AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 1997
REGISTRATION STATEMENT NO. 333-22637
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT
NO. 1
TO
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>
<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:
<TABLE>
<S> <C>
RANDOLPH H. FIELDS, ESQ. RICHARD A. HEINLE, ESQ.
GREENBERG, TRAURIG, HOFFMAN, FOLEY & LARDNER
LIPOFF, ROSEN & QUENTEL, P.A. 111 NORTH ORANGE AVENUE, SUITE 1800
111 NORTH ORANGE AVENUE, SUITE 2050 ORLANDO, FLORIDA 32801
ORLANDO, FLORIDA 32801 PHONE (407) 423-7656
PHONE (407) 420-1000 FAX (407) 648-1743
FAX (407) 420-5909
</TABLE>
---------------
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. [ ]
---------------
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 APRIL 7, 1997
HTE LOGO
2,500,000 SHARES
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 6 THROUGH 11.
----------------
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2) SELLING SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share ...... $ $ $ $
Total(3) ...... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(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 Brown Whelan & Company, LLC, One Maritime Plaza, San
Francisco, California on or about , 1997.
VOLPE BROWN WHELAN & COMPANY JANNEY MONTGOMERY SCOTT INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[GRAPHIC DESCRIPTION FOR INSIDE FLAP]
INSIDE FLAP GRAPHIC
HTE TOTAL ENTERPRISE SOLUTION
[CIRCULAR REPRESENTATION]
PUBLIC FINANCIAL
SAFETY SYSTEMS
SYSTEMS
COMMUNITY UTILITIES
SERVICE
SYSTEMS
----------------
HTE is a leading provider of enterprise-wide software applications to
public sector organizations. 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 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 Company also offers
project management, full implementation services and 24-hour customer support.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE>
[DESCRIPTION OF PICTURES FOR INSIDE FOLDOUT COVER]
Financial Management
HTE's financial suite is designed specifically for government entities.
Applications adhere to fund accounting principles and provide integrated
financial management functions including general ledger, budgeting, purchasing,
payroll and asset management.
[PICTURE OF WOMAN AT COMPUTER]
[PICTURE OF COMPUTER SCREEN OF FINANCIAL SOFTWARE APPLICATION]
Applications
* GMBA
* INFISYS
* Extended Reporting
* Accounts Receivable
* Cash Receipts
* Payroll/Personnel
* Applicant Tracking
* Purchasing/Inventory
* Fleet Management
* Asset Management I
* Asset Management II
Community Services
[PICTURE OF MAN USING PREENABLED MOBILE COMPUTER EQUIPMENT]
HTE's Community Services System is based on a centralized land and location
database that provides common access to property information for business
licenses, building permits, planning and zoning activities, and tax billing and
collections. The applications generate all necessary documentation and improve
revenue tracking processing and payment collection.
[PICTURE OF COMPUTER SCREEN OF COMMUNITY SERVICE SOFTWARE--CODE ENFORCEMENT
APPLICATION]
Applications
* Land/Parcel Management
* Building Permits
* Code Enforcement
* Business Licenses
* Planning and Zoning
* Tax Billing and Collections
* Parks and Recreation
<PAGE>
[DESCRIPTION OF PICTURES FOR OPPOSITE PAGE]
Public Safety
[PICTURE OF POLICE OFFICER IN VEHICLE WITH LAPTOP COMPUTER]
Designed for the modern, fast-paced public safety environment, HTE's public
safety solution offers police, fire, rescue and other emergency personnel an
integrated suite of applications that provide real-time access to vital
information.
[PICTURE OF CENTRAL SYSTEM]
[PICTURE OF COMPUTER SCREEN OF COMPUTER AIDED DISPATCH APPLICATION SOFTWARE]
Applications
* Computer Aided Dispatch IV
* Computer Aided Dispatch III
* CRIMES Management
* Crackdown
* FIRES Management
* Fire Resources Activity Tracking
* Fire Prevention
* Emergency Medical Services
* Mobile Data Systems
* Integrated Mapping
* Case Management
* Citation Management
Utilities
[PICTURE OF CABLE]
HTE's utility application suite facilitates the management of electric, water,
gas and other services by automating tasks such as customer location
maintenance, meter reading, generation of service orders, bill processing and
refunds.
[PICTURE OF COMPUTER SCREEN OF UTILITY MANAGEMENT SYSTEM APPLICATION SOFTWARE
AND EMPLOYEE USING FIELD EQUIPMENT]
Applications
* Customer Information System
* Continuing Property Records
* Work Orders/Facility Management
* Distribution Management
* Contract Management
<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, AND (II) GIVES EFFECT TO A RECAPITALIZATION AND RELATED
53-FOR-ONE SPLIT AS DESCRIBED IN "-THE RECAPITALIZATION." THE COMPANY CHANGED
ITS FISCAL YEAR END FROM MARCH 31 TO DECEMBER 31 EFFECTIVE DECEMBER 31, 1996.
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 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
3
<PAGE>
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 facilitate
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 redundant 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.
THE OFFERING
<TABLE>
<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
</TABLE>
- ----------------
(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."
THE RECAPITALIZATION
Immediately prior to the effective date of this offering, the Company will
complete a recapitalization (the "Recapitalization") pursuant to which each
outstanding share of the Company's currently authorized Class A common stock,
mandatorily redeemable Class C common stock and convertible mandatorily
redeemable preferred stock ("Redeemable Preferred Stock") will automatically be
converted into 53 shares of a newly authorized class of Common Stock. As part of
the Recapitalization, the Company will pay in cash all accrued dividends on the
Redeemable Preferred Stock. See Notes 6, 7 and 16 of Notes to Consolidated
Financial Statements.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1993 1994 1995 1996
---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Total revenues .................................... $11,315 $ 14,584 $19,706 $30,200
Income (loss) from operations ..................... 17 (1,019) 955 637
Net income (loss) ................................. (189) (1,045) 712 299
Net income (loss) attributable to
common stockholders ............................ (189) (1,045) 628 115
Pro forma net income (loss) attributable to
common stockholders(1) ......................... (86) (692) 379 115
Pro forma net income (loss) per common and
common equivalent share(1)(2) ................... $ (0.03) $ (0.20) $ 0.11 $ 0.05
Pro forma weighted average number of common
and common equivalent shares outstanding(2) .... 3,106 3,504 4,311 5,481
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
-------------------
1995 1996
---- ----
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Total revenues .................................... $ 20,673 $28,688
Income (loss) from operations ..................... (1,393) 1,606
Net income (loss) ................................. (858) 834
Net income (loss) attributable to
common stockholders ............................ (996) (169)
Pro forma net income (loss) attributable to
common stockholders(1) ......................... (996) (169)
Pro forma net income (loss) per common and
common equivalent share(1)(2) ................... $ (0.16) $ 0.15
Pro forma weighted average number of common
and common equivalent shares outstanding(2) .... 5,481 5,481
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------
PRO FORMA
FOR
ACTUAL RECAPITALIZATION(3) AS ADJUSTED(4)
--------- ------------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................................... $ 740 $ 308 $18,764
Working capital (deficit) .................................... (410) (843) 19,979
Total assets ................................................ 24,781 24,348 42,804
Notes payable to related parties, less current portion ...... 240 240 -
Total stockholders' equity (deficit) ........................ (722) 3,267 24,329
</TABLE>
- ---------
(1) Prior to their October 31, 1994 acquisition, certain businesses acquired by
the Company were taxed as S corporations. Pro forma net income (loss) for
the years ended March 31, 1993, 1994 and 1995 reflects historical data as
adjusted for all income being taxed as a C corporation.
(2) Pro forma net income (loss) per common and common equivalent share and the
pro forma weighted average number of common and common equivalent shares
outstanding reflects the Company's historical data as adjusted for the
Recapitalization and the options and stock issued during the period
commencing 12 months prior to the initial filing of the registration
statement for this offering. For purposes of the pro forma net income (loss)
per common and common equivalent share, the treasury stock method has been
used assuming an initial offering price of $12.00 per share.
(3) Gives retroactive effect to the Recapitalization and related payment of
accrued dividends. See "-The Recapitalization."
(4) Adjusted to reflect the sale of 1,950,000 shares of Common Stock by the
Company at an assumed initial public offering price of $12.00 per share and
the application of the net proceeds therefrom as set forth in "Use of
Proceeds."
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 and Change in Control Agreements."
ACQUISITION RISK. In November 1996, the Company acquired Bellamy Software
Ltd. ("Bellamy") for consideration consisting of $375,000 cash, a $300,000 note
and 63,600 shares of Common Stock. For additional information regarding this and
other recent acquisitions by the Company, see Note 3 of Notes to Consolidated
Financial Statements. 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 remarketer
arrangements 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
8
<PAGE>
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."
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."
BENEFITS OF THE OFFERING TO CURRENT SHAREHOLDERS. One of the principal
purposes of this offering is to create a public market for the Company's Common
Stock. The Selling Shareholders will receive an aggregate of approximately $6.1
million of the net proceeds of this offering (assuming an initial public
offering price of $12.00 per share). As a result of this offering, the Selling
Shareholders will also beneficially own Common Stock having an aggregate market
value (based on an assumed initial offering price of $12.00 per share) of
approximately $54.7 million. The Company's current shareholders acquired their
Common Stock at an average price per share of approximately $0.70. In addition,
approximately
9
<PAGE>
$300,000 of the net proceeds of this offering will be used to retire a note held
by one of the Company's minority shareholders. See "Use of Proceeds,"
"Dilution" and "Principal and Selling Shareholders."
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, 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. Approximately 4.6 million
of the remaining shares are subject to agreements with the Underwriters under
which such shares may not be offered, sold or otherwise disposed of for a period
of 180 days after the date of this Prospectus without the prior written consent
of Volpe Brown Whelan & Company, LLC, but will thereafter be eligible for sale
pursuant to Rule 144 of the Securities Act. 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 a 180-day lock-up agreement. In recent
offerings in which it has served as lead manager of underwriters, Volpe Brown
Whelan & Company, LLC 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 Brown Whelan & Company, LLC 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 will be 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
10
<PAGE>
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."
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 his 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. Voting rights must also 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 Amended Articles, among other things, provide that (i) 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) any meeting 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,
(iii) an advance notice procedure must be followed for nomination of directors
and for other shareholder proposals to be considered at annual shareholders'
meetings, and (iv) the Company's Board of Directors be divided into three
classes, each of which serves for different three-year periods. In addition, the
Company will be authorized to issue additional shares of 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. 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 principal purposes
of this offering are to obtain additional working capital, to create a public
market for the Company's Common Stock and to facilitate the Company's future
access to public equity markets. The Company expects to use most of the net
proceeds of this offering for working capital and general corporate purposes. A
portion of the net proceeds of the offering may also be used to acquire or
invest in products, technologies or businesses that broaden or enhance the
Company's current product or service offerings. Other than as set forth herein,
there are no current agreements or understandings with respect to any
acquisitions, investments or other transactions. Accordingly, 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."
11
<PAGE>
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 11/4%. On
February 15, 1997, an aggregate of approximately $1.8 million was outstanding
under the revolving credit facility. Amounts repaid on the revolving credit
facility may be reborrowed. The Company further intends to repay $300,000
aggregate principal balance on notes payable to related parties arising from the
purchase of Bellamy which notes accrue interest at 10% per annum.
The principal purposes of this offering are to obtain additional working
capital, to create a public market for the Company's Common Stock and to
facilitate the Company's future access to public equity markets. The Company
expects to use most of the net proceeds of this offering for working capital and
general corporate purposes. A portion of the net proceeds of the offering may
also be used to acquire or invest in products, technologies or businesses that
broaden or enhance the Company's current product or service offerings. Other
than as set forth herein, there are no current agreements or understandings with
respect to any acquisitions, investments or other transactions. Pending such
uses, the Company intends to invest the remaining net proceeds in short-term,
investment grade, interest- bearing 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 (i) the capitalization of the Company as of
December 31, 1996, (ii) the capitalization on a pro forma basis after giving
retroactive effect to the Recapitalization (see "Prospectus Summary-The
Recapitalization") and (iii) the capitalization as adjusted 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. See "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
FOR
ACTUAL RECAPITALIZATION(1) AS ADJUSTED(2)
--------- ---------------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable to related parties, less current portion (3) ...... $ 240 $ 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 or as adjusted ............... 4,303 - -
Mandatorily redeemable Class C, Common Stock:
.0002 par value, 200,000 shares authorized; 63,600 shares issued;
none pro forma or as adjusted .................................... 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 or 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,
5,363,651 shares pro forma for the Recapitalization, and
7,313,651 shares as adjusted (4) ............................... - 54 73
Additional paid-in capital .................................... 229 4,165 25,208
Accumulated deficit ............................................. (947) (947) (947)
Cumulative translation adjustment .............................. (5) (5) (5)
----- ----- ------
Total stockholders' equity (deficit) ........................... (722) 3,267 24,329
----- ----- ------
Total capitalization .......................................... $3,940 $3,507 $24,329
===== ===== ======
</TABLE>
- ---------
(1) See "Prospectus Summary-The Recapitalization" and Notes 6, 7 and 16 of
Notes to Consolidated Financial Statements.
(2) Adjusted to give effect to the sale of 1,950,000 shares of Common Stock
offered by the Company at an assumed offering price of $12.00 per share and
the application of the net proceeds therefrom. See "Use of Proceeds."
(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 1,950,000 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>
<S> <C> <C>
Assumed initial public offering price per share ..................... $12.00
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, 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 the 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 pursuant to the Recapitalization.
See "Prospectus Summary-The Recapitalization" and Notes 6, 7 and 16 of Notes
to Consolidated Financial Statements.
The foregoing tables assume no exercise of outstanding options. 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 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 years ended March 31,
1993 and 1994 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 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.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------
1993 1994 1995 1996
---------- ----------- --------- ----------
(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
Accretion and accrual of dividends on mandatorily redeemable
preferred stock ............................................... -- -- (84) (184)
------- ------- ------- --------
Net income (loss) attributable to common stockholders .......... $ (189) $(1,045) $ 628 $ 115
======= ======= ======= ========
Pro forma provision (benefit) for income taxes(1) ............... (103) (353) 249 --
------- ------- -------- --------
Pro forma net income (loss) attributable to common
stockholders(1) ............................................... $ (86) $ (692) $ 379 $ 115
======= ======= ======== ========
Pro forma net income (loss) per common and common equivalent
share(1)(2) ................................................... $ (0.03) $ (0.20) $ 0.11 $ 0.05
======= ======== ========
Pro forma weighted average number of common and common
equivalent shares outstanding ................................. 3,106 3,504 4,311 5,481
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Software licenses .............................................. $ 6,552 $ 9,139
Professional services .......................................... 4,528 5,586
Hardware ....................................................... 4,788 7,435
Maintenance and other .......................................... 4,805 6,528
-------- --------
Total revenues ................................................ 20,673 28,688
-------- --------
Operating expenses:
Cost of software licenses ...................................... 2,647 2,402
Cost of professional services .................................. 3,823 3,223
NINE MONTHS ENDED
DECEMBER 31,
---------------------
1995 1996
---------- ----------
Cost of hardware ............................................... 3,741 5,890
Cost of maintenance and other .................................. 2,317 2,216
Research and development ....................................... 2,586 3,729
Sales and marketing ............................................ 3,312 5,228
General and administrative ..................................... 3,640 4,394
-------- --------
Total operating expenses ...................................... 22,066 27,082
-------- --------
Income (loss) from operations ................................... (1,393) 1,606
Other expenses:
Interest expense ............................................... 70 191
------- --------
Income (loss) before provision for income taxes ................. (1,463) 1,415
Provision (benefit) for income taxes ............................ (605) 581
------- --------
Net income (loss) ............................................... (858) 834
Accretion and accrual of dividends on mandatorily redeemable
preferred stock ............................................... (138) (1,003)
------- --------
Net income (loss) attributable to common stockholders .......... $ (996) $ (169)
======= ========
Pro forma provision (benefit) for income taxes(1) ............... -- --
-------- --------
Pro forma net income (loss) attributable to common
stockholders(1) ............................................... $ (996) $ (169)
======= ========
Pro forma net income (loss) per common and common equivalent
share(1)(2) ................................................... $ (0.16) $ 0.15
======= ========
Pro forma weighted average number of common and common
equivalent shares outstanding ................................. 5,481 5,481
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
-------------------------------------------- ---------------
1993 1994 1995 1996 1996
---------- ---------- --------- ----------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............................. $ 599 $ 737 $ 1,653 $ 388 $ 740
Working capital ....................................... (1,629) (3,188) (748) (916) (410)
Total assets .......................................... 8,980 8,180 13,786 17,941 24,781
Notes payable to related parties, less current portion 225 150 75 -- 240
Total stockholders' equity (deficit) .................. 714 (591) (629) (552) (722)
</TABLE>
(1) Prior to their October 31, 1994 acquisition, certain businesses acquired
by the Company were taxed as S corporations. The pro forma net income
(loss) for the years ended March 31, 1993, 1994 and 1995 reflects
historical data as adjusted for all income being taxed as a C
corporation. See Note 11 of Notes to Consolidated Financial Statements.
(2) Pro forma net income (loss) per common and common equivalent share and
the pro forma weighted average number of common and common equivalent
share outstanding reflects the Company's historical data as adjusted for
the Recapitalization and options and stock issued during the period
commencing 12 months prior to the initial filing of the registration
statement for this offering. For purposes of the pro forma net income
(loss) per common and common equivalent share, the treasury stock method
has been used assuming an initial offering price of $12.00 per share. See
Note 1 of Notes to Consolidated Financial Statements.
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 systems,
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. This methodology is 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 remarketer 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 remarketing 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
remarketer 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,
1995 1995 1995
------------ ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Software licenses ................................. $3,251 $ 1,435 $2,062
Professional services .............................. 965 1,602 1,574
Hardware .......................................... 251 872 1,412
Maintenance and other .............................. 1,517 1,494 1,543
------ ------- ------
Total revenues .................................... 5,984 5,403 6,591
------ ------- ------
Operating expenses:
Cost of software licenses ........................ 587 1,172 731
Cost of professional services ..................... 917 1,314 1,259
Cost of hardware ................................. 196 629 1,092
Cost of maintenance and other ..................... 863 754 716
Research and development ........................... 603 849 828
Sales and marketing .............................. 1,097 1,039 1,011
General and administrative ........................ 1,292 1,121 1,152
------ ------- ------
Total operating expenses ........................... 5,555 6,878 6,789
------ ------- ------
Income (loss) from operations ........................ 429 (1,475) (198)
Other expenses:
Interest expense .................................... 34 17 20
------ ------- ------
Income (loss) before provision for income taxes ... 395 (1,492) (218)
Provision (benefit) for income taxes ............... 65 (617) (90)
------ ------- ------
Net income (loss) ................................. $ 330 $ (875) $ (128)
====== ======= ======
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1996 1996 1996 1996
----------- ------------ ----------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses ................................. $3,055 $4,599 $1,036 $3,409 $4,694
Professional services .............................. 1,352 1,675 1,701 1,578 2,307
Hardware .......................................... 2,504 1,369 2,300 1,914 3,221
Maintenance and other .............................. 1,768 1,884 2,051 2,191 2,286
------ ------ ------ ------ ------
Total revenues .................................... 8,679 9,527 7,088 9,092 12,508
------ ------ ------ ------ ------
Operating expenses:
Cost of software licenses ........................ 744 749 676 906 820
Cost of professional services ..................... 1,250 1,206 1,056 1,109 1,058
Cost of hardware ................................. 2,020 1,081 1,815 1,443 2,632
Cost of maintenance and other ..................... 847 801 636 724 856
Research and development ........................... 909 905 1,224 1,197 1,308
Sales and marketing .............................. 1,262 1,354 1,332 2,098 1,798
General and administrative ........................ 1,367 1,401 1,251 1,355 1,788
------ ------ ------ ------ ------
Total operating expenses ........................... 8,399 7,497 7,990 8,832 10,260
------ ------ ------ ------ ------
Income (loss) from operations ........................ 280 2,030 (902) 260 2,248
Other expenses:
Interest expense .................................... 33 57 64 61 66
------ ------ ------ ------ ------
Income (loss) before provision for income taxes ... 247 1,973 (966) 199 2,182
Provision (benefit) for income taxes ............... 102 816 (397) 82 896
------ ------ ------ ------ ------
Net income (loss) ................................. $ 145 $1,157 $ (569) $ 117 $1,286
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
-----------------------------------
QUARTER ENDED
-----------------------------------
MARCH 31, JUNE 30, SEPT. 30,
1995 1995 1995
------------ ----------- ----------
<S> <C> <C> <C>
Revenues:
Software licenses ................................. 54.3% 26.6% 31.3%
Professional services .............................. 16.1 29.6 23.9
Hardware .......................................... 4.2 16.1 21.4
Maintenance and other .............................. 25.4 27.7 23.4
------ -------- ------
Total revenues .................................... 100.0 100.0 100.0
------ -------- ------
Operating expenses:
Cost of software licenses ........................... 9.8 21.7 11.1
Cost of professional services ..................... 15.3 24.3 19.1
Cost of hardware .................................... 3.3 11.6 16.6
Cost of maintenance and other ..................... 14.4 14.0 10.9
Research and development ........................... 10.1 15.7 12.6
Sales and marketing ................................. 18.3 19.2 15.3
General and administrative ........................... 21.6 20.8 17.5
------ -------- ------
Total operating expenses ........................... 92.8 127.3 103.1
------ -------- ------
Income (loss) from operations ........................ 7.2 (27.3) (3.1)
Other expenses:
Interest expense .................................... 0.6 0.3 0.3
------ -------- ------
Income (loss) before provision for income taxes ...... 6.6 (27.6) (3.4)
Provision (benefit) for income taxes ............... 1.1 (11.4) (1.4)
------ -------- ------
Net income (loss) .................................... 5.5% (16.2)% (2.0)%
====== ======== ======
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
----------------------------------------------------------
QUARTER ENDED
----------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1996 1996 1996 1996
----------- ------------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses ................................. 35.2% 48.3% 14.6% 37.5% 37.5%
Professional services .............................. 15.6 17.6 24.0 17.4 18.4
Hardware .......................................... 28.8 14.3 32.5 21.0 25.8
Maintenance and other .............................. 20.4 19.8 28.9 24.1 18.3
------ ------ ------ ------ ------
Total revenues .................................... 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------
Operating expenses:
Cost of software licenses ........................... 8.6 7.9 9.5 9.9 6.5
Cost of professional services ..................... 14.4 12.7 14.9 12.2 8.5
Cost of hardware .................................... 23.3 11.3 25.6 15.9 21.0
Cost of maintenance and other ..................... 9.8 8.4 9.0 7.9 6.8
Research and development ........................... 10.5 9.5 17.3 13.2 10.5
Sales and marketing ................................. 14.5 14.2 18.8 23.1 14.4
General and administrative ........................... 15.7 14.7 17.6 14.9 14.3
------ ------ ------ ------ ------
Total operating expenses ........................... 96.8 78.7 112.7 97.1 82.0
------ ------ ------ ------ ------
Income (loss) from operations ........................ 3.2 21.3 (12.7) 2.9 18.0
Other expenses:
Interest expense .................................... 0.4 0.6 0.9 0.7 0.5
------ ------ ------ ------ ------
Income (loss) before provision for income taxes ...... 2.8 20.7 (13.6) 2.2 17.5
Provision (benefit) for income taxes ............... 1.2 8.6 (5.6) 0.9 7.2
------ ------ ------ ------ ------
Net income (loss) .................................... 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 as 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 11/4% 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.
24
<PAGE>
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.
25
<PAGE>
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 to
26
<PAGE>
potential new customers that are currently looking for a point solution, such as
a single department- based application, but 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.
27
<PAGE>
The following table summarizes the Company's applications and the
principal benefits of the integrated application system.
<TABLE>
<S> <C>
FINANCIAL MANAGEMENT SYSTEMS
11 APPLICATIONS
- ----------------------------------------------------------------------------------------------------------
/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>
<S> <C>
COMMUNITY SERVICE SYSTEMS
7 APPLICATIONS
- ----------------------------------------------------------------------------------------------------------
/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>
<S> <C>
PUBLIC SAFETY SYSTEMS
12 APPLICATIONS
- ---------------------------------------------------------------------------------------------------
/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>
<S> <C>
UTILITY SYSTEMS
5 APPLICATIONS
- -------------------------------------------------------------------------------------------------------
/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
28
<PAGE>
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, 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.
29
<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 and 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.
Also 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.
30
<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.
31
<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.
32
<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
33
<PAGE>
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, with no integration, on various PC
networks and mainframes. 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/ /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/ /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 seeks 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. Typically, the Company resells such third-party software
products as an integrated part of one or more of the applications included in
HTE's Total Enterprise Solution. 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 another 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
37
<PAGE>
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.
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
</TABLE>
- ---------
(1) Member of Compensation Committee.
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 1987 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
First National Bank of Boston, a commercial 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.
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 will
consist of three classes, each of 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 Executive Incentive Plan. Following the completion
of this offering, the Board of Directors will have an Audit
40
<PAGE>
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" and "-Employment Agreements and Change in
Control 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 with respect to services rendered during the nine months ended December
31, 1996 and the fiscal years ended March 31, 1996, and 1995, respectively, to
the Chief Executive Officer and to each of the four other most highly
compensated executive officers of the Company as of December 31, 1996 (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(3) OPTIONS(4) COMPENSATION
- ---------------------------------------- ----------- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Dennis J. Harward 12/31/96 $150,000 $62,157 - $ 3,190(5)
Chairman of the Board of Directors, 3/31/96 175,000 78,794 2,250
President and Chief Executive Officer 3/31/95 175,000 20,000 2,250
Jack L. Harward 12/31/96 $106,875 $38,487 - $ 5,820(5)
Executive Vice President 3/31/96 142,550 73,980 2,250
3/31/95 130,000 20,000 1,950
Daniel E. Catan 12/31/96 $ 75,000 $21,750 1,000 $75,576(6)
Vice President-Chief
Marketing Officer(7)
Ronald E. Goodrow 12/31/96 $ 90,000 $26,100 - $ 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 $11,245 $ 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 compensation for each Named Executive Officer shown for the fiscal year
ended December 31, 1996 reflects compensation payable 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) 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. See "-Annual Incentive Compensation Bonuses."
(4) See the table under "Stock Options Granted in the Nine Months Ended
December 31, 1996" below for additional information concerning these
options.
(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 $29,300 for
commissions.
(7) Mr. Catan's employment began July 1, 1996.
(8) Ms. Falotico's employment began December 29, 1995.
42
<PAGE>
OPTION GRANTS, EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to grants of
options to purchase shares of Common Stock during the nine months ended December
31, 1996 to the Named Executive Officers. The amounts shown as potential
realizable values on the options are based on assumed annualized rates of
appreciation in the price of the Common Stock of 0%, 5% and 10% over the term of
the options, as set forth in rules of the Securities and Exchange Commission.
Actual gains, if any, on stock option exercises are dependent on future
performance of the Common Stock. There can be no assurance that the potential
realizable values reflected in this table will be achieved.
STOCK OPTION GRANTS IN THE NINE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
---------------------------------------------------------------------------- ---------------------------
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO EXERCISE OR
UNDERLYING OPTIONS EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED(#) IN 12/31/96 ($/SHARE) DATE 0%($) 5%($) 10%($)
- ----------------------- ----------------------- --------------------- ------------- ---------------- ---- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <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
- ----------------------- ---------------------------- ----------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
<S> <C> <C>
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. The executive may
resign upon 60 days written notice and upon such resignation the Company will
pay to the executive any unpaid base salary, any accrued but unpaid incentive
compensation through the effective date of resignation and a pro rata portion of
the incentive compensation for such period. 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), 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 executive any unpaid base salary, any accrued but
unpaid incentive compensation through the date of
43
<PAGE>
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 or (iii) 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 16, 1997 the Company entered into an employment
agreement with L.A. Gornto, Jr. Pursuant to the agreement, Mr. Gornto has agreed
to make himself available on a full-time basis to serve as the Company's
Executive Vice President, Chief Financial Officer and General Counsel. 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
up to 16 hours per week of services and for additional independent contractor
payments based on hourly rates for additional, primarily legal, services. The
Company anticipates that Mr. Gornto will devote substantially his full business
time to the Company's affairs. 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 and for Mr. Catan commissions on
certain sales. 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, the
Company will pay to the executive any unpaid base salary and any accrued but
unpaid incentive compensation through the date of termination. In the event an
executive is terminated without Cause (as defined), 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, (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 BONUSES
The Company has an incentive compensation bonus program for its executive
officers pursuant to which distributions may be made annually based on the
Company's earnings 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 and are generally based on a percentage of the
participating officer's base salary.
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. See "Use of Proceeds."
In November 1994, BancBoston Ventures, Inc. purchased 1,090,316 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
545,158 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 134,021 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 272,420 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 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
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 of 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 (after giving
retroactive effect to the Recapitalization) 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 who holds any shares, (iii) each director of
the Company who holds any shares and (iv) all executive officers and directors
of the Company as a group.
