5 of this Agreement within
ten (10) days after receipt by the Company of a written request therefor, or (v)
payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to sections 9 or 10 of
this Agreement, Indemnitee shall be entitled to an adjudication in an
appropriate court of the State of Florida, or in any other court of competent
jurisdiction, of his entitlement to such indemnification or advancement of
expenses. Indemnitee shall commence such proceeding seeking an adjudication
within one hundred eighty (180) days following the date on which Indemnitee
first has the right to commence such proceeding pursuant to this section 11(a).
The Company shall not oppose Indemnitee's right to seek any such adjudication.
(b) In the event that a determination shall have been made pursuant
to section 9 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial Proceeding commenced pursuant to this section 11
shall be conducted in all respects as a de novo trial on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. If a
Change of Control shall have occurred, in any judicial Proceeding commenced
pursuant to this section 11 the Company shall have the burden of proving that
Indemnitee is not entitled to indemnification or advancement of Expenses, as the
case may be.
(c) If a determination shall have been made or deemed to have been
made pursuant to Sections 9 or 10 of this Agreement that Indemnitee is entitled
to indemnification, the Company shall be bound by such determination in any
judicial Proceeding commenced pursuant to this section 11, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial
Proceeding commenced pursuant to this section 11
-9-
<PAGE>
that the procedures and presumptions of this Agreement are not valid, binding
and enforceable and shall stipulate in any such court that the Company is bound
by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this section 11, seeks
a judicial adjudication to enforce his rights under, or to recover damages for
breach of, this Agreement, Indemnitee shall be entitled to recover from the
Company, and shall be indemnified by the Company against, any and all expenses
(of the types described in the definition of Expenses in section 1 of this
Agreement) actually and reasonably incurred by him in such judicial
adjudication, but only if he prevails therein. If it shall be determined in said
judicial adjudication that Indemnitee is entitled to receive part but not all of
the indemnification or advancement of expenses sought, the expenses incurred by
Indemnitee in connection with such judicial adjudication shall be appropriately
prorated.
12. NON-EXCLUSIVITY: SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Articles of Incorporation, the Bylaws, any agreement, a vote of
shareholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or any provision hereof shall be
effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Company or of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such
-10-
<PAGE>
rights, including execution of such documents as are necessary to enable the
Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) The Company may, to the fullest extent authorized by law, create
a trust fund, grant a security interest and/or use other means (including,
without limitation, letters of credit, surety bonds and other similar
arrangements) to ensure the payment of such amounts as may become necessary to
effect indemnification provided hereunder.
13. DURATION OF AGREEMENT. This Agreement shall continue until and
terminate upon the later of: (a) ten (10) years after the date that Indemnitee
shall have ceased to serve as a director, officer, employee, agent or fiduciary
of the Company or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which Indemnitee served at the request
of the Company; or (b) the final termination of all pending Proceedings in
respect of which Indemnitee is granted rights of indemnification or advancement
of Expenses hereunder and of any Proceeding commenced by Indemnitee pursuant to
section 11 of this Agreement relating thereto. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to the benefit
of Indemnitee and his heirs executors and administrators.
14. SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement (including without limitation, each portion of any section of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
-11-
<PAGE>
15. EXCEPTIONS TO INDEMNIFICATION RIGHTS. Notwithstanding any other
provision of this Agreement, Indemnitee shall not be entitled to indemnification
or advancement of Expenses under this Agreement with respect to any Proceeding,
or any claim therein, brought or made by him against the Company.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute one and the same Agreement. Only one
such counterpart signed by the party against whom enforceability is sought needs
to be produced to evidence the existence of this Agreement.
17. CAPTIONS. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
18. AMENDMENT AND WAIVER. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
19. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
20. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified mail, return
receipt requested, with postage prepaid, and shall be deemed delivered on the
third business day after the date on which it is so mailed:
(a)If to Indemnitee, to the address set forth immediately following
Indemnitee's signature hereinbelow;
(b)If to the Company, to: 390 North Orange Avenue, Orlando, Florida
32801. Attention: Corporate Secretary;
or to such other address as may have been furnished to Indemnitee
-12-
<PAGE>
by the Company or to the Company by Indemnitee, as the case may be.
21. GOVERNING LAW. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Florida, without reference to its choice of law principles.
22. GENDER. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
H.T.E., INC.:
"Company"
By: _______________________________
Its: ___________________________
INDEMNITEE:
By: _______________________________
Address: __________________________
-13-
<TABLE>
<CAPTION>
EXHIBIT 11
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 MARCH 31, 1996 MARCH 31, 1995
----------------- --------------- ---------------
<S> <C> <C> <C>
Weighted average shares of common stock 3,392,000 3,392,000 3,392,000
Weighted average shares of preferred stock 1,635,474 1,635,474 465,781
Common stock issued within one year of IPO (1) 173,758 173,758 173,758
Preferred stock issued within one year of IPO (2) 113,475 113,475 113,475
Stock options issued within one year of IPO (3) 166,267 166,267 166,267
--------------- ------------- -------------
Weighted average shares of common stock
and common stock equivalents 5,480,974 5,480,974 4,311,280
=============== ============= =============
Net income (loss) $ 833,702 $ 299,343 $ 463,499
=============== ============= =============
Net income (loss) per share $ 0.15 $ 0.05 $ 0.11
=============== ============= =============
</TABLE>
(1) Reflects the incremental number of shares of common stock issued within one
year of the proposed Initial Public Offering (IPO) at prices below the IPO
price as calculated under the treasury stock method.
(2) Reflects the incremental number of shares of preferred stock issued within
one year of the IPO at prices below the IPO price as calculated under the
treasury stock method.
(3) Reflects the incremental number of shares of common stock that could be
acquired by options within one year of the proposed IPO that contain
exercise prices below the IPO price as calculated under the treasury stock
method.
EXHIBIT 21.0
ST
----
H.T.E. Public Safety - Illinois, Inc. FL
H.T.E. - Programmed for Success, Inc. FL
H.T.E. Bellamy Ltd. Alberta, Canada
H.T.E. - Software Management, Inc. FL
EXHIBIT 23.2
ARTHUR
ANDERSEN
CONSENT OF INDEPENDENT CERTIFIED PUBLICACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of the
registration statement of H.T.E., Inc., filed on February 28, 1997.
/s/ ARTHUR ANDERSEN LLP
- -----------------------
Arthur Andersen LLP
Orlando, florida
February 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 740,263
<SECURITIES> 0
<RECEIVABLES> 17,287,214
<ALLOWANCES> 520,000
<INVENTORY> 38,453
<CURRENT-ASSETS> 18,689,802
<PP&E> 3,637,881
<DEPRECIATION> 2,045,488
<TOTAL-ASSETS> 24,780,799
<CURRENT-LIABILITIES> 19,099,848
<BONDS> 0
4,303,213
0
<COMMON> 119,380
<OTHER-SE> (722,870)
<TOTAL-LIABILITY-AND-EQUITY> 24,780,799
<SALES> 7,434,828
<TOTAL-REVENUES> 28,688,374
<CGS> 5,890,302
<TOTAL-COSTS> 27,081,777
<OTHER-EXPENSES> 191,212
<LOSS-PROVISION> 320,000
<INTEREST-EXPENSE> 191,212
<INCOME-PRETAX> 1,415,385
<INCOME-TAX> 581,683
<INCOME-CONTINUING> 833,702
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