<TABLE>
<CAPTION>
SHARES SHARES BENEFICIALLY
BENEFICIALLY OWNED OWNED
PRIOR TO OFFERING(3) AFTER OFFERING
------------------------ NUMBER OF -------------------------
SHARES BEING
NAME OF BENEFICIAL OWNER(1)(2) NUMBER PERCENT OFFERED NUMBER PERCENT(4)
- ------------------------------------- ------------ ---------- -------------- ------------ ------------
<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(5) ...... 679,178 12.7 110,000 569,178 7.6
259 Radnor Chestor Road-Suite 140
Radnor, Pennsylvania 19087
L.A. Gornto, Jr.(6) ............... 79,500 1.4 - 79,500 1.1
Ronald E. Goodrow(7) ............... 79,500 1.4 - 79,500 1.1
Daniel E. Catan(8) .................. 53,000 * - 53,000 *
All executive officers and directors
as a group (9 persons)(9) ......... 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 such person.
(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) Does not reflect the possible exercise of the Underwriters' over-allotment
option.
(5) Bernard B. Markey, a director of the Company, Robert E. Brown, Jr., Esq. and
Raymond R. Rafferty, Jr. serve as the general partners of this Pennsylvania
limited partnership and hold in the aggregate an approximately 1%
partnership interest.
(6) Includes 26,500 shares of Common Stock that Mr. Gornto may acquire within 60
days upon the exercise of stock options.
(7) Includes 53,000 shares of Common Stock that Mr. Goodrow may acquire within
60 days upon the exercise of stock options.
(8) Includes 53,000 shares of Common Stock that Mr. Catan may acquire within 60
days upon exercise of stock options.
(9) See footnotes (1) through (8).
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
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. 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") and (ii) there will be 7,313,651
shares of Common Stock outstanding and no shares of Preferred Stock outstanding.
See "Prospectus Summary-The Recapitalization."
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 thereof
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 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, and will be entitled to certain rights with
respect to the registration of such shares under the Securities Act. 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, Dennis J. Harward and Jack L.
Harward have the right, subject to certain limitations, to include their shares
in any offering initiated by the Company whether for its own account or for
other
48
<PAGE>
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 such
other shareholders written notice, at which point the Investors and such other
shareholders will have ten days to make a written request of the Company to
include their shares of Common Stock in such registration, subject to the
underwriter's right to limit such shares and certain other limitations.
Generally, the Company is required to bear the expense of all such registrations
except for transfer taxes.
In addition, 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. Additionally, voting rights are 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 that (i) 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) 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 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) an advance notice procedure must be followed for the
nomination of directors and for other shareholder proposals to be considered at
annual meetings of shareholders. In general, notice of intent to nominate a
director or to 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 662/3% 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
49
<PAGE>
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 for the previous year's annual meeting. However, 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
must be 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."
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 derivative
proceeding, conscious disregard for the best interest of the corporation or
willful misconduct, or (5) in a non-derivative proceeding, 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.
50
<PAGE>
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, 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). Without consideration of
the contractual restrictions described below, the remaining restricted shares
will be transferable, pursuant to Rule 144, beginning 90 days after the date of
this Prospectus and following the expiration of the applicable Rule 144 holding
period.
The Selling Shareholders and certain of the Company's executive officers
(who collectively will own approximately 4.6 million shares of Common Stock
subsequent to this offering) 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 Volpe Brown Whelan & Company, LLC. Upon expiration of the Lockup
Period, the shares held by such persons will be eligible for sale in the public
market pursuant to Rule 144. See "Underwriting." Approximately 112,000 of the
remaining shares will be eligible for resale, pursuant to Rule 144, 90 days
after this offering, and approximately 63,000 shares will be eligible for resale
pursuant to Rule 144 in November 1997.
In general, under Rule 144, if one year has 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 two 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.
In addition, the holders of approximately 4.6 million 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. 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.
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 Brown Whelan & Company, LLC 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 Brown Whelan & Company, LLC ......
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.
The Selling Shareholders 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 Brown Whelan & Company, LLC. 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 Brown Whelan & Company, LLC, except for the granting of
options or the issuance of stock pursuant to the Company's existing stock
option plans. Volpe Brown Whelan & Company, LLC, 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 Brown Whelan
53
<PAGE>
& Company, LLC 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 Brown Whelan & Company, LLC 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 will be determined
by negotiations between the Company, the Selling Shareholders and the
Representatives. Among the factors to be 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.
In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the offering then
they are committed to purchase from the Company and the Selling Stockholders,
and in such case may purchase Common Stock in the open market following
completion of the offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
375,000 shares, by exercising the Underwriters' over-allotment option referred
to above. In addition, Volpe Brown Whelan & Company, LLC, on behalf of the
Underwriters, may impose "penalty bids" under contractual arrangements
with the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the offering), for the account of the other Underwriters, the
selling concession with respect to Common Stock that is distributed in the
offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.
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.
54
<PAGE>
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, 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.
April 7, 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 $ 307,721
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 18,257,260
---------- ---------- ----------
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 $24,348,257
========== ========== ==========
</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 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 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 19,099,848
---------- ---------- ----------
LONG-TERM LIABILITIES:
Notes payable to related parties, less current portion
(Note 3) .................................................. - 240,000 240,000
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 1,981,228
---------- ---------- ----------
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,
5,363,651 shares issued and outstanding on a pro
forma basis ........................................... - - 53,637
Additional paid-in capital .............................. 223,724 228,724 4,165,138
Accumulated deficit .................................... (514,253) (946,755) (946,755)
Cumulative translation adjustment ........................ - (4,839) (4,839)
---------- ---------- ----------
(289,863) (722,204) 3,267,181
Notes receivable from stockholders (Note 8) ............ (262,375) - -
---------- ---------- ----------
Total stockholders' equity (deficit) .................. (552,238) (722,204) 3,267,181
---------- ---------- ----------
$17,941,294 $24,780,799 $24,348,257
========== ========== ==========
</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>
YEAR ENDED 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)
========== =========== =========== ===========
PRO FORMA ADJUSTMENT TO PROVISION
FOR INCOME TAXES (Note 11) ............ 248,738 - - -
---------- ----------- ----------- -----------
PRO FORMA NET INCOME (LOSS)
ATTRIBUTABLE TO COMMON
STOCKHOLDERS ........................ $ 379,509 $ 115,415 $ (995,669) $ (168,933)
========== =========== =========== ===========
PRO FORMA NET INCOME (LOSS)
PER COMMON AND COMMON
EQUIVALENT 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
COMMON STOCK COMMON STOCK ADDITIONAL
------------------------ ------------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
- --------------------------------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, March 31, 1994 ......... -- $ 1,647 816,200 $154 $ 142,748
Exchange of stock due to
recapitalization (Note 6) .... -- (1,647) 2,575,800 486 1,161
Stockholder distribution in
connection with PSC
combination (Note 3) ......... -- -- -- -- (143,909)
Stockholder distributions ..... -- -- -- -- --
Accretion of mandatorily
redeemable preferred stock to
redemption value ............. -- -- -- -- --
Accrual of mandatorily
redeemable preferred stock
dividends .................... -- -- -- -- --
Net income ..................... -- -- -- -- --
--------- ---------- ------------ --------- -------------
BALANCE, March 31, 1995 ......... -- -- 3,392,000 640 --
--------- ---------- ------------ --------- -------------
Issuance of common stock ...... -- -- 135,528 26 223,724
Accretion of mandatorily
redeemable preferred stock to
redemption value ............. -- -- -- -- --
Accrual of mandatorily
redeemable preferred stock
dividends .................... -- -- -- -- --
Advances on notes receivable
from stockholders ............ -- -- -- -- --
Net income ..................... -- -- -- -- --
--------- ---------- ------------ --------- -------------
BALANCE, March 31, 1996 ......... -- -- 3,527,528 666 223,724
--------- ---------- ------------ --------- -------------
Issuance of common stock ...... -- -- 3,029 -- 5,000
Accretion of mandatorily
redeemable preferred stock to
redemption value ............. -- -- -- -- --
Accrual of mandatorily
redeemable preferred stock
dividends .................... -- -- -- -- --
Advances on notes receivable
from stockholders ............ -- -- -- -- --
Forgiveness of notes receivable
from stockholders ............ -- -- -- -- --
Cumulative translation
adjustment ................... -- -- -- -- --
Net income ..................... -- -- -- -- --
--------- ---------- ------------ --------- -------------
BALANCE, December 31, 1996 ..... -- $ -- 3,530,557 $666 $ 228,724
========= ========== ============ ========= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOTES
CUMULATIVE RECEIVABLE
ACCUMULATED TRANSLATION FROM
DEFICIT ADJUSTMENT STOCKHOLDERS TOTAL
----------- ----------- ------------ -----
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1994 ......... $(735,197) $-- $-- $(590,648)
Exchange of stock due to
recapitalization (Note 6) .... -- -- -- --
Stockholder distribution in
connection with PSC
combination (Note 3) ......... (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 ......... (629,668) -- -- (629,028)
-------------- -------------- --------------- -------------
Issuance of common stock ...... -- -- -- 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)
F-7
<PAGE>
NOTES
CUMULATIVE RECEIVABLE
ACCUMULATED TRANSLATION FROM
DEFICIT ADJUSTMENT STOCKHOLDERS TOTAL
----------- ----------- ------------ -----
<S> <C> <C> <C> <C>
Advances on notes receivable
from stockholders ............ -- -- (262,375) (262,375)
Net income ..................... 299,343 -- -- 299,343
-------------- -------------- --------------- -------------
BALANCE, March 31, 1996 ......... (514,253) -- (262,375) (552,238)
-------------- -------------- --------------- -------------
Issuance of common stock ...... -- -- -- 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 ..... $(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>
YEAR ENDED 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>
YEAR ENDED 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, uncertainty surrounding customer acceptance becomes
insignificant and collection of the related receivable is probable. Maintenance
fees are deferred and recognized ratably over the service period. Professional
services include system planning and implementation, project management and
training and education services and are recognized as the work is performed.
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 $1.76 per share. The value of the
mandatorily redeemable Class C common stock at the acquisition date was
determined based on an appraisal of the fair market value of the Company on that
date. 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). The line of credit
contains financial covenants which require the Company to maintain certain
financial ratios. As of December 31, 1996, the Company was in compliance with
all financial covenants.
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. The accretion related to the preferred
stock was determined based on the liquidation preference as of March 31, 1996,
and the formula value as of December 31, 1996.
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:
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 C
corporations 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.
The Company has also entered into severance agreements with Dennis J.
Harward and Jack L. Harward that will become effective on, and provide for
continued employment or retention following, a "Change in Control" (as
defined) of the Company. Such agreements generally provide that upon (i)
termination by the Company of the executive's employment for any reason other
than death, mental or physical incapacity, illness, 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 the Company 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.
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
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)
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 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, mandatorily redeemable Class C common
stock and Class A common stock to shares of the Company's newly authorized
Common Stock and the related payment of accrued dividends as if the transactions
had occurred as of December 31, 1996.
F-25
<PAGE>
Photo of Six people
* Industry expertise
* Proven Products
* Integrated, cost-effective systems
* Commitment to long term partnerships
* Dependability
[HTE LOGO]
More Than Software....
<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 .................. 3
Risk Factors ........................ 6
The Company ........................... 12
Use of Proceeds ..................... 12
Dividend Policy ..................... 12
Capitalization ........................ 13
Dilution .............................. 14
Selected Financial Data ............... 15
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ............... 17
Business .............................. 24
Management ........................... 39
Certain Transactions .................. 46
Principal and Selling Shareholders ... 47
Description of Capital Stock ......... 48
Shares Eligible for Future Sale ...... 52
Underwriting ........................ 53
Legal Matters ........................ 55
Experts .............................. 55
Additional Information ............... 55
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
----------------
HTE LOGO
H.T.E., INC.
COMMON STOCK
------------
PROSPECTUS
, 1997
------------
VOLPE BROWN WHELAN & COMPANY
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:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee .................................... $11,326
NASD filing fee ........................................................................ 4,238
Nasdaq National Market listing fee ...................................................... 25,000
Printing and engraving expenses ......................................................... 100,000
Accounting fees and expenses ............................................................ 250,000
Legal fees and expenses ............................................................... 150,000
Fees and expenses (including legal fees) for qualifications under state securities laws 2,500
Registrar and Transfer Agent's fees and expenses ....................................... 2,500
Miscellaneous ........................................................................... 154,436
--------
Total ................................................................................. $700,000
========
</TABLE>
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 November 1996, the Company issued an aggregate of 1,200 shares of Class
C Common Stock as part of its purchase of Bellamy Software, Ltd., an Alberta,
Canada corporation ("Bellamy").
In June 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, (ii) Meridian Venture
Partners purchased 10,286 shares of redeemable preferred stock of the Company
for an aggregate purchase price of $1,000,000, (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 HTE-Public Safety Illinois, Inc. owned by him prior to the stock
purchase by HTE.
The issuance of such shares pursuant to each of the above described
transactions was exempt from the registration requirements of the Securities
Act, as amended, pursuant to the exemption set forth in Section 4(2).
The issuance of shares of the Company's newly authorized common stock
pursuant to the Recapitalization (see "Prospectus Summary-The
Recapitalization") will be exempt from the registration requirements of the
Securities Act pursuant to the exemption set forth in Section 3(a)(9) thereof.
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 [Intentionally deleted]
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**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------
<S> <C>
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 Statement re computation per share earnings*
21 Subsidiaries of Registrant*
23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (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 as originally filed
for the Power of Attorney contained therein*
27.1 Financial Data Schedule*
27.2 Financial Data Schedule*
</TABLE>
- ----------------
* Previously filed.
** Filed herewith.
(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 April 4, 1997.
H.T.E., INC.
By: /s/ DENNIS J. HARWARD
-------------------------------------
Dennis J. Harward
Chairman of the Board, Director
President and Chief Executive Officer
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 Chairman of the Board of Directors April 4, 1997
- ----------------------------- President and Chief Executive Officer
Dennis J. Harward and Director (principal executive officer)
/s/ JACK L. HARWARD Executive Vice President and Director April 4, 1997
- -----------------------------
Jack L. Harward
/s/ L.A. GORNTO, JR. Executive Vice President, April 4, 1997
- ----------------------------- Chief Financial Officer
L.A. Gornto, Jr. (principal financial officer)
/s/ SUSAN D. FALOTICO Vice President, Controller April 4, 1997
- ----------------------------- Chief Accounting Officer
Susan D. Falotico (chief accounting officer)
/s/ BERNARD B. MARKEY Director April 4, 1997
- -----------------------------
Bernard B. Markey
/s/ PETER R. ROBERTS Director April 4, 1997
- -----------------------------
Peter R. Roberts
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------ --------------
<S> <C> <C>
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to
the validity of the Common Stock being registered
10.3 Catan Option Agreement
10.4 Registration Rights Agreement
10.5 Form of Stock Option Agreement
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)
23.2 Consent of Arthur Andersen LLP
</TABLE>
Bruce E. Macdonough
(305) 579-0882
April 7, 1997
Dennis J. Harward
Chairman, President and
Chief Financial Officer
H.T.E., Inc.
390 North Orange Avenue, Suite 2000
Orlando, Florida 32801
RE: PUBLIC OFFERING
Gentlemen:
On March 3, 1997, H.T.E., Inc., a Florida corporation (the "Company"),
filed with the Securities and Exchange Commission a Registration Statement on
Form S-1 (No. 333-22637) (the "Registration Statement") under the Securities Act
of 1933, as amended (the "Act"). The Registration Statement relates to: (i) the
sale by the Company of up to 1,950,000 shares (the "Public Shares") of the
Company's Common Stock, par value $.01 per share (the "Common Stock") and the
sale of up to 375,000 shares of Common Stock which may be purchased by the
Underwriters' pursuant to an over-allotment option (the "Over-Allotment Shares"
and together with the Public Shares, the "Offering Shares"); and (ii) the sale
by certain selling shareholders of the Company of up to 550,000 shares (the
"Selling Shareholder Shares") of Common Stock. We have acted as counsel to the
Company in connection with the preparation and filing of the Registration
Statement.
In connection therewith, we have examined and relied upon copies of (i)
the Company's Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws, (ii) resolutions of the Company's Board of Directors
authorizing the offering and the issuance of the Offering Shares, (iii) the
Registration
<PAGE>
Dennis J. Harward
April 7, 1997
Page 2
Statement and exhibits thereto, and (iv) such other documents and
instruments as we have deemed necessary for the expression of opinions herein
contained. In making the foregoing examinations, we have assumed the genuineness
of all signatures and the authenticity of all documents submitted to us as
originals, and the conformity to original documents of all documents submitted
to us as certified or photostatic copies. As to various questions of fact
material to this opinion, we have relied, to the extent we deemed reasonably
appropriate, upon representations or certificates of officers of directors of
the Company and upon documents, records and instruments furnished to us by the
Company, without independently verifying the accuracy of such documents, records
and instruments.
Based upon the foregoing examination, we are of the opinion that:
1. The Offering Shares have been duly and validly authorized and, when
issued and delivered in accordance with the terms of the Underwriting Agreement
filed as Exhibit 1.1 to the Registration Statement, will be validly issued,
fully paid and nonassessable.
2. The Selling Shareholder Shares have been duly and validly issued,
and are fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus comprising a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations promulgated thereunder.
Sincerely,
GREENBERG, TRAURIG, HOFFMAN, LIPOFF,
ROSEN & QUENTEL, P.A.
By: /s/ Bruce E. Macdonough
--------------------------
Bruce E. Macdonough
BEM/wp
STOCK OPTION AGREEMENT
This Agreement is made as of July 1, 1996, by H.T.E., Inc., referred to
as the corporation, and Daniel E. Catan, referred to as the optionee.
In consideration of the premises and the mutual covenants set forth
below and for other good and valuable consideration, the parties to this
agreement agree as follows:
SECTION ONE
GRANT
The corporation irrevocably grants to the optionee, as a matter of
separate agreement and not in lieu of salary or any other compensation for
services, the right and option, referred to as the "option," to purchase all or
any part of an aggregate of one thousand (1,000) shares of Class A Common Stock
(the "shares") of the corporation on the terms and conditions set forth in this
agreement. The purchase price of the shares shall be ninety-six dollars ($96.00)
per share, which is considered to be the fair market value of the shares as of
the date of this agreement. As a condition of the corporation issuing and
delivering the shares to the optionee upon his exercise of the option, the
optionee shall enter into and execute and deliver to the corporation a certain
stockholders agreement and registration rights agreement in regard to the shares
to be issued to him hereunder (a copy of said stockholders agreement and
registration rights agreement are attached hereto as exhibits A and B,
respectively).
SECTION TWO
DURATION
The option shall continue for a period of five (5) years from the date
of this agreement and, unless sooner terminated under the provisions of Section
Three, shall expire at the end of that period.
SECTION THREE
TERMINATION
(a) In the event that the employment of the optionee should be
terminated for any cause, other than the death of the optionee, whether by
reason of resignation or discharge or retirement, the option shall terminate
seven (7) months from the date on which the employment was terminated.
(b) The option shall terminate twelve (12) months from the date of the
optionee's death, provided the optionee at the time of death was in the employ
of the corporation.
1
<PAGE>
SECTION FOUR
TRANSFER
The option may not be transferred except by will or the laws of descent
and distribution and may be exercised only by the optionee during his lifetime.
The option may not be assigned, transferred (except as noted in this agreement),
pledged or hypothecated in any way (whether by operation of law or otherwise),
and shall not be subject to execution, attachment, or similar process. Any
attempted assignment, transfer, pledge, hypothecation, or other disposition of
the option contrary to the provisions of this agreement, and the levy of any
attachment or similar process on the option, shall be null and void and without
effect.
SECTION FIVE
WHEN EXERCISABLE
The option shall not be exercised unless and until the optionee has
been in the continuous employ of the corporation for six (6) months from the
date of this agreement, provided, however, that in the event of the optionee's
death while in the employ of the corporation or the optionee's retirement under
the corporation's retirement plan within six months (6) months from the date of
this agreement, the option shall become exercisable immediately on the date of
his death or retirement.
SECTION SIX
DEATH OF OPTIONEE
Subject to Sections Two and Three, in the event of the optionee's death
the option may be exercised by the legal representatives of the estate of the
optionee or by the person or persons to whom the optionee's rights under the
option shall pass by will or the laws of descent and distribution.
SECTION SEVEN
TOTAL OR PARTIAL EXERCISE
The option may be exercised either at one time as to the total number
of shares or from time to time as to any portion of the shares in units of fifty
(50) shares or multiples thereof.
SECTION EIGHT
NOTICE OF EXERCISE; ISSUANCE OF CERTIFICATES
Subject to the terms and conditions of this agreement, the option may
be exercised by written notice to the corporation, at its principal office at
390 N. Orange Avenue, Suite 2000, Orlando, FL 32801, attention of the Chief
Financial Officer. The notice shall state the election to exercise the option
and the number of shares in respect of which it is being exercised, shall
contain a representation and agreement by the person or persons so exercising
2
<PAGE>
the option that the shares are being purchased for investment and not with a
view to the distribution or resale, and shall be signed by the person or persons
so exercising the option. The notice shall be accompanied by a certified or bank
cashier's check payable to the order of the corporation for the full purchase
price of the shares in respect of which the option is being exercised. The
certificate or certificates representing the shares shall be issued and
delivered by the corporation as soon as practicable after receipt of the notice
and payment. The certificate or certificates shall be registered in the name of
the person or persons so exercising the option or, if the option shall be
exercised by the optionee and if the optionee shall so request in the notice
exercising the option, shall be registered in the name of the optionee and
another person jointly, with right of survivorship, and shall be delivered to or
on the written order of the person or persons exercising the option. If the
option is being exercised pursuant to Section Six, by any person or persons
other than the optionee, the notice shall be accompanied by appropriate proof of
the right of the person or persons to exercise the option.
SECTION NINE
MINIMUM PERIOD OF EMPLOYMENT
The optionee agrees to remain and continue in his service as an
employee of the corporation for a period of at least six (6) months from the
date of this agreement, but at the pleasure of the corporation and without
restriction on the right of the corporation to terminate the optionee's
employment at any time.
SECTION TEN
PURCHASE FOR INVESTMENT ONLY
The optionee represents and agrees, and each other person who, pursuant
to Section Six, shall exercise the option in whole or in part shall be required
to represent and agree at the time of exercise, that any and all shares of
common stock purchased by him or her pursuant to the option will be purchased
for investment and not with a view to the distribution or resale.
SECTION ELEVEN
ADJUSTMENT ON RECAPITALIZATION
In the event of a merger, consolidation, reorganization,
recapitalization, reclassification of stock, stock dividend, split-up, or other
change in the corporate structure or capitalization of the corporation affecting
the corporation's common stock as presently constituted, appropriate adjustments
shall be made by the board of directors in the aggregate number and kind of
shares subject to this stock option, and the price per share subject to
outstanding options.
3
<PAGE>
SECTION TWELVE
REGISTRATION OF SHARES
If, at any time, the corporation shall determine in its sole and
absolute discretion that the registration or qualification of the shares covered
by the option under any state or federal law is necessary or desirable as a
condition of or in connection with the delivery of the shares on the exercise of
the option, the delivery of the shares shall be deferred until the registration
or qualification has been effected.
In witness, the parties have executed this agreement as of the day and
year first above written.
H.T.E., Inc.
/s/ Daniel E. Catan By: /s/ Dennis J. Harward
- -------------------- ----------------------------
Daniel E. Catan Dennis J. Harward, President
4
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT"), dated as of
November 9, 1994, is among (a) H.T.E., Inc., a Florida corporation (the
"COMPANY"), (b) BancBoston Ventures Inc., a Massachusetts corporation ("BBV"),
(c) any other holder of Preferred Shares or Investor Registrable Securities who
becomes a party to this Agreement by executing an Insturment of Accession (an
"INSTRUMENT OF ACCESSION") in the form of SCHEDULE 1 hereto (together with BBV,
the "INVESTORS") and (d) Dennis Harward, Jack Harward and any Person who becomes
a party to this Agreement by executing an Instrument of Accession (collectively,
the "STOCKHOLDERS"). The Investors and the Stockholders are referred to
collectively herein as the "HOLDERS" and each individually as a "HOLDER".
This Agreement is made in connection with a Securities Purchase
Agreement of even date herewith among the Company and the Investors, (the
"SECURITIES PURCHASE AGREEMENT") and a Stockholders Agreement of even date
herewith among the Investors, the Company and the Stockholders (as the same may
be amended, restated, modified or supplemented and in effect from time to time,
the "STOCKHOLDERS AGREEMENT"). In order to induce the Investors to enter into
the Securities Purchase Agreement and the Stockholders Agreement, the Company
has agreed to provide the registration rights set forth in this Agreement.
The parties hereby agree as follows:
1. DEFINITIONS. As used herein, the following terms have the following
meanings:
"BBV" has the meaning specified in the preamble hereto.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means collectively, the Company's Class A Common Stock,
$0.01 par value per share, and Class B Common Stock, $0.01 par value per share.
"DEMAND REGISTRATION" has the meaning specified in Section 2(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"HOLDER" means one of the Holders identified in the introductory
paragraph to this Agreement or such other Person to whom such Holder shall have
assigned or transferred such Holder's Registrable Securities in accordance with
the Stockholders Agreement and Section 12(g) of this Agreement.
"INDEMNIFIED PARTY" has the meaning specified in Section 8(b) hereof.
<PAGE>
-2-
"INDEMNIFYING PARTY" has the meaning specified in Section 8(b) hereof.
"INSTRUMENT OF ACCESSION" has the meaning specified in the preamble
hereto.
"INVESTOR REGISTRABLE SECURITIES" means, at any time, all of the then
issued and outstanding (a) shares of Common Stock issued or issuable to any
Investor upon conversion of the Preferred Shares pursuant to the Company's
Charter, (b) shares of any class of Common Stock into which such shares of
Common Stock have been converted, (c) capital stock or other securities into
which or for which any such shares of Common Stock shall have been converted or
exchanged pursuant to any recapitalization, reorganization or merger of the
Company, and (d) shares of capital stock issued with respect to the foregoing
pursuant to a stock split or stock dividend, PROVIDED that the foregoing capital
stock shall be Investor Registrable Securities only so long as such capital
stock has not been sold pursuant to a Public Sale.
"INVESTORS" has the meaning specified in the preamble hereto.
"NASDAQ" has the meaning specified in Section 5(a)(vi).
"OTHER REGISTRABLE SECURITIES" means, at any time, all of the then
issued and outstanding (a) shares of Common Stock held by the Stockholders on
the date of this Agreement, (b) shares of Common Stock issuable to the
Stockholders upon exercise of stock options granted by the Company in compliance
with the Securities Purchase Agreement, (c) shares of any class of Common Stock
into which such shares of Common Stock have been converted, (d) capital stock or
other securities into which or for which any such shares of Common Stock shall
have been converted or exchanged pursuant to any recapitalization,
reorganization or merger of the Company, and (e) shares of capital stock issued
with respect to the foregoing pursuant to a stock split or stock dividend,
PROVIDED that the foregoing capital stock shall be Other Registrable Securities
only so long as such capital stock has not been sold pursuant to a Public Sale.
"PERSON" shall mean any individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"PIGGYBACK REGISTRATION" has the meaning specified in Section 3(a).
"PREFERRED SHARES" shall mean, collectively, (a) the Preferred Stock
issued to the Investors pursuant to the Securities Purchase Agreement, and (b)
any capital stock or other securities into which or for which any such shares of
Preferred Stock shall have been converted or exchanged pursuant to any
recapitalization, reorganization or merger of the Company; PROVIDED that the
foregoing capital stock shall be Preferred Shares only so long as such capital
stock has not been sold pursuant to a Public Sale.
"PREFERRED STOCK" shall mean the Company's Preferred Stock, $1.00 par
value per share.
<PAGE>
-3-
"PROSPECTUS" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any Prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and all other amendments and supplements
to the Prospectus, including post-effective amendments, and all material
incorporated by reference in such Prospectus.
"PUBLIC SALE" shall mean any sale of Common Stock or Preferred Stock to
the public pursuant to a public offering registered under the Securities Act, or
to the public through a broker or market-maker pursuant to the provisions of
Rule 144 (or any successor rule) adopted under the Securities Act.
"REGISTERED" and "REGISTRATION" shall mean a registration effected by
preparing and filing a Registration Statement in compliance with the Securities
Act and the declaration or ordering by the Commission of effectiveness of such
Registration Statement.
"REGISTRABLE SECURITIES" shall mean all Investor Registrable Securities
and all Other Registrable Securities.
"REGISTRATION EXPENSES" has the meaning specified in Section 7.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement including the Prospectus, amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SECURITIES PURCHASE AGREEMENT" has the meaning specified in the
preamble hereto.
"STOCKHOLDERS" has the meaning specified in the preamble.
"STOCKHOLDERS AGREEMENT" has the meaning specified in the preamble
hereto.
"UNDERWRITERS' MAXIMUM NUMBER" means, for any Piggyback Registration,
Demand Registration or other registration which is an underwritten registration,
that number of securities to which such registration should, in the opinion of
the managing underwriters of such registration in the light of marketing
factors, be limited.
2. DEMAND REGISTRATION.
(a) REQUEST FOR DEMAND REGISTRATION.
(i) Subject to the limitations contained in the following
paragraphs of this Section 2, the Holders of the Investor Registrable
Securities may, at any time
<PAGE>
-4-
and from time to time give to the Company, pursuant to this
subparagraph (i), a written request for the registration by the Company
under the Securities Act of all or any part of the Investor Registrable
Securities of such Holders (such registration being herein called a
"DEMAND REGISTRATION"). Within ten (10) days after the receipt by the
Company of any such written request, the Company will give written
notice of such registration request to all Holders of Registrable
Securities.
(ii) Subject to the limitations contained in the following
paragraphs of this Section 2, after the receipt of such written request
for a Demand Registration, (A) the Company will be obligated and
required to include in such Demand Registration all Registrable
Securities with respect to which the Company shall receive from Holders
of Registrable Securities, within thirty (30) days after the date on
which the Company shall have given to all Holders a written notice of
registration request pursuant to Section 2(a)(i) hereof, the written
requests of such Holders for inclusion in such Demand Registration, and
(B) the Company will use its best efforts in good faith to effect
promptly the registration of all such Registrable Securities. All
written requests made by Holders of Registrable Securities pursuant to
this subparagraph (ii) will specify the number of shares of Registrable
Securities to be registered and will also specify the intended method
of disposition thereof.
(b) LIMITATIONS ON DEMAND REGISTRATION.
(i) The Holders of Investor Registrable Securities will not be
entitled to require the Company to effect (A) more than three (3)
Demand Registrations on Form S-1 (or other comparable form adopted by
the Commission), (B) any Demand Registration on Form S-1 (or other
comparable form adopted by the Commission) if the aggregate number of
Investor Registrable Securities requested to be registered pursuant to
such Demand Registration is less than twenty-five percent (25%) of the
number of Investor Registrable Securities on the date of this Agreement
(as adjusted for stock splits, split-ups, combinations and other
recapitalizations), (C) any Demand Registration on any form other than
Form S-1 (or other comparable form adopted by the Commission) if the
aggregate number of Investor Registrable Securities requested to be
registered pursuant to such Demand Registration is less than fifteen
percent (15%) of the number of Investor Registrable Securities on the
date of this Agreement (as adjusted for stock splits, split-ups,
combinations and other recapitalizations), or (D) any Demand
Registration prior to the earlier of (I) November 9, 1997 or (II) the
closing of the Company's initial public offering of its Common Stock.
(ii) Any registration initiated by Holders of Investor
Registrable Securities as a Demand Registration pursuant to Section
2(a) hereof shall not count as a Demand Registration for purposes of
Section 2(b)(i) hereof unless and
<PAGE>
-5-
until such registration shall have become effective and all Investor
Registrable Securities requested to be included in such registration
shall have been actually sold.
(iii) The Company shall not be obligated or required to effect
the Demand Registration of any Investor Registrable Securities pursuant
to Section 2(a) hereof during the period commencing on the date falling
thirty (30) days prior to the Company's estimated date of filing of,
and ending on the date 180 days following the effective date of, any
Registration Statement pertaining to any underwritten registration
initiated by the Company, for the account of the Company, if the
written request of Holders for such Demand Registration pursuant to
Section 2(a)(i) hereof shall have been received by the Company after
the Company shall have given to all Holders of Registrable Securities a
written notice stating that the Company is commencing an underwritten
registration initiated by the Company; PROVIDED, HOWEVER, that the
Company will use its best efforts in good faith to cause any such
Registration Statement to be filed and to become effective as
expeditiously as shall be reasonably possible.
(c) PRIORITY ON DEMAND REGISTRATIONS. If the managing underwriters in
any underwritten Demand Registration shall give written advice to the Company
and the Holders of Investor Registrable Securities to be included in such
registration of an Underwriters' Maximum Number, then: (i) the Company will be
obligated and required to include in such registration that number of Investor
Registrable Securities requested by the Holders thereof to be included in such
registration which does not exceed the Underwriters' Maximum Number, and such
number of Investor Registrable Securities shall be allocated PRO RATA among the
Holders of such Investor Registrable Securities on the basis of the number of
Investor Registrable Securities requested to be included therein by each such
Holder; (ii) if the Underwriters' Maximum Number exceeds the number of Investor
Registrable Securities requested by the Holders thereof to be included in such
registration, then the Company will be obligated and required to include in such
registration that number of Other Registrable Securities requested by the
Holders thereof to be included in such registration and which does not exceed
such excess and such Other Registrable Securities shall be allocated PRO RATA
among the Holders thereof on the basis of the number of Other Registrable
Securities requested to be included therein by each such Holder; (iii) if the
Underwriters' Maximum Number exceeds the number of Registrable Securities
requested by the Holders thereof to be included in such registration, then the
Company will be entitled to include in such registration that number of
securities which shall have been requested by the Company to be included in such
registration for the account of the Company and which shall not be greater than
such excess; and (iv) if the Underwriters' Maximum Number exceeds the sum of the
number of Registrable Securities which the Company shall be required to include
in such Demand Registration and the number of securities which the Company
proposes to offer and sell for its own account in such registration, then the
Company may include in such registration that number of other securities which
persons (other than the Holders as such)
<PAGE>
-6-
shall have requested be included in such registration and which shall not be
greater than such excess. Neither the Company nor any of its stockholders (other
than Holders of Investor Registrable Securities) shall be entitled to include
any securities in any underwritten Demand Registration unless the Company or
such stockholders (as the case may be) shall have agreed in writing to sell such
securities on the same terms and conditions as shall apply to the Investor
Registrable Securities to be included in such Demand Registration.
(d) SELECTION OF UNDERWRITERS. The Holders of a majority of the
Investor Registrable Securities to be included in any Demand Registration shall
determine whether or not such Demand Registration shall be underwritten and
shall select the investment banker(s) and managing underwriter(s) to administer
such offering.
3. PIGGYBACK REGISTRATIONS.
(a) RIGHTS TO PIGGYBACK.
(i) If (and on each occasion that) the Company proposes to
register any of its securities under the Securities Act either for the
Company's own account or for the account of any of its stockholders
(other than Holders) (each such registration not withdrawn or abandoned
prior to the effective date thereof being herein called a "PIGGYBACK
REGISTRATION"), the Company will give written notice to all Holders of
Registrable Securities of such proposal not later than the earlier to
occur of (A) the tenth day following the receipt by the Company of
notice of exercise of any registration rights by any persons, and (B)
the thirtieth day prior to the anticipated filing date of such
Piggyback Registration.
(ii) Subject to the provisions contained in paragraph (b) of
this Section 3 and in the last sentence of this subparagraph (ii), (A)
the Company will be obligated and required to include in each Piggyback
Registration all Registrable Securities with respect to which the
Company shall receive from Holders of Registrable Securities, within
fifteen (15) days after the date on which the Company shall have given
written notice of such Piggyback Registration to all Holders of
Registrable Securities pursuant to Section 3(a)(i) hereof, the written
requests of such Holders for inclusion in such Piggyback Registration,
and (B) the Company will use its best efforts in good faith to effect
promptly the registration of all such Registrable Securities. The
Holders of Registrable Securities shall be permitted to withdraw all or
any part of the Registrable Securities of such Holders from any
Piggyback Registration at any time prior to the effective date of such
Piggyback Registration unless such Holders of Registrable Securities
shall have entered into a written agreement with the Company's
underwriters establishing the terms and conditions under which such
Holders would be obligated to sell such securities in such Piggyback
Registration. The Company will not be obligated or required to include
any Registrable Securities in any registration effected solely to
<PAGE>
-7-
implement an employee benefit plan or a transaction to which Rule 145
of the Commission is applicable.
(b) PRIORITY ON PIGGYBACK REGISTRATIONS. If a Piggyback Registration is
an underwritten registration, and the managing underwriters shall give written
advice to the Company of an Underwriters' Maximum Number, then: (i) the Company
shall be entitled to include in such registration that number of securities
which the Company proposes to offer and sell for its own account in such
registration and which does not exceed the Underwriters' Maximum Number; (ii)
the Company will be obligated and required to include in such registration that
number of Investor Registrable Securities which shall have been requested by the
Holders thereof to be included in such registration and which does not exceed
the difference between the Underwriters' Maximum Number and the number of
Registrable Securities which the Company proposes to offer and sell for its own
account in such registration; and (iii) if the Underwriters' Maximum Number
exceeds the sum of the number of Registrable Securities which the Company shall
be required to include in such registration pursuant to clause (ii) and the
number of securities which the Company proposes to offer and sell for its own
account in such registration, then the Company may include in such registration
that number of other securities which persons shall have requested be included
in such registration and which shall not be greater than such excess.
(c) SELECTION OF UNDERWRITERS. In any Piggyback Registration, the
Company shall (unless the Company shall otherwise agree) have the right to
select the investment bankers and managing underwriters in such registration.
4. LOCKUP AGREEMENTS.
(a) RESTRICTIONS ON PUBLIC SALE BY HOLDERS OF REGISTRABLE SECURITIES.
Each Holder of Registrable Securities, if the Company or the managing
underwriters so request in connection with any underwritten registration of the
Company' securities, will not, without the prior written consent of the Company
or such underwriters, effect any public sale or other distribution of any equity
securities of the Company, including any sale pursuant to Rule 144, during the
seven (7) days prior to, and (i) with respect to any Holder of Investor
Registrable Securities, during the forty-five (45) day period commencing on the
effective date of such underwritten registration and (ii) with respect to all
other Holders of Registrable Securities, during the ninety (90) day period
commencing on, the effective date of such underwritten registration, except in
connection with such underwritten registration.
(b) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company agrees not
to effect any public sale or other distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable for such equity
securities, during the period commencing on the seventh day prior to, and ending
on the one hundred eightieth (180th) day following, the effective date of any
underwritten Demand or Piggyback Registration, except in connection with any
such underwritten registration and except for
<PAGE>
-8-
any offering pursuant to an employee benefit plan and registered on Form S-8 (or
any successor form).
5. REGISTRATION PROCEDURES.
(a) Whenever the Holders of Registrable Securities have requested that
any Registrable Securities be registered pursuant to this Agreement, the Company
will use its best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible:
(i) prepare and file with the Commission a Registration
Statement with respect to such Registrable Securities and use its best
efforts to cause such Registration Statement to become effective
(PROVIDED, that before filing a Registration Statement or Prospectus or
any amendments or supplements thereto, the Company will furnish to
counsel selected by the holders of Registrable Securities covered by
such Registration Statement, copies of all such documents proposed to
be filed, which documents will be subject to the timely review of such
counsel);
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective for not more than six (6) months and, comply with
the provisions of the Securities Act with respect to the disposition of
all securities covered by such Registration Statement during such
effective period in accordance with the intended methods of disposition
by the sellers thereof set forth in such Registration Statement;
(iii) upon request, furnish to each seller of Registrable
Securities such number of copies of such Registration Statement, each
amendment and supplement thereto, the Prospectus included in such
Registration Statement (including each preliminary Prospectus) and such
other documents as each such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by each
such seller;
(iv) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of
such jurisdictions as any seller reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions
of the Registrable Securities owned by such seller; PROVIDED that the
Company will not be required (A) to qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify
but for this subparagraph (a)(iv), (B) to subject itself to taxation in
any such jurisdiction or (C) to consent to general service of process
in any such jurisdiction;
<PAGE>
-9-
(v) notify each seller of such Registrable Securities, at any
time when a Prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event as a result of
which the Prospectus included in such Registration Statement contains
an untrue statement of a material fact or omits any fact necessary to
make the statements therein not misleading, and, at the request of any
such seller, the Company will promptly prepare (and, when completed,
give notice to each seller of Registrable Securities) a supplement or
amendment to such Prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such Prospectus will not
contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading; PROVIDED
that upon such notification by the Company, each seller of such
Registrable Securities will not offer or sell such Registrable
Securities until the Company has notified such seller that it has
prepared a supplement or amendment to such Prospectus and delivered
copies of such supplement or amendment to such Seller;
(vi) cause all such Registrable Securities to be listed on
each securities exchange on which similar securities issued by the
Company are then listed and, if not so listed, to be listed with the
National Association of Securities Dealers automated quotation system
("NASDAQ");
(vii) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
Registration Statement;
(viii) enter into all such customary agreements (including
underwriting agreements in customary form) and take all such other
actions as the holders of a majority of the Investor Registrable
Securities being sold or the underwriters, if any, reasonably request
in order to expedite or facilitate the disposition of such Registrable
Securities (including, without limitation, effecting a stock split or a
combination of shares);
(ix) make available for inspection on a confidential basis by
any seller, any underwriter participating in any disposition pursuant
to such Registration Statement, and any attorney, accountant or other
agent retained by any such seller or underwriter (in each case after
reasonable prior notice), all financial and other records, pertinent
corporate documents and properties of the Company, and cause the
Company's officers, directors, employees and independent accountants to
supply on a confidential basis all information reasonably requested by
any such seller, underwriter, attorney, accountant or agent in
connection with such Registration Statement;
(x) permit any holder of Registrable Securities which holder,
in its sole and exclusive judgment, might be deemed to be an
underwriter or a controlling person of the Company within the meaning
of Section 15 of the Securities Act, to participate in the preparation
of such registration or comparable statement and to
<PAGE>
-10-
permit the insertion therein of material, furnished to the Company in
writing, which in the reasonable judgment of such holder and its
counsel should be included, provided that such material shall be
furnished under such circumstances as shall cause it to be subject to
the indemnification provisions provided pursuant to Section 8(b)
hereof; and
(xi) in the event of the issuance of any stop order suspending
the effectiveness of a Registration Statement, or of any order
suspending or preventing the use of any related Prospectus or
suspending the qualification of any Registrable Securities included in
such Registration Statement for sale in any jurisdiction, the Company
will use its best efforts promptly to obtain the withdrawal of such
order.
6. COOPERATION BY PROSPECTIVE SELLERS, ETC.
(a) Each prospective seller of Registrable Securities will furnish to
the Company in writing such information as the Company may reasonably require
from such seller, and otherwise reasonably cooperate with the Company in
connection with any Registration Statement with respect to such Registrable
Securities.
(b) The failure of any prospective seller of Registrable Securities to
furnish any information or documents in accordance with any provision contained
in this Agreement shall not affect the obligations of the Company under this
Agreement to any remaining sellers who furnish such information and documents
unless in the reasonable opinion of counsel to the Company or the underwriters,
such failure impairs or may impair the viability of the offering or the legality
of the Registration Statement or the underlying offering.
(c) The Holders of Registrable Securities included in any Registration
Statement will not (until further notice) effect sales thereof after receipt of
telegraphic or written notice from the Company to suspend sales to permit the
Company to correct or update such Registration Statement or Prospectus; but the
obligations of the Company with respect to maintaining any Registration
Statement current and effective shall be extended by a period of days equal to
the period such suspension is in effect.
(d) At the end of any period during which the Company is obligated to
keep any Registration Statement current and effective as provided by Section 5
hereof (and any extensions thereof required by the preceding paragraph (c) of
this Section 6), the Holders of Registrable Securities included in such
Registration Statement shall discontinue sales of shares pursuant to such
Registration Statement upon receipt of notice from the Company of its intention
to remove from registration the shares covered by such Registration Statement
which remain unsold, and such Holders shall notify the Company of the number of
shares registered which remain unsold promptly after receipt of such notice from
the Company.
<PAGE>
-11-
7. REGISTRATION EXPENSES.
(a) All reasonable costs and expenses incurred or sustained in
connection with or arising out of each registration pursuant to Sections 2 and 3
hereof, including, without limitation, all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel for the underwriters in connection
with the blue sky qualification of Registrable Securities), printing expenses,
messenger, telephone and delivery expenses, fees and disbursements of counsel
for the Company, reasonable fees and disbursements of counsel representing the
Holders, fees and disbursements of all independent certified public accountants
(including the expenses relating to the preparation and delivery of any special
audit or "cold comfort" letters required by or incident to such registration),
and fees and disbursements of underwriters (excluding discounts and
commissions), the reasonable fees and expenses of any special experts retained
by the Company of its own initiative or at the request of the managing
underwriters in connection with such registration, and fees and expenses of all
(if any) other persons retained by the Company (all such costs and expenses
being herein called, collectively, the "REGISTRATION EXPENSES"), will be borne
and paid by the Company; PROVIDED that the Company shall only have an obligation
hereunder to pay the fees and disbursements of one counsel to represent the
Investors. The Company will, in any case, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, and the
fees and expenses incurred in connection with the listing of the securities to
be registered on each securities exchange on which similar securities of the
Company are then listed.
(b) The Company will not bear the cost of nor pay for any stock
transfer taxes imposed in respect of the transfer of any Registrable Securities
to any purchaser thereof by any Holder of Registrable Securities in connection
with any registration of Registrable Securities pursuant to this Agreement.
(c) To the extent that Registration Expenses incident to any
registration are, under the terms of this Agreement, not required to be paid by
the Company, each Holder of Registrable Securities included in such registration
will pay all Registration Expenses which are clearly solely attributable to the
registration of such Holder's Registrable Securities so included in such
registration, and all other Registration Expenses not so attributable to one
Holder will be borne and paid by all sellers of securities included in such
registration in proportion to the number of securities so included by each such
seller.
8. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company will indemnify each
Holder requesting or joining in a registration and each underwriter of the
securities so registered, the officers, directors and partners of each such
Person and each Person who controls any thereof (within the meaning of the
Securities Act) against any and all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on
<PAGE>
-12-
any untrue statement (or alleged untrue statement) of any material fact
contained in any Prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related Registration
Statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act applicable to the
Company and relating to any action or inaction required of the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, underwriter, officer, director, partner
and controlling person for any legal and any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action; PROVIDED, HOWEVER, that the Company will not be liable in
any such case to the extent that any such claim, loss, damage or liability
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company in an instrument duly executed by such
Holder, underwriter, officer, director, partner or controlling person and stated
to be specifically for use in such Prospectus, offering circular or other
document.
(b) INDEMNIFICATION BY EACH HOLDER. Each Holder requesting or joining
in a registration will indemnify each underwriter of the securities so
registered, the Company and its officers and directors and each person, if any,
who controls any thereof (within the meaning of the Securities Act) and their
respective successors in title and assigns against any and all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of any material fact
contained in any Prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related Registration
Statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statement therein not misleading, and such Holder will reimburse each
underwriter, the Company and each other person indemnified pursuant to this
paragraph (b) for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; PROVIDED, HOWEVER, that this paragraph (b) shall apply only
if (and only to the extent that) such statement or omission was made in reliance
upon written information furnished to such underwriter or the Company in an
instrument duly executed by any such Holder and stated to be specifically for
use in such Prospectus, offering circular or other document (or related
Registration Statement, notification or the like) or any amendment or supplement
thereto; and, PROVIDED FURTHER, that each Holder's liability hereunder with
respect to any particular registration shall be limited to an amount equal to
the proceeds received by such Holder from the Registrable Securities sold by
such Holder in such registration.
(c) INDEMNIFICATION PROCEEDINGS. Each party entitled to indemnification
pursuant to this Section 8 (the "INDEMNIFIED PARTY") shall give notice to the
party required to provide indemnification pursuant to this Section 8 (the
"INDEMNIFYING PARTY") promptly after such Indemnified Party acquires actual
knowledge of any claim as to which
<PAGE>
-13-
indemnity may be sought, and shall permit the Indemnifying Party (at its
expense) to assume the defense of any claim or any litigation resulting
therefrom; PROVIDED that counsel for the Indemnifying Party, who shall conduct
the defense of such claim or litigation, shall be acceptable to the Indemnified
Party, and the Indemnified Party may participate in such defense at such party's
expense; and PROVIDED, FURTHER, that the failure by any Indemnified Party to
give notice as provided in this paragraph (C) shall not relieve the Indemnifying
Party of its obligations under this Section 8 except to the extent that the
failure results in a failure of actual notice to the Indemnifying Party and such
Indemnifying Party is damaged solely as a result of the failure to give notice.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation. The
reimbursement required by this Section 8 shall be made by periodic payments
during the course of the investigation or defense, as and when bills are
received or expenses incurred.
9. CONTRIBUTION IN LIEU OF INDEMNIFICATION. If the indemnification
provided for in Section 8 hereof is unavailable to a party that would have been
an Indemnified Party under any such section in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
each party that would have been an Indemnifying Party thereunder shall, in lieu
of indemnifying such Indemnified Party, contribute to the amount paid or payable
by such Indemnified Party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Indemnifying Party on the one hand and such
Indemnified Party on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof). The 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 the Indemnifying Party or such Indemnified Party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and each Holder of
Registrable Securities agree that it would not be just and equitable if
contribution pursuant to this Section 9 were determined by PRO-RATA allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 9. The amount paid or
payable by an Indemnified Party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section 9
shall include any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. 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.
<PAGE>
-14-
10. RULE 144 REQUIREMENTS; FORM S-3. From time to time after the
earlier to occur of (a) the ninetieth day following the date on which there
shall first become effective a Registration Statement filed by the Company under
the Securities Act, or (b) the date on which the Company shall register a class
of securities under Section 12 of the Exchange Act, the Company will make every
effort in good faith to take all steps necessary to ensure that the Company will
be eligible to register securities on Form S-3 (or any comparable form adopted
by the Commission) as soon thereafter as possible, and to make publicly
available and available to the Holders of Registrable Securities, pursuant to
Rule 144 of the Commission under the Securities Act, such information as shall
be necessary to enable the Holders of Registrable Securities to make sales of
Registrable Securities pursuant to that Rule. The Company will furnish to any
Holder of Registrable Securities, upon request made by such Holder at any time
after the undertaking of the Company in the preceding sentence shall have first
become effective, a written statement signed by the Company, addressed to such
Holder, describing briefly the action the Company has taken or proposes to take
to comply with the current public information requirements of Rule 144. The
Company will, at the request of any Holder of Registrable Securities, upon
receipt from such Holder of a certificate certifying (i) that such Holder has
held such Registrable Securities for a period of not less than three (3)
consecutive years, (ii) that such Holder has not been an affiliate (as defined
in Rule 144) of the Company for more than the ninety (90) preceding days, and
(iii) as to such other matters as may be appropriate in accordance with such
Rule, remove from the stock certificates representing such Registrable
Securities that portion of any restrictive legend which relates to the
registration provisions of the Securities Act.
11. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any underwritten registration pursuant to this Agreement unless
such Person (a) agrees to sell such Person's securities on the basis provided in
any underwriting arrangements approved by the persons entitled, under the
provisions hereof, to approve such arrangements, and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required by the terms of such underwriting
arrangements. Any Holder of Registrable Securities to be included in any
underwritten registration shall be entitled at any time to withdraw such
Registrable Securities from such registration prior to its effective date in the
event that such Holder shall disapprove of any of the terms of the related
underwriting agreement.
12. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not previously entered
into any agreement with respect to its Common Stock granting any registration
rights to any Person, and will not on or after the date of this Agreement enter
into any agreement with respect to its securities which grants demand
registration rights to anyone or which is inconsistent with the rights granted
to the Holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof.
<PAGE>
-15-
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of Holders owning at
least a majority of the shares of the Registrable Securities, and (i) in the
case of any amendment, modification, supplement, waiver or consent which
adversely affects in any way any of the rights of the Holders of Investor
Registrable Securities hereunder, the written consent of Holders owning at least
a majority of the Investor Registrable Securities at the time outstanding and
(ii) in the case of any amendment, modification, supplement, waiver or consent
which adversely affects in any way any of the rights of the Holders of Other
Registrable Securities hereunder, the written consent of Holders owning at least
a majority of the Other Registrable Securities at the time outstanding.
(c) REGISTRABLE SECURITIES HELD BY THE COMPANY. Whenever the consent or
approval of Holders of Registrable Securities is required pursuant to this
Agreement, Registrable Securities held by the Company shall not be counted in
determining whether such consent or approval was duly and properly given by such
Holders.
(d) TERM. The agreements of the Company contained in this Agreement
shall continue in full force and effect so long as any Holder holds any
Registrable Securities.
(e) REMEDIES. In the event of a breach by the Company of its
obligations under this Agreement, each Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of any of the provisions of this Agreement
and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(f) NOTICES. Any notice provided for in this Agreement will be in
writing and will be deemed properly delivered if either personally delivered or
sent by overnight courier or telecopier or mailed certified or registered mail,
return receipt requested, postage prepaid, to the recipient at the address
specified below:
(i) if to a Holder, at such Holder's address on the stock
transfer books of the Company; and
(ii) if to the Company, at:
390 N. Orange Avenue, Suite 2000
Orlando, Florida 32801
and thereafter at such other address, notice of which is given in accordance
with the provisions of this Section 12(f). Any such notice shall be effective
(A) if delivered
<PAGE>
-16-
personally or by telecopy, when received, (B) if sent by overnight courier, when
receipted for, and (C) if mailed, three (3) days after being mailed as described
above.
(g) SUCCESSORS AND ASSIGNS. This Agreement and the rights of any Holder
hereunder may be assigned to, and shall inure to the benefit of, any Person to
whom such Holder transfers Registrable Securities, PROVIDED that such transfer
is made in compliance with the provisions of the Stockholders Agreement and the
transferee agrees to be bound by all of the terms and conditions of this
Agreement by executing and delivering to the Company an Instrument of Accession.
(h) COUNTERPARTS. This Agreement may be executed in two or more
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same instrument.
(i) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not constitute a part of this Agreement, nor shall they
affect their meaning, construction or effect.
(j) GOVERNING LAW. The validity, performance, construction and effect
of this Agreement shall be governed by and construed in accordance with the
internal laws of the State of Florida, without giving effect to principles of
conflicts of law.
(k) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(l) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to the registration rights granted by the Company with respect to
the Registrable Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
<PAGE>
-17-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE COMPANY: H.T.E., INC.
By: ---------------------------------------------
Title:
THE INVESTORS: BANCBOSTON VENTURES INC.
By: ---------------------------------------------
Title:
THE STOCKHOLDERS:
-------------------------------------------------
Dennis J. Harward
-------------------------------------------------
Jack L. Harward
<PAGE>
-18-
SCHEDULE 1
TO REGISTRATION
RIGHTS AGREEMENT
INSTRUMENT OF ACCESSION
Reference is made to that certain Registration Rights Agreement dated
as of November 9, 1994, a copy of which is attached hereto (as amended and in
effect from time to time, the "REGISTRATION RIGHTS AGREEMENT"), among H.T.E.,
Inc., a Florida corporation (the "COMPANY"), and the Holders (as defined
therein).
The undersigned, _____________________, in order to become the owner or
holder of ______ shares of the [Preferred Stock, $0.01 par value per share]
[Class A Common Stock, $0.01 par value per share] [Class B Common Stock, $0.01
par value per share] (the "SHARES") of the Company hereby agrees that by his
execution hereof the undersigned is a Holder party to the Registration Rights
Agreement subject to all of the restrictions and conditions applicable to
Holders set forth in such Registration Rights Agreement, and all of the Shares
purchased by the undersigned in connection herewith (and any and all shares of
stock of the Company issued in respect thereof) are subject to all the
restrictions and conditions applicable to Registrable Securities as set forth in
the Registration Rights Agreement. This Instrument of Accession shall take
effect and shall become a part of said Registration Rights Agreement immediately
upon execution.
Executed as of the date set forth below under the laws of the State of
Florida.
Signature: _____________________________________________________
Address: _____________________________________________________
_____________________________________________________
Date: _____________________________________________________
Accepted:
H.T.E., INC.
By:__________________________________________________
Date:________________________________________________
H.T.E., INC.
STOCK OPTION AGREEMENT
FOR
---------------------
AGREEMENT
1. GRANT OF OPTION. H.T.E., Inc. (the "Company") hereby grants, as of
________, 1997, to ______________ (the "Optionee") an option (the "Option") to
purchase up to ____ shares of the Company's _______ Common Stock, $.01 par value
per share (the "Stock"), at an exercise price per share equal to $____. The
Option shall be subject to the terms and conditions set forth herein. The Option
was issued pursuant to the Company's 1997 Executive Incentive Compensation Plan
(the "Plan"), which is incorporated herein for all purposes. The Option is a
nonqualified stock option, and not an Incentive Stock Option. The Optionee
hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all
of the terms and conditions hereof and thereof.
2. DEFINITIONS. Unless otherwise provided herein, terms used herein
that are defined in the Plan and not defined herein shall have the meanings
attributed thereto in the Plan.
3. EXERCISE SCHEDULE. Except as otherwise provided in Section 8 of this
Agreement or, in the Plan, the Option shall be exercisable in whole or in part
and cumulatively according to the following schedule:
20% on or after ______________, ____
20% on or after ______________, ____
20% on or after ______________, ____
20% on or after ______________, ____
20% on or after ______________, ____
The Option shall terminate on, and in no event shall the Option be exercisable
after, ______________, ____.
4. METHOD OF EXERCISE. This Option shall be exercisable in whole or in
part in accordance with the exercise schedule set forth in Section 3 hereof by
written notice which shall state the election to exercise the Option, the number
of shares of Stock in respect of which the Option is being exercised, and such
other representations and agreements as to the holder's investment intent with
respect to such shares of Stock as may be required by the Company pursuant to
the provisions of the Plan. Such written notice shall be signed by the Optionee
and shall be delivered in person or by certified mail to the Chief Financial
Officer of the Company. The written notice shall be accompanied by payment of
the exercise price. This Option shall be deemed to be exercised after both (a)
receipt by the Company of such written notice accompanied by the exercise price
and (b) arrangements that are satisfactory to the Committee in its sole
discretion have been made for Optionee's payment to the Company of the amount
that is necessary to be withheld in accordance with applicable Federal or state
withholding requirements. No shares of Stock will be issued pursuant to the
Option unless and until such issuance and such exercise shall comply with all
relevant provisions of applicable law, including the requirements of any stock
exchange upon which the Stock then may be traded.
5. METHOD OF PAYMENT. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Optionee: (a)
cash; (b) check; or (c) such other consideration or
<PAGE>
in such other manner as may be determined by the Committee, which other
method, in the discretion of the Committee may include, without limitation,
payment of the exercise price in whole or in part (i) with Stock, (ii) by a
promissory note payable to the order of the Company in a form acceptable to the
Committee, or (iii) by the Company retaining from the shares of Stock to be
delivered upon exercise of the Option that number of shares of Stock having a
Fair Market Value on the date of exercise equal to the option price for the
number of shares of Stock with respect to which the Optionee exercises the
Option.
6. TERMINATION OF OPTION. Any unexercised portion of the Option shall
automatically and without notice terminate and become null and void at the time
of the earliest to occur of:
(a) three months after the date on which the
Optionee's employment with the Company is terminated for any reason other than
by reason of (A) Cause, which, solely for purposes of this Agreement, shall mean
the termination of the Optionee's employment by reason of the Optionee's willful
misconduct or gross negligence, (B) a mental or physical disability (within the
meaning of Section 22(e) of the Internal Revenue Code of 1986, as amended) of
the Optionee as determined by a medical doctor satisfactory to the Committee, or
(C) death;
(b) immediately upon the termination of the
Optionee's employment with the Company for Cause;
(c) twelve months after the date on which the
Optionee's employment with the Company is terminated by reason of a mental or
physical disability (within the meaning of Section 22(e) of the Internal Revenue
Code of 1986, as amended) as determined by a medical doctor satisfactory to the
Committee;
(d) twelve months after the date of termination of
the Optionee's employment with the Company by reason of the death of the
Optionee (or three months after the date on which the Optionee shall die if such
death shall occur during the one year period specified in paragraph (c) of this
Section 6).
Also, the Committee in its sole discretion may by giving
written notice (the "cancellation notice") cancel, effective upon the date of
the consummation of any Corporate Transaction described in Subsection 9(b)(ii)
of the Plan, any Option that remains unexercised on such date. Such cancellation
notice shall be given a reasonable period of time prior to the proposed date of
such cancellation and may be given either before or after approval of such
Corporate Transaction.
7. TRANSFERABILITY. The Option is not transferable otherwise than by
will or the laws of descent and distribution, and during the lifetime of the
Optionee the Option shall be exercisable only by the Optionee. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
8. NO RIGHTS OF STOCKHOLDERS. Neither the Optionee nor any personal
representative (or beneficiary) shall be, or shall have any of the rights and
privileges of, a stockholder of the Company with respect to any shares of Stock
purchasable or issuable upon the exercise of the Option, in whole or in part,
prior to the date of exercise of the Option.
2
<PAGE>
9. RESTRICTIONS WHILE STOCK IS NOT REGISTERED.
(a) RESTRICTED SHARES. The shares of Stock subject to
the Option specified in Section 1 and (a) all shares of the Company's capital
stock received as a dividend or other distribution upon such shares, and (b) all
shares of capital stock or other securities of the Company into which such
shares may be changed or for which such shares shall be exchanged, whether
through reorganization, recapitalization, stock split-ups or the like, shall be
subject to the provisions of this Section 9 at all times, and only at those
times, that the Stock is not registered under the Securities Act of 1933, as
amended (the "Restricted Period") and are during the Restricted Period
hereinafter referred to as "Restricted Shares."
(b) NO SALE OR PLEDGE OF RESTRICTED SHARES. Except as
otherwise provided herein, Optionee agrees and covenants that during the
Restricted Period he or she will not sell, pledge, encumber or otherwise
transfer or dispose of, and will not permit to be sold, encumbered, attached or
otherwise disposed of or transferred in any manner, either voluntarily or by
operation of law (all hereinafter collectively referred to as "transfers"), all
or any portion of the Restricted Shares or any interest therein except in
accordance with and subject to the terms of this Section 9.
(c) VOLUNTARY TRANSFER REPURCHASE OPTION. If Optionee
desires to effect a voluntary transfer of any of the Restricted Shares during
the Restricted Period, Optionee shall first give written notice to the Company
or such intent to transfer (the "Offer Notice") specifying (a) the number of the
Restricted Shares (the "Offered Shares") and the date of the proposed transfer
(which shall not be less than fifty (50) days after the giving of the Offer
Notice), (b) the name, address, and principal business of the proposed
transferee (the "Transferee"), and (c) the price and other terms and conditions
of the proposed transfer of the Offered Shares to the Transferee. The Offer
Notice by Optionee shall constitute an offer to sell all, but not less than all,
of the Offered Shares, at the price specified in such Offer Notice, to the
Company and/or its designated purchaser. If the Company desires to accept
Optionee's offer to sell, either for itself or on behalf of its designated
purchaser, the Company shall signify such acceptance by written notice to
Optionee within fifty (50) days following the giving of the Option Notice.
Failing such acceptance, Optionee's offer shall lapse on the fifty-first day
following the giving of the Option Notice. With such written acceptance, the
Company shall designate a day not later than ten days following the date of
giving its notice of acceptance on which the Company or its designated purchaser
shall deliver the purchase price of the Offered Shares (in the same form as
provided in the Offer Notice) and Optionee shall deliver to the Company or its
designated Purchaser, as applicable, all certificates evidencing the Offered
Shares endorsed in blank for transfer or with separate stock powers endorsed in
blank for transfer. Upon the lapse without acceptance by the Company of
Optionee's offer to sell the Offered Shares, Optionee shall be free to transfer
the Offered Shares not purchased by the Company or the designated purchaser to
the Transferee (and no one else), for a price and on terms and conditions which
are no more favorable to the Transferee than those set forth in the Offer
Notice, for a period of thirty days thereafter, but after such period the
restrictions of this Section 9 shall again apply to the Restricted Shares. The
Offered Shares so transferred by Optionee to the Transferee shall continue to be
subject to all of the terms and conditions of this Section 9 (including without
limitation paragraph (f) of this Section 9) and the Company shall have the right
to require, as a condition of such transfer, than the Transferee execute an
agreement substantially in the form and content of the provisions of this
Section 9.
(d) INVOLUNTARY TRANSFER REPURCHASE OPTION. Whenever,
during the Restricted Period, Optionee has any notice or knowledge of any
attempted, pending, or consummated involuntary transfer or lien or charge upon
any of the Restricted Shares, whether by operation of law or otherwise, Optionee
shall
3
<PAGE>
give immediate written notice thereof to the Company. Whenever the Company
has any other notice or knowledge of any such attempted, impending, or
consummated involuntary transfer, lien, or charge, it shall give written notice
thereof to the Optionee. In either case, Optionee agrees to disclose forthwith
to the Company all pertinent information in his possession relating thereto. If
during the Restricted Period any of the Restricted Shares are subjected to any
such involuntary transfer, lien, or charge, the Company and its designated
purchaser shall at all times have the immediate and continuing option to
purchaser such of the Restricted Shares upon notice by the Company to Optionee
or other record holder at a price determined according to Section 9(g) below,
and any of the Restricted Shares so purchased by the Company or its designated
purchaser shall in every case be free and clear of such transfer, lien, or
charge.
(e) EXCEPTED TRANSFERS. The provisions of Sections
9(b) and (c) shall not apply to transfers by Optionee to his or her spouse,
lineal descendants or trustee of trusts for their benefit, provided, HOWEVER,
that during the Restricted Period Optionee shall continue to be subject to all
of the terms and provisions of this Section 9 with respect to any remaining
present or future interest whatsoever he or she may have in the transferred
Restricted Shares, and, FURTHER PROVIDED that during the Restricted Period the
transferee of any such Restricted Shares shall likewise be subject to all such
terms and conditions of this Section 9 as though such transferee were a party
hereto.
(f) REPURCHASE OPTION ON EMPLOYMENT TERMINATION.
Anything set forth in this Agreement to the contrary notwithstanding, the
Company shall have the right to purchase or designate a purchaser of all, but
not less than all, of the Restricted Shares for the purchase price specified in
Section 9(g) below in the event any of the following conditions occur during the
Restricted Period: (i) the death or permanent disability of Optionee or (ii)
Optionee's employment relationship with the Company is either voluntarily or
involuntarily terminated. For purposes of this Section 9(f), the "permanent
disability" of Optionee shall be deemed to be an inability or incapacity of
Optionee to render his customary services to the Company for a period of more
than thirteen consecutive weeks or more than twenty-six weeks in the aggregate
in any calendar year. Subsequent to an event described in this Section 9(f), the
Company shall promptly cause the purchase price for the Restricted Shares to be
determined. The Company shall have a period of ninety (90) days after the date
of any such event to exercise its right to purchase hereunder. If such right of
purchase is not exercised within the aforementioned ninety (90) day period, the
Restricted Shares as to which such time period has expired shall no longer be
subject to any of the limitations imposed by the provisions of this Agreement.
If the Company chooses to exercise its right to purchase the Restricted Shares
hereunder, the Company shall give its notice of acceptance to Optionee or his or
her legal representative within the aforesaid ninety (90) day period, specifying
in such notice a date not later than ten (10) days following the date of giving
such notice on which the Company or its designated purchaser shall deliver, or
be prepared to deliver the check or promissory note for the purchase price and
Optionee or his or her legal representative shall deliver all stock certificates
evidencing such Restricted Shares duly endorsed in blank for transfer or with
separate stock powers endorsed in blank for transfer.
(g) REPURCHASE PRICE. For purposes of Section 9(c)
and (f) hereof, the per share purchase price of Restricted Shares shall be an
amount equal to the fair market value of such share, determined in good faith by
the Board of Directors of the Company as of the date of the event giving rise to
the Company's right to purchase such Restricted Shares. The purchase price
shall, at the option of the Company, be payable in cash or in the form of the
Company's promissory note payable in up to three equal annual installments
commencing 12 months after the acquisition by the Company ("Acquisition Date")
of the Restricted Shares, together with interest on the unpaid balance thereof
at the rate equal to the prime rate of interest of Citibank, N.A. on the
Acquisition Date.
4
<PAGE>
10. REGISTRATION RIGHTS AGREEMENT. If the Company requests and as a
condition of the Company issuing and delivering the shares of the Stock to the
Optionee upon his or her exercise of the Option, the Optionee shall enter into
and execute and deliver to the Company a certain "Registration Rights Agreement"
in regard to the shares of Stock to be issued to the Optionee (a copy of the
Registration Rights Agreement is attached hereto as Exhibit A).
11. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his Investment
Representation Statement in the form attached to this Agreement as Exhibit B.
12. CHANGE IN CONTROL. The provisions of Section 9 of the Plan,
relating to Changes in Control, shall apply with respect to this Option.
13. NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Option nor this
Agreement shall confer upon the Optionee any right to continued employment or
service with the Company.
14. LAW GOVERNING. This Agreement shall be governed in accordance with
and governed by the internal laws of the State of Florida.
15. INTERPRETATION. The Optionee accepts the Option subject to all the
terms and provisions of the Plan and this Agreement. The undersigned Optionee
hereby accepts as binding, conclusive and final all decisions or interpretations
of the Committee upon any questions arising under the Plan and this Agreement.
16. NOTICES. Any notice under this Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or when
deposited in the United States mail, registered, postage prepaid, and addressed,
in the case of the Company, to the Company's Chief Financial Officer at 390 N.
Orange Avenue, Suite 2000, Orlando, FL 32801, or if the Company should move its
principal office, to such principal office, and, in the case of the Optionee, to
the Optionee's last permanent address as shown on the Company's records, subject
to the right of either party to designate some other address at any time
hereafter in a notice satisfying the requirements of this Section.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the ____ day of _____________,____.
COMPANY:
H.T.E., INC.
By:______________________________
Dennis J. Harward, President
5
<PAGE>
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option, and fully
understands all provisions of the Option.
Dated:_________________________ OPTIONEE:
By:_______________________
_______________
6
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into as of
February 1, 1997, by and between H.T.E., INC., a Florida corporation (the
"Company"), and __________________________ (hereinafter called the "Executive").
R E C I T A L S
A. The Executive is currently employed as the [Chief Executive Officer]
or [Executive Vice President] of the Company.
B. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
C. The Board of Directors of the Company (the "Board") recognizes that
the Executive has contributed to the growth and success of the Company, and
desires to assure the Company of the Executive's continued employment and to
compensate him therefor.
D. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
E. The Executive is willing to make his services available to the
Company and on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERM. The Company hereby agrees to employ
the Executive and the Executive hereby agrees to serve the Company on the terms
and conditions set forth herein. This Agreement having been duly authorized and
approved by the Company's Board of Directors, including the Directors
representing BancBoston Ventures, Inc. and Meridian Venture Partners, supersedes
and replaces that certain Employment Agreement between the Executive and the
Company dated November ___, 1994.
1.2 DUTIES OF EXECUTIVE. During the term of this Agreement, the
Executive shall serve as the [Chief Executive Officer] or [Executive Vice
President] of the Company, and shall diligently perform all services as may be
assigned to him by the Board (provided that, such
1
<PAGE>
services shall not materially differ from the services currently provided
by the Executive), and shall exercise such power and authority as may from time
to time be delegated to him by the Board and as provided by the Bylaws of the
Company. The Executive shall devote his full time and attention to the business
and affairs of the Company, render such services to the best of his ability, and
use his best efforts to promote the interests of the Company.
2. TERM.
2.1 INITIAL TERM. The initial term of this Agreement, and the
employment of the Executive hereunder, shall commence on February 1, 1997 (the
"Commencement Date") and shall expire on December 31, 1999, unless sooner
terminated in accordance with the terms and conditions hereof (the "Initial
Term").
2.2 RENEWAL TERMS. At the end of the Initial Term, this
Agreement shall automatically renew for successive one year terms, subject to
earlier termination of this Agreement as provided herein.
2.3 EXPIRATION DATE. The date on which the term of this
Agreement shall expire (including the date on which any renewal term shall
expire), is sometimes referred to in this Agreement as the Expiration Date.
3. COMPENSATION.
3.1 BASE SALARY. The Executive shall receive a base salary at
the annual rate of One Hundred Forty-two Thousand Five Hundred Dollars
($142,500) (the "Base Salary") during the term of this Agreement, with such Base
Salary payable in installments consistent with the Company's normal payroll
schedule, subject to applicable withholding and other taxes. The Base Salary
also shall be reviewed, at least annually, for merit and cost of living
adjustment increases and may, by action and in the discretion of the Board, be
increased at any time or from time to time.
3.2 BONUSES. During the term of this Agreement, the Executive
shall be eligible to receive bonuses ("Incentive Compensation") pursuant to the
H.T.E., Inc. 1997 Executive Incentive Bonus Plan, as may be amended from time to
time (the "Incentive Compensation Plan"). Each period for which Incentive
Compensation is payable under the Incentive Compensation Plan is sometimes
hereinafter referred to as a Bonus Period.
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. During the term of Executive's
employment hereunder, upon the submission of proper substantiation by the
Executive, and subject to such rules and
2
<PAGE>
guidelines as the Company may from time to time adopt, the Company shall
reimburse the Executive for all reasonable expenses actually paid or incurred by
the Executive in the course of and pursuant to the business of the Company. The
Executive shall account to the Company in writing for all expenses for which
reimbursement is sought and shall supply to the Company copies of all relevant
invoices, receipts or other evidence reasonably requested by the Company.
4.2 COMPENSATION/BENEFIT PROGRAMS. During the term of this
Agreement, the Executive shall be entitled to participate in all medical,
dental, hospitalization, accidental death and dismemberment, disability, travel
and life insurance plans, and any and all other plans as are presently and
hereinafter offered by the Company to its executives, including savings,
pension, profit-sharing and deferred compensation plans.
4.3 WORKING FACILITIES. The Company shall furnish the
Executive with an office, secretarial help and such other facilities and
services suitable to his position and adequate for the performance of his duties
hereunder.
4.4 AUTOMOBILE. The Company shall continue to provide the
Executive with an automobile comparable to the existing automobile provided by
the Company to Executive, together with reimbursement of the reasonable
operating expenses thereof.
4.5 STOCK OPTIONS. During the term of this Agreement, the
Executive shall be eligible to be granted options (the "Stock Options") to
purchase common stock (the "Common Stock") of H.T.E., Inc. under (and therefore
subject to all terms and conditions of) the Company's 1997 Executive Incentive
Compensation Plan as amended, and any successor plan thereto (the "Executive
Incentive Compensation Plan") and all rules of regulation of the Securities and
Exchange Commission applicable to stock option plans then in effect. The number
of Stock Options and terms and conditions of the Stock Options shall be
determined by the Committee appointed pursuant to the Executive Incentive
Compensation Plan, or by the Board of Directors of the Company, in its
discretion and pursuant to the Executive Incentive Compensation Plan.
4.6 OTHER BENEFITS. The Executive shall be entitled to eight
weeks of vacation each calendar year during the term of this Agreement, to be
taken at such times as the Executive and the Company shall mutually determine
and provided that no vacation time shall interfere with the duties required to
be rendered by the Executive hereunder. Any vacation time not taken by Executive
during any calendar year may be carried forward into any succeeding calendar
year in accordance with HTE policy. The Executive shall receive such additional
benefits, if any, as the Board of the Company shall from time to time determine.
3
<PAGE>
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all times have
the right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, for cause. For purposes of this Agreement, the term
"cause" shall mean: (a) an action or omission of the Executive which constitutes
an intentional, willful and material breach of this Agreement which is not cured
within thirty (30) days after receipt by the Executive of written notice of
same, (b) fraud, embezzlement, misappropriation of funds or breach of trust in
connection with his services hereunder, (c) conviction of any crime which
involves dishonesty or a breach of trust, or (d) gross negligence in connection
with the performance of the Executive's duties hereunder. Any termination for
cause shall be made in writing to the Executive, which notice shall set forth in
detail all acts or omissions upon which the Company is relying for such
termination. The Executive shall have the right to address the Board regarding
the acts set forth in the notice of termination. Upon any termination pursuant
to this Section 5.1, the Company shall pay to the Executive his Base Salary to
the date of termination. The Company shall have no further liability hereunder
other than for: (i) reimbursement for reasonable business expenses incurred
prior to the date of termination, subject, however, to the provisions of Section
4.1, and (ii) payment of compensation for unused vacation days that have
accumulated during the calendar year in which such termination occurs.
5.2 DISABILITY. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the Executive's employment
hereunder, if the Executive shall become entitled to benefits under the
Company's Long Term Disability Plan as then in effect, or, if the Executive
shall as the result of mental or physical incapacity, illness or disability,
become unable to perform his obligations hereunder for a period of 180 days in
any 12-month period. The Company shall have sole discretion based upon competent
medical advice to determine whether the Executive continues to be disabled. Upon
any termination pursuant to this Section 5.2, the Company shall: (a) pay to the
Executive any unpaid Base Salary through the effective date of termination
specified in such notice, (b) pay to the Executive his accrued and declared but
unpaid Incentive Compensation, if any, for any Bonus Period ending on or before
the date of termination of the Executive's employment with the Company, and (c)
pay to the Executive (within forty-five (45) days after the end of the Bonus
Period in which such termination occurs) a prorata portion (based upon the
period ending on the date of termination of the Executive's employment
hereunder) of the Incentive Compensation, if any, for the Bonus Period in which
such termination occurs, as calculated pursuant to the Incentive Compensation
Plan; provided that the goals under the Incentive Compensation Plan for each
period used in the calculation
4
<PAGE>
of the Executive's Incentive Compensation, shall be based on: (i) the portion of
the Bonus Period through the end of the Bonus Period in which such termination
occurs and (ii) unaudited financial information prepared in accordance with
generally accepted accounting principles, applied consistently with prior
periods, as approved and reviewed by the Board. The Company shall have no
further liability hereunder other than for: (x) reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however to
the provisions of Section 4.1, and (y) payment of compensation for unused
vacation days that have accumulated during the calendar year in which such
termination occurs.
5.3 DEATH. In the event of the death of the Executive during
the term of his employment hereunder, the Company shall: (a) pay to the estate
of the deceased Executive any unpaid Base Salary through the Executive's date of
death, (b) pay to the estate of the deceased Executive his accrued and declared
but unpaid Incentive Compensation, if any, for any Bonus Period ending on or
before the Executive's date of death, (c) pay to the estate of the deceased
Executive (within forty-five (45) days after the end of the Bonus Period in
which his death occurs) a prorata portion (based upon the period ending on the
date of death) of the Incentive Compensation, if any, for the Bonus Period in
which his death occurs, as calculated pursuant to the terms of the Incentive
Compensation Plan; provided that, the goals under the Incentive Compensation
Plan for each period used in the calculation of the Executive's Incentive
Compensation shall be based on: (i) the portion of the Bonus Period through the
end of the Bonus Period in which the Executive's death occurs, and (ii)
unaudited financial information prepared in accordance with generally accepted
accounting principles, applied consistently with prior periods, as approved and
reviewed by the Board. The Company shall have no further liability hereunder
other than for: (x) reimbursement for reasonable business expenses incurred
prior to the date of the Executive's death, subject, however to the provisions
of Section 4.1, and (y) payment of compensation for unused vacation days that
have accumulated during the calendar year in which such termination occurs.
5.4 TERMINATION WITHOUT CAUSE. At any time the Company shall
have the right to terminate the Executive's employment hereunder by written
notice to the Executive. Upon any termination pursuant to this Section 5.4 that
is not a termination under any of Sections 5.1, 5.2, 5.3 or 5.5, the Company
shall: (a) pay to the Executive any unpaid Base Salary through the effective
date of termination specified in such notice, (b) pay to the Executive the
accrued and declared but unpaid Incentive Compensation, if any, for any Bonus
Period ending on or before the date of the termination of the Executive's
employment with the Company, (c) continue to pay the Executive's Base Salary for
a period of twelve (12) months
5
<PAGE>
following the termination of the Executive's employment with the Company, in the
manner and at such time as the Base Salary otherwise would have been payable to
the Executive, and (d) continue to pay the Executive Incentive Compensation and
continue to provide the Executive with the benefits he was receiving under
Sections 4.2, 4.4 and 4.6 hereof, for a period of twelve (12) months following
the termination of the Executive's employment with the Company, in the manner
and at such times as the compensation or benefits otherwise would have been
payable or provided to the Executive. In the event that the termination of
Executive's employment hereunder shall occur on or before December 31, 1997,
then the Incentive Compensation and benefits payable under clause (d) of this
Section 5.4 shall be equal to the amounts that would have been paid or provided
to the Executive for the year ended December 31, 1997. In the event that
termination of Executive's employment hereunder shall occur after December 31,
1997, then the Incentive Compensation and other benefits payable under clause
(d) of this Section 5.4 shall be equal to the amounts of such compensation and
benefits payable or provided to the Executive for the calendar year immediately
preceding the termination of Executive's employment hereunder. In the event that
the Company is unable to provide the Executive with a continuation of any
savings, pension, profit-sharing or deferred compensation plans required
hereunder by reason of the termination of the Executive's employment pursuant to
this Section 5.4, then the Company shall pay the Executive cash equal to the
value of the benefit that otherwise would have accrued for the Executive's
benefit under the plan, for the period during which such benefits could not be
provided under the plans, said cash payments to be made within forty-five (45)
days after the end of the year for which such contributions would have been made
or would have accrued. The Company's good faith determination of the amount that
would have been contributed or the value of any benefits that would have accrued
under any plan shall be binding and conclusive on the Executive. Further, the
Executive shall continue to vest in the Executive's Stock Options through the
Expiration Date in the same manner and to the same extent as if his employment
hereunder terminated on the Expiration Date. The Company shall have no further
liability hereunder other than for: (i) reimbursement for reasonable business
expenses incurred prior to the date of termination, subject, however, to the
provisions of Section 4.1, and (ii) payment of compensation for unused vacation
days that have accumulated during the calendar year in which such termination
occurs.
5.5 RESIGNATION BY EXECUTIVE. The Executive shall at all times
have the right, upon sixty (60) days written notice to the Company, to terminate
the Executive's employment hereunder. Upon any termination pursuant to this
Section 5.5, the Company shall: (a) pay to the Executive any unpaid Base Salary
through the effective date of termination specified in such notice and (b) pay
to the Executive his accrued but unpaid Incentive Compensation, if
6
<PAGE>
any, for any Bonus Period ending on or before the termination of Executive's
employment with the Company. The Company shall have no further liability
hereunder other than for: (i) reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1, and (ii) payment of compensation for unused vacation days that
have accumulated during the calendar year in which such termination occurs.
5.6 SURVIVAL. The provisions of this Article 5 shall
survive the termination of this Agreement, as applicable.
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. At all times while the Executive is
employed by the Company and for a two (2) year period after the termination of
the Executive's employment with the Company for any reason, the Executive shall
not, directly or indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation or business or any other person or
entity (whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that directly or indirectly (or
through any affiliated entity) engages in competition with the Company in the
United States, Canada or any foreign market where the Company markets and sells
software applications or its services (for this purpose, any business that
engages in the development and/or marketing of software applications in the
public sector marketplace shall be deemed to be in competition with the
Company); provided that such provision shall not apply to the Executive's
ownership of Common Stock of the Company or the acquisition by the Executive,
solely as an investment, of securities of any issuer that is registered under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and
that are listed or admitted for trading on any United States national securities
exchange or that are quoted on the National Association of Securities Dealers
Automated Quotations System, or any similar system or automated dissemination of
quotations of securities prices in common use, so long as the Executive does not
control, acquire a controlling interest in or become a member of a group which
exercises direct or indirect control or, more than five percent of any class of
capital stock of such corporation.
6.2 NONDISCLOSURE. The Executive 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 hereinafter defined) pertaining to the business of the Company. Any
Confidential Information or data now or hereafter acquired by the Executive with
respect to the business of the Company (which shall include, but not be limited
to, information concerning the Company's financial condition, prospects,
technology, customers, suppliers, sources of leads and
7
<PAGE>
methods of doing business) shall be deemed a valuable, special and unique asset
of the Company that is received by the Executive in confidence and as a
fiduciary, and Executive shall remain a fiduciary to the Company with respect to
all of such information. For purposes of this Agreement, "Confidential
Information" means information disclosed to the Executive or known by the
Executive as a consequence of or through his employment by the Company
(including information conceived, originated, discovered or developed by the
Executive) prior to or after the date hereof, and not generally known, about the
Company or its business. Notwithstanding the foregoing, nothing herein shall be
deemed to restrict the Executive from disclosing Confidential Information to the
extent required by law.
6.3 NONSOLICITATION OF EMPLOYEES AND CLIENTS. At all times
while the Executive is employed by the Company and for a two (2) year period
after the termination of the Executive's employment with the Company for any
reason, for the Executive shall not, directly or indirectly, for himself or for
any other person, firm, corporation, partnership, association or other entity:
(a) employ or attempt to employ or enter into any contractual arrangement with
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, and/or (b) call on or solicit any of the actual or targeted prospective
clients of the Company on behalf of any person or entity in connection with any
business competitive with the business of the Company, nor shall the Executive
make known the names and addresses of such clients or any information relating
in any manner to the Company's trade or business relationships with such
customers, other than in connection with the performance of Executive's duties
under this Agreement.
6.4 OWNERSHIP OF DEVELOPMENTS. All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by Executive during the course of performing work for the Company or its
clients (collectively, the "Work Product") shall belong exclusively to the
Company and shall, to the extent possible, be considered a work made by the
Executive for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Executive for hire for the Company, the Executive agrees to assign, and
automatically assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the
Executive may have in such Work Product. Upon the request of the Company, the
Executive shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.
8
<PAGE>
6.5 BOOKS AND RECORDS. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time.
6.6 DEFINITION OF COMPANY. Solely for purposes of this Section
6, the term "Company" also shall include any existing or future subsidiaries of
the Company that are operating during the time periods described herein and any
other entities that directly or indirectly, through one or more intermediaries,
control, are controlled by or are under common control with the Company during
the periods described herein.
6.7 ACKNOWLEDGEMENT BY EXECUTIVE. The Executive acknowledges
and confirms that the length of the term of the provisions of this Section 6 and
the geographical restrictions contained in Section 6.1 are fair and reasonable
and not the result of overreaching, duress or coercion of any kind. The
Executive further acknowledges and confirms that his full, uninhibited and
faithful observance of each of the covenants contained in this Section 6 will
not cause him any undue hardship, financial or otherwise, and that enforcement
of each of the covenants contained herein will not impair his ability to obtain
employment commensurate with his abilities and on terms fully acceptable to him
or otherwise to obtain income required for the comfortable support of him and
his family and the satisfaction of the needs of his creditors. The Executive
acknowledges and confirms that his special knowledge of the business of the
Company is such as would cause the Company serious injury or loss if he were to
use such ability and knowledge to the benefit of a competitor or were to compete
with the Company in violation of the terms of this Section 6.
6.8 REFORMATION BY COURT. In the event that a court of
competent jurisdiction shall determine that any provision of this Section 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Section 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
6.9 EXTENSION OF TIME. If the Executive shall be in violation
of any provision of this Section 6, then each time limitation set forth in this
Section 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive
relief from such violation in any court, then the covenants set
9
<PAGE>
forth in this Section 6 shall be extended for a period of time equal to the
pendency of such proceeding including all appeals by the Executive.
6.10 SURVIVAL. The provisions of this Section 6 shall survive the
termination of this Agreement, as applicable.
7. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Section 6 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess.
8. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Orange or Seminole Counties, Florida, in accordance with the Rules of the
American Arbitration Association then in effect (except to the extent that the
procedures outlined below differ from such rules). Within thirty (30) days after
written notice by either party has been given that a dispute exists and that
arbitration is required, each party must select an arbitrator and those two
arbitrators shall promptly, but in no event later than thirty (30) days after
their selection, select a third arbitrator. The parties agree to act as
expeditiously as possible to select arbitrators and conclude the dispute. The
selected arbitrators must render their decision in writing. The cost and
expenses of the arbitration and of enforcement of any award in any court shall
be borne equally by both parties. If advances are required, each party will
advance one-half of the estimated fees and expenses of the arbitrators. Judgment
may be entered on the arbitrators' award in any court having jurisdiction.
Although arbitration is contemplated to resolve disputes hereunder, either party
may proceed to court to obtain an injunction to protect its rights hereunder,
the parties agreeing that either could suffer irreparable harm by reason of any
breach of this Agreement. Pursuit of an injunction shall not impair arbitration
on all remaining issues.
9. ASSIGNMENT. Neither party shall have the right to assign or delegate
his rights or obligations hereunder, or any portion thereof, to any other
person.
10. GOVERNING LAW. This Agreement shall be governed by and
10
<PAGE>
construed in accordance with the laws of the State of Florida.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between the Executive and the Company (or
any of its affiliates) with respect to such subject matter. This Agreement may
not be modified in any way unless by a written instrument signed by both the
Company and the Executive.
12. NOTICES. All notices required or permitted to be given hereunder
shall be in writing and shall be personally delivered by courier, sent by
registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as evidenced
by the return receipt thereof, or three (3) days after deposit in the U.S. Mail.
Notice shall be sent: (a) if to the Company, addressed to 390 North Orange
Avenue, Suite 2000, Orlando, Florida, 32801, Attention: General Counsel, and (b)
if to the Executive, to his address as reflected on the payroll records of the
Company, or to such other address as either party hereto may from time to time
give notice of to the other.
13. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
14. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
15. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or
11
<PAGE>
violation.
16. DAMAGES. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or the injunction of any
action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other.
17. SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
18. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
H.T.E., INC.
By: _____________________________
Name:
Title:
EXECUTIVE:
_____________________________
12
EXHIBIT 10.8
AGREEMENT
This Employment and Professional Service Engagement Agreement
("Agreement") is made and entered into as of January 16, 1997, by
and between H.T.E., INC., a Florida corporation (the "Company"),
and L. A. GORNTO, JR. (hereinafter called "Gornto").
R E C I T A L
The Company and Gornto have agreed that the Gornto shall be both
employed and professionally engaged by the Company pursuant to the terms and
conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT AND PROFESSIONAL SERVICE ENGAGEMENT.
1.1 EMPLOYMENT AND ENGAGEMENT AND TERM. The Company hereby
agrees to employ Gornto and to professionally engage Gornto to provide services
as an employee and to provide professional services as an independent contractor
(attorney at law) and Gornto hereby agrees to serve the Company on the terms and
conditions set forth herein.
1.2 DUTIES AND RESPONSIBILITIES OF GORNTO. During the term of
this Agreement, Gornto shall have the title of Executive Vice President, Chief
Financial Officer and General Counsel of the Company. He shall diligently
perform all services, either as an employee or an independent contractor
(attorney at law) for the Company, as may be assigned to him by the Board of
Directors or the Chief Executive Officer of the Company and shall exercise such
power and authority as may from time to time be delegated to him by the Board or
the Chief Executive Officer of the Company. Gornto shall be available to the
Company on a full time basis and shall devote such time and render such services
as the Company may need from time to time to promote the best interests of the
Company. However, to the extent not needed or required by the Company, Gornto
shall be authorized to provide professional services as an attorney at law from
time to time to other clients of his law firm.
2. TERM.
2.1 INITIAL TERM. The initial term of this Agreement, and the
employment and engagement of the Gornto hereunder, shall commence on January 16,
1997 (the "Commencement Date") and shall expire on December 31, 1997, unless
sooner terminated in accordance with the terms and conditions hereof (the
"Initial Term").
1
<PAGE>
2.2 RENEWAL TERMS. At the end of the Initial Term, this
Agreement shall automatically renew for successive one year terms,
subject to earlier termination of this Agreement as provided
herein.
2.3 EXPIRATION DATE. The date on which the term of this
Agreement shall expire (including the date on which any renewal term shall
expire), is sometimes referred to in this Agreement as the Expiration Date.
3. COMPENSATION.
3.1 BASE SALARY. Gornto shall receive from the Company an
initial base salary at the annual rate of Seventy-five Thousand Dollars
($75,000) (the "Base Salary"), with such Base Salary payable in installments
consistent with the Company's normal payroll schedule, subject to applicable
withholding and other taxes. The Base Salary shall be reviewed, at least
annually, for merit increases and may, by action and in the discretion of the
Board or the Chief Executive Officer of the Company, be increased at any time or
from time to time. The Base Salary shall entitle the Company to receive from
Gornto sixteen (16) hours of work or service per week.
3.2 HOURLY PROFESSIONAL RATE FOR ADDITIONAL WORK. For
all time expended by Gornto each week in providing services to the
Company hereunder in excess of sixteen (16) hours per week, Gornto
shall receive a monthly payment from the Company based on a hourly
rate equal to eighty-five percent (85%) of his then effective and
standard hourly professional billing rate for his law practice.
Eighty-five percent (85%) of Gornto's current hourly professional
billing rate is One Hundred Forty Dollars and Twenty-five Cents
($140.25). Gornto shall be responsible for the full and timely
payment of all income and employment taxes applicable thereto.
3.3 BONUSES. During the term of this Agreement, Gornto
shall NOT participate in the Company's Executive Bonus Plan.
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. Upon the submission of proper
substantiation by Gornto, and subject to such rules and guidelines as the
Company may from time to time adopt, the Company shall reimburse Gornto for all
reasonable expenses actually paid or incurred by Gornto in the course of and
pursuant to the business of the Company. Gornto shall account to the Company in
writing for all expenses for which reimbursement is sought and shall supply to
the Company copies of all relevant invoices, receipts or other evidence
reasonably requested by the Company.
2
<PAGE>
4.2 COMPENSATION/BENEFIT PROGRAMS. During the term of
this Agreement, the Company, at its expense, shall provide to Gornto and his
dependent family members medical, dental, hospitalization, accidental death and
dismemberment, disability and life insurance coverage. In addition, the Company
shall allow Gornto to participate in all other plans as are presently and
hereinafter offered by the Company to its executives, including savings,
retirement and deferred compensation plans.
4.3 WORKING FACILITIES. The Company shall furnish Gornto with
such facilities and services suitable to his position and adequate for the
performance of his duties hereunder, including the expense of all telephone and
other communication services utilized by Gornto. It is anticipated that Gornto
will maintain and work out of two separate offices, one at the Company's
headquarters to be located in Seminole County, Florida, and the other office at
Gornto's law firm in Daytona Beach, Florida. All expenses applicable to
maintenance and operation of Gornto's Daytona office, including his secretarial
support at such office, shall be paid by him out of the hourly rate payment made
by the Company to Gornto pursuant to Section 3.2 above.
4.4 STOCK OPTIONS. Within thirty (30) days of the date of this
Agreement, Gornto shall be granted a ten (10) year nonstatutory stock option
(the "Stock Option") to purchase twenty-five hundred (2500) shares of common
stock (the "Common Stock") of H.T.E., Inc. at a price of Five Hundred Dollars
($500.00) per share, with immediate vesting for five hundred (500) of such
shares and two thousand (2000) of such shares subject to a vesting schedule of
twenty-five percent (25%) per year, under (and therefore subject to all
applicable terms and conditions of) the Company's 1997 Executive Incentive
Compensation Plan as amended, and any successor plan thereto (the "Executive
Incentive Compensation Plan") and all rules of regulation of the Securities and
Exchange Commission applicable to stock option plans then in effect, and in
accordance with all terms and provisions of that certain Stock Option Agreement
to be entered into by the Company and Gornto in regard to the Stock Option, a
copy of which is attached hereto.
4.5 OTHER BENEFITS. Gornto shall be entitled to four (4) weeks
of vacation time each year during the term of this Agreement, to be taken at
such times as Gornto and the Company shall mutually determine and provided that
no vacation time shall interfere with the duties required to be rendered by
Gornto hereunder. Any vacation time not taken by Gornto during any calendar year
may be carried forward into any succeeding calendar year in accordance with HTE
policy. Gornto shall receive such additional benefits, if any, as the Board of
the Company shall from time to time determine.
3
<PAGE>
5. TERMINATION.
5.1 TERMINATION/RESIGNATION. Gornto and the Company
shall each have the right at any time, upon sixty (60) days written notice to
the other party, to terminate Gornto's employment and/or professional engagement
hereunder. Upon any termination pursuant to this Section 5, the Company shall
pay to Gornto any unpaid Base Salary and additional services at the then
effective hourly rate through the effective date of termination specified in
such notice. The Company shall have no further liability hereunder other than
for: (a) reimbursement for reasonable business expenses incurred prior to the
date of termination, subject, however, to the provisions of Section 4.1, and (b)
payment of compensation for unused vacation days that have accumulated during
the calendar year in which such termination occurs.
5.2 DEATH. In the event of the death of Gornto during the term
of his employment and/or professional engagement hereunder, the Company shall
pay to the estate of Gornto any unpaid Base Salary and additional services at
the then effective hourly rate through Gornto's date of death. The Company shall
have no further liability hereunder other than for: (a) reimbursement for
reasonable business expenses incurred prior to the date of Gornto's death,
subject, however to the provisions of Section 4.1, and (b) payment of
compensation for unused vacation days that have accumulated during the calendar
year in which such termination occurs.
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. At all times while Gornto is employed
and/or engaged by the Company and for a one (1) year period after the
termination of Gornto's employment and/or engagement with the Company for any
reason, Gornto shall not, directly or indirectly, engage in or have any interest
in any sole proprietorship, partnership, corporation or business or any other
person or entity (whether as an employee, officer, director, partner, agent,
security holder, creditor, consultant or otherwise) that directly or indirectly
(or through any affiliated entity) engages in competition with the Company in
the United States, Canada or any foreign market where the Company markets and
sells software applications or its services (for this purpose, any business that
engages in the development and/or marketing of software applications in the
public sector marketplace shall be deemed to be in competition with the
Company); provided that such provision shall not apply to Gornto's ownership of
Common Stock of the Company or the acquisition by Gornto, solely as an
investment, of securities of any issuer that is registered under Section 12(b)
or 12(g) of the Securities Exchange Act of 1934, as amended, and that are listed
or admitted for trading on any United States national securities exchange or
that are quoted on the National Association of Securities Dealers Automated
Quotations System, or
4
<PAGE>
any similar system or automated dissemination of quotations of securities prices
in common use, so long as Gornto does not control, acquire a controlling
interest in or become a member of a group which exercises direct or indirect
control or, more than five percent (5%) of any class of capital stock of such
corporation.
6.2 NONDISCLOSURE. 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
hereinafter defined) pertaining to the business of the Company. Any Confidential
Information or data now or hereafter acquired by Gornto with respect to the
business of the Company (which shall include, but not be limited to, information
concerning the Company's financial condition, prospects, technology, customers,
suppliers, sources of leads and methods of doing business) shall be deemed a
valuable, special and unique asset of the Company that is received by Gornto in
confidence and as a fiduciary, and Gornto shall remain a fiduciary to the
Company with respect to all of such information. For purposes of this Agreement,
"Confidential Information" means information disclosed to Gornto or known by
Gornto as a consequence of or through his employment by the Company (including
information conceived, originated, discovered or developed by Gornto) prior to
or after the date hereof, and not generally known, about the Company or its
business. Notwithstanding the foregoing, nothing herein shall be deemed to
restrict Gornto from disclosing Confidential Information to the extent required
by law.
6.3 NONSOLICITATION OF EMPLOYEES AND CLIENTS. At all
times while Gornto is employed and/or engaged by the Company and
for a one (1) year period after the termination of the Gornto's
employment and/or engagement with the Company for any reason,
Gornto shall not, directly or indirectly, for himself or for any
other person, firm, corporation, partnership, association or other
entity: (a) employ or attempt to employ or enter into any
contractual arrangement with 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 (6) months,
and/or (b) call on or solicit any of the actual or targeted
prospective clients of the Company on behalf of any person or
entity in connection with any business competitive with the
business of the Company, nor shall Gornto make known the names and
addresses of such clients or any information relating in any manner
to the Company's trade or business relationships with such
customers, other than in connection with the performance of
Gornto's duties under this Agreement.
6.4 OWNERSHIP OF DEVELOPMENTS. All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by Gornto
5
<PAGE>
during the course of performing work for the Company or its clients
(collectively, the "Work Product") shall belong exclusively to the Company and
shall, to the extent possible, be considered a work made by Gornto for hire for
the Company within the meaning of Title 17 of the United States Code. To the
extent the Work Product may not be considered work made by Gornto for hire for
the Company, Gornto agrees to assign, and automatically assign at the time of
creation of the Work Product, without any requirement of further consideration,
any right, title, or interest Gornto may have in such Work Product. Upon the
request of the Company, Gornto shall take such further actions, including
execution and delivery of instruments of conveyance, as may be appropriate to
give full and proper effect to such assignment.
6.5 BOOKS AND RECORDS. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by Gornto or otherwise coming into Gornto's possession, shall be the
exclusive property of the Company and shall be returned immediately to the
Company on termination of Gornto's employment and/or engagement hereunder or on
the Company's request at any time.
6.6 DEFINITION OF COMPANY. Solely for purposes of this Section
6, the term "Company" also shall include any existing or future subsidiaries of
the Company that are operating during the time periods described herein and any
other entities that directly or indirectly, through one or more intermediaries,
control, are controlled by or are under common control with the Company during
the periods described herein.
6.7 ACKNOWLEDGEMENT BY GORNTO. Gornto acknowledges and
confirms that the length of the term of the provisions of this Section 6 and the
geographical restrictions contained in Section 6.1 are fair and reasonable and
not the result of overreaching, duress or coercion of any kind. Gornto further
acknowledges and confirms that his full, uninhibited and faithful observance of
each of the covenants contained in this Section 6 will not cause him any undue
hardship, financial or otherwise, and that enforcement of each of the covenants
contained herein will not impair his ability to obtain employment and/or a
professional engagement commensurate with his abilities and on terms fully
acceptable to him or otherwise to obtain income required for the comfortable
support of him and his family and the satisfaction of the needs of his
creditors. Gornto acknowledges and confirms that his special knowledge of the
business of the Company is such as would cause the Company serious injury or
loss if he were to use such ability and knowledge to the benefit of a competitor
or were to compete with the Company in violation of the terms of this Section 6.
6.8 REFORMATION BY COURT. In the event that a court of
competent jurisdiction shall determine that any provision of this
6
<PAGE>
Section 6 is invalid or more restrictive than permitted under the governing law
of such jurisdiction, then only as to enforcement of this Section 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
6.9 EXTENSION OF TIME. If Gornto shall be in violation of any
provision of this Section 6, then each time limitation set forth in this Section
6 shall be extended for a period of time equal to the period of time during
which such violation or violations occur. If the Company seeks injunctive relief
from such violation in any court, then the covenants set forth in this Section 6
shall be extended for a period of time equal to the pendency of such proceeding
including all appeals by Gornto.
6.10 SURVIVAL. The provisions of this Section 6 shall
survive the termination of this Agreement, as applicable.
7. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by Gornto of any of the covenants contained in Section 6 of
this Agreement will cause irreparable harm and damage to the Company, the
monetary amount of which may be virtually impossible to ascertain. As a result,
Gornto recognizes and hereby acknowledges that the Company shall be entitled to
an injunction from any court of competent jurisdiction enjoining and restraining
any violation of any or all of the covenants contained in Section 6 of this
Agreement by Gornto or any of his affiliates, associates, partners or agents,
either directly or indirectly, and that such right to injunction shall be
cumulative and in addition to whatever other remedies the Company may possess.
8. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Orange County, Florida, in accordance with the Rules of the American Arbitration
Association then in effect (except to the extent that the procedures outlined
below differ from such rules). Within thirty (30) days after written notice by
either party has been given that a dispute exists and that arbitration is
required, each party must select an arbitrator and those two arbitrators shall
promptly, but in no event later than thirty (30) days after their selection,
select a third arbitrator. The parties agree to act as expeditiously as possible
to select arbitrators and conclude the dispute. The selected arbitrators must
render their decision in writing. The cost and expenses of the arbitration and
of enforcement of any award in any court shall be borne equally by both parties.
If advances are required, each party will advance one-half of the estimated fees
and expenses of the arbitrators. Judgment may be entered on the arbitrators'
award in any court having jurisdiction. Although arbitration is contemplated to
resolve disputes hereunder, either party may proceed to court to obtain an
injunction to protect its rights
7
<PAGE>
hereunder, the parties agreeing that either could suffer irreparable harm by
reason of any breach of this Agreement. Pursuit of an injunction shall not
impair arbitration on all remaining issues.
9. ASSIGNMENT. Neither party shall have the right to assign
or delegate its rights or obligations hereunder, or any portion
thereof, to any other person.
10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between Gornto and the Company (or any of
its affiliates) with respect to such subject matter. This Agreement may not be
modified in any way unless by a written instrument signed by both the Company
and Gornto.
12. NOTICES. All notices required or permitted to be given hereunder
shall be in writing and shall be personally delivered by courier, sent by
registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as evidenced
by the return receipt thereof, or three (3) days after deposit in the U.S. Mail.
Notice shall be sent: (a) if to the Company, addressed to 390 North Orange
Avenue, Suite 2000, Orlando, Florida, 32801, Attention: Preident, and (b) if to
Gornto, addressed to L. A. Gornto, Jr., P.A., Attorney at Law, 149-F South
Ridgewood Avenue, Daytona Beach, Florida 32114, or to such other address as
either party hereto may from time to time give notice of to the other.
13. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
14. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
8
<PAGE>
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
15. WAIVERS. The waiver by either party hereto of a breach
or violation of any term or provision of this Agreement shall not
operate nor be construed as a waiver of any subsequent breach or
violation.
16. DAMAGES. Nothing contained herein shall be construed to prevent the
Company or Gornto from seeking and recovering from the other damages sustained
by either or both of them as a result of its or his breach of any term or
provision of this Agreement. In the event that either party hereto brings suit
for the collection of any damages resulting from, or the injunction of any
action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other.
17. SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
18. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
H.T.E., INC.
By:
---------------------------- --------------------------------
Dennis J. Harward, President L. A. Gornto, Jr.
9
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into as of
January 1, 1997 by and between H.T.E., INC., a Florida corporation (the
"Company"), and _______________ (hereinafter called the "Executive").
R E C I T A L
The Executive and the Company have agreed that the Executive shall be
employed by the Company pursuant to the terms and conditions hereinafter set
forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERM. The Company hereby agrees to
employ the Executive and the Executive hereby agrees to serve the
Company on the terms and conditions set forth herein.
1.2 DUTIES OF EXECUTIVE. During the term of this Agreement,
the Executive shall serve as Vice President and Chief Marketing Officer of the
Company, shall diligently perform all services as may be assigned to him by the
Board or the Chief Executive Officer of the Company and shall exercise such
power and authority as may from time to time be delegated to him by the Board or
the Chief Executive Officer of the Company. The Executive shall devote his full
time and attention to the business and affairs of the Company, render such
services to the best of his ability, and use his best efforts to promote the
interests of the Company.
2. TERM.
2.1 INITIAL TERM. The initial term of this Agreement, and the
employment of the Executive hereunder, shall commence on January 1, 1997 (the
"Commencement Date") and shall expire on December 31, 1997, unless sooner
terminated in accordance with the terms and conditions hereof (the "Initial
Term").
2.2 RENEWAL TERMS. At the end of the Initial Term, this
Agreement shall automatically renew for successive one year terms,
subject to earlier termination of this Agreement as provided
herein.
2.3 EXPIRATION DATE. The date on which the term of this
Agreement shall expire (including the date on which any renewal term shall
expire), is sometimes referred to in this
1
<PAGE>
Agreement as the Expiration Date.
3. COMPENSATION.
3.1 BASE SALARY. The Executive shall receive an initial base
salary at the annual rate of One Hundred Fifty Thousand Dollars ($150,000.00)
(the "Base Salary"), with such Base Salary payable in installments consistent
with the Company's normal payroll schedule, subject to applicable withholding
and other taxes. The Base Salary also shall be reviewed, at least annually, for
merit increases and may, by action and in the discretion of the Board, be
increased at any time or from time to time.
3.2 COMMISSIONS. During the term of this Agreement, the
Executive shall be eligible to receive the following commissions
(the "Commissions"):
North America License Fees ($0 - 12.5MM) .0075 Commission Rate
($12.5MM++) .01 Commission Rate
The Executive will be entitled to a twelve (12) month draw against his
commissions at the rate of seventy-five percent (75%) of the targeted
commissions at $12.5MM, to be paid on a monthly basis. Actual commissions earned
will be netted quarterly, against any draw received, with shortfalls rolling
over to succeeding quarters.
3.3 BONUSES. During the term of this Agreement, the Executive
shall be eligible to receive bonuses ("Incentive Compensation") pursuant to the
H.T.E., Inc. Executive Bonus Plan, as may be amended from time to time (the
"Incentive Compensation Plan") which shall in the aggregate be up to fifty
percent (50%) of the Executive's Base Salary based upon satisfaction of the
individual and Company performance goals set in accordance with the Incentive
Compensation Plan. Each period for which Incentive Compensation is payable under
the Incentive Compensation Plan is sometimes hereinafter referred to as a Bonus
Period.
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. During the term of the
Executive's employment hereunder, upon the submission of proper substantiation
by the Executive, and subject to such rules and guidelines as the Company may
from time to time adopt, the Company shall reimburse the Executive for all
reasonable expenses actually paid or incurred by the Executive in the course of
and pursuant to the business of the Company. The Executive shall account to the
Company in writing for all expenses for which reimbursement is sought and shall
supply to the Company copies of all relevant invoices, receipts or other
evidence reasonably requested by the Company.
2
<PAGE>
4.2 BENEFIT PROGRAMS. During the term of this
Agreement, the Company, at its expense, shall provide to the Executive and his
dependent family members medical, dental, hospitalization, accidental death and
dismemberment, disability and life insurance coverage. In addition, the Company
shall allow the Executive to participate in all other plans as are presently and
hereinafter offered by the Company to its executives, including savings,
retirement and deferred compensation plans.
4.3 WORKING FACILITIES. The Company shall furnish the
Executive with an office and such other facilities and services
suitable to his position and adequate for the performance of his
duties hereunder.
4.4 AUTOMOBILE ALLOWANCE. The Company shall provide the
Executive with the use of an automobile, or an automobile allowance
between Four Hundred Fifty Dollars ($450) and Six Hundred Fifty
Dollars ($650) per month.
4.5 STOCK OPTIONS. Within thirty (30) days of the date of this
Agreement, the Executive shall be granted options (the "Stock Options") to
purchase one thousand (1000) shares of common stock (the "Common Stock") of
H.T.E., Inc. at a price of Five Hundred Dollars ($500) per share, and subject to
a vesting schedule of twenty percent (20%) per year, under (and therefore
subject to all terms and conditions of) the HTE, Inc. 1997 Executive Incentive
Compensation Plan as amended, and any successor plan thereto (the "Executive
Incentive Compensation Plan") and all rules of regulation of the Securities and
Exchange Commission applicable to stock option plans then in effect. The
Executive shall be eligible for the grant of additional Stock Options from time
to time under the Executive Incentive Compensation Plan upon the Company
achieving total revenue milestones of $50,000,000, $75,000,000 and $100,000,000.
The number of such additional Stock Options, and terms and conditions of the
Stock Options shall be determined by the Committee appointed pursuant to the
Executive Incentive Compensation Plan, or by the Board of Directors of the
Company, in its discretion and pursuant to the Executive Incentive Compensation
Plan.
4.6 OTHER BENEFITS. The Executive shall accrue vacation time
at the rate of four (4) weeks per calendar year during the term of this
Agreement, to be taken at such times as the Executive and the Company shall
mutually determine and provided that no vacation time shall interfere with the
duties required to be rendered by the Executive hereunder. Any vacation time not
taken by Executive during any calendar year may be carried forward into any
succeeding calendar year in accordance with HTE policy. The Executive shall
receive such additional benefits, if any, as the Board of the Company shall from
time to time determine.
3
<PAGE>
5. TERMINATION.
5.1 TERMINATION/RESIGNATION. The Executive and the
Company shall each have the right at any time, upon sixty (60) days written
notice to the other party, to terminate the Executive's employment hereunder.
Upon any termination pursuant to this Section 5, the Company shall: (a) pay to
the Executive any unpaid Base Salary through the effective date of termination
specified in such notice, (b) pay to the Executive his earned and accrued but
unpaid Commissions, if any, through the effective date of termination specified
in such notice, and (c) pay to the Executive his accrued and declared but unpaid
Incentive Compensation, if any, for any Bonus Period ending on or before the
termination of Executive's employment with the Company. The Company shall have
no further liability hereunder other than for: (i) reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 4.1, and (ii) payment of compensation for unused
vacation days that have accumulated during the calendar year in which such
termination occurs, except as provided elsewhere in this doucment, such as
Section 5.3.
5.2 DEATH. In the event of the death of the Executive during
the term of his employment hereunder, the Company shall (a) pay to the estate of
the deceased Executive any unpaid Base Salary through the Executive's date of
death, (b) pay to the estate of the deceased Executive his earned and accrued
but unpaid Commissions, if any, through the Executive's date of death, and (c)
pay to the estate of the deceased Executive his accrued and declared but unpaid
Incentive Compensation, if any, for any Bonus Period ending on or before the
Executive's date of death. The Company shall have no further liability hereunder
other than for: (i) reimbursement for reasonable business expenses incurred
prior to the date of the Executive's death, subject, however to the provisions
of Section 4.1, and (ii) payment of compensation for unused vacation days that
have accumulated during the calendar year in which such termination occurs.
5.3 SEVERANCE. In the event the Company terminates the
Executive's employment hereunder without cause, as hereinafter defined, the
Company shall continue to pay the Executive's Base Salary and provide health,
dental and life insurance benefits he was receiving under Section 4.2 hereof for
a period of months following such termination, based upon the schedule set forth
below, in the manner and at such time as the Base Salary and the foregoing
benefits otherwise would have been payable or provided to the Executive:
MONTHS OF BASE SALARY AND
MONTHS OF EMPLOYMENT BENEFITS CONTINUATION
-------------------- -------------------------
Less than 3 months 2
At least 3 months but less than 6 months 4
6 months or more 6
4
<PAGE>
The term "cause" shall mean (a) fraud, embezzlement, misappropriation of funds
or breach of trust in connection with his services hereunder, (b) conviction of
any crime which involves dishonesty or a breach of trust, (c) gross negligence
in connection with the performance of the Executive's duties hereunder, or (d)
an action or omission of the Executive which constitutes a intentional, willful
and material breach of this Agreement which is not cured within thirty (30) days
after receipt by the Executive of written notice of same.
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. At all times while the Executive is
employed by the Company and for a one (1) year period after the termination of
the Executive's employment with the Company for any reason, the Executive shall
not, directly or indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation or business or any other person or
entity (whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that directly or indirectly (or
through any affiliated entity) engages in competition with the Company in the
United States, Canada or any foreign market where the Company markets and sells
software applications or its services (for this purpose, any business that
engages in the development and/or marketing of software applications in the
public sector marketplace shall be deemed to be in competition with the
Company); provided that such provision shall not apply to the Executive's
ownership of Common Stock of the Company or the acquisition by the Executive,
solely as an investment, of securities of any issuer that is registered under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and
that are listed or admitted for trading on any United States national securities
exchange or that are quoted on the National Association of Securities Dealers
Automated Quotations System, or any similar system or automated dissemination of
quotations of securities prices in common use, so long as the Executive does not
control, acquire a controlling interest in or become a member of a group which
exercises direct or indirect control or, more than five percent (5%) of any
class of capital stock of such corporation.
6.2 NONDISCLOSURE. The Executive 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 hereinafter defined) pertaining to the business of the Company. Any
Confidential Information or data now or hereafter acquired by the Executive with
respect to the business of the Company (which shall include, but not be limited
to, information concerning the Company's financial condition, prospects,
technology, customers, suppliers, sources of leads and methods of doing
business) shall be deemed a valuable, special and
5
<PAGE>
unique asset of the Company that is received by the Executive in confidence and
as a fiduciary, and Executive shall remain a fiduciary to the Company with
respect to all of such information. For purposes of this Agreement,
"Confidential Information" means information disclosed to the Executive or known
by the Executive as a consequence of or through his employment by the Company
(including information conceived, originated, discovered or developed by the
Executive) prior to or after the date hereof, and not generally known, about the
Company or its business. Notwithstanding the foregoing, nothing herein shall be
deemed to restrict the Executive from disclosing Confidential Information to the
extent required by law.
6.3 NONSOLICITATION OF EMPLOYEES AND CLIENTS. At all
times while the Executive is employed by the Company and for a one
(1) year period after the termination of the Executive's employment
with the Company for any reason, for the Executive shall not,
directly or indirectly, for himself or for any other person, firm,
corporation, partnership, association or other entity: (a) employ
or attempt to employ or enter into any contractual arrangement with
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, and/or (b) call on or solicit
any of the actual or targeted prospective clients of the Company on
behalf of any person or entity in connection with any business
competitive with the business of the Company, nor shall the
Executive make known the names and addresses of such clients or any
information relating in any manner to the Company's trade or
business relationships with such customers, other than in
connection with the performance of Executive's duties under this
Agreement.
6.4 OWNERSHIP OF DEVELOPMENTS. All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by Executive during the course of performing work for the Company or its
clients (collectively, the "Work Product") shall belong exclusively to the
Company and shall, to the extent possible, be considered a work made by the
Executive for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Executive for hire for the Company, the Executive agrees to assign, and
automatically assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the
Executive may have in such Work Product. Upon the request of the Company, the
Executive shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.
6.5 BOOKS AND RECORDS. All books, records, and
6
<PAGE>
accounts relating in any manner to the customers or clients of the Company,
whether prepared by the Executive or otherwise coming into the Executive's
possession, shall be the exclusive property of the Company and shall be returned
immediately to the Company on termination of the Executive's employment
hereunder or on the Company's request at any time.
6.6 DEFINITION OF COMPANY. Solely for purposes of this Section
6, the term "Company" also shall include any existing or future subsidiaries of
the Company that are operating during the time periods described herein and any
other entities that directly or indirectly, through one or more intermediaries,
control, are controlled by or are under common control with the Company during
the periods described herein.
6.7 ACKNOWLEDGEMENT BY EXECUTIVE. The Executive acknowledges
and confirms that the length of the term of the provisions of this Section 6 and
the geographical restrictions contained in Section 6.1 are fair and reasonable
and not the result of overreaching, duress or coercion of any kind. The
Executive further acknowledges and confirms that his full, uninhibited and
faithful observance of each of the covenants contained in this Section 6 will
not cause him any undue hardship, financial or otherwise, and that enforcement
of each of the covenants contained herein will not impair his ability to obtain
employment commensurate with his abilities and on terms fully acceptable to him
or otherwise to obtain income required for the comfortable support of him and
his family and the satisfaction of the needs of his creditors. The Executive
acknowledges and confirms that his special knowledge of the business of the
Company is such as would cause the Company serious injury or loss if he were to
use such ability and knowledge to the benefit of a competitor or were to compete
with the Company in violation of the terms of this Section 6.
6.8 REFORMATION BY COURT. In the event that a court of
competent jurisdiction shall determine that any provision of this Section 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Section 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
6.9 EXTENSION OF TIME. If the Executive shall be in violation
of any provision of this Section 6, then each time limitation set forth in this
Section 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive
relief from such violation in any court, then the covenants set forth in this
Section 6 shall be extended for a period of time equal to the pendency of such
proceeding including all appeals by the Executive.
7
<PAGE>
6.10 SURVIVAL. The provisions of this Section 6 shall
survive the termination of this Agreement, as applicable.
7. INJUNCTION. It is recognized and hereby acknowledged by
the parties hereto that a breach by the Executive of any of the covenants
contained in Section 6 of this Agreement will cause irreparable harm and damage
to the Company, the monetary amount of which may be virtually impossible to
ascertain. As a result, the Executive recognizes and hereby acknowledges that
the Company shall be entitled to an injunction from any court of competent
jurisdiction enjoining and restraining any violation of any or all of the
covenants contained in Section 6 of this Agreement by the Executive or any of
his affiliates, associates, partners or agents, either directly or indirectly,
and that such right to injunction shall be cumulative and in addition to
whatever other remedies the Company may possess.
8. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Orange County, Florida, in accordance with the Rules of the American Arbitration
Association then in effect (except to the extent that the procedures outlined
below differ from such rules). Within thirty (30) days after written notice by
either party has been given that a dispute exists and that arbitration is
required, each party must select an arbitrator and those two arbitrators shall
promptly, but in no event later than thirty (30) days after their selection,
select a third arbitrator. The parties agree to act as expeditiously as possible
to select arbitrators and conclude the dispute. The selected arbitrators must
render their decision in writing. The cost and expenses of the arbitration and
of enforcement of any award in any court shall be borne equally by both parties.
If advances are required, each party will advance one-half of the estimated fees
and expenses of the arbitrators. Judgment may be entered on the arbitrators'
award in any court having jurisdiction. Although arbitration is contemplated to
resolve disputes hereunder, either party may proceed to court to obtain an
injunction to protect its rights hereunder, the parties agreeing that either
could suffer irreparable harm by reason of any breach of this Agreement. Pursuit
of an injunction shall not impair arbitration on all remaining issues.
9. ASSIGNMENT. Neither party shall have the right to assign
or delegate its rights or obligations hereunder, or any portion
thereof, to any other person.
10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject
8
<PAGE>
matter hereof and, upon its effectiveness, shall supersede all prior agreements,
understandings and arrangements, both oral and written, between the Executive
and the Company (or any of its affiliates) with respect to such subject matter.
This Agreement may not be modified in any way unless by a written instrument
signed by both the Company and the Executive.
12. NOTICES. All notices required or permitted to be given
hereunder shall be in writing and shall be personally delivered by courier, sent
by registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as evidenced
by the return receipt thereof, or three (3) days after deposit in the U.S. Mail.
Notice shall be sent (a) if to the Company, addressed to 390 North Orange
Avenue, Suite 2000, Orlando, Florida, 32801, Attention: President, and (b) if to
the Executive, to his address as reflected on the payroll records of the
Company, or to such other address as either party hereto may from time to time
give notice of to the other.
13. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
14. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
15. WAIVERS. The waiver by either party hereto of a breach
or violation of any term or provision of this Agreement shall not
operate nor be construed as a waiver of any subsequent breach or
violation.
16. DAMAGES. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a
9
<PAGE>
result of its or his breach of any term or provision of this Agreement. In the
event that either party hereto brings suit for the collection of any damages
resulting from, or the injunction of any action constituting, a breach of any of
the terms or provisions of this Agreement, then the party found to be at fault
shall pay all reasonable court costs and attorneys' fees of the other.
17. SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
18. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
H.T.E., INC.
By:
-----------------------------------
Dennis J. Harward, President
EXECUTIVE:
--------------------------------
10
EXHIBIT 10.10
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") is made and
entered into as of February 28, 1997, by and between H.T.E., INC., a Florida
corporation (the "Company"), and _______________ (the "Executive").
RECITALS:
WHEREAS, the Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its shareholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat, or occurrence of a Change of Control
(as defined below) of the Company; and
WHEREAS, the Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control, to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation arrangements upon a Change of Control which provide
the Executive with individual financial security and which are competitive with
those of other corporations and, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, IT IS HEREBY AGREED AS FOLLOWS:
I. CERTAIN DEFINITIONS
A. The "Effective Date" shall be the first date during the "Change of
Control Period" (as defined below) on which a Change of Control occurs. Anything
in this Agreement to the contrary notwithstanding, if the Executive's employment
with the Company is terminated prior to the date on which a Change of Control
occurs, and it is reasonably demonstrated that such termination: (1) was at the
request of a third party who has taken steps reasonably calculated to effect a
Change of Control, or (2) otherwise arose in connection with or anticipation of
a Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination.
B. The "Change of Control Period" is the period commencing on the date
hereof and ending on the earlier to occur of: (1) the third anniversary of such
date, and (2) the first day of the month
1
<PAGE>
next following the Executive's normal retirement date at age sixty-five (65)
("Normal Retirement Date"); PROVIDED, HOWEVER, that commencing on the date one
year after the date hereof, and on each annual anniversary of such date (such
date and each annual anniversary thereof is hereinafter referred to as the
"Renewal Date"), the Change of Control Period shall be automatically extended so
as to terminate on the earlier of: (a) three years from such Renewal Date, and
(b) the first day of the month coinciding with or next following the Executive's
Normal Retirement Date, unless at least sixty (60) days prior to the Renewal
Date the Company shall give written notice to the Executive that the Change of
Control Period shall not be so extended.
II. CHANGE OF CONTROL
A. For the purpose of this Agreement, a "Change of Control"
shall mean:
1. The acquisition (other than by or from the Company, or
other than by or from the Executive), at any time after the date
hereof, by any person, entity or "group", within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the
"Exchange Act"), of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of twenty-five (25%) or more
of either the then outstanding shares of common stock or the combined
voting power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors; or
2. The four individuals who, as of the date hereof, constitute
the Board (as of the date hereof the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board, provided that
any person becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders, was
approved, or not objected to, by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an election
or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to
the election of the directors of the Company, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act)
shall be, for purposes of this Agreement, considered as though such
person were a member of the Incumbent Board; or
3. Approval by the stockholders of the Company of: (a) a
reorganization, merger or consolidation with respect to which persons
who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter,
own more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, (b)
2
<PAGE>
a liquidation or dissolution of the Company, or (c) the sale of all or
substantially all of the assets of the Company, unless the approved
reorganization, merger, consolidation, liquidation, dissolution or sale
is subsequently abandoned; provided however, that not withstanding the
foregoing to the contrary, any such event, action or matter approved by
the stockholders of the Company in which the Executive did not vote all
shares of common stock of the Company held or beneficially owned by the
Executive against such event, action or matter shall not constitute a
Change of Control for purposes of this Agreement.
III. EMPLOYMENT PERIOD
A. The Company hereby agrees to continue the Executive in its employ,
and the Executive hereby agrees to remain in the employ of the Company, for the
period commencing on the Effective Date and ending on the earlier to occur of:
(1) the first anniversary of such date, or (2) the first day of the month
coinciding with or next following the Executive's Normal Retirement Date (the
"Employment Period").
IV. TERMS OF EMPLOYMENT
A. POSITION AND DUTIES.
1. During the Employment Period: (a) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate
in all material respects with the most significant of those held,
exercised and assigned at any time during the 180-day period
immediately preceding the Effective Date, and (b) the Executive's
services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office or
location less than thirty-five (35) miles from such location.
2. During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to: (a) serve on corporate, civic or charitable boards or
committees, (b) deliver lectures, fulfill speaking engagements or teach
at educational institutions, and (c) manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is
3
<PAGE>
expressly understood and agreed that to the extent that any such
activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Company.
B. COMPENSATION.
1. BASE SALARY. During the Employment Period, the Executive
shall receive a base salary ("Base Salary") at a monthly rate at least
equal to the highest monthly base salary paid or payable to the
Executive by the Company during the twelve-month period immediately
preceding the month in which the Effective Date occurs. During the
Employment Period, the Base Salary shall be reviewed at least annually
and shall be increased at any time and from time to time as shall be
substantially consistent with increases in base salary awarded in the
ordinary course of business to other key executives of the Company and
its subsidiaries. Any increase in Base Salary shall not serve to limit
or reduce any other obligation to the Executive under this Agreement.
Base Salary shall not be reduced after any such increase.
2. ANNUAL BONUS. In addition to Base Salary, the Executive
shall be awarded, for each fiscal year during the Employment Period, an
annual bonus (an "Annual Bonus") (either pursuant to any
then-established incentive compensation plan(s) of the Company or
otherwise) in cash at least equal to the highest bonus payable to the
Executive from the Company and its subsidiaries in respect of any of
the three fiscal years immediately preceding the fiscal year in which
the Effective Date occurs. Nothing in this Agreement shall require the
payment of an Annual Bonus prior to the Effective Date.
3. INCENTIVE, SAVINGS AND RETIREMENT PLANS. In addition to
Base Salary and Annual Bonus payable as hereinabove provided, the
Executive shall be entitled to participate during the Employment Period
in all incentive, savings and retirement plans, practices, policies and
programs applicable to other key executives of the Company and its
affiliates, in each case comparable to those in effect on the Effective
Date or as subsequently amended. Such plans, practices, policies and
programs, in the aggregate, shall provide the Executive with
compensation, benefits and reward opportunities at least as favorable
as the most favorable of such compensation, benefits and reward
opportunities provided by the Company for the Executive under such
plans, practices, policies and programs as in effect at any time during
the 180- day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided at any time
4
<PAGE>
thereafter with respect to other key executives.
4. WELFARE BENEFIT PLANS. During the Employment
Period, the Executive and/or the Executive's family, as the
case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices, policies
and programs provided by the Company and its subsidiaries (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs), at least as favorable as the
most favorable of such plans, practices, policies and programs in
effect at any time during the 180-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the
Executive's family, as in effect at any time thereafter with respect to
other key executives.
5. EXPENSES. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its subsidiaries
in effect at any time during the 180-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
at any time thereafter with respect to other key executives.
6. FRINGE BENEFITS. During the Employment Period, the
Executive shall be entitled to fringe benefits, including use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and
its subsidiaries in effect at any time during the 180-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect at any time thereafter with respect to other
key executives.
7. OFFICE AND SUPPORT STAFF. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other
assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its subsidiaries at any
time during the 180- day period immediately preceding the Effective
Date or, if more favorable to the Executive, as provided at any time
thereafter with respect to other key executives of the Company and its
subsidiaries.
8. VACATION. During the Employment Period, the Executive shall
be entitled to paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company and its
subsidiaries as in effect at any time during the 180-day period
immediately preceding the
5
<PAGE>
Effective Date or, if more favorable to the Executive, as in effect at
any time thereafter with respect to other key executives of the Company
and its subsidiaries.
6
<PAGE>
V. TERMINATION
A. DEATH OR DISABILITY. This Agreement shall terminate automatically
upon the Executive's death. If the Company determines in good faith that the
Disability of the Executive has occurred (pursuant to the definition of
"Disability" set forth below), it may give to the Executive written notice of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" means disability which, at least 26
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
B. CAUSE. The Company may terminate the Executive's employment for
"Cause." For purposes of this Agreement, "Cause" means: (1) an act or acts of
personal dishonesty taken by the Executive and intended to result in substantial
personal enrichment of the Executive at the expense of the Company, (2) repeated
violations by the Executive of the Executive's obligations under this Agreement
which are demonstrably willful and deliberate on the Executive's part and which
are not remedied in a reasonable period of time after receipt of written notice
from the Company, or (3) the conviction of the Executive of a felony.
C. GOOD REASON. The Executive's employment may be terminated by the
Executive for "Good Reason". For purposes of this Agreement, "Good Reason"
means:
1. The assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by this Agreement, or any other action
by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith
and which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
2. Any failure by the Company to comply with any of the
provisions of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by
the Company promptly after receipt of notice thereof given by the
Executive;
3. The Company's requiring the Executive to be based at any
7
<PAGE>
office or location other than that described in this Agreement, except
for travel reasonably required in the performance of the Executive's
responsibilities;
4. Any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement; or
For purposes of this provision, any good faith determination
of "Good Reason" made by the Executive shall be conclusive. Anything in
this Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately following
the first anniversary of the Effective Date shall be deemed to be a
termination for Good Reason for all purposes of this Agreement.
D. NOTICE OF TERMINATION. Any termination by the Company for Cause or
by the Executive for Good Reason shall be communicated by Notice of Termination
to the other party hereto given in accordance with the notice provision of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which: (1) indicates the specific termination provision in this
Agreement relied upon, (2) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and (3) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than fifteen (15) days after
the giving of such notice). The failure by the Executive to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing his rights
hereunder.
E. DATE OF TERMINATION. "Date of Termination" means the date of receipt
of the Notice of Termination or any later date specified therein, as the case
may be; PROVIDED, HOWEVER, that: (1) if the Executive's employment is terminated
by the Company other than for Cause or Disability, the Date of Termination shall
be the date on which the Company notifies the Executive of such termination, and
(2) if the Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of the Executive
or the Disability Effective Date, as the case may be.
VI. OBLIGATIONS OF THE COMPANY UPON TERMINATION
A. DEATH. If the Executive's employment is terminated by reason of
the Executive's death, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this Agreement, other
than those obligations accrued or earned and vested (if applicable) by the
Executive as of the Date of
8
<PAGE>
Termination, including, for this purpose: (1) the Executive's full Base
Salary through the Date of Termination at the rate in effect on the
Date of Termination or, if higher, at the highest rate in effect at any
time from the 180-day period preceding the Effective Date through the
Date of Termination (the "Highest Base Salary"), (2) the product of the
Annual Bonus paid to the Executive for the last full fiscal year and a
fraction, the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the denominator of
which is 365, and (3) any compensation previously deferred by the
Executive (together with any accrued interest thereon) and not yet paid
by the Company and any accrued vacation pay not yet paid by the Company
(such amounts specified in clauses (1), (2) and (3) are hereinafter
referred to as "Accrued Obligations"). All such Accrued Obligations
shall be paid to the Executive's estate or beneficiary, as applicable,
in a lump sum in cash within 30 days of the Date of Termination.
Anything in this Agreement to the contrary notwithstanding, the
Executive's family shall be entitled to receive benefits at least equal
to the most favorable benefits provided by the Company and any of its
subsidiaries to surviving families of executives of the Company and
such subsidiaries under such plans, programs, practices and policies
relating to family death benefits, if any, in accordance with the most
favorable plans, programs, practices and policies of the Company and
its subsidiaries in effect at any time during the 180- day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect on the date of
the Executive's death with respect to other key executives of the
Company and its subsidiaries and their families.
B. DISABILITY. If the Executive's employment is terminated by reason of
the Executive's Disability, this Agreement shall terminate without further
obligations to the Executive, other than those obligations accrued or earned and
vested (if applicable) by the Executive as of the Date of Termination, including
for this purpose, all Accrued Obligations. All such Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination. Anything in this Agreement to the contrary notwithstanding, the
Executive shall be entitled after the Disability Effective Date to receive
disability and other benefits at least equal to the most favorable of those
provided by the Company and its subsidiaries to disabled employees and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, in accordance with the most favorable plans,
programs, practices and policies of the Company and its subsidiaries in effect
at any time during the 180-day period immediately preceding the Effective Date
or, if more favorable to the Executive and/or the Executive's family, as in
effect at any time thereafter with respect to other key executives and their
families.
9
<PAGE>
C. CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's
employment shall be terminated for Cause, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive the Highest Base Salary through the Date of Termination plus the
amount of any compensation previously deferred by the Executive (together with
accrued interest thereon). If the Executive terminates employment other than for
Good Reason, this Agreement shall terminate without further obligations to the
Executive, other than those obligations accrued or earned and vested (if
applicable) by the Executive through the Date of Termination, including for this
purpose, all Accrued Obligations. All such Accrued Obligations shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of Termination.
D. GOOD REASON; OTHER THAN FOR CAUSE OR DISABILITY. If, during
the Employment Period, the Company shall terminate the Executive's employment
other than for Cause, Disability or death, or if the Executive shall terminate
his employment for Good Reason:
1. The Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination the aggregate of
the following amounts:
(a) to the extent not theretofore paid, the
Executive's Highest Base Salary through the Date of
Termination; and
(b) the product of: (i) the Annual Bonus paid to the
Executive for the last full fiscal year (if any) ending during
the Employment Period or, if higher, the Annual Bonus paid to
the Executive for the last full fiscal year prior to the
Effective Date (as applicable, the "Recent Bonus") and (ii) a
fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination and the
denominator of which is 365; and
(c) the product of: (i) two and one-half (2-1/2)
MULTIPLIED TIMES (ii) the sum of: (1) the Highest Base Salary
and (2) the Recent Bonus; and
(d) in the case of compensation previously deferred
by the Executive, all amounts previously deferred (together
with any accrued interest thereon) and not yet paid by the
Company, and any accrued vacation pay not yet paid by the
Company; and
(e) all other amounts accrued or earned by the
10
<PAGE>
Executive through the Date of Termination and amounts
otherwise owing under the then existing plans and policies at
the Company; and
2. For the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may
provide, the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which would have
been provided to them in accordance with the plans, programs, practices
and policies described in this Agreement if the Executive's employment
had not been terminated, including health, dental, disability insurance
and life insurance, in accordance with the most favorable plans,
practices, programs or policies of the Company and its subsidiaries
during the 180-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect at any time thereafter
with respect to other key executives and their families and, for
purposes of eligibility for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to
have remained employed until the end of the Employment Period and to
have retired on the last day of such period.
E. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plans, programs, policies or practices provided by the
Company or any of its subsidiaries and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive may
have under any stock option or other agreements with the Company or any of its
subsidiaries. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of the
Company or any of its subsidiaries at or subsequent to the Date of Termination
shall be payable in accordance with such plan, policy, practice or program.
F. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. The Company
agrees to pay, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of
11
<PAGE>
performance thereof (including as a result of any contest by the Executive about
the amount of any payment pursuant to Section 9 of this Agreement), plus in each
case interest at the applicable Federal rate provided for in Section 7872(f)(2)
of the Code.
G. CERTAIN REDUCTION OF PAYMENTS BY THE COMPANY.
1. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit
of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (a
"Payment"), would be nondeductible by the Company for Federal income
tax purposes because of Section 280G of the Code, then the aggregate
present value of amounts payable or distributable to or for the benefit
of the Executive pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are hereinafter referred to as
"Agreement Payments") shall be reduced to the Reduced Amount. The
"Reduced Amount" shall be an amount expressed in present value which
maximizes the aggregate present value of Agreement Payments without
causing any Payment to be nondeductible by the Company because of
Section 280G of the Code. Anything to the contrary notwithstanding, if
the Reduced Amount is zero and it is determined further that any
Payment which is not an Agreement Payment would nevertheless be
nondeductible by the Company for Federal income tax purposes because of
Section 280G of the Code, then the aggregate present value of Payments'
which are not Agreement Payments shall also be reduced (but not below
zero) to an amount expressed in present value which maximizes the
aggregate present value of Payments without causing any Payment to be
nondeductible by the Company because of Section 280G of the Code. For
purposes of this Section, present value shall be determined in
accordance with Section 280G(d)(4) of the Code.
2. All determinations required to be made under this Agreement
shall be made by the Company's chief financial officer, or, at the
Executive's option, a nationally or regionally recognized firm of
independent public accountants selected by the Executive and approved
by the Company, which approval shall not be unreasonably withheld or
delayed (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within
thirty (30) business days of the Date of Termination or such earlier
time as is requested by the Company and an opinion to the Executive
that he has substantial authority not to report any excise tax on his
Federal income tax return with respect to any Payments. Any such
determination by the Accounting Firm shall be binding upon the Company
and the Executive. The
12
<PAGE>
Executive shall determine which and how much of the Payments shall be
eliminated or reduced consistent with the requirements of this Section
of the Agreement, provided that, if the Executive does not make such
determination within ten business days of the receipt of the
calculations made by the Accounting Firm, the Company shall elect which
and how much of the Payments shall be eliminated or reduced consistent
with the requirements of this Section and shall notify the Executive
promptly of such election. Within five business days thereafter, the
Company shall pay to or distribute to or for the benefit of the
Executive such amounts as are then due to the Executive under this
Agreement. All fees and expenses of the Accounting Firm incurred in
connection with the determinations contemplated by this Section shall
be borne by the Company.
3. As a result of the uncertainty in the application of
Section 280G of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that Payments will have
been made by the Company which should not have been made
("Overpayment") or that additional Payments which will not have been
made by the Company could have been made ("Underpayment"), in each
case, consistent with the calculations required to be made hereunder.
In the event that the Accounting Firm, based upon the assertion of a
deficiency by the Internal Revenue Service against the Executive which
the Accounting Firm believes has a high probability of success,
determines that an Overpayment has been made, any such Overpayment paid
or distributed by the Company to or for the benefit of the Executive
shall be treated for all purposes as a loan AB INITIO to the Executive
which the Executive shall repay to the Company together with interest
at the applicable federal rate provided for in Section 7872(f)(2) of
the Code; provided, however, that no such loan shall be deemed to have
been made and no amount shall be payable by the Employee to the Company
if and to the extent such deemed loan and payment would not either
reduce the amount on which the Executive is subject to tax under
Section 1 and Section 4999 of the Code or generate a refund of such
taxes. In the event that the Accounting Firm, based upon controlling
precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid
by the Company to or for the benefit of the Executive together with
interest at the applicable federal rate provided for in Section
7872(f)(2) of the Code.
H. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its subsidiaries, and their
respective businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of its subsidiaries and which
13
<PAGE>
shall not be or become public knowledge (other than by acts by the Executive or
his representatives in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
I. SUCCESSORS.
1. This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
2. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
3. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
J. MISCELLANEOUS.
1. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, without reference to
principles of conflict of laws. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors
and legal representatives.
2. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt
14
<PAGE>
requested, postage prepaid, addressed as follows:
IF TO THE EXECUTIVE:
--------------------
IF TO THE COMPANY:
------------------
H.T.E., Inc.
Attn: Chief Financial Officer
390 N. Orange Avenue, Suite 2000
Orlando, FL 32801
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
3. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
4. The Company may withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
5. The Executive's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision thereof.
6. This Agreement contains the entire understanding of the
Company and the Executive with respect to the subject matter hereof.
7. The Executive and the Company acknowledge that, except as
set forth in any written employment agreement between the Executive and
the Company and effective from and after the date hereof, the
employment of the Executive by the Company is "at will," and, prior to
the Effective Date, may be terminated by either the Executive or the
Company at any time. Upon a termination of the Executive's employment
prior to the Effective Date, there shall be no further rights under
this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
15
<PAGE>
--------------------------------
H.T.E., Inc.
By:
---------------------------------
Its Authorized Officer
16
EXHIBIT 10.11
===============================================================================
LEASE AGREEMENT
Between
PIZZUTI EQUITIES INC.
("Landlord")
and
HTE, INC.
("Tenant")
===============================================================================
<PAGE>
LEASE AGREEMENT
April 9, 1996
This Lease Agreement ("LEASE") is entered into as of the date first set forth
above by Pizzuti Equities Inc. ("LANDLORD") and HTE, Inc. ("TENANT"). For the
parties' convenience in reviewing this Lease, all defined terms in this
Agreement will be highlighted by BOLDFACE PRINT when first defined in this
Agreement.
BACKGROUND
Landlord intends to construct and lease to Tenant a three-story office building
containing approximately 88,993 gross square feet of space and 87,066 rentable
square feet of space ("BUILDING"). The actual rentable square footage contained
within the Building will be determined following the preparation and approval of
the "Final Base Building Plans and Specifications" (as that term is defined in
/section/2) and will be measured in accordance with the BOMA definition of space
measurement set forth in ANSI a65.1-1980. The Building will be constructed on an
approximately five acre site in the Heathrow International Business Center in
Lake Mary, Florida, which site is more particularly described in attached
Exhibit A ("LAND").
AGREEMENT
Landlord and Tenant hereby agree as follows:
-2-
<PAGE>
/section/1. LEASE OF PROPERTY. Landlord hereby leases the Land, the Building and
all related site improvements (collectively the "PROPERTY") to Tenant upon the
terms and conditions set forth in this Lease.
/section/2. BASE BUILDING IMPROVEMENTS. Landlord and Tenant have approved
preliminary specifications for the Building and all related site improvements
(collectively the "BASE BUILDING IMPROVEMENTS"), which preliminary
specifications are attached hereto as Exhibit B ("PRELIMINARY BASE BUILDING
SPECIFICATIONS"). Tenant has authorized Landlord to proceed with the preparation
of final architectural and engineering drawings, plans and specifications for
the Base Building Improvements. Once those drawings, plans and specifications
are completed, Landlord will deliver a full set thereof to Tenant for its review
and approval. Tenant will notify Landlord within ten days after its receipt of
such drawings, plans and specifications of its approval thereof or its
objections to anything contained therein, which objections, if any, will be
premised solely upon the fact that such drawings, plans and specifications are
inconsistent with the approved Preliminary Base Building Specifications. If
Tenant fails to respond to Landlord's submission to it within the aforementioned
ten-day period, then Tenant will be deemed to have approved such submission for
all purposes of this Lease. If, however, Tenant notifies Landlord within the
aforementioned ten-day period that it objects to such submission on the basis
that the same is inconsistent with the approved Preliminary Base Building
Specifications, then Landlord will, within ten days after its receipt of
Tenant's notice, cause the drawings, plans and specifications to be modified to
meet Tenant's objections and will then resubmit the modified drawings, plans and
specifications to Tenant for its review and
-3-
<PAGE>
approval. The provisions of this /section/2 regarding the scope of Tenant's
review of any drawings, plans and specifications and the time period within
which it must respond to any such submission will be equally applicable to
Tenant's review of any modified drawings, plans and specifications. The
drawings, plans and specifications, once approved by Tenant, will constitute the
"FINAL BASE BUILDING PLANS" and will thereafter be deemed incorporated herein by
this reference.
If Tenant desires to make any revisions to the approved Final Base Building
Plans, Tenant will so notify Landlord and Landlord will then cause its general
contractor to prepare a cost estimate for the implementation of such changes.
Landlord will promptly notify Tenant of any increased costs or savings resulting
from such changes and Tenant will then have the right to require Landlord to
cause such changes to be made to the Final Base Building Plans, unless any such
changes would unreasonably affect the structural integrity or value of the
Building, in which event Landlord will not be required to make any such changes.
If the aggregate of all such changes (net of any savings) results in a net
increase in the cost of the construction of the Base Building Improvements, then
the monthly Base Rent payable by Tenant pursuant to /section/7 will be increased
to reflect the amortization of such increased costs over the Initial Lease Term
at an interest factor of 11% per year.
/section/3. TENANT IMPROVEMENT ALLOWANCE. Landlord will provide a tenant
improvement allowance ("TI ALLOWANCE") of $15 per rentable square foot contained
within the Building (less any square footage contained within the Building's
atrium) for the design and construction of interior tenant
-4-
<PAGE>
improvements ("TENANT IMPROVEMENTS"). For the purposes of this Lease, the Tenant
Improvements will be those interior improvements to be made to the Building,
which are in addition to the Base Building Improvements described in /section/2.
Landlord and Tenant agree that, promptly following the parties' execution of
this Lease, they will meet to develop approved preliminary specifications for
the Tenant Improvements. Once Landlord and Tenant have approved preliminary
specifications for the Tenant Improvements, Landlord will proceed with the
preparation of the final architectural and engineering drawings, plans and
specifications for the Tenant Improvements. Once those drawings, plans and
specifications are completed, Landlord will deliver a full set thereof to Tenant
for its review and approval. The scope and time period applicable to Tenant's
review of the final architectural and engineering drawings, plans and
specifications for the Tenant Improvements will be identical to those which are
specified in /section/2 with respect to the drawings, plans and specifications
for the Base Building Improvements. The drawings, plans and specifications for
the Tenant Improvements, once approved by Tenant, will constitute the "FINAL
TENANT IMPROVEMENTS PLANS" and will thereafter be deemed incorporated herein by
this reference.
If the cost of constructing the Tenant Improvements in accordance with the
approved Final Tenant Improvement Plans (as determined by Landlord's general
contractor and agreed to by Tenant) exceeds the amount of the TI Allowance
("EXCESS COSTS"), then, in such event, Landlord will provide the additional
funds required to so construct the Tenant Improvements and the annual Base Rent
payable by Tenant for each year during the Lease Term will be
-5-
<PAGE>
increased by an amount equal to 15% of the Excess Costs; provided, however, that
if the Excess Costs exceed an amount equal to $5.00 per rentable square feet
contained within the Building ("BASE AMOUNT") then Tenant will, within three
business days after Landlord's written demand for the payment thereof, pay to
Landlord in cash the portion of such Excess Costs which are over and above the
Base Amount. If Landlord and Tenant mutually determine that the cost of
constructing the Tenant Improvements in accordance with the Final Tenant
Improvement Plans will exceed the amount of the TI Allowance, then Landlord will
advise Tenant of its expectation as to the level of such construction costs and
Landlord will refrain from commencing construction of the Tenant Improvements in
accordance with such Final Tenant Improvement Plans until it receives Tenant's
written authorization to do so ("EXCESS COST NOTICE"). If the cost of the Tenant
Improvements (as determined by Landlord's general contractor) is less than the
TI Allowance ("DIMINISHED COSTS"), then the amount of the Diminished Costs will
be paid by Landlord to Tenant in cash on or before the first day of the third
year of the Lease Term. In determining the cost of the Tenant Improvements,
there will be excluded any fees or other costs attributable to Landlord's
supervision of the construction of the Tenant Improvements, but there will be
included a general contractor's fee equal to 5% of the total cost of the
construction of the Tenant Improvements. Landlord will require its general
contractor to competitively bid all of its subcontract work related to the
Tenant Improvements to at least three subcontractors; provided, however, that
Landlord will not in any event be required to select the low bid if Landlord
reasonably determines that the low bid is also not the best bid because of the
reliability or reputation of the bidding subcontractor or the quality of its
work. Prior to commencement of construction of the Tenant Improvements,
-6-
<PAGE>
Landlord will cause its general contractor to provide Tenant with a schedule of
values outlining the specific work to be performed as part of the Tenant
Improvements and assigning specific values to each such item of work, together
with a copy of the general contractor's approved schedule for the construction
of the Tenant Improvements. Landlord agrees that the general contractor's fee
will be limited to 5% of the cost of the construction of Tenant Improvements and
that, for a period of one year after substantial completion of the Tenant
Improvements upon reasonable prior written notice to Landlord, Tenant will have
the right to audit Landlord's records and files concerning the Tenant
Improvement's.
If Tenant desires to make any revisions to the approved Final Tenant Improvement
Plans, Tenant will so notify Landlord and Landlord will then ask its general
contractor to prepare a cost estimate for the implementation of such changes.
Landlord will promptly notify Tenant of any increased costs or savings resulting
from such changes and Tenant would have the right to require Landlord to cause
such changes to be made to the Final Tenant Improvement Plans, unless any such
changes would unreasonably affect the structural integrity or value of the
Building, in which event Landlord will not be required to make any such changes.
If the aggregate of all such changes results in a net increase or net decrease
in the cost of the Tenant Improvements, then any such increase or decrease will
thereafter be applied to the TI Allowance and any economic adjustments in
Tenant's rent or the amount of any payment to be made to Tenant by Landlord
hereunder will be recomputed in accordance with the provisions of the
immediately preceding paragraph of this /section/3.
-7-
<PAGE>
/section/4. CONSTRUCTION OF IMPROVEMENTS. Landlord will cause the Base Building
Improvements and the Tenant Improvements (collectively, the "IMPROVEMENTS") to
be constructed in accordance with the Final Base Building Plans and the Final
Tenant Improvement Plans, respectively (collectively, the "FINAL PLANS").
Landlord acknowledges that time is of the essence under this Lease and that it
will use its best efforts, subject to the occurrence of any of the "Delay
Events" (as that term is hereinafter defined), to complete all of the following
construction tasks by the targeted completion dates set forth below:
<TABLE>
<CAPTION>
CONSTRUCTION TASK TARGETED DATE FOR COMPLETION
----------------- ----------------------------
<S> <C>
1. Submission of the Final Base Building Plans to Lake Mary and/or
Seminole County Building Department for issuance of building permit
to begin construction of the Base Building Improvements. June 7, 1996
2. Commencement of construction of Base Building Improvements. July 31, 1996
3. Substantial completion of all Improvements. May 22, 1997
</TABLE>
If Landlord fails to achieve either of the construction tasks set forth as item
# 1 or item # 2, above, within sixty days after the designated targeted date for
the completion thereof, for any reason other than the occurrence of a Delay
Event, then Tenant may terminate its obligations under this Lease by delivering
written notice of termination to Landlord within five days after the expiration
of the aforementioned sixty day period. In addition, if Landlord fails to
achieve the construction task set forth as item # 3, above, by the designated
targeted date for the completion thereof, for any reason other than the
occurrence of a Delay Event, then Landlord will pay to Tenant as liquidated
damages an amount equal to $1,000 for each day of the delay
-8-
<PAGE>
in achieving such construction task, which amount the parties hereby agree
represents reasonable daily damages likely to be incurred by Tenant as a result
of such failure by Landlord and is not a penalty. If Landlord has not achieved
the construction task set forth as item #3, above, by September 30, 1997, for
any reason other than the occurrence of a Delay Event, then Tenant may terminate
its obligations under this Lease by delivering written notice of termination to
Landlord on or before October 5, 1997. In addition, if, as of June 30, 1997, it
is demonstrably evident by the then progress of the construction of the Tenant
Improvements that Landlord will not be capable of achieving the construction
task set forth as item #3 by September 30, 1997, for any reason other than the
occurrence of a Delay Event, then Tenant will also have the right to terminate
its obligations under this Lease by delivering written notice of termination to
Landlord on or before July 5, 1997. If Landlord has not achieved the
construction task set forth as item #3, above, by September 30, 1997, for any
reason other than the occurrence of a Delay Event, then, in lieu of exercising
its termination right pursuant to this paragraph, Tenant may instead elect to
extend the termination date of the initial Lease Term by a period equal to the
number of days of Landlord's delay in so achieving such construction task, with
no Base Rent being payable by Tenant during the period of such extension (but
with Tenant otherwise being obligated to comply with all of the terms of this
Lease during such extension period, including, without limitation, the
obligation to pay Operating Expenses).
For the purposes of this Lease, the Improvements will be deemed "SUBSTANTIALLY
COMPLETED" on the date on which a certificate of occupancy is issued by the
appropriate governmental
-9-
<PAGE>
authority, which certificate of occupancy will permit Tenant to occupy the
Building for the conduct of its business in the normal course.
Also for the purposes of this Lease, a "DELAY EVENT" will mean the occurrence of
any event beyond the reasonable control of Landlord which results in a delay in
its attempt to achieve any of the construction tasks referred to above,
including, without limitation, the occurrence of any of the following events:
(a) The adoption of any restrictive governmental law or
pronouncement, which has the effect of placing a moratorium on
or otherwise stopping the construction of the Base Building
Improvements or Tenant Improvements;
(b) Acts of God;
(c) Unseasonable weather (as determined, if available, by standards
of "unseasonability" promulgated by the National Oceanographic
and Atmospheric Administration covering Seminole County,
Florida;
(d) Tenant's failure to approve the preliminary specifications for
the Tenant Improvements by ______________, 1996 (assuming
Landlord's initial delivery of the same to Tenant for its
approval by no later than ________________, 1996);
(e) Tenant's failure to approve the Final Base Building Plans by
__________________, 1996 (assuming Landlord's initial delivery
of the same to Tenant for its approval by no later than
________________, 1996);
(f) Tenant's failure to approve the Final Tenant Improvement Plans
by __________________, 1996 (assuming Landlord's initial
delivery of the same to Tenant for its approval by no later
than ________________, 1996);
-10-
<PAGE>
(g) Any Tenant requested change to the Final Plans which, in the
reasonable judgments of Landlord's general contractor and
Tenant, will cause a delay in its critical path of construction
performance; and
(h) Tenant's failure to provide written authorization to Landlord
to proceed with the construction of the Tenant Improvements
within ten days after Tenant's receipt of an Excess Cost Notice
from Landlord under /section/3, hereof.
Upon the occurrence of any Delay Event (assuming neither Landlord, nor its
general contractor has created any independent delay or concurrent delay to such
Delay Event) the targeted date for the achievement of the aforementioned
construction tasks will be extended by the number of days equal to the number of
days of the delay caused by the occurrence of such Delay Event, which have been
shown by Landlord's general contractor to have delayed the General Contractor's
critical path of construction performance.
As soon as reasonably practicable after the date of the substantial completion
of the Improvements, Landlord and Tenant will make a joint inspection of the
Property for the purpose of determining any construction work which is in need
of correction or completion (collectively "PUNCHLIST ITEMS"). Tenant will submit
a written listing of such Punchlist Items to Landlord within ten days after
Landlord's and Tenant's joint inspection of the Building and Landlord will
thereafter repair, replace or complete all such Punchlist Items to the
reasonable satisfaction of Tenant within thirty days after the date of the
substantial completion of the Tenant Improvements or the aforementioned joint
inspection of the Building, whichever is later, provided, however, that if the
repair, replacement or completion of any such Punchlist Item is not reasonably
capable of being effected within such thirty day period, then Landlord will be
-11-
<PAGE>
obligated to commence the repair, replacement or completion of such punchlist
item within the aforementioned thirty day period and at all times thereafter
diligently pursue the same to completion. If Landlord fails to repair, replace
or complete any Punchlist Item within ten days after its receipt of written
notice from Tenant that the aforementioned time frames have expired without
Landlord's completion of all such Punchlist Items, then Tenant will have the
right to repair, replace or complete the remaining Punchlist Items at its cost
and to offset against any payment of Base Rent due hereunder the amount of the
reasonable out-of-pocket expenses incurred by Tenant in so repairing, replacing
or completing the remaining Punchlist Items.
Promptly following Substantial Completion of the Base Building Improvements and
Tenant Improvements, Tenant will have the right, if it so elects, to have the
rentable square footage contained within the Building remeasured by Tenant's
architect at any time prior to the date which is 30 days after the Commencement
Date. If Tenant makes such an election and if the rentable square footage
contained within the Building is less than the rentable square footage
determined to be contained within the Building following the preparation and
approval of the Final Base Building Plans and the Final Tenant Improvement Plans
as a result of the failure of the Base Building Improvements and Tenant
Improvements to comply with the Final Base Building Plans and the Final Tenant
Improvement Plans, then for all purposes of this Lease, the rentable square
footage will be deemed to be the recalculated rentable square footage and the
Base Rent will be adjusted accordingly.
/section/5. LEASE TERM. The initial term of this Lease will be for a period of
ten years ("INITIAL LEASE TERM"), commencing on the date ("COMMENCEMENT DATE")
which is the later of: (a) May 1,
-12-
<PAGE>
1997; or (b) the 46th day after the substantial completion of the Improvements.
The Initial Lease Term will end on the tenth anniversary of the Commencement
Date. Notwithstanding anything to the contrary contained herein, if the
substantial completion of the Improvements is delayed beyond the targeted
substantial completion date set forth in /section/4, above, as a result of any
Tenant-caused Delay Event (meaning any of those Delay Events specified in
subparagraphs (d) through (h) in /section/4), then the Commencement Date of the
Initial Lease Term will be deemed to be the later of May 1, 1997 or the date
which, but for the occurrence of such Tenant-caused Delay Event, would have been
the Commencement Date within the meaning of the first sentence of this
/section/5, and from and after such date, Tenant will be obligated to pay Base
Rent and all Operating Expenses and otherwise perform all of its other
obligations and duties set forth in this Lease.
Tenant will have an option to extend the Lease Term for up to three consecutive
renewal terms of five years each. Tenant's right to exercise its option with
respect to any such renewal term will be expressly conditioned upon both of the
following conditions being satisfied with respect to each such renewal term: (a)
Tenant must give written notice to Landlord of its election to exercise its
option with respect to such renewal term at least 180 days prior to the
scheduled commencement date of such renewal term; and (b) on the date of the
exercise of such option and on the scheduled date for the commencement of such
renewal term, the Lease must be in full force and effect without any material
default by Tenant thereunder. Tenant's occupancy of the Property during any such
renewal term will be upon the same terms and conditions which govern its
occupancy of the Property during the Initial Lease Term, except that the Base
Rent payable during each such renewal term will be as provided in /section/6.
All references in this Lease
-13-
<PAGE>
to the "LEASE TERM" will include the Initial Lease Term and any renewal term
exercised by Tenant pursuant to this /section/5.
Tenant will have the right, if it so elects, to occupy the Building (or any part
thereof) during the period after substantial completion of the Improvements and
prior to the Commencement Date ("EARLY OCCUPANCY PERIOD"), without having any
obligation to pay any Base Rent; provided, however, that Tenant will be
obligated to pay all Operating Expenses accruing during such Early Occupancy
Period with respect to the part of the Building which it so occupies and will
otherwise be required throughout the Early Occupancy Period to perform all of
its other duties and obligations under this Lease with respect to the portion of
the Building which it so occupies. Tenant will have the right during the Early
Occupancy Period to install its telephone and computer equipment, furniture and
work stations and pursue other pre-occupancy tasks.
As of even date herewith, Tenant and HIBC Development Company have entered into
an Expansion Agreement, which contemplates that, under certain circumstances,
the initial Lease Term will be extended to become co-terminus with the
termination date of Tenant's leasing of an additional building to be constructed
by HIBC Development Company for Tenant. The terms and conditions of any such
extension of the initial Lease Term hereunder and the Base Rent payable by
Tenant during any such extension period will be governed by the terms of the
aforementioned Expansion Agreement. In the event that Tenant decides to invoke
its expansion rights under the Expansion Agreement and the initial Lease Term
hereunder is thereby extended, Landlord will be obligated to pay Properties
Atlantic, Inc. a brokerage commission upon any such extension of the initial
Lease Term in an amount equal to $3.00
-14-
<PAGE>
per rentable square foot contained within the Building, multiplied by a fraction
which has as its numerator the number of full or partial years by which the
initial Lease Term is extended and which has as its denominator ten years. Any
such commission will be payable in full upon the parties' full execution of the
document so extending the initial Lease Term.
/section/6. BASE RENT. The rent payable by Tenant during the Lease Term ("BASE
RENT") is set forth below:
<TABLE>
<CAPTION>
LEASE PERIOD PRSF RENT MONTHLY RENT ANNUAL RENT
------------ --------- ------------ -----------
<S> <C> <C> <C>
Years 1-2 (applicable only to 11.99 69,942 839,304
70,000 square feet of space)
Year 3 11.99 86,993 1,043,916
Years 4-6 12.34 89,533 1,074,396
Years 7-9 12.75 92,508 1,110,096
Year 10 13.10 95,047 1,140,564
Years 11-15 (First Renewal Term) 13.75 99,763 1,197,156
Years 16-20 (Second Renewal Term) 14.85 107,744 1,292,928
Years 21-25 (Third Renewal Term) 16.00 116,088 1,393,056
</TABLE>
For the purposes of this Lease, a "YEAR" refers to each consecutive 12-month
period during the Lease Term, with the first such year beginning on the
Commencement Date and terminating 12 months thereafter.
The Base Rent will be adjusted as required in /section//section/2 and 3 of this
Lease (relating to changes in the Final Plans). The parties hereto acknowledge
that during years one and two of the Initial Lease Term, Tenant will be
obligated to pay Base Rent only on 70,000 rentable square feet of
-15-
<PAGE>
space in the Building, even though Tenant is being given the right to occupy the
entire Building during such years.
Each monthly installment of Base Rent will be due and payable in advance on or
before the first day of each calendar month during the Lease Term. Each such
installment will be paid to Landlord at its address set forth in this Lease (or
such other address as Landlord may designate from time to time). If the Lease
Term commences on a day other than the first day of the month or terminates on a
day other than the last day of the month, then the installment(s) of Base Rent
for such month(s) will be adjusted accordingly. If any installment of Base Rent
is not received by Landlord within five days after its due date, then a late
payment charge of 5% of such past due amount will be assessed and will be
immediately due and payable from Tenant. In addition, any past-due Base Rent
will bear interest until paid at a rate equal to 2% over Citibank's published
prime lending rate ("Delinquent Rate"). All installments of Base Rent will be
paid by Tenant without demand and without any rights of reduction, counterclaim
or offset. Tenant hereby agrees to pay as additional rent any sales, use or
other tax (other than income taxes) now or hereafter imposed by any governmental
authority upon the rent and other sums payable by Tenant hereunder.
/section/7. OPERATING EXPENSES. Tenant will at all times throughout the Lease
Term (as well as the Early Occupancy Period) pay all of the following expenses
related to the Property ("OPERATING EXPENSES") directly to the party performing
the services, providing the materials or otherwise having the right to receive
the payment of such expenses:
-16-
<PAGE>
(a) All real and personal property taxes, assessments and other
governmental impositions and charges which are applicable to
the Property;
(b) All rents and charges for water, sewer, gas, electricity,
telephone and other utility services furnished to the Property;
(c) All licenses, permit fees and other charges imposed by any
governmental or quasi-governmental authority with respect to
Tenant's use of the Property or Tenant's business operations;
(d) Any assessments or other charges imposed by any landowner's
association having jurisdiction over the Property relating
solely to the Property or the Building;
(e) All reasonable and customary property management fees,
consistent with third party arm's length negotiations, payable
to Pizzuti Management Inc. or any other property management
firm associated with the management of the Property;
(f) All premiums and other charges related to any insurance related
to the Property or Tenant's use thereof which is required to be
maintained by Tenant hereunder;
(g) All costs associated with Tenant's performance of its
maintenance, repair and other obligations pursuant to
/section/9 of this Lease;
(h) The cost of providing security for the Building;
(i) The cost of all building supplies used in connection with the
operation, management or maintenance of the Building;
(j) The cost of the service and maintenance of the elevators;
(k) All other costs which are the responsibility of Tenant under
any section of this Lease; and
(l) All other costs related to the operation, management and
maintenance to the Building, which are considered to be
operating expenses under generally accepted accounting
principles.
-17-
<PAGE>
In addition to the foregoing list of Operating Expenses which Tenant is
obligated to pay directly to the service provider, etc., under the
aforementioned provisions of this /section/7, Tenant will also be obligated to
reimburse Landlord for the following costs which are incurred by Landlord within
thirty days after Landlord's submission to Tenant of a written invoice detailing
the amount of such costs;
(a) The cost of any cost-savings utility devise installed in the
Building by Landlord (amortized over such period as is
consisted with generally accepted accounting principles), but
only to the extent of the actual cost-savings obtained
therefrom; and
(b) The cost of any Building improvement (amortized over such a
period as is consistent with generally accepted accounting
principles) which Landlord is required hereunder to make as a
result of the enactment or promulgation of any governmental
law or regulation after the date of the execution of this
Lease.
All of the foregoing costs are herein referred to as Landlord's "Pass-Through
Expenses". Landlord agrees to retain books and records substantiating Landlord's
Pass-Through Expenses incurred in each calendar year during the Lease Term for a
period of at least three years from the date Landlord submits a statement of the
same to Tenant. Tenant or its designee will have the right, during business
hours and upon reasonable prior notice to Landlord, to time to inspect
Landlord's books and records relating to Landlord's Pass-Through Expenses or to
have such books and records audited at Tenant's expense by a certified public
-18-
<PAGE>
accountant designated by Tenant and approved by Landlord. Any audit that
discloses a discrepancy of more than 3% of the amount of Landlord's Pass-Through
Expenses will be at Landlord's expense and Landlord will reimburse Tenant for
such costs within thirty days after its receipt of an invoice for the same from
Tenant. Any discrepancy in the amount of Landlord's Pass-Through Expenses
disclosed by such audit will be promptly corrected by payment of any overage by
Landlord to Tenant within thirty days after its receipt of a written statement
demanding payment thereof from Tenant.
Notwithstanding anything to the contrary contained in this Lease, Tenant will
not be obligated to pay any of the following expenses, all of which will be
payable by Landlord and are excluded from the definition of "Operating
Expenses":
(i) Landlord's debt service (including principal, points and fees)
on any financing related to the Property;
(ii) Franchise or income taxes payable by Landlord;
(iii) Costs associated with the initial construction of the
Improvements;
(iv) Costs required to correct any defects in the materials or
workmanship related to the initial construction of the
Improvements (including any such defects in the Atrium);
(v) Costs of remedying any violation of any law, ordinance, rule or
regulation relating to the construction of the Improvements and
specifically including any latent construction defects;
(vi) Cost of replacing and repairing defective and exhausted
mechanical, plumbing and electrical systems which are part of
the Base Building Improvements, excepting those costs
necessitated by normal wear and tear of the same;
-19-
<PAGE>
(vii) All costs and expenses which are considered to be capital
expenditures under generally accepted accounting principles
(other than those Landlord Pass-Through Expenses previously
defined in this /section/7);
(viii) Any ground lease rental;
(ix) Any costs incurred by Landlord for the repair of damage to the
Building to the extent that Landlord is entitled to be
reimbursed by insurance or other third parties;
(x) Depreciation and amortization of any type;
(xi) Rentals and other related expenses which, but for such rental,
would be considered capital expenditures under generally
accepted accounting principles;
(xii) Advertising and promotional expenditures and costs of signs in
or on the Building identifying the owner of the Building;
(xiii) Any costs incurred in connection with compliance with laws
which is the obligation of Landlord under /section/10 hereof
(except as otherwise included within the definition of Landlord
Pass-Through Expenses);
(xiv) Wages, salaries, fees and fringe benefits paid to
administrative or executive personnel or officers or partners
of Landlord or the management agent or anyone else over the
level of building supervisor, which are not directly associated
with time spent by such personnel at the Building;
(xv) The cost of any repair made by Landlord to the Building due to
the total or partial destruction of the Building or the
condemnation of all or a portion of the Building;
(xvi) The costs of the acquisition of sculpture, paintings or other
objects of art by Landlord;
(xvii) Rent or expenses in lieu of rent for any storage space or other
facilities for the benefit of Landlord;
(xviii) Costs incurred to test, survey, clean-up, contain, abate,
remove or otherwise remedy Hazardous Substances brought into
the Building by Landlord;
(ixx) Any costs directly resulting from the negligence or misconduct
of Landlord, its employees, agents, contractors or employees;
-20-
<PAGE>
(xx) Costs or fees relating to the defense of Landlord's title or
interest in the real estate containing the Building; and
(xxi) Costs or expenses incurred by Landlord in financing,
refinancing, pledging, selling, granting or otherwise
transferring or encumbering its ownership rights in the
Building.
Tenant will pay all such Operating Expenses punctually as and when the same
become due and payable so as to avoid the imposition of late charges, penalties
or interest thereon. Tenant will have the right at its sole expense to contest
the amount of any such Operating Expense by legal or administrative proceeding,
so long as Tenant takes all appropriate action to insure that no lien is placed
on the Property to secure payment of the same. Tenant will also have the right
to seek tax abatements, reductions, exemptions and other similar tax relief with
respect to the Property and Tenant's business operations. Landlord agrees to
permit any applications in connection therewith be filed in its name; provided,
however, that Landlord will in no event be obligated to incur any out-of-pocket
expenses in connection with any such applications.
Tenant will provide Landlord with evidence of the payment of any Operating
Expense within ten days after Landlord's written request therefor. The
determination of whether any particular Operating Expense is attributable to the
Lease Term and, hence, is the obligation of Tenant hereunder, will be made based
upon the accrual method of accounting.
-21-
<PAGE>
Except as otherwise expressly provided herein, Landlord will not at any time
during the Lease Term charge Tenant or its employees or invitees any amount for
parking, unless any such charge is expressly agreed to in writing by Tenant.
/section/8. MAINTENANCE AND REPAIR. Except for those specific obligations placed
upon Landlord under this /section/8, Tenant will, at its sole expense, maintain
the Property in a good condition and order of repair. Except as otherwise
provided herein, Tenant's maintenance obligation will extend to and include,
without limitation, the maintenance and repair of all interior, exterior,
structural, nonstructural and mechanical elements and systems of the Building
and all parking areas, sidewalks, landscaping and other improvements associated
with the Property, to the extent the maintenance and repair thereof is not
considered to be a capital improvement under generally accepted accounting
principles. Any repairs made to the Property by Tenant pursuant to this
/section/8 will be made in a good and workmanlike manner with materials at least
equal in quality and grade to those originally contained in the Property. Tenant
will also be responsible and pay for all landscaping, cleaning, janitorial, and
parking lot sweeping services required to maintain and operate the Property in a
reasonably good manner.
Notwithstanding anything to the contrary contained herein, Landlord (and not
Tenant) will be responsible for and pay for the following items:
(a) Remedying all defects in the materials or workmanship related
to the construction of the Improvements; and
-22-
<PAGE>
(b) Repairing and, if necessary, replacing all structural and
mechanical elements and systems of the Building and all
parking areas, sidewalks, landscaping and other improvements
associated with the Property, if the making of any such repair
or replacement would constitute a capital expenditure under
generally accepted accounting principles (other than those
capital expenditures which are expressly made the obligation
of Tenant hereunder).
To the extent Tenant detects any condition which needs to be repaired or
replaced and which is the obligation of Landlord hereunder, Tenant will notify
Landlord of the existence of such condition. Within three days after its receipt
of the aforementioned notice from Tenant, Landlord will commence and thereafter
proceed with due diligence to repair or replace any condition which is its
responsibility hereunder. Notwithstanding anything to the contrary contained
herein, Tenant (and not Landlord) will be required to pay all costs of repairing
or replacing any condition if the need therefore arises solely due to the fault
or negligence of Tenant or its agents, employees, guests or invitees.
/section/9. USE OF PROPERTY. Tenant will use the Property solely for general
office purposes. Tenant will not cause or permit any waste or damage to the
Property and will not occupy or use the Property for any business or purpose
which is unlawful, hazardous, unsanitary, noxious or offensive.
/section/10. GOVERNMENTAL REQUIREMENTS. Except as otherwise expressly provided
in this /section/10, Tenant will, at its sole expense, comply with all laws and
other governmental requirements which are now or hereafter in force pertaining
to its use and occupancy of the Property,
-23-
<PAGE>
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Air Act, the Hazardous Materials
Transportation Act, the Resource Conservation and Recovery Act, the Water
Pollution Control Act and the Americans with Disabilities Act. Notwithstanding
anything to the contrary contained herein, Landlord (and not Tenant) will, at
its sole expense, be responsible for: (a) remedying any noncompliance of the
Improvements with any law or other governmental requirement which existed as of
the Commencement Date; (b) complying with any law or other governmental
requirement, which applies to the ownership of office buildings generally in
Seminole County, Florida and not specifically to Tenant's occupancy or use of
the Property; or (c) making any capital improvements to the Building which are
mandated by law or other governmental requirement and which are not required to
be made as a result of any material change in Tenant's use of the Property or
any alterations, additions or improvements to the Building made by Tenant
pursuant to /section/12 hereof. Any improvements to the Building made by Tenant
under this /section/10 may be removed by it upon the termination of the Lease
Term, so long as Tenant repairs any damage to the Building caused by any such
removal and provided further that any such removal does not adversely affect the
structural integrity of the Building. Landlord represents that zoning
regulations applicable to the Building and any covenants, conditions or
restrictions appertaining to the Building permit the use of the Building for the
uses contemplated under this Lease. To the best of Landlord's knowledge and
belief, the Building will, as of the Commencement Date, be in compliance with
all requirements of any board of fire underwriters or similar body having
jurisdiction over the Building or any other law, rule, statute, regulation or
ordinance of any governmental agency or body having jurisdiction over the
Building. Landlord will insure that the construction of the Tenant Improvements
are in compliance with the
-24-
<PAGE>
requirements of the Americans with Disabilities Act, as the same is in effect as
of the Commencement Date.
/section/11. SIGNS. Landlord will provide to Tenant a signage allowance of
$25,000, for the erection of (a) a monument sign identifying Tenant at the main
entrance to the Building and (b) a sign identifying Tenant on the exterior
facade of the Building. The location, design and composition of both signs will
be consistent with other similar signage located within the Heathrow
International Business Center and will be subject to Landlord's prior review and
approval. Both the monument and exterior facade signs will be erected by
Landlord as part of its construction of the Base Building Improvements. To the
extent the cost of such signs exceeds the $25,000 signage allowance referred to
above, Tenant will be required to pay any such excess to Landlord within ten
days after its receipt of a paid invoice from Landlord detailing such excess
signage costs. Except as otherwise provided above, neither Landlord, nor Tenant
will place any other sign or advertising material on the exterior of the
Building or the Land, without the prior written consent of the other party.
/section/12. ALTERATIONS. Except for "Minor Alterations" (as that term is
hereinafter defined), Tenant may not make any alteration, addition or
improvement to the Property, without Landlord's prior written consent. For the
purposes of this /section/12, a "MINOR ALTERATION" will mean: (a) any
alteration, addition or improvement to the Property which costs less than
$25,000 and which does not alter the exterior aesthetics or structural integrity
of the Improvements; (b) the installation, removal or relocation of
nonstructural office partitioning, provided such work does
-25-
<PAGE>
not materially or adversely affect the structural integrity of the Building or
any of its mechanical or electrical systems; (c) painting and installation of
wall coverings; (d) the installation and removal of office furniture; (e) the
relocation of electrical outlets; (f) the installation and removal of movable
work stations; (g) the installation or removal of Tenant's movable trade
fixtures; and (h) the installation and removal of carpeting and other floor
coverings. All improvements, alterations and additions made at one time in
connection with any one job will be aggregated for the purposes of determining
whether the $25,000 limit has been exceeded. Any alteration, improvement or
addition made to the Property in accordance with this /section/12 will at all
times remain the property of Landlord. If Landlord consents to any proposed
alteration, addition or improvement, the same will be made by Landlord at
Tenant's sole expense. Landlord will, at the time of its granting of its consent
to any proposed alteration, addition or improvement, inform Tenant whether any
such alteration, addition or improvement must be removed by Tenant upon the
termination of Tenant's right of possession pursuant to /section/19 of this
Lease.
/section/13. CONSTRUCTION LIENS. Tenant will indemnify and hold Landlord
harmless from any liability or expense associated with its construction of any
Minor Alteration to the Property. In particular, Tenant will execute and record
an appropriate notice of commencement pursuant to Chapter 713, Florida Statutes,
prior to undertaking any such construction identifying Tenant's interest in the
Building as a leasehold interest only. Tenant will immediately discharge any
construction lien filed against the Property in connection with any work
performed by or at the request of Tenant, other than the initial Tenant
Improvements.
-26-
<PAGE>
/section/14. ASSIGNMENT AND SUBLETTING. Except as otherwise expressly provided
in this section, Tenant may not assign this Lease or sublet any part of the
Property, without the prior written consent of Landlord. Notwithstanding
anything to the contrary contained herein, Tenant will have the right to assign
or sublet any part of the Property to any subsidiary or affiliate of Tenant or
sublet less than 25% of the aggregate rentable square footage contained within
the Building to any other third parties, without first obtaining the prior
written consent of Landlord; provided, however, that any such assignment or
subletting will in no event release Tenant from any liabilities or obligations
it may have under this Lease, and provided, further, that at least ten days
prior to the effecting of any such assignment or subletting, Tenant must give
prior written notice to Landlord of its intention to take any such action.
/section/15. SUBORDINATION. This Lease is subject and subordinate to all
mortgages now or hereafter affecting or covering the Property or any part
thereof and to all renewals, modifications, replacements or extensions thereof.
Tenant agrees to attorn to and recognize the mortgagee or the purchaser at
foreclosure sale as Tenant's landlord for the balance of the Lease Term. Tenant
hereby agrees, however, that such mortgagee or purchaser at foreclosure sale
will not be (a) liable for any act or omission of Landlord, (b) subject to any
monetary offsets which Tenant might have against Landlord, (c) bound by any rent
or additional rent which Tenant may have paid to Landlord for more than the
current month, (d) bound by any amendment or modification of this Lease made
without its consent, provided Tenant is notified in advance of the existence of
the mortgagee and the requirement that the mortgagee must consent to any such
amendment or modification, or (e) liable for the return of any security deposit,
except to the extent that the security deposit has been transferred to any
mortgagee or subsequent
-27-
<PAGE>
purchaser. Landlord hereby agrees to obtain a nondisturbance agreement from any
mortgagee of all or any part of the Property, which nondisturbance agreement
will confirm Tenant's right to continue to occupy the Property pursuant to the
terms of this Lease at all times during the Lease Term, so long as Tenant is not
in default thereunder.
/section/16. LIMITATION OF LANDLORD'S PERSONAL LIABILITY. At all times from and
after the sale or transfer of the Property by Pizzuti Equities Inc. to any
unaffiliated third party, Tenant will look solely to Landlord's interest in the
Property for the remediation of any alleged breach of this Lease by or the
recovery of any judgment against Landlord; it being the express intent of the
parties hereto that, following such sale or other transfer of Pizzuti Equities
Inc.'s interest in the Property, neither Landlord, nor any of its shareholders,
employees or agents will ever be personally liable for any such remediation or
judgment. Notwithstanding anything to the contrary contained herein, if Tenant
obtains a final judgment against Landlord with respect to Landlord's breach of
any of its obligations under this Lease, but Tenant is unable to collect because
Landlord has no equity in the Property or is otherwise judgment-proof, then
Tenant, at its option, will be able to offset the amount of such judgment
against its obligation to pay Base Rent and any other sums under this Lease.
/section/17. INDEMNIFICATION AND INSURANCE. Landlord will not be liable for and
Tenant will indemnify and hold Landlord harmless from any liability or expense
associated with any damage or injury to any person or property (including,
without limitation, any person or property of Tenant or anyone claiming under
Tenant) which arises directly or indirectly in connection with the Property or
Tenant's use or occupancy thereof; provided, however, that Tenant will not
-28-
<PAGE>
be obligated to indemnify Landlord as to any liability or expense occasioned by
the fault or negligence of Landlord. All property stored or placed by Tenant in
or about the Property will be so stored or placed at the sole risk of Tenant.
Tenant will not be liable for and Landlord will indemnify and hold Tenant
harmless from any liability or expense associated with any damage or injury to
any person or property (including, without limitation, any person or property of
Landlord or anyone claiming under Landlord) which arises directly or indirectly
from any act or omission of Landlord, its agents, officers or employees, guests,
invitees, contractors and subcontractors.
Tenant will at its sole expense maintain in full force and effect at all times
during the Lease Term: (a) comprehensive public liability insurance for personal
injury and property damage with liability limits of not less than $5,000,000 for
injury to one person, $10,000,000 for injury from one occurrence and $2,000,000
for property damage; (b) fire and extended coverage insurance the Improvements
in an amount equal to the full replacement value thereof; and (c) rent loss
insurance in an amount equal to 12 months Base Rent under this Lease. Each
insurance policy required to be maintained by Tenant hereunder will name
Landlord and such other persons as Landlord may designate as additional insureds
and will specifically provide that such insurance policy cannot be terminated
without giving at least ten days prior written notice to Landlord.
Landlord will at its sole expense maintain in full force and effect at all times
during the Lease Term: (a) comprehensive public liability insurance for personal
injury and property damage with liability limits of not less than $5,000,000 for
injury to one person, $10,000,000 for injury from
-29-
<PAGE>
one occurrence and $2,000,000 for property damage; and (b) worker's compensation
insurance at or above statutory limits. At Tenant's request, Landlord will
furnish Tenant a certificate or certificates of insurance certifying that the
insurance coverage's required above are in full force and effect. Any insurance
required by the terms of this Lease to be carried by Landlord may be provided
under a blanket policy (or policies) covering other properties of Landlord or
its related or affiliated entities. If such insurance is maintained under a
blanket policy, Landlord will procure and deliver to Tenant, at Tenant's
request, a statement from the insurer or general agent of the insurer setting
forth the coverage maintained and the amounts thereof allocated to the risks
intended to be insured hereunder.
/section/18. HAZARDOUS SUBSTANCES. Tenant will not use, store, generate,
manufacture, transport, dispose of or release any Hazardous Substance (as that
term is hereinafter defined) in or about the Property, except for immaterial
amounts that are exempt from or do not give rise to any violation of applicable
law. Tenant agrees to indemnify and hold Landlord harmless from any liability or
expense incurred by or claimed against Landlord as a result of Tenant's breach
of the covenant contained in this paragraph (including, without limitation, the
fees of Landlord's attorneys and consultants and the cost of any required
remediation or clean-up). The foregoing covenant will survive the termination of
this Lease.
Landlord hereby represents and warrants that, as of the Commencement Date, there
will be no Hazardous Substance in or about the Property, except for immaterial
amounts that are exempt from or do not give rise to any violation of applicable
law and that, it will not, at any time during the Lease Term, use, store,
generate, manufacture, transport, dispose of or release any
-30-
<PAGE>
Hazardous Substance in or about the Property, except for immaterial amounts the
are exempt from or do not give rise to any violation of applicable law. Landlord
agrees to indemnify and hold Tenant harmless from any liability or expense
incurred by or claimed against Tenant as a result of Landlord's breach of the
representation and warranty contained in this paragraph (including, without
limitation, the fees of Tenant's attorneys and consultants and the cost of any
required remediation or clean-up).
For the purposes of this /section/18, the term "HAZARDOUS SUBSTANCE" means any
hazardous substance, toxic substance (as those terms are defined in the
Comprehensive Environmental Response, Compensation and Liability Act), hazardous
waste (as that term is defined in the Resource Conservation Recovery Act),
polychlorinated biphenyls, asbestos, radioactive material or any other
pollutant, contaminant or hazardous, dangerous or toxic chemical, material or
substance which is regulated by any federal, state or local law, regulation,
ordinance or requirement.
Landlord represents and warrants that: (a) the HVAC system and other of Building
systems servicing Building will, as of the Commencement Date, comply with any
and all local, state and federal indoor air quality laws and will meet the
minimum standards for operation contained within ASHRAE standard 62-1989, as
amended; and (ii) Landlord will not take any actions which would have the affect
of adversely affecting the safe and healthy indoor air quality within the
Building.
-31-
<PAGE>
/section/19. SURRENDER OF PREMISES. Upon the termination of Tenant's right of
possession under this Lease, Tenant will immediately surrender possession of the
Property to Landlord in good repair and "broom clean" condition, reasonable wear
and tear excepted. Tenant will at the same time remove all of its movable trade
fixtures from the Property, Tenant will promptly repair any damage caused to the
Property by the removal of any of such movable trade fixtures.
/section/20. CASUALTY. If the Building is damaged by fire or any other casualty,
Tenant will immediately give written notice thereof to Landlord. Within ten days
after its receipt of such written notice from Tenant, Landlord will give written
notice to Tenant whether the damaged area can reasonably be repaired within 210
days after the date on which all requisite permits and licenses for the repair
thereof are obtained from the appropriate governmental authorities. If Landlord
notifies Tenant that it does not believe that the damaged area can reasonably be
repaired within such 210-day period, then both Landlord and Tenant will have the
option of terminating this Lease by giving written notice thereof to the other
at any time within thirty days after the date of Tenant's receipt of the
aforementioned notice from Landlord. If Landlord determines that the damaged
area can reasonably be repaired within such 210-day period or if neither party
elects to terminate this Lease despite the fact that Landlord has determined
that the damaged area cannot be reasonably repaired within such 210-day period,
then Landlord will proceed with due diligence to repair the damaged area as
expeditiously as reasonably practicable at its sole expense; provided, however,
that Landlord will in no event be required to repair any improvements previously
made to the Leased Premises by or at the request of Tenant pursuant to
/section/12 hereof. If the Building is rendered untenantable in whole or in part
as
-32-
<PAGE>
a result of a fire or other casualty, then all Base Rent and other payments
accruing after the occurrence of any such fire or other casualty and prior to
the completion of the repair of the Property will be equitably and
proportionately abated to reflect the untenantable portion of the Property.
Landlord will not be liable to Tenant for any inconvenience or interruption to
Tenant's business occasioned by such fire or other casualty or the concomitant
repair of the damaged area. In addition to any termination right granted to
Tenant under the above provisions, Tenant will also have the right to terminate
this Lease if the Building is damaged by fire or any other casualty within the
last twelve months of the Lease Term, such that at least 51% of the rentable
square footage contained within the Building is rendered untenantable. Upon the
occurrence of any event described in the immediately preceding sentence, Tenant
may exercise its termination right by delivering written notice of termination
to Landlord within thirty days after the occurrence of any such fire or other
casualty.
/section/21. CONDEMNATION. If all or any substantial part of the Property
(including, without limitation, any parking area serving the Building) is taken
by or under threat of condemnation so as to render the Property wholly
untenantable, then this Lease will automatically terminate as of the date of the
vesting of title to such part of the Property in the condemning authority. If a
taking does not render the Property wholly untenantable, then this Lease will
not terminate but will continue in full force and effect in accordance with its
terms, except that the Base Rent will be proportionately reduced to reflect the
number of rentable square feet of space, if any, in the Building which was so
taken. Landlord will not be liable to Tenant for any inconvenience or
interruption to Tenant's business occasioned by any such taking. Landlord will
promptly notify Tenant of the institution of any condemnation proceeding
effecting the Property. If any taking
-33-
<PAGE>
does not result in the termination of this Lease, then Landlord will, at its
sole expense, make all repairs to the Property which are necessary to constitute
the Property as a complete architectural unit. Landlord will be entitled to
receive the entire award made by the condemning authority for any such taking,
provided, however, that Tenant will have the right to receive any separate award
made by the condemning authority with respect to the value of any improvements
made to the Building at Tenant's sole cost and expense. Notwithstanding anything
to the contrary contained herein, if any part of the Property is taken by or
under threat of condemnation at any time during the last six months of the Lease
Term, such that at least 51% of the rentable square footage of the Building is
rendered untenantable, then Tenant will have the right to terminate this Lease
by delivering written notice of termination to Landlord within thirty days after
the vesting of title to such part of the Property in the condemning authority.
/section/22. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waives its
right to receive damages against the other party with respect to any loss or
claim occasioned by the occurrence of any fire or other casualty to the
Property, which is covered under a valid and collectible fire and extended
coverage insurance policy or which would have been covered under any such
insurance policy which is otherwise required to be maintained by either party
hereunder. Any insurance policy procured by either Tenant or Landlord hereunder
will contain an express waiver of any right of subrogation by the insurance
company against Landlord or Tenant, as the case may be.
-34-
<PAGE>
/section/23. HOLDING OVER. Except as otherwise authorized under this Lease,
Tenant will not hold over in its occupancy of the Property after the expiration
of the Lease Term, without the prior written consent of Landlord. If Tenant
holds over without the prior written consent of Landlord, then Tenant will pay
150% of the Base Rent then in effect for each month during the entire holdover
term. Any holding over with the prior written consent of Landlord will
constitute this Lease as a lease from month-to-month.
/section/24. DEFAULT. If Tenant fails to pay any installment of Base Rent or any
other sum payable by it hereunder within 15 days after the date when due, or if
Tenant defaults in the performance of any of its other obligations under this
Lease and such default continues for 30 days after written notice thereof is
given to Tenant, then, in addition to any other legal rights and remedies
available to Landlord at law or in equity, Landlord may: (a) terminate this
Lease and declare immediately due and payable the present value of all Base Rent
and other sums payable over the remainder of the Lease Term, discounted at a
rate equal to the Delinquent Rate; or (b) reenter and attempt to relet the
Leased Premises without terminating this Lease, in which event Tenant will
remain obligated to pay to Landlord any deficiency between all sums payable by
Tenant pursuant to this Lease and any sums collected by Landlord from any
reletting of the Property (net of any sums paid by Landlord in connection with
such reletting, including, without limitation, leasing commissions, attorneys'
fees and the cost of any improvements made to the Property in order to
reasonably accommodate the needs of any tenant upon such reletting) provided,
however, that any such costs incurred by Landlord will be normal, reasonable and
customary for a comparable Building in comparable locations in the greater
Orlando metropolitan area. Landlord agrees to use its best efforts to relet the
Building.
-35-
<PAGE>
Landlord will also have the right to take any action which it deems necessary or
appropriate to remedy Tenant's nonperformance, without any such action by
Landlord being construed as a curing or waiver by Landlord of Tenant's
nonperformance. Any reasonable expenses incurred by Landlord in taking any such
action will be immediately due and payable by Tenant to Landlord, together with
interest thereon until paid at the Delinquent Rate.
If Landlord defaults in the performance of any of its obligations under this
Lease and such default continues for 30 days after its receipt of written notice
from Tenant of the alleged existence of such default (unless such default is not
capable of being cured within the aforementioned 30-day period, in which event,
Landlord will have such longer grace period as is reasonably required to cure
such default, provided that Landlord commences the cure thereof within the
aforementioned 30-day period and at all times thereafter diligently pursues such
cure to completion), then, in addition to any other legal rights and remedies
available to Tenant at all or in equity, Tenant will have the right to take all
reasonable actions required to cure such default and, within 30 days after
Landlord's receipt of written demand from Tenant, Landlord will reimburse Tenant
for all reasonable out-of-pocket expenses incurred by Tenant in curing such
default (including ,without limitation, reasonable attorney's fees). If Landlord
fails to make payment of any such sum within the aforementioned 30-day period,
then the amount owed to Tenant hereunder will thereafter bear interest at the
Delinquent Rate until paid.
-36-
<PAGE>
/section/25. PREVAILING PARTY'S FEES. If any legal action is commenced by either
Landlord or Tenant to enforce its rights hereunder, then all attorneys' fees and
other expenses incurred by the prevailing party in such action will be promptly
paid by the non-prevailing party.
/section/26. SUCCESSORS AND ASSIGNS. This Lease will be binding upon and inure
to the benefit of the successors and assigns of Landlord and the successors and
permitted assigns of Tenant.
/section/27. NO WAIVER. No waiver of any covenant or condition of this Lease by
either party will be deemed to constitute a future waiver of the same or any
other covenant or condition of this Lease. In order to be effective, any such
waiver must be in writing and must be delivered to the other party to this
Lease.
/section/28. BROKERAGE COMMISSIONS. Landlord will pay a commission to Properties
Atlantic, Inc., Tenant's brokerage representative, pursuant to a separate
written agreement entered into by Landlord and Properties Atlantic, Inc. Except
for their respective dealing with Properties Atlantic, Inc., each of Landlord
and Tenant hereby represents and warrants that it has not dealt or consulted
with any real estate broker or agent in connection with this Lease. Each of
Landlord and Tenant agrees to indemnify and hold the other harmless from and
against any liability or expense occasioned by its breach of the foregoing
representation and warranty.
/section/29. SPACE PLANNING EXPENSES. It is Tenant's intention to retain its own
interior design firm for the preparation of space planning and interior design
drawings with respect to the Building.
-37-
<PAGE>
Landlord agrees to pay Tenant a non-refundable amount equal to $1.00 per
rentable square foot contained within the Building to defray Tenant's costs of
the preparation of such space plan and interior design drawings. Such amount
will be payable 50% upon the execution of this Lease by both Landlord and Tenant
and 50% within three days after the later of Commencement Date or Landlord's
receipt of Tenant's first month's Base Rent hereunder.
/section/30. MOVING EXPENSES. Within three business days after the latter of the
Commencement Date or Landlord's receipt of Tenant's first month's Base Rent
hereunder, Landlord will pay to Tenant an amount equal to $1.00 per rentable
square foot contained within the Building to defray Tenant's costs of relocating
to the Building.
/section/31. PARKING. Landlord will provide Tenant with four parking spaces for
every 1,000 rentable square feet of space contained within the Building. The
parking area located on the Land will be properly illuminated in accordance with
the Final Base Building Plans. In the event of any change in the applicable
zoning requirements for Seminole County, Florida, which require an increase in
the number of parking spaces required for use in connection with the Building,
Landlord will take all requisite actions to comply with such changed County
zoning requirements. To the extent Tenant determines that it needs additional
parking spaces over and above those provided herein and under the Final Base
Building Plans, and to the extent there is additional room on the Land to
accommodate any such needed additional parking spaces, then Landlord will
construct such additional parking area, provided that it first obtains the
written agreement of Tenant to an increase in Base Rent which is acceptable to
Landlord and Tenant.
-38-
<PAGE>
/section/32. SECURITY DEPOSIT. Concurrently with its execution of this Lease,
Tenant has deposited with Landlord a security deposit in an amount equal to one
month's Base Rent hereunder. The security deposit will be retained by Landlord
as partial security for Tenant's performance of all of its obligations under
this Lease. If Tenant defaults on the performance of any of its obligations
under this Lease (after the expiration of any applicable cure period specified
in this Lease), then Landlord will have the right to use all or a portion of the
Security Deposit to remedy such default. Any portion of the Security Deposit
remaining unutilized following the expiration of the Lease Term and Tenant's
full performance of all of its obligations under this Lease will be returned to
Tenant, without interest.
/section/33. REASONABLENESS OF CONSENT. Neither Landlord, nor Tenant will
unreasonably withhold or delay any consent or approval which is required to be
given by it pursuant to the terms of this Lease.
/section/34. AMENDMENT. This Lease may not be amended, except by a written
instrument signed by both Landlord and Tenant.
/section/35. GOVERNING LAW. This Lease will be governed by and construed in
accordance with the laws of the State of Florida.
-39-
<PAGE>
/section/36. NOTICES. All notices required or permitted to be given under this
Lease must be in writing and must be delivered to Landlord and Tenant at their
addresses set forth below (or such other address as may hereafter be designated
by such party):
If to Landlord: Pizzuti Equities Inc.
Suite 1900
250 East Broad Street
Columbus, Ohio 43215
Attention: Richard C. Daley
If to Tenant: HTE, Inc.
Barnett Bank Center
390 North Orange Avenue
Orlando, Florida 32801
Any such notice must be personally delivered or sent by registered or certified
mail, overnight courier or facsimile transmission. Any such notice will be
deemed effective when received (if sent by hand delivery, overnight courier or
facsimile transmission) or on the date which is three days after such notice is
deposited in the United States mail (if sent by registered or certified mail).
/section/37. EXHIBITS. All exhibits referred to in this Lease are incorporated
herein by such reference.
/section/38. ADDRESS CHANGES. Landlord hereby agrees that it will not change the
address of the Building, without first obtaining Tenant's prior written consent
to any such address change.
-40-
<PAGE>
/section/39. PARTIES' AUTHORITY. Each of the parties hereby represents and
warrants that the person executing this Lease on its behalf is the only person
required to execute this Lease in order to bind such parties under the terms of
such party's governance documents.
/section/39. DEFINITIONS. For the purposes of this Lease, the following terms
will have the meanings attributed to such terms in the noted sections of this
Agreement:
1. "BASE AMOUNT" is defined in /section/3.
2. "BASE BUILDING IMPROVEMENTS" is defined in /section/2.
3. "BASE RENT" is defined in /section/6.
4. "BUILDING" is defined in the "Background" section.
5. "COMMENCEMENT DATE" is defined in /section/5.
6. "DELAY EVENT" is defined in/section/4.
7. "DELINQUENT RATE" is defined in/section/6.
8. "DIMINISHED COSTS" is defined in/section/3.
9. "EARLY OCCUPANCY PERIOD" is defined in/section/5.
10. "EXCESS COST NOTICE" is defined in/section/3.
11. "EXCESS COSTS" is defined in/section/3.
12. "FINAL BASE BUILDING PLANS" is defined in/section/2.
13. "FINAL PLANS" is defined in/section/4.
14. "FINAL TENANT IMPROVEMENT PLANS" is defined in /section/3.
-41-
<PAGE>
15. "HAZARDOUS SUBSTANCE" is defined in /section/18.
16. "IMPROVEMENTS" is defined in /section/4.
17. "INITIAL LEASE TERM" is defined in /section/5.
18. "LAND" is defined in the "Background" section.
19. "LANDLORD" is defined in the preamble.
20. "LANDLORD'S PASS-THROUGH EXPENSES" is defined in /section/7.
21. "LEASE" is defined in the preamble.
22. "LEASE TERM" is defined in /section/5.
23. "MINOR ALTERATIONS" is defined in /section/12.
24. "OPERATING EXPENSE" is defined in /section/7.
25. "PRELIMINARY BASE BUILDING SPECIFICATIONS" is defined in /section/2.
26. "PROPERTY" is defined in /section/1.
27. "PUNCHLIST ITEMS" is defined in /section/4.
28. "SUBSTANTIALLY COMPLETED" and "SUBSTANTIAL COMPLETION" is defined in
/section/4.
29. "TENANT" is defined in the preamble.
30. "TENANT IMPROVEMENTS" is defined in /section/3.
31. "TI ALLOWANCE" is defined in /section/3.
32. "YEAR" is defined in /section/6.
[SIGNATURES AND ACKNOWLEDGEMENTS APPEAR ON NEXT PAGE]
-42-
<PAGE>
SIGNATURES AND ACKNOWLEDGEMENTS
Landlord and Tenant have executed this Lease as of the date specified in
the first page of this Lease.
Signed and acknowledged in
the presence of: LANDLORD:
PIZZUTI EQUITIES INC.
- ---------------------------
BY
- --------------------------- ---------------------------
(Name) (Title)
- ---
TENANT:
HTE, INC.
- --------------------------
BY
- -------------------------- ---------------------------
(Name) (Title)
- ---
STATE OF _________________
COUNTY OF ________________: SS
Before me, a notary public in and for said state and county, personally appeared
_________________, the ___________________ of Pizzuti Equities Inc., the
Landlord in the foregoing Lease, who acknowledged the signing of the Lease to be
his or her free act and deed on behalf of the Landlord.
Date: ____________________ _______________________________
Notary Public
-43-
<PAGE>
STATE OF ___________________
COUNTY OF __________________: SS
Before me, a notary public in and for said state and county, personally appeared
__________________, the ______________________ of HTE, Inc., the Tenant in the
foregoing Lease, who acknowledge the signing of the Lease to be his or her free
act and deed on behalf of the Tenant.
Date: _______________________ _______________________________
Notary Public
-44-
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LAND
Initialed and Approved by Landlord: Initialed and Approved by Tenant:
- ----------------------------------
--------------------------------
-45-
<PAGE>
EXHIBIT B
PRELIMINARY BASE BUILDING SPECIFICATIONS
Initialed and Approved by Landlord: Initialed and Approved by Tenant:
- -----------------------------------
------------------------------------
-46-
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 April 7, 1997.
/s/ ARTHUR ANDERSEN LLP
- -----------------------
Arthur Andersen LLP
Orlando, florida
April 7, 1997
